<PAGE> 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
<PAGE> 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.
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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.
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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.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
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<S> <C>
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
</TABLE>
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
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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.
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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
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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
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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
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(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:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
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
</TABLE>
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
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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:
<TABLE>
<CAPTION>
YEAR APPROXIMATE
OPERATIONS PLANT SIZE
FACILITY TYPE LOCATION COMMENCED (SQUARE FT.) SERVICES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
9.
<PAGE> 11
<TABLE>
<CAPTION>
YEAR APPROXIMATE
OPERATIONS PLANT SIZE
FACILITY TYPE LOCATION COMMENCED (SQUARE FT.) SERVICES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
- --------------------
(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.
<PAGE> 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).
<TABLE>
<CAPTION>
HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C>
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
=============================================================================
</TABLE>
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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<TABLE>
<CAPTION>
Exhibit
-------
Number Document Description
------ --------------------
<S> <C>
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
</TABLE>
15.
<PAGE> 17
<TABLE>
<S> <C>
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.)
</TABLE>
16.
<PAGE> 18
<TABLE>
<S> <C>
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
</TABLE>
17.
<PAGE> 19
<TABLE>
<S> <C>
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.)
</TABLE>
18.
<PAGE> 20
<TABLE>
<S> <C>
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.]
</TABLE>
19.
<PAGE> 21
<TABLE>
<S> <C>
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.
</TABLE>
- -------------------
* Confidential treatment requested for portions of agreement.
+ Management contract or compensatory plan or arrangement.
(d) See Item 14(a).
20.
<PAGE> 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/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
</TABLE>
21.
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Subsequentially
Exhibit Numbered
Number Document Description Page
- ------ -------------------- ----
<S> <C> <C>
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.)
</TABLE>
22.
<PAGE> 24
<TABLE>
<S> <C> <C>
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.)
</TABLE>
23.
<PAGE> 25
<TABLE>
<S> <C> <C>
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.)
</TABLE>
24.
<PAGE> 26
<TABLE>
<S> <C> <C>
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.)
</TABLE>
25.
<PAGE> 27
<TABLE>
<S> <C> <C>
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.
</TABLE>
- -------------------
* Confidential treatment requested for portions of agreement.
+ Management contract or compensatory plan or arrangement.
(d) See Item 14(a).
26.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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)
<PAGE> 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
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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
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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
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<PAGE> 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
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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;
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(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
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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
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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
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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
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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.
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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
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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.
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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
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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'
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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).
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 1
Exhibit 11
FLEXTRONICS INTERNATIONAL LTD.
Computation of net income (loss) per share
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
------------------------------
1994 1995 1996
<S> <C> <C> <C>
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)
------ ------ --------
</TABLE>
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.
<PAGE> 1
[FLEXTRONICS INTERNATIONAL LOGO]
FLEXTRONICS INTERNATIONAL
[GRAPHIC 1]
Annual Report 1996
<PAGE> 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]
<PAGE> 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)
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
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
============================================================
<CAPTION>
March 31, 1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Flextronics International Ltd.
9
<PAGE> 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.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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%)
===========================
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1995 1996
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
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
======================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
14
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
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
===================================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
15
<PAGE> 18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
========================================================================================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
16
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
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)
--------------------------------
</TABLE>
Flextronics International Ltd.
17
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes.
Flextronics International Ltd.
18
<PAGE> 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):
<TABLE>
<CAPTION>
March 31, 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
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
=========================
</TABLE>
REVENUE RECOGNITION
Revenue from product sales and services are recognized on delivery and
acceptance of the goods.
Flextronics International Ltd.
19
<PAGE> 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.
<TABLE>
<CAPTION>
(in thousands, except per share data) 1994 1995 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental net income (loss) per share $ 0.32 $ 0.51 $ (1.39)
Weighted average ordinary shares 6,740 12,103 12,536
</TABLE>
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):
<TABLE>
<S> <C>
Short term cash advances $ 14,379
Letters of credits and guarantees $ 1,003
========
</TABLE>
The remaining unused portion of lines of credit total $32.5 million
The weighted average interest rates on borrowings are as follows:
<TABLE>
<CAPTION>
March 31, 1995 1996
- -----------------------------------------------------
<S> <C> <C>
Interest on borrowings 6.438% 6.41%
==============
</TABLE>
4. LONG TERM DEBT
Long-term debt consisted of the following at March 31 1996.
<TABLE>
<CAPTION>
1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
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
=================
</TABLE>
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) :
<TABLE>
<CAPTION>
Fiscal Years Ending March 31,
<S> <C>
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
========
</TABLE>
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):
<TABLE>
<CAPTION>
Fiscal Years Ending March 31,
<S> <C>
1997 $2,177
1998 1,782
1999 1,530
2000 1,147
2001 793
Thereafter 1,890
------
$9,319
======
</TABLE>
Flextronics International Ltd.
20
<PAGE> 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:
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Singapore $ (412) $(1,529) $(21,917)
Foreign 2,801 9,148 8,296
--------------------------
$2,389 $ 7,619 $(13,621)
==========================
</TABLE>
Income tax expense consists of the following :
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- ------------------------------------------------------
<S> <C> <C> <C>
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
=========================
</TABLE>
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 :
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===============================
</TABLE>
The components of deferred income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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
======================
</TABLE>
The net deferred tax liability is classified as follows:
<TABLE>
<S> <C> <C>
Non-current liability $ 994 $ 1,256
Current asset (220) (260)
Non-current asset (84) --
----------------------
$ 690 $ 996
======================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Options outstanding
----------------------------------------------
Options
available for
grant Shares Price per share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===================
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
(in thousands, except per share data unaudited)
Year ended March 31, 1995 1996
- -----------------------------------------------------
<S> <C> <C>
Net Sales $273,872 $466,039
Net income/(loss) (28,017) 13,413
Net income/(loss) per share (2.26) 1.00
</TABLE>
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:
<TABLE>
<CAPTION>
Unaudited
Fiscal year nine months
ended ended
March 31 December 31
(in thousands) 1994 1994
- -----------------------------------------------------
<S> <C> <C>
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
=========================
</TABLE>
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.
<TABLE>
<CAPTION>
(in thousands, except per share data unaudited)
Year ended March 31, 1994 1995
- -----------------------------------------------------------
<S> <C> <C>
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
</TABLE>
Flextronics International Ltd.
23
<PAGE> 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:
<TABLE>
<CAPTION>
March 31, 1994 1995 1996
- -----------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
Sales for similar classes of products within the Company's business
segment is presented below (in thousands):
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- --------------------------------------------------------------------------------
PRODUCT TYPE
<S> <C> <C> <C>
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
====================================
</TABLE>
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):
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=======================================
</TABLE>
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
<PAGE> 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.
<PAGE> 28
[FLEXTRONICS INTERNATIONAL LOGO]
FLEXTRONICS
INTERNATIONAL
2241 Lundy Avenue
San Jose, CA 95131 U.S.A.
www.flextronics.com
<PAGE> 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.]
<PAGE> 1
EXHIBIT 21.1
FLEXTRONICS INTERNATIONAL LTD.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY COMPANIES COUNTRY OR STATE OF INCORPORATION
- -------------------- ---------------------------------
<S> <C>
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
</TABLE>
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,546
<SECURITIES> 0
<RECEIVABLES> 78,114
<ALLOWANCES> 3,576
<INVENTORY> 52,637
<CURRENT-ASSETS> 141,384
<PP&E> 98,998
<DEPRECIATION> 37,896
<TOTAL-ASSETS> 214,588
<CURRENT-LIABILITIES> 113,708
<BONDS> 28,360
0
0
<COMMON> 93,719
<OTHER-SE> 22,940
<TOTAL-LIABILITY-AND-EQUITY> 214,588
<SALES> 448,346
<TOTAL-REVENUES> 448,346
<CGS> 406,457
<TOTAL-COSTS> 406,457
<OTHER-EXPENSES> 53,664
<LOSS-PROVISION> 1,475
<INTEREST-EXPENSE> 2,718
<INCOME-PRETAX> (13,621)
<INCOME-TAX> 3,791
<INCOME-CONTINUING> (17,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,412)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.39)
</TABLE>
