-----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, VHKfC0TvSY+2pabFVCLRsyCaBo9I0wZPJ/FPeQBm+aUEJigYeZ/RZJyR+Uj6XJ7a eeKKM5r+9e3gv5uxZGJDKw== 0000950149-96-000795.txt : 19960701 0000950149-96-000795.hdr.sgml : 19960701 ACCESSION NUMBER: 0000950149-96-000795 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXTRONICS INTERNATIONAL LTD CENTRAL INDEX KEY: 0000866374 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23354 FILM NUMBER: 96587999 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-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) FOR THE FISCAL YEAR ENDED MARCH 31, 1996 OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) 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 (I.R.S. Employer Identification No.) of Incorporation or Organization) 514 CHAI CHEE LANE #04-13, BEDOK INDUSTRIAL ESTATE, SINGAPORE 469029 (Address of Principal Executive Offices) (Zip Code) (65) 449-5255 Registrant's Telephone Number, Including Area Code Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: ORDINARY SHARES, S$0.01 PAR VALUE (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 20, 1996: Approximately $259.3 million (based on the last reported sale price of $26.00 per share on June 20, 1996 on the Nasdaq National Market). The number of Ordinary Shares outstanding as of June 20, 1996 was 13,266,483. DOCUMENTS INCORPORATED BY REFERENCE Document Form 10-K Reference -------- ------------------- Proxy Statement for Registrant's Annual Part III, Items 10-13 General Meeting to be held on August 15, 1996 Annual Report to Shareholders for the fiscal Part II, Items 6-8 year ended March 31, 1996 Part IV, Item 14 2 PART I ITEM 1. BUSINESS. This report on Form 10-K contains forward-looking statements regarding the future performance of the Company and future events that involve risks and uncertainties that could cause actual results to differ materially from the statements contained herein. This document, and the documents that the Company files from time to time with the Securities and Exchange Commission, such as its reports on Form 10-Q, Form 8-K and its proxy materials, contain additional important factors that could cause actual results to differ from the Company's current expectations and the forward-looking statements contained herein. GENERAL Flextronics International Ltd. ("Flextronics" or the "Company") is a turnkey manufacturer of sophisticated electronics for original equipment manufacturers ("OEMs") in the communications, computer, consumer and medical industries. Flextronics manufactures complex printed circuit board assemblies using surface mount ("SMT"), pin-through-hole ("PTH") and multi-chip ("MCM") interconnect technologies as well as miniature gold-finished printed circuit boards ("PCBs"). The Company's strategy is to use its manufacturing expertise, advanced technological capabilities and low-cost structure to deliver quality products, highly responsive and flexible service, short delivery cycles and low overall production costs. The Company also provides component and circuit board design and manufacturing services, materials procurement and management and final assembly. The Company targets customers with high-volume product lines with which it believes it can establish long-term primary or sole source relationships. The Company serves customers, most of which are headquartered in the U.S., from its international facilities in Singapore, China, Malaysia, Hong Kong, Wales and from its U.S. facilities in California and Texas. The Company's customers include Lifescan (a Johnson & Johnson company), Diebold, Global Village Communication, Visioneer, Microcom and Thermoscan. INDUSTRY OVERVIEW Many OEMs in the electronics industry are increasingly utilizing electronics manufacturing services in their business and manufacturing strategies. Outsourcing allows OEMs to take advantage of the manufacturing expertise and capital investments of contract manufacturers, thereby enabling OEMs to concentrate on their core activities. OEMs utilize contract manufacturers to: Reduce Production Costs and Accelerate Time to Market. The competitive environment for many OEMs, combined with shorter product life cycles, requires OEMs to reduce production costs and time required to bring a product to market. Due to their established manufacturing expertise and infrastructure, contract manufacturers can frequently provide OEMs with higher levels of responsiveness and flexibility, shorter delivery cycles and lower overall production costs than in-house manufacturing operations. Access Advanced Manufacturing and Design Capabilities. As electronic products have become smaller and more technologically advanced, manufacturing processes have become more automated and complex, requiring greater investment in capital equipment, greater design know-how and greater manufacturing expertise in process development and control. Contract manufacturers enable OEMs to gain access to advanced manufacturing facilities, packaging technologies and design expertise without the capital requirements of captive production. Access Worldwide Manufacturing Capabilities. Many OEMs are increasing their international activities in an effort to lower costs and access foreign markets. Contract manufacturers with worldwide capabilities are able to offer a choice of manufacturing locations to address OEMs' objectives regarding cost, shipping location and local content requirements of end-market countries. 1. 3 Focus Resources. Many OEMs are focusing their resources on activities and technologies where they add the greatest value. Contract manufacturers that offer comprehensive services allow OEMs to focus on their core activities such as product development, marketing and distribution. Improve Inventory Management and Purchasing Power. Design changes, short product life cycles, component price fluctuations and the need to achieve economies of scale in materials procurement pose challenges for OEMs. Contract manufacturers' inventory management expertise and volume procurement capabilities can reduce OEM production costs. STRATEGY The Company's objective is to provide the lowest cost turnkey manufacturing and design services to a select group of OEMs in the communications, computer, consumer and medical markets. The Company's strategy to meet this objective comprises the following key elements: - Provide Advanced Technological Solutions. Through its increased investment in advanced interconnect technologies, such as MCMs, gold-finished PCB capabilities, epoxy molding conductive compounds and plastics, the Company is able to offer its customers a variety of advanced design and manufacturing solutions which are intended to be more cost-effective than their historic counterparts. - Low Cost Manufacturing Locations. The Company seeks to provide complete, cost-effective solutions to its customers by combining low-cost, high- volume assembly expertise and global manufacturing capabilities. The Company has been operating its high-volume assembly operations in Asia for over ten years and believes that, in general, its costs of materials, labor and overhead are very competitive. The Company plans to expand its operations in China, a particularly low-cost manufacturing location. The acquisition of Astron Group Limited ("Astron") in February 1996 expanded the Company's manufacturing capabilities in China. - Maintain Global Presence. The Company has established a manufacturing presence in its customers' geographic markets in Asia, North America and Europe in order to meet customer desires concerning cost, shipping location and local content requirements. - Expand Services to Select Customer Base. The Company pursues customers with high-volume product lines in diverse markets with which it can establish long-term, primary or sole-source relationships and endeavors to provide such customers with total manufacturing solutions for new and existing products. Since March 1994 the Company has added new services, including (i) U.S.-based manufacturing capability through the acquisition of Relevant Industries, Inc. ("Relevant") and through the opening of its Texas facility; (ii) MCM design, development and manufacturing expertise through the acquisition of nCHIP, Inc. ("nCHIP"); (iii) European-based manufacturing capability through the acquisition of Assembly & Automation (Electronics) Limited ("A&A"); and (iv) miniature gold-finished PCB capabilities through its acquisition of Astron. - Logistics. The Company plans to further decrease costs through consolidation of its manufacturing operations into fewer, larger facilities with increased capabilities and through vertical integration by including PCB manufacturing and circuit board assembly at these larger facilities. There can be no assurance that the Company's strategy, even if successfully implemented, will reduce the risks associated with the Company's business. CUSTOMERS, SALES AND MARKETING The Company's customers consist of a select group of OEMs in the communications, computer, consumer and medical industries. The loss of one or more major customers could have a material adverse effect on the Company's results of operations. 2. 4 The Company generally manufactures circuit board assemblies that are incorporated in its customers' final products, although for certain customers, such as Microcom, Telebit, Global Village Communication and Visioneer, the Company manufactures and assembles final products. The Company supplies MCM products for customers such as Ross Technologies (used in Sun workstations) and Credence and miniature gold-finished PCB products for customers such as Siemens, Motorola, Samsung, Fujitsu and Toshiba. The following table lists in alphabetical order certain of the Company's largest customers (based on net sales for fiscal 1996 with which the Company expects to continue to conduct significant business and the products for which the Company provides manufacturing services.
CUSTOMER END PRODUCTS -------- ------------ Apple Computer Modems Diebold Automatic teller machines Global Village Communication Modems Lifescan (a Johnson & Johnson company) Portable glucose monitoring system Microcom Modems Sun Microsystems Server assembly Tandem Computer Computer assembly Thermoscan Thermometer Visioneer Desk-top scanner
The information concerning the Company's operations by geographical area for the three years ended March 31, 1996 in Note 14 of the Notes to Consolidated Financial Statements contained in the Company's 1996 Annual Report to Shareholders is incorporated herein by reference. CUSTOMER CONCENTRATION In fiscal 1996 Flextronics manufactured products for 55 customers and its five largest customers accounted for approximately 52% of net sales. Approximately 14% of Flextronics' net sales for fiscal 1996 were derived from sales to Lifescan (a Johnson & Johnson company). Flextronics anticipates that its customer concentration will continue as it focuses on strengthening ties with certain customers and pursues primary and sole-source relationships. None of the Company's customers has entered into an agreement requiring it to purchase a minimum amount of product from the Company. The composition of the group comprising the Company's largest customers has varied from year to year, and there can be no assurance that the Company's principal customers will continue to purchase products and services from the Company at current levels, if at all. The loss of one or more major customers could have a material adverse effect on the Company's results of operations. RAPID TECHNOLOGICAL CHANGE The markets in which the Company's customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. These conditions frequently result in short product life cycles. The Company's success will depend to a significant extent on the success achieved by its customers in developing and marketing their products, some of which are new and untested. If technologies or standards supported by the Company's or its customers' products become obsolete or fail to gain widespread commercial acceptance, the Company's business may be materially adversely affected. Through its acquisition of nCHIP and Astron and its strategic relationship with Dow Chemical, the Company has made substantial investments in developing advanced interconnect technological capabilities. These capabilities, primarily MCMs, miniature gold-finished PCBs and epoxy molding conductive compounds, currently account for a relatively small portion of the overall market for electronic interconnect products. The ability of the Company to achieve desired operating results will depend upon, among other things, broadening the nCHIP and Astron customer bases and the extent to which customers design, manufacture and adopt systems based on 3. 5 these advanced technologies. There can be no assurance that the Company will be able to successfully develop and exploit these technologies. The Company achieves worldwide sales coverage through a ten (10) person direct sales force, with its primary focus on U.S. customers and foreign subsidiaries of U.S. customers. The Company has sales offices in California, Massachusetts, Singapore, Hong Kong, Malaysia and England. In addition to its sales force, the Company's executive staff plays an integral role in the Company's marketing efforts. SERVICES The Company provides sophisticated, low-cost electronics assembly and turnkey manufacturing and design services. These services include component and circuit board design and manufacturing, materials procurement and management, final assembly and packaging. In addition, the Company designs and manufactures advanced electronic interconnect devices known as multichip modules. An MCM is a collection of unpackaged integrated circuit chips interconnected within a single package which the Company believes results in products that are smaller in size, faster in operation, and often less expensive to build than the conventional placement of separate integrated circuits on PCBs. DESIGN In order to reduce the time from design to prototype, Company engineers assist customers with initial product design. Such assistance normally includes providing manufacturing engineering services and suggestions concerning circuit board layout. The Company maintains design centers in Westford, Massachusetts and in Singapore to assist in this process. Manufacturing information is frequently transmitted electronically between customers, the design centers and the manufacturing facilities to reduce cycle time and minimize errors. The Company's San Jose, California design center provides a full range of electrical, thermal and mechanical design services located within its MCM manufacturing facility. After circuit board layout, the Company provides prototype assemblies from its facilities for fast turnaround. During the prototype process, Company engineers work with customer engineers to enhance production efficiency. At this time, the Company prepares manufacturing documentation and purchases long lead time components to minimize potential manufacturing delays associated with start-up of manufacturing for the new products. MATERIALS PROCUREMENT AND MANAGEMENT Materials procurement and management consists of the planning, purchasing, expediting, warehousing and financing of the required components and materials used in the manufacturing process. The Company's inventory manufacturing expertise and volume procurement capabilities contribute to cost reductions in the manufacturing process. The Company purchases components from hundreds of suppliers, many of whom are designated by its customers. Components generally are ordered after the Company has a firm purchase order or letter of authorization from a customer to purchase the completed assemblies. Flextronics and many of its customers rely on third-party suppliers for components used in the assembly process. Although the Company works with customers and third-party suppliers to reduce the impact of component shortages, such shortages may occur from time to time and may have a material adverse effect on the Company's financial condition and results of operations. At various times there have been shortages of certain electronics components, including DRAMs, memory modules, logic devices, ASICS, laminates, and specialized capacitors. In addition, the market for bare die packaging is an emerging market and integrated circuits in their bare die form are not always available. Component shortages could result in manufacturing and shipping delays or higher prices which could have a material adverse effect on the Company's results of operations. From time to time Flextronics is able to enter into advantageous arrangements for the supply of certain limited availability components. To the extent that such arrangements cease to be available, the Company would lose a cost advantage and its results of operations could be materially adversely affected. 4. 6 ASSEMBLY AND MANUFACTURING The Company's electronics assembly activities primarily consist of the placement and attachment of electronic and mechanical components on printed circuit boards and flexible cables using both SMT and PTH technology. The Company also assembles subsystems and systems incorporating printed circuit boards and electromechanical components, and in some cases manufactures and packages products for shipment directly to the customers' distributors. The Company also offers a range of MCM technologies from low-cost laminate MCMs to high-performance deposited thin-film MCMs. The Company believes its MCMs offer cost and size reductions together with increased performance as compared to conventional interconnect technologies. The Company employs just-in-time, ship-to-stock and ship-to-line programs, continuous flow manufacturing and statistical process control. Substrates for the Company's MCMs are manufactured on the Company's semiconductor wafer fabrication line in San Jose, California and by outside foundries. Assembly of completed MCMs also is accomplished in San Jose and by an outside assembly company. The Company's miniature, gold-finished PCBs are manufactured in the Company's facilities in Hong Kong and in Doumen, China. TEST After assembly, the Company offers computer-aided testing of printed circuit boards, subsystems and systems, which contributes significantly to the Company's ability to deliver high-quality products on a consistent basis. Working with its customers, the Company develops product-specific test strategies. The Company's test capabilities include management defect analysis, in-circuit tests and functional tests. In addition, the Company also provides environmental stress tests of the board or system assembly. MANAGEMENT OF EXPANSION; ACQUISITIONS The Company is currently experiencing a period of rapid expansion through both internal growth and acquisitions. In 1995 the Company completed the acquisition of nCHIP, opened a new facility in Texas and a second facility in China, completed the acquisition of A&A and made significant expenditures to expand the capabilities of its new and existing facilities. In February 1996 the Company completed its acquisition of Astron. Expansion has caused, and is expected to continue to cause, strain on the Company's managerial, technical, financial and other resources. To manage further growth, the Company must continue to add manufacturing capacity, enhance financial controls and hire additional engineering personnel. There can be no assurance that the Company will be able to manage its expansion, and a failure to do so could have a material adverse effect on the Company's results of operations. Acquisitions involve a number of risks that could adversely affect the Company's operating results, including the diversion of management's attention, the assimilation of the operations and personnel of the acquired companies, the amortization of acquired intangible assets and the potential loss of key employees of the acquired companies. No assurance can be given that any past or future acquisition by the Company will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. In addition to its recent acquisitions, the Company may from time to time pursue the acquisition of other companies, assets or product lines that complement or expand its existing business. nCHIP. In January 1995 the Company acquired nCHIP, a privately held manufacturer of MCMs with manufacturing and sales operations in San Jose, California. The acquisition was accounted for as a pooling of interests and nCHIP became a wholly owned subsidiary of the Company. The Company believes that the acquisition of nCHIP will enable it to meet the increasingly advanced technological demands of new and existing customers. However, MCMs currently account for only a small portion of the overall market for electronic interconnect products. The ability of the Company to achieve success in this business will depend upon, among other things, broadening nCHIP's customer base, the extent to which customers design, manufacture and adopt 5. 7 systems based on MCM technology and the Company's ability to otherwise increase demand in the marketplace for MCMs. While the Company is encouraged by progress to date, there can be no assurance as to the rate at which the market for MCMs will develop, if at all, or as to the ultimate size of the market. Moreover, the production of MCMs requires the utilization of sophisticated semiconductor processes which must be tightly controlled in order to achieve acceptable yields of good product. The Company plans to increase its MCM production capacity substantially over the next year and its ability to do so efficiently is subject to process scale-up risks similar to those that affect companies in the semiconductor industry. Any significant operational problems that are encountered in this phase could have a material adverse effect on the Company. A&A. In April 1995 the Company acquired Assembly & Automation (Electronics) Limited, ("A&A"), a privately held contract manufacturer of electronics and telecommunications equipment located in Tonypandy, Wales. The acquisition of A&A expands the Company's manufacturing capabilities into Europe. Astron. Consummated in February 1996, the acquisition of Astron is the largest acquisition undertaken by the Company. The Company has not had any presence in the printed circuit board manufacturing industry or any experience with the assembly of miniature gold-finished PCBs and accordingly may lack the management and marketing experience that will be necessary to successfully operate and integrate the Astron business. The successful operation of such business will require communication and cooperation in product development and marketing among senior executives and key technical personnel. Given the inherent difficulties involved in completing a major business combination, there can be no assurance that such cooperation will occur or that the integration of the respective businesses will be successful and will not result in disruption in one or more sectors of the Company's business. In addition, there can be no assurance that the Company will retain key Astron technical and management personnel, that the market will favorably view the Company's entry into the miniature, gold-finished PCB industry or that the Company will realize any of the other anticipated benefits of the acquisition. RISK OF OPERATIONS IN CHINA, HONG KONG, SINGAPORE AND MALAYSIA The Company's executive offices are located in Singapore and the Company has substantial manufacturing operations located in Singapore, Malaysia, China and Hong Kong, although most of its customers are headquartered in the U.S. The distance between Asia and the U.S. creates logistical barriers that the Company seeks to mitigate through the maintenance of marketing, design, manufacturing and certain final assembly functions in the U.S. and through extensive use of electronic mail and video teleconferencing with its customers. Because of the location of certain of its manufacturing facilities in other countries, the Company may be affected by economic and political conditions in those countries. For example, the Company could be adversely affected if the current policies encouraging foreign investment or foreign trade by its host countries were to be reversed. In addition, the attractiveness of the Company's services to its U.S. customers is affected by U.S. trade policies, such as "most favored nation" status and trade preferences for certain Asian nations. Changes in policies by the U.S. or foreign governments resulting in, among other things, increased duties, higher taxation, currency conversion limitations, limitations on imports or exports, or the expropriation of private enterprises could have a material adverse effect on the Company's results of operations. The Company believes that trade preferences extended to Malaysia in recent years may not be renewed. In particular, the Company's operations and assets are subject to significant political, economic, legal and other uncertainties in China. Under its current leadership, the Chinese government has been pursuing economic reform policies, including the encouragement of foreign trade and investment and greater economic decentralization. No assurance can be given, however, that the Chinese government will continue to pursue such policies, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time. Despite progress in developing its legal system, China does not have a comprehensive and highly developed system of laws, particularly with respect to foreign investment activities and foreign trade. Enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation 6. 8 thereof may be inconsistent. As the Chinese legal system develops, the promulgation of new laws, changes to existing laws and the preemption of local regulations by national laws may adversely affect foreign investors. CURRENCY FLUCTUATIONS While Flextronics transacts business predominantly in U.S. dollars and most of its revenues are collected in U.S. dollars, a portion of Flextronics' costs are denominated in other currencies such as the Singapore dollar, the Hong Kong dollar and the Malaysian ringgit. Business conducted out of the United Kingdom is conducted principally in pounds sterling. As a result, changes in the relation of these and other currencies to the U.S. dollar will affect the Company's cost of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on the Company's results of operations cannot be accurately predicted. From time to time Flextronics has engaged in, and may continue to engage in, exchange rate hedging activities. There can be no assurance that any hedging techniques implemented by the Company will be successful. COMPETITION The electronics contract manufacturing industry comprises hundreds of companies and is highly fragmented and intensely competitive. The Company competes against numerous domestic and foreign contract manufacturers, and current and prospective customers evaluate the Company's capabilities against the merits of captive production. In addition, in recent years the electronics contract manufacturing industry has attracted a significant number of new entrants, including large OEMs with excess manufacturing capacity, and existing participants who have expanded their capacity. The Company believes there are more than 30 contract manufacturers with annual revenues above $100 million. Certain of the Company's competitors, including Solectron Corporation and SCI Systems, have substantially greater manufacturing, financial, research and development and marketing resources than the Company. The Company believes that the principal competitive factors in the segments of the contract manufacturing industry in which it operates are cost, technological capabilities, responsiveness and flexibility, delivery cycles, location of facilities, product quality and range of services available. INTELLECTUAL PROPERTY MATTERS The Company relies on a combination of patent, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect its intellectual property. The Company seeks to protect certain of its technology under trade secret laws, which afford only limited protection. There can be no assurance that any of the Company's pending patent applications will be issued or that intellectual property laws will protect the Company's intellectual property rights. There can be no assurance that any patent issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or design around any patents issued to the Company. The Company may in the future be notified that it is infringing certain patent and/or other intellectual property rights of others, although there are no such pending lawsuits against the Company or unresolved notices that it is infringing intellectual property rights of others. No assurance can be given that in the event of such infringement, licenses could be obtained on commercially reasonably terms or that litigation will not occur. The failure to obtain necessary licenses or other rights or the occurrence of litigation arising out of such claims could have a material adverse effect on the Company's business. EMPLOYEES As of March 31, 1996, the Company employed 3,994 persons. None of the Company's employees is represented by a labor union except for (i) the Company's non-management employees located in Singapore and 7. 9 (ii) the Company's hourly employees in Wales. The Company has never experienced a work stoppage or strike. The Company believes that its employee relations are good. The Company's success depends to a large extent upon the continued services of key managerial and technical employees. The loss of such personnel could have a material adverse effect on the Company's results of operations. To date, Flextronics has not experienced significant difficulties in attracting or retaining such personnel. Although the Company is not aware that any of its key personnel currently intend to terminate their employment, their future services cannot be assured. EXECUTIVE OFFICERS In addition to executive officers who are directors of the Company, the following are also executive officers of the Company:
NAME AGE POSITION ---- --- -------- Dennis P. Stradford.................................... 49 Senior Vice President of Sales and Marketing Bruce M. McWilliams.................................... 39 Vice President, President of nCHIP, Inc. Goh Chan Peng.......................................... 41 Chief Financial Officer Teo Buck Song.......................................... 39 Vice President, Purchasing Michael McNamara ...................................... 39 Vice President, President of United States Operations Hans D. Nilsson ....................................... 40 Vice President, General Manager of European Operations
Dennis P. Stradford - Mr. Stradford has served as Senior Vice President, Sales and Marketing since December 1990. From February 1990 to December 1990, he was Vice President of Sales and Marketing at Logistix, a software contract manufacturer. From October 1985 to February 1990, he served as Senior Vice President, Sales and Marketing at Flex Holdings Pte Limited, the predecessor to the Company. Mr. Stradford received a B.A. from San Jose State University and an M.A. and M.Div. from St. Patrick's College. Bruce M. McWilliams - Dr. McWilliams has served as Senior Vice President since April 1995. He was a co-founder of nCHIP and served at nCHIP in the capacities of President, Chief Executive Officer and Chief Technical Officer from February 1989 until January 1995 when nCHIP was acquired by the Company. Prior to founding nCHIP, Dr. McWilliams oversaw the laser pentography program at the Lawrence Livermore National Laboratory, which focused on development and applications of advanced electronic packaging, CAD tools and optical systems. Dr. McWilliams holds a B.S., an M.S. and a Ph.D. in Physics from Carnegie-Mellon University. Goh Chan Peng - Mr. Goh has served as the Company's Chief Financial Officer since July 1992. From June 1990 to July 1992, he was the Company's Director of Finance. From 1982 to June 1990, he served in various financial capacities at Flex Holdings Pte Limited, the predecessor to the Company, including Director of Finance and Finance Manager-Asia Pacific Region. Mr. Goh received a Bachelor of Commerce from Singapore Nanyang University and a Diploma in Personnel Management from Singapore Institute of Management. Teo Buck Song - Mr. Teo has served as Vice President, Purchasing since April 1994. He was Director of Purchasing at Flex Holdings Pte Limited, the predecessor to the Company from 1988 to April 1994. From 1982 to 1988, he served in various operational capacities at Flex Holdings Pte Limited, the predecessor to the Company, including Purchasing Manager and Production Material Control Manager. Mr. Teo received a Production Engineering Diploma from Singapore Polytechnic. Michael McNamara - Mr. McNamara has served as Vice President, President of United States Operations since April 1994. From May 1993 to March 1994, he was President and Chief Executive Officer of Relevant Industries, Inc., which was acquired by the Company in March 1994. From May 1992 to May 1993, he was Vice President, Manufacturing Operations at Anthem Electronics, an electronics distributor. From April 8. 10 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath, an operations consulting firm. Mr. McNamara received a B.S. from the University of Cincinnati and an M.B.A. from Santa Clara University. Hans Nilsson - Mr. Nilsson has served as the Company's Vice President, General Manager of European Operations since April 1994. From April 1991 to April 1994 he was Senior Vice President at Metcal, Inc., a precision heating instrument company. From July 1987 to March 1991 he was Director of Marketing at Mars Electronics International, an electronics payment systems company. Mr. Nilsson received an M.S. in electrical engineering from Chalmers University of Technology, Sweden and an M.B.A. from Stanford University. ITEM 2. PROPERTIES. FACILITIES The Company has manufacturing facilities located in Singapore, Malaysia, China, Wales, California and Texas. In addition, the Company operates design centers that offer printed circuit board and MCM design and prototyping services at its facilities in Singapore, California and Massachusetts. The Singapore and Massachusetts design centers focus on improving customer designs to increase yields, minimize labor content and otherwise reduce costs, and the California design center focuses on MCM design and process development. Certain information about each of the Company's facilities is set forth below:
YEAR APPROXIMATE OPERATIONS PLANT SIZE FACILITY TYPE LOCATION COMMENCED (SQUARE FT.) SERVICES - ---------------------------------------------------------------------------------------------------------------------- Manufacturing Singapore 1982 47,000 Complex, high value-added PCB assembly using primarily SMT technology. Manufacturing Johore, Malaysia 1991 80,000 Full systems manufacturing; medium complexity PCB assembly using both SMT and PTH technology. Manufacturing Xixiang, China 1995 90,000 Labor intensive PCB assembly using both SMT and PTH technology. Manufacturing Doumen, China 1995(1) 175,000 Manufacture of high density, miniaturized PCBs. Manufacturing Hong Kong 1985(1) 50,000 Manufacture of high density, miniaturized PCBs. Manufacturing San Jose, CA 1994 65,000 System assembly, just-in-time distribution and electro-mechanical system integration. Manufacturing San Jose, CA 1996 32,500 PCB assembly. Manufacturing San Jose, CA 1989(2) 30,000 Advanced packaging and MCM design and fabrication. Manufacturing Richardson, TX 1995 47,000 PCB and system assembly, just-in-time distribution. Manufacturing Tonypandy, Wales 1983(3) 50,000 Full systems manufacturing; medium complexity PCB assembly using both SMT and PTH technology.
9. 11
YEAR APPROXIMATE OPERATIONS PLANT SIZE FACILITY TYPE LOCATION COMMENCED (SQUARE FT.) SERVICES - --------------------------------------------------------------------------------------------------------- Design Services Westford, MA 1987 9,112 Design services and assistance using and Singapore(4) - - CAE and CAD tools; production of and San Jose(5) - - prototypes and initial low volume product runs.
- -------------------- (1) Acquired by the Company in February 1996 in connection with the Company's acquisition of Astron. (2) Acquired by the Company in January 1995 in connection with the Company's acquisition of nCHIP. (3) Acquired by the Company in April 1995 in connection with the Company's acquisition of A&A. (4) Located within the 47,000 square foot manufacturing facility in Singapore. (5) Located within the 30,000 square foot manufacturing facility in San Jose, California. In June 1995 the Company entered into a sale and leaseback arrangement for this facility which expires in July 2005. The Company leases its facilities in Singapore and Xixiang, China from local government agencies under leases that expire between December 1998 and September 2003. The Company leases its 30,000 square foot San Jose, California facility, its 32,500 square foot San Jose, California facility and its Richardson, Texas facility under leases that expire in December 1997, February 2000 and April 2000, respectively. In December 1995 the Company purchased its Malaysian facility. In April 1995 the Company purchased its 65,000-square-foot San Jose, California facility for approximately $3.5 million, and in June 1995 the Company entered into a sale and leaseback arrangement for this facility, which expires in July 2005. Additionally, the Company in April 1995 obtained a 50,000 square foot facility when it acquired A&A located in Tonypandy, Wales. The Company acquired its Hong Kong facility and its Doumen, China facility in February 1996 in connection with the Astron acquisition. The Company also owns the thirty (30) acre parcel of land on which the Doumen, China facility is located. Environmental Compliance Risks The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. The Company manufactures substrates for its MCMs on its semiconductor fabrication line in California and uses various chemicals in its PCB manufacturing lines in Hong Kong and China. Proper handling, storage and disposal of the metals and chemicals used in such manufacturing processes is an important consideration. Although the Company believes that its facilities are currently in material compliance with applicable environmental laws, and it monitors its operations to avoid violations arising from human error or equipment failures, there can be no assurances that violations will not occur. In the event of a violation of environmental laws, the Company could be held liable for damages and for the costs of remedial actions and could also be subject to revocation of its effluent discharge permits. Any such revocations could require the Company to cease or limit production at one or more of its facilities, thereby having a material adverse effect on the Company's operations. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with a violation. ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 10. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. PRICE RANGE OF ORDINARY SHARES The Company's Ordinary Shares have been traded on the Nasdaq National Market under the symbol "FLEXF" since March 18, 1994. The following table shows the high and low closing sales prices per share of the Company's Ordinary Shares since the Company's initial public offering (March 18, 1994).
HIGH LOW - ----------------------------------------------------------------------------- Fiscal 1994 Fourth Quarter (March 18, 1994 - March 31, 1994) $14.50 $12.50 Fiscal 1995 First Quarter $14.00 $ 8.75 Second Quarter $16.50 $ 9.00 Third Quarter $16.50 $12.50 Fourth Quarter $18.75 $13.00 Fiscal 1996 First Quarter $22.25 $13.50 Second Quarter $26.75 $21.75 Third Quarter $30.00 $21.00 Fourth Quarter $35.75 $25.75 =============================================================================
On June 20, 1996, the closing sales price of the Ordinary Shares was $26.00 per share. On that date, there were 609 shareholders of record. DIVIDENDS Since inception, the Company has not declared or paid a cash dividend on its Ordinary Shares. The Company anticipates that all earnings in the foreseeable future will be retained to finance the continuing development of its business. TAXATION This summary of Singapore and United States tax considerations is based on current law and is provided for general information. The discussion does not purport to deal with all aspects of taxation that may be relevant to particular shareholders in light of their investment or tax circumstances, or to certain types of shareholders (including insurance companies, tax-exempt organizations, regulated investment companies, financial institutions or broker-dealers, and shareholders that are not U.S. Shareholders (as defined below)) subject to special treatment under the U.S. federal income tax laws. Such shareholders should consult their own tax advisors regarding the tax consequences of any investment in the Ordinary Shares. Income Taxation Under Singapore Law Under current provisions of the Income Tax Act, Chapter 134 of Singapore, corporate profits are taxed at a rate equal to 26%. Under Singapore's taxation system, the tax paid by a company is deemed paid by its 11. 13 shareholders. Thus, the shareholders receive dividends net of the tax paid by the Company. Dividends received by either a resident or a nonresident of Singapore are not subject to withholding tax. Shareholders are taxed on the gross amount of dividends (i.e., the cash amount of the dividend plus the amount of corporate tax paid by the Company). The tax paid by the Company will be available to shareholders as a tax credit to offset the Singapore income tax liability on their overall income (including the gross amount of dividends). If the shareholder's marginal tax rate is equal to the corporate tax rate, there is no further Singapore tax to pay on the dividends. In the case of a resident shareholder, if the shareholder's marginal tax rate is lower than the corporate tax paid, the shareholder is entitled to claim a tax refund for the difference from the Singapore Inland Revenue Department; conversely, if the resident shareholder's marginal tax rate is higher than the corporate tax rate, the shareholder must pay the difference to the Singapore Inland Revenue Department. In the case of a nonresident shareholder, the shareholder is taxed on dividends at the corporate tax rate. Thus, the nonresident shareholder pays no further Singapore income tax on the net dividends received. Further, the nonresident shareholder will not receive any tax refund from the Singapore Inland Revenue Department. No tax treaty currently exists between the Republic of Singapore and the U.S. Under current Singapore tax law there is no tax on capital gains, and, thus, any profits from the disposal of shares are not taxable in Singapore unless the vendor is regarded as carrying on a trade in shares in Singapore (in which case, the disposal profits would be taxable as trade profits rather than capital gains). There is no stamp duty payable in respect of the holding and disposition of shares. No duty is payable on the acquisition of new shares. Where existing shares are acquired in Singapore, stamp duty is payable on the instrument of transfer of the shares at the rate of S$2 for every S$1,000 market value of the shares. The stamp duty is borne by the purchaser unless there is an agreement to the contrary. Where the instrument of transfer is executed outside of Singapore, stamp duty may be payable if the instrument of transfer is received in Singapore. Where no instrument of transfer is executed, no stamp duty is payable on the acquisition of existing shares. Income Taxation Under United States Law Shareholders that are (i) corporations or partnerships organized under the laws of the U.S., or any political subdivision thereof, (ii) estates or trusts, the income of which, from sources without the U.S., is includable in gross income for federal income tax purposes regardless of its connection with the conduct of a trade or business within the United States, (iii) U.S. citizens or (iv) U.S. resident aliens (as defined in Section 7701(b) of the Internal Revenue Code of 1986, as amended) ("U.S. Shareholders") generally will be required to report as income for U.S. income tax purposes the amount of any cash dividend received from the Company to the extent paid out of the current or accumulated earnings and profits of the Company, as determined under current U.S. income tax principles. Such dividend income will generally be subject to the separate limitation for "passive income" for purposes of the foreign tax credit limitation. Shareholders that are corporations will generally not be entitled to the dividends received deduction with respect to dividends from the Company. If a U.S. Shareholder receives a dividend payment in any currency other than U.S. dollars, the amount of the dividend payment for federal income tax purposes will be the U.S. dollar value of the dividend payment (determined at the spot rate on the date of such payment) regardless of whether the payment is in fact converted into U.S. dollars. In such a case, U.S. Shareholders may recognize ordinary income or loss as a result of currency fluctuations during the period between the date of a dividend payment and the date such dividend payment is converted into U.S. dollars. U.S. Shareholders will generally not be entitled to a foreign tax credit for the amount of Singapore corporate income tax paid by the Company; provided that a domestic corporation which owns 10% or more of the voting stock of the Company may be entitled to a foreign tax credit for such taxes. Any domestic corporation which owns 10% or more of the voting stock of the Company should consult its tax advisor with respect to the U.S. taxation of its interest in the Company. U.S. Shareholders will, upon the sale or exchange of a share, recognize gain or loss for U.S. income tax purposes in an amount equal to the difference between the amount realized and the U.S. Shareholder's tax basis in such a share. If paid in currency other then U.S. dollars, the amount realized is determined at the spot rate in effect on the settlement date of the sale in the case of a U.S. Shareholder that is a cash basis taxpayer and at the spot rate in effect on the trade date in the case of a U.S. Shareholder that is an accrual basis taxpayer. An accrual basis taxpayer may elect, however, to use the spot rate in effect on the settlement date of the sale by filing a statement with the U.S. Shareholder's 12. 14 first return in which the election is effective. Such an election must be applied consistently from year to year and cannot be changed without the consent of the Internal Revenue Service. Such gain or loss will be capital gain or loss if the share was a capital asset in the hands of the U.S. Shareholder and will be long-term capital gain or loss if the share has been held for more than one year. If a U.S. Shareholder receives any currency other than U.S. dollars on the sale of a share, such U.S. Shareholder may recognize ordinary income or loss as a result of currency fluctuations between the date of such sale and the date such sale proceeds are converted into U.S. dollars. Estate Taxation In the case of an individual who is not domiciled in Singapore, Singapore estate tax is imposed on the value of all movable and immovable properties situated in Singapore. The shares of the Company are considered to be situated in Singapore. Thus, an individual shareholder who is not domiciled in Singapore at the time of his or her death will be subject to Singapore estate tax on the value of any such shares held by the individual upon the individual's death. Such a shareholder will be required to pay Singapore estate tax to the extent that the value of the shares (or any other assets subject to Singapore estate tax) exceeds S$500,000. Any such excess will be taxed at a rate equal to 5% on the first S$10,000,000 of the individual's Singapore chargeable assets and thereafter at a rate equal to 10%. An individual shareholder that is a U.S. citizen or resident (for U.S. estate tax purposes) also will have the value of the shares included in the individual's gross estate for U.S. estate tax purposes. An individual shareholder generally will be entitled to a tax credit against the shareholder's U.S. estate tax to the extent the individual shareholder actually pays Singapore estate tax on the value of the shares; however, such tax credit is generally limited to the percentage of the U.S. estate tax attributable to the inclusion of the value of the shares included in the shareholder's gross estate for U.S. estate tax purposes. Individuals who are domiciled in Singapore should consult their own tax advisors regarding the Singapore estate tax consequences of their investment. ITEM 6. SELECTED FINANCIAL DATA. The information regarding selected financial data in the Company's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's financial statements and supplementary data in the Company's 1996 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 13. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information under the captions "Re-election of Directors" and "Executive Compensation" in the Registrant's Proxy Statement for the Annual General Meeting to be held on August 15, 1996 (the "Proxy Statement") is incorporated herein by reference. Information concerning executive officers who are not directors is included in Part I under the caption "Item 1. Business - Executive Officers." ITEM 11. EXECUTIVE COMPENSATION. The information under the caption "Executive Compensation" in the Registrant's Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the caption "Security Ownership of Management" and "Principal Shareholders" in the Registrant's Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Certain Transactions" in the Registrant's Proxy Statement is incorporated herein by reference. 14. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. a) 1. Financial Statements The following consolidated financial statements are incorporated herein by reference to the Company's 1996 Annual Report to Shareholders: - Report of Independent Auditors - Consolidated Balance Sheets as of March 31, 1996 and 1995 - Consolidated Statements of Operations for each of the three years in the period ended March 31, 1996 - Consolidated Statements of Shareholders' Equity for each of the three years in the period ended March 31, 1996 - Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 1996 - Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following consolidated financial statement schedules for each of the three years in the period ended March 31, 1996 are submitted herewith: Schedule VIII: Valuation and Qualifying Accounts and Reserves Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. b) Reports on Form 8-K 1. The Company's Current Report on Form 8-K filed with the Commission on January 18, 1996, was filed in connection with the Company's announcement of the contemplation of a convertible subordinated note offering in a private placement under Rule 144A. 2. The Company's Current Report on Form 8-K filed with the Commission on February 2, 1996, was filed in connection with the Company's acquisition of Astron. 3. The Company's Current Report on Form 8-K/A filed with the Commission on April 15, 1996, was filed in connection with the Company's acquisition of Astron and contained the financial statements of Astron for the three years ended December 31, 1993, 1994 and 1995. c) Exhibits
Exhibit ------- Number Document Description ------ -------------------- 2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the Company, nCHIP Acquisition Corporation and nCHIP (the "Reorganization Agreement"). Certain Disclosure Schedules of nCHIP and the Company setting forth
15. 17 various exceptions to the representations and warranties pursuant to the Reorganization Agreement have been omitted. The Company agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. (Incorporated by reference to Exhibits 2.1 through 2.6 of the Company's registration statement on Form S-4, No. 33-85842.) 2.2 Amendment No. 1 to the Reorganization Agreement dated as of December 8, 1994 among the Company, nCHIP Acquisition Corporation and nCHIP. (Incorporated by reference to Exhibit 2.7 of the Company's registration statement on Form S-4, No. 33-85842.) 2.3 Share Purchase Agreement dated as of April 12, 1995 among the Company, A&A and all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K for the event reported on April 12, 1995.) 2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker Sdn. Bhd. and Flextronics Malaysia Sdn. Bhd. (Incorporated by reference to Exhibit 10.19 of the Company's registration statement on Form S-4, No. 33-85842.) 2.5 Agreement among the Company, Alberton Holdings Limited and Omac Sales Limited dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 3.1 Memorandum of Association of the Company. (Incorporated by reference to Exhibit 3.1 of the Company's registration statement on Form S-1, No. 33-74622.) 3.2 Articles of Association of the Company. (Incorporated by reference to Exhibit 3.2 of the Company's registration statement on Form S-4, No. 33-85842.) 4.1 Registration Rights Agreement dated July 8, 1993, as amended. (Incorporated by reference to Exhibit 10.34 of the Company's registration statement on Form S-1, No. 33-74622.) 4.2 Registration Rights Agreement dated as of April 12, 1995 among the Company and certain shareholders of A&A. (Incorporated by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K for the event reported on April 12, 1995.) 10.1 Form of Indemnification Agreement between the Registrant and its directors and certain officers. (Incorporated by reference to Exhibit 10.1 of the Company's registration statement on Form S-1, No. 33-74622.) 10.2+ 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2 of the Company's registration statement on Form S-1, No. 33-74622.) 10.3+ Executives' Share Option Scheme, as amended. (Incorporated by reference to Exhibit 10.3 of the Company's registration statement on Form S-1, No. 33-74622.) 10.4+ Executives' Incentive Share Scheme, as amended. (Incorporated by reference to Exhibit 10.4 of the Company's registration statement on Form S-1, No. 33-74622.) 10.5+ nCHIP, Inc. Amended and Restated 1988 Stock Option Plan. (Incorporated by reference to Exhibit 10.5 of the Company's registration statement on Form S-4, No. 33-85842.)
16. 18 10.6 Purchase and Sale Agreement dated as of March 28, 1995 by and between Metropolitan Life Insurance Company and Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.7* Agreement to Grant Options dated as of June 9, 1995 between the Company and Lifescan. (Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.8 Letter Agreement between the Registrant and Citibank N.A. Singapore dated October 25, 1994. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1994.) 10.9 Negative Pledge Agreement between the Registrant and Citibank N.A. Singapore. (Incorporated by reference to Exhibit 10.9 of the Company's registration statement on Form S-4, No. 33-85842.) 10.10 Promissory Note dated April 26, 1994 executed by FlexTracker in favor of the Registrant. (Incorporated by reference to Exhibit 10.10 of the Company's registration statement on Form S-4, No. 33-85842.) 10.11 Promissory Note dated August 24, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.11 of the Company's registration statement on Form S-4, No. 33-85842.) 10.12 Promissory Note dated September 30, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.12 of the Company's registration statement on Form S-4, No. 33-85842.) 10.13 Sale and Purchase Agreement dated June 8, 1994, between Raylee Industries Sdn. Bhd. and the Registrant. (Incorporated by reference to Exhibit 10.13 of the Company's registration statement on Form S-4, No. 33-85842.) 10.14 Term Loan Facility dated September 14, 1994 between Arab-Malaysian Merchant Bank and the Registrant. (Incorporated by reference to Exhibit 10.14 of the Company's registration statement on Form S-4, No. 33-85842.) 10.15 Promissory Note dated December 1, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.15 of the Company's registration statement on Form S-4, No. 33-85842.) 10.16 Promissory Note dated December 9, 1994 executed by nCHIP in favor of the Company. (Incorporated by reference to Exhibit 10.16 of the Company's registration statement on Form S-4, No. 33-85842.) 10.17 Agreement Amending Promissory Notes dated as of November 15, 1994 between the Company and nCHIP. (Incorporated by reference to Exhibit 10.17 of the Company's registration statement on Form S-4, No. 33-85842.) 10.18 Letter Agreement dated December 6, 1994 between the Company and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.18 of the Company's registration statement on Form S-4, No. 33-85842.) 10.19 Corporate Letter of Guarantee dated January 20, 1995 between the Company and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.1 of the
17. 19 Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1994.) 10.20 Letter of Agreement dated October 6, 1995 between Flextronics Singapore Pte. Ltd. and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995.) 10.21 Bridge Loan Facility dated May 14, 1996 between The Bank of Boston, Singapore Branch and Flextronics Singapore Pte Ltd. dated May 14, 1996. 10.22 Bridge Loan Facility dated January 29, 1996 between The Bank of Boston, Singapore Branch and Flextronics Singapore Pte. Ltd. 10.23 Letter Agreement dated July 12, 1994 between Bank of America NT&SA and the Registrant. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994.) 10.24 Negative Pledge Agreement between the Registrant and Bank of America NT&SA. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994.) 10.25 Standard Commercial Lease dated May 1, 1995 between H.B. Industrial Properties and Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.26 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan Industrial Shareholdings Limited, Flextronics Industrial (Shenzhen) Limited and Flextronics Singapore Pte Ltd. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.27 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan Industrial Shareholdings Limited and Flextronics Industrial (Shenzhen) Limited. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.28+ Services Agreement between the Registrant and Stephen Rees dated as of January 6, 1996. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 10.29+ Supplemental Services Agreement between Astron and Stephen Rees dated as of January 6, 1996. (Incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 10.30* OEM Purchase Agreement between Apple Computer Inc. and the Company dated November 3, 1995 and effective as of July 10, 1995. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.) 10.31* License Agreement between the Company and Global Village Communication dated November 3, 1995 and effective as of July 10, 1995. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.)
18. 20 10.32 Lease Agreement dated November 23, 1994 between China Merchants Shekou Industrial Zone Real Estate Company and the Company. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1994.) 10.33+ Employment and Noncompetition Agreement between the Company and Bruce McWilliams. (Incorporated by reference to Exhibit 10.33 of the Company's registration statement on Form S-4, No. 33-85842.) 10.34+ Promissory Note dated April 17, 1995 executed by Michael E. Marks in favor of Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.35+ Employment and Noncompetition Agreement between the Company and David Tuckerman. (Incorporated by reference to Exhibit 10.35 of the Company's registration statement on Form S-4, No. 33-85842.) 10.36+ Service Agreement dated July 8, 1993 between the Registrant and Dennis P. Stradford. (Incorporated by reference to Exhibit 10.36 of the Company's registration statement on Form S-1, No. 33-74622.) 10.37+ Service Agreement dated July 8, 1993 between the Registrant and Tsui Sung Lam. (Incorporated by reference to Exhibit 10.37 of the Company's registration statement on Form S-1, No. 33-74622.) 10.38+ Service Agreement dated July 8, 1993 between the Registrant and Goh Chan Peng. (Incorporated by reference to Exhibit 10.38 of the Company's registration statement on Form S-1, No. 33-74622.) 10.39+ Service Agreement dated July 8, 1993 between the Registrant and Teo Buck Song. (Incorporated by reference to Exhibit 10.39 of the Company's registration statement on Form S-1, No. 33-74622.) 10.40+ Employment Agreement dated May 1, 1994 between the Registrant and Hans Nilsson. (Incorporated by reference to Exhibit 10.40 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994.) 10.41* Printed Circuit Board Assembly Services Agreement between Lifescan Inc., a Johnson & Johnson Company, and the Registrant dated November 1, 1992. (Incorporated by reference to Exhibit 10.41 of the Company's registration statement on Form S-1, No. 33-74622.) 10.42 [Reserved.] 10.43 [Reserved.] 10.44 Tenancy of Flatted Factory Unit dated February 28, 1996 between Jurong Town Corporation and the Registrant. 10.45 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong Town Corporation and the Registrant. (Incorporated by reference to Exhibit 10.45 of the Company's registration statement on Form S-1, No. 33-74622.) 10.46 [Reserved.]
19. 21 10.47 [Reserved.] 10.48 Lease Agreement dated August 1, 1995 between Mr. Carl Curtis and the Company. 10.49 [Reserved.] 10.50 [Reserved.] 10.51 Lease Agreement between China Merchants' Shekou Industrial Real Estate Company and Registrant (English translation of material terms) dated August 15, 1995. 10.52+ Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to Exhibit 10.52 of the Company's registration statement on Form S-1, No. 33-74622.) 10.53 Acquisition and Subscription Agreement dated June 30, 1993 between FI Liquidating Company, Inc., Asian Oceanic Nominees and Custodians Limited, N.T. Butterfield Trustee (Bermuda) Limited, Overseas Asset Holdings, Inc., JF Asia Select Limited, the Executive Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and the Liquidators of Asian Oceanic Nominees and Custodians Limited. (Incorporated by reference to Exhibit 10.53 of the Company's registration statement on Form S-1, No. 33-74622.) 11.1 Statement regarding computation of per share earnings. 13.1 Annual Report to Shareholders. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27 Financial Data Schedule.
- ------------------- * Confidential treatment requested for portions of agreement. + Management contract or compensatory plan or arrangement. (d) See Item 14(a). 20. 22 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 28, 1996 FLEXTRONICS INTERNATIONAL LTD. By: /s/ MICHAEL E. MARKS ------------------------ Michael E. Marks Chairman of the Board of Directors and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Michael E. Marks and Goh Chan Peng and each one of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Report (including any and all amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL E. MARKS Chairman of the Board, and Chief Executive June 28, 1996 - --------------------------------- Officer (principal executive officer) Michael E. Marks /s/ TSUI SUNG LAM President, Chief Operating Officer and June 28, 1996 - --------------------------------- Director Tsui Sung Lam /s/ GOH CHAN PENG Chief Financial Officer (principal financial and June 28, 1996 - --------------------------------- accounting officer) Goh Chan Peng /s/ ROBERT R.B. DYKES Director June 28, 1996 - --------------------------------- Robert R.B. Dykes /s/ BERNARD J. LACROUTE Director June 28, 1996 - --------------------------------- Bernard J. Lacroute /s/ MICHAEL J. MORITZ Director June 28, 1996 - --------------------------------- Michael J. Moritz /s/ STEPHEN J.L. REES Chairman, Astron Group Limited June 28, 1996 - --------------------------------- Director Stephen J.L. Rees /s/ ANDREW W. RUSSELL Director June 28, 1996 - --------------------------------- Andrew W. Russell /s/ RICHARD L. SHARP Director June 28, 1996 - --------------------------------- Richard L. Sharp
21. 23 EXHIBIT INDEX
Subsequentially Exhibit Numbered Number Document Description Page - ------ -------------------- ---- 2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the Company, nCHIP Acquisition Corporation and nCHIP (the "Reorganization Agreement"). Certain Disclosure Schedules of nCHIP and the Company setting forth various exceptions to the representations and warranties pursuant to the Reorganization Agreement have been omitted. The Company agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. (Incorporated by reference to Exhibits 2.1 through 2.6 of the Company's registration statement on Form S-4, No. 33-85842.) 2.2 Amendment No. 1 to the Reorganization Agreement dated as of December 8, 1994 among the Company, nCHIP Acquisition Corporation and nCHIP. (Incorporated by reference to Exhibit 2.7 of the Company's registration statement on Form S-4, No. 33-85842.) 2.3 Share Purchase Agreement dated as of April 12, 1995 among the Company, A&A and all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K for the event reported on April 12, 1995.) 2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker Sdn. Bhd. and Flextronics Malaysia Sdn. Bhd. (Incorporated by reference to Exhibit 10.19 of the Company's registration statement on Form S-4, No. 33-85842.) 2.5 Agreement among the Company, Alberton Holdings Limited and Omac Sales Limited dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 3.1 Memorandum of Association of the Company. (Incorporated by reference to Exhibit 3.1 of the Company's registration statement on Form S-1, No. 33-74622.) 3.2 Articles of Association of the Company. (Incorporated by reference to Exhibit 3.2 of the Company's registration statement on Form S-4, No. 33-85842.) 4.1 Registration Rights Agreement dated July 8, 1993, as amended. (Incorporated by reference to Exhibit 10.34 of the Company's registration statement on Form S-1, No. 33-74622.) 4.2 Registration Rights Agreement dated as of April 12, 1995 among the Company and certain shareholders of A&A. (Incorporated by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K for the event reported on April 12, 1995.) 10.1 Form of Indemnification Agreement between the Registrant and its directors and certain officers. (Incorporated by reference to Exhibit 10.1 of the Company's registration statement on Form S-1, No. 33-74622.)
22. 24 10.2+ 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2 of the Company's registration statement on Form S-1, No. 33-74622.) 10.3+ Executives' Share Option Scheme, as amended. (Incorporated by reference to Exhibit 10.3 of the Company's registration statement on Form S-1, No. 33-74622.) 10.4+ Executives' Incentive Share Scheme, as amended. (Incorporated by reference to Exhibit 10.4 of the Company's registration statement on Form S-1, No. 33-74622.) 10.5+ nCHIP, Inc. Amended and Restated 1988 Stock Option Plan. (Incorporated by reference to Exhibit 10.5 of the Company's registration statement on Form S-4, No. 33-85842.) 10.6 Purchase and Sale Agreement dated as of March 28, 1995 by and between Metropolitan Life Insurance Company and Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.7* Agreement to Grant Options dated as of June 9, 1995 between the Company and Lifescan. (Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.8 Letter Agreement between the Registrant and Citibank N.A. Singapore dated October 25, 1994. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1994.) 10.9 Negative Pledge Agreement between the Registrant and Citibank N.A. Singapore. (Incorporated by reference to Exhibit 10.9 of the Company's registration statement on Form S-4, No. 33-85842.) 10.10 Promissory Note dated April 26, 1994 executed by FlexTracker in favor of the registrant. (Incorporated by reference to Exhibit 10.10 of the Company's registration statement on Form S-4, No. 33-85842.) 10.11 Promissory Note dated August 24, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.11 of the Company's registration statement on Form S-4, No. 33-85842.) 10.12 Promissory Note dated September 30, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.12 of the Company's registration statement on Form S-4, No. 33-85842.) 10.13 Sale and Purchase Agreement dated June 8, 1994, between Raylee Industries Sdn. Bhd. and the Registrant. (Incorporated by reference to Exhibit 10.13 of the Company's registration statement on Form S-4, No. 33-85842.) 10.14 Term Loan Facility dated September 14, 1994 between Arab-Malaysian Merchant Bank and the Registrant. (Incorporated by reference to Exhibit 10.14 of the Company's registration statement on Form S-4, No. 33-85842.)
23. 25 10.15 Promissory Note dated December 1, 1994 executed by nCHIP in favor of the Registrant. (Incorporated by reference to Exhibit 10.15 of the Company's registration statement on Form S-4, No. 33-85842.) 10.16 Promissory Note dated December 9, 1994 executed by nCHIP in favor of the Company. (Incorporated by reference to Exhibit 10.16 of the Company's registration statement on Form S-4, No. 33-85842.) 10.17 Agreement Amending Promissory Notes dated as of November 15, 1994 between the Company and nCHIP. (Incorporated by reference to Exhibit 10.17 of the Company's registration statement on Form S-4, No. 33-85842.) 10.18 Letter Agreement dated December 6, 1994 between the Company and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.18 of the Company's registration statement on Form S-4, No. 33-85842.) 10.19 Corporate Letter of Guarantee dated January 20, 1995 between the Company and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1994.) 10.20 Letter of Agreement dated October 6, 1995 between Flextronics Singapore Pte. Ltd. and Malayan Banking Berhad. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995.) 10.21 Bridge Loan Facility dated May 14, 1996 between The Bank of Boston, Singapore Branch and Flextronics, Singapore Pte Ltd. dated May 14, 1996 10.22 Bridge Loan Facility dated January 29, 1996 between The Bank of Boston, Singapore Branch and Flextronics Singapore Pte. Ltd. 10.23 Letter Agreement dated July 12, 1994 between Bank of America NT&SA and the Registrant. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994.) 10.24 Negative Pledge Agreement between the Registrant and Bank of America NT&SA. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994.) 10.25 Standard Commercial Lease dated May 1, 1995 between H.B. Industrial Properties and Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.26 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan Industrial Shareholdings Limited, Flextronics Industrial (Shenzhen) Limited and Flextronics Singapore Pte Ltd. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.)
24. 26 10.27 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan Industrial Shareholdings Limited and Flextronics Industrial (Shenzhen) Limited. (Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.28+ Services Agreement between the Registrant and Stephen Rees dated as of January 6, 1996. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 10.29+ Supplemental Services Agreement between Astron and Stephen Rees dated as of January 6, 1996. (Incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K for the event reported on February 2, 1996.) 10.30* OEM Purchase Agreement between Apple Computer Inc. and the Company dated November 3, 1995 and effective as of July 10, 1995. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.) 10.31* License Agreement between the Company and Global Village Communication dated November 3, 1995 and effective as of July 10, 1995. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.) 10.32 Lease Agreement dated November 23, 1994 between China Merchants Shekou Industrial Zone Real Estate Company and the Company. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1994.) 10.33+ Employment and Noncompetition Agreement between the Company and Bruce McWilliams. (Incorporated by reference to Exhibit 10.33 of the Company's registration statement on Form S-4, No. 33-85842.) 10.34+ Promissory Note dated April 17, 1995 executed by Michael E. Marks in favor of Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.) 10.35+ Employment and Noncompetition Agreement between the Company and David Tuckerman. (Incorporated by reference to Exhibit 10.35 of the Company's registration statement on Form S-4, No. 33-85842.) 10.36+ Service Agreement dated July 8, 1993 between the Registrant and Dennis P. Stradford. (Incorporated by reference to Exhibit 10.36 of the Company's registration statement on Form S-1, No. 33-74622.) 10.37+ Service Agreement dated July 8, 1993 between the Registrant and Tsui Sung Lam. (Incorporated by reference to Exhibit 10.37 of the Company's registration statement on Form S-1, No. 33-74622.) 10.38+ Service Agreement dated July 8, 1993 between the Registrant and Goh Chan Peng. (Incorporated by reference to Exhibit 10.38 of the Company's registration statement on Form S-1, No. 33-74622.) 10.39+ Service Agreement dated July 8, 1993 between the Registrant and Teo Buck Song. (Incorporated by reference to Exhibit 10.39 of the Company's registration statement on Form S-1, No. 33-74622.)
25. 27 10.40+ Employment Agreement dated May 1, 1994 between the Registrant and Hans Nilsson. (Incorporated by reference to Exhibit 10.40 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994.) 10.41* Printed Circuit Board Assembly Services Agreement between Lifescan Inc., a Johnson & Johnson Company, and the Registrant dated November 1, 1992. (Incorporated by reference to Exhibit 10.41 of the Company's registration statement on Form S-1, No. 33-74622.) 10.42 [Reserved.] 10.43 [Reserved.] 10.44 Tenancy of Flatted Factory Unit dated February 28, 1996 between Jurong Town Corporation and the Registrant. 10.45 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong Town Corporation and the Registrant. (Incorporated by reference to Exhibit 10.45 of the Company's registration statement on Form S-1, No. 33-74622.) 10.46 [Reserved.] 10.47 [Reserved.] 10.48 Lease Agreement dated August 1, 1995 between Mr. Carl Curtis and the Company. 10.49 [Reserved.] 10.50 [Reserved.] 10.51 Lease Agreement between China Merchants' Shekou Industrial Real Estate Company and Registrant (English translation of material terms) dated August 15, 1995. 10.52+ Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to Exhibit 10.52 of the Company's registration statement on Form S-1, No. 33-74622.) 10.53 Acquisition and Subscription Agreement dated June 30, 1993 between FI Liquidating Company, Inc., Asian Oceanic Nominees and Custodians Limited, N.T. Butterfield Trustee (Bermuda) Limited, Overseas Asset Holdings, Inc., JF Asia Select Limited, the Executive Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and the Liquidators of Asian Oceanic Nominees and Custodians Limited. (Incorporated by reference to Exhibit 10.53 of the Company's registration statement on Form S-1, No. 33-74622.) 11.1 Statement regarding computation of per share earnings. 13.1 Annual Report to Shareholders. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27 Financial Data Schedule.
- ------------------- * Confidential treatment requested for portions of agreement. + Management contract or compensatory plan or arrangement. (d) See Item 14(a). 26. EX-10.21 2 EXHIBIT 10.21 1 EXHIBIT 10.21 [BANK OF BOSTON Letterhead] PRIVATE & CONFIDENTIAL May 14, 1996 Flextronics Singapore Pte Ltd. 514 Chai Chee Lane #04-13 Singapore 469029 ATTENTION: MR. C P GOH CHIEF FINANCIAL OFFICER Dear Sir RE : BRIDGE LOAN FACILITY We refer to our advising letter dated January 29, 1996 and are pleased to confirm that we are prepared to extend the maturity date of the said facility from April 30, 1996 to June 30, 1996 or drawdown on the syndicated Revolver whichever is earlier. All other terms and conditions for this facility remain unchanged as per our advising letter dated January 29, 1996. Kindly note that this offer will remain valid for a period of 10 days from the date of this letter. We would therefore appreciate it if you would return the copy of this letter, duly signed by you, constituting your acceptance and agreement to the terms and conditions hereof, prior to the expiry of this offer. Yours Very Truly The First National Bank of Boston /s/ Lo Kah-Nian /s/ Soh Boon Hock Lo Kah-Nian Soh Boon Hock Vice President & Manager Vice President & Head Corporate Banking Corporate Banking /s/ Soh Boon Hock Soh Boon Hock Vice President & Head Corporate Banking ACCEPTED AND AGREED BY: /s/ Chang Peng Goh - ----------------------------------------------------------- AUTHORIZED SIGNATORIES OF FLEXTRONICS SINGAPORE PTE LTD DATED: May 10, 1996 Encs LKN/OL/FLEX-TEM 150 Beach Road #07-00, Gateway West, Singapore 189720. Telex: RS 23689 Facsimile: 2960998 Telephone: 2962366 (General) 2960622 (Dealing) THE FIRST NATIONAL BANK OF BOSTON INCORPORATED WITH LIMITED LIABILITY IN THE USA EX-10.22 3 EXHIBIT 10.22 1 Exhibit 10.22 [BANK OF BOSTON Letterhead] PRIVATE & CONFIDENTIAL January 29, 1996 Flextronics Singapore Pte Ltd. 514 Chai Chee Lane #04-13 Singapore 469029 ATTENTION: MR. C P GOH CHIEF FINANCIAL OFFICER Dear Sir RE : BANKING FACILITIES We are pleased to advise that The First National Bank of Boston, Singapore Branch, ("FNBB" or "the Bank") is prepared to extend to Flextronics Singapore Pte Ltd (the "Borrower") a Bridge Loan Facility up to a maximum aggregate amount of US$20,000,000/-(United States Dollars Twenty Million Dollars only). The Facility is extended to accommodate your financing requirements pending syndication and documentation of the US$50 million Revolver and is subject to the following terms and conditions: Facility : Up to US$20,000,000 for short term advances for 1, 2, or 3 months tenor at your option. Interest Rate : SIBOR + 1.375% p.a. Maturity : Completion of documentation for the US$50 million Revolver but under no circumstances should the maximum maturity exceed April 30, 1996. SECURITY/SUPPORT Corporate Continuing Guarantee from Flextronics International Ltd for the full facility amount in a form acceptable to the Bank. OTHER CONDITIONS 1. Except for existing liens or leases executed as of January 29, 1996, your Company, Flextronics International Ltd, Flextronics International USA, Inc, Flextronics Malaysian Sdn Bhd and Flex International Marketing (L) Ltd, are to provide negative pledges on the respective assets. 2. You are to execute all documentation relating to the syndication of the US$50 million Revolver as soon as they are made available. Should documentation not be completed by April 30, 1996 or that the syndication did not proceed as planned, you are to either repay all outstandings on the maximum maturity date or comply with terms and conditions to be negotiated with the Bank including but not limited to execution of documentation to cover security interests on the receivables of Flextronics International USA, Inc, Flextronics Singapore Pte Ltd, Flextronics Malaysia Sdn Bhd and Flex International Marketing (L) Ltd. 3. You and the companies in the Group are to provide any financial information which the Bank may request from time to time. 150 Beach Road #07-00, Gateway West, Singapore 189720. Telex: RS 23689 Facsimile: 2960998 Telephone: 2962366 (General) 2960622 (Dealing) THE FIRST NATIONAL BANK OF BOSTON INCORPORATED WITH LIMITED LIABILITY IN THE USA 2 Page 2 January 29, 1996 Flextronics Singapore Pte Ltd DOCUMENTATION Availability of this facility is subject to our receipt, in form and substance satisfactory to us of: 1) the copy of this letter, duly signed on your behalf; 2) the General Agreement for Commercial Business ("GACB") as attached duly executed; 3) a certified copy of the Resolution (as per attached form) of your Board of Directors authorizing the acceptance of this Facility on the terms and conditions hereof and the execution, delivery and performance of this letter, the GACB and containing the specimen signatures of your officers authorized to executive and deliver this letter and the GACB. 4) the continuing corporate guarantee for US$20,000,000/- duly executed by Flextronics International Ltd with the accompanying board resolution. AVAILABILITY The above facilities shall, without prejudice to our right at any time to demand immediate repayment of all sums outstanding, remain available for utilization until April 30, 1996, unless earlier terminated or accelerated following any default or breach hereunder, or under any agreement between the Bank and the Borrower. Without prejudice to the foregoing, in the absence of any termination or acceleration on or before April 30, 1996, the above facilities may, at our sole discretion, continue to be available to you for utilisation, on the terms and conditions of this letter, or on such other terms and conditions as we may from time to time require. MISCELLANEOUS 1) All amounts payable by the Borrower to the Bank under the above Banking Facilities are to be paid free and clear of any and all present and future taxes, duties, imposts, withholding and all other deductions whatsoever. 2) All expenses (including legal, professional out-of-pocket expenses) incurred in the negotiation, preparation, execution and enforcement of this letter and the documents referred to herein are for account of the Borrower. 3 Page 3 January 29, 1996 Flextronics Singapore Pte Ltd 3) The Borrower will pay all stamp or similar taxes to which this letter or the documents referred to herein are or may become subject and any other charges on handling fee, application and registration charges which the Bank may impose from time to time. Kindly note that this offer will remain valid for a period of 10 days from the date of this letter. We would therefore appreciate it if you would return the copy of this letter, duly signed by you, constituting your acceptance and agreement to the terms and conditions hereof, prior to the expiry of this offer. We trust the above meets with your requirements and look forward to a mutually beneficial relationship. Yours Very Truly The First National Bank of Boston /s/ Lo Kah-Nian /s/ Soh Boon Hock Lo Kah-Nian Soh Boon Hock Vice President & Manager Vice President & Head Corporate Banking Corporate Banking ACCEPTED AND AGREED BY: /s/ Chang Peng Goh - ------------------------------------------------------------- AUTHORIZED SIGNATORIES OF FLEXTRONICS SINGAPORE PTE LTD DATED: Encs LKN/OL/FLEX-TEM EX-10.44 4 EXHIBIT 10.44 1 Exhibit 10.44 JTC(L)3729/427 Pt 1/KM/FAZ TENANCY OF FLATTED FACTORY NOS. #05-09 514 CHAI CHEE LANE BEDOK INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND FLEXTRONICS SINGAPORE PTE LTD 2 TENANCY OF FLATTED FACTORY UNIT This Tenancy is made the 28th day of February 1996 Between the JURONG TOWN CORPORATION incorporated under the Jurong Town Hall Corporation Act, having its Head Office at Jurong Town Hall, Jurong Town Hall Road, Singapore (hereinafter called "the Landlord" of the one part and FLEXTRONICS SINGAPORE PTE LTD a company incorporated in Singapore and having its registered office at BLK 514 CHAI CHEE LANE #04-13 SINGAPORE 469029 (hereinafter called " the Tenant" which expression shall where the context so admits include the Tenant's successors and permitted assigns) of the other part. WITNESSETH as follows:- 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the FIFTH (5TH) storey(s) of the Building known as 514 CHAI CHEE LANE (hereinafter called "the Building") containing an approximate area of 246.0 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and edged red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with use for the Tenant, the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of THREE (3) YEARS from the 1ST DAY OF JANUARY 1996 YIELDING AND PAYING therefor during the said term the rent of DOLLARS THIRTEEN ONLY ($13/-) PER SQUARE METRE PER MONTH to be paid, without any deduction and in advance without demand on the 1st day of each of the calendar months of the year (i.e., the 1st day of January, February, March, etc.) the first of such payments to be made on the 1ST DAY OF JANUARY 1996. TA/FF/PTE LTD(m. rent/psmpm)9.1/AN/h1 (NEW Offer) 3 - 2 - 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of DOLLAR ONE AND CENTS SEVENTY ONLY ($1.70CTS) per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a cash deposit equivalent to three (3) months' rent and service charge on or before the execution of this Agreement or commencement of the said term, whichever is the earlier, as security against breach of any of the covenants herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deduction as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord or to provide such other form of security as the Landlord may in the Landlord's absolute discretion permit or accept. TA/FF/(m. rent/psmpm)/9.1A/Revised Nov 93/GO/ZMY (NEW OFFER) 4 - 3 - (iii) If the Service Charge has been increased by the Landlord in accordance with Clause 2(2) hereof to pay the amount of such increase so that the cash deposit stipulated in sub-clause (i) above shall at all times be equal to three (3) months' rent and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per centum. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant governmental and statutory authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of ASSEMBLY OF COMPUTER AND MEDICAL RELATED ELECTRONICS CONTROL CARDS ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 7.5 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the Building any article machinery or load in excess of 2000 kilograms. TA/FF/CL 2(7) max floor loading/9.1A/(Revised Nov 93)/GO/ZMY (NEW OFFER) 5 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further, the Tenant shall not use any flammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant shall submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who TA/FF/CLS 2(9) AND 2(10) amdmt Nov 93/9.1A/GO/ZMY (NEW OFFER) 6 - 5 - shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. (16) To make good and sufficient provision for and to ensure the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may at the discretion of the Landlord and without prejudice to any other rights and remedies the Landlord may have in law or under this Agreement, carry out such remedial measures and works as the Landlord thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. TA/FF/CL 2(15) change of name/(July 93)/CL 2(16) amdmt Nov 93/GO/ZMY/9.1A (NEW OFFER) 7 - 6 - (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is or may be a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the Factory Unit for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches, private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe and ensure observance of all regulations made by the Landlord relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord or his agent. (23) Not to effect any sale by auction in the Building. TA/FF/CL(22) amdmt Nov 93/9.1A/GO/ZMY (NEW OFFER) 8 - 7 - (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and the relevant governmental and statutory authorities prior to the actual fixing of the machinery. (27) Not to assign create a trust sublet grant a licence or part with or share the possession or occupation of the Factory Unit or any part thereof or leave the Factory Unit or any part thereof vacant and unoccupied at any time during the said term. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- (a) Overcurrent protective devices in the Landlord's Switch Room; TA/FF/CL 2(27) no subletting + non-vacant/9.1A/(Revised Nov 93)/GO/ZMY (NEW OFFER) 9 - 8 - (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single- line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and shall have an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall at his own cost forthwith replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. TA/FF/CL 2(30)(C) amdmt Nov 93/9.1A/GO/ZMY (NEW OFFER) 10 - 9 - (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition if so required by the Landlord to redecorate including painting the interior thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion, and without prejudice to any other rights and remedies the Landlord may have against the Tenant, execute such work for the said restoration and redecoration and shall recover all costs thereof from the Tenant together with all rent and service charge, tax and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord PROVIDED THAT, if any payment or tender of payment of any sums by the Tenant hereunder shall be rejected or returned or refunded by the Landlord by reason of the Landlord doing so with a view to avoiding a waiver of any breach of any covenant or stipulation on the Tenant's part herein contained or avoiding any prejudice to the Landlord's right of reentry in any of the cases mentioned in Clause 4(1), the Tenant shall nevertheless be liable to pay interest on the amount of that payment at the rate prescribed or determined pursuant to this clause from the date such amount becomes due until the time it is eventually and actually paid to and accepted by the Landlord. (36) Not to install or use any electrical installation, machine or apparatus that may cause or causes heavy TA/FF/CL 2(34) normal reinstatement/9.1A/(Revised Nov 93)/GO/ZMY + CL 2(35) amendmt July 95/THC/ZMY (NEW OFFER) 11 - 10 - power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any governmental or statutory authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) Without prejudice to the generality of Clause 2(38) herein, the rent and service charge and other taxable sums payable by the Tenant under or in connection with this tenancy shall be exclusive of the goods and services tax (herein called "tax") chargeable by any government, statutory or tax authority calculated by reference to the amount of rent, service charge and any other taxable sums received or receivable by the Landlord from the Tenant and which tax is payable by the Tenant. The Tenant shall pay the tax and the Landlord acting as the collecting agent for the government, statutory or tax authority shall collect the tax from the Tenant together with the rent hereinbefore reserved without any deduction and in advance without demand on the 1st day of each of the calendar months of the year and in the manner and within the period prescribed in accordance with the applicable laws and regulations. (40) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. TA/FF/CL 2(39) New GST (July 94)/(Revised July 93)/9.1A/GO/LPN/ZMY/ Revised Nov. 93 (NEW OFFER) 12 - 11 - (41) To ensure that - (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. (42) Not to use or occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (43) To permit the Landlord, the Landlord's agents or workmen and others at any time during the said term to enter the Factory Unit to replace the louvre/casement windows and timber doors with such other windows and doors as the Landlord may think fit and to install or replace service ducts/pipes (hereinafter referred to as "the said replacement or installation works"). If so required by the Landlord the Tenant shall remove such installation, machinery, partition and any article to permit the Landlord to execute the said replacement or installation works, and if the Tenant shall fail to observe or perform this covenant the Landlord shall have the right to (without prejudice to any other right or remedy the Landlord may have against the Tenant) remove the same, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss, damage or inconvenience caused whatsoever by such removal and the said replacement or installation works. (44) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (45) Not to commence operation in the Factory Unit after the installation(s) of any type of machinery or equipment have been completed until a final inspection of the installation(s) has been carried out and approval in writing of the same is given by the Landlord. TA/FF/CL 2(40) damage cl + CL 2(43) TO (46) replacement of window/door + thermal insulatn + machy inspectn /9.1A/(Revised Nov 93)/GO/ZMY (NORMAL FLOOR) (NEW OFFER) 13 - 12 - (46) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, re-locate and/or modify any or every such installation, fixture, fittings, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. TA/FF/CL 2(46) refurbishment/9.1A/(Revised Nov 93)/GO/ZMY (NEW OFFER) 14 - 13 - 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the Building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the term "loss or damage by fire" as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent, service charge and tax and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Landlord. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows:- (1) If the rent hereby reserved or service charge or interest, tax or any other sums payable herein, or any part thereof shall at any time remain unpaid for fourteen (14) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe or perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter TA/FF/CL 4(1) + sc & int Mar 93/9.1A/CL 3(5) amdmt Nov 93 & 4(1)/GO/ZMY (NEW OFFER) 15 - 14 - into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall have a receiving order or an adjudicating order made against the Tenant then and in any or [sic] such cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. (2) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office of the Landlord. In the event of any action in respect of the tenancy created herein (including any action for the recovery of the rent or service charge herein reserved or tax and/or any other sums herein payable) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. (3) Letters or parcels whether registered or otherwise and telegrams or keys received by any agent or servant of the Landlord on behalf of the Tenant shall be received solely at the risk of the Tenant. (4) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent, service charge, tax and/or any other sum whatsoever payable under this Agreement shall not be construed as nor be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (5) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. TA/FF/amendment CLS 4(2)-(4) Nov 93/GO/ZMY (NEW OFFER) 16 - 15 - (6) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accident(s) or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (7) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply; (ii) any act, omission, default, misconduct or negligence of any servant, agent, contractor, sub-contractor or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. (8) The Landlord shall be entitled to let any other part or parts of the Building subject to any terms or conditions which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any present or future tenant. (9) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. TA/FF/amdmt CL 4(7) Nov 93/GO/ZMY (NEW OFFER) 17 - 16 - (10) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (11) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. (12) The Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord, whose determination shall be final and conclusive, having regard to the market rent of the Factory Unit at the time of granting the said further term, and containing the like terms, covenants and stipulations as are herein contained, or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord with the exception of and without the present covenant for renewal. TA/FF/CL 4(11) normal flr + CL 4(12) option to renew (revised Feb 95/LPN)/9.1A/(Revised Nov 93)/GO/ZMY (NEW OFFER) EX-10.48 5 EXHIBIT 10.48 1 Exhibit 10.48 COMMERCIAL-SINGLE TENANT NNN LEASE 1. SUMMARY OF LEASE PROVISIONS: (a) LANDLORD: MR. CARL CURTIS. ("Landlord"). (b) TENANT: FLEXTRONICS INTERNATIONAL. INC. ("Tenant"). (c) DATE OF LEASE: AUGUST 1, 1995. (d) PREMISES:That certain building containing approximately Sixty Four Thousand Eight Hundred and Ninety Thousand (64,890) square feet,("Premises") and located at 2241 Lundy Avenue, San Jose, California. (e) TERM: Ten (10) years. (f) ANTICIPATED COMMENCEMENT DATE: August 1, 1995. (g) MONTHLY BASE RENT: $31,500 First month's Base Rent shall be delivered to Landlord upon execution of this ("Lease") by Tenant. (h) SECURITY DEPOSIT: $35,000 BUILDING IMPROVEMENT ESCROW ACCOUNT (i) USE OF PREMISES: Office/Manufacturing and Assembly. (j) ADDRESSES FOR NOTICES: TO LANDLORD: Carl Curtis P.O. Box 1073 Ketchum, Idaho 33340 TO TENANT: Flextronics International, Inc. 2241 Lundy Avenue San Jose, California 95131 In the event of a conflict between the Summary of Lease Provisions set forth above and the balance of the Lease, the latter shall control. 2. PREMISES: Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the term, at the rental and upon the terms and conditions set forth in this Lease, the Premises described in Paragraph 1(d) above. Landlord hereby grants to Tenant the exclusive right to use the Building subject to the terms and conditions of this Lease. All Tenant Improvements to be located within the Premises, including, but not limited to, all heating. ventilating and air conditioning systems, all electrical systems, all suspended ceilings, interior walls and partitions, and all floor, window and wall coverings constructed and installed by Tenant are subject to approval by Landlord. 3. TERM: The term of the Lease shall be for a period of one hundred and twenty (120) months commencing on the later of August 1, 1995, or the date upon which the Tenant and Landlord subsequently agree to be the "Commencement Date", and expiring on midnight on July 31, 2005 ("Term"), or the date which is the 1 2 length of time specified in Paragraph 1(e) past the date determined to be the Commencement Date. 4. HOLDOVER: (a) Holding over after the expiration of the Term with the written consent of Landlord shall be a tenancy from month to month, at a rental rate to be mutually agreed upon. (b) If Tenant remains in possession after the expiration of the Term without Landlord's written consent, Tenant shall pay to Landlord for each month of said possession the sum of one hundred twenty-five percent (125 %) (prorated on a daily basis) of the monthly Base Rent for the month immediately preceding the expiration of the Term, plus an amount estimated by Landlord for operating expenses payable under this lease, and Tenant shall also pay all costs, expenses and damages sustained by Landlord by reason of such retention of possession, including, without limitation. claims made by a succeeding tenant resulting from Tenant's failure to surrender the Premises. 5. RENT; BASE ANNUAL RENT; TAXES AND OPERATING COST: (a) During the Term of this Lease, Tenant agrees to pay to Landlord as monthly base rent for the Premises the base rent set forth in Paragraph 1(g) above ("Base Rent"). Base Rent for any partial month shall be prorated based upon a thirty (30) day month. Base Rent shall be paid in advance on the first (1st) day of each month during the Term, without prior notice or demand, and without deduction or offset, in lawful money of the United States of America, to Landlord, or at such other place as Landlord may from time to time designate in writing. (b) As additional rent hereunder, Tenant shall pay all of the Operating Expenses(NNN) incurred by Landlord in the operation and maintenance of the building. For purposes of this Lease, Tenant's share of the operating expenses shall be the percentage of the total number of rentable square feet of the Premises bears to the total number of rentable square feet of the Building. For purposes of this Lease, it is agreed that Tenant's Share shall be one hundred percent(100%). 6. OPERATING EXPENSE: For purposes of this Lease, "Operating Expenses" shall include all costs paid or incurred by Landlord and/or Tenant in connection with the operation, maintenance, repair, security. replacements for all services and utilities rendered in connection with the building including, without limitation, real property taxes and assessments (general and special), in lieu real property taxes, rent taxes, water and sewer charges, casualty and liability insurance premiums, utilities, janitorial services, trash removal, labor, costs incurred in connection with rent collection, supplies, materials, maintenance costs and upkeep of all parking and Common Areas and the landscaping thereof, and any professional fees incurred by Landlord which will benefit Tenant (such as fees incurred for appealing property taxes). Landlord agrees to use its best efforts to secure all services, materials and supplies at competitive prices commensurate with the level of maintenance and services provided similar buildings in the area. However, no capital or leasing costs shall be included, excepting any improvements made to the building as a labor-saving device or to effect other economies in the operation or maintenance of the building, or made to the building after the date of this lease. Such cost to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the rate of eight percent (8%) per annum or the interest rate paid by Landlord on funds borrowed for the purpose of constructing such capital improvements. Tenant's Operating Expenses shall be payable during the term of this Lease in monthly installments on the first day of each month in advance, without deduction, offset, prior notice or demand, and shall be payable concurrently with monthly installments of Base Rent. Within sixty (60) days after the date of Tenant's receipt of the statement of actual Operating Expenses for any Comparison Year, Tenant may give Landlord written notice of its intent to review records, invoices and receipts relating to the Operating Expenses for such Comparison Year. Tenant shall provide Landlord with at least ten (10) days prior written notice of the date upon which it intends to review such records, invoices and receipts. The review shall be performed during normal business hours at Landlord's principal place of business or such other location as may be designated by Landlord, and shall be performed at Tenant's sole cost and expense. Promptly following the completion of Tenant's review of such records, invoices and receipts, Tenant shall provide Landlord with a copy of the results of such review and Tenant's conclusions regarding any overstatement or understatement by Landlord of actual Operating Expenses. In the event that Tenant's review 2 3 shows an underpayment or overpayment of Expenses by Tenant for any given Year, then, subject to Landlord's confirmation by its own review of said records, invoices and receipts, the parties shall promptly meet to resolve any discrepancy. In the event that Tenant fails to provide Landlord with written notice of its intent to review such records, invoices and receipts within said sixty (60) day period, Tenant shall be deemed to have approved the statement of actual Operating Expenses for the applicable Lease Year. 7. LATE CHARGES: Tenant agrees that all rental or other payments not paid within ten (10) calendar days after the due date shall be considered delinquent and agrees to pay a late charge equal to five (5%) percent of the delinquent payment. Rent mailed and bearing a U.S. Postal Service postmark of the fifth (5th) day of a month shall not be considered delinquent. Additionally, any delinquent payments not paid within thirty (30) days of the original due date shall bear interest at the lower of the maximum rate then allowed by the law or two (2) percentage points (i.e., two percent (2%)) over the prime rate of interest charged from time to time by Bank of America, National Trust and Savings Association at its San Francisco, California office. 8. SECURITY DEPOSIT: (a) Tenant has deposited into a "BUILDING IMPROVEMENT ESCROW ACCOUNT" as determined by mutual agreement between Landlord, Tenant and First Mortgagor, the sum of ONE HUNDRED THOUSAND ($100,000) DOLLARS. This amount may be used in its entirety by Tenant for improvements to the Premises. The deposit shall be deposited into an interest bearing account, with all interest accruing to the benefit of Tenant. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent, Landlord may (but shall not be required to) use, apply or retain any part of the remainder of the security deposit for the payment of rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If Tenant elects to extend the term of this Lease, Tenant shall deposit such sums as are necessary to increase the security deposit to an amount equal to the monthly Base Rent for the extended term of this Lease. (b) If Landlord's interest in this Lease is assigned or otherwise transferred, Landlord shall transfer said security deposit to Landlord's assignee or such other successor-in-interest. 9. USE OF PREMISES: (a) Tenant shall use the Premises for office/assembly and manufacturing use. (b) Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will: (i) increase the existing rate of any fire or other insurance covering the Building or any contents therein; or (ii) cause the cancellation of any insurance policy covering Building or any contents therein. (c) The term "HAZARDOUS MATERIALS" as used in this Lease, shall include, without limitation, any chemical, substance or material which has been or is hereafter determined by any federal, state or local governmental agency to be capable of posing a risk of injury to health or safety including, without limitation, petroleum, asbestos, polychlorinated biphenyls, radioactive materials and radon gas. Tenant shall not cause or permit to occur (i) any violation of federal, state or local laws now or hereafter enacted or issued, related to environmental conditions on, under or about the Premises, or arising from Tenant's leasehold interest in or use or occupancy of the Premises including, but not limited to, soil and groundwater conditions; or (ii) the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Materials on, under or about the Premises, the Building or the Project or the transportation to or from the Premises, the Building or the Project of any Hazardous Materials, except de minimis amounts of Hazardous Materials that are commonly used in office products or are present in ordinary cleaning supplies. All such office products and cleaning supplies will be used and stored in a manner that complies with all laws. Tenant shall at its own expense, make all submissions to, provide all information required by, and comply with all requirements of all governmental authorities under laws or ordinances relating to Hazardous Materials. Should any governmental entity having jurisdiction over the Premises demand that a remediation plan be prepared or that remediation be undertaken because of any deposit, spill, discharge or other release of Hazardous Materials that occurs during the Term of this Lease, at or from the Premises, or which arises at any time from Tenant's use or occupancy 3 4 of the Premises, then Tenant shall, at its own expense, prepare and submit the required plans and carry out all such remediation plans. Tenant shall indemnify, defend and hold Landlord, its partners, officers, directors, beneficiaries, shareholders, agents, employees and lenders harmless from all fines, suits, procedures, claims and actions of every kind, and all costs associated therewith (including investigation costs and attorneys' and consultants' fees) arising out of or in any way connected with any deposit, spill, discharge or other release of Hazardous Materials that occurs during the Term of this Lease, at or from the Premises or which arises at any time from Tenant's use or occupancy of the Premises or from Tenant's failure to provide all information, make all submissions and take all steps required by any governmental authorities having jurisdiction over the Premises. Tenant's obligations and the indemnity hereunder shall survive the expiration or earlier termination of this Lease. 10. COMPLIANCE WITH LAW: Tenant shall not use the Premises or permit anything to be done in, on or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances, and governmental rules, regulations and requirements now in force or which may hereafter be enacted or promulgated, except that Tenant shall not be required to make changes to the Building not related to or affected by Tenant's improvements or acts. Tenant shall also comply with the requirements of any board of fire insurance underwriters or other similar bodies now in force or which may hereafter be enacted or promulgated relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts, The judgement of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord shall be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. 11. ALTERATIONS AND ADDITIONS: (a) Tenant shall not make or allow any alterations, additions or improvements to the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld; Except as provided below, any such alterations, additions or improvements, including, but not limited to, wall coverings, paneling and built-in cabinet work, but excepting movable furniture, and other trade fixtures, cabling and telecommunications lines installed by or on behalf of Tenant, shall become a part of the realty, shall belong to Landlord and shall be surrendered with the Premises at the expiration or earlier termination of this Lease. If Landlord consents in writing to any such alterations, additions or improvements, such alterations, additions or improvement shall be made by Tenant at Tenant's sole cost and expense, and shall comply with all laws, statutes, ordinances and governmental rules, regulations and requirements and in accordance with the Rules and Regulations attached hereto as Exhibit "A". Any contractor or person selected by Tenant to perform any such work shall first be approved by Landlord in writing, which approval shall not be unreasonably withheld. Failure by Landlord to respond to Tenant's request for approval within seven (7) days of delivery shall be deemed approval by Landlord. No such work shall be allowed to commence until three (3) days have elapsed from the date of Landlord's written consent. Upon expiration or earlier termination of this Lease, Tenant shall, upon written demand by Landlord given at least thirty (30) days prior to the expiration or earlier termination of this Lease, promptly remove any alterations, additions or improvements made by Tenant and designated by Landlord to be so removed. Tenant further agrees to remove its files and other trade fixtures upon expiration or earlier termination of this Lease. Any such removal, and the repair of any damage to the Premises caused by such removal, shall be performed at Tenant's sole cost and expense. (b) Tenant shall pay to Landlord as additional rent, the cost of any structural alteration to the Building and/or, at Landlord's option, shall promptly make, at Tenant's sole expense and in accordance with the provisions of subsection (a) above, any structural or nonstructural alterations to the Premises required to comply with any applicable law, code, rule or regulations, whether now existing or hereinafter promulgated, where such alterations are required by reason of (i) the acts or omissions of its employees or agents; (ii) Tenant's use or change of use to the Premises; (iii) alterations or improvements to the Premises made by or for Tenant; or (iv) Tenant's application for any permit or governmental approval. 12. LIENS: Tenant shall keep the Premises free and clear from any and all liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Landlord may require Tenant to provide 4 5 Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one half (1-1/2) times the estimated cost of any improvements, additions or alterations to be made by Tenant to protect Landlord against liability for any such work or materials. Landlord shall also have the right to post and maintain on the Premises such notices of non-responsibility as may be required by law to protect Landlord's rights in the Premises. Should any claim of lien be filed against or any action be commenced affecting the Premises, and/or Tenant's interest therein, arising out of the work performed, materials furnished or obligations incurred by Tenant, Tenant shall give Landlord notice of such lien or action within three (3) days after Tenant receives notice of the filing of the lien or the commencement of the action. Immediately upon Tenant's receipt of notice of such lien or action, Tenant shall cause such lien to be released of record by payment of the lien or posting of a proper bond. If Tenant does not, within twenty (20) days following the imposition of any such lien, cause such lien to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of any claim giving rise to such lien or posting of a proper bond. All sums payable by Landlord pursuant to this Paragraph 11 and all expenses incurred by or in connection therewith, including attorneys' fees and costs of suit, shall be payable to Landlord by Tenant as additional rent within ten (10) days after receipt of Landlord's invoice therefor. 13. REPAIRS: (a) By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good sanitary order, condition and repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair and, upon the expiration or earlier termination of this Lease, surrender the Premises to Landlord in good condition and repair, ordinary wear and tear excepted. The parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises except as specifically set forth herein. (b) Tenant shall maintain the structural portions of the Building, including, but not limited to, roof and building sidewalls of the Premises. Tenant shall also be responsible for the maintenance of the nonstructural portions of the Premises, or any portion thereof, including without limitation, the plumbing, heating, ventilating, air-conditioning, electrical, security, fire and life-safety systems installed or furnished by Landlord, the repair, replacement and maintenance of the roofs of the building and the costs and upkeep of all exterior areas of the premises, in accordance with applicable laws, statutes, ordinances, rules and regulations of governmental agencies having jurisdiction over the Premises. Tenant shall pay all costs incurred maintaining the structural portions of the Building. Tenant shall reimburse Landlord for all costs incurred by Landlord in performing any maintenance and repairs. Landlord shall not be liable for any damages or losses of Tenant resulting from Landlord's failure to repair or maintain the Project as provided herein. Except as provided in Paragraph 21 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any necessary repairs, alterations or improvements to any portion of the Premises, Building or Project, or to any fixtures, appurtenances and equipment located in, on or about the Premises. 14. ASSIGNMENT AND SUBLETTING: (a) Tenant shall not, voluntarily or by operation of law, assign or transfer all or any portion of Tenant's interest under this Lease or in the Premises, sublease all or any portion of the Premises, or allow any other person or entity (except Tenant's employees, agents and invitees) to occupy or use all or any portion of the Premises, without the prior written consent of Landlord. Landlord's consent shall not be unreasonably withheld subject to the terms of this Lease. Without limiting Landlord's right to withhold such written consent under this Lease, Landlord's refusal to provide such written consent shall be deemed reasonable if: (i) The character, reputation and financial responsibility of the proposed assignee, transferee or subtenant is not satisfactory to Landlord or, in any event, is not at least equal to the character, reputation and financial responsibility possessed by Tenant or represented to Landlord to be possessed by Tenant as of the date of the execution of this Lease and/or the date of the requested consent; 5 6 (ii) The net worth of the proposed assignee, transferee or subtenant is less than the greater of (i) the net worth of Tenant immediately prior to such assignment, transfer or sublease, or (ii) the net worth of Tenant at the time this Lease is executed; or (iii) The proposed assignee, transferee or subtenant fails to agree in writing to assume and be bound by all of the terms and provisions of this Lease. (b) If Tenant is a corporation or at any time becomes a corporation which, under the then current laws of the State of California, is not deemed a public corporation, or is an unincorporated association or partnership, the transfer or assignment, directly or indirectly, of any stock or interest in such corporation, association or partnership during the Term of this Lease which, in the aggregate, exceeds forty-nine percent (49%) of the total shares and/or interest of such corporation, association or partnership shall be deemed an assignment within the meaning and provisions of this Paragraph 14. (c) In the event Tenant proposes to transfer, assign, or sublet the Premises or Tenant's interest under this Lease, enter into any license or concession agreement or effect any change of ownership in the Premises, Tenant shall, within thirty (30) days prior to the proposed transaction, supply to Landlord the following in writing: (iv) The name and address of the proposed assignee, transferee or sublessee. (v) All details as to the proposed assignment, subletting or transfer, including, without limitation, all of the terms and conditions thereof and all sums or consideration to be paid in connection therewith. (vi) A financial statement certified by an officer, partner or principal of the proposed assignee, transferee or sublessee, dated within thirty (30) days of the date of notification of the proposed transfer, assignment, sublease. (vii) Within ten (10) days prior to any transfer, assignment or sublease, true, correct and complete copies of all agreements, assignments, subleases and documents pertaining thereto. Anything contained in this Paragraph to the contrary notwithstanding, no transfer, assignment or subletting of the Premises or Tenant's interest under this Lease shall be effective unless all of the above provisions are complied with within the time limits provided herein. (d) Any additional documentation reasonably required by Landlord shall be prepared and executed by Tenant and its assignee, sublessee or transferee and delivered to Landlord prior to, and as a condition to the effectiveness of, any such assignment, sublease or transfer. 15. INDEMNITY: (a) Tenant shall indemnify, defend and hold Landlord, its partners, officers, directors, employees and agents and Landlord's property harmless from and against any and all liability, claims, loss, damages and expenses, including attorneys' fees and costs of suit, arising by reason of death or injury to any person, including Tenant or any person who is an employee, agent, contractor, subcontractor or invitee of Tenant, or by reason of any damage to or destruction of any property, including property owned by Tenant or any person who is an employee, agent, contractor, subcontractor or invitee of Tenant, arising out of any occurrence in, on or about the Premises, or any part thereof, if: (i) caused or contributed to by Tenant or its employees, agents, contractors, subcontractors or invitees; (ii) resulting from a breach or default by Tenant under this Lease; (iii) arising out of any occurrence in, on or about the Premises on account of the use, condition, occupational safety or occupancy of the Premises; (iv) arising out of any alterations, additions or improvements undertaken by Tenant or any work or services performed for or materials used by or furnished to Tenant or its employees, agents, contractors, subcontractors or invitees with respect to the Premises (including the removal of any mechanics' liens); (v) arising out of the transportation, handling, use, generation, storage, disposal or release of any Hazardous Materials in, on or about any portion of the Premises, Building or Project by Tenant or its 6 7 employees, agents, contractors, subcontractors or invitees; or (vi) resulting from Tenant's delay or failure to surrender the Premises in accordance with the Lease terms. Tenant's obligations under this subparagraph (a) shall survive the expiration or earlier termination of this Lease. (b) Tenant hereby assumes said risk of damage to property and death or injury to persons in, on or about the Premises from any cause other than Landlord's negligence or misconduct, and Tenant hereby waives all claims in respect to such death, injury or damage against Landlord. Landlord and its agents shall not be liable for any damage to property entrusted to employees of the Building or Project, any loss or damage to any property by theft or otherwise, or any injury or damage to persons or property resulting from any cause whatsoever, unless caused by or due to the negligence of Landlord, its agents or employees. (c) If any action or proceeding is brought by reason of any claim which is subject to Tenant's indemnity obligation under the Lease and in which Landlord is named a party, Tenant shall defend Landlord therein at Tenant's expense by counsel reasonably satisfactory to Landlord. (d) Landlord and its agents and employees shall not be liable for interference with light or other incorporeal hereditaments or loss of business by Tenant. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises, Building or Project or of alleged defects in the Building or any fixtures or equipment located therein. 16. INSURANCE: (a) Tenant shall, at Tenant's sole cost and expense, obtain and keep in force, during the entire Term of this Lease, the following insurance policies: (i) Comprehensive public liability insurance insuring Landlord and Tenant against claims for personal injury, death and property damage occurring in, on or about the Premises and all areas appurtenant thereto. Such insurance shall include contractual indemnity coverage for Tenant's indemnity obligation under Paragraph 15 and contain a cross-liability (severability of interests) clause and an extended (broad form) liability endorsement, including blanket coverage. The minimum acceptable amount of comprehensive liability insurance is $2,000,000 against claims in any occurrence, and property damage insurance in an amount of not less than $2,000,000 per occurrence, with a combined single limit of $4,000,000. (ii) "All risk" property insurance including, without limitation, boiler and machinery (if applicable), sprinkler damage, vandalism, malicious mischief, and demolition, increased cost of construction and contingent liability from changes in building laws on all leasehold improvements installed in the Premises by Tenant at its expense and, on all of Tenant's Personal Property. Such insurance shall be in an amount equal to the full replacement cost of the aggregate of the foregoing and shall provide coverage comparable to the coverage in the standard ISO All-Risk Form, when such form is supplemented with the coverages required above. (iii) Business interruption insurance, insuring Tenant for a period of twelve (12) months against loss arising from interruption of Tenant's business and for lost profits, and charges and expenses which continue but would have been earned if the business had gone on without interruption, insuring against such perils, in such form and with such deductible amounts as are reasonably satisfactory to Landlord. (iv) All of said policies shall name Landlord, and if requested by Landlord, any lender holding an encumbrance on the Building as an additional insured. If Tenant fails to maintain and procure said insurance, Landlord may, but shall not be required to procure and maintain the same at the expense of Tenant. Insurance required hereunder shall be with insurance companies rated A-, Class X or better in "Best's Insurance Guide." Tenant may carry any of said policies under a blanket policy. Tenant shall deliver to Landlord prior to Tenant's occupancy of the Premises copies of policies of the insurance required herein or certificates evidencing the existence and amount of such insurance including, for Tenant's liability insurance, loss payable clauses satisfactory to Landlord. Tenant shall also during the Lease Term, at Tenant's sole cost and expense, procure and keep in force such other insurance as required by law, including, without limitation, workers compensation insurance. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to Landlord. The above stated minimum levels of coverage are subject to 7 8 amendment by Landlord upon ninety (90) days written notice should economic or other conditions, in the reasonable judgment of Landlord, warrant adjustment thereof. (b) Tenant shall carry and maintain, during the entire Term of this Lease, earthquake, fire and all risk insurance insuring the Premises and Building for their full replacement cost. Said insurance policy or policies shall cover at least the following risks: fire, smoke damage, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, malicious mischief, vandalism, aircraft and sprinkler leakage, and, at Landlord's option, earthquake and flood. Additionally, such policy or policies shall have a loss of rents endorsement. Tenant shall also carry a general liability policy with limits as Landlord deems reasonable. The premiums for such policy or policies shall be included in Operating Expenses. Any loss payable under such property damage insurance shall be payable to Landlord and any lender holding an encumbrance on the Premises. The proceeds from any such policy or policies for damages to the Premises shall be used for the repair of the Premises, except as otherwise set forth in Paragraph 21. (c) Landlord hereby releases Tenant, and Tenant hereby releases Landlord, and their respective partners, officers, directors, shareholders, employees and agents, from any and all claims or demands of damages, losses, expenses or injury to the Premises, or to the furnishings, fixtures, equipment, inventory or other property of either Landlord or Tenant in, on or about the Premises, which is caused by or results from insured perils, events or happenings to the extent covered by the insurance carried by the respective parties pursuant to this Article 16 and in force at the time of any such loss, whether due to the negligence of the other party or its partners, officers, directors, shareholders, employees and agents, and regardless of cause or origin; provided, however, that such waiver shall be effective only to the extent permitted by the collectible insurance covering such loss and to the extent such insurance policies and coverage are not prejudiced thereby. Each party shall use reasonable efforts to cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against the other party (and such other party's partners, officers, directors, shareholders, employees and agents, if applicable) in connection with any injury or damage covered by such policy. (d) Tenant acknowledges and agrees that the casualty insurance coverage carried by Landlord will not cover Alterations in the Premises installed by Tenant at Tenant's expense or Tenant's personal property, equipment or fixtures located within the Premises. Tenant may, in its own discretion, maintain casualty insurance on its personal property, equipment and fixtures at its own cost and expense. 17. SERVICES AND UTILITIES: (a) Tenant shall furnish to the Premises all utilities required for the operation of the Premises as Tenant's sole cost and responsibility. Tenant shall provide for its own janitorial service to the Premises. Landlord shall not be liable for, and Tenant shall not be entitled to, any reduction of rental nor shall a constructive eviction be deemed to have occurred by reason of Landlord's failure to furnish any of the foregoing utilities and services when such failure is caused by accident, breakage, repairs, strikes, lockout or labor disturbances or disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be liable for any loss of or injury to property, however occurring, in connection with the furnishing or failure to furnish any of the foregoing utilities and services for reasons beyond Landlord's control. (b) Tenant shall not, without the written consent of Landlord, use any apparatus, machine, system or device in the Premises which will overburden or exceed the capacity of the electrical system in the Building. Tenant shall not connect with electric current, except through approved electrical outlets in the Premises or such additional electrical outlets as may be installed by a licensed electrical contractor in conformance with applicable building codes. If Tenant requires water, gas or electric current in excess of that usually furnished or supplied for the Tenant's use, Tenant shall first procure the written consent of Landlord (which Landlord may not unreasonably withhold). The cost of installation, maintenance and repair of any such meters shall be paid by Tenant. Tenant agrees to pay to Landlord promptly upon demand for all such water, gas and electric current consumed as shown by said meters, at the rates charged for such services by the local public utilities furnishing the same, plus any additional expenses incurred in keeping account of the water, gas and electric current so consumed. Additionally, should additional power be required by Tenant by reason of 8 9 Tenant's addition or relocation of equipment within the Premises, Tenant shall be responsible for the cost of bringing additional power to the Premises. (c) Should any supplier of utility services or governmental agencies regulating the foregoing services and utilities render any special assessments for or restrictions upon such services and utilities, it is agreed that these assessments or restrictions shall be paid by Tenant. (d) Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of federal, state or local governmental agencies or utility suppliers for reducing energy or other resource consumption. The lack or shortage of any service or utility shall not affect Tenant's obligations hereunder, and Tenant shall faithfully keep and observe all of the terms, conditions and covenants of this Lease and pay all rentals due hereunder without abatement, set-off, diminution, credit or deduction. 18. PROPERTY TAXES: Tenant shall pay before delinquency all real property taxes levied or assessed against the improvements and Tenant's leasehold improvements, equipment, furniture, fixtures and personal property located in the Premises. If any of Tenant's leasehold improvements, equipment, furniture, fixtures and personal property are assessed and taxed with the Building or Project, Tenant shall pay to Landlord such taxes within ten (10) days after delivery by Landlord to Tenant of a statement in writing setting forth the amount of taxes applicable to Tenant's property. 19. RULES AND REGULATIONS: Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as Exhibit "A", as well as such additional rules and regulations that Landlord shall from time to time promulgate for the Premises. Landlord reserves the right from time to time to make all reasonable modifications to said rules. Tenant shall be bound by the additions and modifications to those rules upon delivery of a copy of the same to Tenant. Any modifications to such rules shall not abridge any rights given to Tenant under this Lease. 20. ENTRY BY LANDLORD: (a) Landlord reserves the right to enter the Premises at any reasonable time to inspect the Premises, to provide any services which Landlord is obligated to provide to Tenant hereunder, to submit the Premises to prospective lenders or to post notices of non-responsibility, and to alter, improve, maintain or repair the Premises and any portion of the Building which Landlord deems necessary, reasonable or desirable, all without abatement of rent. Except in cases of emergencies and for purposes of posting notices of non- responsibility, Landlord shall provide Tenant with reasonable prior telephone notice of each such entry prior to entering the Premises. Landlord may erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, but shall not block the entrance to the Premises nor unreasonably interfere with Tenant's business, except as reasonably required for the particular activities of Landlord. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, interference with quiet enjoyment, or other damage arising out of Landlord's entry on the Premises as provided in this paragraph, except damage, if any, resulting from the negligence of Landlord or its authorized representatives. (b) Landlord shall retain a key with which to unlock all doors into, within and about the Premises, excluding Tenant's vaults, safes and files. In an emergency, Landlord shall have the right to use any means which Landlord deems reasonably necessary to obtain entry to the Premises without liability to Tenant, except for any failure to exercise due care regarding Tenant's property. Any such entry to the Premises by Landlord shall not be construed or deemed to be a forcible or unlawful entry or detainer of the Premises, or an eviction of Tenant from all or any portion of the Premises. 21. DESTRUCTION/RECONSTRUCTION: (a) If the Premises are damaged or destroyed by any casualty covered by the casualty insurance carried by Landlord pursuant to Paragraph 17(b) above, the cost of restoration will not exceed eighty percent (80%) of the full insurable value of the Premises, and the net insurance proceeds paid or made available to Landlord for restoration or rebuilding of the Premises are sufficient to restore the affected portion of the Premises under then-existing building codes to the condition existing immediately prior to such damage or destruction, then Landlord shall promptly and diligently proceed to repair and restore the same to substantially 9 10 the same condition existing immediately prior to such damage or destruction; provided, however, that should such damage or destruction be caused by the act, negligence or fault or omission of any duty by Tenant, its agents, employees, contractors, subcontractors or invitees, Tenant (and not Landlord) shall be so obligated to repair and restore the Premises. If the Premises are damaged or destroyed by any casualty where the cost of restoration is equal to or greater than eighty percent (80%) of the full insurable value of the Premises, or where the casualty is not required to be insured against by Landlord, or where the casualty is actually insured against by Landlord but the insurance proceeds paid or made available to Landlord are insufficient to restore the affected portion of the Building under then-existing building codes to the condition existing immediately prior to such damage or destruction, then Landlord may (but shall not be obligated to) repair and restore such damage or destruction to the Premises. Landlord shall make such election within sixty (60) days after the event causing such damage or destruction by providing Tenant with written notice thereof. If Landlord elects not to repair or restore the Premises as provided in this paragraph, then this Lease shall terminate upon the date of Landlord's election not to repair or restore the same. If the damage or destruction was caused by the act, negligence or fault or omission of any duty by Tenant, its agents, employees, contractors, subcontractors or invitees, then, notwithstanding any provision to the contrary in this Paragraph 20, Tenant shall be liable to Landlord therefor. If Landlord elects not to repair or restore the Premises, Tenant shall comply with each of the following conditions: (i) Tenant shall pay to Landlord all rentals prorated to the date of termination, provided that monthly Base Rent shall, following such damage or destruction, be proportionately reduced (to the extent of rental loss insurance proceeds paid to Landlord) based upon the extent to which such damage or destruction interferes with Tenant's business conducted on the Premises, as reasonably determined by Landlord; (ii) the insurance proceeds paid by the insurer for loss or damage to the Premises shall be disbursed to Landlord, including, without limitation, any proceeds available from insurance carried by Tenant which covers loss to fixtures or any other property which is the property of Landlord or which would become the property of Landlord upon termination of this Lease, and any other insurance carried by Tenant pursuant to Paragraph 17(a) above; and (iii) Tenant shall deliver possession of the Premises to Landlord and quitclaim to Landlord all right, title and interest of Tenant in and to the Premises, Building and Project upon the date of Landlord's election not to repair or restore the affected portion of the Premises. (b) Notwithstanding anything to the contrary contained in this Paragraph 21, if the Premises are damaged or destroyed in whole or in part during the last twelve (12) months of the Term of this Lease, Landlord may terminate this Lease as of the date of the event of such damage or destruction by giving written notice to Tenant, within thirty (30) days after the event of such damage or destruction, of Landlord's election to so terminate this Lease. (c) The foregoing notwithstanding, if the Building is damaged or destroyed to the extent of more than eighty percent (80%) of the then full insurable value thereof, whether due to an insured or uninsured casualty, Landlord may terminate this Lease, whether or not the Premises are damaged, by providing Tenant with written notice thereof, which termination shall be effective as of the date of such damage and destruction. (e) If Landlord is required or elects to repair the damage or destruction to the Premises pursuant to Paragraph 21(a) above, then (i) this Lease shall remain in full force and effect; (ii) monthly Base Rent shall be proportionately reduced (to the extent of rental loss insurance proceeds paid to Landlord) during the period of repair based upon the extent to which the making of repairs interferes with Tenant's business conducted on the Premises, as reasonably determined by Tenant; and (iii) all costs of repair and restoration not covered by insurance proceeds shall be paid by Landlord. Landlord shall not have any liability for, nor be required to, repair or replace any Alterations installed in the Premises at Tenant's expense or any personal property, equipment and fixtures of Tenant or any other items required to be insured by Tenant pursuant to Paragraph 17(a) above. Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration. Tenant shall have the right to terminate this Lease as a result thereof. 10 11 22. DEFAULT: The occurrence of any of the following events shall constitute a default by Tenant under this Lease: (a) The vacation and/or abandonment of the Premises by Tenant. (b) The failure by Tenant to make any payment of rent or any other payment required of Tenant hereunder as and when due, where such failure continues for a period of three (3) days after written notice thereof by Landlord to Tenant. (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease, where such failure continues for a period of thirty (30) days after written notice thereof by Landlord to Tenant; provided, however, that if Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and, thereafter, diligently pursues the same to completion. (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors, the filing by or against Tenant of a petition to have Tenant adjudged bankrupt, or the reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); the appointment of a trustee or a receiver to take possession of substantially all of Tenant's assets located in the Premises or Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located in the Premises or Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. 23. REMEDIES: Landlord shall have the following remedies if Tenant is in default under this Lease. These remedies are not exclusive; they are cumulative and in addition to any remedies now or later allowed by law: (a) Upon a default by Tenant under this Lease, Landlord shall have the remedies described in California Civil Code section 1951.4 (i.e., Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due if Tenant has the right to sublet or assign, subject to reasonable limitations). Neither any efforts by Landlord to mitigate damages caused by a default by Tenant under this Lease nor the acceptance of any rent shall constitute a waiver by Landlord of any of Landlord's rights or remedies, including, without limitation, the rights or remedies specified in this Paragraph 23. Upon any default by Tenant under this Lease, Landlord may enter the Premises and relet them, or any part of them, to third parties for Tenant's account. Any such reletting may be for a period shorter or longer than the remaining Term of the Lease. No act by Landlord allowed by this Paragraph 23(a) shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate Tenant's right to possession of the Premises. If Tenant obtains Landlord's consent, Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability under this Lease. Landlord's consent to a proposed assignment or subletting shall not be unreasonably withheld. (b) Upon any default by Tenant under this Lease, Landlord may terminate Tenant's right to possession of the Premises. No act by Landlord other than giving written notice to Tenant shall terminate this Lease, including acts of maintenance, efforts to relet the Premises, or the appointment of a receiver. 24. EMINENT DOMAIN: If more than fifty percent (50%) of the Premises is taken or appropriated by any public or quasi-public authority under powers of eminent domain, either party hereto shall have the right, at its option, to terminate this Lease. If less than fifty percent (50%) of the Premises is taken (or if neither party elects to terminate this Lease in the event more than fifty percent (50%) of the Premises is taken), this Lease and Tenant's obligation to pay rent as provided herein shall continue in full force and effect; provided, however, that such rental shall be equitably reduced by Landlord. If more than fifty percent (50%) of the Building or Project is so taken or appropriated, whether or not any part of the Premises is involved, Landlord shall have the right, at its option, to terminate this Lease in accordance with the foregoing provision. Whether or not this Lease is terminated by reason of any such taking or appropriation, Landlord shall be entitled 11 12 to the entire award and compensation for the taking which is paid or made by the public or quasi-public agency, and Tenant shall have no claim against said award, except for amounts paid directly to Tenant for its moving expenses, interruption to its business or damage to its personal property or trade fixtures. 25. ESTOPPEL CERTIFICATE: Tenant shall, at any time and from time to time, upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modifications and certifying that this Lease, as so modified, is in full force and effect), the amount of any security deposit and the date to which any rentals or other charges are paid in advance, if any, (b) acknowledging that there are not any unsecured defaults under the Lease, or specifying such defaults, if any, which are claimed, and (c) certifying to such other facts as Landlord may reasonably request. Tenant's failure to execute and deliver any estopped certificate requested by Landlord within said ten (10) day period shall be conclusive evidence upon Tenant that (i) this Lease is in full force and effect without modification except as may be represented by Landlord and has not been assigned, (ii) there are no uncured defaults in Landlord's performance, (iii) no rentals have been paid in advance except those set forth in the Lease. 26.1 SUBORDINATION: Tenant agrees that, upon the request of Landlord and any present or future holder of any mortgage, deed of trust or other encumbrance affecting the Premises, Tenant shall subordinate this Lease and its rights hereunder to the lien of any mortgage, deed of trust or other encumbrance, together with any consolidations, renewals, extensions or replacements thereof, now or hereafter placed, charged or enforced against Landlord's interest in this Lease and the leasehold estate thereby created, the Premises, and any improvements included thereon. Tenant shall execute, acknowledge and deliver to Landlord, upon written request by Landlord, such documents as may be required to effectuate such subordination. In the event that the mortgagee, beneficiary or such other party named in any such mortgage, deed of trust or other encumbrance elects to have this Lease prior to its mortgage, deed of trust or other encumbrance, then, upon such mortgagee, beneficiary or such other party giving written notice to Tenant to that effect, this Lease shall be deemed prior to such mortgage, deed of trust or other encumbrance, whether or not this Lease is dated or recorded prior to or subsequent to the date of recordation of such mortgage, deed of trust or other encumbrance. Tenant shall execute, acknowledge and deliver to Landlord, upon written request by Landlord, such documents as may be required to effectuate the priority of the Lease to such mortgage, deed of trust or other encumbrance. In the event that Tenant shall fail, neglect or refuse to execute and deliver any such documents within ten (10) days after receipt of Landlord's written request to do so, Tenant hereby irrevocably appoints Landlord, its successors and assigns, as the attorney-in-fact of Tenant, to execute and deliver any and all such documents for and on behalf of Tenant. 26.2 ATTORNMENT: Lessee agrees to attorn to a Lender or any other party who acquires ownership of the premises by reason of foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not; (1) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (2) be subject to any offsets or defenses which Lessee might have against any prior Lessor; (3) be bound by prepayment of more than one months rent. 26.3 NON-DISTURBANCE: With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this lease shall be subject to receiving assurance (A NONDISTURBANCE AGREEMENT) from the Lender that Lessee's possession and this Lease, including any options will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 26.4 SELF-EXECUTING: The agreements contained in this Paragraph 26 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writing as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 12 13 27. PARKING: Tenant shall have the exclusive right to use the parking spaces in the Project's parking area for the Term of this Lease at no charge. The parking area shall not be used by Tenant, its agents or employees for any purpose other than the parking of motor vehicles and the ingress and egress of pedestrians and motor vehicles. 28. SURRENDER OF PREMISES: Upon the expiration or earlier termination of this Lease, Tenant shall Surrender the Premises to Landlord in the condition existing as of the Commencement Date of this Lease (normal wear and tear excepted), free of any Hazardous Materials caused or contributed to by Tenant or its employees, agents, contractors, subcontractors or invitees, and as otherwise required under this Lease. Tenant shall remove all of Tenant's personal property from the Premises and any alterations, additions or improvement designated by Landlord for removal. Tenant shall repair any damage caused by removal of its Personal Property and any alterations, additions or improvements and restore such areas to the condition that existed prior to the installation of such personal property or alterations, additions and improvements in accordance with all applicable laws, statutes, building codes and regulations in effect as of the date of such restoration. All such property not so removed shall be deemed abandoned by Tenant. If the Premises are not so surrendered at the expiration or earlier termination of this Lease, Tenant shall indemnify, defend and hold Landlord and its agents, employees, contractors and subcontractors harmless from and against any and all loss or liability resulting therefrom. 29. LANDLORD DEFAULT AND MORTGAGEE PROTECTION: (a) NOTICE TO LANDLORD; LANDLORD'S RIGHT TO CURE: In the event Landlord fails to perform any covenant, condition or agreement contained in this Lease to be performed by Landlord, Landlord shall not be deemed to be in default under this Lease unless and until it has failed to cure such default within thirty (30) days after written notice by Tenant to Landlord specifying the nature of the default; provided, however, that if the nature of Landlord's default is such that more than thirty (30) days are reasonably required for its cure, then Landlord shall not be deemed to be in default if Landlord shall commence such cure within such thirty (30) day period and thereafter shall diligently prosecute the same to completion. (b) NOTICE TO LENDERS; LENDERS' RIGHT TO CURE: Tenant agrees to give Landlord's lenders, by registered mail, a copy of any notice of default by Landlord served upon Landlord, provided that, prior to such notice, Tenant has been notified, in writing, by way of notice of assignment of rents and leases, or otherwise, of the addresses of Landlord's lenders. Tenant further agrees that if Landlord shall fail to cure such default within the time provided for in Paragraph above, then Landlord's lenders shall have an additional sixty (60) days within which to cure such default or, if such default cannot be cured within that time, then such additional time as may be necessary if, within such sixty (60) day period, Landlord's lenders have commenced and are diligently pursuing the remedies necessary to cure such default (including, but not limited, commencement of foreclosure proceedings, if necessary to effectuate such cure). 30. AUTHORITY: (a) CORPORATE AUTHORITY: If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that such individual 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 the bylaws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms, (b) PARTNERSHIP AUTHORITY: If Tenant is a partnership, each individual executing this Lease on behalf of said partnership represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said partnership and that this Lease is binding upon said partnership and its partners in accordance with its terms. 31. GENERAL PROVISIONS: (a) Clauses, plats, exhibits and riders, if any, affixed to this Lease are a part hereof. (b) The waiver by Landlord of any term, covenant or condition contained herein shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any 13 14 other term, covenant or condition contained herein. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be 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 breach at the time of the acceptance of such rent. (c) All notices and demands which may or are required to be given by either party hereunder shall be in writing. All notices and demands by Landlord to Tenant shall be sufficient if delivered in person or sent by overnight courier service (providing written receipt of delivery) or by United States Mail, postage prepaid, addressed to Tenant at the Premises or to such other place as Tenant may from time to time designate by written notice to Landlord. All notices and demands by Tenant to Landlord shall be sufficient if delivered in person or sent by overnight courier service (providing written receipt of delivery) or by United States Mail, postage prepaid, addressed to Landlord or to such other person or place as Landlord may from time to time designate by written notice to Tenant. Any such notice shall be effective at the time of delivery or, if mailed, two (2) business days after posting. (d) If there shall be more than one person or entity comprising Tenant, the obligations hereunder imposed upon such persons or entities shall be joint and several. (e) The paragraph headings and titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (f) Time is of the essence of this Lease and each of its provisions in which performance is a factor. (g) The time required for the performance of any act required under this Lease shall be computed by excluding the first day and including the last, unless the last day is a Saturday, Sunday or holiday, in which event such day or days shall also be excluded. The term "holiday" shall mean all holidays specified in sections 6700 and 6701 of the California Government Code. (h) The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. (i) Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the prior written consent of the other party. (j) This Lease contains all of the agreements of the parties hereto with respect to the lease of the Premises to Tenant and all other matters covered or mentioned in this Lease. No prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provision of this Lease shall be amended or added except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. (k) All amounts which Tenant is required to pay hereunder (other than Base Rent) and actual costs Landlord may incur by reason of any default by Tenant, shall be deemed to be additional rent hereunder. (f) If either party shall be delayed or prevented from the performance of any act required by this Lease by reason of acts of God, strikes, lockouts, labor troubles, inability to procure materials, restrictive governmental laws, or regulations or other cause, without fault and beyond the reasonable control of the party so obligated (financial inability excepted), performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. (g) In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' 14 15 fees and costs of suit. (h) Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provisions hereof, and such other provisions shall remain in full force and effect. (i) No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. (j) This Lease shall be governed by the laws of the State of California. (k) Nothing contained in this Lease shall be deemed or construed by the parties or by any third person to create the relationship of principal and agent, partnership, joint venture or any association between Landlord and Tenant, and neither the method of computation of rent nor any other provisions contained in this Lease nor any acts of the parties shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. (l) The language in all parts of this Lease shall in all cases be simply construed according to its fair meaning and not strictly for or against Landlord or Tenant. Unless otherwise provided in this Lease, or unless the context otherwise requires, the following definitions and rules of construction shall apply to this Lease. (i) The terms "shall," "will," and "agrees" are mandatory, and "may" is permissive. (ii) The term "parties" shall include both Landlord and Tenant. (iii) As used herein, the word "sublessee" shall mean and include, in addition to a sublessee and subtenant, a licensee, concessionaire or other occupant or user of any portion of the Premises or improvement located therein. 32. LIST OF EXHIBITS: The following is a complete list of the documents attached hereto and made a part of this Lease: OPTIONAL PROVISIONS: Purchase Option and Rent Escalation EXHIBIT "A": Rules and Regulations The parties hereto have executed this Lease as of the date first set forth above. LANDLORD: BY: /s/ CARL CURTIS ---------------------------- CARL CURTIS ITS:____________________________ TENANT: FLEXTRONICS INTERNATIONAL, INC BY: /s/ MICHAEL E. MARKS ---------------------------- ITS: CEO 15 16 OPTIONAL PROVISIONS 1. OPTION TO PURCHASE: Tenant shall have the irrevocable and exclusive right to purchase the leasehold improvements, hereinafter referred to as "OPTION", from Landlord at month sixty (61) one, hereinafter referred to as "OPTION PERIOD 1", for THREE MILLION EIGHT HUNDRED SIXTY THOUSAND ($3,860,000) DOLLARS, less cost of sale, and at month one hundred and twenty (120), "OPTION PERIOD 2", for FOUR MILLION ONE HUNDRED TEN THOUSAND ($4,110,000) DOLLARS, less cost of sale. Tenant shall provide Landlord with written notice one hundred and twenty (120) days preceding the Option Periods. This Option is a condition precedent for the benefit of Tenant only and may only be waived by a formal written waiver executed by Tenant. 2. FIXED RENT WITH AUTOMATIC INCREASES: The base rent of THIRTY ONE THOUSAND FIVE HUNDRED ($31,500) DOLLARS per month shall remain fixed during the first sixty (60) months of the lease term. Commencing month sixty one, the adjusted base rent shall be THIRTY THREE THOUSAND SEVENTY NINE ($33,079) DOLLARS per month for the balance of the lease term. LANDLORD: BY: /s/ CARL CURTIS ---------------------------- CARL CURTIS ITS:____________________________ TENANT: FLEXTRONICS INTERNATIONAL, INC BY: /s/ MICHAEL E. MARKS ---------------------------- ITS: CEO 16 17 EXHIBIT "A" RULES AND REGULATIONS 1. Landlord shall furnish Tenant with an initial set of keys to the Premises, free of charge. Additional locking devices may be installed without the prior written consent of Landlord. Tenant shall in each case furnish Landlord with a key for any such lock. Tenant, upon the termination of Tenant's tenancy, shall deliver to Landlord all the keys or access devices for the Building and Project, offices, rooms and toilet rooms which shall have been furnished to Tenant or which Tenant shall have had made. 2. Tenant shall be responsible for all persons Tenant authorizes to enter the Building and Project and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for error with regard to the admission to or exclusion from the Building or Project of any person. 3. In case of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building during the continuance of same by such action as Landlord may deem appropriate, including closing entrances to the Building. 4. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 5. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 6. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot in which such floor was designed to carry and which is allowed by law. 7. Tenant shall store all trash and garbage within the appropriate containers provided by Tenant. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary banner [sic] of removing and disposing of trash and garbage in the City and county in which the Premises are located without violation of any law or ordinance governing such disposal. 8. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein, and any damage resulting from the violation of this rule by Tenant or Tenant's employees or invitees shall be borne by Tenant. 9. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant. 10. Landlord shall not have the right to change the name and address of the Building. 11. These Rules and Regulations are in addition to, and shall not be construed in any way to modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building or Project. 17 EX-10.51 6 EXHIBIT 10.51 1 EXHIBIT 10.51 LEASE AGREEMENT BETWEEN REAL ESTATE COMPANY OF CHINA MERCHANTS SHEKOU INDUSTRIAL ZONE AND FLEXTRONICS INTERNATIONAL NO. A6 NANHAI BUILDING HAIBIN GARDEN SHEKOU REF.: CL9508314 2 Parties AN AGREEMENT made the Fifteenth day of August of the year One Thousand Nine Hundred and Ninety-five between REAL ESTATE COMPANY OF CHINA MERCHANTS SHEKOU INDUSTRIAL ZONE whose registered office is situated at the fourth floor of Zhao Shang Building, Zhao Shang Road, Shekou Industrial Zone, Shenzhen, Guangdong Province, the People's Republic of China (hereinafter called "the Landlord") of the one part, and FLEXTRONICS INTERNATIONAL; (hereinafter called "the Tenant"), whose registered office in the People's Republic of China is situated at 5/F, Nan Shan Building Shekou, Shenzhen, Guangdong Province, the People's Republic of China of the other part. WHEREBY IT IS HEREBY AGREED AS FOLLOWS: Premises 1. The landlord shall let and the Tenant shall take the NO. A6 NANHAI BUILDING OF HAIBIN GARDEN (Subject to the pink mark in Appendix 1), (hereinafter referred to as "the said premises") situated in Shekou, Shenzhen, Guangdong Province, P.R.C. The premises in this agreement is decorated in accordance with Appendix 2, will be turned over to the Tenant used for residence. The gross construction area is 2,906 square foot. The term of the lease is ONE YEAR commencing from the Commencement Date hereinafter defined in Clause 3 hereof. Rent 2. The monthly rent for the said premises for the said term shall be Hong Kong Dollars Thirty Thousand Only (HKD30,000.00) which sum(s) shall be inclusive of all kinds assessed against the building, and insurance on the building structure, Which said sum(s) shall be payable in advance on the first day of each and every calendar month without deduction whatsoever. The rent shall be paid in Hong Kong Dollar by check or banker's draft or direct bank transfer payable to Landlord's account with China Bank, Shekou Branch, account No. 0111030009661. Period 3. The term of the Lease shall be ONE YEAR, COMMENCING ON SEPTEMBER 1, 1995, EXPIRING ON AUGUST 31, 1996, both days inclusive. During the term of the lease, the Tenant shall submitted a written notice to the Landlord one month in advance, if he desire to early terminate the lease agreement. In the event that the lease is terminated during the lease term, the Tenant shall pay in full the rent for the remaining days within the lease period. 3 2 If leasing is to be continued after the term of lease expires, the submission of one month prior notice shall also be required and a new lease shall be signed. Then the landlord shall have the right to terminate the lease or adjust the rental and other terms and conditions by both parties negotiation. Deposits 4. Upon executed this agreement, the Tenant shall deposit an amount of HKD60,000.00 to the Landlord's account as a deposit for this agreement. This deposit shall serve as security for the due performance and observance of the agreements on the part of the Tenant herein contained. At the expiration or sooner determination of this Agreement if the Tenant shall have paid all rent and other sums due thereunder and if there shall be no breach of any of the agreements on the Tenant's part to be observed and performed the Landlord will refund the tenant the said deposit within thirty (30) days after delivery of vacant possession of the said premises to the Landlord and upon settlement of all outstanding payments by the Tenant but without any interest thereon. 5. THE TENANT AGREES WITH THE LANDLORD as follows: Rent (a) To pay the rent herein reserved in manner aforesaid and other charges due thereunder in manner hereinafter mentioned. Telephone/ (b) To pay and discharge punctually during the telex utilities said term all charges for and other water/electricity/telephone calls/telex charges rental and other outgoing now or at any time hereafter consumed by the Tenant and chargeable in respect of the said premises which are not included in the rent as set specified above, and to make all reasonable and necessary deposits. Good repair (c) To constantly keep the whole of the interior of interior of said premises and every part thereof in proper and tenantable repair and condition including, but not limited to, all doors, windows, skylights, locks, hinges, bolts, floors, partitions and walls, and all the Landlord's installation fixtures, fittings and furniture therein at the Tenant's expense (fair wear and tear excepted). 4 3 Indemnity (d) To be wholly responsible for any damage or injury against caused to any other person or property directly or damage/ indirectly through the defective or damaged condition injury of any part of the interior of the said premises caused by the negligence of the Tenant and to make good the same by payment or otherwise and to indemnify the Landlord against all claims demands actions and legal proceedings made upon the Landlord by any person in respect thereof. Inspection by (e) To permit the Landlord and all persons authorized by the Landlord him at all reasonable times by prior appointment (and in case of emergency which may cause severe damage to the said premises the Landlord or his agents may enter without notice and forcibly if need be) to enter into the said premises to view the condition of the said premises and to carry out routine maintenance service and to give or leave notice in writing upon the said premises informing the Tenant of any proposed work intended to be carried out by the Landlord. Pipes and (f) To permit the Landlord to erect use and maintain conduits pipes and conduits in and through the said premises in a manner not to interfere with the quiet enjoyment by the Tenant of the said premises. The Landlord of [sic] his agents shall have the right to enter the said premises through prior appointment at reasonable times by prior appointment to examine the same. Illegal or (g) Not to use the said premises or any part thereof for immoral any illegal or immoral purpose. purpose User (h) To use the said premises for the purpose of a private residence only. Alterations (i) Not to make or permit to be made any alterations in and additions or additions to the electrical installation or other Landlord's fixtures or cut or damage or suffer to be cut or damaged any doors windows walls structural members or other fabric thereof without having first obtained the written license and consent of the Landlord therefor (such consent not to be unreasonably withheld). In particular, any such alterations or additions so approved shall be carried out only by such person or contractor as shall be approved by the Landlord, such approval not to be unreasonably withheld. The Tenant shall be liable for any defects (and any direct damages arising from such defects) resulting from such alterations or additions and the Tenant shall 5 4 remedy the said defects within reasonable time. In the event that the Tenant requires addition or improvement in the furniture, it shall be at the Tenant's expense. Assigning (j) Not to sub-lease or release or assign or transfer the and benefit of this lease agreement; provided however, underletting that the Tenant shall be free to change, or substitute the occupants of the said premises so long as they are the Tenant's workers, employees, consultants and their families. Breach of (k) Not to do or permit to be done any act or thing(s) insurance (such as, but not limited to, to use electric policy equipment overloading, over voltage, electric line contact, leakage of electricity, short circuiting, to store any material by its natural heating, spontaneous combustion, heating or drying) whereby the policy or policies of insurance on the said premises against damage by fire or against claims by Third Parties for the time being subsisting may become void or voidable or whereby the rate of premium or premiums thereon may be increased and to repay the Landlord on demand all sums paid by the Landlord by way of increased premium or premiums thereon and all expenses incurred by the Landlord in and about any renewal of such policy or policies rendered necessary by a breach of this clause. Obstructions (l) Not to encumber or obstruct or permit to be in common encumbered or obstructed with any boxes, packaging or areas other obstruction of any kind or nature any of the entrances, staircases, landings, passages, lifts, lobbies or other parts of the said building in common use and not to leave rubbish or any other article or thing in any part of the said building not in the exclusive occupation of the Tenant. Delivery of (m) At the expiration or sooner termination of this possession Agreement, the Tenant shall go through release procedure and return the premises to the Landlord. Within three days prior to termination of lease, the Tenant shall check and count to see if the interior equipment and furniture is complete and in good condition, and compile a register to delivery such equipment and furniture to the Management Office authorized by the Landlord for inspection and acceptance. Any damage caused by the Tenant's improper use or negligence shall be compensated for on the basis of the original cost. All of the Tenant's personal property shall be removed prior to the delivery of the premises. The tenant shall 6 5 have no right to delay the termination of this Lease Agreement or to hinder the Landlord in leasing the premises to another tenant. 6. THE LANDLORD AGREES WITH THE TENANT as follows: Quiet (a) To permit the Tenant (duly paying the rent enjoyment and other payments and observing and performing the terms and conditions herein contained) to have quiet possession and enjoyment of the said premises during the said term without interruption by the Landlord and free from any claims against the Landlord or anyone lawfully claiming under or through or trust [sic] for the Landlord save as specifically provided herein. Roof and (b) To amend and repair such defects in the roof main main electricity supply cables main drain structures pipes main walls and exterior window frames furniture and interior of equipment and furniture of the said premises therein as the Landlord shall discover or as the Tenant or other authorized person or Authority shall by notice in writing bring to the attention of the Landlord and to maintain the same in a proper state of repair and condition at the cost of the Landlord provided that the Landlord shall be entitled to be given a reasonable period of time wherein to view any such defects and to amend and repair the same provided further that the Landlord shall neither be liable to pay compensation to the Tenant in respect of any reasonable period during which due to circumstances beyond the control of the Landlord. Maintenance (c) The Shekou Industrial Zone Property Management Company is authorized to be responsible for the maintenance and management of the common parts of the said Building. 7. IT IS HEREBY EXPRESSLY PROVIDED as follow: Default (a) If the rent hereby reserved or any part thereof or any other payments thereunder shall be in arrears for fifteen days (whether the same shall have been formally demanded or not) or in the case of the breach or non-performance of any of the stipulations and agreements by the Tenant hereinbefore contained (after 15 days' written notice to remedy the same has expired other than non-payment of rent in which case no written notice is required) or if the Tenant shall go into liquidation or shall have any order made or resolution passed for its winding up and the same is not dismissed within a period of sixty (60) days or shall enter into any composition or arrangements with its 7 6 creditors it shall be lawful for the Landlord at any time thereafter to re-enter upon the said premises or any part thereof in the name of the whole and thereupon this Agreement shall absolutely determine but without prejudice to any rights which may have accrued to the Landlord by reason of any antecedent breach of any of the obligations on the part of the Tenant hereinbefore contained AND a written notice served by the Landlord on the Tenant or left at the said premises to the effect that the Landlord thereby exercises the power of reentry shall be a full and sufficient exercise of such power without actual entry on the part of the Landlord. The Landlord may set off against the deposit thereunder its actual damages sustained as a direct consequence of any of the events stipulated in the Clause 7(a) which entitle the Landlord to re-enter the premises and terminate this Agreement. Abatement of (b) In case the said premises or any part thereof shall rent at any time during the said term be destroyed or damaged by flood, terminate lease fire, typhoon, earthquake, landslide, termites, Act of God or subsidence or any cause for which the Tenant shall not be responsible so as to render the said premises unfit for use of [sic] occupation the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the said premises shall again be rendered fit for use provided Always that the Landlord shall not be required to repair or reinstate the said premises or any part thereof so destroyed or damaged if by reason of the condition of the said premises or any local regulations or other circumstances beyond the control of the Landlord it is not practicable or reasonable so to do or in such circumstances, the Tenant shall be entitled, at his option, to terminate this Agreement without any further obligation hereunder or to receive from the landlord a waiver or an abatement of rent in respect thereof, but it shall not be entitled to claim damages from the Landlord. Interest on (c) Without prejudice to the Landlord's rights under arrears of Clause 7(a) hereof, the Tenant shall pay interest on rent all arrears of rent/electricity/water and other charges due under this Agreement at a rate of 0.5% per day from the due date to the date of payment. Acts of (d) Any act default or omission of the agent, servant or agents, visitor of the Tenant shall be deemed to be the act servants, etc. default or omission of the Tenant. 8 7 Liability and (e) The Landlord shall not be under any liability to the indemnity Tenant or to any other person whosoever in respect of any loss or damage to person or property sustained by the Tenant or any such other person caused by or through or in any way owing to the overflow of water or the escape of fumes smoke fire or any other substance or thing originating from anywhere within the said premises unless such loss, damage or injury is caused by the negligence or default of the Landlord or its servants, agents or licensees. The Tenant shall fully and effectually indemnify the Landlord from and against all claims and demands made against the Landlord by any person in respect of any loss damage or injury caused by or through or in any way owing to the overflow of water or the escape of fumes smoke fire or any other substance or thing originating from the said premises (unless such loss, damage or injury is caused by the negligence or default of the Landlord or its servants, agents or licensees) or to the negligence or default of the Tenant his servants, agents or licensees or to the defective or damaged condition of the interior of said premises or any fixtures or fittings the repair for which the Tenant is responsible hereunder and against all costs and expenses incurred by the Landlord in respect of any such claim or demand. Adjustment (f) If any time during the said term the charges for of charges water/electricity and telephone calls shall in each case be increased by the relevant authorities in Shekou, the Landlord shall be entitled to serve a notice in writing upon the Tenant increasing the charges of the said utility by a similar amount and the Tenant shall from the date specified in the said notice pay such increased charges as therein provided. Reservations (g) The Landlord reserves the right exercisable at any of Rights time or times to make or caused to be made any structural or non-structural alteration or improvement in or addition to entrances landings staircases or any part of the said building in common use; without incurring any liability to make any payment of the Tenant on any account whatsoever except to the extent such alterations or improvements substantially impair Tenant's access to and use of the premises. In the happening of such alternation [sic] or improvement hereof the Landlord shall give to the Tenant not less than three months' notice in writing of any such change. Notices (h) Any notice under this Agreement shall be in writing and any bill statement or notice information writ statement or claim or any other legal proceeding to the Tenant shall be sufficiently served if 9 8 left addressed to him/it at the said premises or any part thereof or sent to him/it or left at his/its last known address in China/overseas and any notice to the Landlord shall be sufficiently served if delivered to its registered address or sent to its registered address in China by registered post or delivered to its last known business address in China. Applicable 8. This Agreement shall be governed by and construed in law and all aspects in accordance with the laws of the arbitration People's Republic of China. Any dispute under of [sic] arising out of this Agreement shall be referred to a single arbitrator mutually agreed and appointed in accordance with the laws or provisions of the People's Republic of China relating to arbitration for the time being in force. Gender It is hereby declared that (if the context permits or requires) the singular number shall include the plural and the masculine gender shall include the feminine and the neuter and vice versa. Marginal The marginal notes are inserted for convenience only and shall Notes be ignored in the interpretation of this Agreement. WITNESS WHEREOF, the parties have caused the foregoing Agreement to be executed in their names, the day and year first above written. LANDLORD TENANT REAL ESTATE COMPANY OF FLEXTRONICS INTERNATIONAL CHINA MERCHANTS SHEKOU INDUSTRIAL ZONE Representative:_____________________ Representative:_____________________ Date: 95 8 24 Date: August 24, 1995 EX-11 7 EXHIBIT 11 1 Exhibit 11 FLEXTRONICS INTERNATIONAL LTD. Computation of net income (loss) per share (in thousands, except share data)
March 31, ------------------------------ 1994 1995 1996 Shares issued and outstanding 6,779 11,404 12,536 Common Stock Equivalent Warrants and Stock Options 951 699 ------ ------ -------- 7,730 12,103 12,536 ------ ------ -------- Net income/(loss) before extraordinary gain $1,735 $6,156 $(17,412) Extraordinary gain $ 416 ------ ------ -------- Net income/(loss) after extraordinary gain $2,151 $6,156 $(17,412) ------ ------ -------- Earnings per share: Net income/(loss) before extraordinary gain $ 0.23 $ 0.51 $ (1.39) Extraordinary gain $ 0.05 ------ ------ -------- Net income/(loss) after extraordinary gain $ 0.28 $ 0.51 $ (1.39) ------ ------ --------
Note: Net income is computed using the weighted average number of Ordinary Share equivalents outstanding during the respective periods. Ordinary Share equivalents include Ordinary Shares issuable upon the exercise of stock options computed using the treasury stock method. The computations of the respective years give retroactive effect to the acquisition of nCHIP, Inc. which was accounted for under the pooling of interest method. Hence, the number of share equivalents and net income are restated as if the acquisition took place on April 1, 1993. EX-13 8 EXHIBIT 13 1 [FLEXTRONICS INTERNATIONAL LOGO] FLEXTRONICS INTERNATIONAL [GRAPHIC 1] Annual Report 1996 2 CORPORATE PROFILE Flextronics International offers advanced contract manufacturing services of sophisticated electronics for OEMs in the medical, consumer, computer, and communications industries. The Company offers a full range of services including printed circuit board (PCB) and multichip module (MCM) design, materials procurement and management, advanced packaging fabrication, PCB assembly, final system build, distribution, and warranty repair. The Company has facilities located in North America, Europe, and Asia. TO OUR SHAREHOLDERS: It is particularly gratifying to report to you after another year of rapid growth and record profitability. In just three short years, Flextronics International has grown from three manufacturing operations in Asia and revenues of $131 million, to a company with a global presence, revenues of $448 million, and among the highest profitability rates in the contract electronics manufacturing industry. I would like to review for a moment the strategies that have generated these results, and then look forward to the new opportunities available to our Company. SETTING THE STRATEGY During the summer of 1993, the management of Flextronics met to consider the Company's position in the industry and what strategies should be pursued to enhance that position. At the time, the Company's annual revenue was $100 million, which ranked the Company approximately twentieth by revenue in the industry worldwide. It was clear to the management that in a rapidly growing industry, it was important to be in the top five in both revenues and profits. To achieve that result, the following strategies were established: - - Leverage the Asian cost base to increase profitability; - - Add manufacturing operations in Europe and North America; - - Acquire or develop leading edge manufacturing technology; - - Expand services to include design through distribution; - - Broaden the customer base, and the industries served. ACHIEVING THE OBJECTIVES During the three years since these strategies were set, the Company grew rapidly, both internally and through acquisition. In March, 1994, Relevant Industries was acquired, which provided Flextronics with its first manufacturing operation in North America, located in San Jose, California. Relevant was a small, system level assembly supplier which also added this new service to the Company. Since then, our San Jose business has grown more than ten fold, encompasses a second building devoted to PCB assembly, and soon a third building will be built on land acquired recently. An additional PCBA manufacturing operation was opened in 1995 in Dallas, Texas, thereby providing additional capacity in North America. In early 1995, we acquired nCHIP, a company engaged in the design and production of multichip modules on silicon substrates. nCHIP's capabilities in a variety of packaging designs has since been expanded to include development of integrated passive components, leading edge bare die placement techniques, and research and development (with Dow Chemical) on a new low cost substrate. The revenue at nCHIP has more than doubled since its acquisition, and it now serves as the design front end for all of Flextronics' worldwide operations. In April, 1995, we acquired A&A, a small PCBA facility in Wales, United Kingdom, giving Flextronics its first operation in Europe. Our intention in Wales is to provide a facility for "localization" of products produced in high volume in Asia and North America yet bound for countries on the European [Photo of Michael E. Marks, Chairman and CEO] 3 continent.The facility has been completely renovated, and the first localization activities are underway. During this time, many new customers were added, representing a variety of industries. In the medical arena, Thermoscan, Inc. and Enact Health Management Systems came on board. In telecommunications, we added Global Village Communication, Inc., Advanced Fibre Communications, Inc., and Whitetree Network Technologies, Inc. In the consumer area, we added Palm Computing, now a division of U.S. Robotics. And in computer peripherals, we added Microsoft Corporation and Visioneer, Inc., a supplier of low cost scanners. The results of our efforts are shown in the charts displayed here. For all years we have presented actual results and results before non-recurring items which are related primarily to aquisitions, in-process R&D, and two plant closings in the fourth quarter of fiscal 1996. Revenue has increased to $448 million from $131 million two years ago. Profits have risen even faster, from $2.9 million to $16.6 million (before non-recurring items). And Earnings Per Share has grown to $1.25 (before non-recurring items) from just $0.38 two years ago. BECOMING A BILLION DOLLAR COMPANY Having quickly reached our objective of being in the top five contract manufacturers in both revenue and profits (before non-recurring items), we are now turning our attention toward new strategies designed to enable Flextronics to grow to a $1 billion company. Outlined in some detail on the following pages is a new strategic focus in two areas--logistics and miniaturization. Our focus on logistics is an attempt to reduce costs associated with handling and management of materials. We will accomplish this by locating our factories on large campuses, where many materials will be manufactured and supplied to the assembly operation. The focus on miniaturization encompasses all of the activities at nCHIP, including bare die assembly, integrated passives, and multichip assemblies on a variety of substrates. The first significant step in these new directions was taken when we acquired Astron during the fourth quarter of this past fiscal year. Astron is a manufacturer of sophisticated, miniature laminate circuit boards. Astron's capabilities fit very well with those at nCHIP, and provide an even broader set of tools to be used in designing smaller, less expensive packaging for our customers. In addition, Astron has a facility situated on 15 acres of land in Doumen, China, which Flextronics now owns. This will be the site of our first campus, on which we intend to build a 300,000 square foot facility during the current fiscal year. A TEAM EFFORT The past year has been an eventful one. In addition to the very satisfactory financial results, our Company has become much more global in terms of operations, customers and employees. Our senior management team is comprised of Asians, Europeans and Americans. We have found this diversity serves us well as we develop strategies for the future. And our approximately 4,000 employees continue to improve their skills and flexibility which enables us to lower costs in an increasingly competitive industry. We salute them all. We also thank you, our shareholders, for your continued support. Best regards, /s/ Michael E. Marks Michael E. Marks Chairman and CEO CHART 1 REVENUES ---------------------- (In Millions) 1994 1995 1996 ------ ------ ------ $131.3 $237.4 $448.3 CHART 2 INCOME ---------------------- (In Millions) 1994 1995 1996 ------ ------ ------ Before non-recurring items ............ $2.9 $6.8 $ 16.6 Actual results ........................ $2.2 $6.2 $(17.4) CHART 3 EARNINGS PER SHARE ---------------------- 1994 1995 1996 ------ ------ ------ Before non-recurring items ............ $.38 $.56 $ 1.25 Actual results ........................ $.28 $.51 $(1.39) 4 A ROADMAP FOR SUCCESS A ROADMAP FOR SUCCESS In 1996, Flextronics International continued to fulfill its commitment to its original business strategy--and to see the rewards of that effort. The underlying principles of that strategy demand that the Company: - - keep costs low and quality high; - - provide a spectrum of advanced technologies and services; - - maintain a global presence in strategic markets; - - create a flexible environment to meet rapidly changing market needs. To achieve these goals, Flextronics developed and implemented a number of innovative programs and solutions in 1996. DEMAND FLOW TECHNOLOGY Perhaps most critical to the Company's success in 1996 has been its implementation of Demand Flow Technology (DFT) in most of its factories worldwide. An alternative to traditional manufacturing strategies, DFT is a comprehensive manufacturing and quality strategy that streamlines the entire manufacturing process, from order-taking to delivery. With DFT, products are manufactured as customers order them, parts are delivered directly to assembly lines, assembly is done using a system known as "Kanban"--an assembly technique whereby products are pulled down a manufacturing line instead of being pushed through--and goods are shipped as soon as they are built. In 1996, Flextronics reconfigured production lines in many of its factories to apply DFT principles. Today, these factories operate with highly efficient work "cells" that eliminate many of the non-value-added labor costs associated with building a product. As a result, the Company has begun to see the many benefits of DFT, including shrinking inventories, shorter cycle times, and significantly lower costs. DFT has also made Flextronics' manufacturing process more flexible, allowing customers to make changes in product orders even during manufacturing cycles--and allowing the Company to meet rapidly changing market needs. DEDICATED FACTORIES Also in 1996, Flextronics extended its dedicated factory concept to many of its manufacturing facilities and customers. Similar to DFT, the dedicated factory concept significantly reduces cycle times and labor costs while increasing inventory turns by optimizing the manufacturing process. Instead of operating exclusively with traditional manufacturing lines, Flextronics dedicated space within many of its factories to building specific customers' products. These "factories within factories" were then specially redesigned to manufacture the products as quickly and efficiently as possible. Some, for example, were configured to maximize repeatability, while others were redesigned to do mixed-model manufacturing. As with DFT, the dedicated factory concept affords Flextronics a degree of flexibility almost un-matched in the contract manufacturing industry. Rather than having to ask customers to conform to its manufacturing set-up, the Company is now able to conform to its customers' product and market needs with these dedicated factories. COST-SAVING VENDOR PROGRAMS To further reduce costs and improve manufacturing efficiencies, the Company developed and implemented a number of innovative vendor programs in 1996. With the help of key suppliers, for instance, Flextronics was able to more efficiently implement a critical ship-to-line delivery program in its factories this year. Under a new system, vendors are required to pass a rigorous quality certification review administered by Flextronics. This process ensures that suppliers deliver only the highest quality components for the Company's use, and it eliminates the need for quality inspections upon delivery. Now, certified vendors deliver directly to manufacturing lines, which reduces the costs associated with shipping, receiving, and maintaining parts inventories. This program also has increased the Company's yield and inventory turns. Similarly, Flextronics developed a material replenishment system in 1996 that allows the Company to use components on an as-needed basis. Again, rather than carry the cost of maintaining parts inventories on-site, Flextronics has arranged for key suppliers to provide next-day delivery of materials based on Company forecasts. Not only has this new system simplified the Company's accounting efforts, but it has also reduced manufacturing lead times and personnel requirements in receiving. AUGMENTING THE ORIGINAL BUSINESS STRATEGY While the original business strategy has served Flextronics well since 1993, it must be modified periodically to help the Company maintain a competitive edge. In 1996, Flextronics augmented its original business strategy with two new components, one dealing with product miniaturization and the other with a focus on logistics. These two enhancements--working in concert with the Company's original goals and objectives--are expected to propel Flextronics to the forefront of the contract manufacturing industry. GRAPHIC 2 Flextronics offers a number of manufacturing programs designed to reduce cost and increase our customers' competitiveness 2 5 [GRAPHIC 3] THERMOSCAN, INC. When Thermoscan went looking for a contract manufacturer who could provide low cost, offshore manufacturing and cutting edge technologies, the company quickly found Flextronics. With its bare die assembly techniques, Flextronics was one of the few contract manufacturers that had both the manufacturing capability and the microelectronics technology Thermoscan needed to produce its infrared ear thermometers more efficiently and cost effectively. Flextronics' manufacturing facilities in Europe, Asia, and North America could provide Thermoscan with high-volume manufacturing in key markets worldwide. Just as importantly, though, the Company was also experienced with chip-on-board design and manufacturing, a sophisticated bare die assembly technique that enables the Company to produce smaller--but higher performing and more reliable--products at a reduced cost. Along with its advanced manufacturing, Flextronics now provides product development services for some of Thermoscan's next-generation products. 6 MINIATURIZATION As a result of its original business strategy, Flextronics has achieved some of the lowest labor costs and cycle times in the industry. The challenge that lies ahead is to find additional methods for reducing the cost of production--while continuing to provide the cutting-edge technologies and services needed to make customers more competitive in their marketplaces. Years ago, the Company identified miniaturization as an emerging technology capable of lowering manufacturing costs while increasing product competitiveness. Today, the demand for smaller, lighter electronic products with more features and lower prices is skyrocketing--and the cost savings achieved by packing more power into smaller spaces are growing. As evidenced by its modified business strategy, Flextronics recognizes the critical role that miniaturization will play in the Company's short- and long-term success and is now focusing on that area of opportunity. ADVANCED MINIATURIZATION TECHNOLOGIES Having foreseen the importance of miniaturization, the Company developed and acquired a number of innovative new manufacturing, packaging, and component technologies for producing miniaturized electronics products. With the 1995 purchase of nCHIP, for example, Flextronics acquired the technical knowledge it needed to design and build products using bare die assembly techniques. These techniques--the most advanced in the industry--are used to create multichip module (MCM), chip-on-board (COB), ball grid array (BGA), and flip-chip assemblies, and they enable the Company to build products with greater performance and reliability but for a lower cost than traditional manufacturing methods would allow. In 1996, Flextronics was able to extend miniaturization to the component level when it used a proprietary technology developed by nCHIP to integrate scores of resistors and capacitors into a single piece of silicon. Called an integrated passive, this miniaturized component not only takes up far less space than its traditional counterparts, but it also is considerably less expensive to make. MICROELECTRONICS DESIGN AND MANUFACTURING Today, Flextronics is using these advanced technologies to create--in volume--a variety of microelectronics products. And it is these technologies that provide the foundation for the Company's future in miniaturization. Yet it was the acquisition of Astron in 1996 that gave the Company a microelectronics manufacturing capability that is truly unique within the contract manufacturing industry. Astron, a Hong Kong-based company, is a leading manufacturer of miniature, gold-finished printed circuit boards. These advanced laminate substrates are used in portable computer and communications products--the very products that require nCHIP's bare die capabilities. With the Astron acquisition, Flextronics can now offer its customers a complete spectrum of advanced design and manufacturing technologies and services. From traditional pin-through-hole and surface mount (SMT) technologies to Astron's miniaturized fineline substrates and nCHIP's advanced multichip modules, Flextronics has the technical knowledge and capabilities needed to efficiently design and manufacture its customers' next-generation microelectronics products. STRATEGIC RELATIONSHIPS AND SERVICES To further develop its competitive edge--and the one it offers to its customers--Flextronics entered into a joint development effort with The Dow Chemical Co. in 1996. This strategic partnership will combine Dow Chemical's expertise in materials and packaging assembly with Flextronics' expertise in interconnect and electronics assembly to develop advanced packaging and interconnect technologies for the future. This joint effort, coupled with the Company's 1996 acquisitions and developments, positions Flextronics at the vanguard of the miniaturization movement in the contract manufacturing industry. Yet miniaturization is only one of the two new directions detailed in Flextronics' modified business strategy. In the coming years, the Company intends to secure its position as an industry leader with a new focus on logistics. GRAPHIC 4 Flextronics offers a complete spectrum of manufacturing technologies to aid in the development of next generation products. 4 7 [GRAPHIC 5] PALM COMPUTING, A DIVISION OF U.S. ROBOTICS Providing customers with advanced technologies and services is an important part of Flextronics' business strategy. And for the Palm Computing Division of U.S. Robotics, it was an important reason for selecting Flextronics to help design and manufacture its Pilot connected organizer. A software firm with an idea for a powerful new organizational tool, Palm Computing recognized it needed help both in developing a hardware platform for its new device and in organizing offshore and regional manufacturing once the design was complete. Flextronics--with its engineering services and manufacturing capabilities--seemed the perfect choice. Working together, engineers at Flextronics and Palm created an initial design that not only optimized the performance and manufacturability of the new product, but that also hit the stringent cost targets and development schedules set by the customer. Then, operating as the project's prime contractor, Flextronics organized a battery of experts, including those in board layout, testing, plastics and packaging before completing final assembly. Mass production began as scheduled at Flextronics' offshore and regional manufacturing facilities, where it continues today. 8 INTRODUCING LOGISTICS When Flextronics' management devised a new operational strategy in 1996, it created a plan that would not only significantly reduce the costs of manufacturing products for its customers, but that would also completely redefine the entire material acquisition and distribution cycle. A unique new strategy was designed to eliminate many of the non-value-added costs associated with material procurement, production, and distribution. And it is expected do so by eliminating the customer's involvement in these processes. A NEW LEVEL OF SERVICE With the traditional production/distribution strategy, raw materials from all over the world are brought into manufacturing facilities, where products are assembled. Finished goods are then transported to customer warehouses and, as demand requires, trucked to distribution centers and, finally, retail outlets for dispersion to end users. At best, this is an expensive process--in terms of both time and money. Flextronics envisions a more efficient and cost-effective method of managing the production and distribution process. The first step in this new strategy requires the Company to establish a series of "manufacturing campuses" in strategic locations throughout the world. Because of its proximity to Asia and Europe, Astron's 15-acre high-technology center in Doumen, China, has been earmarked as the Company's first manufacturing campus. The recently expanded 100,000-square-foot manufacturing operation in San Jose, California will eventually serve as the center of the Company's Silicon Valley manufacturing campus. A third campus is planned for Guadularaja, Mexico where we have 32-acres currently under contract. As these campuses are established, the Company will then implement its new logistics strategy. The idea is simple: Rather than have raw materials and components brought into these sites from all over the world, the campuses will manufacture many of the raw materials and components needed to build customer products. These campuses will also house the manufacturing facilities that will build the products--and once completed, the products will be moved to nearby warehouses where they will be distributed to end users. This streamlined approach to production and distribution can eliminate the need for customers to take possession of their products for warehousing or distribution. And while this logistics strategy has many advantages, the most important is cost reduction. With these new campuses, the Company believes it will be able to significantly reduce manufacturing overhead and, consequently, overall product costs. Producing some raw materials on-site will cut material costs considerably and shorten the supply chain. The expense of freight and handling will also drop dramatically since the components will be created at the same place from which they are distributed. Not having to move components or materials from factory to factory also will result in lower material packaging costs. These cost reductions will ultimately result in a more competitive product for our customers. Finally, because these manufacturing campuses will be located near major marketplaces, they will enable the Company to react more quickly to its customers' market changes--and to get products to end users even faster. LOOKING FORWARD Although its original business strategy was well-conceived--and successful--Flextronics believes the enhancements it made to that strategy in 1996 are necessary to the Company's continued success. Course changes are not unusual in rapidly changing industries; in fact, they are often requirements. The Company sees its new logistics strategy and focus on miniaturization as just that essential. In the coming year, Flextronics will continue to evaluate new technologies and services so that it may meet--and exceed--the high expectations of its customers. The Company is dedicated to being one of the world's leading contract manufacturers and, for the reasons outlined above, looks forward to 1997 with enthusiasm. GRAPHIC 6 - Logistics: The production and distribution strategy of tomorrow. Raw materials - Manufacturing Campus located close to major market place Distribution - End User 6 9 [GRAPHIC 7] MICROSOFT CORPORATION By establishing itself in the three most strategic markets worldwide--North America, Europe, and Asia--Flextronics responded to its customers' needs for globalized manufacturing. It also opened the door to potential customers, like Microsoft, that were looking for a contract manufacturer with just that kind of exposure. When Microsoft began its exhaustive search for a strategic manufacturing partner, it started by reviewing over 100 companies, evaluating each one for quality, manufacturing locations and costs, among other things. After nine months, only one name remained--and Flextronics was chosen to produce Microsoft's computer peripheral devices. The Company's regional manufacturing capabilities, particularly in Europe and Asia, and its cost competitiveness strongly influenced Microsoft's decision--as did the fact that Flextronics does only contract manufacturing and has no products of its own, thereby respecting its customers' proprietary technology. Today, Flextronics manufactures the Microsoft mouse for European and Asian markets and is an integral part of Microsoft's U. S. product development team--reviewing next generation product designs for manufacturability and testability, and designing complete board layouts based on Microsoft's functionality requirements. 10 FLEXTRONICS INTERNATIONAL'S DESIGN AND MANUFACTURING FACILITIES GRAPHIC 7 - World Map with Flextronics' locations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the matters discussed below and elsewhere herein contain forward-looking statements regarding the future performance of the Company and future events that involve risks and uncertainties that could cause actual results to differ materially from the statements contained herein. This document, and the documents that the Company files from time to time with the Securites and Exchange Commission, such as its reports on Form 10-K, Form 10-Q, Form 8-K and its proxy materials, contain additional important factors that could cause actual results to differ from the Company's current expectations and the forward-looking statements contained herein. OVERVIEW The Company was organized in Singapore in 1990 to acquire the Asian contract manufacturing operations and certain U.S. design, sales and support operations of Flextronics, Inc. (the "Predecessor"), which had been in the contract manufacturing business since 1982. The acquisition of the selected operations of the Predecessor for approximately $39.0 million was completed in June 1990 and was financed with approximately $20.0 million of secured long-term bank debt, $4.0 million of subordinated debt and $15.0 million of equity. After such acquisition, the equity investors held approximately 55% of the outstanding share capital of the Company. The Company's results of operations for periods following the 1990 acquisition and through March 1994 reflect the interest expense associated with the indebtedness incurred in connection with this transaction. In July 1993 a group of new investors acquired a controlling interest in the Company through the acquisition of substantially all of the interest in the Company that had been retained by the Predecessor, a direct equity investment of $3.2 million in the Company and the purchase of a portion of the shares acquired by the investors in the 1990 acquisition. In December 1993 the Company raised an additional $7.0 million of equity capital from investors ($3.7 million of which represented the conversion of its outstanding subordinated debt into equity). In March 1994 the Company raised $32.5 million in an initial public offering of Ordinary Shares. In August 1995 the Company raised an additional $22.3 million in a public offering of Ordinary Shares. In April 1995, the Company acquired Assembly & Automation (Electronics) Limited ("A&A"), a contract manufacturer located in Wales, in exchange for an aggregate of $2.9 million and 66,908 Ordinary Shares. The Company's financial statements for fiscal 1996 include the operating results of A&A from April 12, 1995 to March 31, 1996. Flextronics International Ltd. 8 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In February 1996, the Company acquired Astron Group Limited ("Astron") for (i) $13,440,605 in cash, (ii) $15 million in promissory notes payable over a two year period and bearing interest at a rate of 8% per annum, and (iii) Ordinary Shares of S$0.01 each in the capital of the Company with a value of $6,507,000. In addition, the Company will issue Ordinary Shares with a value of $10 million to the former Astron shareholders on June 30, 1998 and will pay an earnout of up to an additional $12.5 million in cash and Ordinary Shares calculated in accordance with a formula based upon Astron's pre-tax profit for calendar year 1996, on or about March 31, 1997. The Company has included $3.125 million or 25% of the earnout goals in fiscal 1996 as the management believes that Astron will most probably be able to meet the profit target for the first quarter. The Company has also entered into consulting agreements with the former Chairman of Astron, which include confidentiality provisions and a convenant not to compete. The agreements provide for the payment of an annual fee, plus a $15 million payment to be made on June 30, 1998. The Company's financial statements for fiscal 1996 include two months of Astron's operating results. In the fourth quarter of fiscal 1996 the Company wrote off $31.6 million of in-process research and development associated with the acquisition of Astron and also recorded one time charges totalling $2.5 million for costs associated with the closing of one of the Company's Malaysia plants and its Shekou, China operations. Without taking into account these write-offs and charges, the Company's net income and earnings per share in fiscal 1996 were $16.6 million and $1.25, respectively. The Company's subsidiaries, with the exception of Astron, are interdependent and are not managed for stand alone results. Certain operational functions for the entire Company, such as marketing and administration, may be carried out by a subsidiary in one country. In addition, the Company may from time to time shift responsibilities from a subsidiary in one country to a subsidiary in another country, thereby changing the operating results of the impacted subsidiaries but not the Company as a whole. For these reasons, the Company believes that changes in results of operations in the individual countries in which it operates are not necessarily reflective of material changes in the Company's overall results. The selected financial data set forth below as of March 31, 1994, 1995 and 1996, and for the fiscal years ended March 31, 1993, 1994, 1995 and 1996 has been derived from consolidated financial statements of the Company which have been audited by Ernst & Young, independent auditors, whose report thereon is included elsewhere herein. The Company accounted for the January 1995 acquisition of nCHIP as a pooling of interest. Therefore, the financial data presented below for fiscal years 1992, 1993, 1994 and 1995 include the historical results of nCHIP. These historical results are not necessarily indicative of the results to be expected in the future.
Fiscal Year Ended March 31, 1992 1993 1994 1995 1996 ----------------------------------------------------------------------------------------------------------- (in thousands except per share amounts) STATEMENT OF OPERATIONS DATA: Net sales $ 80,729 $ 100,759 $ 131,345 $ 237,386 $ 448,346 Cost of sales 73,361 91,794 117,392 214,865 406,457 ------------------------------------------------------------ Gross profit 7,368 8,965 13,953 22,521 41,889 Selling, general and administrative expenses 7,252 7,131 8,667 11,468 18,587 Research and development 2,737 81 202 91 31,562 Goodwill/intangible assets amortization 399 388 419 755 1,061 Provision for plant closings 202 -- 830 -- 2,454 ------------------------------------------------------------ Operating income (loss) (3,222) 1,365 3,835 10,207 (11,775) Interest expense and other, net 2,898 2,329 1,376 1,043 1,846 Merger expenses -- -- -- 816 -- Income (loss) from joint venture -- -- (70) (729) -- ------------------------------------------------------------ Income (loss) before income taxes (6,120) (964) 2,389 7,619 (13,621) Provision for income taxes 398 264 654 1,463 3,791 Extraordinary gain -- -- 416 -- -- ------------------------------------------------------------ Net income (loss) $ (6,518) $ (1,228) $ 2,151 $ 6,156 $ (17,412) ============================================================ Net income (loss) per share $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39) ============================================================ Weighted average Ordinary Shares and equivalents 7,284 7,382 7,730 12,103 12,536 ============================================================ March 31, 1992 1993 1994 1995 1996 ----------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Working capital $ 856 $ (1,201) $ 30,669 $ 33,425 $ 27,676 Total assets 41,734 52,430 103,129 116,117 214,588 Long-term debt and capital lease obligations, excluding current portion 7,514 17,243 4,755 6,890 28,360 Shareholders' equity (1,040) (2,256) 46,703 57,717 70,779
Flextronics International Ltd. 9 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statement of operations data expressed as a percentage of net sales.
Fiscal Year Ended March 31, 1994 1995 1996 - ------------------------------------------------------------------------------ Net sales 100.0% 100.0% 100.0% Cost of sales 89.4 90.5 90.7 --------------------------- Gross profit 10.6 9.5 9.3 Selling, general and administrative expenses 6.6 4.9 4.2 Goodwill/intangible assets amortization 0.3 0.3 0.2 Provision for plant closings 0.6 -- 0.5 Research and development 0.2 -- 7.0 --------------------------- Operating income (loss) 2.9 4.3 (2.6) Interest expense and other, net 1.0 0.5 0.4 Merger expenses -- 0.3 -- Income (loss) from joint venture (0.1) (0.3) -- --------------------------- Income (loss) before income taxes 1.8 3.2 (3.0) Provision for income taxes 0.5 0.6 0.9 Extraordinary gain 0.3 -- -- --------------------------- Net income (loss) 1.6% 2.6% (3.9%) ===========================
NET SALES Net sales in fiscal 1996 increased 89% to $448 million from $237 million in fiscal 1995. This increase was primarily due to higher sales to existing customers, including Lifescan (a Johnson & Johnson Company), Visioneer, Microcom and Global Village Communications, sales to new customers in the computer and medical industries such as Apple Computer and Thermoscan and the inclusion of A&A's and Astron's sales after their acquisitions in April 1995 and February 1996, respectively. As expected, sales to IBM declined significantly due to IBM's efforts to consolidate more of its manufacturing business internally. The Company expects sales in the first quarter of fiscal 1997 to be approximately the same as the sales in the fourth quarter of fiscal 1996 due to softening of the PC peripheral business during this period. Net sales in fiscal 1995 increased 81% to $237 million from $131 million in fiscal 1994. This increase was primarily the result of higher sales to existing customers, including Lifescan (a Johnson & Johnson Company), IBM and Interbold and sales to new customers in the consumer electronics industries such as Phonex, International Components Corporation and Global Village Communications. GROSS PROFIT Gross profit is affected by, among other things, product mix, component costs, product life cycles, unit volumes, start up of new manufacturing facilities and new product introductions. Gross profit margin declined slightly to 9.3% in fiscal 1996 as compared to 9.5% in fiscal 1995 mainly due to the additional costs associated with new manufacturing facilities in Texas and China that were opened in the fourth quarter of fiscal 1995 and the expansion of nCHIP's MCM fab facility. The decrease in gross profit margin was also attributable to a reduction in certain selling prices in order to remain competitive. Gross margin decreased to 9.5% in fiscal 1995 as compared to 10.6% in fiscal 1994, principally as a result of the consolidation of nCHIP's results of operations with the Company and sales to new customers, which typically entail higher expenses and lower margin initially. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses in fiscal 1996 increased to $18.6 million from $11.5 million in fiscal 1995, but decreased as percentage of net sales to 4.2% in fiscal 1996 from 4.9% in fiscal 1995. The increase in absolute dollars was principally due to costs associated with the expanded facilities in China and Texas, increased sales personnel and market research activities in U.S. and the inclusion of A&A's and Astron's selling and general administrative expenses after their acquisitions in April, 1995 and February, 1996, respectively. The Company anticipates that selling, general and administrative expenses will continue to increase in absolute dollars. Selling, general and administrative expenses in fiscal 1995 increased to $11.5 million from $8.7 million in fiscal 1994, but decreased as a percentage of net sales to 4.9% in fiscal 1995 from 6.6% in fiscal 1994. The increase in absolute dollars was principally due to costs associated with increases in corporate administrative expenses and provision for doubtful accounts, the Flextronics International Ltd. 10 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS inclusion of Relevant's selling and general administrative expenses, and provision for severance payment to certain nCHIP personnel. GOODWILL AND INTANGIBLE ASSETS Goodwill, which represents the excess of the purchase price of an acquired company over the fair market value of its net assets, and intangible assets are amortized on a straight line basis. Goodwill amortization increased from $510,000 in fiscal 1995 to $725,000 in fiscal 1996 primarily due to the goodwill from the Company's acquisition of A&A. Intangible asset amortization increased from $245,000 in fiscal 1995 to $336,000 in fiscal 1996 primarily due to the acquisition of A&A and Astron. Due to the acquisition of Relevant, goodwill amortization increased from $398,000 in fiscal 1994 to $510,000 in fiscal 1995 and intangible assets amortization increased from $21,000 in fiscal 1994 to $245,000 in fiscal 1995. PROVISION FOR PLANT CLOSINGS The provision for plant closings of $2.5 million in fiscal 1996 includes a $1.0 million provision for inventory exposure and $1.3 million associated with the write-off of certain obsolete equipment at one of the Company's facilities in Malaysia and in Shekou, China. The provision for plant closings were related to the Company ceasing its satellite receiver product line in Malaysia and the closing of its manufacturing operations in Shekou, China. These plant closings reflect the Company's strategy to move away from a large number of small facilities and toward larger, campus type operations. Production from the Shekou facility has been moved to the Company's plant in Xixiang, China. RESEARCH AND DEVELOPMENT In connection with the Astron acquisition the Company engaged Duff & Phelps Capital Markets Co. ("DPCM") to determine the fair market value of Astron's research and development assembly in process. ("In-Process R&D"). The valuation of the In-Process R&D was performed using the discounted cashflow technique whereby the future cashflow expected to be generated is determined by the current level of technology investment by Astron. DPCM determined the valuation to be between $31 million and $37 million, and the Company has written off $31.6 million of In-Process R&D in fiscal 1996. INTEREST EXPENSE AND OTHER, NET Interest expense and other, net increased to $1.8 million in fiscal 1996 from $1.0 million in fiscal 1995. The increase reflects interest incurred in connection with additional indebtedness used to finance the cash portion of the A&A and Astron acquisitions, to purchase machinery and equipment for capacity expansion and to finance the Company's working capital requirements. The Company has recorded an unrealized foreign exchange gain of $872,000 in fiscal 1996 compared to a foreign exchange loss of $303,000 in fiscal 1995 due to weaker Malaysian Ringgit and Singapore dollars. Interest expense and other, net decreased to $1.0 million in fiscal 1995 from $1.4 million in fiscal 1994. The decrease reflects lower interest expense during this period as a result of the repayment of long term bank debt in March 1994 and repayment of short-term advances in April 1994, and higher income earned on cash balances for the first six months of fiscal 1995. MERGER EXPENSES The Company recorded a one-time non-operating charge of approximately $816,000 as a result of the nCHIP acquisition in January 1995. INCOME (LOSS) FROM JOINT VENTURE Flextracker, the joint venture with HTS in which the Company previously owned a 49% interest, commenced operations in June 1993. According to the equity method of accounting, the Company previously did not recognize revenue from sales by Flextracker, but based on its ownership interest recognized 49% of the net income or loss of the joint venture. Due to start-up costs and manufacturing inefficiencies, the Company recognized a loss of $729,000 and $70,000 associated with its interest in Flextracker in fiscal 1995 and fiscal 1994 respectively. The Company initially contributed $2.5 million for a 49% interest in Flextracker and HTS contributed $2.6 million for the remaining 51% interest. In April 1994 the Company and HTS each loaned $1 million to Flextracker. In December 1994, the Company acquired all of the net assets of Flextracker (except the $1.0 million loan made by HTS to Flextracker) for approximately $3.3 million. PROVISION FOR INCOME TAXES The Company is structured as a holding company with several operating subsidiaries. The Company conducts its operations in Asia primarily through its manufacturing and marketing subsidiaries incorporated in Singapore, Malaysia, Hong Kong Flextronics International Ltd. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and China, and each of these subsidiaries is subject to taxation in the country in which it has been formed. The Company's manufacturing subsidiaries have 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 ordinary corporate tax rates for calendar 1995 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 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 pretax income. Losses incurred by any subsidiary or by the holding company are not deductible by the other entities 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 charge could be offset. Similarly, interest on senior debt, which was an obligation of the holding company, produced losses for that company. Losses of the Hong Kong subsidiary and holding company were not deducted from the income of the other subsidiaries. In addition, nCHIP's historical losses and the accounting of its acquisition as a pooling of interests have negatively impacted the Company's pre-tax performance, resulting in a higher effective tax rate for the prior periods. The Company's consolidated effective tax rate was 27.8% and 19.2% in fiscal 1996 and 1995 respectively. Variations in the Company's consolidated effective tax rates are primarily attributable to the differences in the relative amount of holding company interest expense compared to the amount of pretax income in the respective periods, as well as the impact of nCHIP's historical losses and the accounting of its acquisition as a pooling of interests. In addition, the provision for plant closings of $2.5 million and the $31.6 million write-off of In-Process R&D in fiscal 1996 have contributed to the higher consolidated effective tax rate in that period. If the provision for plant closings and In-Process R&D written off are excluded from such calculation, the Company's fiscal 1996 effective tax rate would have been 18.6%. The Company's Singapore operations were previously granted "Pioneer Status", which expired on July 31, 1990. Under such status the Singapore subsidiary's manufacturing income had been exempt from tax. The Company has reached an agreement with the Economic Development Board of Singapore for a specified amount of investment allowances on approved fixed capital expenditures. This investment allowance, which has certain conditions and expired in July 1995, has been utilized by the Company to reduce taxable income of the Singapore subsidiary since fiscal 1991. The Company's Malaysian manufacturing subsidiary has been granted a five-year pioneer incentive which provides a tax exemption on manufacturing income 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 losses carry forward. The Company's facility in China is located in a "Special Economic Zone" and is an approved "Product Export Enterprise" which qualifies for a special corporate income tax rate of 10%. This special tax rate is subject to the Company exporting more than 70% of its total value of products manufactured in China, and the Company's status as a Product Export Enterprise is reviewed annually by the Chinese government authorities. The Company's investments in its plant in Xixiang, China and Astron fall under the "Foreign Investment Scheme" which entitles the Company to apply for a five year tax incentive. The Company has applied for the tax incentive and believes that it will be approved by the relevant tax authorities, although there can be no assurance in this regard. If approval is received, the Company's tax rates on income from this facility during the incentive period will be 0% in years 1 and 2 and 7 1/2 % in years 3 through 5. 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 minimis. In February 1996, the Company transferred Astron's sales and marketing business to a newly formed subsidiary in Mauritius, where the tax rate is at 0% . 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. If tax incentives are not renewed upon expiration, if the tax rates applicable to the Company are rescinded or changed, or if tax authorities were to challenge successfully the manner in which profits are recognized among the Company's subsidiaries, the Company's taxes 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 disagreement. If the Company's Asian profits became subject to U.S. income taxes, the Company's taxes could increase and its results of operations and cash flow could be adversely affected. The expansion by the Company of its operations in the U.S may increase its effective tax rate. There are no Singapore exchange controls or other restrictions on the export or import of capital. The remittance of dividends or other payments by the Company to non-resident shareholders is therefore not subject to any restriction. Singapore Flextronics International Ltd. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS does not currently have a double tax treaty with the United States of America. However, under the current Singapore tax rules, there is no Singapore withholding tax on payments of dividends or other distributions by the Company to its non-resident shareholders. EXTRAORDINARY GAIN The extraordinary gain of $416,000 in fiscal 1994 represents the forgiveness of accrued interest on the Company's outstanding subordinated debt, the principal amount of which was converted into equity in December 1993. VARIABILITY OF RESULTS The Company has experienced, and expects to continue to experience, significant periodic and quarterly fluctuations in the Company's results of operations. These factors include, among other things, timing of orders, volume of orders relative to the Company's capacity, customers' announcement and introduction of new products or new generations of products, evolutions in the life cycles of customers' 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 economic conditions. In addition, the Company's operating results are affected adversely 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. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations from the proceeds of public offerings of equity securities, cash generated from operations, bank debt and lease financing of capital equipment. At March 31, 1994 the outstanding balance on the Company's total borrowing was $10.5 million, substantially all of which was repaid in April 1994 with a portion of the net proceeds of the Company's initial public offering. The Company has obtained a $48 million line of credit from several banks and is negotiating for a $50 million, two year revolving credit facility to replace the existing facilities. Cash used for operating activities was $710,000 and $3.4 million for fiscal 1996 and 1995, respectively. Cash provided by operating activities for fiscal 1996 was comprised primarily of net profit of $16.6 million (excluding In-Process R&D written off and provision for plant closings), depreciation, amortization and allowance for doubtful accounts and obsolescence. Cash used for operating activities was primarily comprised of increases in accounts receivable and inventories reflecting higher sales in fiscal 1996. Cash provided by operating activities for fiscal 1995 was comprised primarily of net income, depreciation amortization allowance for doubtful debts, loss from the Flextracker joint venture and cash used for operating activities for fiscal 1995 was comprised mainly of an increase in accounts receivable and inventories. Cash used for investing activities during fiscal 1996 consisted primarily of $15.8 million of expenditures for machinery and equipment in the Company's Texas, China and California manufacturing facilities as well as payment of $15.2 million for the cash portion of the A&A and Astron acquisitions. Cash used for investing activities for fiscal 1995 was $10.2 million which consisted mainly of purchases of property and equipment in three Asia plants and payment for the acquisition of the net assets of FlexTracker. Cash provided by financing activities was $31.6 million in fiscal 1996 which consisted primarily of $22.3 million from the sale of 1,000,000 newly issued Ordinary Shares and net bank borrowings of $12.3 million. Cash used for financing activities was $10.8 million for fiscal 1995 which consisted primarily of repayment of bank borrowings and notes payable, offset in part by proceeds from issuance of share capital and increased capital lease financing. The Company's allowances for doubtful accounts increased from $1.8 million at March 31, 1995 to $3.6 million at March 31, 1996. The Company allowance for inventory obsolescence increased from $ 1.9 million at March 31, 1995 to $ 4.6 million at March 31, 1996. The increases in the allowances were due to the increases in sales and inventories during fiscal 1996 and the $1 million provision for inventory exposure relating to the closing of the satellite receiver product line in one of the Company's Malaysia plants. The Company presently anticipates that its capital expenditures in fiscal 1997 will be approximately $20 million to $25 million. The Company believes that existing cash, together with anticipated cash flow from operations and amounts available under its credit facilities, will be sufficient to fund its operations through fiscal 1997. Flextronics International Ltd. 13 16 CONSOLIDATED BALANCE SHEETS
March 31, 1995 1996 - ------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) ASSETS Current assets: Cash $ 4,751 $ 6,546 Accounts receivable, net of allowance for doubtful accounts of $1,760 and $3,576 at March 31, 1995 and 1996 respectively 44,250 78,114 Inventories 30,193 52,637 Other current assets 4,527 3,827 Deferred income taxes 220 260 ---------------------- Total current assets 83,941 141,384 ---------------------- PROPERTY AND EQUIPMENT: Machinery and equipment 43,358 77,771 Building 283 5,736 Leasehold improvements 3,891 15,491 ---------------------- 47,532 98,998 Accumulated depreciation and amortization (21,774) (37,896) ---------------------- Net property and equipment 25,758 61,102 ---------------------- OTHER NON-CURRENT ASSETS: Goodwill, net of accumulated amortization of $1,976 and $2,701, at March 31, 1995 and 1996 respectively 4,964 8,662 Intangible assets, net of accumulated amortization of $306 and $642, at March 31, 1995 and 1996 respectively 624 775 Deposits and other 226 580 Receivables from related party -- 2,085 Other investments 520 -- Deferred income taxes 84 -- ---------------------- Total other non-current assets 6,418 12,102 ---------------------- Total assets $ 116,117 $ 214,588 ====================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Bank borrowings $ 2,000 $ 14,379 Notes payable -- 10,000 Current portion of long-term debt 9 4,198 Current portion of capital lease 3,911 6,736 Accounts payable 38,489 64,625 Accrued payroll 2,549 5,606 Other accrued liabilities 2,029 5,389 Income taxes payable 1,529 2,775 ---------------------- Total current liabilities 50,516 113,708 ---------------------- NON CURRENT LIABILITIES: Notes payable to shareholders 684 686 Long-term debt, less current portion -- 2,554 Other payable -- 15,000 Capital lease, less current portion 6,206 10,120 Deferred income taxes 994 1,256 Commitments (Notes 4 and 5) -- -- ---------------------- Total non-current liabilities 7,884 29,616 Minority interests -- 485 ---------------------- SHAREHOLDERS' EQUITY: Ordinary Shares, S$.01 par value: Authorized -- 100,000,000 shares at March 31, 1995 and 1996 Issued and outstanding -- 11,603,496 shares at March 31, 1995 and 13,213,289 shares at March 31, 1996 73 85 Additional paid-in capital 62,882 93,634 Accumulated deficit (5,238) (22,940) ---------------------- Total shareholders' equity 57,717 70,779 ---------------------- Total liabilities and shareholders' equity $ 116,117 $ 214,588 ======================
See accompanying notes. Flextronics International Ltd. 14 17 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31, 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Net sales $ 131,345 $ 237,386 $ 448,346 Cost of sales 117,392 214,865 406,457 ----------------------------------- Gross profit 13,953 22,521 41,889 Selling, general and administrative expenses 8,667 11,468 18,587 Goodwill amortization 398 510 725 Intangible assets amortization 21 245 336 Provision for plant closings 830 -- 2,454 Research and development 202 91 31,562 ----------------------------------- Operating income/(loss) 3,835 10,207 (11,775) Interest expense (1,778) (740) (2,718) Merger expenses -- (816) -- Foreign exchange gain (loss) 402 (303) 872 Income (loss) from joint venture (70) (729) -- ----------------------------------- Income (loss) before income taxes and cumulative effect of change in accounting for income taxes 2,389 7,619 (13,621) Provision for income taxes 97 1,463 3,791 ----------------------------------- Income (loss) after income taxes, before cumulative effect of change in accounting for income taxes and extraordinary gain 2,292 6,156 (17,412) Cumulative effect as of March 31, 1994 of change in accounting for income taxes 557 -- -- ----------------------------------- Income (loss) before extraordinary gain 1,735 6,156 (17,412) Extraordinary gain 416 -- -- ----------------------------------- Net income (loss) $ 2,151 $ 6,156 $ (17,412) =================================== Earnings per share: Net income (loss) before cumulative effect of change in accounting for income taxes and extraordinary gain $ 0.30 $ 0.51 $ (1.39) Cumulative effect of accounting change (0.07) -- -- ----------------------------------- Net income (loss) before extraordinary gain $ 0.23 $ 0.51 $ (1.39) Extraordinary gain 0.05 -- -- ----------------------------------- Net income (loss) per share $ 0.28 $ 0.51 $ (1.39) =================================== Weighted average outstanding Ordinary Shares and equivalents 7,730 12,103 12,536 ===================================
See accompanying notes. Flextronics International Ltd. 15 18 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Class "A" Class "B" Total Convertible Convertible Redeemable Additional Share- Preference Shares Preference Shares Ordinary Shares Paid-in Retained holders' Shares Amount Shares Amount Shares Amount Capital Earnings Equity - -------------------------------------------------------------------------------------------------------------------------------- (In thousands) BALANCE AT MARCH 31, 1993 2,700 $ 15 51 $ -- 2,404 $16 $ 10,662 $(12,949) $ (2,256) Issuance of "A" Convertible Preference Shares for cash 27 2 -- -- -- -- 65 -- 67 Issuance of Ordinary Shares for cash and from capitalization of Subordinated Note Payable -- -- -- -- 2,968 19 10,449 -- 10,468 Compensation expense related to stock options -- -- -- -- -- -- 159 -- 159 Issuance of Ordinary Shares for acquisition of subsidiary -- -- -- -- 600 4 3,998 -- 4,002 Issuance of Ordinary Shares in the initial public offering (net) -- -- -- -- 2,500 15 32,088 -- 32,103 Exercise of stock options -- -- -- -- 54 -- -- -- -- Conversion of Preference Shares to Ordinary Shares (2,727) (17) (51) -- 2,778 17 -- -- -- Net income for the year -- -- -- -- -- -- 2,151 2,151 Transaction by pooled companies: Issuance of common stock -- -- -- -- -- -- 9 -- 9 ---------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1994 -- $ -- -- $ -- 11,304 $71 $ 57,430 $(10,798) $ 46,703 nCHIP fiscal year conversion -- -- -- -- -- -- -- (596) (596) Issuance of Ordinary Shares -- -- -- -- 300 2 925 -- 927 Expenses related to issuance of Ordinary Shares -- -- -- -- -- -- (968) -- (968) Net income for the year -- -- -- -- -- -- -- 6,156 6,156 Transactions by pooled companies: Issuance of common stock -- -- -- -- -- -- 37 -- 37 Issuance of preference stock -- -- -- -- -- -- 5,458 -- 5,458 ---------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1995 -- $ -- -- $ -- 11,604 $73 $ 62,882 $ (5,238) $ 57,717 Issuance of Ordinary Shares for acquisition of subsidiaries -- -- -- -- 305 2 7,443 -- 7,445 Issuance of Ordinary Shares -- -- -- -- 304 2 1,007 -- 1,009 Secondary listing -- -- -- -- 1,000 8 23,492 -- 23,500 Expenses related to secondary listing -- -- -- -- -- -- (1,190) -- (1,190) Currency translation adjustments -- -- -- -- -- -- -- (290) (290) Net loss for the year -- -- -- -- -- -- -- (17,412) (17,412) ---------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1996 -- $ -- -- $ -- 13,213 $85 $ 93,634 $(22,940) $ 70,779 ========================================================================================
See accompanying notes. Flextronics International Ltd. 16 19 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, 1994 1995 1996 - --------------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,151 $ 6,156 $(17,412) Adjustments to reconcile net income to cash provided by operating activities: nCHIP fiscal year conversion -- (596) -- Depreciation and amortization of equipment and leasehold improvements 4,202 5,370 9,344 Amortization of goodwill 398 510 725 Amortization of intangible assets 21 245 336 Loss / (gain) on disposal of property and equipment 368 56 (121) Loss on disposal of investment -- -- 266 Write-off of property and equipment 20 -- -- Extraordinary gain (416) -- -- Allowance for doubtful debts (32) 1,211 1,475 Allowance for stock obsolescence (120) 43 631 Compensation expense relating to stock option plan 159 -- -- Loss from joint venture 70 729 -- In process research and development written off -- -- 31,562 Provision for plant closure -- -- 2,454 Deferred income taxes 339 237 84 -------------------------------- $ 7,160 $ 13,961 $ 29,344 CHANGES IN OPERATING ASSETS AND LIABILITIES: Trade accounts receivable $ (8,306) $(15,057) $(28,965) Notes receivable -- -- (500) Inventories (5,863) (3,156) (19,209) Other accounts receivable (572) (2,430) 2,889 Due from joint venture (1,588) -- -- Deposits and other (121) 311 (140) Accounts payable 14,812 2,995 14,143 Other accounts payable 1,283 (841) 727 Deferred rent (1,302) (143) (120) Income taxes payable 111 933 1,121 -------------------------------- Cash provided by (used for) operating activities $ 5,614 $ (3,427) $ (710) --------------------------------
Flextronics International Ltd. 17 20 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, 1994 1995 1996 - --------------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment $ (5,246) $ (7,536) $(15,812) Proceeds from sale of property and equipment 2,301 38 228 Intangibles arising from acquisition of subsidiaries -- (62) -- Other investments (120) -- 886 Investment in joint venture (2,529) -- -- Restricted cash 379 -- -- Loan to joint venture -- (1,000) -- Redemption of preference shares in joint venture -- 1,730 -- Payment for business acquired, net of cash acquired -- (3,343) (15,152) Repayment of loan from related party -- -- 815 -------------------------------- Cash used for investing activities $ (5,215) $(10,173) $(29,035) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from (repayments to) banks $ 1,177 $ (9,417) $ 12,280 Proceeds from (repayment of) long-term debt (13,008) (8) 1,803 Repayment of capital lease obligations (1,998) (4,310) (5,767) Proceeds from issuance of share capital 38,598 5,454 1,009 Proceeds from notes payable 1,449 -- -- Payments on notes payable (224) (2,535) (17) Proceeds from secondary listing -- -- 22,310 -------------------------------- Cash provided by (used for) financing activities 25,994 (10,816) 31,618 -------------------------------- Increase (decrease) in cash and cash equivalents $ 26,393 $(24,416) $ 1,873 Effect of exchange rate changes on cash and cash equivalents -- -- (78) Cash and cash equivalents at beginning of period 2,774 29,167 4,751 -------------------------------- Cash and cash equivalents at end of period $ 29,167 $ 4,751 $ 6,546 ================================ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid (refunded) for: Interest $ 1,579 $ 779 $ 2,482 Income taxes (200) 297 2,656 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Equipment acquired under capital lease obligations 494 8,338 11,556 Additional ordinary shares issued upon conversion of subordinated note debt 3,658 -- -- Purchase of subsidiaries financed by issuance of 600,000 ordinary shares valued at $6.67 4,002 -- -- 66,908 ordinary shares valued at $14.019 -- -- 938 238,684 ordinary shares valued at $27.262 -- -- 6,507
See accompanying notes. Flextronics International Ltd. 18 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION OF THE COMPANY Flextronics International Ltd. was incorporated in the Republic of Singapore on May 31, 1990 as Flex Holdings Pte Limited. The subsidiary companies are located in Singapore, Malaysia, Hong Kong, the People's Republic of China, United Kingdom, Mauritius and the United States. The Company was incorporated to acquire the Asian and certain U.S. operations of Flextronics Inc. (the "Predecessor"). The Predecessor had been involved in contract manufacturing operations in Singapore since 1982, Hong Kong since 1983 and the People's Republic of China since 1987. The Company offers advanced contract manufacturing services of sophisticated original equipment manufacturers (OEMs) in the communications, computer, consumer and medical electronics industries. Flextronics offers a full range of services including microelectronics packages and printed circuit board (PCB) assembly design and fabrication, material procurement, inventory management, PCB assembly, final system box build and distribution. The Company's fiscal year-end is March 31. The Company follows accounting policies which are in accordance with principles generally accepted in the United States. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Flextronics International Ltd. and its subsidiaries (together "the Company"), after elimination of all significant intercompany balances and transactions. Investments in affiliates owned 20% or more and corporate joint ventures in which the Company does not have control, but has the ability to exercise significant management influence over operating and financial policies, are accounted for by the equity method. Other securities and investments are generally carried at cost. All dollar amounts included in the financial statements and in the notes herein are U.S. dollars unless designated as Singapore dollars (S$). FOREIGN EXCHANGE The Company, with the exception of certain subsidiaries, considers the U.S. dollar as its functional currency. This is because the majority of the Company's sales are billed and collected in U.S. dollars, and the majority of the Company's purchases, such as raw materials, are invoiced and paid in U.S. dollars. Accordingly, transactions in currencies other than the functional currency are measured and recorded in U.S. dollars using the exchange rate in effect at the date of the transaction. At each balance sheet date, recorded monetary balances that are denominated in currencies other than the functional currency are adjusted to reflect the rate at the balance sheet date. All gains and losses resulting from the translation of accounts designated in other than the functional currency are reflected in the determination of net income in the year in which they occur. For inclusion in the consolidated financial statements, all assets and liabilities of foreign subsidiaries having a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate ruling at the balance sheet date and the results of these foreign subsidiaries are translated into U.S. dollars at the weighted average exchange rates. Exchange differences due to such currency translations are recorded in shareholders' equity. CASH AND CASH EQUIVALENTS For purposes of statement of cash flows, the Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the related assets (two to twenty-two years). CONCENTRATION OF CREDIT RISK The Company is a turnkey manufacturer of sophisticated electronics for original equipment manufacturers engaged in the computer, medical, consumer and communications industries. Financial instruments which potentially subject the Company to concentration of credit risk are primarily accounts receivable and cash equivalents. The Company performs ongoing credit evaluations of its customers' financial conditions and, generally, requires no collateral from its customers. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located in many different geographic locations throughout the world. The allowance for doubtful accounts the Company maintains is based upon the expected collectibility of all accounts receivable. GOODWILL Goodwill represents the excess of the purchase price of acquired companies over the fair value of the net assets acquired. Goodwill is amortized on a straight line basis over the estimated life of the benefits received which ranges from ten to twenty-five years. On an annual basis, the Company evaluates recorded goodwill for potential impairment against the current and estimated undiscounted future operating income before goodwill amortization of the businesses to which the goodwill relates. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INTANGIBLE ASSETS Intangible assets comprise technical agreements, patents, trademarks and identifiable intangible assets in a subsidiary's assembled work force, its favourable lease and its customer list. Technical agreements are being amortized on a straight line basis over periods not exceeding five years. Patents and trademarks are being amortized on a straight line basis over periods not exceeding seventeen years. The identifiable intangible assets in the subsidiary's assembled work force, its favourable lease and its customer list are amortized on a straight line basis over the estimated life of the benefits received of three years. INVENTORIES Inventories are stated at the lower of cost or market value. Cost is comprised of direct materials on a first-in-first-out basis and in the case of finished products and work-in-progress includes direct labor and attributable production overheads based on normal levels of activity. The components of inventories are as follows (in thousands):
March 31, 1995 1996 - ------------------------------------------------------------------------------- Raw materials $ 21,691 $ 42,202 Work-in-process 10,249 14,049 Finished goods 128 962 ------------------------- 32,068 57,213 Less: allowance for obsolescence (1,875) (4,576) ------------------------- $ 30,193 $ 52,637 =========================
REVENUE RECOGNITION Revenue from product sales and services are recognized on delivery and acceptance of the goods. Flextronics International Ltd. 19 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES Effective April 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by SFAS Statement No. 109, "Accounting for Income Taxes". NET INCOME PER SHARE Net income per share is computed using the weighted average number of Ordinary Shares and Ordinary Share equivalents outstanding during the respective periods. Ordinary Share equivalents include Ordinary Shares issuable upon the exercise of stock options (using the treasury stock method). Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, Ordinary Shares and Ordinary Share equivalents issued by the Company during the twelve-month period prior to the initial public offering have been included in the calculation of Ordinary Shares and Ordinary Share equivalents using the treasury stock method and the initial public offering price of US $14 per share as if they were outstanding for all periods presented.
(in thousands, except per share data) 1994 1995 1996 - ---------------------------------------------------------------------------- Supplemental net income (loss) per share $ 0.32 $ 0.51 $ (1.39) Weighted average ordinary shares 6,740 12,103 12,536
Supplemental net income/(loss) per share is calculated in accordance with Accounting Principles Board Opinion No.15 (APB 15). The supplemental net income/(loss) per share amounts are presented for comparison purposes because under APB 15 the effect of options is excluded from the net income/(loss) per share calculation if anti-dillutive, whereas, under SAB No. 83, such options are considered outstanding even if the effect of including them is anti-dillutive. RETROACTIVE RESTATEMENTS The consolidated financial statements give retroactive effect to the acquisition of nCHIP, Inc. ("nCHIP") in January 1995 which was accounted for as a pooling of interest. FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES ACCEPTED IN SINGAPORE A separate financial statement for the same period has been prepared in accordance with accounting principles accepted in Singapore. 3. BANK BORROWINGS LINE OF CREDIT Three of the Company's subsidiaries have obtained from several banks working capital lines of credit, totalling approximately US$48 million, representing overdraft facilities, bridging loan, short term cash advances, letters of credit and letters of guarantee and trust receipts. Interest on borrowings is charged within the range 5.75% to 7.125% per annum. The lines of credits are collateralized by: (a) negative pledge on assets of all the group entities; (b) corporate guarantees from the Company and its subsidiaries; These lines of credits require that the Company maintains certain financial ratios and other covenants. As at March 31, 1996, the Company was in compliance with its covenants. As of March 31, 1996, the Company had utilized the following credit facilities under the above lines of credit (in thousands): Short term cash advances $ 14,379 Letters of credits and guarantees $ 1,003 ========
The remaining unused portion of lines of credit total $32.5 million The weighted average interest rates on borrowings are as follows:
March 31, 1995 1996 - ----------------------------------------------------- Interest on borrowings 6.438% 6.41% ==============
4. LONG TERM DEBT Long-term debt consisted of the following at March 31 1996.
1995 1996 - --------------------------------------------------------------------------- Term loan at 4.5% $-- $ 333 Mortgage loans at 10.5% -- 2,244 Other loans at 8% 9 1,050 Purchase obligation earnout -- 3,125 ----------------- 9 6,752 Less: current portion (9) (4,198) ----------------- $-- $ 2,554 =================
Maturities of long-term debt for the five years succeeding March 31, 1996 are $4,198,000 by March 31, 1997, $740,000 by March 31, 1998, $645,000 by March 31, 1999, $358,000 by March 31, 2000 and $358,000 by March 31, 2001. The purchase obligation earnout is contingent upon Astron Group Limited meeting certain pre-tax profit for the calender year 1996. 5. LEASE COMMITMENTS CAPITAL LEASE Following is a schedule by fiscal year, of future minimum lease payments under capital lease obligations for certain machinery and equipment, together with the present value of the net minimum lease payments (in thousands) :
Fiscal Years Ending March 31, 1997 $ 7,960 1998 5,987 1999 3,411 2000 1,472 2001 503 Thereafter -- -------- Total installment payments 19,333 Amount representing interest (2,477) -------- Present value of net installment payments 16,856 Less: current portion 6,736 -------- Long-term portion of capital lease $ 10,120 ========
Items costing $28,387,304 (1995: $15,993,603) with accumulated amortization $8,780,878 (1995: $4,168,453) purchased under capital leases have been included in machinery and equipment as of March 31, 1996. Lease amortization is included in depreciation expense. OPERATING LEASES The Company leases some of its facilities under operating leases. Future minimum lease payments under operating leases with a term of more than one year are as follows (in thousands):
Fiscal Years Ending March 31, 1997 $2,177 1998 1,782 1999 1,530 2000 1,147 2001 793 Thereafter 1,890 ------ $9,319 ======
Flextronics International Ltd. 20 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The facilities lease of one of the subsidiaries provides for escalating rental payments over the lease period. Rent expense is being recognized on a straight-line basis over the term of the lease period. Total operating lease expense for the Company was $1,263,019, $1,956,733 and $2,211,077 for the years ended March 31, 1994, 1995 and 1996 respectively. 6. CAPITAL COMMITMENTS One of the subsidiaries, Flextronics (Malaysia) Sdn. Bhd. has contracted to purchase $457,714 of fixed assets as of March 31, 1996. These fixed assets have not been delivered and are therefore not provided for in the accounts as of March 31, 1996. 7. INCOME TAXES The domestic and foreign components of income (loss) before taxes are as follows:
March 31, (in thousands) 1994 1995 1996 - ------------------------------------------------------- Singapore $ (412) $(1,529) $(21,917) Foreign 2,801 9,148 8,296 -------------------------- $2,389 $ 7,619 $(13,621) ==========================
Income tax expense consists of the following :
March 31, (in thousands) 1994 1995 1996 - ------------------------------------------------------ Current: Singapore $ 226 $ 366 $ 1,441 Foreign 89 860 2,266 ------------------------- 315 1,226 3,707 ------------------------- Deferred: Singapore 339 237 74 Foreign -- -- 10 ------------------------- 339 237 84 ------------------------- $ 654 $ 1,463 $ 3,791 =========================
Total income tax expense differs from the amount computed by applying the Singapore statutory income tax rate of 26% (1995 and 1994: 27%) to income before taxes as follows :
March 31, (in thousands) 1994 1995 1996 - ------------------------------------------------------------------------------- Computed expected income taxes $ 645 $ 2,057 $(3,541) Effect of Singapore income tax incentives (278) -- (82) Effect of losses from non-incentive Singapore operations 255 367 8,472 Effect of foreign operations (667) (1,609) (1,785) Non-deductible items: Amortization of goodwill and intangibles 113 205 270 Loss on sale of investments -- -- 69 Joint venture losses -- 216 -- Others 29 227 388 ------------------------------- 97 1,463 3,791 Cumulative effect of March 31, 1993 of change from deferral method to liability method 557 -- -- ------------------------------- $ 654 $ 1,463 $ 3,791 ===============================
The components of deferred income taxes are as follows (in thousands):
March 31, 1995 1996 - ---------------------------------------------------------------------------------------- Deferred tax liabilities: Fixed assets $ 1,466 $ 1,365 Others 486 193 ---------------------- 1,952 1,558 ---------------------- Deferred tax assets Provision for stock obsolescence (249) (677) Provision for doubtful debts (180) (343) Net operating losses carry forwards (11,032) (11,020) Unabsorbed capital allowances carried forwards (731) (438) Investment allowance (84) -- Others (118) (699) ---------------------- (12,394) (13,177) Valuation allowance 11,132 12,615 ---------------------- Net deferred tax liability $ 690 $ 996 ======================
The net deferred tax liability is classified as follows: Non-current liability $ 994 $ 1,256 Current asset (220) (260) Non-current asset (84) -- ---------------------- $ 690 $ 996 ======================
The Company has been granted the following tax incentives: (i) Investment allowance on approved fixed capital expenditure incurred within 5 years after August 1, 1990 subject to a maximum of $2,700,000 for its Singapore operations was granted by the Economic Development Board of Singapore. This investment allowance has been utilized by the Company to reduce taxable income of its Singapore subsidiary since 1991. This allowance is however fully utilized at the end of the year. (ii) Pioneer status granted to one of its Malaysian subsidiary for a period of 5 years under the Promotion of Investment Act, 1986. This pioneer incentive provides a tax exemption on manufacturing income of this subsidiary. (iii) Product Export Enterprise incentive for a lower rate for its China operations. The Company's operations in China is located in a "Special Economic Zone" and is an approved "Product Export Enterprise" which qualifies for a special corporate income tax rate of 10%. This special tax rate is subject to the Company exporting more than 70% of its total value of products manufactured in China. The Company's status as a Product Export Enterprise is reviewed annually by the Chinese government authorities. A portion of the Company's sales are carried out by its subsidiary in Labuan, Malaysia where the Company has opted to pay the Labuan tax authorities a fixed amount of US$8,000 tax each year in accordance with the Labuan tax legislation. Also a portion of the Company's sales are carried out by its subsidiary, an offshore ordinary company, in Mauritius where the tax rate is at 0% for such companies. 8. SHAREHOLDERS' EQUITY EXERCISE OF OPTIONS During the year, certain employees exercised their options to purchase 304,201 Ordinary Shares at an exercise price of US$0.77 to US$14.50 per share. ACQUISITION OF FLEXTRONICS INTERNATIONAL (UK) LIMITED ("FILUK) (FORMERLY KNOWN AS ASSEMBLY & AUTOMATION (ELECTRONICS) LIMITED) On April 12, 1995, the Company acquired all the outstanding stock of FILUK in exchange for $2,878,860 in cash and 66,908 Ordinary Shares of the Company, valued at $14.019 per share. ACQUISITION OF ASTRON GROUP LIMITED ("ASTRON") On February 2, 1996, the Company acquired all the Flextronics International Ltd. 21 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS outstanding stock of Astron in exchange for $13,440,605 in cash; 238,684 Ordinary Shares of the Company, valued at $27.262 per share; issuance of a $10 million promissory note due one year after acquisition date; issuance of a $5 million promissory note due two years after acquisition date and the issuance of $10 million of Ordinary Shares of the capital of the Company on June 30, 1998. The promissory notes shall bear interest at the rate of 8% per annum. FOREIGN CURRENCY PAYMENTS IN THE COMPANY'S SUBSIDIARIES OPERATING IN THE PEOPLE'S REPUBLIC OF CHINA The Company's subsidiaries operating in the People's Republic of China are required to obtain approval from the relevant authorities when making foreign currency payments. 9. SHARE OPTION PLANS In July 1993, the Company adopted an Executives' Share Option Scheme ("SOS") and an Executives' Incentive Share Scheme ("ISS") for selected management employees of the Company. The Company granted stock options for 344,520 Ordinary Shares exercisable at $2.92 per share (fair market value at date of the grant) under the SOS and stock options for 54,618 Ordinary Shares at S$0.01 per share (fair market value at date of grant was $2.92 per share) under the ISS. In February 1994, 53,748 Ordinary Shares were issued due to the exercise of the options under ISS. During fiscal 1994, the Company amortized the full compensation expense of $159,303. In March 1994, 53,748 Ordinary Shares were issued due to the exercise of the options granted under ISS. On December 1, 1993, the Company adopted the 1993 Share Option Plan (the "Plan") that provides for the grant of incentive stock options, automatic option grants and non-statutory stock options to employees and other qualified individuals to purchase Ordinary Shares of the Company. At March 31, 1995, the Company had reserved 900,000 Ordinary Shares for issuance under the Plan. In August 1995 the Company's 1993 Share Option Plan was amended to reserve an additional 600,000 Ordinary Shares for issuance. In January 1995, the Company acquired nCHIP and thereby assumed the existing nCHIP stock option plan and the employee stock options outstanding thereunder. The outstanding nCHIP employee stock options were converted into options to purchase approximately 345,389 of the Company's Ordinary Shares. As at March 31,1996, options to purchase 1,327,000 Ordinary Shares at a weighted average exercise price of $12.63 per share were outstanding under the share option plans. The following table presents the activity for options:
Options outstanding ---------------------------------------------- Options available for grant Shares Price per share - ------------------------------------------------------------------------------- Balance at March 31, 1994 649,872 729,180 S$0.01 - US$6.67 nCHIP options converted to Flex options 345,389 -- US$0.77 - US$4.74 Options granted (508,501) 508,501 US$0.77 - US$16.75 Options exercised -- (143,699) US$2.92 - US$4.33 Options cancelled 33,418 (33,418) US$2.92 - US$10.50 ----------------------------------------- Balance at March 31, 1995 520,178 1,060,564 US$2.92 - US$16.75 Increase in options available for grant 600,000 -- S$0.01 - US$35.75 Options granted (641,783) 641,783 US$14.75 - US$35.75 Options exercised -- (304,201) US$0.77 - US$14.50 Options cancelled 71,146 (71,146) US$0.77 - US$24.00 ----------------------------------------- Balance at March 31, 1996 549,541 1,327,000 ===================
10. PROVISION FOR PLANT CLOSURE The provision for plant closure of $2,454,000 relates to the downsizing of the Malaysia and Shekou, China manufacturing operations. The provision includes $1 million provision for inventory exposure and $200,000 provision for doubtful debts related to one specific project in Malaysia. An amount of $1,254,000 associated with certain obsolete equipment at the Company's facilities in Malaysia and Shekou, China has been written off. 11. EXTRAORDINARY ITEM In July 1993, the Company recognized $416,000 of extraordinary gain in connection with the forgiveness of accrued interest on a subordinated note. 12. RELATED PARTY TRANSACTIONS For the year ended March 31, 1996, the Company had net sales of $2,132,972 to Metcal, Inc., a precision heating instrument company. Prior to becoming the Company's Chief Officer in January 1994, Michael E. Marks was the President and Chief Executive Officer of Metcal, Inc.. Michael E. Marks remained as a director of Metcal, Inc. during the year ended March 31, 1996. For the year ended March 31, 1995, the Company had net sales of $989,220 to Metcal, Inc.. Following the acquisition of Astron, its Managing Director, Stephen JL Rees, was made a director of the Company on April 15, 1996. At the date of the Astron acquisition a loan of $2,908,000 to Mayfield International Limited (`Mayfield'), a company in which Stephen JL Rees has a beneficial interest, was outstanding. At March 31, 1996 the loan balance amounted to $2,085,082. The loan is secured by a corporate guarantee from Mayfield's holding company and it bears interest at 7.15% per annum, earning $26,911 in the period. Astron has also rented an office from Mayfield, and rentals charged to Astron during the period amounted to $34,669. In May 1993, Flextronics (Malaysia) Sdn. Bhd. sold plant and machinery to FlexTracker Sdn. Bhd. valued at $2,033,315. In December 1993, Flextronics (Malaysia) Sdn. Bhd. repurchased a portion of such plant and machinery from FlexTracker Sdn. Bhd. worth $251,654. The sale and purchase of plant and machinery represent the net book value recorded in the parties' books at the date of transfer. During the year ended March 1994, Flextronics (Singapore) Pte. Ltd. purchased $8,692,917 worth of materials on behalf of FlexTracker Sdn. Bhd. The transfer of these materials to FlexTracker Sdn. Bhd. was at original cost of the materials. 13. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS CURRENT YEAR On April 12, 1995, the Company acquired all of the issued share capital of Assembly & Automation (Electronics) Limited, a private limited company incorporated in the UK that provides contract manufacture of electronics and telecommunications equipment, for a total consideration of $4.1 million by way of cash and the issuance of 66,908 Ordinary Shares. The transaction has been accounted for under the purchase method, and accordingly, the purchase price has been allocated to the assets and liabilities assumed based upon their estimated fair market values at the date of acquisition. The excess of the purchase price over the fair market value of the net tangible assets acquired aggregated approximately $4.6 million of which $237,000 was allocated to intangibles which are being amortized on a straight line basis over their estimated useful life of three years. Flextronics International Ltd. 22 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill is amortized over twenty years. On February 2, 1996, the Company acquired all of the issued share capital of Astron Group Limited, a private limited company incorporated in the Hong Kong who is a manufacturer of circuit boards used in electronics and telecommunications, for a consideration of $45.6 million by way of cash; issuance of 238,864 Ordinary Shares and $10 million of Ordinary Shares of the Company on June 30, 1998; and the issuance of promissory notes bearing interest at 8%. The Company will pay an earnout of up to $12.5 million contingent upon Astron meeting certain pre-tax profit for calendar year 1996, and, in addition, to the $45.6 million the Company has included $3.125 million of the earnout as part of the purchase consideration. The transaction has been accounted for under the purchase method, and accordingly, the purchase price has been allocated to the assets and liabilities assumed based upon their estimated fair market values at the date of acquisition. The valuation of Astron's In-process research & development was determined by an independent corporate valuation firm to be between $31 million to 37 million, and the Company has written off $31.6 million in the consolidated financial statements this year. An amount of $250,000 was allocated to intangibles which are being amortized on a straight line basis over their estimated useful life of three years. The Company has entered into consulting agreements with the former Chairman of Astron, which provide for an annual fee, plus a $15 million payment to be made and expensed on June 30, 1998 subject to certain terms and conditions to be met, which include continuation of employment and non-competition clauses. The consolidated financial statements contain the results of the acquired companies from the date of acquisition. The following unaudited proforma information of the Company reflects the results of operations for the year ended March 31, 1995 and 1996 as if the acquisitions of Assembly & Automation (Electronics) Limited and Astron Group Limited had occurred as of April 1, 1994 and after giving effect to certain adjustments including amortizing of intangibles and goodwill. The unaudited proforma information is based on acquired entities' results of operations for the years ended December 31, 1994 and 1995 as the fiscal year end of these entities and the rest of the group are non co-terminus. These proforma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually took place at April 1, 1994 or of operating results which may occur in the future.
(in thousands, except per share data unaudited) Year ended March 31, 1995 1996 - ----------------------------------------------------- Net Sales $273,872 $466,039 Net income/(loss) (28,017) 13,413 Net income/(loss) per share (2.26) 1.00
PREVIOUS YEARS In January 1995, the Company acquired nCHIP by the issuance of 2,104,602 ordinary shares of S$0.01 par value each, in exchange for all of the outstanding capital of nCHIP. In addition, outstanding nCHIP employee stock options were converted into options to purchase approximately 345,389 of the Company's ordinary shares. The transaction was accounted for as a pooling of interests and therefore, all prior period financial statements presented have been restated as if the acquisition took place at the beginning of such periods. nCHIP has a calendar year end and, accordingly, the nCHIP statement of income for the year ended December 31, 1993 have been combined with the Company's statement of income for the fiscal years ended March 1994. Effective April 1, 1994 nCHIP's fiscal year end has been changed from December 31 to March 31 to conform to the Company's fiscal year-end. Accordingly, nCHIP's operations for the three months ended March 31, 1994 including net sales of $ 2,302,218 and net loss of $ 595,868 have been excluded from consolidated results and have been reported as an adjustment to the April 1, 1994 consolidated retained earnings. Separate results of operations for the period prior to the acquisition are as follows:
Unaudited Fiscal year nine months ended ended March 31 December 31 (in thousands) 1994 1994 - ----------------------------------------------------- Net sales Company $ 122,948 $ 163,249 ------------------------- nCHIP 8,397 7,623 ========================= Combined $ 131,345 $ 170,872 Net income Company $ 2,896 $ 7,626 ------------------------- nCHIP (745) (3,400) ========================= Combined $ 2,151 $ 4,226 Other changes in shareholders' equity Company $ 50,098 $ (144) nCHIP 9 5,287 ------------------------- Combined $ 50,107 $ 5,143 =========================
As of December 20, 1994, the Company had a 49% interest in FlexTracker and accounted for this investment using the equity method. On December 30, 1994, the Company acquired the net assets (except the $1.0 million loan made by the joint venture partner, HTS, to FlexTracker) for approximately $3.3 million. On March 1, 1994, the Company acquired all of the outstanding stock of Relevant, a company that provides high value-added, high quality, just-in-time manufacturing services to original equipment manufacturers in the computer and electronics industry, for approximately $4.0 million. The transaction has been accounted for under the purchase method, and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair market values at the date of acquisition. Such allocation has been based on the valuation by an independent corporate valuation firm. The excess of the purchase price over the fair market value of the net tangible assets acquired aggregated approximately $2.4 million and are being amortized on a straight-line basis over their estimated useful life of twenty-five years. The operating results of Relevant are included in the Company's consolidated results of operations from the date of acquisition. The following unaudited pro forma information of the Company reflects the results of operations for the years ended March 31, 1994 and 1995 as if the acquisitions of nCHIP, the net assets and business of Flextracker and Relevant had occured as of April 1, 1993 and after giving effect to certain adjustments including amortization of intangibles and goodwill. The unaudited pro forma information is based on certain acquired entities' results of operations for the years ended December 31, 1993 and 1994 as the fiscal year end of these entities and the rest of the group are not co-terminus. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually took place at April 1, 1993 or of operating results which may occur in the future.
(in thousands, except per share data unaudited) Year ended March 31, 1994 1995 - ----------------------------------------------------------- Net Sales $ 155,349 $ 255,733 Net income before Extraordinary Gain 92 4,301 Net income after Extraordinary Gain 508 4,301 Net income per share 0.07 0.36
Flextronics International Ltd. 23 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SEGMENT REPORTING The Company operates in one primary business segment - providing sophisticated electronics assembly and turnkey manufacturing services to a select group of original equipment manufacturers engaged in the computer, medical, consumer electronics and communications industries. Sales to major customers who accounted for more than 10% of net sales were as follows:
March 31, 1994 1995 1996 - ----------------------------------------------------- CUSTOMER Visioneer 0.44% 1.70% 13.14% Lifescan 22.8% 20.1% 14.10% IBM 14.4% 7.7% 2.80% Global Village -- 4.50% 10.50%
Sales for similar classes of products within the Company's business segment is presented below (in thousands):
March 31, (in thousands) 1994 1995 1996 - -------------------------------------------------------------------------------- PRODUCT TYPE Medical $ 30,076 $ 49,152 $ 78,322 Computer, computer peripherals & telecommunication 64,865 120,818 285,881 Industrial -- -- 9,664 Consumer products 15,792 47,515 23,858 MCMs 8,397 11,847 19,817 Disk drive/tape drive 4,331 -- -- Others 7,884 8,054 30,804 ------------------------------------ $131,345 $237,386 $448,346 ====================================
A summary of the Company's operations by geographical area for the three years ended March 31, 1994, 1995 and 1996 was as follows (in thousands):
March 31, (in thousands) 1994 1995 1996 - ------------------------------------------------------------------------------- Net Sales: Singapore: Unaffiliated customers Domestic $ 29,151 $ 3,596 $ 653 Export -- 7,358 9,277 Intercompany 32,849 67,572 77,899 --------------------------------------- 62,000 78,526 87,829 Hong Kong/China and Malaysia: Unaffiliated customers Domestic 6,452 17,757 11,838 Export 83,668 158,169 204,850 Intercompany 21,415 29,356 60,780 --------------------------------------- 111,535 205,282 277,468 USA/UK: Unaffiliated customers Domestic 12,074 50,506 207,961 Export -- -- 13,767 Intercompany -- -- 27 --------------------------------------- 12,074 50,506 221,755 Eliminations (54,264) (96,928) (138,706) --------------------------------------- $ 131,345 $ 237,386 $ 448,346 ======================================= Income (loss) from operations: Singapore $ 553 $ 90 $ (27,674) Hong Kong/China and Malaysia 2,913 11,392 12,843 USA/UK 369 (1,275) 3,056 --------------------------------------- $ 3,835 $ 10,207 $ (11,775) ======================================= Identifiable assets: Singapore $ 46,115 $ 23,426 $ 31,998 Hong Kong/China and Malaysia 49,956 66,315 97,977 USA/UK 7,058 26,376 84,613 --------------------------------------- $ 103,129 $ 116,117 $ 214,588 =======================================
Geographic revenue transfers are based on selling prices to unaffiliated companies, less discounts. Income (loss) from operations is net sales less operating expenses, goodwill amortization and provision for plant closings, but prior to interest or other expenses and income taxes. The Company's subsidiaries, with the exception of Astron Group Limited, are interdependent and are not managed for stand alone results. Certain operational functions for the entire Company, such as marketing and administration, may be carried out by a subsidiary in one country. In addition, the Company may from time to time shift responsibilities from a subsidiary in one country to a subsidiary in another country, thereby changing the operating results of the impacted subsidiaries but not the Company as a whole. For these reasons, the Company believes that changes in results of operations in the individual countries in which it operates are not necessarily reflective of material changes in the Company's overall results. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Flextronics International Ltd. We have audited the accompanying consolidated balance sheets of Flextronics International Ltd., as of March 31, 1995 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. Generally Accepted Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flextronics International Ltd. at March 31, 1995 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1996, in conformity with U.S. Generally Accepted Accounting Principles. ERNST & YOUNG Singapore May 13, 1996 Flextronics International Ltd. 24 27 CORPORATE DIRECTORY OFFICERS Michael E. Marks Chairman of the Board and Chief Executive Officer Tsui Sung Lam President, Chief Operating Officer and Director Dennis P. Stradford Senior Vice President Goh Chan Peng Chief Financial Officer Hans D. Nilsson Managing Director, Europe Teo Buck Song Vice President, Purchasing Michael McNamara Vice President, Flextronics International and President, U.S. Operations Bruce McWilliams Vice President, Flextronics International and President of nCHIP Stephen Rees Chairman, Astron Group Ltd. [PHOTO] (Clockwise, back to front:) Dennis Stradford, Ash Bhardwaj, Stephen Rees, S.L. Tsul, B.S. Teo, C.P. Goh, Michael Marks, Michael McNamara, Hans Nilsson, Bruce McWilliams. DIRECTORS Robert R.B. Dykes Bernard J. Lacroutte Tsui Sung Lam Michael E. Marks Michael Moritz Stephen J.L. Rees Andrew W. Russell Richard L. Sharp WESTERN HEMISPHERE HEADQUARTERS Flextronics International Ltd. 2241 Lundy Avenue San Jose, CA 95131 U.S.A. Tel: +1.408.428.1300 Fax: +1.408.428.0420 EASTERN HEMISHPERE HEADQUATERS Flextronics International Ltd. 514 Chai Chee Lane #04-13 Bedok Industrial Estate Singapore 469029 Tel: +65.449.5255 Fax: +65.448.6040 WORLDWIDE FACILITIES Singapore Doumen, People's Republic of China Xixiang, People's Republic of China Senai, Johore, Malyasia Kwai Chung, Hong Kong San Jose, California, U.S.A. Westford, Massachusetts, U.S.A. Richardson, Texas, U.S.A. Wales, United kingdom INVESTOR RELATIONS For shareholder or investor related inquiries contact: Investor Relations Flextronics International 2241 Lundy Avenue San Jose, CA 95131 U.S.A. Tel: +1.408.383.7722 Fax: +1.408.526.9215 TRANSFER AGENT AND REGISTRAR For questions regarding misplaced share certificates, changes of address or the consolidation of accounts, please contact the Company's transfer agent: The First National Bank of Boston 435 Tasso Street Suite 250 Palo Alto, CA 94301 U.S.A. Tel: +1.415.853.1483 LEGAL COUNSEL Brobeck, Phleger & Harrison LLP San Francisco, California, U.S.A. INDEPENDENT AUDITORS Ernst & Young, Singapore STOCK LISTING The Company's Ordinary Shares are traded over-the-counter on the Nasdaq National Market System under the symbol FLEXF. ================================================================================ ANNUAL MEETING The annual meeting of the shareholders will be held at 9:00 A.M. on August 15, 1996 at the Sheraton San Jose Hotel, 1810 Barber Lane, Milpitas, California 95035 U.S.A. Tel: +1.408.943.0600 [LOGO] Printed on recycled paper. (C)1996 Flextronics International Ltd. Flextronics International Ltd. All Rights Reserved. 28 [FLEXTRONICS INTERNATIONAL LOGO] FLEXTRONICS INTERNATIONAL 2241 Lundy Avenue San Jose, CA 95131 U.S.A. www.flextronics.com 29 APPENDIX ANNUAL REPORT FLEXTRONICS EDGAR DESCRIPTIONS 1. Cover Page [photograph of selected items the Company manufactures for its clients] 2. Page -- Shareholder letter [photograph of Chief Executive Officer Michael E. Marks] 3. Page 1 [graphical charts depicting the Company's revenue, income and earnings per share for fiscal years 1994, 1995 and 1996] 4. Page 2 [graphical chart depicting sample manufacturing programs the Company offers] 5. Page 3 [photograph of selected Thermoscan, Inc. products and components] 6. Page 4 [graphical chart depicting a spectrum of manufacturing technologies the Company offers] 7. Page 5 [photograph of certain Palm Computing products and components] 8. Page 6 [graphical chart depicting production and distribution strategies] 9. Page 7 [photograph of certain Microsoft Corporation products and components] 10. Page 8 [map illustrating Plextronics' design and manufacturing facilities] 11. Page 25 [photographs of Messers. Stradford, Bhardwaj, Rees, Goh, Marks, Tsui, Nilsson, Teo, McNamara, McWilliams.] EX-21.1 9 EXHIBIT 21.1 1 EXHIBIT 21.1 FLEXTRONICS INTERNATIONAL LTD. LIST OF SUBSIDIARIES
SUBSIDIARY COMPANIES COUNTRY OR STATE OF INCORPORATION - -------------------- --------------------------------- Flextronics Singapore Pte. Ltd. ............ Singapore Flextronics Computer (Shekou) Limited....... People's Republic of China Flextronics Industrial (Shenzhen) Limited... People's Republic of China Flextronics Malaysia Sdn. Bld. ............. Malaysia Flex International Marketing (L.) Ltd. ..... Malaysia Flextronics Purchasing (HK) Ltd. ........... Hong Kong Flextronics Sales (HK) Limited.............. Hong Kong Flextronics Marketing (HK) Limited.......... Hong Kong Flextronics Manufacturing (HK) Ltd. ........ Hong Kong Astron Group Limited........................ Hong Kong Astron Group (China) Ltd. .................. People's Republic of China Flextronics International (USA), Inc. ...... California Flex Asia (UK) Ltd. ........................ United Kingdom Astron Technologies Ltd. ................... Mauritius Hiromichi Limited........................... British Virgin Islands Flextronics International (UK) Ltd. ........ United Kingdom
EX-23.1 10 EXHIBIT 23.1 1 Exhibit 23.1 [ERNST & YOUNG LETTERHEAD] FORM OF CONSENT OF AUDITORS We consent to the incorporation by reference of our report dated May 13, 1996, with respect to the audited financial statements and schedules of Flextronics International Ltd. as of March 31, 1995 and 1996 and for each of the three years in the period ended March 31, 1996, into (i) the Company's Annual Report on Form 10-K; (ii) the Registrations Statement on Form S-8 (File No. 33-78528) pertaining to the 1993 Share Option Plan, Executives' Share Option Scheme and Executives' Incentive Share Scheme of Flextronics International Ltd.; and (iii) the Registration Statement on Form S-8 (File No. 33-89454) pertaining to Ordinary Shares authorized for issuance under the nCHIP, Inc. Amended and Restated 1988 Stock Option Plan which was assumed by Flextronics International Ltd. in connection with the acquisition of nCHIP, Inc. /s/ Ernst & Young - ---------------------------- ERNST & YOUNG Certified Public Accountants Singapore June 26, 1996 FS:ay EX-27 11 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAR-31-1996 APR-01-1995 MAR-31-1996 6,546 0 78,114 3,576 52,637 141,384 98,998 37,896 214,588 113,708 28,360 0 0 93,719 22,940 214,588 448,346 448,346 406,457 406,457 53,664 1,475 2,718 (13,621) 3,791 (17,412) 0 0 0 (17,412) 0 (1.39)
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