-----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, ASYunoENhGXK4ciaH9wyal7xXSGg7D6O5qcbeLg0i6y3rYh03TUPTAuaYRIWZcpB mWiR8QCN4AwjvO3ImYLotA== 0000891618-97-000487.txt : 19970222 0000891618-97-000487.hdr.sgml : 19970222 ACCESSION NUMBER: 0000891618-97-000487 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970213 SROS: NASD 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23354 FILM NUMBER: 97528682 BUSINESS ADDRESS: STREET 1: BLK 514 CHAI CHEE LANE #04-13 STREET 2: BODEK INDUSTRIAL ESTATE REPUBLIC OF SING CITY: SINGAPORE 1646 STATE: U0 BUSINESS PHONE: 0654495255 FORMER COMPANY: FORMER CONFORMED NAME: FLEX HOLDINGS PTE LTD DATE OF NAME CHANGE: 19940201 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 12/31/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ------------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 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 0-23354 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.) Blk 514, Chai Chee Lane #04-13 Singapore 469029 (Address of principal executive offices) (Zip Code) (65) 449-5255 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at Ordinary Shares December 31, 1996 ----------------- ------------------- S$0.01 par value 13,581,791
2 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item I. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1996 and March 31, 1996........................... 3 Condensed Consolidated Statements of Income-Three months ended December 31, 1996 and 1995........... 4 Condensed Consolidated Statements of Income-Nine months ended December 31, 1996 and 1995........... 5 Condensed Consolidated Statements of Cash Flow-Nine months ended December 31, 1996 and 1995........... 6 Notes to Condensed Consolidated Financial Statements. 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 9-13 PART II. OTHER INFORMATION Items 1 through 6................................................. 14 Signatures........................................................ 15
2 3 PART I - FINANCIAL INFORMATION FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, 1996 1996* ------------------------------ (UNAUDITED) ASSETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Current assets Cash $ 13,578 $ 6,546 Accounts receivable, net 67,194 78,114 Inventories - Note B 45,262 52,637 Other current assets 4,343 4,087 ------------ ------------ Total current assets 130,377 141,384 ------------ ------------ Property and equipment At cost 110,716 98,998 Accumulated depreciation (39,715) (37,896) ------------ ------------ Net property and equipment 71,001 61,102 ------------ ------------ Other non-current assets 16,556 12,102 ------------ ------------ TOTAL ASSETS $ 217,934 $ 214,588 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank borrowings $ 5,710 $ 14,379 Current portion of capital lease and long-term debt 21,908 20,934 Accounts payable 59,500 64,625 Other current liabilities 17,054 13,770 ------------ ------------ Total current liabilities 104,172 113,708 ------------ ------------ Long term debt, less current portion 18,985 17,554 Obligations under capital leases and deferred 10,290 11,376 income taxes Notes payable to shareholders 400 686 Minority Interest 485 485 Shareholders' equity Ordinary shares, S$0.01 par value: Authorized - 100,000,000 shares at March 31, 1996 and December 31, 1996 Issued and outstanding - 13,213,289 shares at March 31, 1996 and 13,581,791 shares at December 31, 1996 87 85 Additional paid-in capital 94,652 93,634 Accumulated deficit (11,137) (22,940) ------------ ------------ Total shareholders' equity 83,602 70,779 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 217,934 $ 214,588 ============ ============
* The balance sheet at March 31, 1996 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements 3 4 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales $ 121,525 $ 131,816 Costs and expenses: Cost of sales 111,477 119,996 Selling, general and administrative expenses 6,922 4,989 Goodwill and intangibles amortisation 288 264 Provision for plant closings 2,321 0 Interest expense and other, net 78 354 ------------ ------------ 121,086 125,603 Income before income taxes 439 6,213 Provision for income taxes 371 1,211 ------------ ------------ Net income after income taxes 68 5,002 ============ ============ Earnings per share: Net income per share $ 0.01 $ 0.37 ============ ============ Weighted average ordinary shares and equivalents 14,470 13,702 ============ ============
See notes to condensed consolidated financial statements. 4 5 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales $ 362,264 $ 322,645 Costs and expenses: Cost of sales 325,827 293,461 Selling, general and administrative 19,101 13,255 expenses Goodwill & intangibles amortisation 863 783 Provision for plant closings 2,321 0 Interest expense and other, net 1,450 1,121 ------------ ------------ 349,562 308,620 Income before income taxes 12,702 14,025 Provision for income taxes 2,166 2,399 ------------ ------------ Net income after income taxes 10,536 11,626 ============ ============ Earnings per share: Net income per share $ 0.73 $ 0.89 ============ ============ Weighted average ordinary shares and equivalents 14,377 13,130 ============ ============
See notes to condensed consolidated financial statements. 5 6 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS) Net cash provided by (used for) operating $ 40,097 $ (10,894) activities Investing activities: Purchases of property and equipment (17,857) (18,542) Proceeds from sale of property and 732 103 equipment Payment for business acquired, net of 0 (3,116) cash acquired Investment (3,000) 0 ------------ ------------ Net cash used for investing activities (20,125) (21,555) ============ ============ Financing activities: Borrowing from (repayment) to banks (8,645) 8,225 Source (repayment) of capital lease (4,851) 3,023 obligations Source (repayment) of long-term debt 574 1,947 Repayment of loan from related party 1,381 0 Loan made to related party (1,938) Net proceeds from issuance of share 825 22,929 capital Repayment of notes payable (286) (23) ------------ ------------ Net cash provided by (used for) financing activities (12,940) 36,101 ============ ============ Net increase in cash 7,032 3,652 Cash, beginning of period 6,546 4,751 ------------ ------------ Cash, end of period $ 13,578 $ 8,403 ============ ============
See notes to condensed consolidated financial statements. 6 7 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) DECEMBER 31, 1996 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended December 31, 1996 are not necessarily indicative of the results that may be expected for the year ended March 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in Flextronics International Ltd.'s annual report on Form 10-K for the year ended March 31, 1996. NOTE B - INVENTORIES The components of inventory consist of the following:
DECEMBER 31 MARCH 31 1996 1996 ------------ ------------ (In thousands) Raw materials $ 40,610 $ 42,202 Work-in-process 9,573 14,049 Finished goods 1,028 962 ------------ ------------ $ 51,211 $ 57,213 Less: Allowance for obsolescence (5,949) (4,576) ------------ ------------ $ 45,262 $ 52,637 ============ ============
NOTE C: ACQUISITION On November 25, 1996, the Company acquired Fine Line Printed Circuit Design, Inc. ("Fine Line"), a circuit board layout and prototype operation located in San Jose, California. The acquisition was accounted for as a pooling of interests and the Company has issued 223,321 Ordinary Shares of S$0.01 par value per share in exchange for all of the outstanding capital stock of Fine Line. Prior period financial statements were not restated because the financial results of Fine Line did not have a material impact on the consolidated result. On December 20, 1996, the Company acquired 40% of FICO Investment Holding Limited ("FICO") for $5.2 million of which $3 million was paid in December 1996 and the balance payment is due on April 1997. The Company has an option to purchase the remainder 60% of FICO in 1998 and the consideration for the remaining 60% is dependent on the financial performance of FICO for period ending December 31, 1997. FICO produces injection molded plastics for electronics companies with manufacturing facilities in Shenzhen, China. In February 1997, the Company expects to enter into a definitive agreement to acquire from Ericsson Business Networks AB ("Ericsson") 330,000 square feet of manufacturing facilities in Karlskrona, Sweden and related inventory, equipment and assets (the "Karlskrona Facilities") for cash. In connection with this transaction, 7 8 the Company anticipates that it will record a charge to earnings of approximately $3.0 million in the fourth fiscal quarter of fiscal 1997, relating to the anticipated costs of separating the Karlskrona Facilities from Ericsson's management information systems and implementing a new management information system, as well as transaction costs for the acquisition. 8 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains projections and other forward-looking statements regarding future events and the future financial performance of the Company that involve a number of risks and uncertainties. While this outlook represents the Company's current judgment on the future direction of the business, such risks and uncertainties could cause actual events or results to differ materially from any future performance suggested herein. Certain of the factors that could cause actual events or results to differ are highlighted herein. We also refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's Annual Report on Form 10-K filed in June 1996 and fiscal year 1997 Form 10-Qs. This document, as well as the Company's Form 10-K, Form 10-Qs and Form 8-Ks, contain and identify important factors that could cause the Company's actual results to differ materially from those contained in this report on Form 10-Q. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS Net Sales Net sales for the three months ended December 31, 1996 decreased 7.8% to $121.5 million from $131.8 million for the three months ended December 31, 1995 primarily due to reduced sales to certain customers, including Visioneer and Apple Computer. Net sales for the nine months ended December 31, 1996 increased 12.3% to $362.3 million from $322.6 million for the nine months ended December 31, 1995. The increase was primarily due to new customers in the computer and communications industries, such as Microsoft, U.S. Robotics and Advanced Fibre Communications and the inclusion of sales of Astron after it was acquired in February 1996. This increase was partially offset by reduced sales to certain existing customers, including Apple Computer, Visioneer, and Houston Tracker Systems. The Company believes that the reduction in sales to these customers in the three and nine-month period was primarily due to reductions in these customers' sales to end-users. Gross Profit Gross profit varies from period and is affected by, among other things, product mix, component costs, product life cycles, unit volumes, startup, expansion and consolidated of manufacturing facilities, pricing, competition and new product introductions. Gross profit margin decreased to 8.3% for the three months ended December 31, 1996 as compared to 9.0% for the three months ended December 31, 1995. The decrease in the gross profit margin for the three months ended December 31, 1996 was primarily due to a $0.9 million inventory write down relating to the closure of the Texas and nChip facilities. See "--Provision for Plant Closings." Gross profit margin increased to 10.0% for the nine months ended December 31, 1996 as compared to 9.0% for the nine months ended December 31, 1995. The increase was mainly due to higher sales in the first two quarters of the year resulting in better labor and overhead absorption, and the inclusion of Astron's printed circuit board business which has historically had a relatively higher gross profit margin than the Company. This benefit was partially offset by underutilization of the nCHIP semiconductor fabrication facility, and of the Company's Texas facility, which is being closed. See "-- Provision for Plant Closings." Gross margins may be adversely effected in the short term as the Company commences production in new facilities, including the Karlskrona Facilities, and may also be adversely affected by the relatively high cost of manufacturing in Sweden. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended December 31, 1996 increased to $6.9 million from $5.0 million for the three months ended December 31, 1995 and increased as a percentage of net sales to 5.7% for the three months ended December 31, 1996 from 3.8% for the three months ended December 31, 1995. Selling, general and administrative expenses for the nine months ended December 31, 1996 increased to $19.1 million from $13.3 million in the nine months ended December 31, 1995 and increased as a percentage of net sales from 4.1% to 5.3%. The increases, both in dollars and as a percentage of sales, were principally due to the inclusion of Astron's selling, general and administrative expenses after its acquisition in February 1996; increases in staffing 9 10 levels, corporate salaries and bonuses; increased sales and marketing expenses; and travel and legal expenses related to recent acquisitions. Goodwill and Intangible Assets Amortization Goodwill and intangible assets are amortized on a straight line basis. Goodwill and intangible amortization for the nine months ended December 31, 1996 increased to $863,000 from $783,000 for the nine months ended December 31, 1995, primarily due to the Company's acquisitions of A&A and Astron. Provision for Plant Closings As the Company has implemented its facilities consolidation strategy, it has incurred expenses for plant closings in fiscal 1996 and the nine months ended December 31, 1996. In the three months ended December 31, 1996, the Company incurred plant closing expense of $2.3 million in connection with the closing of its Texas facility and the write-off of obsolete equipment at the nCHIP semiconductor fabrication facility. The Texas facility had been primarily dedicated to production for Global Village Communications and Apple Computer, to whom the Company does not anticipate making substantial sales in future periods. In addition, during this period, the Company began negotiations to sell the nCHIP semiconductor fabrication facility to a third party. In the fourth quarter of fiscal 1997, the Company expects to incur expenses of approximately $2.0 million in connection with its planned shift of manufacturing operations from Singapore to lower cost manufacturing locations. In the fourth quarter of fiscal 1996, the Company recorded charges totaling $2.5 million for costs associated with the closing of one of the Company's Malaysian plants and its Shekou, China operations. Production from the Shekou facility was moved to the Company's plant in Xixiang, China. Interest Expense and Other, Net Interest expense and other, net decreased to $78,000 for the three months ended December 31, 1996 from $354,000 for the three months ended December 31, 1995, due to successful insurance claim, offset in part by an increase in indebtedness to finance the Astron acquisition. Interest expense and other, net increased to $1.5 million for the nine months ended December 31, 1996 from $1.1 million for the nine months ended December 31, 1995, mainly due to indebtedness incurred in order to finance the Astron acquisition, offset in part by a successful insurance claim. The Company expects its interest expense to increase substantially as a result of the indebtedness which it expects to incur to finance a portion of the purchase price of the Karlskrona Facilities. Provision for Income Taxes The Company is structured as a holding company, conducting its operations through manufacturing and marketing subsidiaries in Singapore, Malaysia, Hong Kong. Mauritius, China, the United Kingdom, the United States and the Netherlands. Each of these subsidiaries is subject to taxation in the country in which it has been formed. The Company's Asian manufacturing subsidiaries have at various times been granted certain tax relief in each of these countries, resulting in lower taxes than would otherwise be the case under ordinary tax rates. The Company's consolidated effective tax rate for any given period is calculated by dividing the aggregate taxes incurred by each of the operating subsidiaries and the holding company by the Company's consolidated pre-tax income. Losses incurred by any subsidiary or by the holding company are not deductible by the entities incorporated in other countries in the calculation of their respective local taxes. For example, the charge for the closing of one plant in Malaysia in fiscal 1996 was incurred by a Malaysian subsidiary that did not have income against which this 10 11 charge could be offset. The ordinary corporate tax rates for calendar 1996 were 26%, 16.5% and 15% in Singapore, Hong Kong and China, respectively, and 30% on manufacturing operations in Malaysia. In addition, the tax rate is de minimis in Labuan, Malaysia and Mauritius where the Company's offshore marketing and distribution subsidiaries are located. The Company's consolidated effective tax rate was 84.5 % for the three months ended December 31, 1996, and 17.1% for the nine months ended December 31, 1996. The increase in the effective tax rate for the three month period was due to the plant closing charges of $2.3 million, which was incurred by a subsidiary that did not have income against which this charge could be offset. If the provision for plant closings is excluded, the Company's consolidated effective tax rate for the three month period would have been 13.4%. The Company has structured its operations in Asia in a manner designed to maximize income in countries where tax incentives have been extended to encourage foreign investment or where income tax rates are low. The Company's Singapore subsidiary was granted an investment allowance incentive in respect of approved fixed capital expenditures subject to certain conditions. These allowances have been utilized to reduce its taxable income since fiscal 1991, and were fully utilized at the end of fiscal 1996. If the Singapore subsidiary sells, leases or disposes of assets in respect of which investment allowances have been granted before July 31, 1997, the amount of income previously exempted from Singapore tax will then become taxable at the standard corporate tax rate of 26.0%. The Company's investments in its plants in Xixiang and Doumen, China fall under the "Foreign Investment Scheme" that entitles the Company to apply for a five year tax incentive. The Company obtained the incentive for the Doumen plant in December 1995 and the Xixiang plant in October 1996. With the approval, the Company's tax rates on income from these facilities during the incentive period will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in the first profitable year. In fiscal 1993, the Company transferred its offshore marketing and distribution functions to a newly formed marketing subsidiary located in Labuan, Malaysia, where the tax rate is de minimus. In February 1996, the Company transferred Astron's sales and marketing business to a newly formed subsidiary in Mauritius, where the tax rate is 0%. The Company's Malaysian manufacturing subsidiary has obtained a five-year pioneer certificate from the relevant authority that provides a tax exemption on manufacturing income from certain products in Johore, Malaysia. To date, this incentive has had a limited impact on the Company due to the relatively short history of its Malaysian operations and its tax allowances and losses carry forward. The Company's facility in Shekou, China, which was closed in fiscal 1996, was located in a "Special Economic Zone" and was an approved "Product Export Enterprise" that qualified for a special corporate income tax rate of 10.0%. If tax incentives are not renewed upon expiration, if the tax rates applicable to the Company are rescinded or changed, or if tax authorities challenge successfully the manner in which profits are recognized among the Company's subsidiaries, the Company's worldwide effective tax rate would increase and its results of operations and cash flow would be adversely affected. Substantially all of the products manufactured by the Company's Asian subsidiaries are sold to U.S.-based customers. While the Company believes that profits from its Asian operations are not sufficiently connected to the U.S. to give rise to U.S. federal or state income taxation, there can be no assurance that U.S. tax authorities will not challenge the Company's position or, if such challenge is made, that the Company will prevail in any such dispute. If the Company's Asian profits became subject to U.S. income taxes, the Company's worldwide effective tax rate would increase and its results of operations and cash flow would be adversely affected. In addition, the expansion by the Company of its operations in North America and Northern Europe may increase its worldwide effective tax rate. Variability of Results The Company has experienced, and expects to continue to experience, significant periodic and quarterly fluctuations in results of operations due to a variety of factors. These factors include, among other things, timing of orders, volume of orders relative to the Company's capacity, customers' announcements and introduction, and market acceptance, of new products or new generations of products, evolution in the life cycles of customer's products, timing of expenditures in anticipation of future orders, effectiveness in managing manufacturing processes, changes in cost and availability of labor and components, mix of orders filled, and changes or anticipated changes in 11 12 economic conditions. In addition, the Company's operating results are adversely affected by seasonality (principally in Malaysia and China during each fourth fiscal quarter due to local holiday seasons). The market segments served by the Company are also subject to economic cycles and have in the past experienced, and are likely in the future to experience, recessionary periods. A recessionary period affecting the industry segments served by the Company could have a material adverse effect on the Company's results of operations. Results of operations in any period should not be considered indicative of the results to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company's Ordinary Shares. In future periods, the Company's revenue or results of operations may be below the expectations of public market analysts and investors. In such event, the price of the Company's Ordinary Shares would likely be materially adversely affected. Liquidity and Capital Resources The Company has funded its operations from cash generated from operations, bank debt, lease financing of capital equipment and the proceeds of public offerings of equity securities. At December 31, 1996, the Company had cash balances totaling $13.6 million, outstanding bank borrowings of $5.7 million, and an aggregate of $42.3 million available for borrowing under its credit facilities. Net cash provided by operating activities was $40.1 million for the nine months ended December 31, 1996, comprised primarily of net income, depreciation, provision for plant closings and decreases in accounts receivable. Net cash used for operating activities was $10.9 million for the nine months ended December 31, 1995, primarily due to increases in inventory and decreases in accounts payable. Accounts receivable, net of allowance for doubtful accounts, decreased to $67.2 million at December 31, 1996 from $78.1 million at March 31, 1996. The decrease in accounts receivable was mainly due to improved collection of accounts receivable during the nine months ended December 31, 1996. Inventories decreased to $45.3 million at December 31, 1996 from $52.6 million at March 31, 1996. The Company's allowance for doubtful accounts increased to $4.3 million at December 31, 1996 from $3.6 million at March 31, 1996. The Company's allowance for inventory obsolescence increased to $5.9 million at December 31, 1996 from $4.6 million at March 31, 1996. The increases in the allowances for both doubtful accounts and inventory obsolescence were due to the increase in sales in the nine month period. Net cash used for investing activities during the nine months ended December 31, 1996 was $20.1 million which consisted primarily of expenditures for the construction in progress at the new campus in Doumen, China; purchases of machinery and equipment in the San Jose, California and Xixiang, China facilities; the purchases of land in Guadalajara, Mexico and San Jose, California; and the investment in FICO. Net cash used for investing activities during the nine months ended December 31, 1995 was $21.6 million which consisted primarily of purchases of machinery and equipment in the Company's manufacturing facilities located in Texas, California and Xixiang, China. Net cash used for financing activities was $12.9 million for the nine months ended December 31, 1996 and consisted primarily of repayment of bank loans and capital lease obligations. Net cash provided by financing activities was $36.1 million for the nine months ended December 31, 1995 and consisted primarily of borrowings from banks and net proceeds from the issuance of share capital. Bank borrowings decreased from $14.4 million at March 31, 1996 to $5.7 million at December 31, 1996 as the Company repaid bank loans using cash provided by the operating activities. The Company presently anticipates that its capital expenditures in the fourth quarter of fiscal 1997 will be approximately $5.0 million to $7.0 million (excluding the purchase price for the Karlskrona Facilities) and anticipate that its capital expenditures in fiscal 1998 will be approximately $20 million to $35 million, primarily relating to the development of new and expanded facilities in San Jose, California, Guadalajara, Mexico, and Doumen, China. In addition, the Company will be required to expend cash in the fourth quarter of fiscal 1997 and in fiscal 1998 pursuant to the terms of the Astron acquisition. The Company will be required to make principal payments of $10 million and $5 million in February 1997 and February 1998, respectively, pursuant to the terms of promissory notes issued by it in connection with the Astron acquisition, and will be required to pay an earnout of up to an additional $12.5 million in cash and Ordinary Shares on or about March 31, 1997, based on the pre-tax profit of Astron for the year ended December 31, 1996. The Company is also required to make a $15.0 million payment to Stephen J.L. 12 13 Rees on June 30, 1998, conditioned upon his remaining employed as Chairman via cash and Ordinary Shares, of Astron through that time. The Company believes that existing cash balances, together with anticipated cash flow from operations and amounts available under its existing and anticipated credit facilities, will be sufficient to fund its operations (other than the planned acquisition of the Karlskrona Facilities) through fiscal 1998. To finance the planned acquisition of the Karlskrona Facilities, the Company intends to use a combination of equity financing and anticipated long-term and short-term financing arrangements, and is engaged in discussions with financial institutions regarding such financing arrangement. No assurance can be given as to the availability or terms of any such financing arrangements. 13 14 PART II - OTHER INFORMATION Items 1 through 5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: (10.1) Lease dated November 19, 1996 between John and Susan Sobrato 1979 Revocable Trust and Flextronics International USA, Inc. (10.2) Sale and Purchase Agreement dated November 29, 1996 between FICO Forest Industrial Co. Limited and the Company. Certain Schedules to the Sale and Purchase Agreement have been omitted. The Company agrees to furnish supplementally a copy of any omitted Schedule to the Commission upon request. (10.3) Promissory Note & Security Agreement dated December 19, 1996 in the amount of $650,000 payable by Mr. Richard Davis to the Company. (10.4) Promissory note dated October 22, 1996 in the amount of $135,900 payable by Mr. Michael McNamara to the Company. (11.1) Statement re: computation of earnings per share. (11.2) Statement re: computation of earnings per share. (27.1) Financial Data Schedule.
(b) Reports on Form 8-K: Current Report on Form 8-K filed on November 19, 1996 in connection with the Company's press announcing the letter of intent to acquire the Karlskrona Facility and the acquisition of Fine Line. 14 15 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. FLEXTRONICS INTERNATIONAL LTD. (Registrant) Date February 12, 1997 ----------------------------- -------------------------------------- Michael E. Marks, Chief Executive Officer Date February 12, 1997 ----------------------------- -------------------------------------- Goh Chan Peng, Chief Financial Officer 15 16 EXHIBIT INDEX
Exhibit Number Document Description - ---------- --------------------- 10.1 Lease dated November 19, 1996 between John and Susan Sobrato 1979 Revocable Trust and Flextronics International USA, Inc. 10.2 Sale and Purchase Agreement dated November 29, 1996 between FICO Forest Industrial Co. Limited and the Company. Certain Schedules to the Sale and Purchase Agreement have been omitted. The Company agrees to furnish supplementally a copy of any omitted Schedule to the Commission upon request. 10.3 Promissory Note & Security Agreement dated December 19, 1996 in the amount of $650,000 payable by Mr. Richard Davis to the Company. 10.4 Promissory note dated October 22, 1996 in the amount of $135,900 payable by Mr. Michael McNamara to the Company. 11.1 Statement re: computation of earnings per share. 11.2 Statement re: computation of earnings per share. 27.1 Financial Data Schedule.
16 EX-10.1 2 LEASE AGREE JOHN & SUSAN SOBRATO/ FLEXTRONICS INTL 1 EXHIBIT 10.1 LEASE BETWEEN JOHN & SUSAN SOBRATO 1979 REVOCABLE TRUST & FLEXTRONICS INTERNATIONAL USA, INC.. Section Page # - ------- ------ Parties.................................................... 1 Premises................................................... 1 Use........................................................ 1 Term and Rental............................................ 1 Rental Adjustment................................. 2 Security Deposit........................................... 2 Late Charges............................................... 3 Construction and Possession................................ 3 Building Shell Construction....................... 3 Tenant Improvement Plans.......................... 3 Preliminary Cost Estimates........................ 4 Final Pricing..................................... 4 Change Orders..................................... 4 Building Shell Costs.............................. 5 Tenant Improvement Costs.......................... 5 Construction...................................... 5 General Contractor Overhead & Profit.............. 6 Insurance/Indemnity............................... 6 Punch List & Warranty............................. 6 Other Work by Tenant.............................. 6 Acceptance of Possession and Covenants to Surrender........ 7 Uses Prohibited............................................ 7 Alterations and Additions.................................. 8 Maintenance of Premises.................................... 8 Hazard Insurance........................................... 9 Tenant's Use...................................... 9 Landlord's Insurance.............................. 9 Tenant's Insurance................................ 9 Waiver............................................ 10 Taxes...................................................... 10 Utilities.................................................. 11 Abandonment................................................ 11 Page i 2 Free From Liens.................................................... 11 Compliance With Governmental Regulations........................... 11 Toxic Waste and Environmental Damage............................... 12 Tenant's Responsibility................................... 12 Tenant's Indemnity Regarding Hazardous Materials.......... 12 Actual Release by Tenant.................................. 13 Environmental Monitoring.................................. 13 Indemnity.......................................................... 14 Advertisements and Signs........................................... 14 Attorney's Fees.................................................... 14 Tenant's Default................................................... 14 Remedies.................................................. 15 Right to Re-enter......................................... 16 Abandonment............................................... 16 No Termination............................................ 16 Surrender of Lease................................................. 16 Habitual Default................................................... 16 Landlord's Default................................................. 17 Notices............................................................ 17 Entry by Landlord.................................................. 17 Destruction of Premises............................................ 18 Destruction by an Insured Casualty........................ 18 Destruction by an Uninsured Casualty...................... 18 Assignment or Sublease............................................. 18 Consent by Landlord....................................... 18 Assignment or Subletting Consideration.................... 19 No Release................................................ 20 Effect of Default......................................... 20 Condemnation....................................................... 20 Effects of Conveyance.............................................. 21 Subordination...................................................... 21 Waiver............................................................. 22 Holding Over....................................................... 22 Successors and Assigns............................................. 22 Estoppel Certificates.............................................. 22 Option to Extend the Lease Term.................................... 23 Grant and Exercise of Option.............................. 23 Determination of Fair Market Rental....................... 23 Resolution of a Disagreement over the Fair Market Rental.. 24 Options............................................................ 24 Quiet Enjoyment.................................................... 25 Page ii 3 Brokers............................................................ 25 Landlord's Liability.............................................. 25 Authority of Parties............................................... 25 Transportation Demand Management programs.......................... 25 Dispute Resolution................................................. 25 Lease Guaranty..................................................... 26 Miscellaneous Provisions........................................... 26 Rent...................................................... 26 Management Fee............................................ 26 Performance by Landlord................................... 26 Interest.................................................. 26 Rights and Remedies....................................... 26 Survival of Indemnities................................... 26 Severability.............................................. 26 Choice of Law............................................. 27 Time...................................................... 27 Entire Agreement.......................................... 27 Representations........................................... 27 No Presumption Against Drafter............................ 27 Headings.................................................. 27 Exhibits.................................................. 27 EXHIBIT A - Premises, Building & Project........................... 28 EXHIBIT B - Shell Plans and Specifications......................... 29 EXHIBIT C - Building Shell Definition.............................. 30 EXHIBIT D - Tenant Improvement Plans and Specifications............ 32 EXHIBIT E - Guaranty of Lease...................................... 33 Page iii 4 1. PARTIES: THIS LEASE, is entered into on this 19th day of November, 1996, between the JOHN AND SUSAN SOBRATO 1979 REVOCABLE TRUST, whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and FLEXTRONICS INTERNATIONAL USA, INC., a California Corporation, whose address is 2241 Lundy Avenue, San Jose, CA 95131, hereinafter called respectively Landlord and Tenant. 2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord those certain Premises with the appurtenances, situated in the City of San Jose, County of Santa Clara, State of California, commonly known and designated as 2090 Fortune Drive consisting of 71,750 rentable square feet ("Building") with parking for approximately 260 cars as outlined in red on Exhibit "A". Unless expressly provided otherwise, the term Premises as used herein shall include the Tenant Improvements (defined in Section 7.B) constructed by Tenant pursuant to Section 7.B. 3. USE: Tenant shall use the Premises only for the following purposes and shall not change the use of the Premises without the prior written consent of Landlord: Office, research and development, marketing, light manufacturing, storage and other incidental uses. Landlord makes no representation or warranty that any specific use of the Premises desired by Tenant is permitted pursuant to any Laws. 4. TERM AND RENTAL: The term ("Lease Term") shall be for one hundred twenty (120) months, commencing, on the "Commencement Date" as determined pursuant to Section 7.H, and ending one hundred twenty (120) months thereafter ("Expiration Date"). In addition to all other sums payable by Tenant under this Lease, beginning six (6) months following the Commencement Date, Tenant shall pay as base monthly rent ("Base Monthly Rent") for the Premises the amount of Sixty Four Thousand Seven Hundred Ninety and No/100 Dollars ($64,790.00), which amount shall be subject to increase pursuant to Section 4.A below. Base Monthly Rent shall be due in advance on or before the first day of each calendar month during the Lease Term. All sums payable by Tenant under this Lease shall be paid to Landlord in lawful money of the United States of America, without offset or deduction and without prior notice or demand, at the address specified in Section 1 of this Lease or at such place or places as may be designated by Landlord during the Lease Term. Base Monthly Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment. Page 1 5 A. RENTAL ADJUSTMENT: Beginning twelve (12) months after the Commencement Date, and every twelve (12) months thereafter (an "Adjustment Date"), the then- payable Base Monthly Rent shall be subject to adjustment based on the increase, if any, in the Consumer Price Index that has occurred during the twelve (12) months preceding the then-applicable Adjustment Date. The basis for computing the adjustment shall be the U.S. Department of Labor, Bureau of Labor Statistic's Consumer Price Index for All Urban Consumers, All Items, 1982-84=100, for the San Francisco-Oakland-San Jose area ("Index"). The Index most recently published preceding the Commencement Date for the first Adjustment (or previous Adjustment Date, as applicable), shall be considered the "Base Index". If the Index most recently published preceding the Adjustment Date ("Comparison Index") is greater than the Base Index, the then- payable Base Monthly Rent shall be increased by multiplying the then-payable Base Monthly Rent by a fraction, the numerator of which is the Comparison Index and the denominator of which is the Base Index. On adjustment of the Base Monthly Rent, Landlord shall notify Tenant by letter stating the new Base Monthly Rent. Landlord's calculation of the Base Monthly Rent escalation shall be conclusive and binding unless Tenant objects to said calculation within thirty (30) days of Tenant's receipt from Landlord of such calculation. Landlord's failure to adjust Base Monthly Rent on an Adjustment Date shall not prevent Landlord from retroactively adjusting Base Monthly Rent at any subsequent time during the Lease Term. If the Index base year is changed so that it differs from 1982-84=100, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the Lease Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the index had not been discontinued or revised. 5. SECURITY DEPOSIT: Concurrently with Tenant's execution of this Lease, Tenant has deposited with Landlord the sum of Sixty Four Thousand Seven Hundred Ninety and No/100 Dollars ($64,790.00) ("Security "Deposit"). Landlord shall not be required to separate the Security Deposit from Landlord's other funds and Tenant shall not be entitled to interest on the Security Deposit. If Tenant defaults with respect to any provisions of the Lease, including but not limited to the provisions relating to payment of Base Monthly Rent or other charges, Landlord may, to the extent reasonably necessary to remedy Tenant's default, use any or all of the Security Deposit towards payment of the following: (i) Base Monthly Rent or other charges in default; (ii) any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default; and (iii) any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after written demand from Landlord, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its full original amount, and shall pay to Landlord such other sums as necessary to reimburse Landlord for any sums paid by Landlord. If Tenant shall default more than three (3) times in any twelve (12) month period, irrespective of whether or not such default is cured, then the Security Deposit shall, within ten (10) days after demand by Landlord, be increased by Tenant to an amount equal to three (3) times the Base Monthly Rent. Page 2 6 The Security Deposit shall be returned to Tenant within thirty (30) days after the Expiration Date and surrender of the Premises to Landlord, less any amount deducted in accordance with this Section, together with Landlord's written notice itemizing the amounts and purposes for such deduction. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer the Security Deposit to Landlord's successor in interest. 6. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include but are not limited to: administrative, processing, accounting, and late charges which may be imposed on Landlord by the terms of any contract, revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if any installment of Base Monthly Rent or other sum due from Tenant shall not be received by Landlord or its designee when due, Tenant shall pay to Landlord a late charge equal to five (5%) percent of such overdue amount, which late charge shall be due and payable on the same date that the overdue amount was due. Landlord agrees to waive said late charge in the event all amounts set forth in any notice served upon Tenant by Landlord to pay rent or quit in connection with the overdue amount are paid in full by cashier's check within five (5) days after Landlord's service upon Tenant of such notice to pay rent or quit. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance by Landlord of such late charge shall not constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any provision of this Lease to the contrary. 7. CONSTRUCTION AND POSSESSION: A. BUILDING SHELL CONSTRUCTION. Landlord shall cause the shell of the Building ("Building Shell") to be constructed by independent contractors to be employed by and under the supervision of Landlord's affiliated construction company, Sobrato Construction Corporation ("General Contractor"), in accordance with the Building Shell plans and guideline specifications prepared by Arctec ("Architect") and approved by Landlord and Tenant, which are attached hereto as Exhibit "B" ("Shell Plans and Specifications"). General Contractor shall construct the Building Shell in accordance with all applicable municipal, local, state and federal laws, statutes, rules, regulations and ordinances. Landlord shall pay for all costs and expenses associated with the construction of the Building Shell. The Building Shell shall include those items set forth in the attached Exhibit "C" ("Building Shell Definition"). B. TENANT IMPROVEMENT PLANS. Tenant, at Tenant's sole cost and expense, has also Page 3 7 hired the Architect to prepare plans and outline specifications which shall be attached hereto as Exhibit "D" ("Tenant Improvement Plans and Specifications") with respect to the construction of improvements to the interior premises ("Tenant Improvements"). The Tenant Improvements shall consist of all items not included within the scope of the Building Shell Definition. The Tenant Improvement Plans and Specifications shall be completed and submitted to Landlord by December 31, 1996 in sufficient detail to allow General Contractor to construct the Tenant Improvements. Landlord shall cause General Contractor to construct the Tenant Improvements in accordance with all Tenant Improvement Plans and Specifications. The Tenant Improvements shall become the property of Tenant upon installation and shall not be removed or altered by Tenant without the prior written consent of Landlord as provided in Section 10. Tenant shall have the right to depreciate and claim and collect any investment tax credits in the Tenant Improvements during the initial Lease Term. Upon expiration of the Lease Term or any earlier termination of the Lease, the Tenant Improvements shall become the property of Landlord and shall remain upon and be surrendered with the Premises, and title thereto shall automatically vest in Landlord without any payment therefore. C. PRELIMINARY COST ESTIMATE. Within fourteen (14) days after Tenant's delivery of the Tenant Improvement Plans and Specifications to Landlord, General Contractor shall deliver to Tenant a preliminary cost estimate to construct the Tenant Improvements. The preliminary cost estimate shall contain sufficient detail for Tenant to understand the cost element of each portion of the proposed Tenant Improvements. D. FINAL PRICING. Within ten (10) days after Tenant's approval of the preliminary cost estimate for the Tenant Improvements, the General Contractor shall submit to Tenant competitive bids from at least three (3) subcontractors for each aspect of the work which is to be performed. General Contractor must utilize the low bid in each case unless Tenant approves General Contractor's use of another subcontractor, and the cost of the Tenant Improvements shall be based upon construction expenses equal to the sum of the bid amounts as approved by Tenant. Upon Tenant's written approval of the contract bids, Landlord and Tenant shall be deemed to have given their respective approvals of the final Tenant Improvement Plans and Specifications on which the cost estimate was made, and General Contractor shall proceed with the construction of the Tenant Improvements in accordance with the terms of Section 7.H below. If Tenant does not specifically approve or disapprove the bids within seven (7) days, Tenant shall be deemed to have disapproved the bids. E. CHANGE ORDERS. Tenant shall have the right to order changes in the manner and type of construction of the Building Shell or the Tenant Improvements. Any change order submitted by Tenant after ten (10) days from the date of issuance by the City of San Jose of a building permit for the construction of the Tenant Improvements, which causes General Contractor's construction schedule to be delayed, shall cause the Commencement Date to occur one (1) day in advance of the date the Building is Substantially Complete (as defined in Section 7.H) for each day of delay. Upon Page 4 8 request and prior to Tenant's submitting any binding change order, General Contractor shall promptly provide Tenant with written statements of the cost to implement and the time delay and increased construction costs associated with any proposed change order, which statements shall be binding on Landlord. If no time delay or increased construction cost amount is noted on the written statement, the parties agree that there shall be no adjustment to the construction cost or the Commencement Date associated with such change order. If ordered by Tenant, General Contractor shall implement such change order and the cost of constructing the Tenant Improvements shall be increased in accordance with the cost statement previously delivered by General Contractor to Tenant for any such change order. F. BUILDING SHELL COSTS. Landlord shall pay all costs associated with the Building Shell. G. TENANT IMPROVEMENT COSTS. The cost of Tenant Improvements shall consist of only the following to the extent actually incurred by General Contractor in connection with the construction of Tenant Improvements: construction costs, permitting costs, and Landlord overhead as described in Section 7.I below. During the course of construction of Tenant Improvements, General Contractor may deliver to Tenant not more than once each calendar month a written request for payment which shall include and be accompanied by General Contractor's certified statements setting forth the amount requested, certifying the percentage of completion of each item for which reimbursement is requested, and certifying that the progress payment requested is due to a subcontractor of General Contractor pursuant to a contract between General Contractor and the subcontractor. Tenant shall pay General Contractor, within fifteen (15) days after Tenant's receipt of the above items, the costs incurred by General Contractor in connection with Tenant Improvements installed in the Building in accordance with the Tenant Improvement Plans and Specifications, minus the retention set forth below. Tenant shall be entitled to retain ten percent (10%) of the amount invoiced by General Contractor until the Tenant Improvements are Substantially Complete as defined in Section 7.H below. Tenant shall pay the retained balance owing to General Contractor within fifteen (15) days following the date that the Tenant Improvements are Substantially Complete. All costs for Tenant Improvements shall be fully documented to and verified by Tenant. The amounts charged to Tenant shall be limited as provided in Section 7.D above. H. CONSTRUCTION. Landlord shall use its best efforts to obtain a building permit from the City of San Jose as soon as possible after Tenant's approval of the Tenant Improvement Plans and Specifications. The Building Shell and Tenant Improvements shall be deemed substantially complete ("Substantially Complete") when the Building Shell and Tenant Improvements have been substantially completed in accordance with the Shell Plans and Specifications and Tenant Improvement Plans and Specifications, as evidenced by the issuance of a certificate of occupancy or its equivalent by the appropriate governmental authority for the Building Shell and Tenant Improvements, and the issuance of a certificate by the Architect certifying that the Building Shell and Tenant Improvements have been completed in accordance with the plans. Page 5 9 I. GENERAL CONTRACTOR OVERHEAD & PROFIT. As compensation to General Contractor for its services related to construction of the Building Shell and Tenant Improvements, General Contractor shall receive a fee of six percent (6%) to cover all of the following: field personnel and superintendent, temporary on-site facilities, home office administration, supervision, and coordination and construction profit. Except as provided therein, Landlord or General Contractor shall not receive any other fee or payment from Tenant in connection with General Contractor's services. J. INSURANCE/INDEMNITY. General Contractor shall indemnify, protect, defend and hold Tenant harmless from and against all liability, cost, expense, or damage, including attorneys fees, arising from construction of the Building Shell or Tenant Improvements; construction defects; or failure to properly construct the Building Shell or Tenant Improvements in accordance with the approved Shell Plans and Specifications or Tenant Improvement Plans and Specifications. Tenant's review and approval of plans, specifications, or any other documents shall not relieve General Contractor from its obligations under the foregoing indemnification. General Contractor shall procure (as a cost of the Building Shell) and keep in effect from the Lease execution date until Lease termination a "Broad Form" liability insurance policy in the amount of Three Million Dollars ($3,000,000.00), insuring all General Contractor's activities with respect to the Building and Premises, including Landlord's indemnity obligations under this Section 7.J. Landlord shall also procure (as a cost of the Building Shell) builder's risk insurance for the full replacement cost of the Building Shell and Tenant Improvements while the Building and Tenant Improvements are under construction, up until the date that the fire insurance policy described in Lease Section 12 is in full force and effect. K. PUNCH LIST & WARRANTY. After the Building Shell and Tenant Improvements are Substantially Complete, Landlord shall cause the General Contractor to immediately correct any construction defect or other "punch list" item which Tenant brings to General Contractor's attention. All such work shall be performed so as to cause the least possible interruption to Tenant and its activities on the Premises. General Contractor shall provide a standard contractor's warranty with respect to the Premises for one (1) year from the Commencement Date. Such warranty shall exclude routine maintenance, damage caused by Tenant's negligence or misuse, and acts of God. Landlord shall assign to Tenant any manufacturer's warranties on equipment installed as a part of the construction of the Building Shell and Tenant Improvements. L. OTHER WORK BY TENANT. All work not within the scope of work normally performed by the construction trades employed on the Building and not described in the Shell Plans and Specifications or Tenant Improvement Plans and Specifications, such as furniture, telephone equipment, telephone wiring and office equipment work, shall be furnished and installed by Tenant. When the construction of the Tenant Improvements has proceeded to the point where Tenant's work of installing its fixtures and equipment in the Premises can be commenced, General Contractor shall notify Tenant and shall permit Tenant and its authorized representatives and contractors access to Page 6 10 the Premises before the Commencement Date for the purpose of installing Tenant's trade fixtures and equipment. Any such installation work by Tenant or its authorized representatives and contractor shall be undertaken upon the following conditions: (i) if the entry into the Premises by Tenant or its representatives or contractors interferes with or delays General Contractor's work, Tenant shall cause the party responsible for such interference or delay to leave the Premises; and (ii) its entry on the Premises shall not interfere with General Contractor's work. 8. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER: On the Commencement Date, Landlord shall deliver and Tenant shall accept the Premises as being in good and sanitary order, condition and repair, and shall accept the Substantially Complete Premises and the other improvements in their present condition. Within ninety (90) days after the Commencement Date, Tenant agrees to be in occupancy of at least fifty percent (50%) of the rentable square footage of the Premises. Tenant further agrees on Expiration Date or on the sooner termination of this Lease, to surrender the Premises to Landlord in good condition and repair, reasonable wear and tear excepted. "Good condition" means that all interior walls, floors, suspended ceilings, and carpeting within the Premises will be cleaned to the same condition as existed at the Commencement Date, normal wear and tear excepted. Tenant agrees, at its sole cost, to remove all phone and data cabling from the suspended ceiling, repair or replace broken ceiling tiles, and relevel the ceiling if required. On or before the Expiration Date or sooner termination of this Lease, Tenant shall remove all its personal property and trade fixtures from the Premises. All property and fixtures not so removed shall be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within sixty (60) days before the Expiration Date whether Landlord desires to have the Premises or any parts thereof restored to their condition as of the Commencement Date, or to cause Tenant to surrender all Alterations (as defined in Section 10) in place to Landlord. If Landlord provides written notice that it shall so desire, Tenant shall, at Tenant's sole cost and expense, remove such Alterations as Landlord requires and shall repair and restore said Premises or such parts thereof before the Expiration Date. Such repair and restoration shall include causing the Premises to be brought into compliance with all applicable building codes and laws in effect at the time of the removal to extent such compliance is necessitated by the repair and restoration work. If the Premises are not surrendered at the Expiration Date or sooner termination of this Lease in the condition required by this Section 8, Tenant shall be deemed in a holdover tenancy pursuant to Section 34, and Tenant shall indemnify, defend, and hold Landlord harmless against loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. 9. USES PROHIBITED: Tenant shall not commit or suffer to be committed on the Premises any waste, nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the Premises, nor allow any sale by auction or any other use of the Premises for an unlawful purpose. Tenant shall not place any loads upon the floor, walls, or ceiling which endanger Page 7 11 the structure, nor use any machinery or apparatus which will in any manner vibrate or shake the Premises, nor shall Tenant place any harmful liquids, waste materials, or hazardous materials in the drainage system or upon or in the soils surrounding the Building. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature, or any waste materials, refuse, scrap or debris, shall be stored upon or permitted to remain on any portion of the Premises outside of the Building without Landlord's prior approval, which approval may be withheld in its sole discretion. 10. ALTERATIONS AND ADDITIONS: Tenant shall not make, or suffer to be made, any alteration or addition to the Premises ("Alterations"), or any part thereof, without obtaining Landlord's prior written consent and delivering to Landlord the proposed architectural and structural plans for all such Alterations. After obtaining Landlord's consent, Tenant shall not proceed to make such Alterations until Tenant has obtained all required governmental approvals and permits, and provided Landlord reasonable security, in form reasonably approved by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees to provide Landlord written notice of the anticipated and actual start-date of the work, and a complete set of half-size (15" X 21") vellum as-built drawings. All Alterations shall be constructed in compliance with applicable buildings codes and laws. Any Alterations, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Landlord but shall nevertheless be subject to removal by Tenant as provided in Section 8 above. Alterations which are not deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, partitioning, carpeting, or any other installation which has become an integral part of the Premises. All Alterations shall be maintained, replaced or repaired by Tenant at its sole cost and expense. 11. MAINTENANCE OF PREMISES: Tenant shall, at its sole cost, keep, maintain, repair, and replace said Premises and appurtenances and every part hereof in good and sanitary order, condition, and repair, including but not limited to the following: exterior walls, roof, glazing, caulking, sidewalks, parking areas, elevator, telephone, plumbing, electrical, HVAC systems, and all Tenant Improvements. Tenant shall provide Landlord a copy of a service contract between Tenant and: (i) a licensed air-conditioning and heating contractor providing for bi-monthly maintenance of all air conditioning and heating equipment at the Premises; and (ii) a licensed elevator maintenance contractor providing for monthly maintenance of all elevator related systems. Tenant shall pay the cost of all air conditioning, heating, and elevator equipment repairs or replacements which are excluded from such service contract or any existing equipment warranties. All wall surfaces and floor tile are to be maintained in an as good a condition as when Tenant took possession free of holes, gouges, or defacements. Tenant shall also be responsible, at its sole cost and expense, for the preventive maintenance of the membrane of the roof, which responsibility shall be deemed properly discharged if Tenant contracts, at its sole cost, with a licensed roof contractor reasonably satisfactory to Tenant and Landlord to inspect the roof membrane at least every six (6) months, with the first inspection Page 8 12 due the sixth (6th) month after the Commencement Date; and Tenant performs, at Tenant's sole cost, all preventive maintenance recommendations made by such contractor within a reasonable time after such recommendations are made. Such preventive maintenance might include acts such as clearing storm gutters and drains, removing debris from the roof membrane, trimming trees overhanging the roof membrane, applying coating materials to seal roof penetrations, repairing blisters, and other routine measures. Tenant shall provide Landlord a copy of such preventive maintenance contract and paid invoices for the recommended work. Tenant agrees, at its sole cost, to water, maintain, and replace when necessary, any shrubbery and landscaping. 12. HAZARD INSURANCE: A. TENANT'S USE: Tenant shall not use or permit the Premises, or any part thereof, to be used for any purpose other than that for which the Premises are hereby leased; and no use of the Premises shall be made or permitted, nor acts done, which will cause an increase in premiums or a cancellation of any insurance policy covering the Premises or any part thereof, nor shall Tenant sell or permit to be sold, kept, or used in or about the Premises, any article prohibited by the standard form of fire insurance policies. Tenant shall, at its sole cost, comply with all requirements of any insurance company or organization necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and appurtenances. B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in force fire, extended coverage, earthquake (at Landlord's election if commercially available), owner's liability, and 12- month rental loss insurance. The amount of the fire, extended coverage and earthquake insurance shall equal the replacement cost of the Building (not including any Tenant Improvements or Alterations paid for by Tenant from sources other than the Work Allowance) as determined by Landlord's insurance company's appraisers. Tenant agrees to pay Landlord as additional rent, on demand, the full cost of said insurance as evidenced by insurance billings to Landlord, and in the event of damage covered by said insurance, the amount of any deductible under such policy. Payment shall be due to Landlord within ten (10) days after written invoice to Tenant. Notwithstanding the foregoing, Tenant's obligation to pay the cost of earthquake insurance premiums shall be limited to an amount no greater than three (3) times the cost of the fire and extended coverage premiums. It is understood and agreed that Tenant's obligation under this Section will be prorated to reflect the Lease Commencement and Expiration Dates. Tenant reserves the right to provide the hazard insurance for the Premises provided (i) Tenant can obtain such insurance at a more favorable rate than Landlord; (ii) the form of coverage and insurer are satisfactory to Landlord and its lender; (iii) Landlord and its lender are named as additional insured; (iv) such insurance provides that it may not be subject to cancellation or change except after at least sixty (60) days written notice to Landlord; and (v) Tenant has delivered to Landlord a certificate of insurance evidencing such policy is in effect. C. TENANT'S INSURANCE: Tenant agrees, at its sole cost, to insure its personal property, Page 9 13 Tenant Improvements (for which it has paid from sources other than the Work Allowance), and Alterations for their full replacement value (without depreciation) and to obtain worker's compensation and public liability and property damage insurance for occurrences within the Premises with combined limits for bodily injury and property damage of at least $1,000,000.00 per occurrence and a general aggregate limit of at least $5,000,000.00. Tenant's liability insurance shall be primary insurance containing a cross-liability endorsement, and shall provide coverage on an "occurrence" rather than on a "claims made" basis. Tenant shall name Landlord and Landlord's lender as an additional insured and shall deliver a copy of the policies and renewal certificates to Landlord. All such policies shall provide for thirty (30) days' prior written notice to Landlord of any cancellation, termination, or reduction in coverage. Notwithstanding the above, Landlord retains the right to have Tenant provide other forms of insurance which may be reasonably required to cover future risks. D. WAIVER: Landlord and Tenant hereby waive all rights each may have against the other on account of any loss or damage sustained by Landlord or Tenant, as the case may be, or to the Premises or its contents, which may arise from any risk covered by their respective insurance policies (or which would have been covered had such insurance policies been maintained in accordance with this Lease) as set forth above. The parties shall use their reasonable efforts to obtain from their respective insurance companies a waiver of any right of subrogation which said insurance company may have against Landlord or Tenant, as the case may be. 13. TAXES: Tenant shall be liable for and shall pay as additional rental, prior to delinquency, the following: (i) all taxes and assessments levied against Tenant's personal property and trade or business fixtures; (ii) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Premises or upon the occupancy of the Premises, including any substitute or additional charges which may be imposed applicable to the Lease Term; and (iii) real estate tax increases due to a sale, transfer or other change of ownership of the Premises as it appears on the City and County tax bills during the Lease Term. Tenant's obligation under this Section shall be prorated to reflect the Lease Commencement and Expiration Dates. If, at any time during the Lease Term a tax, excise on rents, business license tax or any other tax, however described, is levied or assessed against Landlord as a substitute or addition, in whole or in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro rata share of such tax or excise on rents or other tax before it becomes delinquent; except that this provision is not intended to cover net income taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that a tax is placed, levied, or assessed against Landlord and the taxing authority takes the position that Tenant cannot pay and discharge its pro rata share of such tax on behalf of Landlord, then at Landlord's sole election, Landlord may increase the Base Monthly Rent by the exact amount of such tax and Tenant shall pay such increase. Landlord agrees to promptly provide Tenant a copy of any notices received regarding an increase in the assessed value of the Premises (other than the standard 2% annual increase allowed under Proposition 13). Tenant, at its expense, shall have the right at any time to seek a reduction in the assessed valuation of the Premises or to contest any real Page 10 14 property taxes that are to be paid by Tenant. In such event, Landlord shall join in the proceeding or contest or permit it to be brought in Landlord's name, provided that Landlord is not required to bear any cost in connection therewith. If by virtue of any application or proceeding brought by or on behalf of Landlord, there results a reduction in the assessed value of the Premises during the Lease Term, Tenant agrees to reimburse Landlord for all reasonable costs incurred by Landlord in connection with such application or proceeding. 14. UTILITIES: Tenant shall pay directly to the providing utility all water, gas, electric, telephone, and other utilities supplied to the Premises. Landlord shall not be liable for loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing or failure to furnish utilities to the Premises, and Tenant shall not be entitled to abatement or reduction of any portion of Base Monthly Rent or any other amount payable under this Lease. Notwithstanding the foregoing, if utility services to the Premises are interrupted for a period of thirty (30) continuous business days through no fault of Tenant, then Tenant shall be entitled to an abatement of rent to the extent of the interference with Tenant's use of the Premises occasioned thereby beginning on the expiration of such thirty (30) day period. 15. ABANDONMENT: Tenant shall not vacate or abandon the Premises at any time during the Lease Term. In the event Tenant abandons, vacates or surrenders the Premises or is dispossessed by process of law or otherwise, any personal property belonging to Tenant left on the Premises shall be deemed as abandoned at the option of Landlord, except such property as may be mortgaged to Landlord. 16. FREE FROM LIENS: Tenant shall keep the Premises free from all liens arising out of work performed, materials furnished, or obligations incurred by Tenant or claimed to have been performed for Tenant. In the event Tenant fails to discharge any such lien within ten (10) days after receiving notice of the filing, Landlord shall be entitled to discharge the lien at Tenant's expense and all resulting costs incurred by Landlord, including attorney's fees shall be due from Tenant as additional rent. If Tenant shall acquire trade fixtures, equipment, machinery or other personal property subject to a secured purchase money security interest or lease, Landlord shall, upon request from Tenant, execute a waiver of any right it may have to secure a lien against such goods or fixtures for Tenant's failure to pay rent or any other default under this Lease. Such waiver shall be in a form reasonably satisfactory to all parties. 17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its sole cost and expense, comply with and faithfully observe in its use of the Premises all laws, regulations and other requirements of all Municipal, County, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any such law, regulation or other requirement in its use of the Premises shall be conclusive of that fact as between Landlord and Page 11 15 Tenant. 18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE: A. TENANT'S RESPONSIBILITY: Without the prior written consent of Landlord, Tenant shall not bring, use, or permit upon the Premises, or generate, create, release, emit, or dispose (nor permit any of the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste, including without limitation, material or substance having characteristics of ignitability, corrosivity, reactivity, or toxicity or substances or materials which are listed on any of the Environmental Protection Agency's lists of hazardous wastes or which are identified in Division 22 Title 26 of the California Code of Regulations as the same may be amended from time to time ("Hazardous Materials"). In order to obtain consent, Tenant shall deliver to Landlord its written proposal describing the toxic material to be brought onto the Premises, measures to be taken for storage and disposal thereof, safety measures to be employed to prevent pollution of the air, ground, surface and ground water. Landlord's approval may be withheld in its reasonable judgment. In the event Landlord consents to Tenant's use of Hazardous Materials on the Premises, Tenant represents and warrants that it will do the following: (i) adhere to all reporting and inspection requirements imposed by Federal, State, County or Municipal laws, ordinances or regulations and will provide Landlord a copy of any such reports or agency inspections; (ii) obtain and provide Landlord copies of all necessary permits required for the use and handling Hazardous Materials on the Premises; (iii) enforce Hazardous Materials handling and disposal practices consistent with industry standards; (iv) surrender the Premises free from any Hazardous Materials arising from Tenant's bringing, using, permitting, generating, creating, releasing, emitting or disposing of Hazardous Materials; and (v) properly close the facility with regard to Hazardous Materials including the removal or decontamination of any process piping, mechanical ducting, storage tanks, containers, or trenches which have come into contact with Hazardous Materials and obtain a closure certificate from the local administering agency prior to the Expiration Date. B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall, at its sole cost, comply with all laws pertaining to, and shall indemnify and hold Landlord harmless from, any claims, liabilities, costs or expenses incurred or suffered by Landlord arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term. Tenant's indemnification and hold harmless obligations include, without limitation, the following: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; and (iii) Page 12 16 all costs of defending such claims. Notwithstanding the foregoing, Tenant shall not be responsible for the presence of Hazardous Materials which existed prior to the Commencement Date or which come to be present from an offsite source. C. ACTUAL RELEASE BY TENANT: Tenant agrees to notify Landlord of any lawsuits or orders which relate to the remedying of or actual release of Hazardous Materials on or into the soils or ground water at or under the Premises. Tenant shall also provide Landlord all notices required by Section 25359.7(b) of the Health and Safety Code and all other notices required by law to be given to Landlord in connection with Hazardous Materials. Without limiting the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days after receipt thereof, any written notices from any governmental agency alleging a material violation of, or material failure to comply with, any federal, state or local laws, regulations, ordinances or orders, the violation of which of failure to comply with poses a foreseeable and material risk of contamination of the ground water or injury to humans (other than injury solely to Tenant, its agents and employees within the Building). In the event of any release on or into the Premises or into the soil or ground water under the Premises of any Hazardous Materials used, treated, stored or disposed of by Tenant, Tenant agrees to comply, at its sole cost, with all laws, regulations, ordinances and orders of any federal, state or local agency relating to the monitoring or remediation of such Hazardous Materials. In the event of any such release of Hazardous Materials, Tenant agrees to meet and confer with Landlord and its Lender to attempt to eliminate and mitigate any financial exposure to such Lender and resultant exposure to Landlord under California Code of Civil Procedure section 736(b) as a result of such release, and promptly to take reasonable monitoring, cleanup and remedial steps given, inter alia, the historical uses to which the Property has and continues to be used, the risks to public health posed by the release, the then available technology and the costs of remediation, cleanup and monitoring, consistent with acceptable customary practices for the type and severity of such contamination and all applicable laws. Nothing in the preceding sentence shall eliminate, modify or reduce the obligation of Tenant under Section 18.B of this Lease to indemnify and hold Landlord harmless from any claims liabilities, costs or expenses incurred or suffered by Landlord. Tenant shall provide Landlord prompt written notice of Tenant's monitoring, cleanup and remedial steps. In the absence of an order of any federal, state or local governmental or quasi-governmental agency relating to the cleanup, remediation or other response action required by applicable law, any dispute arising between Landlord and Tenant concerning Tenant's obligation to Landlord under this Section 18.C concerning the level, method, and manner of cleanup, remediation or response action required in connection with such a release of Hazardous Materials shall be resolved by mediation and/or arbitration pursuant to the provisions of Section 45 of this Lease. D. ENVIRONMENTAL MONITORING: Landlord and its agents shall have the right to inspect, investigate, sample and monitor the Premises including any air, soil, water, ground water or other sampling or any other testing, digging, drilling or analysis to determine whether Tenant is Page 13 17 complying with the terms of this Section 18. If Landlord discovers that Tenant is not in compliance with the terms of this Section 18, any such costs incurred by Landlord, including attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord within five (5) days following Landlord's written demand therefore. 19. INDEMNITY: As a material part of the consideration rendered to Landlord, Tenant hereby waives all claims against Landlord for damages to goods, wares and merchandise, and all other personal property in, upon or about said Premises and for injuries to persons in or about said Premises, from any cause arising at any time to the fullest extent permitted by law, and Tenant shall indemnify and hold Landlord exempt and harmless from any damage or injury to any person, or to the goods, wares and merchandise and all other personal property of any person, arising from the use of the Premises, Building, and/or Project by Tenant, its employees, contractors, agents and invitees or from the failure of Tenant to keep the Premises in good condition and repair as herein provided, except to the extent due to the active negligence or willful misconduct of Landlord. Further, in the event Landlord is made party to any litigation due to the acts or omission of Tenant, its employees, contractors, agents and invitees, Tenant will indemnify and hold Landlord harmless from any such claim or liability including Landlord's costs and expenses and reasonable attorney's fees incurred in defending such claims. 20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be placed, in, upon or about the Premises any signs not approved by the city or other governing authority. Tenant will not place or permit to be placed upon the Premises any signs, advertisements or notices without the written consent of Landlord as to type, size, design, lettering, coloring and location, which consent will not be unreasonably withheld. Any sign placed on the Premises shall be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly following the earlier termination of the lease, and Tenant shall repair, at its sole cost, any damage or injury to the Premises caused thereby, and if not so removed, then Landlord may have same so removed at Tenant's expense. 21. ATTORNEY'S FEES: In the event a suit or alternative form of dispute resolution is brought for the possession of the Premises, for the recovery of any sum due hereunder, to interpret the Lease, or because of the breach of any other covenant herein; then the losing party shall pay to the prevailing party reasonable attorney's fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to recover all costs and expenses including reasonable attorney's fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post-judgment costs is severable from all other provisions of this Lease. 22. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (i) Tenant's failure to pay any rent due under this Lease by the date such rent is due, which failure continues for five (5) days after written notice Page 14 18 from Landlord; (ii) the abandonment or vacation of the Premises by Tenant; (iii) Tenant's failure to observe and perform any other required provision of this Lease, where such failure continues for thirty (30) days after written notice from Landlord (provided however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Tenant shall not be deemed in default if Tenant commences within such period to cure the default and thereafter diligently prosecutes the cure to completion); (iv) Tenant's making of any general assignment for the benefit of creditors; (v) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed after the filing); (vi) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (vii) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. The notice requirements set forth herein are in lieu of and not in addition to the notices required by California Code of Civil Procedure Section 1161. Any notice given by Landlord to Tenant pursuant to California Code of Civil Procedure 1161 regarding Tenant's failure to pay rent under this Lease by the date due shall provide Tenant with a period of at least ten (10) days to pay such rent or quit. A. REMEDIES: In the event of any such default by Tenant, then in addition to other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event Landlord elects to so terminate this Lease, Landlord may recover from Tenant all the following: (i) the worth at time of award of any unpaid rent which had been earned at the time of such termination; (ii) the worth at time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom; and (v) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted by applicable California law. The term "rent", as used herein, is defined as the minimum monthly installments of Base Monthly Rent and all other sums required to be paid by Tenant pursuant to this Lease, all such other sums being deemed as additional rent due hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be computed by allowing interest at a rate equal to the discount rate of the Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent. Page 15 19 B. RIGHT TO RE-ENTER: In the event of any such default by Tenant, Landlord shall have the right, after terminating this Lease, to re-enter the Premises and remove all persons and property. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, and disposed of by Landlord in any manner permitted by law. C. ABANDONMENT: If Landlord does not elect to terminate this Lease as provided in Section 22.A or 22.B above, then the provisions of California Civil Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's breach and abandonment and recover rent as it becomes due if Tenant has a right to sublet and assign, subject only to reasonable limitations) as amended from time to time, shall apply and Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord elects to so relet, rentals received by Landlord from such reletting shall be applied in the following order to: (i) the payment of any indebtedness other than Base Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of the cost of any alterations and repairs to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall be held by Landlord and applied in payment of future Base Monthly Rent as the same may become due and payable hereunder. In the event the portion of rentals received from such reletting which is applied to the payment of rent hereunder during any month be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. D. NO TERMINATION: Landlord's re-entry or taking possession of the Premises pursuant to 22.B or 22.C of this Section 22 shall not be construed as an election to terminate this Lease unless written notice of such intention is given to Tenant or unless the termination is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default. 23. SURRENDER OF LEASE: The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not automatically effect a merger of the Lease with Landlord's ownership of the Premises. Instead, at the option of Landlord, Tenant's surrender may terminate all or any existing subleases or subtenancies or may operate as an assignment to Landlord of any or all such subleases or subtenancies, thereby creating a direct Landlord-Tenant relationship between Landlord and any subtenants. 24. HABITUAL DEFAULT: The provisions of Section 22 notwithstanding, the parties agree Page 16 20 that if Tenant shall have defaulted in the performance of any (but not necessarily the same) term or condition of this Lease for three or more times during any 12-month period during the Lease Term, then such conduct shall, at the election of the Landlord, represent a separate event of default which cannot be cured by Tenant. Tenant acknowledges that the purpose of this provision is to prevent repetitive defaults by Tenant, which work a hardship upon Landlord and deprive Landlord of Tenant's timely performance under this Lease. 25. LANDLORD'S DEFAULT: In the event of Landlord's failure to perform any of its covenants or agreements under this Lease, Tenant shall give Landlord written notice of such failure and shall give Landlord thirty (30) days to cure or commence to cure such failure prior to any claim for breach or resultant damages, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Landlord shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion. In addition, upon any such failure by Landlord, Tenant shall give notice by registered or certified mail to any person or entity with a security interest in the Premises ("Mortgagee") that has provided Tenant with notice of its interest in the Premises, and shall provide Mortgagee a reasonable opportunity to cure such failure, including such time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof. Tenant shall not make any prepayment of rent more than one (1) month in advance without the prior written consent of Mortgagee. Tenant waives any right under California Civil Code Section 1950.7 or any other present or future law to the collection of any payment or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser shall have actually received and not refunded the applicable payment or deposit. 26. NOTICES: All notices, demands, requests, or consents required to be given under this Lease shall be sent in writing by U.S. certified mail, return receipt requested, or by personal delivery addressed to the party to be notified at the address for such party specified in Section 1 of this Lease, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days prior notice to the notifying party. 27. ENTRY BY LANDLORD: Upon prior notice to Tenant and subject to Tenant's reasonable security regulations, Tenant shall permit Landlord and his agents to enter into and upon the Premises at all reasonable times, and without any rent abatement or reduction or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned, for the following purposes: (i) inspecting and maintaining the Premises; (ii) making repairs, alterations or additions to the Premises, and (iii) performing any obligations of Landlord under the Lease including remediation of hazardous materials if determined to be the responsibility of Landlord. Tenant shall permit Landlord and his agents, at any time within one hundred eighty (180) days prior to the Expiration Date (or at any time during the Lease if Tenant is in default hereunder), to place upon the Premises "For Lease" signs and exhibit the Premises to real estate brokers and prospective Page 17 21 tenants at reasonable hours. 28. DESTRUCTION OF PREMISES: A. DESTRUCTION BY AN INSURED CASUALTY: In the event of a partial destruction of the Premises during the Lease Term by a casualty for which Landlord has received insurance proceeds sufficient to repair the damage or destruction, Landlord shall repair the same to the extent of such proceeds, provided the repairs can be made within one hundred eighty (180) days from the date of receipt of all governmental approvals necessary under the laws and regulations of State, Federal, County or Municipal authorities, as reasonably determined by Landlord. Landlord agrees that a dispute about this determination is a matter that may be submitted to arbitration pursuant to Section 44 hereof. Such partial destruction shall not annul or void this Lease; however, Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while repairs are being made, such proportionate reduction to be based upon the extent to which the repairs interfere with Tenant's business in the Premises, as reasonably determined by Landlord and Tenant. For purposes of this Section "partial destruction" is defined as destruction of no greater than one-third (1/3) of the replacement cost of the Premises, excluding the replacement cost of Tenant Improvements paid for by Tenant. If the Premises are more than partially destroyed or if the repairs cannot be made in 180 days, Landlord or Tenant may terminate this Lease within fifteen (15) days of Landlord's determination of the foregoing. In no event shall Landlord be required to replace or restore Alterations, Tenant Improvements paid for by Tenant from sources other than the Work Allowance, or Tenant's fixtures or personal property. With respect to a partial destruction which Landlord is obligated to repair or may elect to repair under the terms of this Section, Tenant waives the provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of California, and any other similarly enacted statute, and the provisions of this Section 28 shall govern in the case of such destruction. Tenant shall have the right to terminate this Lease immediately, notwithstanding the provisions of this Section 28.A, in the event Landlord does not complete the required repairs within one hundred eighty (180) days from the date of receipt of all governmental approvals. B. DESTRUCTION BY AN UNINSURED CASUALTY: In the event of a total or partial destruction of the Premises during the Lease Term by a casualty for which Landlord has not received insurance proceeds sufficient to repair the damage or destruction, the Lease shall automatically terminate unless Landlord elects to rebuild and the damage can be repaired within one hundred eighty (180) days. 29. ASSIGNMENT OR SUBLEASE: A. CONSENT BY LANDLORD: Except as specifically provided in this Section 29, Tenant may not assign, sublet, hypothecate, or allow a third party to use the Premises without the express written consent of Landlord. In the event Tenant desires to assign this Lease or any interest herein Page 18 22 including, without limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or any part thereof, Tenant shall deliver to Landlord executed counterparts of any agreement and of all ancillary agreements with the proposed assignee/subtenant, and a notice containing the name and address of the proposed assignee/subtenant, proposed use of the Premises, rental rate and current financial statement. At Landlord's request, Tenant shall also provide additional information reasonably required by Landlord to determine whether it will consent to the proposed assignment or sublease. Landlord shall have a fifteen (15) day period following receipt of all the foregoing within which to notify Tenant in writing that Landlord elects to: (i) terminate this Lease as to the space so affected as of the date so specified by Tenant, in which case Tenant will be relieved of all further obligations as to such space; (ii) permit Tenant to assign or sublet such space to the named assignee/subtenant on the terms and conditions set forth in the notice; or (iii) refuse consent. If Landlord should fail to notify Tenant in writing of such election within the 15-day period, Landlord shall be deemed to have elected option (iii) above. In the event Landlord elects option (i) above, this Lease shall expire with respect to such part of the Premises on the date upon which the proposed sublease was to commence, and from such date forward, Base Monthly Rent and Tenant's Allocable Share of all other costs and charges shall be adjusted based upon the proportion that the rentable area of the Premises remaining bears to the total rentable area of the Premises. In the event Landlord does not elect option (i) above, Landlord's written consent to the proposed assignment or sublease shall not be unreasonably withheld, provided and upon the condition that: (i) the proposed assignee or subtenant is engaged in a business that is limited to the use expressly permitted under this Lease; (ii) the proposed assignee or subtenant is a company with sufficient financial worth and management ability to undertake the financial obligation of this Lease and Landlord has been furnished with reasonable proof thereof; (iii) the proposed assignment or sublease is in form reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant and legal costs incurred in connection with the granting of any requested consent; and (vi) Tenant shall not have advertised or publicized in any way the availability of the Premises without prior notice to Landlord. In the event all or any one of the foregoing conditions are not satisfied, Landlord shall be considered to have acted reasonably if it withholds its consent. B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the rent payable hereunder and reasonable subletting and assignment costs, shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Tenant's obligation to pay over Landlord's portion of the consideration constitutes an obligation for additional rent hereunder. The above provisions relating to Landlord's right to terminate the Lease and relating to the allocation of bonus rent are independently negotiated terms of the Lease which constitute a material inducement for the Landlord to enter into the Lease, and are agreed by the parties to be commercially reasonable. No assignment or subletting by Tenant shall relieve it of any obligation under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void. Page 19 23 C. NO RELEASE: Any assignment or sublease shall be made only if and shall not be effective until the assignee or subtenant shall execute, acknowledge, and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee or subtenant shall assume all the obligations of this Lease on the part of Tenant to be performed or observed and shall be subject to all the covenants, agreements, terms, provisions and conditions in this Lease. Notwithstanding any such sublease or assignment and the acceptance of rent by Landlord from any subtenant or assignee, Tenant and any guarantor shall remain fully liable for the payment of Base Monthly Rent and additional rent due, and to become due hereunder, for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, assignee or any other person claiming under or through any subtenant or assignee that shall be in violation of any of the terms and conditions of this Lease, and any such violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any real estate brokers or other persons claiming compensation in connection with the proposed assignment or sublease. D. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant hereby assigns all rents due from any assignment or subletting to Landlord as security for performance of its obligations under this Lease, and Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents unless a default occurs as described in Section 22 and 24 above. A Lease termination due to Tenant's default shall not automatically terminate an assignment or sublease then in existence; rather at Landlord's election, such assignment or sublease shall survive the Lease termination, the assignee or subtenant shall attorn to Landlord, and Landlord shall undertake the obligations of Tenant under the sublease or assignment; except that Landlord shall not be liable for prepaid rent, security deposits or other defaults of Tenant to the subtenant or assignee, or for any acts or omissions of Tenant, its agents, employees, contractors or invitees. 30. CONDEMNATION: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and only a part thereof remains which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the day before title vests in the condemnor or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required to pay for the remainder of the Lease Term only such portion of Base Monthly Rent as the value of the part remaining after such taking bears to the value of the entire Premises prior to such taking; but in such event, Landlord shall have the option to terminate this Lease as of the Vesting Date. If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder or more than twenty five percent (25%) of the Premises is effectively unusable by Tenant, this Lease shall terminate on the Vesting Date. If part or all of the Premises be taken, all compensation awarded upon such taking shall go to Landlord, and Tenant shall have no claim Page 20 24 thereto; but Landlord shall cooperate with Tenant, without cost to Landlord, to recover compensation for damage to or taking of any Alterations, Tenant Improvements paid for by Tenant from sources other than the Work Allowance, or for Tenant's moving costs. Tenant hereby waives the provisions of California Code of Civil Procedures Section 1265.130 and any other similarly enacted statue, and the provisions of this Section 30 shall govern in the case of such taking. 31. EFFECTS OF CONVEYANCE: As used in this Lease, the term "Landlord" is defined only as the owner for the time being of the Premises, so that in the event of any sale or other conveyance of the Premises or in the event of a master lease of the Premises, Landlord shall be entirely freed and relieved of all its covenants and obligations hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale or the master tenant of the Premises, that the purchaser or master tenant of the Premises has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Such transferor shall transfer and deliver Tenant's security deposit to the purchaser at any such sale or the master tenant of the Premises, and thereupon the transferor shall be discharged from any further liability in reference thereto. 32. SUBORDINATION: This Lease is subject and subordinate to ground and underlying leases, mortgages and deeds of trust (collectively "Encumbrances") which may now affect the Premises, to any covenants, conditions or restrictions of record, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance ("Holder") require that this Lease be prior and superior thereto, within seven (7) days after written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems necessary or desirable for such purposes. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant is not then in default and continues to pay Base Monthly Rent and additional rent and observes and performs all required provisions of this Lease. Within ten (10) days after Landlord's written request, Tenant shall execute any documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in addition to such failure constituting a default by Tenant, it shall be deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding anything to the contrary in this Section, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such encumbrance. Page 21 25 33. WAIVER: The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed as a waiver of such term, covenant or condition of any subsequent breach of the same or any other term, covenant or condition. The subsequent acceptance of rent hereunder by Landlord shall not be deemed as a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No payment by Tenant or receipt by Landlord of a lesser amount than any installment of rent due shall be deemed as other than payment on account of the amount due. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver thereof by Landlord. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute acceptance of the surrender of the Premises by Tenant before the Expiration Date. Only written notice from Landlord to Tenant of acceptance shall constitute such acceptance of surrender of the Premises. Landlord's consent to or approval of any act by Tenant which requires Landlord's consent or approvals shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. 34. HOLDING OVER: Any holding over after the termination or Expiration Date with Landlord's consent, shall be construed as month-to-month tenancy, terminable on thirty (30) days written notice from either party, and Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred thirty three percent (133%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. Any holding over shall otherwise be on the terms and conditions herein specified, except those provisions relating to the Lease Term and any options to extend or renew, which provisions shall be of no further force and effect following the expiration of the applicable exercise period. Tenant shall indemnify, defend, and hold Landlord harmless from all loss or liability (including, without limitation, any loss or liability resulted from any claim against Landlord made by any succeeding tenant) resulting from Tenant's failure to timely surrender the Premises to Landlord and losses to Landlord due to lost opportunities to lease the Premises to succeeding tenants. 35. SUCCESSORS AND ASSIGNS: Subject to the provisions of Section 29, the covenants and conditions of this Lease shall apply to and bind the heirs, successors, executors, administrators and assigns of all parties hereto; and all parties hereto shall be jointly and severally liable hereunder. 36. ESTOPPEL CERTIFICATES: At any time during the Lease Term, Tenant shall, within ten (10) days following written notice from Landlord, execute and deliver to Landlord a written statement certifying, if true, the following: (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification); (ii) the date to which rent and other charges are paid in advance, if any; (iii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or specifying such defaults if they are claimed); and (iv) such other information as Landlord may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of Landlord's interest in the Page 22 26 Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon the Tenant that this Lease is in full force and effect without modification, except as may be represented by Landlord, and that there are no uncured defaults in Landlord's performance. Tenant agrees to provide, within five (5) days of Landlord's request, Tenant's most recent three (3) years of audited financial statements for Landlord's use in financing the Premises or Landlord's interest therein. 37. OPTION TO EXTEND THE LEASE TERM: A. GRANT AND EXERCISE OF OPTION: Landlord grants to Tenant, subject to the terms and conditions set forth in this Section , four (4) options (the "Options") to extend the Lease Term for an additional term (the "Option Term"). Each Option Term shall be for a period of sixty (60) months and shall be exercised, if at all, by written notice to Landlord no earlier than eighteen (18) months prior to the Expiration Date but no later than twelve (12) months prior to the Expiration Date. If Tenant exercises the Option, all of the terms, covenants and conditions of this Lease except this Section shall apply during the Option Term as though the expiration date of the Option Term was the date originally set forth herein as the Expiration Date, provided that Base Monthly Rent for the Premises payable by Tenant during the Option Term shall be the greater of either the Base Monthly Rent applicable to the period immediately prior to the commencement of the Option Term, or the Fair Market Rental as hereinafter defined. Notwithstanding anything herein to the contrary, if Tenant is in monetary or material non-monetary default under any of the terms, covenants or conditions of this Lease either at the time Tenant exercises the Option or at any time thereafter prior to the commencement date of the Option Term, Landlord shall have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate the Option upon notice to Tenant, in which event the expiration date of this Lease shall be and remain the Expiration Date. As used herein, the term "Fair Market Rental" is defined as the rental and all other monetary payments, including any escalations and adjustments thereto (including without limitation Consumer Price Indexing) that Landlord could obtain during the Option Term from a third party desiring to lease the Premises, based upon the current use and other potential uses of the Premises, as determined by the rents then being obtained for new leases of space comparable in age and quality to the Premises in the locality of the Building Fair Market Rental shall further take into account that Tenant is in occupancy and making functional use of the Premises in its then existing condition, and that no brokerage commission is payable. B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises the Option, Landlord shall send Tenant a notice setting forth the Fair Market Rental for the Option Term within thirty (30) days following the Exercise Date. If Tenant disputes Landlord's determination of Fair Market Rental for the Option Term, Tenant shall, within thirty (30) days after the date of Landlord's notice setting forth Fair Market Rental for the Option Term, send to Landlord a notice stating that Tenant either elects to terminate its exercise of the Option, in which event the Option shall lapse and this Lease shall terminate on the Expiration Date, or that Tenant disagrees with Landlord's determination of Fair Market Rental for the Option Term and elects to resolve the disagreement as provided in Section Page 23 27 37.C below. If Tenant does not send Landlord a notice as provided in the previous sentence, Landlord's determination of Fair Market Rental shall be the basis for determining the Base Monthly Rent payable by Tenant during the Option Term. If Tenant elects to resolve the disagreement as provided in Section 37.C and such procedures are not concluded prior to the commencement date of the Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord in the manner provided above. If the Fair Market Rental as finally determined pursuant to Section 37.C is greater than Landlord's determination, Tenant shall pay Landlord the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 37.C within thirty (30) days after such determination. If the Fair Market Rental as finally determined in Section 37.C is less than Landlord's determination, the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 37.C shall be credited against the next installments of rent due from Tenant to Landlord hereunder. C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL: Any disagreement regarding Fair Market Rental shall be resolved as follows: 1. Within thirty (30) days after Tenant's response to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at least two (2) times at a mutually agreeable time and place, in an attempt to resolve the disagreement. 2. If within the 30-day period referred to above, Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party shall select one appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a determination of Fair Market Rental and submit their conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described above. 3. If only one appraisal is submitted within the requisite time period, it shall be deemed as Fair Market Rental. If both appraisals are submitted within such time period and the two appraisals so submitted differ by less than ten percent (10%), the average of the two shall be deemed as Fair Market Rental. If the two appraisals differ by more than 10%, the appraisers shall immediately select a third appraiser who shall, within thirty (30) days after his selection, make and submit to Landlord and Tenant a determination of Fair Market Rental. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be Fair Market Rental. 4. All appraisers specified pursuant to this Section shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising office and industrial properties in the Santa Clara Valley. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser. 38. OPTIONS: All Options provided to Tenant in this Lease are personal and granted to Flextronics International and are not exercisable by any third party should Tenant assign or sublet all Page 24 28 or a portion of its rights under this Lease, unless Landlord consents to permit exercise of any option by any assignee or subtenant, in Landlord's sole discretion. In the event Tenant has multiple options to extend this Lease, a later option to extend the Lease cannot be exercised unless the prior option has been so exercised. 39. QUIET ENJOYMENT: Upon Tenant's faithful and timely performance of all the terms and covenants of the Lease and except as otherwise provided in this Lease, Tenant shall quietly have and hold the Premises for the Lease Term and any extensions thereof. 40. BROKERS: Tenant represents it has not utilized or contacted a real estate broker or finder with respect to this Lease and Tenant agrees to indemnify, defend and hold Landlord harmless against any claim, cost, liability or cause of action asserted by any other broker or finder claiming through Tenant. 41. LANDLORD'S LIABILITY: If Tenant recovers a money judgment against Landlord arising in connection with this Lease, the judgment shall be satisfied only out of Landlord's interest in the Premises, including the improvements and real property, and neither Landlord nor any of its partners, officers, directors, agents, trustees, shareholders or employees shall be liable personally for any deficiency. Tenant expressly waives all rights to proceed against the individual partners or the officers, directors or shareholders of any corporate partner, except to the extent of their interest in said limited partnership. 42. AUTHORITY OF PARTIES: Tenant represents and warrants that it is duly formed and in good standing, and is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. At Landlord's request, Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of the Lease. 43. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government agency or municipality require Landlord to institute TDM (Transportation Demand Management) facilities and/or program, Tenant agrees that the cost of TDM imposed facilities required on the Premises, including but not limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM program which are required for the Premises and not provided by Tenant, such as an on-site TDM coordinator, shall be provided by Landlord with such costs being included as additional rent and reimbursed to Landlord by Tenant within thirty (30) days after demand. 44. DISPUTE RESOLUTION: Except for the Tenant's failure to timely pay Base Monthly Rent, any controversy, dispute, or claim of whatever nature arising out of, in connection with, or in Page 25 29 relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort, or statute, shall be resolved at the request of any party to this agreement through a two-step dispute resolution process administered by JAMS or another judicial and mediation service mutually acceptable to the parties involving first mediation, followed, if necessary, by final and binding arbitration administered by and in accordance with the then-existing rules and practice of the judicial and mediation service selected, and judgment upon any award rendered by the arbitrator(s) may be entered by any State or Federal Court having jurisdiction thereof. 45. LEASE GUARANTY: A material provision of the Lease and a material inducement of Landlord to enter into this Lease is the guaranty of this Lease by Flextronics International, Ltd., a Singapore Company, ("Guarantor") which is attached hereto as Exhibit "E" and made a part hereof 46. MISCELLANEOUS PROVISIONS: A. RENT: All monetary sums due from Tenant to Landlord under this Lease, including, without limitation those referred to as "additional rent", shall be deemed as rent. B. MANAGEMENT FEE: Tenant shall pay Landlord a fee of one percent (1%) of the Base Monthly Rent to reimburse Landlord for property management costs related to the Premises. C. PERFORMANCE BY LANDLORD: If Tenant fails to perform any obligation required under this Lease or by law or governmental regulation, Landlord in its sole discretion may, without notice, without waiving any rights or remedies and without releasing Tenant from its obligations hereunder, perform such obligation, in which event Tenant shall pay Landlord as additional rent all sums paid by Landlord in connection with such substitute performance, including interest as provided in Section 46.D below within ten (10) days of Landlord's written notice for such payment. D. INTEREST: All rent due hereunder, if not paid when due, shall bear interest at ten percent (10%) per annum, accruing from the date due until the date paid to Landlord. E. RIGHTS AND REMEDIES: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law, and are in addition to all other rights and remedies in law and in equity. F. SURVIVAL OF INDEMNITIES: All indemnification, defense, and hold harmless obligations of Landlord and Tenant under this Lease shall survive the expiration or sooner termination of the Lease. G. SEVERABILITY: If any term or provision of this Lease is held unenforceable or invalid by a court of competent jurisdiction, the remainder of the Lease shall not be invalidated thereby but shall be enforceable in accordance with its terms, omitting the invalid or unenforceable term. Page 26 30 H. CHOICE OF LAW: This Lease shall be governed by and construed in accordance with California law. Venue shall be Santa Clara County. I. TIME: Time is of the essence hereunder. J. ENTIRE AGREEMENT: This Lease contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner other than by written agreement signed by all parties hereto or their respective successors in interest. This Lease supersedes and revokes all previous negotiations, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties, and understandings, whether oral or in writing, between the parties or their respective representatives or any other person purporting to represent Landlord or Tenant. K. REPRESENTATIONS: Tenant acknowledges that neither Landlord nor any of its employees or agents have made any agreements, representations, warranties or promises with respect to the Premises or with respect to present or future rents, expenses, operations, tenancies or any other matter. Except as herein expressly set forth herein, Tenant relied on no statement of Landlord or its employees or agents for that purpose. L. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both parties; and that in any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof. M. HEADINGS: The headings or titles to the Sections of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part thereof. N. EXHIBITS: All exhibits referred to are attached to this Lease and incorporated by reference. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written. LANDLORD: JOHN AND SUSAN SOBRATO TENANT: FLEXTRONICS INTERNATIONAL,USA, INC. 1979 REVOCABLE TRUST a California Corporation By: By: -------------------------- ------------------------------ Its: Trustee Its: ------------------------------ Page 27 31 EXHIBIT "A" - PREMISES, BUILDING & PROJECT Page 28 32 EXHIBIT "B" - SHELL PLANS AND SPECIFICATIONS (sheet references to be attached) Page 29 33 EXHIBIT "C" - BUILDING SHELL DEFINITION The Building Shell shall include the following items: 1. BUILDING STRUCTURE (a) All foundations to include footings, piers, caissons, pilings, grade beams, foundation walls or other building foundation components required to support the building structure. (b) All steel box or pipe columns, glu-lam beams, joists, purlins, web trusses, or other structural members to support the roof and roofing membrane. (c) Five inch (5") thick concrete slab on grade. (d) Exterior concrete walls that enclose the perimeter of the building, with steel reinforcing and structural connections that may be necessary or required. (e) Exterior glass and glazing with anodized aluminum frames, soffets and overhangs. All exterior doors, door closers and locking devices necessary for proper functioning. (f) 2"x4" roof panels with 1/2" plywood and roof drains. (g) Three (3) ply built up roofing with cap sheet by Owens-Corning, John Manville, or equal and all flashings. (h) Exterior painting of all concrete with Tex-Coat or Kel-Tex textural paint, all caulking of exterior concrete joints in preparation for painting. (i) Offsite improvements costs required by the City of San Jose to obtain a building permit. 2. SITEWORK (a) All work outside the building perimeter walls shall be considered site work for the Building Shell and shall include grading, asphalt concrete, paving, landscaping, landscape irrigation, storm drainage, utility service laterals, curbs, gutters, sidewalks, specialty paving (if required, i.e. reinforced roadway section to truck doors), retaining walls, planters, parking lot and landscape lighting and other exterior lighting per code (b) Paving sections for automobile and truck access shall be according to the Geologic Soils Report. Page 30 34 (c) All parking lot striping to include handicap spaces and signage. (d) Underground site storm drainage system shall be connected to the city storm system main. 3. PLUMBING (a) Underground sanitary sewer laterals connected to the city sewer main in the street and stubbed to the building. (b) Domestic water mains connected to the city water main in the street and stubbed to the building. (c) Roof drain leaders and downspouts piped and connected to the site storm drainage system. (d) Gas lines connected to the city or public utility mains and run to gas meters adjacent to, and in close proximity to the building. Meter supplied by utility company. 4. ELECTRICAL (a) A primary electrical raceway service from the street to the building, including underground conduit and transformer pads. Transformer supplied by utility company. Underground conduits and secondary feeders from transformer pads into the building. (b) Underground conduit from the street to the building for telephone trunk lines by Pacific Telephone. (c) An electrically operated landscape irrigation system, with controller, that is a complete and functioning system. (e) Underground conduit from the building to the main fire protection system post indicator valve (PIV) for installation of supervisory alarm wiring. Page 31 35 EXHIBIT "D" - TENANT IMPROVEMENT PLANS AND SPECIFICATIONS (sheet references to be attached) Page 32 36 EXHIBIT "E" - GUARANTY OF LEASE This Guaranty of Lease ("Guaranty") is made as of this 19th day of November, 1996 by FLEXTRONICS INTERNATIONAL, LTD., a Singapore Company, ("Guarantor") in favor of Landlord, and recites as follows: WHEREAS, as an inducement for Landlord to enter into the Lease, Guarantor desires to guarantee the full performance of all obligations of Tenant under the Lease upon the terms set forth below. NOW THEREFORE, in consideration of the execution of the Lease by Landlord, Guarantor unconditionally guarantee and agree as follows: 1. GUARANTY. Guarantor, continually, directly and unconditionally hereby guarantee the full performance by Tenant of each and every term, covenant, condition and obligation of the Lease to be performed by Tenant (the foregoing obligations are hereinafter sometimes collectively referred to as the "Guaranteed Obligations"). The Guaranteed Obligations shall include, without limitation, the payment of Base Rent, Additional Rent and all other sums becoming due under the Lease and the compliance with all the provisions of the Lease which relate to Hazardous Materials. 2. CONTINUING GUARANTY. This Guaranty is a continuing one and shall terminate only upon the full and complete performance by Tenant of all of the Guaranteed Obligations. Guarantor's liability under this Guaranty with respect to the full and unconditional performance of the Guaranteed Obligations shall continue following the termination of the Lease Term to the extent any of the Guaranteed Obligations have not otherwise been performed. Guarantor may not revoke the continuing nature of this Guaranty. In the event that Landlord should seek to enforce any of its rights provided in this Guaranty, and demand payment or performance from Guarantor, such demand and compliance thereto shall not release, extinguish, exonerate or, in any way, affect or diminish Guarantor's continuing obligations hereunder. 3. LEASE MODIFICATIONS. This Guaranty shall continue in full force and effect as to any and all renewals, modifications, amendments or extensions of the Lease, whether or not Guarantor shall have received any notice of or consented to such renewals, modifications, amendments or extensions. No renewal, modification, amendment or extension of the Lease shall in any manner release, discharge or diminish the obligations of Guarantor hereunder. This paragraph modifies the provision of California Civil Code Section 2819. Notwithstanding the foregoing, Landlord shall give Guarantor five (5) day prior notice before Landlord's approval of any said renewal, modification, amendments or extensions of the Lease. Page 33 37 4. ASSIGNMENT BY LANDLORD. Landlord may, without notice, assign, transfer, hypothecate, encumber or otherwise dispose of, in whole or in part, any of Landlord's rights, claims or interests in the Lease, the Premises or this Guaranty. No assignment, hypothecation, encumbrance, disposition or other transfer of the Lease, the Premises or this Guaranty shall operate to extinguish or diminish, in any way, the obligations of Guarantor hereunder. 5. ASSIGNMENT BY TENANT. This Guaranty shall continue and remain unconditionally unaffected by any assignment of the Lease by Tenant, any sublet by Tenant of the Premises, or any change in the entity comprising Tenant. Upon any assignment of the Lease or any sublet, the Guarantor shall continue to remain liable and obligated for the full performance by Tenant's successor of the Guaranteed Obligations. "Tenant" as used in this Guaranty shall include all successors and assigns of Tenant. 6. ADDITION OR RELEASE OF SECURITY. This Guaranty shall remain in full force and effect notwithstanding the receipt by Landlord of any additional security, whether from Guarantor, Tenant or a third party, securing the performance of the Guaranteed Obligations. The release by Landlord of any security held for the performance of any of the Guaranteed Obligations shall not release, extinguish or, in any way, affect or diminish the obligations of Guarantor hereunder. 7. LOSSES DUE TO LEASE DEFAULT. Landlord may terminate the Lease upon default by Tenant of any term, covenant or condition of the Lease. Such termination, however shall not extinguish, release or, in any way, affect or diminish the obligations of Guarantor hereunder. In no event shall Landlord be obligated to lease the Premises to Guarantor after such termination. Upon termination of the Lease, as a result of Tenant's default thereunder, this Guaranty shall extend to the payment to Landlord of all damages payable by Tenant. 8. ACTIONS OF LANDLORD. This Guaranty shall not be released, extinguished, modified or, in any way, affected or diminished by failure, on the part of Landlord, to enforce any or all of the rights or remedies of Landlord under the Lease, or by Landlord's grant of any indulgences or extensions of time to Tenant for the performance of any of the Guaranteed Obligations. This Guaranty shall remain in full force and effect notwithstanding the failure of Landlord to insist, in any one or more instances, upon a strict performance or observance of the Guaranteed Obligations or upon the exercise of any of Landlord's rights under the Lease. Receipt by Landlord of Base Rent or other performance from Tenant, after breach by Tenant, with the knowledge of such breach, shall not be deemed a waiver of such breach. Any reference herein to any liability of Tenant shall, at the same time, refer to the obligations of Guarantor hereunder. 9. ABILITY TO PROCEED DIRECTLY AGAINST GUARANTOR. Landlord may, at Landlord's option, proceed immediately and directly against Guarantor, jointly or severally, in order to enforce the performance of the Guaranteed Obligations under the Lease. Landlord shall give written notice to Guarantor and give Guarantor the same cure period available to Tenant upon the monetary or non- Page 34 38 monetary default of Tenant prior to proceeding against Guarantor hereunder. Landlord shall not be required to first institute suit, proceedings, or otherwise exhaust its legal remedies against Tenant. 10. This paragraph intentionally left blank. 11. GUARANTOR'S WAIVERS. Guarantor hereby waives (i) all defenses based upon any legal disability of Tenant or any discharge or limitation of liability of Tenant, to Landlord, whether consensual or arising by operation of law or any bankruptcy, insolvency or debtor-relief proceeding or from any other cause; and (ii) all rights to be exonerated hereunder pursuant to the provisions of California Civil Code Section 2819 and/or 2845 and/or 2850 and pursuant to any other statute or rule of law of similar import. 12. STATUS OF TENANT. Guarantor represent and warrant that Tenant is under no disability in connection with the execution and delivery of the Lease and that there are no defenses to Tenant's full performance and payment of the obligations required by the Lease. 13. GUARANTOR REMAIN LIABLE TO LANDLORD. Tenant, or any persons or entities comprising Tenant, may be released from Tenant's obligations under the Lease, without notice to Guarantor, and Guarantor shall nevertheless remain liable to Landlord under this Guaranty. 14. ENFORCEMENT OF GUARANTY UPON DEFAULT. The enforcement of this Guaranty upon the default of Tenant shall not constitute an assignment to Guarantor, by Landlord, of any rights or claims which Landlord may have against Tenant. 15. DUTY OF GUARANTOR/BINDING EFFECT. The obligations of Guarantor hereunder are direct, unconditional and independent of those of Tenant under the Lease. Guarantor shall punctually perform their obligations hereunder upon demand by Landlord. This Guaranty shall be binding upon the Guarantor, their respective successors and assigns. 16. OTHER GUARANTOR. This Guaranty shall remain in full force and effect, notwithstanding that other guarantors from time to time may guarantee or otherwise become responsible for the performance of any of the terms, covenants and conditions of the Lease. 17. RIGHT OF SET-OFF. In enforcing this Guaranty, Landlord reserves the right to set-off any claims or rights Guarantor may have against Landlord, whether or not such claims or rights arise out of the Lease or otherwise. Failure of Landlord to so set-off shall not constitute a waiver of any future rights of set-off that Landlord may exercise. 18. RIGHTS CUMULATIVE. All rights of Landlord under this Guaranty are cumulative and are in addition to any other rights which Landlord may otherwise have. Page 35 39 19. PROVISIONS SEVERABLE. The provisions of this Guaranty are severable, and if any provision herein is invalid, the balance of this Guaranty shall remain in force and effect to the fullest extent permitted by law. 20. CONDEMNATION. In the event that the Premises, for any reason, are condemned by a public entity, Guarantor shall have no rights or claims to any condemnation awards recovered by Landlord or Tenant therefrom. 21. ESTOPPEL CERTIFICATE. Upon demand by Landlord, Guarantor shall deliver to Landlord and to any prospective purchaser, mortgagee and/or beneficiary under a deed of trust, or other lender designated by Landlord, an estoppel certificate, executed and acknowledged by Guarantor, to the effect that this Guaranty is in full force and effect and has not been amended or terminated. Guarantor shall also certify such other matters relating to the Lease, the Premises or this Guaranty as may be requested by a lender making a loan to Landlord or a purchaser of the Premises from Landlord if the foregoing is true. 22. BANKRUPTCY OF TENANT. This Guaranty shall remain and continue in full force and effect, notwithstanding: (i) the commencement or continuation of any case, action, or proceeding by, against or concerning Tenant, under any federal or state bankruptcy, insolvency, or other debtor's relief law, including, without limitation: (x) a case under Title 11 of the United States Code concerning Tenant, whether under Chapter 7, 11 or 13 of such Title or under any other Chapter, or (y) a case, action or proceeding seeking Tenant's financial reorganization or an arrangement with any of Tenant's creditors; (ii) the voluntary or involuntary appointment of a receiver, trustee, keeper or other person who takes possession of substantially all of Tenant's assets or o~ any asset used in Tenant's business on the Premises, regardless of whether such appointment occurs as a result of insolvency or other cause; or (iii) the execution of an assignment for the benefit of creditors of substantially all assets of Tenant available by law for the satisfaction of judgment creditors. 23. NO CONDITION PRECEDENT. This Guaranty shall not be subject to any condition precedent to the effectiveness hereof. 24. ATTORNEYS' FEES. In the event any action or proceeding is brought to enforce any of the terms, covenants or conditions of this Guaranty; then the losing party shall pay to the prevailing party reasonable attorney's fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to recover all costs and expenses including reasonable attorney's fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post-judgment costs is severable from all other provisions of this Agreement. Page 36 40 25. NOTICE PROVISION. Any notice to be delivered hereunder shall be in writing and shall be deemed delivered upon personal service or upon seventy-two (72) hours after deposited in the U.S. Postal Service, postage prepaid, registered or certified, return receipt requested, addressed as follows: Flextronics International, Ltd. 2241 Lundy Avenue San Jose, CA 95131 26. MODIFICATIONS IN WRITING. This Guaranty may not be changed, waived, discharged or terminated orally or by course of conduct, but rather only by an instrument in writing signed by the party against whom enforcement of the charge, waiver, discharge or termination is sought. 27. CHOICE OF LAW. The parties agree that the terms of the Lease and this Guaranty of Lease were negotiated in the County of Santa Clara, State of California. This Guaranty of Lease shall be governed by and construed in accordance with the laws of the State of California. Guarantor hereby submits to the legal jurisdiction of the State of California and to the service of process of any court of the State of California. The parties agree that all disputes shall be determined by resort to the courts of California of competent jurisdiction, with venue in Santa Clara County. 28. DESCRIPTIVE HEADINGS. Descriptive headings are for reference purposes only and shall not affect any meaning, construction or interpretation of this Guaranty. IN WITNESS WHEREOF, the undersigned Guarantor has executed this agreement as of November __, 1996. GUARANTOR: FLEXTRONICS INTERNATIONAL, LTD. by: --------------------------------- its: --------------------------------- Page 37 EX-10.2 3 SALES/PURCHASE AGREE BETWEEN FICO AND THE COMPANY 1 Exhibit 10.2 DATED THE 29th DAY OF NOVEMBER 1996 Between FLEXTRONICS INTERNATIONAL LTD as Purchaser FICO FOREST INDUSTRIAL CO. LIMITED as Vendor and FICO INVESTMENT HOLDING LIMITED as the Company SALE AND PURCHASE AGREEMENT relating to 4,000 ordinary shares consisting of 40% of all the ordinary shares in the share capital of FICO INVESTMENT HOLDING LIMITED 2 TABLE OF CONTENTS Clause Heading Page - ------ ------- ---- 1. DEFINITIONS AND INTERPRETATION ......................... 2 2. SALE OF THE SALE SHARES ................................ 6 3. CONDITIONS ............................................. 6 4. CONSIDERATION FOR THE SALE SHARES ...................... 7 5. POST-CLOSING ADJUSTMENT ................................ 8 6. COMPLETION ............................................. 8 7. VENDOR'S WARRANTIES .................................... 11 8. VENDOR'S AND COMPANY'S UNDERTAKINGS .................... 14 9. INDEMNITY .............................................. 14 10. PROFIT TARGET .......................................... 15 11. COVENANTS AND UNDERTAKINGS ............................. 16 12. CONFIDENTIALITY ........................................ 19 13. RESTRICTION ON ANNOUNCEMENTS ........................... 20 14. COSTS .................................................. 20 15. GENERAL ................................................ 20 16. ILLEGALITY ............................................. 21 17. NOTICES ................................................ 21 18. REMEDIES AND WAIVERS ................................... 22 19. TIME OF ESSENCE ........................................ 22 20. GOVERNING LAW AND DISPUTE RESOLUTION ................... 22 21. COUNTERPARTS ........................................... 23 SCHEDULE 1 PARTICULARS OF THE COMPANY ............... 25 SCHEDULE 2 CALL OPTION AGREEMENT .................... 26 SCHEDULE 3 CHARGE ................................... 46 SCHEDULE 4 EMPLOYMENT AGREEMENT - LAW SING HONG ..... 55 EMPLOYMENT AGREEMENT - LAW SHUN HANG ..... 64 EMPLOYMENT AGREEMENT - LAW KIN PING ...... 73 SCHEDULE 5 ESCROW AGREEMENT ......................... 82 SCHEDULE 6 FICO CALL OPTION AGREEMENT ............... 89 SCHEDULE 7 PARTICULARS OF FICO(PRC) ................. 97 SCHEDULE 8 DEED OF INDEMNITY ........................ 98 SCHEDULE 9 MEMORANDUM OF DISCLOSURE ................. 105 SCHEDULE 10 PRC PROPERTY ............................. 108 SCHEDULE 11 PUT OPTION AGREEMENT ..................... 109 SCHEDULE 12 SHAREHOLDERS' AGREEMENT .................. 117 SCHEDULE 13 REPRESENTATIONS AND WARRANTIES ........... 136 SCHEDULE 14 ASSUMPTIONS AND POLICIES REGARDING THE PROFIT TARGET UNDER CLAUSE 10 ....... 158 3 THIS AGREEMENT is made on the 29th day of November 1996 BETWEEN (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore and having its registered office at 36 Robinson Road, City House, #18-01, Singapore 068877 ("Purchaser"); (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("Vendor"); and (3) FICO INVESTMENT HOLDING LIMITED, a company incorporated in Hong Kong and having its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("Company"). WHEREAS: (A) The Company and FICO(PRC) (as defined below) are in the business of the sale and manufacture of plastic material products and its by-products. (B) The Company was incorporated in Hong Kong on 12 September 1996 and has, at the date hereof, an authorized share capital of 10,000 ordinary shares of HK$1.00 each of which 10,000 ordinary shares are issued and paid-up. The relevant particulars of the Company are set out in Schedule 1. (C) FICO(PRC) has, at the date hereof, an authorised capital of HK$55,000,000 and pursuant to the Capital Verification Certificate dated 9 April 1996 from Shenzhen Baoan Certified Public Accountants, HK$42,981,525 has been paid up. (D) The Vendor is the legal and beneficial owner of all the issued shares in the share capital of the Company and the owner of FICO(PRC). (E) The Vendor has agreed to transfer ownership of FICO(PRC) to the Company such that, by the Completion Date of this Agreement, FICO(PRC) shall be a subsidiary of the Company. FICO(PRC) will be the only subsidiary of the Company. (F) The Vendor has offered to sell to the Purchaser 4,000 Shares (as defined below) consisting of forty percent. (40%) of the issued and paid-up share capital of the Company, which are or shall, be legally and beneficially held by the Vendor by the Completion Date of this Agreement. (G) The Vendor is desirous of selling, and the Purchaser is desirous of purchasing, all the Sale Shares (as defined below) for the consideration and on the terms and subject to the conditions, contained in this Agreement and further to that, have agreed to the terms and execution of, and agreed to procure the execution of the Employment Agreements (as defined below), the Put Option Agreement (as defined below), the Call Option Agreement (as defined below), the Escrow Agreement (as defined below), the Fico Call Option Agreement (as defined below), the Shareholders' Agreement (as defined below) the Deed of Indemnity (as defined below) and the Charge (as defined below), upon the Completion of this Agreement. 4 NOW IT IS HEREBY AGREED as follows: 1 DEFINITIONS AND INTERPRETATION 1.1 In this Agreement and in the Schedules unless the context requires otherwise: "Articles" means the articles of association of each Group Company; "Audited Accounts" means the consolidated pro-forma audited accounts for the financial period ended the Balance Sheet Date prepared by the Purchaser's Auditors; "Audited Net Asset Value" shall have the meaning ascribed to it in Clause 5.1; "Balance Consideration" shall have the meaning ascribed to it in Clause 4.2(ii); "Balance Sheet Date" means 30 September 1996; "Business" shall have the meaning ascribed to it in Clause 11.3(vi); "Business Day" means a day (other than a Saturday, a Sunday or a public holiday in Hong Kong) on which commercial banks are open for business in Hong Kong; "Call Option Agreement" means the conditional call option agreement to be entered into between the Vendor and the Purchaser substantially in the form set out in Schedule 2; "Charge" means the first fixed charge to secure the various covenants, guarantees and undertakings of the Vendor under and pursuant to this Agreement, the Call Option Agreement, Fico Call Option Agreement, Put Option Agreement, Escrow Agreement, Deed of Indemnity and the Shareholders' Agreement, over the Shares constituting sixty per cent. (60%) of the issued and paid-up capital of the Company, to be executed by the Vendor in favour of the Purchaser substantially in the form set out in Schedule 4; "Chinese Party" means any governmental, regulatory, provincial, state or statutory authority in the PRC or any person exercising such functions; "Companies Ordinance" means the Hong Kong Companies Ordinance; "Completion" means completion of the sale and purchase of the Sale Shares as specified in Clause 6; "Completion Date" means the date falling twenty (20) Business Days after the fulfillment of the last of the conditions in Clause 3.1 but in any event, not later than 15 December 1996 or such other date as the parties may mutually agree; "Confidential Information" means any information which is proprietary and confidential to a party including but not limited to the terms and conditions of this Agreement, information concerning or relating in any way whatsoever to its distributorship arrangements, principals, any of the trade secrets or confidential operations, processes or inventions carried on or used by a party, any information concerning the Organisation, business, finances, transactions or affairs of a party, dealings of a party, secret or confidential information which relates to the business or party or any of its principals', clients' or customers' transactions or affairs, any party's technology, designs, documentation, manuals, budgets, financial statements or information, accounts, dealers' lists, customer lists, marketing studies, drawings, notes, memoranda and the information contained therein, any information therein in respect of trade secrets, technology and technical or other information relating to the development, manufacture, clinical testing, analysis, marketing, 2 5 sale or supply or proposed development, manufacture, clinical testing, analysis, marketing, sale or supply of any products or services by a party; and plans for the development or marketing of such products or services and information and material which is either marked confidential or is by its nature intended to be exclusively for its knowledge of the recipient alone; "Consideration" means the consideration for the Sale Shares as specified in Clause 4; "Deed of Indemnity" means a deed of indemnity entered or to be entered into between the Vendor, the Purchaser and the Group Companies substantially in the form set out in Schedule 8; "Deferred Consideration Payment Date" means the date falling four (4) calendar months after the Completion Date; "Encumbrance" means any mortgage, assignment of receivables, debenture, lien, charge, pledge, title retention, right to acquire, security interest, options, rights of first refusal and any other encumbrance or condition whatsoever; "Employment Agreements" means the employment agreements to be executed by Law Sing Hong, Law Shun Hang and Law Kin Ping substantially in the forms respectively set out in Schedule 4; "Escrow Agent" means Ernst & Young, an international accounting firm having its place of business at 1O/F Tower 2, The Gateway 25-27, Canton Road, Kowloon, Hong Kong, or any successor escrow agent appointed by the Purchaser; "Escrow Agreement" means the escrow agreement to be executed by the Vendor, the Purchaser and the Escrow Agent pursuant to the terms of this Agreement which is substantially set out in Schedule 5; "Fico Call Option Agreement" means the conditional call option agreement to be entered into between the Vendor and the Purchaser substantially in the form set out in Schedule 6; "FICO (PRC)" means Forest Keyboard Manufacturing (Shenzhen) Ltd., a company registered and validly existing in Shenzhen, the PRC, relevant particulars of which are set out in Schedule 7; "FICO (PRC) Litigation" means the claim initiated by FICO(PRC) against Shenzhen City Number Four Construction Engineering Company ("Defendant"), a company having its place of business in Shenzhen, PRC, for an order by the Shenzhen City Special Economic Zone Peoples' Court to (i) terminate the Shenzhen City Construction Engineering Works Contract signed between FICO(PRC) and the Defendant on 21 July 1995 for the failure by the Defendant to comply with certain quality standards stipulated in the said contract, (ii) order the Defendant to refund to FICO(PRC) the advance of 600,000 RMB paid by FICO(PRC) for the construction of a factory building located at BaoAn Gong Min Town, YuLui Village, and (iii) order the Defendant to bear the costs and expenses of the FICO(PRC) Litigation; "FIL Group Companies" means the Purchaser and the FIL Subsidiaries and "FIL Group Company" means any of them; "FIL Subsidiaries" means the subsidiaries and related companies of the Purchaser at any time and from time to time and "FIL Subsidiary" means any of them; "Financial Period" shall have the meaning ascribed to it in Clause 10.1(i); 3 6 "FY96 Audited Accounts" means the consolidated audited accounts of the Company for the financial year ending 31 December 1 996 prepared by the Purchaser's Auditors pursuant to Clause 5.4; "Group Companies" means the Company and FICO(PRC) and "Group Company" shall mean any one of them; "HK$" or "Hong Kong Dollars" means the lawful currency of Hong Kong; "HKIAC" means the Hong Kong International Arbitration Centre; "HKIAC Rules" means the HKIAC Procedures for Arbitration in force at the date of this Agreement, including such additions to the UNCITRAL Arbitration Rules as are therein contained; "Intellectual Property Right" means any trademark, pending trademark application, patent, pending patent application, know-how, registered and unregistered design, copyright, trade secrets, licences relating to any of the above or other similar industrial or commercial right; "Management Accounts" means the management accounts of the Group Companies for the month immediately preceding the Completion Date; "Memorandum of Disclosure" means the memorandum of disclosure dated on or before the Completion Date from the Vendor to the Purchaser, in the form set out in Schedule 9 disclosing information constituting exceptions to the Warranties; "Net Profits After Taxation of the Company" shall have the meaning ascribed to it in Clause 10.1(ii); "Notice of Dispute" shall have the meaning ascribed to it in Clause 20.4; "Post-Closing Adjustment" shall have the meaning ascribed to it in Clause 5.3; "PRC" means the People's Republic of China; "PRC Property" means the land and building currently being constructed by FICO(PRC) at Shenzhen relevant particulars of which are set out in Schedule 10; "Profit Target" shall have the meaning ascribed to it in Clause 10.1(iii); "Purchaser's Auditors" mean each of (a) Ernst & Young, an international accounting firm and having its place of business in Hong Kong and (b) Shenzhen Shekou Schinda Certified Public Accountants having its place of business at Shekou, Shenzhen, PRC; "Put Option Agreement" means the conditional put option agreement, to be executed by the Vendor and the Purchaser substantially in the form set out in Schedule 11; "RMB" means the Renmimbi, lawful currency of PRC; "S$" or "Singapore Dollars" means the lawful currency of Singapore; "Sale Shares" means the 4,000 ordinary shares of HK$1.00 each consisting of forty per cent. (40%) of the issued and paid-up share capital of the Company, which collectively, are or shall be, legally and beneficially held by the Vendor immediately prior to or by the Completion Date; 4 7 "Shares' means all or any part of the ordinary shares of HK$1.00 each in the share capital of the Company; "Shareholders' Agreement" means the shareholders' agreement to be executed by the Vendor and the Purchaser substantilly in the form set out in Schedule 12; "SIAC" means the Singapore International Arbitration Centre; "SIAC Rules" means the SIAC Arbitration Rules in force at the date of this Agreement, including such additions to the UNCITRAL Arbitration Rules as are therein contained; "Special Accounts" shall have the meaning ascribed to it in Clause 10.2(i); "Specific Indemnities" shall have the meaning ascribed to it in Clause 7.14; "Taxes" or "Taxation" means all forms of taxation whether of Singapore, Hong Kong, or the PRC including all state or local taxation, past, present and deferred (including, without limitation, income tax (including net income and gross income), corporate, value added, occupation, real and personal property, social security, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, occupation, premium or windfall profit taxes, estate duty, stamp duty, customs and other import or export duties, or charges of any kind whatsoever, estimated and other taxes, together with any interest and levies and all penalties, charges, costs and additions to tax, payable by or due from any of the Group Companies, or any additional amounts imposed by any government, governmental agency, statutory body or any revenue authority, upon any Group Company; "US GAAP" means generally accepted accounting principles in the United States; "Warranties" means the representations, warranties, indemnities and undertakings made by the Vendor on the Group Companies contained or referred to in Clause 7 and Schedule 13; and "$" or "Dollars" means the lawful currency of the United States of America. 1.2 References to statutory provisions shall be construed as references to those provisions as respectively amended or re-enacted or as their application is modified by other provisions (whether before or after the date hereof) from time to time and shall include any provisions of which they are re-enactments (whether with or without modification). 1.3 References herein to Clauses and the Schedules are to clauses in and the schedules to this Agreement (unless the context otherwise requires). The Schedules form part of this Agreement and have the same force and effect as if expressly set out in the body of this Agreement. 1.4 All warranties, representations, indemnities, covenants, agreements and obligations given or entered into by more than one person are given or entered into jointly and severally. 1.5 The headings are inserted for convenience only and shall not affect the construction of this Agreement. 1.6 Words importing the singular shall include the plural and vice versa; words importing a specific gender shall include the other genders (male, female or neuter); and "person" shall include an individual, corporation, company, partnership, firm, trustee, trust, executor, administrator or other legal personal representative, unincorporated association, joint venture, syndicate or other business enterprise, any governmental, administrative or 5 8 regulatory authority or agency (notwithstanding that "person" may be sometimes used herein in conjunction with some of such words), and their respective successors, legal personal representatives and assigns, as the case may be, and pronouns shall have a similarly extended meaning. 1.7 Any thing or obligation to be done under this Agreement which requires or falls to be done on a Business Day, shall be done on the next succeeding Business Day, if the day upon which that thing or obligation to be done falls on a day which is not a Business Day. 1.8 The word "subsidiary" shall have the same meaning in this Agreement as its definition in the Companies Ordinance. 2. SALE OF THE SALE SHARES 2.1 Subject to the terms and conditions of this Agreement, the Vendor shall sell as legal and beneficial owner and the Purchaser, relying on the several representations, warranties and undertakings contained in this Agreement, shall purchase free from all Encumbrances and together with all rights and benefits now and hereafter attaching thereto, all the Sale Shares. 2.2 The Purchaser shall not be obliged to complete the purchase of any of the Sale Shares unless the purchase of all the Sale Shares is completed simultaneously. 3. CONDITIONS 3.1 The sale and purchase of the Sale Shares is conditional upon: (i) the Memorandum of Disclosure to be delivered to the Purchaser on Completion being in form and substance satisfactory to the Purchaser; (ii) completion of a special audit by the Purchaser and the Purchaser's Auditors (if the Purchaser so chooses to conduct) and a due diligence exercise over the business and records of the Group Companies and the results of the special audit and the due diligence exercise, being satisfactory to the Purchaser in its sole and absolute discretion; (iii) the Warranties remaining true and not misleading in any respect at Completion, as if repeated at Completion and at all times between the date of this Agreement and Completion; (iv) the Vendor having performed all of the covenants and agreements required to be performed or caused to be performed by it under this Agreement on or before the Completion Date; (v) the Vendor supplying, or procuring each of the Group Companies or its officers to supply to the Purchaser, all of the information (in such detail as may be satisfactory to the Purchaser) requested by the Purchaser from time to time before the Completion Date; (vi) all other consents and approvals required under any and all applicable laws for the sale and purchase of the Sale Shares and to give effect to the transactions contemplated hereunder being obtained; and 6 9 (vii) the transfer of the ownership of FICO(PRC) to the Company and all consents and approvals required under all applicable laws relating thereto, whether in the PRC or Hong Kong, being obtained. 3.2 The Vendor shall procure the fulfilment of the conditions set out in Clause 3.1 by the Completion Date. Unless specifically waived by the parties hereto, if any of the conditions stated in Clause 3.1 shall not be fulfilled on or before the Completion Date or such other date as the parties shall mutually agree, this Agreement shall ipso facto cease and determine and neither party shall have any claim against the other for costs, damages, compensation or otherwise, save for any claim by the Purchaser against the Vendor arising from antecedent breach of the terms hereof including its undertaking contained in this Clause 3.2. 4. CONSIDERATION FOR THE SALE SHARES 4.1 The Consideration for the purchase of the Sale Shares shall be the aggregate sum of $5,200,000 (Dollars Five Million Two Hundred Thousand) for all the Sale Shares which shall be paid in accordance with Clause 4.2. 4.2 The Consideration shall be satisfied: (i) by the payment of $3,000,000 (Dollars Three Million) on Completion; and (ii) by the payment of the balance of $2,200,000 (Dollars Two Million Two Hundred Thousand) on the Deferred Consideration Payment Date ("Balance Consideration"), as may be adjusted pursuant to Clause 4.2(B), Provided that the Balance Consideration shall not be paid unless the Purchaser is satisfied with the state of affairs of the Company as reported in the audited accounts of the Company for the financial year ending 31 December 1996 and that all the Warranties are true in all respects, on the Deferred Consideration Payment Date. In the event that the Purchaser, at its sole and absolute discretion and determination: (A) is not satisfied with the state of affairs of the Company as reported in the audited accounts of the Company for the financial year ending 31 December 1996, the Purchaser shall exercise its rights under the Put Option Agreement; and (B) is satisfied with the state of affairs of the Company as reported in the FY96 Audited Accounts, the Purchaser shall pay to the Vendor the Balance Consideration pursuant to Clause 4.3 save that the Purchaser shall deduct from the Balance Consideration, such amounts payable by the Vendor to the Company pursuant to Clauses 11.1 (ii) and (iii) and pay the same to the Company on the Deferred Consideration Payment Date and the payment of the Balance Consideration as adjusted hereunder shall constitute full and final payment of all sums due as Consideration under this Agreement and the Vendor shall have no further claim to the same. 4.3 Payment of the Consideration in the manner set out in Clause 4.2 above shall be effected by way of telegraphic transfer of the amount payable to an account designated by the Vendor and notified to the Purchaser not later than three (3) Business Days prior to the date of payment or by way of a cashier's order or banker's draft issued by a bank licensed in Singapore or in Hong Kong or in such other form as the Vendor and the Purchaser may agree. 7 10 4.4 The Consideration stated herein to be paid to the Vendor, and the manner in which it is proposed to be paid, may be adjusted further according to the outcome and results of the due diligence investigations and special audit referred to in Clause 3.1 (ii) to be conducted by the Purchaser of the Group Companies. 5. POST-CLOSING ADJUSTMENT 5.1 In the event the net asset value of the Group (excluding the PRC Property) calculated in accordance with US GAAP as recorded in the audited accounts for the financial year ending 31 December 1996 (in this Clause 5.1, the "Audited Net Asset Value") exceeds $5,000,000, the Vendor shall be entitled to be paid by the Company in cash as additional consideration for the transfer of the ownership of FICO(PRC) to the Company an amount equal to the difference between the Audited Net Asset Value and $5,000,000. 5.2 In the event that the Audited Net Asset Value is less than $5,000,000, the Vendor shall pay to the Company in cash by way of additional moneys payable by the Vendor for the transfer of the ownership of FICO(PRC) to the Company, an amount equal to the difference between $5,000,000 and the Audited Net Asset Value. Such sum shall be credited to the Company's share premium account. 5.3 The sum payable by the Company or, as the case may be, the Vendor pursuant to Clause 5.1 or Clause 5.2 (as the case may be) shall be referred to as the "Post-Closing Adjustment". 5.4 The determination of the Audited Net Asset Value shall be as follows: (i) As promptly as practicable (but in no event later than 16 April 1997), the Purchaser's Auditors shall submit to the Purchaser and the Vendor the FY96 Audited Accounts of the Group Companies; (ii) The FY96 Audited Accounts of the Company and FICO(PRC) shall be prepared according to US GAAP; and (iii) The FY96 Audited Accounts shall be final and binding on the Vendor and the Purchaser and shall set forth the Audited Net Asset Value as of 31 December 1996. 5.5 Payment of the Post-Closing Adjustment determined in accordance with Clause 5.1 or, as the case may be, Clause 5.2 shall be effected on the Deferred Consideration Payment Date. 6. COMPLETION 6.1 Subject to Clause 3, Completion shall take place on the Completion Date in Hong Kong at the Hong Kong branch office of FIL (or at such other place as may be agreed) where all of the events described below shall occur. 6.2 At Completion, the Vendor shall deliver to or, in the case of Clauses 6.2 (vi), (vii) and (viii) below make available for inspection by, the Purchaser: (i) evidence satisfactory to the Purchaser of the satisfaction of the conditions specified in Clause 3.1 above; (ii) a certificate signed by a director of the Vendor and a director of the Company confirming that all the representations and warranties contained in Clause 7 and 8 11 Schedule 13 have been complied with and would be correct in all respects as if repeated on the Completion Date by reference to the circumstances then existing and that all the undertakings on the part of the Vendor contained in Clause 11 have been fully performed and observed by the Vendor; (iii) duly executed transfers and duly executed sold notes in respect of the Sale Shares in favour of the Purchaser (including all powers of attorney or other authorities under which the transfers and sold notes in respect of the Sale Shares have been executed) or as it may direct accompanied by the relative share certificates for the Sale Shares; (iv) certified true copies of the resolutions passed by the board of directors of the Company: (a) approving the transfer of the Sale Shares to the Purchaser, or the transfer of any part of the Sale Shares to a nominee appointed by the Purchaser, save that such approval shall be conditional on the instruments of transfer being duly stamped in accordance with the Stamp Duty Ordinance; (b) authorising the issue of the new share certificates in respect of the Sale Shares in favour of the Purchaser or such nominee of the Purchaser; (c) approving the entering in the Register of Members of the Company, the name of the Purchaser as holder of the Sale Shares or that of its nominee, save that such approval shall be conditional on the instruments of transfer being duly stamped in accordance with the Stamp Duty Ordinance; (d) appointing as directors of the Company, the persons nominated by the Purchaser as notified to the Vendor in writing upon execution of this Agreement with effect from the Completion Date; (e) revoking all existing authorities to bankers in respect of the operation of its bank accounts and giving authority in favor of such persons as the Purchaser and the Vendor may nominate (such nomination to be communicated to the Vendor prior to Completion) to operate such accounts; (f) authorising the execution and delivery of the Deed of Indemnity by the Company and its execution under seal of the Company; and (g) authorising the execution and delivery by the Company of each of the Shareholders' Agreement and the Employment Agreements; (v) certified true copies of the resolutions passed by the shareholders of the Vendor: (a) approving the sale of the Sale Shares to the Purchaser; and (b) authorising the execution and delivery by the Vendor of each of the Put Option Agreement, the Call Option Agreement, the Fico Call Option Agreement, the Shareholders' Agreement, the Escrow Agreement, the Charge and the Deed of Indemnity; (vi) all necessary corporate or other approvals necessary to be passed by all relevant person or persons for the adoption of the Articles; 9 12 (vii) all the statutory and other books (duly written up to date) of each Group Company, the certificate of incorporation, the common seal and any other papers and documents of each Group Company in the Vendor's possession; (viii) the title deeds, land use right certificates, building ownership certificates, leases and tenancy agreements in respect of properties, if any, owned or leased by the Group Companies in Hong Kong and the PRC, together with all other documents relating to such properties and of all other properties of the Group Companies; (ix) the certificates of incorporation, certificates of incorporation on change of name, common seals (if any), the memoranda and articles of association, cheque books and statutory books and records and current business registration certificates and business licenses of each Group Company (duly written up-to-date); (x) such waivers or consents as may be necessary to enable the Purchaser or its nominee to be registered as holder of any and all of the Sale Shares; (xi) deeds executed by the vendor and each of the existing directors of each Group Company confirming that they each have no claim against such Group Company and if there are any claims that they shall release and disclaim all their rights to such claims, which letters shall be in such form as parties shall agree; (xii) the Shareholders' Agreement duly executed by the Vendor; (xiii) the Employment Agreements duly executed by each Law Sing Hong, Law Shun Hang and Law Kin Ping; (xiv) the Put Option Agreement duly executed by the Vendor; (xv) the Call Option Agreement duly executed by the Vendor; (xvi) the Fico Call Option Agreement duly executed by the Vendor; (xvii) the Charge duly executed by the Vendor; (xviii) the Deed of Indemnity duly executed by the Vendor; (xix) the Escrow Agreement duly executed by the Vendor and the Escrow Agent; (xx) a list of all bank accounts maintained by each of the Group Companies; and (xxi) a legal opinion by the Vendor's solicitors in a form and substance satisfactory to the Purchaser. 6.3 On Completion and against compliance with the respective provisions of Clauses 2.2 and 6.2, the Purchaser shall deliver to the Vendor: (i) the sum of $3,000,000 referred to in Clause 4.2(i) in the manner set out in Clauses 4.3 and 4.4; (ii) the Shareholders' Agreement duly executed by the Purchaser; (iii) the Put Option Agreement duly executed by the Purchaser; (iv) the Call Option Agreement duly executed by the Purchaser; 10 13 (v) the Fico Call Option Agreement duly executed by the Purchaser; (vi) the Charge duly executed by the Purchaser; (vii) the Deed of Indemnity duly executed by the Purchaser; and (viii) the Escrow Agreement duly executed by the Purchaser. 6.4 On Completion, the Vendor shall procure: (i) the execution by the Company of the Shareholders' Agreement; (ii) the execution by the Company of the Deed of Indemnity; (iii) the execution by the Company of the Employment Agreements; and (iv) that the Company shall hold a shareholders meeting to amend the Articles to conform the Articles with the terms and conditions of the Shareholders' Agreement and for such amendment to be effective by the Completion Date. 6.5 Without prejudice to any other remedies available, if in any respect the provisions of this Clause 6 are not complied with by the Vendor or, as the case may be the Purchaser ("Defaulting Party") on the Completion Date, the party not in default ("Non-Defaulting Party") may: (i) defer Completion to a date not more than twenty-eight (28) days after the Completion Date (and so that the provisions of this sub-clause shall apply to Completion as so deferred); or (ii) proceed to Completion so far as practicable (without prejudice to their rights hereunder); or (iii) rescind this Agreement. 6.6 No party shall be obliged to perform any of its obligations under Clauses 6.2, 6.3 and 6.4 unless (simultaneously with such performance) the other parties perform their respective obligations under such Clauses. 6.7 In the event that Completion should not take place due to any failure to satisfy any or all the conditions precedent mentioned in Clause 3.1 or the occurrence of any event which is beyond the control of the Purchaser, this Agreement shall ipso facto cease and all parties hereto shall have no claims against each other save for antecedent breaches of any representations or undertakings and all the rights and obligations of the parties hereto shall cease. 7. VENDOR'S WARRANTIES 7.1 The Vendor hereby represents, warrants and undertakes to and with the Purchaser (with the intent that the provisions of this Clause 7.1 shall continue to have full force and effect notwithstanding Completion) that: (i) the Vendor is currently the legal and beneficial holder of the Sale Shares, and that the Sale Shares, in aggregate, represent, and shall on Completion represent, forty per cent. (40%) of the issued and paid-up share capital of the Company; 11 14 (ii) on Completion, it shall be the legal and beneficial owner of and is entitled to sell and transfer the Sale Shares to the Purchaser and/or its nominee, free from all and any Encumbrances together with all rights and benefits attaching thereto as at the Completion Date and no other person has or shall have any rights of pre-emption over such Sale Shares; (iii) on Completion, the Sale Shares are and shall have been authorised, validly issued, allotted and fully paid-up; (iv) on Completion, the ownership of FICO(PRC) shall have been legally and validly transferred, free from Encumbrances, to the Company and that the Company shall be the legal and beneficial owner of FICO(PRC); (v) the execution and delivery of, and the performance by it of its obligations under this Agreement shall not: (a) result in a breach of, or constitute a default under, any instrument, contract, document or agreement, to which it or the Company or FICO(PRC) is a party or by which it or the Company or FICO(PRC) is bound; and/or (b) result in a breach of any law, rules, regulations, ordinances, order, judgment or decree of or undertaking to any court, government body, statutory authority or regulatory body (including, without limitation, any relevant stock exchange or securities council) to which it or the Company or FICO(PRC) is a party or by which it or the Company or FICO(PRC) is bound, whether in Hong Kong or the PRC or anywhere else in the world; and (vi) each of the Warranties is true and accurate in all respects save as expressly disclosed in the Memorandum of Disclosure, save that notwithstanding specific disclosure has or will be made of the FICO(PRC) Litigation in the Memorandum of Disclosure, the Vendor shall continue to be liable for all costs and expenses arising from the FICO(PRC) Litigation in the manner determined in Clause 8.1. Each of the representations, warranties and undertakings above shall be separate and independent and shall not be limited by anything in this Agreement. The representations, warranties and undertakings given under or pursuant to this Clause 7.1 above shall not in any respect be extinguished or affected by Completion except by a specific and duly authorised waiver or release in writing by the Purchaser. 7.2 The Vendor represents and warrants to the Purchaser that the Company is a company duly incorporated and validly existing under the laws of Hong Kong and has all requisite power and authority (corporate and otherwise) to own its properties and assets and carry on its business as now being conducted and that the Company has full power and authority to execute and deliver this Agreement and the agreements contemplated herein, and to consummate the transactions contemplated hereby and thereby. 7.3 The Vendor further warrants and undertakes to and with the Purchaser (with the intent that the provisions of this Clause 7.3 shall continue to have full force and effect notwithstanding Completion) that: (i) all Warranties herein contained will be fulfilled and will be true and correct at Completion in all respects as if they had been entered into afresh at Completion; and 12 15 (ii) in relation to any Warranty which refers to the knowledge, information or belief of the Vendor, that the Vendor has made reasonable enquiry into the subject matter of that Warranty. 7.4 The Vendor warrants and undertakes to the Purchaser that each of the Group Companies shall be free of any debt or liability of any nature whatsoever (whether actual, contingent or otherwise) as at the Deferred Consideration Payment Date. 7.5 The Warranties are given subject to matters fully, fairly and specifically disclosed in the Memorandum of Disclosure. 7.6 The Vendor acknowledges that the Purchaser has entered into this Agreement in reliance upon and on the basis of each of the Warranties. 7.7 The Warranties shall be separate and independent and save as expressly provided shall not be limited by reference to any other Clause or anything in this Agreement or any other paragraph of Schedule 13, the Specific Indemnities or the Deed of Indemnity. 7.8 If prior to Completion, any event shall occur which results or may result in any of the Warranties being unfulfilled, untrue or incorrect at Completion, the Vendor shall immediately notify the Purchaser in writing thereof prior to Completion and the Vendor shall make any investigation concerning the event or matter which the Purchaser may reasonably require. 7.9 The Vendor shall procure that it shall not do, allow or procure any act or omission before Completion which would constitute a breach of any of the Warranties if they were given at Completion or which would make any of the Warranties inaccurate or misleading if they were so given. 7.10 In the event of it becoming apparent on or before Completion that the Vendor is in breach of any of the Warranties or any other term of this Agreement, the Purchaser may, at its sole discretion, rescind this Agreement by notice in writing to the Vendor. Upon termination of this Agreement under this Clause 7.10, the Purchaser shall, in addition to its rights to damages, be entitled to be paid legal, accounting and other costs and expenses incurred by the Purchaser in connection with this Agreement. 7.11 The Vendor shall use its best endeavours to give to the Purchaser, and its solicitors, financiers, consultants, advisers and accountants and the Purchaser's Auditors up to Completion all such information and documentation relating to the Company and FICO(PRC) in his power, custody, possession or control as the Purchaser shall require to enable it to be satisfied as to the accuracy and due observance of the Warranties. 7.12 Save for this Clause 7 and Schedule 13, each of the parties hereto makes no other representations or warranties, express or implied, to the other parties and each of the parties hereto acknowledges to the other parties that it has not relied on or been induced by any other warranties or representations made by the relevant party or its agents or representatives to enter into this Agreement. 7.13 The Warranties and all other provisions of this Agreement and the Deed of Indemnity insofar as the same shall not have been performed at Completion shall not in any respect be extinguished or affected by Completion, or by any other event or matter whatsoever, except by a specific and duly authorised written waiver or release by the Purchaser. 7.14 In addition to and without prejudice to all other rights and remedies available to the Purchaser, including the right to damages, the Vendor indemnifies the Purchaser against any claim, action, damage, loss, liability, expense or outgoing (including all expenses of investigation and enforcement of these indemnities and all legal fees and expenses) which 13 16 the Purchaser or any of the Group Companies (either jointly or severally) pays, suffers, incurs or is liable for in respect of or in connection with the following (collectively, the "Specific Indemnities"): (i) any claim by the Chinese Party arising out of the Chinese Party's entitlement or claim of entitlement to any equity or shareholding interest in FICO(PRC); (ii) any claim by the Chinese Party or any other third party, including any relevant authorities (whether or not governmental or regulatory) of whatsoever nature in connection with the change in ownership of the Company arising out of the sale and purchase of the Sale Shares under this Agreement; or (iii) any claim by the Chinese Party after the Completion Date for the return to it by FICO(PRC) or the Company of all or part of the rights and interests in and to any of the PRC Property that were originally contributed by the Chinese Party to FICO(PRC) or any claim by the Chinese Party to any distribution of the assets of FICO(PRC) upon the liquidation of FICO(PRC). 8. VENDOR'S AND COMPANY'S UNDERTAKINGS 8.1 The Vendor undertakes with the Company and the Purchaser that, notwithstanding Completion: (i) any and all losses, costs, damages, claims, demands, actions, proceedings, liabilities and expenses whatsoever (including but not limited to all legal costs or attorney's fees on a full indemnity basis) arising out of the FICO(PRC) Litigation shall be borne solely and fully by the Vendor and the Vendor shall keep the Purchaser and the Group Companies fully and effectively indemnified against any and all such losses, costs, damages, claims, demands, actions, proceedings, liabilities and expenses whatsoever (including but not limited to all legal costs or attorney's fees on a full indemnity basis) that the Purchaser or any Group Company may incur or suffer in connection with or arising from the FICO(PRC) Litigation; and (ii) all proceeds arising from the FICO(PRC) Litigation shall be for the benefit of the Vendor and in the event that such monies are received by any Group Company, all such monies shall be paid to the Vendor by the Company or FICO(PRC (as the case may be) within fourteen (14) days of such receipt. 8.2 The Vendor and the Company jointly and severally undertake: (i) to assist and procure that the Company and any and/or all of the Company's directors, officers, agents and servants, provide the necessary assistance to the Purchaser and the Purchaser's Auditors in the conduct of the special audit and due diligence exercise referred to in Clause 3.1(ii) above and the preparation and issue of the Audited Accounts; and (ii) pay or cause to be paid, at the times required by any relevant revenue authority all unpaid Taxes, of the Company and FICO(PRC) for all periods, or portions thereof, ended on or before the Completion Date, and all costs and expenses incurred thereon shall be borne by the Vendor. 8.3 The Vendor agrees that the Group Companies shall adopt the standard employment contract in the form prescribed by the Purchaser from time to time, for the employment of all employees of the Group Companies (save for its directors and executive officers). 14 17 9. INDEMNITY 9.1 The Vendor hereby irrevocably undertakes to keep the Purchaser and the Group Companies fully and effectively indemnified against any and all losses, costs, damages, claims, demands, actions, proceedings, liabilities and expenses whatsoever (including but not limited to all legal costs or attorney's fees on a full indemnity basis) that the Purchaser or any Group Company may incur or suffer in connection with or arising from any breach of or inaccuracies of any of the Warranties and/or any breach of the Deed of Indemnity and/or the Specific Indemnities and/or any default by the Vendor of its obligations under this Agreement. The Purchaser shall not make a claim against the Vendor under this Clause 9.1 for losses, costs, damages, claims, demands, actions, proceedings, liabilities and expenses that the Purchaser or any Group Company may incur if such breach of or inaccuracies of any of the Warranties and/or any breach of the Deed of Indemnity and/or the Specific Indemnities and/or any default by the Vendor of its obligations under this Clause shall occur after the date falling after the third anniversary date of this Agreement save in respect of the Warranties contained in Clause 7.1. 9.2 in the event of default by the Vendor in the payment on demand of any sum due under Clause 8.1 or this Clause 9 determined by agreement or pursuant to an order of a court or by the Purchaser's Auditors hereunder, the liability of the Vendor shall be increased to include interest on such sum from the due date of payment of such sum by the Vendor toward satisfaction of any liability of the Vendor under or pursuant to Clause 9.1 as the case may be, above to the date of actual payment by the Vendor (as well after as before judgment) at a rate per annum being two per cent. (2%) above the prime lending rate for Dollars as quoted by Citibank, Singapore Branch from time to time. Interest determined in accordance with this Clause 9.2 shall be calculated on the basis of a 360-day year and on the actual number of days elapsed and shall accrue from day to day. 9.3 Where the Vendor is required by law to make any deductions or withholding from any sum payable by it to the Purchaser or any Group Company under this Agreement, the Vendor shall forthwith pay to the Purchaser or such Group Company (as the case may be), such additional amount or amounts so as to ensure that the net amount received by the Purchaser or such Group Company shall be equal to the full amount which it or they would have received had no such deduction or withholding been made or required to be made. 9.4 Any liability to the Purchaser and any Group Company hereunder may in whole or in part be released, compounded or compromised or time or indulgence given by the Purchaser in its absolute discretion without in any way prejudicing or affecting its rights against the Vendor. Any release or waiver or compromise shall be in writing and shall not be deemed to be a release, waiver or compromise of similar conditions in the future. 10. PROFIT TARGET 10.1 For the purposes of Clauses 10 and 11 (i) the expression "Financial Period" shall mean the financial period commencing on 1 January 1997 and ending on 31 December 1997; (ii) the expression "Net Profits After Taxation of the Company" shall be determined in accordance with Clause 10.2 below; and (iii) the expression "Profit Target" shall mean, in respect of the Financial Period, $2,500,000. 15 18 10.2 The Net Profits After Taxation of the Company shall mean the audited consolidated net profits of the Company and FICO(PRC) and shall be determined as follows: (i) the consolidated accounts of the Company and FICO(PRC) for the relevant financial period ("Special Accounts") shall be prepared and audited by the Purchaser's Auditors in accordance with the assumptions and policies set out in Schedule 14 and US GAAP no later than sixty (60) days after the end of the relevant financial period to determine the audited consolidated net profits after taxation of the Company; (ii) the Special Accounts will be delivered by the Purchaser's Auditors to the Purchaser, the Vendor and the Company; and (iii) the Special Accounts in respect of the relevant financial period shall be binding on each of the Vendor, the Purchaser and the Company. 10.3 In the event that the Net Profit After Taxation of the Company for the Financial Period as set out in the Special Accounts shall exceed the Profit Target, the Purchaser may exercise its rights under the Call Option Agreement. 10.4 In the event that the Profit Target shall have exceeded the Net Profit After Taxation of the Company for the Financial Period as set out in the Special Accounts, the Purchaser may exercise its rights under the Put Option Agreement. 11. COVENANTS AND UNDERTAKINGS 11.1 The Vendor hereby undertakes to the Purchaser and the Company that: (i) it shall transfer or procure the transfer of the ownership of FICO(PRC) to the Company by the Completion Date and do all necessary things so that such transfer shall be legal and valid pursuant to the relevant laws of the PRC; (ii) all products manufactured by FICO(PRC) and sold to the Company up until the Completion Date ("Finished Products") shall be sold at prices not exceeding eighty per cent. (80%) of the price at which the Company is able to sell the Finished Products to its customers. In the event that the Company is unable to sell all such Finished Products at the expiry of three (3) months from the Completion Date, the Vendor undertakes that it shall purchase all such remaining Finished Products from the Company at the same price upon which these same Finished Products were purchased from FICO(PRC); (iii) all raw materials purchased by the Company which is not utilised by the Company at the expiry of three (3) months from the Completion Date shall be purchased by the Vendor from the Company at the price at which the said raw materials (or any part thereof) were originally purchased by the Company from its suppliers or the Vendor (as the case may be); (iv) it shall purchase from FICO(PRC) the PRC Property so that, by the Completion Date, the PRC Property shall not constitute any part of the assets of FICO(PRC); (v) it shall utilise the sum of $3,000,000 paid pursuant to Clause 4.2(i) to discharge all the debts of FICO(PRC) and the Company by the Deferred Consideration Payment Date so that the Group Companies shall be free of debt and all liabilities (whether actual, contingent or otherwise) by the Deferred Consideration Payment Date; 16 19 (vi) the Net Profit After Taxation of the Company for the Financial Period shall be not less than the Profit Target; and (vii) neither of the Group Companies shall engage in any transaction or have an interest in any transaction in which any company, partnership, joint venture or sole proprietorship in which it has an interest or shall be engaged or otherwise have an interest, and in the event that payments to be made by the Vendor to the Company under Clauses 11.1(ii) and (iii) above shall not have been discharged in full as at the Deferred Consideration Payment Date, the Vendor herewith authorises the Purchaser (in the event that Clause 4.2(B) shall apply) to deduct all sums payable by the Vendor to the Company under Clauses 11.1(ii) and (iii) above, from the Balance Consideration on the Deferred Consideration Payment Date. 11.2 The Vendor undertakes to the Purchaser to procure that, between the date of this Agreement and Completion: (i) each of the Group Companies shall preserve and maintain in full force and effect its corporate existence; (ii) each of the Group Companies shall carry on business only in the ordinary course; (iii) each of the Group Companies shall preserve and maintain all of its properties and assets, owned or used in the conduct of its business, in good working order and condition, ordinary wear and tear excepted; and keep insured so much of its properties and assets, in such amounts and against such risks, as are presently insured by each such Group Company as at the date of this Agreement; (iv) each of the Group Companies shall comply in all material respects with all applicable laws, rules, regulations and orders to which it is subject; (v) each of the Group Companies shall keep such books of record and accounts, in which full and in all material respects correct entries shall be made of all its financial transactions and its assets and business in accordance with the present practice of each such Group Company as at the date of this Agreement and generally accepted accounting principles consistently applied; (vi) each of the Group Companies shall pay and discharge in accordance with the present practice of such Group Company as at the date of this Agreement, (a) all taxes, assessments and governmental charges imposed upon it or upon its property and (b) all lawful and valid claims which, if unpaid, might by law become a lien upon its property; and maintain such reserves in respect of taxes, assessments, governmental charges and levies as are required under generally accepted accounting principles consistently applied; (vii) each of the Group Companies shall provide the Purchaser, the Purchaser's Auditors and their respective authorised representatives reasonable access during normal business hours to all its books, records, offices and other facilities and properties, and allow the Purchaser and the Purchaser's Auditors to make such inspections thereof and copies of and extracts from such books and records, as the Purchaser or the Purchaser's Auditors may reasonably request, and cause its officers to furnish the Purchaser or the Purchaser's Auditors with such financial and operating data, including all financial statements prepared or used by its management, and other information with respect to its financial condition, business and property, as the Purchaser or the Purchaser's Auditors may from time to time reasonably 17 20 request whether in connection with the special audit referred to in Clause 3.1(ii), the preparation of the Audited Accounts, the preparation of the Special Accounts or otherwise; (viii) each of the Group Companies shall promptly upon obtaining knowledge thereof, give notice to the Purchaser of (a) any litigation, investigation or proceeding affecting it that could reasonably be expected to have a material adverse effect on its business, operations, properties, prospects or financial condition or (b) any event or matter that has resulted in a material adverse change in its business, operations, prospects or financial condition; (ix) each of the Group Companies shall not declare any dividends or make any other distributions to its shareholders prior to Completion; and (x) the Vendor shall not discuss, negotiate or finalise any arrangements with any third party with a view to or in connection with (a) the sale of the Sale Shares or any of them, (b) any acquisition or purchase of all or substantially all of the assets of any Group Company or (c) any other material transaction incompatible with the acquisition contemplated hereby. 11.3 The Vendor covenants with and undertakes to each of the Purchaser and the Company that it shall not do any of the following without first obtaining the written consent of the Purchaser: (i) directly or indirectly carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) any business similar to or competitive with the Business (as defined below) of the Group Companies for two (2) years after Completion, in any countries where the Group Companies carry on the Business and/or sell their products, including, without limitation, Hong Kong and the PRC; (ii) solicit or persuade any person or corporation which is a customer or client of either of the Company or any other Group Company, or who was in the twelve (12) month period before the Completion Date a customer or client of or in respect of the Business, to cease doing business with the Company or any other Group Company or reduce the amount of business which the customer or client would normally do in respect of the Business for two (2) years after Completion; (iii) accept from a customer or client referred to in Clause 11.3(ii) above any business of the kind ordinarily forming part of the Business for two (2) years after Completion; (iv) at any time use or disclose to any third party any trade secrets, product information or Confidential Information of the Business which is not generally known or available in the market place or which but for a breach of this Clause 11.3 would not be generally known or available in the market place; (v) at any time induce or attempt to induce any person who is at the time of Completion or who later becomes an employee of the Group Companies in the Business to terminate his or her employment with the Group Companies; (vi) for the purposes of this Clause 11.3, the expression "Business" shall mean the sale and manufacture of plastic material products and its by-products (including all associated importation, exportation, marketing and related activities) carried on by the Group Companies anywhere in the world; 18 21 (vii) each and every obligation under this Clause11.3 shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part such part or parts as are unenforceable shall be deleted from this Clause11.3and any such deletion shall not affect the enforceability of all such parts of this Clause 11.3 as remain not so deleted; and (viii) while the restrictions contained in this Clause 11.3 are considered by the parties to be reasonable in all the circumstances it is recognised that restrictions of the nature in question may fail for technical reasons unforeseen and accordingly it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Group Companies and the Purchaser but would be valid if part of the wording thereof were deleted or the periods thereof reduced or the range of activities or area dealt with thereby reduced in scope the said restriction shall apply with such modifications as may be necessary to make it valid and effective. 11.4 As a separate and independent obligation, the Vendor hereby undertakes to keep the Purchaser fully and effectively indemnified against any and all losses, costs, damages, claims, demands, actions, proceedings, liabilities and expenses whatsoever (including but not limited to legal costs on an indemnity basis) that the Purchaser may incur or suffer in connection with or arising from the breach by the Vendor of any of the covenants, undertakings and agreements contained in this Clause 11. 11.5 Each of the obligations of the Vendor under this Clause 11 is a separate and independent primary obligation and shall survive and shall not be extinguished in any way by Completion. Each and every such obligation shall be severally enforceable and in the event of any obligation or obligations being or becoming unenforceable shall be deleted from this Clause 11 and any such deletion shall not affect the enforceability of all such parts of this Clause 11 as remain not so deleted. 12. CONFIDENTIALITY 12.1 Each of the parties agrees to keep strictly secret and confidential, and under no circumstances to disclose to any person or entity which is not a party hereto, any Confidential Information arising from or in connection with this Agreement unless disclosure of such information is expressly permitted by the prior written consent in writing of all the other parties. 12.2 Notwithstanding Clause 12.1, the confidentiality obligation shall not apply to: (i) any information obtained from any party hereto which becomes generally known to the public, other than by reason of any wilful or negligent act or omission of any party hereto or any of their agents, advisers or employees; (ii) any information which is required to be disclosed to any competent governmental or statutory authority or pursuant to rules or regulations of any relevant regulatory body (including, without limitation, any relevant stock exchange or securities council); (iii) any information which is required to be disclosed pursuant to any legal process issued by any court or tribunal whether in Hong Kong, the PRC or elsewhere; and 19 22 (iv) any information disclosed by any of the parties to their respective bankers, financial advisers, consultants and legal or other advisers for the purpose of this Agreement.' 13. RESTRICTION ON ANNOUNCEMENTS Save as may be required to be disclosed pursuant to any applicable requirement issued by any competent governmental or statutory authority or rules or regulations of any relevant regulatory body (including, without limitation, any relevant stock exchange or securities council), each party undertakes that prior to Completion it will not make any announcement in connection with this Agreement unless the other party hereto shall have given its consent to such announcement (which consent may not be unreasonably withheld). 14. COSTS 14.1 Each party to this Agreement shall pay its own costs of and incidental to this Agreement and the sale and purchase hereby agreed to be made. 14.2 The Purchaser shall bear any and all stamp duties payable in connection with the transfer of the Sale Shares from the Vendor to the Purchaser. 15. GENERAL 15.1 This Agreement shall be binding upon and inure for the benefit of the successors and estates of the parties and the assignees or nominees of the Purchaser. The Vendor agrees that the Purchaser shall be entitled to assign the benefit of the Warranties and any cause of action in connection therewith to any member of the FIL Group or to any other party. Any reference in this Agreement to either of the parties shall be construed accordingly. 15.2 The provisions of this Agreement including the representations, warranties, covenants and undertakings herein contained (insofar as the same shall not have been fully performed at Completion) shall remain in full force and effect notwithstanding Completion. Completion shall not prejudice any rights of any of the parties which may have accrued hereunder prior to Completion. 15.3 The Vendor and the Purchaser shall do and execute or procure to be done and executed all such further acts, deeds, things and documents as may be necessary to give effect to the terms of this Agreement, and to provide such assistance and record as the other may reasonably request in connection with any tax return, tax investigation or audit, judicial or administrative proceeding or other similar matter relating to the Group Companies. 15.4 This Agreement sets out the entire agreement and understanding between the parties in connection with the sale and purchase of the Sale Shares and none of the parties has entered into this Agreement in reliance upon any representation, warranty or undertaking of any other party which is not set out or referred to in this Agreement. The parties agree that no variations or modifications shall be made to this Agreement unless agreed to by the parties in writing. 15.5 Save as expressly provided herein, any right of termination conferred upon the Purchaser or the Vendor shall be in addition to and without prejudice to all other rights and remedies available to it and no exercise or failure to exercise such a right of termination shall constitute a waiver of any such other right or remedy. 20 23 15.6 As all parties have participated in the drafting of this agreement, the parties agree that any applicable rule requiring the construction of this Agreement against the party drafting this Agreement, shall not apply. 16. ILLEGALITY The illegality, invalidity or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 17. NOTICES Any notice required to be given by any party hereto to any other party shall be deemed validly served by hand delivery or by telefax or by prepaid registered letter or by a recognised courier service sent to its address or facsimile number given herein or such other address or facsimile number as may from time to time be notified for this purpose. The initial addresses and telefax numbers of the parties are: The Purchaser: Flextronics International Ltd 514 Chai Chee Lane, #04-13 Singapore 469029 Fax Number: (65) 449-9548 Attention: Mr Goh Chan Peng The Vendor Fico Forest Industrial Co. Limited Rm 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number: (852) 2412-0791 Attention Mr Law Sing Hong The Company Fico Investment Holding Limited Unit 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number: (852) 2412-0791 Attention: Mr Law Sing Hong Any such notice or communication shall be deemed to have been served: (i) if delivered by hand, at the time of delivery; or 21 24 (ii) if posted by prepaid ordinary mail, at the expiration of three (3) days after the envelope containing the same shall have been put into the post; or (iii) if sent by facsimile, upon the receipt by the sender of the confirmation note indicating that the notice or communication has been sent in full to the recipient's facsimile machine, or such other similar medium of receipt; or (iv) if sent by courier, at the expiration of two (2) days after the package containing the same shall have been received by the relevant courier company. In proving such service it shall be sufficient to prove that delivery by hand was made or that the envelope containing such notice or document was properly addressed and posted as a prepaid ordinary mail letter or that the facsimile confirmation note indicates the transmission was successful, or the package as the case may be containing such notice or document was properly addressed and sent to the relevant courier company. 18. REMEDIES AND WAIVERS No failure on the part of any party to this Agreement to exercise, and no delay on its part in exercising, any right or remedy under this Agreement will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 19. TIME OF ESSENCE Any date, time or period mentioned in any provision of this Agreement may be extended by mutual agreement between the parties hereto but as regards any time, date or period originally fixed and not extended or any time, date or period so extended as aforesaid time shall be of the essence. 20. GOVERNING LAW AND DISPUTE RESOLUTION 20.1 This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. 20.2 Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 20.2 save to the extent that they are inconsistent with the express terms of this Agreement. 20.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Purchaser, one of whom shall be appointed by the Vendor, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 20.4 For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "Notice of Dispute") stating the nature of the dispute. 22 25 20.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 20.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 20.7 The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 21. COUNTERPARTS This Agreement may be signed in any number of counterparts, all of which taken together shall constitute one and the same instrument. Any party may enter into this Agreement by signing any such counterpart and each counterpart may be signed and executed by the parties and transmitted by facsimile transmission and shall be as valid and effectual as if executed as an original. 23 26 IN WITNESS WHEREOF this Agreement has been entered into on the date appearing at the head hereof. The Purchaser SIGNED by /s/ S. L. Tsui ) -------------------- ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: ) /s/ Christine Knight - ------------------------------- Christine Knight Solicitor Hong Kong The Vendor SIGNED by ) [LOGO] For and On Behalf of ) - ----------------------------------- ) FICO FOREST INDUSTRIAL CO., LTD. for and behalf of ) FICO FOREST INDUSTRIAL ------------------ CO. LIMITED Authorized Signature in the presence of: - ----------------- - ----------------- Solicitor, Hong Kong FICO SIGNED by ) [LOGO] For and On Behalf of ) - ----------------------------------- ) FICO INVESTMENT HOLDING LIMITED for and behalf of ) FICO INVESTMENT HOLDING LIMITED ------------------ in the presence of: Authorized Signature - ----------------- - ----------------- Solicitor, Hong Kong 24 27 SCHEDULE 1 PARTICULARS OF THE COMPANY 28 SCHEDULE 1 PARTICULARS OF THE COMPANY (i) Company Registration Number: 565060 (ii) Business Registration Certificate: 20258126-000-09-96-1 (iii) Registered Office: Rm 10, 18/F, Blk B Kong Nam Ind. Building 603 Castle Peak Road Tsuen Wan, New Territories Hong Kong (iv) Date and Place of Incorporation: 12 September 1996, Hong Kong (v) Authorised Share Capital: HK$10,000.00 (vi) Issued and Fully Paid-up Share Capital: HK$10,000.00 (vii) Shareholders: Name Number of Shares Percentage of Shares Law Sing Hong 1 0.0001% (held on trust for Fico Forrest Industrial Co. Limited) Fico Forrest Industrial Co. 9,999 99.9999% Limited (viii) Directors: Law Sing Hong Law Kin Ping Law Shun Hang (ix) Secretary: Siu Pui Chun (x) Auditors: (Not currently appointed) (xi) Accounting Reference Date: 31 March
25 29 SCHEDULE 2 CALL OPTION AGREEMENT DATED THIS 20th Day of December 1996 Between FLEXTRONICS INTERNATIONAL LTD And FICO FOREST INDUSTRIAL CO. LIMITED CALL OPTION AGREEMENT relating to 6,000 ordinary shares consisting of 60% of all the ordinary shares in the share capital of FICO INVESTMENT HOLDING LIMITED 30 TABLE OF CONTENTS Clause Heading Page 1. INTERPRETATION .................................................. 1 2. CALL OPTION ..................................................... 3 3. PURCHASE PRICE .................................................. 3 4. ADJUSTMENT TO PURCHASE PRICE .................................... 5 5. CALL OPTION COMPLETION .......................................... 5 6. DURATION OF OBLIGATIONS ......................................... 6 7. VENDOR'S WARRANTIES ............................................. 6 8. FIL'S WARRANTIES ................................................ 7 9. COMMUNICATIONS .................................................. 8 10. GENERAL ......................................................... 8 11. GOVERNING LAW AND DISPUTE RESOLUTION ............................ 9 APPENDIX A FORM OF FIRST CONSIDERATION NOTE ................... 11 APPENDIX B FORM OF SECOND CONSIDERATION NOTE .................. 15 31 THIS AGREEMENT is made the 20th day of December 1996 BETWEEN: (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore and having its registered office at 36 Robinson Road, City House, #18-01, Singapore 068877 ("FIL"); (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("VENDOR"). WHEREAS: (A) Fico Investment Holding Limited ("COMPANY") is a company limited by shares and incorporated in Hong Kong and has at the date hereof an authorised share capital of HK$10,000 ordinary shares of HK$1.00 each, of which 10,000 of the said ordinary shares have been issued and are fully paid-up. (B) The Vendor is the legal and beneficial owner of 6,000 ordinary shares of HK$1.00 each in the Company consisting sixty per cent, (60%) of the issued and paid-up capital of the Company. (C) This Agreement is entered into pursuant to a Sale and Purchase Agreement ("SALE AND PURCHASE AGREEMENT") dated 29 November 1996, made between (1) FIL as purchaser, (2) the Vendor and (3) the Company. The Vendor wishes to grant to FIL a call option, being the right of FIL to purchase from the Vendor the Call Option Shares (as defined below) for the consideration and on the terms and conditions set out in this Agreement. NOW IT IS HEREBY AGREED as follows: 1. INTERPRETATION 1.1 In this Agreement except to the extent that the context otherwise requires: "BANKER'S DRAFT" means a banker's draft drawn on a bank in Singapore; "CALL OPTION" shall have the meaning ascribed to it in Clause 2.1; "CALL OPTION NOTICE" means a notice exercising the Call Option given pursuant to Clause 2.3; "CALL OPTION COMPLETION" means the performance by the Vendor and FIL of the obligations assumed by them respectively under Clause 5.2; "CALL OPTION COMPLETION DATE" means 11.00 a.m. on the date falling fourteen (14) days from the Exercise Date; "CALL OPTION PERIOD" means the period commencing on the date of receipt by FIL of the signed audited accounts (including the profit and loss account and the balance sheet) of the Company for the Financial Period and expiring on the date falling three (3) calendar months of such date (both dates inclusive); "CALL OPTION SHARES" means the 6,000 Shares consisting sixty per cent, (60%) of the issued and paid-up capital of the Company; "CASH CONSIDERATION" shall mean the amount determined in accordance with Clause 3.3; "CONSIDERATION SHARES" shall have the meaning ascribed to it in Clause 3.4; 32 "EXERCISE DATE" means the date of service of a Call Option Notice under Clause 2.3; "FIL AVERAGE SHARE PRICE" means the average of the "closing prices" per FIL Share on each of the Trading Days for the twenty-one (21) Trading Days prior to the Call Option Completion Date. On any such Trading Day, the "closing price" per FIL Share means the last sale price as reported through the NASDAQ National Market or, if no sale occurred on any such Trading Day, the average of the highest closing "bid" price and the lowest closing "asked" price on such Trading Day as reported through the NASDAQ National Market; "FIL SHARES" means ordinary shares of S$0.01 each in the capital of FIL and "FIL SHARE" shall be construed accordingly; "FIRST CONSIDERATION NOTE" shall mean the promissory note substantially in the form of Appendix A (or in such other form as FIL and the Vendor may agree in writing) and issued pursuant to Clause 3 of this Agreement; "FIRST DEFERRED CONSIDERATION DATE" means the first anniversary date of the Call Option Completion Date; "PURCHASE PRICE" shall have the meaning ascribed to it in Clause 3.1; "SEC" means the United States Securities and Exchange Commission; "SECOND CONSIDERATION NOTE" shall mean the promissory note substantially in the form of Appendix B (or in such other form as FIL and the Vendor may agree in writing) and issued pursuant to Clause 3 of this Agreement; "SECOND DEFERRED CONSIDERATION DATE" means the second anniversary date of the Call Option Completion Date; "SECOND FINANCIAL PERIOD" shall have the meaning ascribed to it in Clause 3.6; "SHARES" means ordinary shares of HK$1.00 each in the share capital of the Company; "TRADING DAY" means any day on which the New York Stock Exchange is open for business, provided that any day on which trading on the New York Stock Exchange or the NASDAQ National Market is suspended or halted, or on which trading in FIL Shares is suspended or halted by the SEC, the National Association of Securities Dealers, Inc., NASDAQ or any regulatory or self-regulatory body in the United States of America, shall not be a Trading Day; "TRANSFER TERMS" means the entire legal and beneficial interest in all the Call Option Shares shall be sold and purchased free from any Encumbrance and together with all rights attaching thereto as at the Exercise Date or at any time thereafter and that the consideration for the Call Option Shares shall be the Purchase Price; "US$" means the lawful currency of the United States of America; and "VALUATION" means the fair market value of the Company as determined under Clause 3.3. 1.2 All terms and references used in this Agreement and which are defined or construed in the Sale and Purchase Agreement but are not defined or construed in this Agreement shall have the same meaning and construction in this Agreement. All references in this Agreement to the Sale and Purchase Agreement are to the Sale and Purchase Agreement as from time to time amended, modified or supplemented. 2 33 1.3 References to Recitals and Clauses are to recitals and clauses of this Agreement. The headings in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Words importing the singular number include the plural number and vice versa. References to documents include variations and replacements thereof and supplements thereto. References to a party include its permitted assigns and transferees and its successors-in-title. 2. CALL OPTION 2.1 In consideration of the sum of US$1.00 (receipt of which the Vendor hereby acknowledges), the Vendor hereby grants to FIL the right to require the Vendor to sell to FIL all the Call Option Shares on the terms and subject to the conditions of this Agreement ("CALL OPTION"). 2.2 On the exercise of the Call Option, the Vendor will become bound to sell and FIL will become bound to complete the purchase of the Call Option Shares on the Transfer Terms. 2.3 The Call Option must be exercised by notice in writing by FIL served only during the Call Option Period, failing which it will lapse and cease to have any further effect. 3. PURCHASE PRICE 3.1 The consideration for the purchase of the Call Option Shares ("PURCHASE PRICE") pursuant to the exercise of the Call Option shall comprise the following: (i) the Cash Consideration (as adjusted by Clause 3.4); (ii) (where Clause 3.4 applies) the Consideration Shares; (iii) the First Consideration Note; and (iv) the Second Consideration Note, subject to the rights of FIL under Clause 4. The Purchase Price shall be paid in accordance with Clause 3.2. 3.2 The Purchase Price shall be satisfied: (i) by the payment of the Cash Consideration (and where Clause 3.4 applies, the Consideration Shares) on Call Option Completion; (ii) by the issue of the First Consideration Note to the Vendor on Call Option Completion, payment in respect of which shall be made on the First Deferred Consideration Date; and (iii) by the issue of the Second Consideration Note to the Vendor on Call Option Completion, payment in respect of which shall be made on the Second Deferred Consideration Date, subject to the rights of FIL under Clause 4. 3 34 3.3 The Cash Consideration as part consideration for the purchase of the Call Option Shares is the sum which is sixty per cent. (60%) of the Valuation. The Valuation is the sum derived by the following formula: Y = (A X 10 x 0.6) where Y = the Valuation; A = Net Profit After Taxation of the Company for the Financial Period. Payment of the Cash Consideration (or any part thereof, in the event that Clause 3.4 applies) shall be effected by way of telegraphic transfer to an account designated by the Vendor and notified to the Purchaser not later than three (3) Business Days prior to the Call Option Completion Date or by way of a banker's draft or in such other form as the Vendor and FIL may agree. 3.4 FIL shall have the option of satisfying up to a maximum of forty per cent. (40%) of the Cash Consideration by allotting and issuing FIL Shares to the Vendor on Call Option Completion. The number of FIL Shares to be allotted and issued to the Vendor on Call Option Completion rounded downwards to the nearest whole FIL Share ("CONSIDERATION SHARES") shall be derived by dividing that part of the Cash Consideration which FIL elects to have satisfied by the issue of FIL Shares by the FIL Average Share Price. The Cash Consideration payable on Call Option Completion shall be reduced accordingly. FIL shall use its reasonable best efforts to file, within ninety (90) days of the issuance of any Consideration Shares, a registration statement with the SEC covering the resale of such Consideration Shares. 3.5 The First Consideration Note and the Second Consideration Note as part consideration for the purchase of the Call Option Shares shall be issued and delivered to the Vendor on Call Option Completion. 3.6 The liability of FIL to the Vendor under and in respect of the First Consideration Note shall be contingent upon the Net Profit After Taxation of Company for the period commencing 1 January 1998 and ending on 31 December 1998 ("SECOND FINANCIAL Period") (and shall be determined in accordance with the terms of Clause 10.2 of the Sale and Purchase Agreement) exceeding the Net Profit After Taxation of the Company for the Financial Period by twenty per cent. (20%). In such event, the amount payable by FIL to the Vendor under the First Consideration Note shall be a cash sum equal to twenty per cent. (20%) of the Valuation as determined pursuant to Clause 3.3. The First Consideration Note shall not bear interest and the principal amount thereof (as determined in accordance with this Clause 3.6 as adjusted pursuant to Clause 4) shall be due and payable by FIL to the Vendor on the First Deferred Consideration Date. 3.7 The liability of FIL to the Vendor under and in respect of the Second Consideration Note shall be contingent upon the Net Profit After Taxation of the Company for the period commencing on 1 January 1999 and ending on 31 December 1999 (and shall be determined in accordance with the terms of Clause 10.2 of the Sale and Purchase Agreement) exceeding the Net Profit After Taxation of the Company for the Financial Period by forty-four per cent. (44%). In such event, the amount payable by FIL to the Vendor under the Second Consideration Note shall be a cash sum equal to twenty per cent. (20%) of the Valuation as determined pursuant to Clause 3.3. The Second Consideration Note shall not bear interest and the principal amount thereof (as determined in accordance with Clause 3.7 as adjusted pursuant to Clause 4) shall be due and payable by FIL to the Vendor on the Second Deferred Consideration Date. 4 35 4. ADJUSTMENT TO PURCHASE PRICE 4.1 The Cash Consideration and the principal amount of each of the First Consideration Note and the Second Consideration Note shall be subject to any claim in respect of the Deed of Indemnity, the Post-Closing Adjustment, the Warranties and the Specific Indemnities. In the event (a) any claim arises under the Deed of Indemnity, (b) the Company is entitled to the Post-Closing Adjustment as against the Vendor under and pursuant to Clause 5 of the Sale and Purchase Agreement, (c) there is a breach of any of the Warranties by the Vendor or (d) any claim arises in respect of any of the Specific Indemnities, such claim, entitlement or breach (and the amount in respect thereof) as determined by FIL shall be offset by FIL deducting such amount of the principal amount and interest thereon from the Cash Consideration and each of the First Consideration Note and the Second Consideration Note as shall in the aggregate equal the amount of such claim, entitlement or breach in the manner as provided in Clause 4.2. 4.2 The rights of offset of FIL in relation to the Deed of Indemnity, the Post-Closing Adjustment, any breach of the Warranties or the Specific Indemnities shall be exercisable by FIL as far as is practicable in the order as each of the Cash Consideration, First Consideration Note and the Second Consideration Note is due to be paid. 5. CALL OPTION COMPLETION 5.1 Completion of the sale and purchase of the Call Option Shares shall take place in Hong Kong at the Hong Kong branch office of FIL (or at such other place as may be agreed) on the Call Option Completion Date, provided that if a such day is not a Business Day then Call Option Completion shall take place at 12 noon on the first Business Day thereafter. 5.2 On Call Option Completion: (a) the Vendor shall deliver to FIL duly executed transfers and duly executed sold notes in favour of FIL or as it may direct in respect of the Call Option Shares accompanied by the relative share certificate(s) and shall do all things and execute such documents as shall be necessary or as FIL may reasonably request to give effect to the sale of the Call Option Shares pursuant to Clause 2 on the Transfer Terms; (b) the Vendor shall procure the passing of a board resolution of the Company approving the registration of the said share transfers, subject to the same being duly stamped; (c) the Vendor shall procure the resignations of the existing Directors of the Company nominated by them pursuant to Clause 4(B) of the Shareholders' Agreement, which said resignations shall take effect on the Call Option Completion; (d) (subject to Clause 4) FIL shall pay the Cash Consideration (or, where Clause 3.4 applies, the relevant part thereof) to the Vendor in any manner contemplated by Clause 3.3; (e) FIL shall deliver to the Vendor copies of the board resolutions of FIL authorising: (i) the payment of the Cash Consideration (or, where Clause 3.4 applies, the relevant part thereof); (ii) (where Clause 3.4 applies) the allotment and issue of the Consideration Shares to the Vendor; and 5 36 (iii) the issuance of the First Consideration Note and the Second Consideration Note; (f) (where Clause 3.4 applies), FIL shall deliver to the Vendor the Consideration Shares duly allotted and issued by FIL in the name of the Vendor; and (g) FIL shall deliver to the Vendor the First Consideration Note and the Second Consideration Note subject to FIL's rights of offset pursuant to Clause 4. 5.3 If any of the provisions of Clause 5.2 are not complied with on the Call Option Completion Date the party not in default may (without prejudice to his other rights and remedies): (a) defer Call Option Completion to a date not more than twenty-eight (28) days after the Call Option Completion Date (and so that the provisions of this Clause 5 shall apply to Call Option Completion as so deferred); or (b) proceed to Call Option Completion so far as practicable (without prejudice to his rights hereunder); or (c) rescind the contract of sale arising by virtue of the exercise of the Call Option. 6. DURATION OF OBLIGATIONS 6.1 This Agreement shall terminate on the date falling on the first anniversary of the last day of the Call Option Period if no Call Option Notice shall have been served on or prior to such date. 6.2 If the Call Option Notice shall have been served on or prior to the date mentioned in Clause 6.1 this Agreement shall continue in force after such date until the fulfilment of the parties' obligations hereunder in relation to the Call Option Notice whereupon it shall terminate. 7. VENDOR'S WARRANTIES 7.1 The Vendor warrants to FIL that it is and will remain until the exercise or expiry of the Call Option the legal and beneficial owner of the Call Option Shares, subject only to the Call Option and has and will have full power and authority to grant an option in respect of the same upon the terms and conditions of this Agreement. 7.2 The Vendor shall not prior to the exercise or expiry of the Call Option transfer, dispose of or permit an Encumbrance save for the Call Option, over its interest in any of the Call Option Shares and the Call Option Shares shall upon Call Option Completion be sold free of any Encumbrance. 7.3 At the date of this Agreement the Call Option Shares represent sixty per cent. (60%) of the issued and paid-up capital of the Company issued or agreed to be issued and there is no option or right outstanding in favour of any third party to subscribe for any share or loan capital of the Company. 7.4 The Vendor warrants that at Call Option Completion, the Call Option Shares shall constitute sixty per cent. (60%) of the issued and paid-up capital of the Company issued or agreed to be issued. 6 37 7.5 Such information relating to the Company as is known to the Vendor and which is material to be known by a purchaser for value of the Call Option Shares has been disclosed in writing to FIL prior to the date of this Agreement and, upon the written request of FIL during the Call Option Period, the Vendor shall provide such further information of which the Vendor may become aware. 8. FIL'S WARRANTIES 8.1 FIL hereby represents and warrants to the Vendor as follows: (i) FIL is a company validly existing under the laws of Singapore, and has all requisite power and authority (corporate and otherwise) to own its properties and carry on its business as now being conducted. FIL has full power to execute and deliver this Agreement and the agreements contemplated herein, and to consummate the transactions contemplated hereby and thereby. Certified copies of the Memorandum and Articles of Association of FIL, as amended to date, have been previously delivered to the Vendor, are complete and correct, and no amendments have been made thereto or have been authorised since the date thereof; (ii) On 30 September 1996, FIL's authorised share capital consists of 100,000,000 ordinary shares, S$0.01 par value, of which 13,324,759 ordinary shares were issued and outstanding. All of the outstanding share capital of FIL have been duly and validly issued and are fully paid and not subject to any call; (iii) The delivery of this Agreement by FIL, and the agreements provided for herein, and the consummation by FIL of the transactions contemplated hereby and thereby, have been duly authorised by all requisite corporate action. This Agreement and all such other agreements and written obligations entered into and undertaken in connection with the transactions contemplated hereby constitute the valid and legally binding obligations of FIL, enforceable against FIL in accordance with their respective terms. The delivery and performance of this Agreement and the agreements provided for herein, and the consummation by FIL of the transactions contemplated hereby and thereby, will not in any material respect (a) violate the provisions of any law, rule or regulation applicable to FIL, (b) violate the provisions of FIL's Memorandum or Articles of Association, (c) violate any judgment, decree, order or award of any court, governmental body or arbitrator, or (d) conflict with or result in the breach or termination of any term or provision of, or constitute a default under, or cause any acceleration under, or cause the creation of any lien, charge or encumbrance upon the properties or assets of FIL pursuant to, any indenture, mortgage, deed of trust or other material agreement or instrument to which FIL is a party; (iv) The payment of the Cash Consideration, the issue of the First Consideration Note and the Second Consideration Note, and the allotment and issue of the Consideration Shares in payment of the Call Option Consideration and the transactions contemplated hereby will comply with the constitutional documents of FIL and with all relevant material requirements of all applicable laws, rules and regulations of Singapore; (v) The directors of FIL have all necessary powers to pay the Cash Consideration, issue the First Consideration Note and the Second Consideration Note, allot and issue the Consideration Shares in payment of the Call Option Consideration, and to pay the expenses in the manner proposed hereby and to cause FIL to enter into this Agreement; 7 38 (vi) The Consideration Shares, if any, to be issued in connection with the Call Option Consideration will be allotted and issued free from all claims, equities, liens, charges and encumbrances whatsoever and will be issued with all rights attaching and accruing to the FIL shares; and (vii) All material consents, approvals, authorisations and other requirements prescribed by any law, rule or regulation which must be obtained or satisfied by FIL and which are necessary for the consummation of the transactions contemplated by this Agreement have been obtained and satisfied. 8.2 If prior to the Call Option Completion it shall be found that any of the warranties on the part of FIL as set out in Clause 8.1 above have not been carried out or complied with to the Vendor's reasonable satisfaction or are otherwise untrue or misleading in any material respect the Vendor shall be entitled by notice in writing to FIL to terminate this Agreement and neither party shall thereafter have any claim against the other under or in respect of this Agreement. 9. COMMUNICATIONS 9.1 Except as otherwise provided in the Agreement, all notices required or permitted to be given hereunder shall be in writing and in the English language and shall be sent by facsimile or in writing. 9.2 Any notice hereunder shall be addressed as follows: In the case of the Vendor: Fico Forest Industrial Co. Limited Unit 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number: (852) 2412-0791 Attention: Mr Law Sing Hong In the case of FIL: Flextronics International Ltd 514 Chai Chee Lane, #04-13 Singapore 469029 Fax Number: (65) 449-9548 Attention: Mr Goh Chan Peng 9.3 Any party may from time to time by notice hereunder change its address or telefax number for notice. Notice given by facsimile shall be deemed to have been served on the next Business Day in the place of address following the day of transmission. 10. GENERAL 10.1 This Agreement may be assigned in whole or in part by FIL. Notwithstanding this, this Agreement shall not be assigned in whole or in part by the Vendor. It is expressly agreed that this Agreement shall be binding upon and shall enure for the benefit of the parties' successors. 8 39 10.2 This Agreement supersedes any previous agreement between the parties hereto in relation to the matters dealt with herein, represents (together with any documents referred to herein) the entire agreement between the parties herein in relation to such matters and no variation hereof shall be effective unless made in writing. 10.3 The failure of any of the parties hereto at any time to require performance by any other party or to claim a breach of any term of this Agreement shall not be deemed to be a waiver of any right under this Agreement. 10.4 The parties hereto shall, and shall use their respective reasonable endeavours to procure that any necessary third parties shall, execute and do all such further deeds, documents and things as either party may reasonably require by notice in writing to the other party to carry the provisions of this Agreement into full force and effect and (so far as they are able) shall do anything necessary (including, without limitation, exercising their powers as shareholders) to give effect to the spirit and intent of this Agreement). 10.5 Any date or period mentioned in this Agreement may be extended by agreement between the parties hereto (or such of the parties as may be affected thereby), but as regards any date or period (whether or not extended as aforesaid) time shall be of the essence of this Agreement. 10.6 Subject as specifically provided herein, each of the parties hereto shall bear its own costs and expenses relating to this Agreement, save that FIL shall bear all stamp duty payable in respect of the grant of the Call Option and the purchase of the Call Option Shares. 10.7 The illegality, invalidity or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 10.8 Notwithstanding the completion of the sale and purchase herein, the terms and condition of this Agreement shall not merge with the transfer or conveyance and be extinguished but shall remain in full force and effect as between the Vendor and FIL insofar as the same shall not have been fulfilled. 11. GOVERNING LAW AND DISPUTE RESOLUTION 11.1 This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. 11.2 Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 11.2 save to the extent that they are inconsistent with the express terms of this Agreement. 11.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by FIL, one of whom shall be appointed by the Grantors, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 9 40 11.4 For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 11.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 11.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 11.7 The prevailing party in the arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 10 41 APPENDIX A FORM OF FIRST CONSIDERATION NOTE PROMISSORY NOTE Due [name actual date of First Deferred Consideration Date], 1999 [ ], 1996 This Promissory Note issued pursuant to the call option agreement dated [ ] entered into between (1) Flextronics International Ltd and (2) Fico Forest Industrial Co. Limited ("CALL OPTION AGREEMENT") Terms defined in the Call Option Agreement shall unless the context otherwise require, bear the same meaning in this First Consideration Note. For value received, Flextronics International Ltd, a corporation organized and existing under the laws of Singapore ("COMPANY"), hereby promises to pay, conditional upon the Net Profit After Taxation of Fico Investment Holding Limited for the Second Financial Period (as defined in the Call Option Agreement) (which shall be determined in accordance with the terms of Clause 10.2 of the Sale and Purchase Agreement) exceeding the Net Profit After Taxation of Fico Investment Holding Limited for the Financial Period by twenty percent. (20%) on the First Deferred Consideration Date, to the order of Fico Forest Industrial Co. Limited a Hong Kong corporation ("HOLDER"), at the offices of the Holder, the sum equal to twenty per cent. (20%) of the Valuation (as defined in the Call Option Agreement), subject to any rights of offset and adjustments pursuant to Clause 4 of the Call Option Agreement. 1. INTEREST. This Promissory Note does not bear any interest. 2. PRINCIPAL. The Company promises to pay the principal in full on the First Deferred Consideration Date, provided that the Company may at any time prepay the principal or any part of it without premium or penalty at any time. 3. EVENTS OF DEFAULT; ACCELERATION. In case one or more of the following Events of Default shall have occurred and be continuing: 3.1 Default in the payment of the principal of this Promissory Note as and when the same shall become due and payable either at maturity, by declaration or otherwise; or 3.2 A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or 3.3 The Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or 11 42 3.4 If all of Law Sing Hong, Law Shun Hang and Law Kin Ping shall have their Employment Agreements terminated by Fico Investment Holding Limited for any reason other than in accordance with Clause 11 of their respective Employment Agreements, then and in each and every such case, unless the principal of this Promissory Note shall have already become due and payable, the Holder of this Promissory Note, by notice in writing to the Company, may declare the principal of this Promissory Note to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable. 4. RIGHT OF OFFSET. The obligations of the Company under this Promissory Note shall at all times be subject to the right of the Company to offset against the principal of this Promissory Note such amount or amounts in the aggregate as shall equal the amount or amounts of (a) any claim under the Deed of Indemnity (as defined in the Call Option Agreement), (b) the Post-Closing Adjustment (as defined in the Call Option Agreement), (c) any damage, loss, liability or expense arising out of or in connection with a breach of any of the Warranties (as defined in the Call Option Agreement) and/or (d) any breach of the Specific Indemnities, in accordance with the terms and conditions of the Call Option Agreement. 5. ASSIGNMENT AND NEGOTIABILITY. This Promissory Note shall be freely assignable and transferable by the Company to any of its affiliates and shall be freely negotiable by the Holder. 6. GOVERNING LAW AND ARBITRATION. 6.1 This Promissory Note, and the rights of the parties hereunder, shall be governed by, and construed and interpreted in accordance with, the laws of Hong Kong. 6.2 (i) Any dispute or difference arising out of or in connection with this Promissory Note, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore; (ii) In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules (as defined in the Agreement); (iii) In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules (as defined in the Agreement); and (iv) The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 6.2 save to the extent that they are inconsistent with the express terms of this Promissory Note. 6.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Company, one of whom shall be appointed by the Holder, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC (as such terms are defined in the Agreement), as the case may be. 6.4 For the purpose of this Promissory Note a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 12 43 6.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 6.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of HKIAC or SIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of HKIAC or SIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 6.7 The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 7. SUCCESSORS. The provisions of this Promissory Note shall inure to the benefit of and be binding upon any successor to the Company. 8. AMENDMENTS. Any amendment of this Promissory Note shall be effective only if made in writing and executed by the Company and the Holder. 13 44 IN WITNESS WHEREOF, the Company has caused this Promissory Note to be signed and dated as of , 19 . ---------------- FLEXTRONICS INTERNATIONAL LTD By: ---------------------- Name: Title: - ------------------------------------------------------ FLEXTRONICS INTERNATIONAL LTD Promissory Note Due [ ], 1999 14 45 APPENDIX B FORM OF SECOND CONSIDERATION NOTE PROMISSORY NOTE Due [name actual date of Second Deferred Consideration Date], 2000 [ ], 1996 This Promissory Note issued pursuant to the call option agreement dated [ ] entered into between (1) Flextronics International Ltd and (2) Fico Forest Industrial Co. Limited ("CALL OPTION AGREEMENT"). Terms defined in the Call Option Agreement shall unless the context otherwise require, bear the same meaning in this Second Consideration Note. For value received, Flextronics International Ltd, a corporation organized and existing under the laws of Singapore ("COMPANY"), hereby promises to pay, conditional upon the Net Profit After Taxation of Fico Investment Holding Limited for the period commencing on 1 January 1999 and ending on 31 December 1999 (which shall be determined in accordance with the terms of Clause 10.2 of the Sale and Purchase Agreement) exceeding the Net Profit After Taxation of Fico Investment Holding Limited for the Financial Period by forty-four per cent. (44%) on the Second Deferred Consideration Date, to the order of Fico Forest Industrial Co. Limited, a Hong Kong corporation ("HOLDER"), at the offices of the Holder, the sum equal to twenty per cent. (20%) of the Valuation (as defined in the Call Option Agreement), subject to any rights of offset and adjustments pursuant to Clause 4 of the Call Option Agreement. 1. Interest. This Promissory Note does not bear any interest. 2. Principal. The Company promises to pay the principal in full on the Second Deferred Consideration Date, provided that the Company may at any time prepay the principal or any part of it without premium or penalty at any time. 3. EVENTS OF DEFAULT; ACCELERATION. In case one or more of the following Events of Default shall have occurred and be continuing: 3.1 Default in the payment of the principal of this Promissory Note as and when the same shall become due and payable either at maturity, by declaration or otherwise; or 3.2 A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or 3.3 The Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or 15 46 3.4 If all of Law Sing Hong, Law Shun Hang and Law Kin Ping shall have their Employment Agreements terminated by Fico Investment Holding Limited for any reason other than in accordance with Clause 11 of their respective Employment Agreements, then and in each and every such case, unless the principal of this Promissory Note shall have already become due and payable, the Holder of this Promissory Note, by notice in writing to the Company, may declare the principal of this Promissory Note to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable. 4. Right of Offset. The obligations of the Company under this Promissory Note shall at all times be subject to the right of the Company to offset against the principal of this Promissory Note such amount or amounts in the aggregate as shall equal the amount or amounts of (a) any claim under the Deed of Indemnity (as defined in the Call Option Agreement), (b) the Post-Closing Adjustment (as defined in the Call Option Agreement), (c) any damage, loss, liability or expense arising out of or in connection with a breach of any of the Warranties (as defined in the Call Option Agreement) and/or (d) any breach of the Specific Indemnities, in accordance with the terms and conditions of the Call Option Agreement. 5. Assignment and Negotiability. This Promissory Note shall be freely assignable and transferable by the Company to any of its affiliates and shall be freely negotiable by the Holder. 6. Governing Law and Arbitration. 6.1 This Promissory Note, and the rights of the parties hereunder, shall be governed by, and construed and interpreted in accordance with, the laws of Hong Kong. 6.2 (i) Any dispute or difference arising out of or in connection with this Promissory Note, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore; (ii) In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules (as defined in the Agreement); (iii) In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules (as defined in the Agreement); and (iv) The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 6.2 save to the extent that they are inconsistent with the express terms of this Promissory Note. 6.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Company, one of whom shall be appointed by the Holder, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC (as such terms are defined in the Agreement), as the case may be. 6.4 For the purpose of this Promissory Note a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 16 47 6.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 6.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of HKIAC or SIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of HKIAC or SIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 6.7 The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 7. Successors. The provisions of this Promissory Note shall inure to the benefit of and be binding upon any successor to the Company. 8. Amendments. Any amendment of this Promissory Note shall be effective only if made in writing and executed by the Company and the Holder. 17 48 IN WITNESS WHEREOF, the Company has caused this Promissory Note to be signed and dated as of , 19 . FLEXTRONICS INTERNATIONAL LTD By: -------------------------- Name: Title: - -------------------------------------------------- FLEXTRONICS INTERNATIONAL LTD Promissory Note Due [ ], 2000 18 49 IN WITNESS WHEREOF the parties have hereunto entered into this Agreement the date first above written. FIL SIGNED by ) ) ) - ----------------- ) S. L. Tsui ) /s/ S.L. TSUI ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: ) /s/ COSMAS WONG CIN TZIEH ------------------------------------ Cosmas Wong Cin Tzieh Advocate & Solicitor Singapore FICO(HK) SIGNED by ) ) for and on behalf of ) FICO FOREST INDUSTRIAL ) CO. LIMITED ) in the presence of: ) 19 50 IN WITNESS WHEREOF the parties have hereunto entered into this Agreement the date first above written. FIL SIGNED by ) ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: ) FICO(HK) SIGNED by ) ) ) ) /s/ LAW SING HONG Law Sing Hong and Law Shun Hang ) ------------------ ) for and on behalf of ) /s/ LAW SHUN HANG FICO FOREST INDUSTRIAL ) ------------------ CO. LIMITED ) in the presence of: ) /s/ CHRISTINE C. KNIGHT ------------------------------- Christine C. Knight Solicitor Hong Kong 19 51 SCHEDULE 3 CHARGE DATED THIS 20th DAY OF DECEMBER 1996 Between FLEXTRONICS INTERNATIONAL LTD (the Chargee) And FICO FOREST INDUSTRIAL CO. LIMITED (the Chargor) ------------------------ CHARGE ------------------------ 52 TABLE OF CONTENTS Clause Heading Page - ------ ------- ---- 1. INTERPRETATION ..................................................... 1 2. COVENANT AND CHARGE ................................................ 2 3. CONTINUING SECURITY ................................................ 2 4. REPRESENTATIONS AND WARRANTIES ..................................... 2 5. ADDITIONAL UNDERTAKINGS ............................................ 3 6. DIVIDENDS .......................................................... 3 7. POWER OF ATTORNEY .................................................. 3 8. REMEDIES AND SALE BY FIL ........................................... 4 9. SECURITY ........................................................... 4 10. WAIVER AND SEVERABILITY ............................................ 5 11. SUSPENSE ACCOUNT ................................................... 5 12. PROTECTION OF THIRD PARTIES ........................................ 5 13. NOTICE ............................................................. 5 14. GOVERNING LAW AND JURISDICTION ..................................... 6 15. FEES AND EXPENSES .................................................. 7 16. MISCELLANEOUS PROVISIONS ........................................... 7 17. APPLICABILITY OF THE S&P AGREEMENT ................................. 7 18. COUNTERPARTS ....................................................... 7 53 THIS CHARGE is made on the 20th day of December 1996 BETWEEN: (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore and having its registered office at 36 Robinson Road, City House #18-01, Singapore 068877 ("FIL"); and (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("CHARGOR"). WHEREAS: Pursuant to a sale and purchase agreement dated 29 November 1996 and entered into between, the Chargor, FIL and Fico Investment Holding Limited ("COMPANY"), ("S&P AGREEMENT"), the Chargor has agreed with FIL to execute and deliver this Charge to FIL on the terms set out herein as security for the obligations and liabilities of the Chargor under the terms and conditions of the Agreements (as defined below). NOW IT IS HEREBY AGREED as follows: 1. INTERPRETATION 1.1 Unless the context otherwise requires terms and expressions defined in the S&P Agreement shall have the same meaning when used in this Charge: "AGREEMENTS" means the S&P Agreement, the Call Option Agreement, the Put Option Agreement, the Fico Call Option Agreement, the Escrow Agreement, the Deed of Indemnity and the Shareholders' Agreement; "COMPANY" means Fico Investment Holding Limited, a company incorporated in Hong Kong, and having its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong; "OBLIGATIONS" means the obligations of the Chargor under the Agreements; "RELATED CORPORATIONS" in relation to any entity means any subsidiary or holding company or other subsidiary of the holding company of such entity; and "SHARES" means all the ordinary shares of HK$1.00 each in the share capital of the Company beneficially owned by the Chargor which, in aggregate, represent sixty per cent. (60%) of the issued and paid-up share capital of the Company beneficially owned by the Chargor at the date hereof, and such number of any and all other shares in the share capital of the Company issued to and beneficially owned by the Chargor subsequent to the date hereof consisting of, at any time all of the ordinary shares in the Company issued to and beneficially owned by the Chargor and, where the context permits, includes those rights, monies and other property referred to in Clause 2.4. 1.2 Unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Charge or the Agreements shall be construed as references to such document as the same may be amended or supplemented from time to time; unless stated otherwise, references to clauses and schedule are to clauses and schedule of this Charge. 54 2. COVENANT AND CHARGE 2.1 The Chargor covenants with FIL that it shall discharge the Obligations when due to FIL pursuant to the terms of the Agreements (as may be amended from time to time). 2.2 The Chargor as legal and beneficial owner of the Shares and as security for the discharge to FIL of the Obligations charges by way of a first fixed charge all of the Chargor's right, title and interest in and to the Shares and all rights, monies and property whatsoever which may at any time be derived from, accrue on or be offered in respect of the Shares whether by way of redemption, exchange, conversion, rights, bonus, capital reorganisation or otherwise, as specified in Clause 2.4. 2.3 The Chargor hereby undertakes forthwith to deposit or procure that there will be deposited with FIL or, as the case may be, the Escrow Agent (pursuant to the Escrow Agreement) the share certificate(s) in respect of the Shares together with registrable instruments of transfer and the sold notes in respect thereof duly executed by the Chargor in blank to the intent that the Shares may be registered in the name of FIL or its nominees as and in accordance with the terms of this Charge. 2.4 This Charge shall (subject as provided by Clause 6) extend to and include all dividends or interest (if any) paid or payable after the date hereof in respect of the Shares and all stocks, shares (and the dividends or interest in respect thereof), rights, monies or other property accruing or offered at any time in respect of the Shares (including any sums paid upon or with respect to the Shares upon the liquidation or dissolution of the Company and properties distributed upon reduction of capital or other capital reorganisation of the Company) and all allotments, accretions, offers, rights, benefits (including all shares of the Company issued subsequent to the date hereof) and advantages at any time accruing, made, offered or arising in respect of any of the same. If the Chargor acquires any other stocks or shares in the Company, it shall forthwith deliver or procure that there be delivered to FIL the share certificate(s) in respect thereof together with registrable instruments of transfer in respect thereof duly executed by the Chargor in blank. 2.5 Without prejudice to anything else contained in this Charge, the Chargor shall at any time at the request of FIL but at the cost of the Chargor promptly sign seal execute deliver and do all deeds instruments transfers renunciations proxies notices documents acts and things in such form as FIL or the Escrow Agent may from time to time require for perfecting or protecting the security over the Shares or any part of it or for facilitating its realisation, including but not limited to attending any board meeting and approving any transfer of the Shares made in accordance with this Charge, the cancellation of the share certificates representing the Shares held in the name of the Chargor and the issue of the new share certificate(s) under the common seal of the Company in accordance with its Articles of Association in the name of FIL or its nominees or any third party purchasing the Shares. 3. CONTINUING SECURITY This Charge shall be a continuing security, and shall remain in full force and effect until the Obligations have been discharged in full notwithstanding the bankruptcy, insolvency or liquidation of any person or any intermediate settlement of account or other matter whatsoever. 4. REPRESENTATIONS AND WARRANTIES The Chargor represents and warrants that: 2 55 (a) the Chargor has good, unencumbered, marketable title to the Shares and all the Shares are validly issued and fully paid-up; (b) no Encumbrance exists over all or any part of the Shares (except as created by the Agreements and this Charge); and (c) save for the Call Option, the Chargor has not granted or resolved or agreed to grant in favour of any other person any interest in or any option or other rights in respect of any of the Shares. 5. ADDITIONAL UNDERTAKINGS 5.1 The Chargor further agrees from time to time to: (a) pay to FIL, upon demand and upon receiving evidence in writing in respect thereof, the amount of all expenses which it may incur in, about or with a view to perfecting or enforcing this Charge or otherwise in connection therewith together with interest on the amount on any payments made by the Chargor from the date of payment until the date of repayment before as well as after judgement; and (b) promptly pay all calls and other payments which may become due in respect of the Shares and, in the event of default by the Chargor, FIL may do so on the Chargor's behalf and paragraph (a) above shall apply accordingly. 5.2 The Chargor undertakes throughout the continuance of this Charge that the Chargor shall, unless FIL otherwise agrees in writing: (a) not to dispose of or create or agree to dispose of or create or permit to arise or exist any Encumbrance over all or any part of the Shares (except as created by the Agreements and this Charge) and any purported sale, transfer, disposal, mortgage, charge or security interest created without FIL's prior consent shall be absolutely void; (b) not grant in favour of any other person any interest in or any option or other rights in respect of any of the Shares; and (c) at all times remain the beneficial owner of the Shares. 6. DIVIDENDS FIL agrees with the Chargor that (subject to Clause 8.2) until the Obligations are discharged in full, FIL shall hold all interest, dividends and property paid on and received by FIL in respect of the Shares on trust for the Chargor. 7. POWER OF ATTORNEY The Chargor hereby irrevocably appoints FIL to be the attorney of the Chargor with full power of substitution of its name and in its name and on its behalf and as its act and deed to execute, seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act it may deem necessary for any of the purposes of this Charge and in particular, but without limitation to do all or any of the following: 3 56 (a) to effect any transfer of the Shares or any of them and to register and/or procure the registration of the same whether in the name of FIL or otherwise; and (b) to call or to procure the calling of and to attend any shareholders' meeting of the Company and to vote or to instruct any proxy to vote at such meeting in such manner as FIL may think fit. The Chargor hereby ratifies and confirms and agrees to ratify and confirm anything FIL shall lawfully and properly do or purport to do by virtue of this Clause 7 and all money expended by FIL shall be deemed to be expenses incurred by FIL under this Charge. 8. REMEDIES AND SALE BY FIL 8.1 If the Obligations are not discharged in full in the manner stipulated in the Agreements and within the time limits set forth therein, the security constituted herein shall become immediately enforceable and FIL or its nominee, may without limitation to its other rights in law, at its option do one or more of the following: (a) sell or otherwise dispose of all or any title and interest in the Shares upon such terms and in such manner and for such consideration as FIL may in its sole and absolute discretion think fit, and FIL may apply the proceeds of any such sale or disposition in or towards the discharge of costs thereby incurred (including sale and/or attorneys' fees), with any surplus being retained by FIL but FIL shall not be liable for any loss or damage occasioned by such sale or disposal, unless caused by FIL's own wilful default; (b) transfer the Shares to itself but without prejudice to any other rights or remedies which FIL may have in law against the Chargor; and (c) complete and date the sold note(s), the instrument(s) of transfer and any other documents delivered pursuant to Clause 2.3 and appoint additional and/or replacement directors to the Board of the Company. 8.2 At any time after the power of sale has arisen, any interest, dividend or other payments which have been or may be received or receivable by FIL or any nominee of FIL in respect of any of the Shares (including any or all of those interests set forth in Clause 2.4) may be applied or retained by FIL as though they were proceeds of sale hereunder. 8.3 FIL is hereby authorized to give a good discharge for any monies received by it pursuant to the exercise of its power of sale and a purchaser shall not be bound to inquire whether the power of sale has arisen as herein provided nor be concerned with the manner of application of the proceeds of sale. 9. SECURITY Neither the liability of the Chargor nor the validity or enforceability of this Charge shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Chargor or any other person; (b) any variation or modification of the Agreements or any documents referred to therein; (c) any irregularity in the exercise of this Charge; 4 57 (d) any other security document, charge, debenture, guarantee or other security being or becoming held by or available to FIL or by any of the same or any right or remedy of FIL against the Company or the Chargor or any other person being or becoming wholly or partly void, voidable or unenforceable or by FIL at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy FIL may now or hereafter have from or against the Chargor or any other person; (e) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Chargor or any other person or any compromise arrangement or settlement with any of the same; and (f) any act, omission, event or circumstance which would or may but for this provision operate to prejudice, affect or discharge this Charge or the Agreements or the liability of the Chargor hereunder or under the Agreements. 10. WAIVER AND SEVERABILITY No failure or delay by FIL in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Charge is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the laws of any other jurisdiction, and of the remaining provisions of this Charge, shall not be affected or impaired thereby. 11. SUSPENSE ACCOUNT Subject to Clause 8, FIL may place and keep any monies received by virtue of this Charge (whether before or after the bankruptcy or liquidation of the Chargor or any other person) to the credit of a suspense account for so long as FIL may think fit in order to preserve the rights of FIL to sue or prove for the whole amount of its claim against the Chargor or any other person. Upon final settlement of all amounts and payments due to FIL, the Chargor shall have the right to verify any and all records of the suspense account pertaining to any and all monies received by virtue of this Charge and to the application and proceeds of the same. 12. PROTECTION OF THIRD PARTIES No purchaser, mortgagee or other person dealing with FIL shall be concerned to enquire whether any power which it is purporting to exercise has become exercisable or whether any money is due under this Charge or as to the application of any money paid raised or borrowed or as to the propriety or regularity of any sale by or other dealing with FIL. 13. NOTICE All notices, consents, approvals, waivers and other communication under this Charge shall be in writing and shall be deemed to have been duly given when delivered by telecopier and confirmed by delivery in person or by reputable air courier or certified or registered mail, return receipt requested, with postage prepaid addressed as follows: 5 58 (a) To FIL: Flextronics International Ltd 514 Chai Chee Lane, #04-13 Singapore 469029 Fax Number: (65) 449-9548 Attention: Mr Goh Chan Peng (b) To the Chargor: Fico Forest Industrial Co. Limited Unit 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number: (852) 2412-0791 Attention: Mr Law Sing Hong or to such other telecopier number and/or address as the parties may from time to time designate in writing. 14. GOVERNING LAW AND JURISDICTION 14.1 This Charge shall be governed by, and construed in accordance with, the laws of Hong Kong. 14.2 Any dispute or difference arising out of or in connection with this Charge, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 14.2 save to the extent that they are inconsistent with the express terms of this Charge. 14.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by FIL, one of whom shall be appointed by the Chargor, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 14.4 For the purpose of this Charge a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 14.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 14.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 6 59 14.7 The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 15. FEES AND EXPENSES The Chargor shall pay all legal fees on a full indemnity basis and other costs and disbursements incurred in connection with demanding and enforcing payment of monies due hereunder or otherwise howsoever in enforcing this security and/or any of the covenants, undertakings, stipulations, terms and conditions or provisions of this Charge. 16. MISCELLANEOUS PROVISIONS 16.1 Neither this Charge nor any term hereof may be changed, waived, discharged or terminated except by a written instrument expressly referring to this Charge and to the provisions so modified or limited, and executed by the parties hereto. This Charge and all obligations of the Chargor shall be binding upon the successors and permitted assigns of the Chargor and shall together with the rights and remedies of FIL hereunder, inure to the benefit of FIL, its successors or assigns. 16.2 Nothing herein shall be deemed or construed to derogate from or abrogate any of the covenants and obligations to be performed and observed on the part of the Chargor contained in the Agreements. 16.3 The Chargor certifies that neither the execution of this Charge nor the creation of the charges herein contained contravenes any of the provisions of the Memorandum and Articles of Association of the Company or of the Chargor or any agreement or transaction entered into by the Chargor. 17. APPLICABILITY OF THE S&P AGREEMENT In the event of any inconsistency or conflict between the provisions of this Charge and the provisions of the S&P Agreement, the terms of this Charge shall prevail. 18. COUNTERPARTS This Charge may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument. 7 60 IN WITNESS whereof this Charge has been executed the day and year first above written. FIL The Common Seal of ) FLEXTRONICS INTERNATIONAL LTD ) has been affixed in the ) presence of: ) /s/ S.L. Tsui ----------------------- Director /s/ Goh Chan Peng ----------------------- Authorised Signatory Chargor The Common Seal of ) FICO FOREST INDUSTRIAL ) CO. LIMITED has been affixed in the ) presence of: ) ----------------------- Director ----------------------- Director/Secretary 8 61 IN WITNESS whereof this Charge has been executed the day and year first above written. FIL The Common Seal of ) FLEXTRONICS INTERNATIONAL LTD ) has been affixed in the ) presence of: ) ____________________ Director ____________________ Director/Secretary Chargor The Common Seal of ) FICO FOREST INDUSTRIAL ) CO. LIMITED has been affixed in the ) presence of: ) /s/ Law Sing Hong ____________________ Director /s/ Law Shun Hang ____________________ Director/Secretary Christine C. Knight Solicitor Hong Kong 8 62 SCHEDULE 4 EMPLOYMENT AGREEMENT DATED THE 20TH DAY OF DECEMBER 1996 Between FICO INVESTMENT HOLDING LIMITED (as the Company) and LAW SING HONG (as Employee) ---------------------- EMPLOYMENT AGREEMENT ---------------------- 63 THIS AGREEMENT is made on the 20th day of December 1996 BETWEEN: (1) FICO INVESTMENT HOLDING LIMITED, a company incorporated in Hong Kong and having its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("COMPANY"); and (2) LAW SING HONG of 9/17 Kelvin Tower, TMTL 196 Area 20, Tuen Mun, New Territories,Hong Kong ("EMPLOYEE"). NOW IT IS HEREBY AGREED as follows: 1. The Company shall employ the Employee and the Employee shall serve the Company in a senior executive capacity and in such capacity, for the period and upon and subject to the terms and conditions hereinafter contained. 2. As a senior executive of the Company, the Employee shall devote substantially his time and attention and whole skill to the affairs of the Company and in the discharge of his duties hereunder: (a) in undertaking such duties and exercising such powers in relation to the Company and its business as the board of directors of the Company ("BOARD") shall from time to time assign to or vest in him; (b) in the discharge of such duties and in the exercise of such powers conform to observe and comply with all resolutions regulations and directions from time to time made or given by the Board; and (c) undertake to do such other and additional work as may reasonably be requested of him and to perform such services for the Company's subsidiaries or holding company as the Board may from time to time reasonably require without further remuneration unless otherwise agreed. 3. The Employee shall not (without the previous written consent of the Board) during the continuance of this Agreement (either directly or indirectly) be engaged or interested in any capacity in any trade business profession or occupation whatsoever other than the business of the Company. In this Clause 3, the expression "OCCUPATION"shall include any other private work which in the opinion of the Board may hinder or otherwise interfere with the performance by the Employee of his duties under this Agreement. 4. The Employee shall at all times keep the Board promptly and fully informed of his conduct of the business or affairs of the Company and its subsidiaries and associated companies (where relevant) and provide such explanations as the Board may require. 5. The Employee shall not, except as required by law, or authorised or required by his duties reveal to any person, firm or company any trade secrets, secret or confidential operations processes or dealings or any information concerning the organization, business, finances, transactions or affairs of the Company or any of its subsidiaries, associated companies or holding company which may come to his knowledge during his employment hereunder and shall keep with complete secrecy all confidential information entrusted to him and shall not use or attempt to use such information in any manner which may injure or cause loss either directly or indirectly to the Company or its business or may be likely so to do at any time. This restriction shall continue to apply and be binding on him after the termination of this Agreement without limit in point of time but shall cease to apply to information or knowledge which may come into the public domain. 64 6. (a) Any discovery or invention or secret process or improvement in procedure made or discovered by the Employee while in the service of the Company in connection with or in any way affecting or relating to the business of the Company or of any subsidiaries or capable of being used or adapted for use therein or in connection therewith shall forthwith be disclosed to the Company and shall belong to and be the absolute property of the Company or such one of its subsidiary companies as the Company may nominate for the purpose; (b) The Employee if and whenever required so to do (whether during or after the termination of his appointment) shall at the expense of the Company or its nominee apply or join in applying for letters patent or other protection in Hong Kong or any other part of the world for any such discovery, invention, process or improvements as aforesaid and execute all instruments and do all things necessary for vesting the said letters patent or other protection when obtained and all rights and title to and interest in the same in the Company (or its nominee) absolutely and as sole beneficial owner or in such other person as the Company may require; (c) The Employee hereby irrevocably appoints the Company to be his attorney in his name and on his behalf to execute and do any such instrument or thing and generally to use his name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this clause and in favour of any third party a certificate in writing signed by any director or the secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case; (d) The Employee shall take all reasonable precautions to safe-guard his health and keep himself fit to perform his duties under this Agreement and submit to such medical examination and/or treatment as the Company's medical advisers may from time to time consider necessary or advisable; (e) The Employee shall not promote encourage or participate in any public tumult or disorder nor do anything which might cause public scandal or bring the Company or any of its subsidiaries or associated companies or holding company into disrepute; and (f) The Employee may not without the prior written consent of the Board accept any gift and/or favour of whatever kind from any customer, client or supplier of the Company or any prospective customer, client or supplier of the Company. 7. This Agreement and all the provisions herein contained (either expressly or by implication) shall come into force as from 1 January 1997 and shall continue for a term of 3 years, subject to earlier termination as provided in Clause 11 hereof. 8. (a) Subject as hereinafter provided the Company shall pay to the Employee during the continuance of his employment hereunder a salary at the sum of US$85,000 per month which said salary is inclusive of any sum receivable by the Employee as director's fee, car allowance, housing allowance or other remuneration from the Company (or such higher rate as may from time to time be agreed between the parties or determined upon and notified to the Employee by the Company). In the event of any increase of salary being so agreed or notified such increase shall thereafter have effect as if it were specifically provided for as a term of this Agreement. The said salary (less any deductions as shall be required by law to be made) shall be payable in arrears on the last day of each month; (b) In addition to his salary, the Employee shall participate in the Company's profit sharing bonus scheme for key senior officers authorised by the Board from time to time; and 2 65 (c) The Employee shall also participate in the employee stock option scheme for all key employees of Flextronics International Ltd. 9. The Company will reimburse the Employee for the following: (a) all travelling and hotel expenses when the Employee is required by the Company to travel to other countries in the discharge of his duties; and (b) all entertainment expenses incurred in the discharge of the Employee's duties to the Company. 10. The Employee will be entitled to annual leave at the rate of fourteen (14) working days per annum and such leave shall be taken only at a time or times convenient to the Company. 11. Notwithstanding anything herein contained, this Agreement may be determined: (a) by either party hereto giving to the other not less than three (3) calendar months' notice in writing; or (b) by the Company summarily without notice or payment of compensation whatsoever in any of the following events: (i) if the Employee is guilty of dishonesty or grave misconduct or commits any act or wilful neglect as in the opinion of the Company is likely to bring the Company or any of its subsidiaries or associated companies or its holding company or any of its or their officials or employees into disrepute whether such dishonesty, misconduct, act or neglect is or is not directly related to the affairs of the Company; (ii) if the Employee becomes of unsound mind or becomes permanently incapacitated by accident or ill-health and is unable to perform his duties under this Agreement; (iii) if the Employee becomes bankrupt or makes any arrangement or composition with his creditors; (iv) if the Employee commits any material breach of any of his duties or obligations under this Agreement; (v) if the Employee is convicted of any criminal offence other than an offence which in the reasonable opinion of the Board does not affect his position as an employee of the Company; (vi) if the Employee is found to have made illegal monetary profit or received any gratuities or other rewards (whether in cash or kind) out of any of the Company's affairs; or (vii) if the Company is required or requested by any authority (whether governmental or statutory) to terminate the services of the Employee. (c) Upon the termination of this Agreement for whatsoever reason the Employee shall upon the request of the Company resign without claim for compensation from office as a Employee of the Company and from all offices held by him in subsidiary or associated companies or the holding company of the Company and in the event of his failure to do so the Company is hereby irrevocably authorised to appoint such person in his name and on his behalf to execute any documents and to do all things requisite to give effect thereto. 3 66 12. The exercise by the Company of its rights of summary dismissal under the preceding clause hereof shall not debar it from exercising such other rights or remedies as may be available to it by law or otherwise by reason of any of the matters aforesaid. 13. The Employee undertakes that any question or matter relating to the following shall be determined by the Board and in so far as the Call Option (as defined in the Call Option Agreement) has not been exercised, such matters shall be determined pursuant to Clause 9 of the Shareholders' Agreement: (i) any investment by the Company of $10,000 or more; (ii) appointment of (and any subsequent change in) the auditors, secretary and principal bankers and any subsequent change in the financial year end and the registered office of the Company; (iii) entry by the Company or its subsidiaries into any transaction of a financial nature including the incurring of any borrowing under any existing or future banking and credit facilities and granting of any guarantee, indemnity, performance bond, lien, pledge, charge (including fixed and floating charge), mortgage or other security and the incurring of any other form of indebtedness in excess of US$50,000.00; (iv) the incurring of any capital expenditure including the making or disposal of any investment in excess of (a) US$1,000,000 for the period commencing from 1 January 1997 and ending on 31 December 1997; (b) US$1,500,000 for the period commencing from 1 January 1998 and ending on 31 December 1998 and (c) US$1,875,000 for the period commencing from 1 January 1999 and ending on 31 December 1999; (v) the payment of any remuneration or Director's fees; (vi) loans to Directors or to any corporation in which any Director or the Directors cumulatively has or have a controlling interest within the meaning of Section 157H of the Companies Ordinance in the issued share capital of that corporation; (vii) a substantial change in the primary business of the Company; (viii) inter-company transactions with any company or businesses in which the Company have a financial interest; (ix) the declaration, recommendation, making and payment of any distribution (whether in cash or in kind); (x) sale transfer or disposal of the whole or a substantial part of the Company's undertaking, assets or property or purchase, sale, transfer, disposal, lease or licence of any real property or any interest therein; (xi) increase, reduction or other alteration to the authorised or issued share capital; (xii) commencement or carrying on of any type of business not being ancillary or incidental to or extension of the scope of operation or type of the Businesses; (xiii) merger, consolidation or amalgamation with any company, association, partnership or legal entity and acquisition of any shares in any body corporate or participation in any partnership or joint venture arrangement; (xiv) amendment to the Memorandum and Articles of Association; 4 67 (xv) sale, transfer or disposal of any asset or investment with a value in excess of US$10,000.00; (xvi) approval of the audited balance sheet and profit and loss account of the Company and any report or statement accompanying such balance sheet and profit and loss account; (xvii) establishment of any special reserves, provisions or retentions not in the ordinary course of business and application or utilisation of the same; (xviii) entry into any contract or arrangement with any Director or the Company or any person connected with such person; (xix) redemption purchase or cancellation of any shares or issue of further shares or other dilution of the interest of the shareholders of the Company or variation of any rights attaching to any shares of the Company; (xx) issue of partly-paid shares and making of any call upon moneys unpaid in respect of any issued shares; (xxi) subject to the provisions of this Agreement, the winding-up or dissolution of the Company unless it shall have become insolvent; (xxii) any material change in the Company's accounting or reporting practices; (xxiii) lending of any moneys other than placing of deposits with banks and financial institutions; (xxiv) commencement or settlement of any litigation or arbitration proceedings having a value or likely value in excess of US$10,000.00; (xxv) approval of the Company's annual operating budget and strategic plans; (xxvi) any change in the number of Directors of the Company; (xxvii) save as is otherwise provided herein, any matter involving the Company with any Director or with another firm, company or corporation in which any Director is interested as a proprietor, partner, director or other officer or creditor of or a shareholder in, except as a shareholder of a public company or a public corporation whose shares are listed on a stock exchange; (xxviii) any public issue of Shares of the Company or any of its subsidiaries with a view to obtaining the listing of the Company or such subsidiary on any other stock exchange; (xxix) the authorised signatories of all and any banking or credit facilities or accounts; and (xxx) the appointment of any Managing Director, Executive Director, General Manager, Financial Controller or similar senior executive or officer of the Company. 14. The Employee hereby further covenants with and undertakes to the Company that for a period of two (2) years from the date of the termination of his employment with the Company, he shall not do any of the following without first obtaining the written consent of the Company: 5 68 (a) directly or indirectly carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) any business similar to or competitive with the Business (as defined below) of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement, in any country where the Company, its subsidiaries or holding company currently carries on the Business and/or sells its products, including, without limitation, Europe, Hong Kong, Japan, Korea, Malaysia, Mexico, the People's Republic of China, Singapore and the United States of America; (b) solicit or persuade any person or corporation which is a customer or client of the Company, its subsidiaries or holding company, or who is or was a customer or client of or in respect of the Business, to cease doing business with the Company, its subsidiaries or holding company or reduce the amount of business which the customer or client would normally do in respect of the Business for two (2) years after the date of termination of this Agreement; (c) accept from a customer or client referred to in Clause 14(b) above any business of the kind ordinarily forming part of the Business, of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement; (d) at any time use or disclose to any third party any trade secrets, product information or confidential information of the Business of the Company, its subsidiaries and holding company which is not generally known or available in the market place or which but for a breach of this Clause 14 would not be generally known or available in the market place; (e) at any time induce or attempt to induce any person who is at the date of this Agreement or who later becomes an employee of the Company, its subsidiaries or holding company in the Business to terminate his or her employment with the Company, its subsidiaries or holding company; (f) for the purposes of this Clause 14, the expression "BUSINESS" shall mean the sale and manufacture of plastic material products and its by-products (including all associated importation, exportation, marketing and related activities) carried on by the Company, its subsidiaries, holding company or related corporations, anywhere in the world; (g) each and every obligation under this Clause 14 shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part such part or parts as are unenforceable shall be deleted from this Clause 14 and any such deletion shall not affect the enforceability of all such parts of this Clause 14 as remain not so deleted; and (h) while the restrictions contained in this Clause 14 are considered by the parties to be reasonable in all the circumstances it is recognised that restrictions of the nature in question may fail for technical reasons unforeseen and accordingly it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company, its subsidiaries, holding company and related corporations but would be valid if part of the wording thereof were deleted or the periods thereof reduced or the range of activities or area dealt with thereby reduced in scope the said restriction shall apply with such modifications as may be necessary to make it valid and effective. 6 69 15. This Agreement is in substitution for all previous contracts of service between the Company and the Employee which shall be deemed to have been terminated by mutual consent as from the date on which this Agreement commences. 16. In case any provision in this Agreement shall be, or at any time shall become invalid, illegal or unenforceable in any respect under any law, such invalidity, illegality or unenforceability shall not in any way affect or impair any other provisions of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 17. (a) This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. (b) Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 17 save to the extent that they are inconsistent with the express terms of this Agreement. (c) The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Company, one of whom shall be appointed by the Employee, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. (d) For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a ("NOTICE OF DISPUTE") stating the nature of the dispute. (e) The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. (f) The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. (g) The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 7 70 AS WITNESS the hands of the parties hereto. SIGNED BY LAW SHUN HANG ) & LAW SING HONG ) /s/ Law Shun Hang for and on behalf of the ) /s/ Law Sing Hong Company in the presence of: ) /s/ Christine C. Knight Christine C. Knight Solicitor Hong Kong SIGNED BY ) LAW SING HONG ) /s/ Law Sing Hong in the presence of: ) /s/ Christine C. Knight Christine C. Knight Solicitor Hong Kong 8 71 DATED THE 20th DAY OF December 1996 Between FICO INVESTMENT HOLDING LIMITED (as the Company) and LAW SHUN HANG (as Employee) ---------------------------------------------------------------------------- EMPLOYMENT AGREEMENT ----------------------------------------------------------------------------- 72 THIS AGREEMENT is made on the 20th day of December 1996 BETWEEN: (1) FICO INVESTMENT HOLDING LIMITED, a company incorporated in Hong Kong and having its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("COMPANY"); and (2) LAW SHUN HANG of Flat B, 5/F, Block 1, Faraday House, 6 Tsing Yung Street, Tuen Mun, New Territories, Hong Kong ("EMPLOYEE"). NOW IT IS HEREBY AGREED as follows: 1. The Company shall employ the Employee and the Employee shall serve the Company in a senior executive capacity and in such capacity, for the period and upon and subject to the terms and conditions hereinafter contained. 2. As a senior executive of the Company, the Employee shall devote substantially his time and attention and whole skill to the affairs of the Company and in the discharge of his duties hereunder: (a) in undertaking such duties and exercising such powers in relation to the Company and its business as the board of directors of the Company ("BOARD") shall from time to time assign to or vest in him; (b) in the discharge of such duties and in the exercise of such powers conform to observe and comply with all resolutions regulations and directions from time to time made or given by the Board; and (c) undertake to do such other and additional work as may reasonably be requested of him and to perform such services for the Company's subsidiaries or holding company as the Board may from time to time reasonably require without further remuneration unless otherwise agreed. 3. The Employee shall not (without the previous written consent of the Board) during the continuance of this Agreement (either directly or indirectly) be engaged or interested in any capacity in any trade business profession or occupation whatsoever other than the business of the Company. In this Clause 3, the expression "OCCUPATION" shall include any other private work which in the opinion of the Board may hinder or otherwise interfere with the performance by the Employee of his duties under this Agreement. 4. The Employee shall at all times keep the Board promptly and fully informed of his conduct of the business or affairs of the Company and its subsidiaries and associated companies (where relevant) and provide such explanations as the Board may require. 5. The Employee shall not, except as required by law, or authorised or required by his duties reveal to any person, firm or company any trade secrets, secret or confidential operations processes or dealings or any information concerning the organization, business, finances, transactions or affairs of the Company or any of its subsidiaries, associated companies or holding company which may come to his knowledge during his employment hereunder and shall keep with complete secrecy all confidential information entrusted to him and shall not use or attempt to use such information in any manner which may injure or cause loss either directly or indirectly to the Company or its business or may be likely so to do at any time. This restriction shall continue to apply and be binding on him after the termination of this Agreement without limit in point of time but shall cease to apply to information or knowledge which may come into the public domain. 73 6. (a) Any discovery or invention or secret process or improvement in procedure made or discovered by the Employee while in the service of the Company in connection with or in any way affecting or relating to the business of the Company or of any subsidiaries or capable of being used or adapted for use therein or in connection therewith shall forthwith be disclosed to the Company and shall belong to and be the absolute property of the Company or such one of its subsidiary companies as the Company may nominate for the purpose; (b) The Employee if and whenever required so to do (whether during or after the termination of his appointment) shall at the expense of the Company or its nominee apply or join in applying for letters patent or other protection in Hong Kong or any other part of the world for any such discovery, invention, process or improvements as aforesaid and execute all instruments and do all things necessary for vesting the said letters patent or other protection when obtained and all rights and title to and interest in the same in the Company (or its nominee) absolutely and as sole beneficial owner or in such other person as the Company may require; (c) The Employee hereby irrevocably appoints the Company to be his attorney in his name and on his behalf to execute and do any such instrument or thing and generally to use his name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this clause and in favour of any third party a certificate in writing signed by any director or the secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case; (d) The Employee shall take all reasonable precautions to safe-guard his health and keep himself fit to perform his duties under this Agreement and submit to such medical examination and/or treatment as the Company's medical advisers may from time to time consider necessary or advisable; (e) The Employee shall not promote encourage or participate in any public tumult or disorder nor do anything which might cause public scandal or bring the Company or any of its subsidiaries or associated companies or holding company into disrepute; and (f) The Employee may not without the prior written consent of the Board accept any gift and/or favour of whatever kind from any customer, client or supplier of the Company or any prospective customer, client or supplier of the Company. 7. This Agreement and all the provisions herein contained (either expressly or by implication) shall come into force as from 1 January 1997 and shall continue for a term of 3 years, subject to earlier termination as provided in Clause 11 hereof. 8. (a) Subject as hereinafter provided the Company shall pay to the Employee during the continuance of his employment hereunder a salary at the sum of US$85,000 per month which said salary is inclusive of any sum receivable by the Employee as director's fee, car allowance, housing allowance or other remuneration from the Company (or such higher rate as may from time to time be agreed between the parties or determined upon and notified to the Employee by the Company). In the event of any increase of salary being so agreed or notified such increase shall thereafter have effect as if it were specifically provided for as a term of this Agreement. The said salary (less any deductions as shall be required by law to be made) shall be payable in arrears on the last day of each month; (b) In addition to his salary, the Employee shall participate in the Company's profit sharing bonus scheme for key senior officers authorised by the Board from time to time; and 2 74 (c) The Employee shall also participate in the employee stock option scheme for all key employees of Flextronics International Ltd. 9. The Company will reimburse the Employee for the following: (a) all travelling and hotel expenses when the Employee is required by the Company to travel to other countries in the discharge of his duties; and (b) all entertainment expenses incurred in the discharge of the Employee's duties to the Company. 10. The Employee will be entitled to annual leave at the rate of fourteen (14) working days per annum and such leave shall be taken only at a time or times convenient to the Company. 11. Notwithstanding anything herein contained, this Agreement may be determined: (a) by either party hereto giving to the other not less than three (3) calendar months' notice in writing; or (b) by the Company summarily without notice or payment of compensation whatsoever in any of the following events: (i) if the Employee is guilty of dishonesty or grave misconduct or commits any act or wilful neglect as in the opinion of the Company is likely to bring the Company or any of its subsidiaries or associated companies or its holding company or any of its or their officials or employees into disrepute whether such dishonesty, misconduct, act or neglect is or is not directly related to the affairs of the Company; (ii) if the Employee becomes of unsound mind or becomes permanently incapacitated by accident or ill-health and is unable to perform his duties under this Agreement; (iii) if the Employee becomes bankrupt or makes any arrangement or composition with his creditors; (iv) if the Employee commits any material breach of any of his duties or obligations under this Agreement; (v) if the Employee is convicted of any criminal offence other than an offence which in the reasonable opinion of the Board does not affect his position as an employee of the Company; (vi) if the Employee is found to have made illegal monetary profit or received any gratuities or other rewards (whether in cash or kind) out of any of the Company's affairs; or (vii) if the Company is required or requested by any authority (whether governmental or statutory) to terminate the services of the Employee. (c) Upon the termination of this Agreement for whatsoever reason the Employee shall upon the request of the Company resign without claim for compensation from office as a Employee of the Company and from all offices held by him in subsidiary or associated companies or the holding company of the Company and in the event of his failure to do so the Company is hereby irrevocably authorised to appoint such person in his name and on his behalf to execute any documents and to do all things requisite to give effect thereto. 3 75 12. The exercise by the Company of its rights of summary dismissal under the preceding clause hereof shall not debar it from exercising such other rights or remedies as may be available to it by law or otherwise by reason of any of the matters aforesaid. 13. The Employee undertakes that any question or matter relating to the following shall be determined by the Board and in so far as the Call Option (as defined in the Call Option Agreement) has not been exercised, such matters shall be determined pursuant to Clause 9 of the Shareholders' Agreement: (i) any investment by the Company of $10,000 or more; (ii) appointment of (and any subsequent change in) the auditors, secretary and principal bankers and any subsequent change in the financial year end and the registered office of the Company; (iii) entry by the Company or its subsidiaries into any transaction of a financial nature including the incurring of any borrowing under any existing or future banking and credit facilities and granting of any guarantee, indemnity, performance bond, lien, pledge, charge (including fixed and floating charge), mortgage or other security and the incurring of any other form of indebtedness in excess of US$50,000.00; (iv) the incurring of any capital expenditure including the making or disposal of any investment in excess of (a) US$1,000,000 for the period commencing from 1 January 1997 and ending on 31 December 1997; (b) US$1,500,000 for the period commencing from 1 January 1998 and ending on 31 December 1998 and (c) US$1,875,000 for the period commencing from 1 January 1999 and ending on 31 December 1999; (v) the payment of any remuneration or Director's fees; (vi) loans to Directors or to any corporation in which any Director or the Directors cumulatively has or have a controlling interest within the meaning of Section 157H of the Companies Ordinance in the issued share capital of that corporation; (vii) a substantial change in the primary business of the Company; (viii) inter-company transactions with any company or businesses in which the Company have a financial interest; (ix) the declaration, recommendation, making and payment of any distribution (whether in cash or in kind); (x) sale transfer or disposal of the whole or a substantial part of the Company's undertaking, assets or property or purchase, sale, transfer, disposal, lease or licence of any real property or any interest therein; (xi) increase, reduction or other alteration to the authorised or issued share capital; (xii) commencement or carrying on of any type of business not being ancillary or incidental to or extension of the scope of operation or type of the Businesses; (xiii) merger, consolidation or amalgamation with any company, association, partnership or legal entity and acquisition of any shares in any body corporate or participation in any partnership or joint venture arrangement; (xiv) amendment to the Memorandum and Articles of Association; 4 76 (xv) sale, transfer or disposal of any asset or investment with a value in excess of US$10,000.00; (xvi) approval of the audited balance sheet and profit and loss account of the Company and any report or statement accompanying such balance sheet and profit and loss account; (xvii) establishment of any special reserves, provisions or retentions not in the ordinary course of business and application or utilisation of the same; (xviii) entry into any contract or arrangement with any Director or the Company or any person connected with such person; (xix) redemption purchase or cancellation of any shares or issue of further shares or other dilution of the interest of the shareholders of the Company or variation of any rights attaching to any shares of the Company; (xx) issue of partly-paid shares and making of any call upon moneys unpaid in respect of any issued shares; (xxi) subject to the provisions of this Agreement, the winding-up or dissolution of the Company unless it shall have become insolvent; (xxii) any material change in the Company's accounting or reporting practices; (xxiii) lending of any moneys other than placing of deposits with banks and financial institutions; (xxiv) commencement or settlement of any litigation or arbitration proceedings having a value or likely value in excess of US$10,000.00; (xxv) approval of the Company's annual operating budget and strategic plans; (xxvi) any change in the number of Directors of the Company; (xxvii) save as is otherwise provided herein, any matter involving the Company with any Director or with another firm, company or corporation in which any Director is interested as a proprietor, partner, director or other officer or creditor of or a shareholder in, except as a shareholder of a public company or a public corporation whose shares are listed on a stock exchange; (xxviii) any public issue of Shares of the Company or any of its subsidiaries with a view to obtaining the listing of the Company or such subsidiary on any other stock exchange; (xxix) the authorised signatories of all and any banking or credit facilities or accounts; and (xxx) the appointment of any Managing Director, Executive Director, General Manager, Financial Controller or similar senior executive or officer of the Company. 14. The Employee hereby further covenants with and undertakes to the Company that for a period of two (2) years from the date of the termination of his employment with the Company, he shall not do any of the following without first obtaining the written consent of the Company: 5 77 (a) directly or indirectly carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) any business similar to or competitive with the Business (as defined below) of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement, in any country where the Company, its subsidiaries or holding company currently carries on the Business and/or sells its products, including, without limitation, Europe, Hong Kong, Japan, Korea, Malaysia, Mexico, the People's Republic of China, Singapore and the United States of America; (b) solicit or persuade any person or corporation which is a customer or client of the Company, its subsidiaries or holding company, or who is or was a customer or client of or in respect of the Business, to cease doing business with the Company, its subsidiaries or holding company or reduce the amount of business which the customer or client would normally do in respect of the Business for two (2) years after the date of termination of this Agreement; (c) accept from a customer or client referred to in Clause 14(b) above any business of the kind ordinarily forming part of the Business, of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement; (d) at any time use or disclose to any third party any trade secrets, product information or confidential information of the Business of the Company, its subsidiaries and holding company which is not generally known or available in the market place or which but for a breach of this Clause 14 would not be generally known or available in the market place; (e) at any time induce or attempt to induce any person who is at the date of this Agreement or who later becomes an employee of the Company, its subsidiaries or holding company in the Business to terminate his or her employment with the Company, its subsidiaries or holding company; (f) for the purposes of this Clause 14, the expression "BUSINESS" shall mean the sale and manufacture of plastic material products and its by-products (including all associated importation, exportation, marketing and related activities) carried on by the Company, its subsidiaries, holding company or related corporations, anywhere in the world; (g) each and every obligation under this Clause 14 shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part such part or parts as are unenforceable shall be deleted from this Clause 14 and any such deletion shall not affect the enforceability of all such parts of this Clause 14 as remain not so deleted; and (h) while the restrictions contained in this Clause 14 are considered by the parties to be reasonable in all the circumstances it is recognised that restrictions of the nature in question may fail for technical reasons unforeseen and accordingly it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company, its subsidiaries, holding company and related corporations but would be valid if part of the wording thereof were deleted or the periods thereof reduced or the range of activities or area dealt with thereby reduced in scope the said restriction shall apply with such modifications as may be necessary to make it valid and effective. 6 78 15. This Agreement is in substitution for all previous contracts of service between the Company and the Employee which shall be deemed to have been terminated by mutual consent as from the date on which this Agreement commences. 16. In case any provision in this Agreement shall be, or at any time shall become invalid, illegal or unenforceable in any respect under any law, such invalidity, illegality or unenforceability shall not in any way affect or impair any other provisions of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 17. (a) This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. (b) Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 17 save to the extent that they are inconsistent with the express terms of this Agreement. (c) The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Company, one of whom shall be appointed by the Employee, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. (d) For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. (e) The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. (f) The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. (g) The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 7 79 AS WITNESS the hands of the parties hereto. SIGNED BY Law Sing ) /s/ LAW SING HONG ------------------ Hong & Law Shun Hang ) /s/ LAW SHUN HANG ------------------ for and on behalf of the ) Company in the presence of: ) /s/ CHRISTINE C. KNIGHT - ------------------------- Christine C. Knight Solicitor Hong Kong SIGNED BY ) LAW SHUN HANG ) /s/ LAW SHUN HANG ------------------ in the presence of: ) /s/ CHRISTINE C. KNIGHT - ----------------------- Christine C. Knight Solicitor Hong Kong 80 DATED THE 20TH DAY OF December 1996 Between FICO INVESTMENT HOLDING LIMITED (as the Company) and LAW KIN PING (as Employee) EMPLOYMENT AGREEMENT 81 THIS AGREEMENT is made on the 20th day of December 1996 BETWEEN: (1) FICO INVESTMENT HOLDING LIMITED, a company incorporated in Hong Kong and having its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("COMPANY"); and (2) LAW KIN PING of Flat A, 10/F, Block 2, Faraday House, 6 Tsing Yung Street, Tuen Mun, New Territories, Hong Kong ("EMPLOYEE"). NOW IT IS HEREBY AGREED as follows: 1. The Company shall employ the Employee and the Employee shall serve the Company in a senior executive capacity and in such capacity, for the period and upon and subject to the terms and conditions hereinafter contained. 2. As a senior executive of the Company, the Employee shall devote substantially her time and attention and whole skill to the affairs of the Company and in the discharge of her duties hereunder: (a) in undertaking such duties and exercising such powers in relation to the Company and its business as the board of directors of the Company ("BOARD") shall from time to time assign to or vest in her; (b) in the discharge of such duties and in the exercise of such powers conform to observe and comply with all resolutions regulations and directions from time to time made or given by the Board; and (c) undertake to do such other and additional work as may reasonably be requested of her and to perform such services for the Company's subsidiaries or holding company as the Board may from time to time reasonably require without further remuneration unless otherwise agreed. 3. The Employee shall not (without the previous written consent of the Board) during the continuance of this Agreement (either directly or indirectly) be engaged or interested in any capacity in any trade business profession or occupation whatsoever other than the business of the Company. In this Clause 3, the expression "OCCUPATION" shall include any other private work which in the opinion of the Board may hinder or otherwise interfere with the performance by the Employee of her duties under this Agreement. 4. The Employee shall at all times keep the Board promptly and fully informed of her conduct of the business or affairs of the Company and its subsidiaries and associated companies (where relevant) and provide such explanations as the Board may require. 5. The Employee shall not, except as required by law, or authorised or required by her duties reveal to any person, firm or company any trade secrets, secret or confidential operations processes or dealings or any information concerning the organization, business, finances, transactions or affairs of the Company or any of its subsidiaries, associated companies or holding company which may come to her knowledge during her employment hereunder and shall keep with complete secrecy all confidential information entrusted to her and shall not use or attempt to use such information in any manner which may injure or cause loss either directly or indirectly to the Company or its business or may be likely so to do at any time. This restriction shall continue to apply and be binding on her after the termination of this Agreement without limit in point of time but shall cease to apply to information or knowledge which may come into the public domain. 82 6. (a) Any discovery or invention or secret process or improvement in procedure made or discovered by the Employee while in the service of the Company in connection with or in any way affecting or relating to the business of the Company or of any subsidiaries or capable of being used or adapted for use therein or in connection therewith shall forthwith be disclosed to the Company and shall belong to and be the absolute property of the Company or such one of its subsidiary companies as the Company may nominate for the purpose; (b) The Employee if and whenever required so to do (whether during or after the termination of her appointment) shall at the expense of the Company or its nominee apply or join in applying for letters patent or other protection in Hong Kong or any other part of the world for any such discovery, invention, process or improvements as aforesaid and execute all instruments and do all things necessary for vesting the said letters patent or other protection when obtained and all rights and title to and interest in the same in the Company (or its nominee) absolutely and as sole beneficial owner or in such other person as the Company may require; (c) The Employee hereby irrevocably appoints the Company to be her attorney in her name and on her behalf to execute and do any such instrument or thing and generally to use her name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this clause and in favour of any third party a certificate in writing signed by any director or the secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case; (d) The Employee shall take all reasonable precautions to safe-guard her health and keep herself fit to perform her duties under this Agreement and submit to such medical examination and/or treatment as the Company's medical advisers may from time to time consider necessary or advisable; (e) The Employee shall not promote encourage or participate in any public tumult or disorder nor do anything which might cause public scandal or bring the Company or any of its subsidiaries or associated companies or holding company into disrepute; and (f) The Employee may not without the prior written consent of the Board accept any gift and/or favour of whatever kind from any customer, client or supplier of the Company or any prospective customer, client or supplier of the Company. 7. This Agreement and all the provisions herein contained (either expressly or by implication) shall come into force as from 1 January 1997 and shall continue for a term of 3 years, subject to earlier termination as provided in Clause 11 hereof. 8. (a) Subject as hereinafter provided the Company shall pay to the Employee during the continuance of her employment hereunder a salary at the sum of US$55,000 per month which said salary is inclusive of any sum receivable by the Employee as director's fee, car allowance, housing allowance or other remuneration from the Company (or such higher rate as may from time to time be agreed between the parties or determined upon and notified to the Employee by the Company). In the event of any increase of salary being so agreed or notified such increase shall thereafter have effect as if it were specifically provided for as a term of this Agreement. The said salary (less any deductions as shall be required by law to be made) shall be payable in arrears on the last day of each month; (b) In addition to her salary, the Employee shall participate in the Company's profit sharing bonus scheme for key senior officers authorised by the Board from time to time; and 2 83 (c) The Employee shall also participate in the employee stock option scheme for all key employees of Flextronics International Ltd. 9. The Company will reimburse the Employee for the following: (a) all travelling and hotel expenses when the Employee is required by the Company to travel to other countries in the discharge of her duties; and (b) all entertainment expenses incurred in the discharge of the Employee's duties to the Company. 10. The Employee will be entitled to annual leave at the rate of fourteen (14) working days per annum and such leave shall be taken only at a time or times convenient to the Company. 11. Notwithstanding anything herein contained, this Agreement may be determined: (a) by either party hereto giving to the other not less than three (3) calendar months' notice in writing; or (b) by the Company summarily without notice or payment of compensation whatsoever in any of the following events: (i) if the Employee is guilty of dishonesty or grave misconduct or commits any act or wilful neglect as in the opinion of the Company is likely to bring the Company or any of its subsidiaries or associated companies or its holding company or any of its or their officials or employees into disrepute whether such dishonesty, misconduct, act or neglect is or is not directly related to the affairs of the Company; (ii) if the Employee becomes of unsound mind or becomes permanently incapacitated by accident or ill-health and is unable to perform her duties under this Agreement; (iii) if the Employee becomes bankrupt or makes any arrangement or composition with her creditors; (iv) if the Employee commits any material breach of any of her duties or obligations under this Agreement; (v) if the Employee is convicted of any criminal offence other than an offence which in the reasonable opinion of the Board does not affect her position as an employee of the Company; (vi) if the Employee is found to have made illegal monetary profit or received any gratuities or other rewards (whether in cash or kind) out of any of the Company's affairs; or (vii) if the Company is required or requested by any authority (whether governmental or statutory) to terminate the services of the Employee. (c) Upon the termination of this Agreement for whatsoever reason the Employee shall upon the request of the Company resign without claim for compensation from office as a Employee of the Company and from all offices held by her in subsidiary or associated companies or the holding company of the Company and in the event of her failure to do so the Company is hereby irrevocably authorised to appoint such person in her name and on her behalf to execute any documents and to do all things requisite to give effect thereto. 3 84 12. The exercise by the Company of its rights of summary dismissal under the preceding clause hereof shall not debar it from exercising such other rights or remedies as may be available to it by law or otherwise by reason of any of the matters aforesaid. 13. The Employee undertakes that any question or matter relating to the following shall be determined by the Board and in so far as the Call Option (as defined in the Call Option Agreement) has not been exercised, such matters shall be determined pursuant to Clause 9 of the Shareholders' Agreement: (i) any investment by the Company of $10,000 or more; (ii) appointment of (and any subsequent change in) the auditors, secretary and principal bankers and any subsequent change in the financial year end and the registered office of the Company; (iii) entry by the Company or its subsidiaries into any transaction of a financial nature including the incurring of any borrowing under any existing or future banking and credit facilities and granting of any guarantee, indemnity, performance bond, lien, pledge, charge (including fixed and floating charge), mortgage or other security and the incurring of any other form of indebtedness in excess of US$50,000.00; (iv) the incurring of any capital expenditure including the making or disposal of any investment in excess of (a) US$1,000,000 for the period commencing from 1 January 1997 and ending on 31 December 1997; (b) US$1,500,000 for the period commencing from 1 January 1998 and ending on 31 December 1998 and (c) US$1,875,000 for the period commencing from 1 January 1999 and ending on 31 December 1999; (v) the payment of any remuneration or Director's fees; (vi) loans to Directors or to any corporation in which any Director or the Directors cumulatively has or have a controlling interest within the meaning of Section 157H of the Companies Ordinance in the Issued share capital of that corporation; (vii) a substantial change in the primary business of the Company; (viii) inter-company transactions with any company or businesses in which the Company have a financial interest; (ix) the declaration, recommendation, making and payment of any distribution (whether in cash or in kind); (x) sale transfer or disposal of the whole or a substantial part of the Company's undertaking, assets or property or purchase, sale, transfer, disposal, lease or license of any real property or any interest therein; (xi) increase, reduction or other alteration to the authorised or issued share capital; (xii) commencement or carrying on of any type of business not being ancillary or incidental to or extension of the scope of operation or type of the Businesses; (xiii) merger, consolidation or amalgamation with any company, association, partnership or legal entity and acquisition of any shares in any body corporate or participation in any partnership or joint venture arrangement; (xiv) amendment to the Memorandum and Articles of Association; 4 85 (xv) sale, transfer or disposal of any asset or investment with a value in excess of US$10,000.00; (xvi) approval of the audited balance sheet and profit and loss account of the Company and any report or statement accompanying such balance sheet and profit and loss account; (xvii) establishment of any special reserves, provisions or retentions not in the ordinary course of business and application or utilisation of the same; (xviii) entry into any contract or arrangement with any Director of the Company or any person connected with such person; (xix) redemption purchase or cancellation of any shares or issue of further shares or other dilution of the interest of the shareholders of the Company or variation of any rights attaching to any shares of the Company; (xx) issue of partly-paid shares and making of any call upon moneys unpaid in respect of any issued shares; (xxi) subject to the provisions of this Agreement, the winding-up or dissolution of the Company unless it shall have become insolvent; (xxii) any material change in the Company's accounting or reporting practices; (xxiii) lending of any moneys other than placing of deposits with banks and financial institutions; (xxiv) commencement or settlement of any litigation or arbitration proceedings having a value or likely value in excess of US$10,000.00; (xxv) approval of the Company's annual operating budget and strategic plans; (xxvi) any change in the number of Directors of the Company; (xxvii) save as is otherwise provided herein, any matter involving the Company with any Director or with another firm, company or corporation in which any Director is interested as a proprietor, partner, director or other officer or creditor of or a shareholder in, except as a shareholder of a public company or a public corporation whose shares are listed on a stock exchange; (xxviii) any public issue of Shares of the Company or any of its subsidiaries with a view to obtaining the listing of the Company or such subsidiary on any other stock exchange; (xxix) the authorised signatories of all and any banking or credit facilities or accounts; and (xxx) the appointment of any Managing Director, Executive Director, General Manager, Financial Controller or similar senior executive or officer of the Company. 14. The Employee hereby further covenants with and undertakes to the Company that for a period of two (2) years from the date of the termination of her employment with the Company, she shall not do any of the following without first obtaining the written consent of the Company; 5 86 (a) directly or indirectly carry on (whether alone or in partnership or joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) any business similar to or competitive with the Business (as defined below) of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement, in any country where the Company, its subsidiaries or holding company currently carries on the Business and/or sells its products, including, without limitation, Europe, Hong Kong, Japan, Korea, Malaysia, Mexico, the People's Republic of China, Singapore and the United States of America; (b) solicit or persuade any person or corporation which is a customer or client of the Company, its subsidiaries or holding company, or who is or was a customer or client of or in respect of the Business, to cease doing business with the Company, its subsidiaries or holding company or reduce the amount of business which the customer or client would normally do in respect of the Business for two (2) years after the date of termination of this Agreement; (c) accept from a customer or client referred to in Class 14(b) above any business of the kind ordinarily forming part of the Business, of the Company, its subsidiaries or holding company for two (2) years after the date of termination of this Agreement; (d) at any time use or disclose to any third party any trade secrets, product information or confidential information of the Business of the Company, its subsidiaries and holding company which is not generally known or available in the market place or which but for a breach of this Clause 14 would not be generally known or available in the market place; (e) at any time induce or attempt to induce any person who is at the date of this Agreement or who later becomes an employee of the Company, its subsidiaries or holding company in the Business to terminate his or her employment with the Company, its subsidiaries or holding company; (f) for the purposes of this Clause 14, the expression "Business" shall mean the sale and manufacture of plastic material products and its by-products (including all associated importation, exportation, marketing and related activities) carried on by the Company, its subsidiaries, holding company or related corporations, anywhere in the world; (g) each and every obligation under this Clause 14 shall be treated as a separate obligation and shall be severally enforceable as such and in the event of any obligation or obligations being or becoming unenforceable in whole or in part such part or parts as are unenforceable shall be deleted from this Clause 14 and any such deletion shall not affect the enforceability of all such parts of this Clause 14 as remain not as deleted; and (h) while the restrictions contained in this Clause 14 are considered by the parties to be reasonable in all the circumstances it is recognised that restrictions of the nature in question may fail for technical reasons unforeseen and accordingly it is hereby agreed and declared that if any of such restrictions shall be adjudged to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company, its subsidiaries, holding company and related corporations but would be valid if part of the wording thereof were deleted or the periods thereof reduced or the range of activities or area dealt with thereby reduced in scope the said restriction shall apply with such modifications as may be necessary to make it valid and effective. 6 87 15. This Agreement is in substitution for all previous contracts of service between the Company and the Employee which shall be deemed to have been terminated by mutual consent as from the date on which this Agreement commences. 16. In case any provision in this Agreement shall be, or at any time shall become invalid, illegal or unenforceable in any respect under any law, such invalidity, illegality or unenforceability shall not in any way affect or impair any other provisions of this Agreement but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 17. (a) This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. (b) Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 17 save to the extent that they are inconsistent with the express terms of this Agreement. (c) The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Company, one of whom shall be appointed by the Employee, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. (d) For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. (e) The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. (f) The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as amy be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. (g) The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 7 88 AS WITNESS the hands of the parties hereto. SIGNED BY LAW SHUN HANG ) & LAW SING HONG ) /s/ Law Shun Hang /s/ Law Sing Hong for and on behalf of the ) ----------------- ----------------- Company in the presence of: ) /s/ Christine C. Knight - -------------------------- Christine C. Knight Solicitor Hong Kong SIGNED BY ) LAW KIN PING ) /s/ Law Kin Ping in the presence of: ) ----------------- /s/ Christine C. Knight - -------------------------- Christine C. Knight Solicitor Hong Kong 8 89 SCHEDULE 5 ESCROW AGREEMENT DATED THE 20th DAY OF DECEMBER, 1996 Between FLEXTRONICS INTERNATIONAL LTD FICO FOREST INDUSTRIAL CO. LIMITED And ERNST & YOUNG as Escrow Agent ESCROW AGREEMENT 90 TABLE OF CONTENTS Clause Heading Paqe - ------ ------- ---- 1. DEFINITIONS AND INTERPRETATION ..................................... 1 2. ESCROW ............................................................. 1 3. APPOINTMENT OF ESCROW AGENT ........................................ 1 4. THE DOCUMENTS ...................................................... 2 5. POWER OF ATTORNEY .................................................. 2 6. FEES ............................................................... 2 7. THE ESCROW AGENT ................................................... 3 8. COMMUNICATIONS ..................................................... 3 9. FORCE MAJEURE ...................................................... 3 10. GOVERNING LAW AND DISPUTE RESOLUTION ............................... 3 11. COUNTERPARTS ....................................................... 4 APPENDIX NOTICE FROM FIL ............................................. 6 91 THIS ESCROW AGREEMENT is made on the 20TH day of December, 1996 BETWEEN: (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in the Republic of Singapore and having its registered office at 36 Robinson Road, #18-01 City House, Singapore 068877 ("FIL") (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("FICO(HK)"); and (3) ERNST & YOUNG, an international accounting firm in Hong Kong having its place of business at 10/F Tower 2, The Gateway 25-27, Canton Road, Kowloon, Hong Kong ("ESCROW Agent"). WHEREAS: (A) FICO(HK) is the legal and beneficial owner of 6,000 ordinary shares of HK$1.00 each ("SHARES") comprising sixty per cent. (60%) of all the issued and paid-up share capital of Fico Investment Holding Limited. ("COMPANY") (B) Pursuant to a Charge of even date entered into between FIL and FICO(HK), FICO(HK) had agreed to deposit all the Documents (as defined below) with the Escrow Agent pursuant to the terms of this Escrow Agreement, and the Escrow Agent has consented to act as the escrow agent upon the terms and conditions herein contained. NOW IT IS HEREBY AGREED AS FOLLOWS: 1. DEFINITIONS AND INTERPRETATION 1.1 Terms defined in the Charge shall, unless otherwise defined herein, bear the same meaning when used in this Escrow Agreement. 1.2 References to Recitals, Clauses, Schedules and Appendices are to recitals, clauses of and schedules and appendices to this Agreement. 2. ESCROW The parties hereto have agreed that all the share certificate(s) in respect of the Shares (including all right, title and interest in and to the Shares and all rights, monies and property whatsoever which may at any time be derived from, accrue on or be offered in respect of the Shares whether by way of redemption, exchange, conversion, rights, bonus, capital reorganisation or otherwise) together with registrable instruments of transfer and sold notes in respect thereof duly executed by FICO(HK) in blank ("DOCUMENTS") shall be delivered by FICO(HK) to the Escrow Agent on the date of this Agreement and shall be held by the Escrow Agent in accordance with the provisions of this Escrow Agreement. 3. APPOINTMENT OF ESCROW AGENT 3.1 The Escrow Agent is hereby appointed as escrow agent upon the terms and conditions of this Escrow Agreement. 92 3.2 The sole duties of the Escrow Agent shall be to act in accordance with the provisions of this Escrow Agreement, which the Escrow Agent is hereby unconditionally and irrevocably authorised and instructed to do by each of the parties hereto. 4. THE DOCUMENTS 4.1 The Escrow Agent will receive and hold the Documents until it receives notice (upon which the Escrow Agent shall be entitled to rely without further inquiry and notwithstanding any matter or thing of which the Escrow Agent may otherwise be aware) from time to time from FIL to release the Documents to such persons designated by FIL and the Escrow Agent shall release the Documents in accordance with such instructions set out in the notice which shall be in the form set out in the Appendix hereto or such other form as may be determined by FIL in its discretion and such notice shall be signed by any director of FIL for and on behalf of FIL. 4.2 The Escrow Agent shall not release any of the Documents except in accordance with the instructions or notifications referred to in Clause 4.1. 5. POWER OF ATTORNEY 5.1 FICO(HK) hereby irrevocably appoints the Escrow Agent and FIL jointly and severally to be its attorneys with full power of substitution and in its name and on its behalf and as its act and deed to execute, seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act the Escrow Agent or FIL may deem necessary and in particular, but without limitation to do all or any of the following: (a) to effect any transfer of the Shares or any of them and to register and/or procure the registration of the same whether in the name of FIL or otherwise; and (b) to call or to procure the calling of and to attend any shareholders meeting of the Company and to vote or to instruct any proxy to vote at such meeting in such manner as it may think fit, Provided Always that the Escrow Agent is hereby authorised and shall act in accordance with the wishes and directions of FIL. 5.2 FICO(HK) hereby ratifies and confirms and agrees to ratify and confirm anything the Escrow Agent and/or FIL shall lawfully and properly do or purport to do by virtue of Clause 5.1 and all money expended by either of the Escrow Agent or FIL shall be payable by FICO(HK) upon demand. 6. FEES 6.1 For its services as Escrow Agent hereunder, the Escrow Agent shall be paid, within seven (7) Business Days of the signing hereof, a fee to be agreed to be borne as to fifty per cent. (50%) of such fee by FIL and as to the remaining fifty per cent. (50%) by FICO(HK). 6.2 The parties hereto (other than the Escrow Agent) hereby agree to indemnify, in equal proportions between FIL on the one hand and FICO(HK) on the other hand, the Escrow Agent and keep the Escrow Agent fully indemnified on demand in respect of the Escrow Agent's legal costs and other expenses which have been or may be incurred by the Escrow Agent in the performance of its duties hereunder. 2 93 7. THE ESCROW AGENT 7.1 Neither the Escrow Agent nor any of the officers, employees, partners, servants or agents thereof shall, by reason of any matter or thing contained in this Escrow Agreement, be deemed to be a trustee for or have any fiduciary relationship with any of the parties hereto or any other person. 7.2 The Escrow Agent will be entitled to rely, for the purposes of discharging its duties hereunder, on any original notice, letter or other document received by it pursuant to the terms of this Escrow Agreement without any obligation on its part to investigate whether any statement contained in the original notice, letter or other document is correct, whether the same has been validly authorised and issued, whether the same has been properly dated, whether any notice, letter or other document conforms with the original, or otherwise howsoever, and the Escrow Agent shall not be under any liability in relying and acting on any such original notice, letter or other document. 8. COMMUNICATIONS All notices and other communications to the Escrow Agent hereunder shall be given in writing delivered personally or sent by first class post (airmail if overseas) or by facsimile transmission delivered or addressed to the Escrow Agent at the address above written or such other address as the Escrow Agent may notify to the other parties hereto in writing from time to time, and addressed to such person as the Escrow Agent may notify to the other parties from time to time. Any such communication sent by post or facsimile transmission shall be treated as being duly delivered on its actual receipt by the Escrow Agent (in the case of a facsimile with all pages complete) and the Escrow Agent's certificate as to the time of actual receipt shall, in the absence of manifest error, be conclusive. 9. FORCE MAJEURE No party shall be held responsible for any loss, damage or delay suffered by the other parties owing to any Act of God which shall mean earthquakes and other such natural calamities. Any party wishing to rely on the provisions of this Clause 9 shall give notice to the other parties stating the relevant cause ("FORCE MAJEURE NOTICE"). The party serving such Force Majeure Notice shall promptly resume performance of its obligations the moment such cause or causes cease to operate. 10. GOVERNING LAW AND DISPUTE RESOLUTION 10.1 This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. 10.2 Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 10.2 save to the extent that they are inconsistent with the express terms of this Agreement. 3 94 10.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by FIL, one of whom shall be appointed by FICO(HK), and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 10.4 For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 10.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 10.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 10.7 The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 11. COUNTERPARTS This Agreement may be signed in any number of counterparts, all of which when taken together shall constitute one and the same instrument. 4 95 IN WITNESS WHEREOF this Agreement has been entered into on the date appearing at the head hereof. FIL SIGNED by ) S.L. Tsui ) for and on behalf of ) /s/ S.L. Tsui FLEXTRONICS INTERNATIONAL LTD ) in the presence of) /s/ Cosmas Wong Cin Tzieh COSMAS WONG CIN TZIEH Advocate & Solicitor Singapore FICO(HK) SIGNED by ) for and on behalf of ) FICO FOREST INDUSTRIAL ) CO. LIMITED ) in the presence of) ) The Escrow Agent SIGNED by ) for and on behalf of ) ERNST & YOUNG ) in the presence of) ) 5 96 IN WITNESS WHEREOF this Agreement has been entered into on the date appearing at the head hereof. FIL SIGNED by ) ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: FICO(HK) SIGNED by LAW SING HONG & ) /s/ Law Sing Hong LAW SHUN HANG ) /s/ Law Shun Hang for and on behalf of ) FICO FOREST INDUSTRIAL ) CO. LIMITED ) in the presence of: ) /s/ Christine C. Knight Christine C. Knight Solicitor Hong Kong The Escrow Agent SIGNED by Susan Lo, ) Director ) for and on behalf of ) /s/ Susan Lo ERNST & YOUNG ) in the presence of: ) /s/ Christine C. Knight Christine C. Knight Solicitor Hong Kong 5 97 APPENDIX NOTICE FROM FIL To : ERNST & YOUNG 10/F Tower 2 The Gateway 25-27 Canton Road, Kowloon Hong Kong Attn : [ ] Dear Sirs ESCROW AGREEMENT DATED 1996 ("ESCROW AGREEMENT") We refer to the Escrow Agreement entered into among (1) Flextronics International Ltd; (2) Fico Forest Industrial Co. Limited; and (3) Ernst & Young ("ESCROW AGENT"). Save as otherwise stated herein, terms defined in the Escrow Agreement bear the same meanings when used herein. Pursuant to the Escrow Agreement, we, FIL, hereby instruct you to release the following Documents referred to below to the following person(s)/party(s): [ ] Yours faithfully, for and on behalf of FLEXTRONICS INTERNATIONAL LTD [Name] [Designation] 6 98 SCHEDULE 6 FICO CALL OPTION AGREEMENT DATED THE 20TH DAY OF DECEMBER 1996 Between FLEXTRONICS INTERNATIONAL LTD And FICO FOREST INDUSTRIAL CO. LIMITED -------------------------------------------------------------------- FICO CALL OPTION AGREEMENT relating to all the ordinary shares in the share capital of FICO INVESTMENT HOLDING LIMITED held by FLEXTRONICS INTERNATIONAL LTD -------------------------------------------------------------------- 99 TABLE OF CONTENTS CLAUSE HEADING PAGE - ------ ------- ---- 1. INTERPRETATION ...................................................... 1 2. FICO CALL OPTION .................................................... 2 3. FICO CALL OPTION COMPLETION ......................................... 3 4. DURATION OF OBLIGATIONS ............................................. 4 5. FIL'S WARRANTIES .................................................... 4 6. COMMUNICATIONS ...................................................... 4 7. GENERAL ............................................................. 5 8. GOVERNING LAW AND DISPUTE RESOLUTION ................................ 5 100 THIS AGREEMENT is made on the 20th day of December 1996 BETWEEN: (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore and having its registered office at 36 Robinson Road, City House, #18-01, Singapore 068877 ("FIL"); (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("FICO(HK)") WHEREAS: (A) Fico Investment Holdings Limited ("COMPANY") is a company limited by shares incorporated in Hong Kong and has at the date hereof an authorised share capital of 10,000 ordinary shares of HK$1.00 each, of which 10,000 of the said ordinary shares have been issued and are fully paid-up. (B) FICO(HK) is the legal and beneficial owner of 6,000 ordinary shares of HK$1.00 each in the Company consisting sixty per cent. (60%) of the issued and paid-up capital of the Company. (C) By a Call Option Agreement of even date, FICO(HK) had granted to FIL a Call Option to purchase the remaining 6,000 ordinary shares of HK$1.00 each in the Company consisting sixty per cent. (60%) of the issued and paid-up capital of the Company to be exercised by FIL in the event that certain conditions are met. (D) This Agreement is entered into pursuant to the Sale and Purchase Agreement ("SALE AND PURCHASE AGREEMENT") dated 29 November 1996, and made between (1) FICO(HK), as purchaser (2) FIL, as Vendor and (3) the Company and the Call Option Agreement of even date, and made between FIL and FICO(HK). FIL wishes to grant to FICO(HK) a call option in respect of the Fico Call Option Shares (as defined below) for the consideration and on the terms and conditions set out in this Agreement. NOW IT IS HEREBY AGREED as follows: 1 . INTERPRETATION 1.1 In this Agreement except to the extent that the context otherwise requires: "BANKER'S DRAFT" means a banker's draft drawn on a bank in Hong Kong; "EXERCISE DATE" means the date of service of a Fico Call Option Notice under Clause 2.3; "FICO CALL OPTION COMPLETION" means the performance by FICO(HK) and FIL of the obligations assumed by them respectively under Clause 3.2; "FICO CALL OPTION COMPLETION DATE" means 1 1.00 a.m. on the date falling fourteen (14) days from the Exercise Date; "FICO CALL OPTION PERIOD" means the period commencing on the date of this Agreement and expiring on the date falling on the first anniversary of the end of the Second Financial Period (as defined in the Call Option Agreement) (both dates inclusive); 101 "FICO CALL OPTION PRICE" means the aggregate of the Investment and interest at the rate of FIL's cost of funds plus two per cent. (2%) per annum (as may be certified any officer of FIL, such certification to be final and conclusive in the absence of manifest error) from the date of payment of the Investment (or parts thereof) under the Sale and Purchase Agreement or the Call Option Agreement, as the case may be (or such deferred date pursuant to Clause 3.3), such interest to be calculated on the basis of a 360-day year and the actual number of days elapsed; "FICO CALL OPTION" shall have the meaning ascribed to it in Clause 2.1; "FICO CALL OPTION NOTICE" means a notice exercising the Fico Call Option given pursuant to Clause 2.3; "FICO CALL OPTION SHARES" means all the Shares held by FIL in the capital of the Company at the time the Fico Call Option is exercised; "INVESTMENT" means the total equity investment made by FIL in the Company and all monies paid to FICO (HK) pursuant to the Sale and Purchase Agreement, including, without limitation, (i) the Consideration (as defined in the Sale and Purchase Agreement) and (ii) the Purchase Price (as defined in the Call Option Agreement); "SHAREHOLDERS' AGREEMENT" means the shareholders' agreement of even date and entered into between (1) FICO(HK), (2) FIL and (3) the Company; "SHARES" means ordinary shares of HK$1.00 each in the capital of the Company; "TRANSFER TERMS" means the entire legal and beneficial interest in all the Fico Call Option Shares shall be sold and purchased free from any Encumbrance and together with all rights attaching thereto as at the Exercise Date or at any time thereafter and that the consideration for the Fico Call Option Shares shall be the Fico Call Option Price; and "US$" means the lawful currency of the United States of America. 1.2 All terms and references used in this Agreement and which are defined or construed in the Sale and Purchase Agreement but are not defined or construed in this Agreement shall have the same meaning and construction in this Agreement. All references in this Agreement to the Sale and Purchase Agreement are to the Sale and Purchase Agreement as from time to time amended, modified or supplemented. 1.3 References to Recitals and Clauses are to recitals and clauses of this Agreement. The headings in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Words importing the singular number include the plural number and vice versa. References to documents include variations and replacements thereof and supplements thereto. References to a party include its permitted assigns and transferees and its successors-in-title. 2. FICO CALL OPTION 2.1 In consideration of the sum of US$1.00 (receipt of which FIL hereby acknowledges), FIL hereby grants to FICO(HK) the right, in the event that (i) a court having jurisdiction in Singapore shall enter a decree or order for relief in respect of FIL in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of FIL or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or (ii) FIL is unable to discharge its liabilities under 2 102 the First Consideration Note or the Second Consideration Note pursuant to Clauses 3.6 and 3.7 respectively of the Call Option Agreement; or (iii) a notice of termination is served by FICO (HK) under Clause 12(B) of the Shareholder's Agreement pursuant to Clause 12(C)(i) of the Shareholders' Agreement (each of (i), (ii) and (iii) hereinafter referred to as a "PRECONDITION EVENT"), to require the FIL to sell to FICO(HK) all the Fico Call Option Shares on the terms and subject to the conditions of this Agreement ("FICO CALL OPTION"). 2.2 On the exercise of the Fico Call Option, the FICO(HK) will become bound to purchase and FIL will become bound to complete the sale of the Fico Call Option Shares on the Transfer Terms. 2.3 The Fico Call Option must be exercised by notice in writing by FICO(HK) served only during the Fico Call Option Period and subject to the fulfilment of a Precondition Event, failing which it will lapse and cease to have any further effect. 2.4 For the purposes of this Clause, a certificate signed by a director of FIL confirming the Fico Call Option Price shall, in the absence of manifest error, be final and conclusive. 3. FICO CALL OPTION COMPLETION 3.1 Completion of the sale and purchase of the Fico Call Option Shares shall take place in Hong Kong at the Hong Kong branch office of FIL (or at such other place as may be agreed) on the Fico Call Option Completion Date, provided that if such a day is not a Business Day then the Fico Call Option Completion shall take place at 12 noon on the first Business Day thereafter. 3.2 On Fico Call Option Completion: (a) FIL shall deliver to the FICO(HK) duly executed transfers and duly executed sold notes in favour of the FICO(HK) in respect of the Fico Call Option Shares accompanied by the relative share certificate(s) and shall do all things and execute such documents as shall be necessary or as FICO(HK) may reasonably request to give effect to the sale of the Fico Call Option Shares pursuant to Clause 2 on the Transfer Terms; (b) FIL shall procure the resignations of the existing Directors of the Company, which said resignations shall take effect on the Fico Call Option Completion; and (c) the FICO(HK) shall pay the Fico Call Option Price to FIL by way of telegraphic transfer to an account designated by FIL to FICO(HK) not later than three (3) Business Days prior to the Fico Call Option Completion Date or by way of a banker's draft. 3.3 If any of the provisions of Clause 3.2 are not complied with on the Fico Call Option Completion Date the party not in default may (without prejudice to his other rights and remedies): (a) defer Fico Call Option Completion to a date not more than twenty eight (28) days after the Fico Call Option Completion Date (and so that the provisions of this Clause 3 shall apply to Fico Call Option Completion as so deferred); or (b) proceed to Fico Call Option Completion so far as practicable (without prejudice to his rights hereunder); or (c) rescind the contract of sale arising by virtue of the exercise of the Fico Call Option. 3 103 4. DURATION OF OBLIGATIONS 4.1 This Agreement shall terminate on the date falling on the first anniversary of the end of the Second Financial Period if no Fico Call Option Notice shall have been served on or prior to such date. 4.2 If the Fico Call Option Notice shall have been served on or prior to the date mentioned in Clause 4.1 this Agreement shall continue in force after such date until the fulfilment of the parties' obligations hereunder in relation to the Fico Call Option Notice whereupon it shall terminate. 5. FIL'S WARRANTIES 5.1 FIL warrants to FICO(HK) that it is and will remain until the expiry of the Fico Call Option Period or the Fico Call Option Completion Date, whichever is the later, the sole legal and beneficial owner of the Fico Call Option Shares, subject to the Fico Call Option and the Put Option (as defined in the Put Option Agreement). 5.2 FIL shall not prior to the expiry of the Fico Call Option Period or the Fico Call Option Completion Date, whichever is the later, transfer, dispose of or permit any Encumbrance save for the Fico Call Option, over its interest in any of the Fico Call Option Shares and the Fico Call Option Shares shall upon Fico Call Option Completion be sold free of any Encumbrance. 6. COMMUNICATIONS 6.1 Except as otherwise provided in the Agreement, all notices required or permitted to be given hereunder shall be in writing and in the English language and shall be sent by facsimile or in writing. 6.2 Any notice hereunder shall be addressed as follows: In the case of FICO(HK): Fico Forest Industrial Co. Limited Unit 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number: (852) 2412-0791 Attention: Mr Law Sing Hong In the case of FIL: Flextronics International Ltd 514 Chai Chee Lane, #04-13 Singapore 469029 Fax Number: (65) 449-9548 Attention: Mr Goh Chan Peng 6.3 Any party may from time to time by notice hereunder change its address or telefax number for notice. Notice given by facsimile shall be deemed to have been served on the next Business Day in the place of address following the day of transmission. 4 104 7. GENERAL 7.1 This Agreement may be assigned in whole or in part by FIL. Notwithstanding this, this Agreement shall not be assigned in whole or in part by the FICO(HK). It is expressly agreed that this Agreement shall be binding upon and shall enure for the benefit of the parties' successors. 7.2 This Agreement supersedes any previous agreement between the parties hereto in relation to the matters dealt with herein, represents (together with any documents referred to herein) the entire agreement between the parties herein in relation to such matters and no variation hereof shall be effective unless made in writing. 7.3 The failure of any of the parties hereto at any time to require performance by any other party or to claim a breach of any term of this Agreement shall not be deemed to be a waiver of any right under this Agreement. 7.4 The parties hereto shall, and shall use their respective reasonable endeavours to procure that any necessary third parties shall, execute and do all such further deeds, documents and things as either party may reasonably require by notice in writing to the other party to carry the provisions of this Agreement into full force and effect and (so far as they are able) shall do anything necessary (including, without limitation, exercising their powers as shareholders) to give effect to the spirit and intent of this Agreement). 7.5 Any date or period mentioned in this Agreement may be extended by agreement between the parties hereto (or such of the parties as may be affected thereby), but as regards any date or period (whether or not extended as aforesaid) time shall be of the essence of this Agreement. 7.6 Subject as specifically provided herein, each of the parties hereto shall bear its own costs and expenses relating to this Agreement, save that the FICO(HK) shall bear all stamp duty payable in respect of the grant of the Fico Call Option and the purchase of the Fico Call Option Shares. 7.7 The illegality, invalidity or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 7.8 Notwithstanding the completion of the sale and purchase of the Fico Call Option Shares herein, the terms and condition of this Agreement shall not merge with the transfer or conveyance of the Fico Call Option Shares and be extinguished but shall remain in full force and effect as between FICO(HK) and FIL insofar as the same shall not have been fulfilled. 8. GOVERNING LAW AND DISPUTE RESOLUTION 8.1 This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. 8.2 Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 8.2 save to the extent that they are inconsistent with the express terms of this Agreement. 5 105 8.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by FICO(HK), one of whom shall be appointed by FIL, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 8.4 For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 8.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 8.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 8.7 The prevailing party in the arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 6 106 IN WITNESS WHEREOF the parties set their hands this day and year first above written. FICO(HK) Signed by ) ) /s/ LAW SING HONG & LAW SHIN TANG ) - -----------------------------------------) Law Sing Hong & Law Shin Tang ) ) for and on behalf of ) FICO FOREST INDUSTRIAL ) CO. LIMITED ) in the presence of: ) /s/ CHRISTINE C. KNIGHT - ----------------------------------- Christine C. Knight Solicitor Hong Kong FIL Signed by ) ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: ) 7 107 IN WITNESS WHEREOF the parties set their hands this day and year first above written. FICO(HK) Signed by ) ) for and on behalf of ) FICO FOREST INDUSTRIAL ) CO. LIMITED ) in the presence of: ) FIL Signed by ) ) /s/ S. L. TSUI ) - -------------------------------- ) S. L. Tsui ) ) for and on behalf of ) FLEXTRONICS INTERNATIONAL LTD ) in the presence of: ) /s/ COSMAS WONG CIN TZIEH - -------------------------------- Cosmas Wong Cin Tzieh Advocate and Solicitor Singapore 7 108 SCHEDULE 8 DEED OF INDEMNITY Dated the 20th day of December 1996 Between FICO FOREST INDUSTRIAL CO. LIMITED And FLEXTRONICS INTERNATIONAL LTD FICO INVESTMENT HOLDING LIMITED FOREST KEYBOARD MANUFACTURING (SHENZHEN) LTD. --------------------------------------------------------------------------- DEED OF INDEMNITY ---------------------------------------------------------------------------- 109 THIS DEED OF INDEMNITY is made on the 20th day of December 1996 BETWEEN: (1) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong with its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("FICO(HK)") (2) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore with its registered office at 36 Robinson Road, #18-01 City House, Singapore 068877 ("FIL"); (3) FICO INVESTMENT HOLDING LIMITED, a company incorporated in Hong Kong with its registered office at Rm 10, 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("Company"); and (4) FOREST KEYBOARD MANUFACTURING (SHENZHEN) LTD., a company registered and validly existing in the People's Republic of China with its registered office at Gong Ming Zhen, Chang Zhen Village Industrial Zone, China ("FICO(PRC)"). WHEREAS this Deed is entered into pursuant to the provisions of a Sale and Purchase Agreement dated 29 November 1996 ("S&P Agreement") and made between (1) FICO(HK) as Vendor, (2) FIL as Purchaser and (3) the Company, relating to the purchase by FIL of 4,000 ordinary shares in the share capital of the Company consisting of forty per cent. (40%) of the issued and paid-up share capital of the Company. NOW IT IS HEREBY AGREED as follows: 1. In this Deed: (i) words and expressions defined in the S&P Agreement shall have the same meaning wherever used herein and the provisions of Clause 1 of the S&P Agreement shall be deemed to be incorporated herein; (ii) the following expressions bear the following meanings, namely: "CLAIM" means any notice, demand, assessment, letter or other document issued or action taken by any revenue or taxing authority in Singapore, Hong Kong or the PRC or other statutory or governmental authority, body or official whosoever (whether of Singapore, Hong Kong or the PRC or elsewhere in the world) whereby any of the Group Companies is or may be placed or sought to be placed under a liability to make a payment on any Taxes or deprived of any relief, allowance, credit or repayment otherwise available; "COMPLETION" means completion of the transfer of the Sale Shares (as defined in the S&P Agreement) under the S&P Agreement; "GROUP COMPANY" means the Company and FICO(PRQ, and "GROUP COMPANY" means any one of them; "PRC" means the People's Republic of China; 110 "TAXES" or "TAXATION" means all forms of taxation whether of Singapore, Hong Kong or the PRC, including all state or local taxation, past, present and deferred (including, without limitation, income tax (including net income and gross income), corporate, value added, occupation, real and personal property, social security, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, occupation, premium or windfall profit taxes, estate duty, stamp duty, customs and other import or export duties, or charges of any kind whatsoever, estimated and other taxes, together with any interest and levies and all penalties, charges, costs and additions to tax, payable by or due from any of the Group Companies, or any additional amounts, duties and levies, imposts and all penalties, charges, fees, costs and interest deductions or withholding relating to any Claim imposed by any government, governmental agency, statutory body or any revenue authority, upon any Group Company; and "TRANSACTION" includes any transaction, act, event or omission of whatever nature. (iii) where any person suffers a loss of or reduction in the amount of any relief, allowance or credit or has a right to the repayment of Taxation nullified or cancelled in whole or in part and such relief, allowance, credit or right to repayment related to a Transaction effected on or before Completion or was granted by reference to any income, profits or gains earned, accrued or received on or before Completion, then such person shall be treated as having incurred a corresponding depletion in or reduction in the value of its or his assets as a result of a Claim for Taxation made in the circumstances falling within Clause 2(A); (iv) references to any Transaction effected on or before Completion include the combined result of two or more Transactions, the first of which shall have taken place (or be deemed to have taken place) or the commencement of which shall have occurred (or be deemed to have occurred) on or before Completion; (v) references to income, profits or gains earned, accrued or received include income, profits or gains deemed to have been or treated as earned, accrued or received for Taxation purposes; (vi) references to Clauses and the Schedule are to Clauses of and the Schedule to this Deed unless the subject or context otherwise requires; and (vii) words and expressions defined for the purposes of any relevant taxing or other legislation shall herein bear the same meaning. 2. (A) Subject as hereinafter provided, FICO(HK) hereby agrees with and undertakes to FIL and each of the Group Companies to indemnify and keep indemnified FIL and each of the Group Companies against any depletion in or reduction in value of its or their assets or increase in its or their liabilities in relation to the Group Companies as a result or in consequence of any Claim for Taxation which has been made or may hereafter be made: (i) in respect of or arising from any Transaction effected or deemed to have been effected on or before Completion; or 2 111 (ii) by reference to any income, profits or gains earned, accrued or received on or before Completion. The indemnity in this Clause 2(A) shall include all reasonable costs and expenses properly payable in connection with any Claim or liability referred to herein. (B) In the event of default by FICO(HK) in the payment on demand of any sum due under this Deed determined by agreement or pursuant to an order of a court or by the Purchaser's Auditors hereunder, the liability of FICO(HK) shall be increased to include interest on such sum from the date of payment of such sum by the relevant Group Company toward satisfaction of any Claim for Taxation referred to in Clause 2(A) above to the date of actual payment by FICO(HK) (as well after as before judgment) at a rate per annum being two per cent. (2%) above the prime lending rate for Dollars as quoted by Citibank, Singapore Branch from time to time. Interest determined in accordance with this Clause 2(B) shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall accrue from day to day. 3. Any liability to FIL hereunder may in whole or in part be released, compounded or compromised or time or indulgence given by FIL in its absolute discretion without in any way prejudicing or affecting its rights against FICO(HK). 4. In the event of FIL becoming aware of any Claim which could give rise to a liability under this Deed, FIL shall procure that notice thereof be given to FICO(HK) in manner hereinafter provided and as regards any such Claim, FIL shall, or shall procure the relevant Group Company to, take such action as it may reasonably request to avoid, dispute, resist, appeal, compromise or defend the Claim and any adjudication in respect thereof but subject to FIL and the relevant Group Company being indemnified and secured to their satisfaction by FICO(HK) against all losses (including additional Taxation), costs, damages and expenses which may thereby be incurred. 5. (A) In the event of any dispute as to the liability hereunder of FICO(HK) and/or any ofthe Group Companies, the matter shall be determined by the Purchaser's Auditors. (B) The Purchaser's Auditors shall be deemed to act as experts and not as arbitrators in any determination made by them hereunder and in the absence of manifest error, their determination shall be conclusive and binding on all concerned. The proper charges and disbursements of the Purchaser's Auditors shall be paid and borne on each occasion by such of the parties concerned and in such proportions as the Purchaser's Auditors may in their absolute discretion consider fair and reasonable. 6. A notice, demand or other communication under this Deed shall be delivered to the addresses given in Clause 17 of the S&P Agreement and shall be given or made, and shall be deemed to have been received, in accordance with the provisions of Clause 17 of the S&P Agreement. 7. This Deed shall come into force on the date stated at the beginning and shall continue in force from such date. 8. This Deed shall be binding on and shall enure for the benefit of the parties and their respective legal personal representatives, successors and permitted assigns. Any reference in this Deed to any of the parties shall be construed accordingly. 3 112 9. If any term or provision in this Deed shall be held to be illegal or unenforceable, in whole or in part, under any enactment or rule of law, such term or provision or part shall to that extent be deemed not to form part of this Deed but the enforceability of the remainder of this Deed shall not be affected. 10. This Deed may be executed in any number of counterparts, all of which taken together and when delivered to each party hereto shall constitute one and the same instrument. Any party may enter into this Deed by signing any such counterpart. 11. (A) This Deed shall be governed by, and construed in accordance with, the laws of Hong Kong. (B) Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 11(B) save to the extent that they are inconsistent with the express terms of this Agreement. (C) The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by the Purchaser, one of whom shall be appointed by the Vendor, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. (D) For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. (E) The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. (F) The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. (G) The prevailing party in the Arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 4 113 IN WITNESS WHEREOF this Deed has been entered into the day and year first abovewritten. FICO(HK) [SEAL} The Common Seal of ) FICO FOREST INDUSTRIAL ) CO. LIMITED has been affixed ) in the presence of: ) ---------------------------------- Director ---------------------------------- Director/Secretary FIL [SEAL] The Common Seal of ) FLEXTRONICS INTERNATIONAL LTD ) has been affixed ) in the presence of: ) /s/ S.L. Tsui ---------------------------------- Director /s/ Gon Chan Peng ---------------------------------- Authorised Signatory 5 114 IN WITNESS WHEREOF this Deed has been entered into the day and year first abovewritten. FICO(HK) [SEAL} The Common Seal of ) FICO FOREST INDUSTRIAL ) CO. LIMITED has been affixed ) in the presence of: ) /s/ Christine C. Knight ------------------------------ Christine C. Knight /s/ Law Sing Hong Solicitor ------------------------ Hong Kong Director /s/ Law Shun Hang ------------------------ Director/Secretary FIL [SEAL] The Common Seal of ) FLEXTRONICS INTERNATIONAL LTD ) has been affixed ) in the presence of: ) -------------------------- Director -------------------------- Director/Secretary 5 115 [SEAL} The Company The Common Seal of ) FICO INVESTMENT ) HOLDING LIMITED has been affixed ) in the presence of: ) /S/ Christine C. Knight -------------------------- Christine C. Knight /s/ Law Shun Hang Solicitor ------------------------ Hong Kong Director /s/ Law Sing Hong ------------------------ Director/Secretary FICO(PRC) SIGNED BY LAW SHUN HANG ) ) as legal representative ) for and on behalf of ) /s/ Law Shun Hang FOREST KEYBOARD ) ------------------------ MANUFACTURING (SHENZHEN) ) LTD. ) 6 116 SCHEDULE 11 PUT OPTION AGREEMENT DATED THE 20TH DAY OF DECEMBER 1996 Between FLEXTRONICS INTERNATIONAL LTD And FICO FOREST INDUSTRIAL CO. LIMITED ------------------------------------ PUT OPTION AGREEMENT relating to 4,000 ordinary shares consisting of 40% of all the ordinary shares in the share capital of FICO INVESTMENT HOLDING LIMITED ------------------------------------ 117 TABLE OF CONTENTS Clause Heading Page ------ ------- ---- 1. INTERPRETATION ................................................. 1 2. PUT OPTION ..................................................... 2 3. PUT OPTION COMPLETION .......................................... 3 4. DURATION OF OBLIGATIONS ........................................ 3 5. FIL'S WARRANTIES ............................................... 3 6. COMMUNICATIONS ................................................. 4 7. GENERAL ........................................................ 4 8. GOVERNING LAW AND DISPUTE RESOLUTION ........................... 5 118 THIS AGREEMENT is made the 20th day of December 1996 BETWEEN: (1) FLEXTRONICS INTERNATIONAL LTD, a company incorporated in Singapore and having its registered office at 36 Robinson Road, City House, #18-01, Singapore 068877 ("FIL"); (2) FICO FOREST INDUSTRIAL CO. LIMITED, a company incorporated in Hong Kong and having its registered office at Unit 10, 5 & 4 18/F, Blk B, Kong Nam Ind. Building, 603 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong ("GRANTOR") WHEREAS: (A) Fico Investment Holdings Limited ("COMPANY") is a company limited by shares incorporated in Hong Kong and has at the date hereof an authorised share capital of 10,000 ordinary shares of HK$ 1.00 each, of which 10,000 of the said ordinary shares have been issued and are fully paid-up. (B) FIL is the legal and beneficial owner of 4,000 ordinary shares of HK$1.00 each in the Company consisting forty per cent. (40%) of the issued and paid-up capital of the Company. (C) This Agreement is entered into pursuant to a Sale and Purchase Agreement ("SALE AND PURCHASE AGREEMENT") dated 29 November 1996, made between (1) FIL, as purchaser (2) the Grantor as Vendor and (3) the Company. The Grantor wishes to grant to FIL a put option in respect of the Put Option Shares (as defined below) for the consideration and on the terms and conditions set out in this Agreement. NOW IT IS HEREBY AGREED as follows: 1. INTERPRETATION 1.1 In this Agreement except to the extent that the context otherwise requires: "BANKER'S DRAFT" means a banker's draft drawn on a bank in Hong Kong; "EXERCISE DATE" means the date of service of a Put Option Notice under Clause 2.3; "PUT OPTION" shall have the meaning ascribed to it in Clause 2.1; "PUT OPTION COMPLETION" means the performance by FIL and the Grantor of the obligations assumed by them respectively under Clause 3.2; "PUT OPTION COMPLETION DATE" means 11.00 a.m. on the date falling thirty (30) days from the Exercise Date; "PUT OPTION NOTICE" means a notice exercising the Put Option given pursuant to Clause 2.3; "PUT OPTION PERIOD" means the period commencing on the date of this Agreement and expiring on the date falling on the first anniversary of the end of the Financial Period (both dates inclusive); "PUT OPTION SHARES" means 4,000 Shares consisting forty per cent. (40%) of the issued and paid-up capital of the Company; 119 "SALE PRICE" means the aggregate of the Consideration and interest accrued thereon at the rate of eight per cent. (8%) from the date of payment of the Consideration (or parts thereof) under the Sale and Purchase Agreement to the Put Option Completion Date (or such deferred date pursuant to Clause 3.3), such interest to be calculated on the basis of a 360-day year and the actual number of days elapsed; "SHARES" means ordinary shares of HK$1.00 each in the capital of the Company; "SHAREHOLDERS' AGREEMENT" means the shareholders' agreement of even date entered into between (1) FIL, (2) the Grantor and (3) the Company; "TRANSFER TERMS" means the entire legal and beneficial interest in all the Put Option Shares shall be sold and purchased free from any Encumbrance and together with all rights attaching thereto as at the Exercise Date or at any time thereafter and that the consideration for the Put Option Shares shall be the Sale Price; and "US$" means the lawful currency of the United States of America. 1.2 All terms and references used in this Agreement and which are defined or construed in the Sale and Purchase Agreement but are not defined or construed in this Agreement shall have the same meaning and construction in this Agreement. All references in this Agreement to the Sale and Purchase Agreement are to the Sale and Purchase Agreement are to the Sale and Purchase Agreement as from time to time amended, modified or supplemented. 1.3 References to Recitals and Clauses are to recitals and clauses of this Agreement. The headings in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Words importing the singular number include the plural number and vice versa. References to documents include variations and replacements thereof and supplements thereto. References to a party include its permitted assigns and transferees and its successors-in-title. 2. PUT OPTION 2.1 In consideration of the sum of US$1.00 (receipt of which the Grantor hereby acknowledges), the Grantor hereby grants to FIL the right, in the event that (i) it is determined pursuant to Clause 10 of the Sale and Purchase Agreement that the Profit Target exceeded the Net Profit After Taxation of the Company in respect of the Financial Period; (ii) the Purchaser, at its sole and absolute discretion and determination, is not satisfied with the state of affairs of the Company as reported in the audited accounts of the Company for the financial year ending 31 December 1996 pursuant to Clause 4.2 of the Sale and Purchase Agreement; (iii) a notice of termination is served under Clause 12(B) of the Shareholders' Agreement pursuant to Clause 12(C)(ii) of the Shareholders' Agreement; or (iv) the Balance Consideration is not paid pursuant to Clause 4.2 of the Sale and Purchase Agreement (each of (i), (ii) (iii) and (iv) hereinafter referred to as a "PRECONDITION EVENT"), to require the Grantor to purchase from FIL all the Put Option Shares on the terms and subject to the conditions of this Agreement ("PUT OPTION"). 2.2 On the exercise of the Put Option, the Grantor will become bound to purchase and FIL will become bound to complete the sale of the Put Option Shares on the Transfer Terms. 2.3 The Put Option must be exercised by notice in writing by FIL served only during the Put Option Period and subject to the fulfilment of a Precondition Event, failing which it will lapse and cease to have any further effect. 2 120 3. PUT OPTION COMPLETION 3.1 Put Option Completion of the sale and purchase of the Put Option Shares shall take place in Hong Kong at the Hong Kong branch office of FIL (or at such other place as may be agreed) on the Put Option Completion Date, provided that if such a day is not a Business Day then Put Option Completion shall take place at 12 noon on the first Business Day thereafter. 3.2 On Put Option Completion: (a) FIL shall deliver to the Grantor duly executed transfers and duly executed sold notes in favour of the Grantor in respect of the Put Option Shares accompanied by the relative share certificate(s) and shall do all things and execute such documents as shall be necessary or as the Grantor may reasonably request to give effect to the sale of the Put Option Shares pursuant to Clause 2 on the Transfer Terms; (b) FIL shall procure the resignations of the existing Directors of the Company nominated by them pursuant to Clause 4(B) of the Shareholders' Agreement, which said resignations shall take effect on Put Option Completion; and (c) the Grantor shall pay the Sale Price to FIL by way of telegraphic transfer to an account designated by FIL to the Grantor not later than three (3) Business Days prior to the Put Option Completion Date or by way of a banker's draft. 3.3 If any of the provisions of Clause 3.2 are not complied with on the Put Option Completion Date the party not in default may (without prejudice to his other rights and remedies): (a) defer Put Option Completion to a date not more than twenty-eight (28) days after the Put Option Completion Date (and so that the provisions of this Clause 3 shall apply to Put Option Completion as so deferred); or (b) proceed to Put Option Completion so far as practicable (without prejudice to his rights hereunder); or (c) rescind the transaction arising by virtue of the exercise of the Put Option. 4. DURATION OF OBLIGATIONS 4.1 This Agreement shall terminate on the date falling on the first anniversary of the end of the Financial Period if no Put Option Notice shall have been served on or prior to such date. 4.2 If the Put Option Notice shall have been served on or prior to the date mentioned in Clause 4.1 this Agreement shall continue in force after such date until the fulfilment of the parties' obligations hereunder in relation to the Put Option Notice whereupon it shall terminate. 5. FIL'S WARRANTIES 5.1 FIL warrants to the Grantor that it is and will remain until the expiry of the Put Option Period or the Put Option Completion Date, whichever is the later, the sole legal and beneficial owner of the Option Shares, subject only to the Put Option and the Fico Call Option (as defined in the Fico Call Option Agreement). 3 121 5.2 FIL shall not prior to the expiry of the Put Option Period or the Put Completion Date, whichever is the later, transfer, dispose of or permit an Encumbrance save for the Put Option and the Fico Call Option (as defined in the Fico Call Option Agreement) over its interest in any of the Put Option Shares and the Put Option Shares shall upon Put Option Completion be sold free of any Encumbrance. 5.3 At the date of this Agreement the Put Option Shares represent forty per cent. (40%) of the issued and paid-up share capital of the Company issued or agreed to be issued and there is no option or right outstanding in favour of any third party to subscribe for any share or loan capital of the Company. 6. COMMUNICATIONS 6.1 Except as otherwise provided in the Agreement, all notices required or permitted to be given hereunder shall be in writing and in the English language and shall be sent by facsimile or in writing. 6.2 Any notice hereunder shall be addressed as follows: In the case of FIL : Flextronics International Ltd 514 Chai Chee Lane, #04-13 Singapore 469029 Fax Number : (65) 449-9548 Attention : Mr Goh Chan Peng In the case of the Grantor: Gico Forest Industrial Co. Limited Unit 10, 18/F Blk B, Kong Nam Ind. Building 603 Castle Peak Road, Tsuen Wan New Territories Hong Kong Fax Number : (852) 2412-0791 Attention : Mr Law Sing Hong 6.3 Any party may from time to time by notice hereunder change its address or telefax number for notice. Notice given by facsimile shall be deemed to have been served on the next Business Day in the place of address following the day of transmission. 7. GENERAL 7.1 This Agreement may be assigned in whole or in part by FIL. Notwithstanding this, this Agreement shall not be assigned in whole or in part by the Grantor. It is expressly agreed that this Agreement shall be binding upon and shall enure for the benefit of the parties' successors. 7.2 This Agreement supersedes any previous agreement between the parties hereto in relation to the matters dealt with herein, represents (together with any documents referred to herein) the entire agreement between the parties herein in relation to such matters and no variation hereof shall be effective unless made in writing. 4 122 7.3 The failure of any of the parties hereto at any time to require performance by any other party or to claim a breach of any term of this Agreement shall not be deemed to be a waiver of any right under this Agreement. 7.4 The parties hereto shall, and shall use their respective reasonable endeavours to procure that any necessary third parties shall, execute and do all such further deeds, documents and things as either party may reasonably require by notice in writing to the other party to carry the provisions of this Agreement into full force and effect and (so far as they are able) shall do anything necessary (including, without limitation, exercising their powers as shareholders) to give effect to the spirit and intent of this Agreement. 7.5 Any date or period mentioned in this Agreement may be extended by agreement between the parties hereto (or such of the parties as may be affected thereby), but as regards any date or period (whether or not extended as aforesaid) time shall be of the essence of this Agreement. 7.6 Subject as specifically provided herein, each of the parties hereto shall bear its own costs and expenses relating to this Agreement, save that the Grantor shall bear all stamp duty payable in respect of the grant of the Put Option and the purchase of the Put Option Shares. 7.7 The illegality, invalidity or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 7.8 Notwithstanding the completion of the sale and purchase of the Put Option Shares herein, the terms and conditions of this Agreement shall not merge with the transfer or conveyance of the Put Option Shares and be extinguished but shall remain in full force and effect as between FIL and the Grantor insofar as the same shall not have been fulfilled. 8. GOVERNING LAW AND DISPUTE RESOLUTION 8.1 This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong. 8.2 Any dispute or difference arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Hong Kong on or before 31 March 1997 and thereafter in Singapore. In respect of arbitration in Hong Kong, the arbitration shall be in accordance with the HKIAC Rules. In respect of arbitration in Singapore, the arbitration shall be in accordance with the SIAC Rules. The HKIAC Rules and the SIAC Rules are deemed to be incorporated by reference into this Clause 8.2 save to the extent that they are inconsistent with the express terms of this Agreement. 8.3 The arbitral tribunal shall consist of three (3) independent arbitrators, one of whom shall be appointed by FIL, one of whom shall be appointed by the Grantor, and the third (who shall act as Chairman of the arbitral tribunal) to be appointed by the Chairman of SIAC or HKIAC, as the case may be. 8.4 For the purpose of this Agreement a dispute shall be deemed to arise when one party serves on the other party a notice in writing (in this Clause, a "NOTICE OF DISPUTE") stating the nature of the dispute. 8.5 The party serving any Notice of Dispute shall appoint one arbitrator in such Notice of Dispute. 5 123 8.6 The party in receipt of any Notice of Dispute shall appoint an arbitrator within twenty-eight (28) days or such longer time as may be agreed between the parties or directed by the Chairman of SIAC or HKIAC, as the case may be. In default of such appointment by any party that arbitrator shall also be appointed by the Chairman of SIAC or HKIAC, as the case may be, within fourteen (14) days after such time period. The third arbitrator shall be appointed by the Chairman of SIAC or HKIAC, as the case may be, within twenty-eight (28) days of the receipt of such Notice of Dispute. 8.7 The prevailing party in the arbitration shall be awarded the costs and expenses (including legal fees and expenses) reasonably incurred in connection with any such arbitration. 6 124 IN WITNESS WHEREOF the parties set their hands this day and year first above written. FIL Signed by /s/ S.L. Tsui for and on behalf of FLEXTRONICS INTERNATIONAL LTD in the presence of: /s/COSMAS WONG CIN TZIEH Cosmas Wong Cin Tzieh Advocate & Solicitor Singapore The Grantor Signed by for and on behalf of FICO FOREST INDUSTRIAL CO. LIMITED in the presence of: 7 125 IN WITNESS WHEREOF the parties set their hands this day and year first above written. FIL Signed by for and on behalf of FLEXTRONICS INTERNATIONAL LTD in the presence of: The Grantor Signed by /s/ Law Shun Hang & /s/ Law Sing Hong for and on behalf of FICO FOREST INDUSTRIAL CO. LIMITED in the presence of: /s/ Christine C. Knight Christine C. Knight Solicitor Hong Kong 7 EX-10.3 4 PROMISSORY NOTE PAYABLE BY MR. RICHARD DAVIS 1 Exhibit 10.3 PROMISSORY NOTE & SECURITY AGREEMENT $650,000 San Jose, California December 19, 1996 FOR VALUE RECEIVED, RICHARD DAVIS ("Borrower"), intending to be legally bound hereby, promises to pay to FLEXTRONICS INTERNATIONAL USA, INC. a California corporation ("Payee") at such place as Payee may direct, the principal sum of Six Hundred Fifty Thousand United States Dollars ($650,000) no later than February 28, 1997. Interest shall accrue from the date hereof on the unpaid principal amount of this Note at a rate of 7.0% compounded monthly. As security for the payment and performance of this promissory note, Borrower hereby grants to Payee, a security interest in all shares of Flextronics International Ltd. Stock owned by the Borrower. If Borrower shall fail to pay the full principal amount of this Note and accrued interest thereon on the Payment Date, Payee shall be entitled to exercise its remedies under this NOTE or otherwise available to it at law or in equity. The remedies of Payee shall be cumulative and concurrent, and may be pursued singly, successively or together at the sole discretion of Payee, and may be exercised as often as occasion therefor shall occur, and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. In any action brought by Payee to enforce payment hereunder or to enforce or defend any provision hereof, Borrower agrees to reimburse Payee for all costs incurred in connection therewith, including attorneys' fees and disbursements. This Note shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, Borrower intending to be legally bound hereby, has caused this Note to be executed by a duly authorized officer and duly attested as of the day and year first above written. /s/ Richard Davis --------------------------------- RICHARD DAVIS For and behalf of FLEXTRONICS INTERNATIONAL USA, INC. /s/ Michael Marks - ----------------------------- Michael Marks EX-10.4 5 PROMISSORY NOTE PAYABLE BY MR. MICHAEL MCNAMARA 1 EXHIBIT 10.4 PROMISSORY NOTE $135,900.00 San Jose, California October 22, 1996 FOR VALUE RECEIVED, MICHAEL McNAMARA ("Borrower"), intending to be legally bound hereby, promises to pay to FLEXTRONICS INTERNATIONAL USA, INC. a California corporation ("Payee") at such place as Payee may from time to time direct, the principal sum of One Hundred Thirty Five Thousand Nine Hundred United States Dollars ($135,900.00) on October 22, 2001 (the "Maturity Date"). Interest shall accrue from the date hereof on the unpaid principal amount of this Note at a rate equal to the lesser of: (i) 7.0% compounded semi-annually or (ii) the maximum amount of interest permissible under California law until all of said principal is paid in full. Borrower shall have the right to prepay all or any portion of the amount outstanding hereunder at any time without penalty. If Borrower shall fail to pay the full principal amount of this Note and accrued interest thereon on the Payment Date, Payee shall be entitled to exercise its remedies under this NOTE or otherwise available to it at law or in equity. The remedies of Payee shall be cumulative and concurrent, and may be pursued singly, successively or together at the sole discretion of Payee, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. In any action brought by Payee to enforce payment hereunder or to enforce or defend any provision hereof, Borrower agrees to reimburse Payee for all costs incurred in connection therewith, including attorneys' fees and disbursements. This Note shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, Borrower intending to be legally bound hereby, has caused this Note to be executed by a duly authorized officer and duly attested as of the day and year first above written. /s/ Michael A. McNamara ------------------------------------ MICHAEL A. McNAMARA For and behalf of FLEXTRONICS INTERNATIONAL USA, INC. /s/ Michael Marks - -------------------------------- Michael Marks EX-11.1 6 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Shares issued and outstanding (1) 13,420 12,852 Common Stock Equivalent Stock Options (2) 1,050 850 ------------ ------------ 14,470 13,702 ============ ============ Net income $ 68 $ 5,002 ------------ ------------ Earnings per share: Net Income $ 0.01 $ 0.37 ============ ============
(1) Shares issued and outstanding - based on the weighted average method. (2) Stock options - based on the treasury stock method using average market price. EX-11.2 7 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.2 FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Shares issued and outstanding (1) 13,335 12,343 Common Stock Equivalent Stock Options (2) 1,042 787 ------------ ------------ 14,377 13,130 Net income $ 10,536 $ 11,626 ------------ ------------ Earnings per share: Net Income $ 0.73 $ 0.89 ============ ============
(1) Shares issued and outstanding - based on the weighted average method. (2) Stock options - based on the treasury stock method using average market price. EX-27.1 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from financial statements for the quarter ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. U.S. DOLLARS 3-MOS MAR-31-1997 JAN-01-1997 DEC-31-1996 1 13,578 0 71,453 (4,259) 45,262 4,343 110,716 939,7150 217,934 104,172 28,419 0 0 94,739 (11,137) 217,934 121,525 121,525 111,477 111,477 6,922 2,321 78 439 371 68 0 0 0 68 .00 .01
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