<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997
REGISTRATION NO. 333-21715
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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SINGAPORE 0-23354 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) NO.)
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514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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GORDON K. DAVIDSON, ESQ. DANIEL J. WINNIKE, ESQ.
DAVID K. MICHAELS, ESQ. RICHARD G. COSTELLO, ESQ.
TRAM T. PHI, ESQ. HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN,
FENWICK & WEST LLP A PROFESSIONAL CORPORATION
TWO PALO ALTO SQUARE THREE EMBARCADERO CENTER, 7TH FLOOR
PALO ALTO, CALIFORNIA 94306 SAN FRANCISCO, CALIFORNIA 94111
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus, one to be used
in connection with a United States underwritten offering (the "U.S.
Prospectus"), and one to be used in connection with a concurrent international
underwritten offering (the "International Prospectus" and, together with the
U.S. Prospectus, the "Prospectuses"). The Prospectuses will be identical in all
respects except for the front cover page, the section entitled "Underwriting"
and the outside back cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page, "Underwriting" section and outside back cover page of the
International Prospectus are included following the back cover page of the U.S.
Prospectus as pages X-1 through X-5.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
SUBJECT TO COMPLETION FEBRUARY 28, 1997
1,750,000 SHARES
LOGO
ORDINARY SHARES
All of the 1,750,000 Ordinary Shares offered hereby are being sold by
Flextronics International Ltd. ("Flextronics" or the "Company"). Of the
1,750,000 Ordinary Shares offered hereby, 1,312,500 shares initially are being
offered in the United States and Canada by the U.S. Underwriters and 437,500
shares initially are being offered in a concurrent offering outside the United
States and Canada by the International Managers. The public offering price and
the underwriting discount per share are identical for both of the offerings. See
"Underwriting."
The Company's Ordinary Shares are quoted on the Nasdaq National Market
under the symbol "FLEXF." On February 27, 1997, the last reported sale price for
the Ordinary Shares was $21 1/4 per share. See "Price Range of Ordinary Shares."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE ORDINARY
SHARES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Per Share................................... $ $ $
Total(3).................................... $ $ $
=========================================================================================
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(1) See "Underwriting" for information concerning indemnification of the U.S.
Underwriters and the International Managers and other matters.
(2) Before deducting expenses payable by the Company estimated at $360,000.
(3) The Company has granted to the U.S. Underwriters and the International
Managers 30-day options to purchase up to 196,875 and 65,625 additional
Ordinary Shares, respectively, in each case solely to cover over-allotments,
if any. If these options are exercised in full, the Price to Public will
total $ , the Underwriting Discount will total $ , and
the Proceeds to Company will total $ .
The Ordinary Shares are offered by the U.S. Underwriters and the
International Managers subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about March ,
1997.
------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
The date of this Prospectus is March , 1997.
<PAGE> 4
AVAILABLE INFORMATION
Flextronics International Ltd. is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Company's
Ordinary Shares are quoted for trading on the Nasdaq National Market and
reports, proxy statements and other information concerning the Company also may
be inspected at the offices of the National Association of Securities Dealers,
9513 Key West Avenue, Rockville, Maryland 20850. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance in which a copy of such
contract is filed as an exhibit to the Registration Statement, reference is made
to such copy, and each such statement shall be deemed qualified in all respects
by such reference. Copies of the Registration Statement may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company are hereby
incorporated by reference into this Prospectus except as superseded or modified
herein: (1) the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996; (2) the Company's definitive proxy statement dated June 25,
1996; (3) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended June 30, 1996, September 30, 1996 and December 31, 1996; (4) the Company's
Current Report on Form 8-K as amended on Form 8-K/A for the event reported on
April 12, 1995; (5) the Company's Current Report on Form 8-K as amended on Form
8-K/A for the event reported on February 2, 1996; (6) the Company's Current
Report on Form 8-K for the event reported on December 13, 1996; and (7) the
description of the Company's Ordinary Shares set forth in the Company's
Registration Statement on Form 8-A filed with the Commission on January 28,
1994. All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the shares offered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person, including any beneficial owner, to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Such requests
should be directed to Flextronics International Ltd., Investor Relations, 2241
Lundy Avenue, San Jose, California 95131, telephone number (408) 428-1300.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE ORDINARY SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE ORDINARY SHARES
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the consolidated financial statements
and notes thereto, appearing elsewhere in this Prospectus or incorporated by
reference in this Prospectus. In this Prospectus, references to "U.S. dollars"
and "$" are to United States currency and references to "Singapore dollars" and
"S$" are to Singapore currency. Except as otherwise noted, (i) all monetary
amounts in this Prospectus are presented in U.S. dollars and (ii) all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting."
THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is a
leading provider of advanced contract manufacturing services to original
equipment manufacturers ("OEMs") in the communications, computer, consumer
electronics and medical industries. Flextronics offers a full range of services
including product design, printed circuit board ("PCB") fabrication and
assembly, materials procurement, inventory management, final system assembly and
test, packaging and distribution. The components, subassemblies and finished
products manufactured by Flextronics incorporate advanced interconnect,
miniaturization and packaging technologies, such as surface mount ("SMT"),
multichip module ("MCM") and chip-on-board ("COB"). The Company's strategy is to
use its global capabilities and advanced technological expertise to provide its
customers with a complete manufacturing solution, highly responsive and flexible
service, accelerated time to market and reduced production costs. The Company
targets leading OEMs, in growing vertical markets, with which it believes it can
establish long-term relationships, and serves its customers on a global basis
from its strategically located facilities in North America, Asia and Northern
Europe. The Company's customers include Advanced Fibre Communications, Ascend
Communications, Braun/ThermoScan, Cisco Systems, Diebold, Harris DTS, Lifescan
(a Johnson & Johnson company), Microsoft, Philips Electronics and U.S. Robotics.
In February 1997, the Company entered into a definitive agreement to
acquire from Ericsson Business Networks AB ("Ericsson") 330,000 square feet of
manufacturing facilities in Karlskrona, Sweden and related inventory, equipment
and other assets (the "Karlskrona Facilities"), for approximately 792 million
Swedish kronor (approximately $109.2 million based on exchange rates at January
31, 1997), substantially expanding the Company's Northern European operations.
See "Acquisition of Karlskrona Facilities." The Company intends to use the net
proceeds of this offering to pay a portion of the purchase price for the
Karlskrona Facilities. The Karlskrona Facilities currently assemble PCBs,
network switches, cordless base stations and other components for the business
communications systems sold by Ericsson. As a part of this transaction, the
Company and Ericsson entered into a multi-year purchase agreement under which
the Company will manufacture certain of these products for Ericsson. The Company
believes that many European OEMs in the telecommunications and other industries
are beginning to outsource the manufacture of significant product lines and that
the acquisition of the Karlskrona Facilities positions it to capitalize on this
trend. See "Acquisition of Karlskrona Facilities," "Risk Factors -- Risks of
Ericsson Transaction" and "Use of Proceeds."
Since 1994, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, both through
acquisitions and internal growth. In fiscal 1994, the Company added U.S.
manufacturing capabilities by acquiring Relevant Industries, Inc. ("Relevant"),
a final assembly contract manufacturer located in San Jose, California. In
fiscal 1995, the Company acquired nCHIP, Inc. ("nCHIP"), a designer and
manufacturer of MCMs; added Northern European manufacturing capabilities through
the acquisition of Assembly & Automation (Electronics) Ltd. ("A&A"), a contract
manufacturer located in the United Kingdom; and opened new facilities in China
and Texas. In fiscal 1996, the Company obtained miniature gold-finished PCB
fabrication capabilities and expanded its presence in China by acquiring Astron
Group Ltd. ("Astron"). In fiscal 1997, the Company: expanded its advanced PCB
design capabilities by acquiring Fine Line Printed Circuit Design, Inc. ("Fine
Line"); expanded its presence in China by investing in FICO Investment Holding
Limited ("FICO"), a producer of plastic injection moldings; and opened an
additional manufacturing facility in San Jose, California. The Company is
continuing to consolidate and expand its manufacturing operations by developing
integrated campuses in Doumen, China and Guadalajara, Mexico, adding facilities
in San Jose, California, and acquiring the Karlskrona Facilities in Sweden,
while closing its plant in Texas and discontinuing manufacturing in Singapore.
3
<PAGE> 6
THE OFFERING
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Ordinary Shares offered by the Company....... 1,750,000 shares
Ordinary Shares to be outstanding after the
offering................................... 15,375,922 shares(1)
Use of proceeds.............................. Payment of a portion of the purchase price for
the Karlskrona Facilities and working capital(2)
Nasdaq National Market symbol................ FLEXF
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996(3) 1995 1996(4)
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
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Statement of Operations
Data:
Net sales............... $80,729 $100,759 $131,345 $237,386 $448,346 $322,645 $362,264
Operating income
(loss)............... (3,222) 1,365 3,835 10,207 (11,775) 15,146 14,152
Net income (loss)....... (6,518) (1,228) 2,151 6,156 (17,412) 11,626 10,536
Net income (loss) per
share................ $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39) $ 0.89 $ 0.73
Weighted average
outstanding Ordinary
Shares and
equivalents.......... 7,284 7,382 7,730 12,103 12,536 13,130 14,377
</TABLE>
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DECEMBER 31, 1996
--------------------------------------------
AS ADJUSTED
ACTUAL AS ADJUSTED(5) PRO FORMA(5)(6)
-------- -------------- ----------------
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Balance Sheet Data:
Working capital..................................... $ 26,205 $ 61,173 $124,723
Net property and equipment.......................... 71,001 71,001 102,801
Total assets........................................ 217,934 252,902 352,902
Long-term debt and capital lease obligations, less
current portion.................................. 18,419 18,419 118,419
Shareholders' equity................................ 83,602 118,570 118,570
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(1) Does not include options outstanding as of December 31, 1996 to acquire
1,782,242 shares with a weighted average exercise price of $18.53 per share,
and an additional 185,362 shares reserved for issuance pursuant to the
Company's 1993 Share Option Plan.
(2) See "Risk Factors -- Risks of Ericsson Transaction."
(3) 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 charges totaling $2.5 million for costs associated
with the closing of one of the Company's Malaysian plants and its Shekou,
China operations. Without taking these write-offs and charges into account,
the Company's net income and net income per share would have been $16.6
million and $1.25, respectively, in fiscal 1996.
(4) In the third quarter of fiscal 1997, the Company incurred plant closing
expenses of $2.3 million in connection with the closing of its Texas
facility and the write-off of obsolete equipment at the nCHIP semiconductor
fabrication facility.
(5) Adjusted to reflect the sale of the 1,750,000 Ordinary Shares offered by the
Company hereby (at an assumed public offering price of $21.25 per share and
after deducting the estimated underwriting discount and offering expenses
payable by the Company) and the receipt of the net proceeds therefrom. See
"Use of Proceeds."
(6) Gives pro forma effect to (i) the anticipated incurrence of $100.0 million
of long-term debt and the issuance and sale of Ordinary Shares pursuant to
this Prospectus (at an assumed public offering price of $21.25 per share)
and (ii) the application of the net proceeds therefrom to pay the purchase
price of the Karlskrona Facilities, to reduce short-term debt and for
working capital, all as if such transactions had occurred at December 31,
1996. See "Acquisition of Karlskrona Facilities," "Use of Proceeds" and
"Capitalization."
4
<PAGE> 7
ACQUISITION OF KARLSKRONA FACILITIES
In February 1997, the Company entered into an Asset Transfer Agreement (the
"Asset Transfer Agreement") to acquire from Ericsson Business Networks AB two
manufacturing facilities located in Karlskrona, Sweden and related inventory,
equipment and other assets for approximately 792 million Swedish kronor
(approximately $109.2 million based on exchange rates at January 31, 1997) in
cash, subject to adjustment based on the net book value of the acquired assets
as of the closing date. The Karlskrona Facilities include a 220,000 square foot
facility and a 110,000 square foot facility, each of which is ISO 9002
certified. These facilities currently assemble PCBs, network switches, cordless
base stations and other components for the business communications systems sold
by Ericsson. Approximately 930 Ericsson employees currently based at the
Karlskrona Facilities are expected to remain employed at the facilities. In
addition, at the closing of the transaction, Ronny Nilsson, currently Vice
President and General Manager, Supply and Distribution of Ericsson will be
appointed President of Flextronics International Sweden AB and Senior Vice
President, Europe of the Company, and Stig Sjogren, currently Vice President of
Engineering of Ericsson, will be appointed Vice President and General Manager of
Advanced Engineering Services of the Company. See "Risk Factors -- Risks of
Ericsson Transaction."
The Company, certain of its subsidiaries and Ericsson also entered into a
multi-year purchase agreement (the "Purchase Agreement"), under which the
Company will manufacture certain products used in Ericsson's business
communications systems. The Company believes that, as a result, sales to
Ericsson will account for a large portion of its net sales in fiscal 1998. The
Karlskrona Facilities' cost of sales and services (including certain overhead
allocations) for the year ended December 31, 1996 was 2.14 billion Swedish
kronor (approximately $314.7 million based on exchange rates at December 31,
1996). However, there can be no assurance as to the volume of Ericsson's
purchases, or the mix of products that it will purchase, from the Karlskrona
Facilities in any future period.
By acquiring the Karlskrona Facilities, the Company substantially increases
its worldwide capacity, obtains a strong base in Northern Europe and enhances
its position as a contract manufacturer for the telecommunications industry,
which is increasingly outsourcing manufacturing. The Company also intends to use
the manufacturing resources provided by the Karlskrona Facilities to offer
services to other European OEMs, which it believes are beginning to outsource
the manufacture of significant product lines.
The Company anticipates using a combination of the proceeds of this
offering and the proceeds of the proposed issuance and sale of $100.0 million
principal amount of senior subordinated notes (the "Senior Subordinated Notes")
to pay the purchase price for the Karlskrona Facilities. However, no assurances
can be given that the proposed sale of the Senior Subordinated Notes will be
consummated. In the event that the proposed issuance of the Senior Subordinated
Notes is not consummated, the Company intends to seek alternative debt
financing. No assurance can be given as to the availability or terms of any such
alternative debt financing. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company anticipates closing the acquisition of the
Karlskrona Facilities by April 1, 1997. However, the transaction is subject to
various closing conditions, including obtaining regulatory approvals, and no
assurance can be given as to when, or whether, it will be completed. See "Risk
Factors -- Risks of Ericsson Transaction."
Assuming Ericsson's sales of those products that the Company will
manufacture remain at current levels, the Company anticipates realizing
approximately $350.0 million of sales (based on current exchange rates) to
Ericsson in fiscal 1998; however, there can be no assurance that the Company's
sales to Ericsson will not be materially less than those anticipated. Although
the Company expects that its gross margin percentage on sales to Ericsson will
be less than that realized by the Company in fiscal 1996 and 1997, it also
expects that the impact of lower gross margins may be offset in part by the
effect of anticipated lower overhead and sales expenses, as a percentage of net
sales, associated with supplying products to Ericsson relative to supplying
products to other OEMs. To the extent that the Company is successful in
increasing the capacity of the Karlskrona Facilities and in using these
facilities to provide services to other OEMs, the Company believes it would be
able to achieve increased operating efficiencies. There can be no assurance that
the Company will realize lower overhead or sales expenses or increased operating
efficiencies as anticipated.
5
<PAGE> 8
The foregoing, and discussions elsewhere in this Prospectus, contain a
number of forward-looking statements relative to the benefits and effects of the
acquisition of the Karlskrona Facilities and the execution of the Purchase
Agreement (together, the "Ericsson Transaction"), including the Company's net
sales, gross margins and results of operations, and no assurances can be given
as to the Company's ability to achieve such benefits and results. The Ericsson
Transaction and the Company's business are subject to a number of risks that
could adversely affect the Company's ability to achieve these operating results
and the anticipated benefits of the Ericsson Transaction, including the
Company's ability to reduce costs at the Karlskrona Facilities, the Company's
lack of experience operating in Sweden, which has relatively high manufacturing
costs, the Company's ability to transition the Karlskrona Facilities from
captive manufacturing for Ericsson to manufacturing for third parties and to
expand capacity at these facilities and to integrate these facilities into its
global operations. In addition, there can be no assurance that the Company will
utilize a sufficient portion of the capacity of the Karlskrona Facilities to
achieve profitable operations. See "Risk Factors -- Risks of Ericsson
Transaction."
The Purchase Agreement contains certain cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements, and there can be no assurance that the Company can achieve
acceptable levels of profitability under the Purchase Agreement or reduce costs
and prices to Ericsson over time as contemplated by the Purchase Agreement.
Further, the Purchase Agreement contains certain financial covenants that must
be maintained by the Company and prohibits the Company from selling or
relocating the equipment acquired in the transaction without Ericsson's consent.
A material breach by the Company of any of the terms of the Purchase Agreement
could allow Ericsson to repurchase the assets conveyed to the Company at the
Company's book value or to obtain other relief, including the cancellation of
outstanding purchase orders or termination of the Purchase Agreement. Ericsson
also has certain rights to be consulted on the management of the Karlskrona
Facilities and to approve the use of the Karlskrona Facilities for Ericsson's
competitors or for other customers where such use might adversely affect
Ericsson's access to production capacity at the facilities. In addition, without
Ericsson's consent, the Company may not enter into certain transactions that
could adversely affect its ability to continue to supply products and services
to Ericsson under the Purchase Agreement or its ability to reduce costs and
prices to Ericsson. See "Risk Factors -- Risks of Ericsson Transaction."
The Company anticipates that it will record a charge to earnings of
approximately $3.0 million in the fourth quarter of fiscal 1997, relating to the
anticipated costs of separating the Karlskrona Facilities from Ericsson's
information systems and implementing a new management information system, as
well as transaction costs for the acquisition. The Company expects to reflect
the acquired assets on its balance sheet at amounts equal to those used in
calculating the purchase price. On a pro forma basis as of December 31, 1996
(and based on exchange rates as of such date), this would have increased the
Company's inventories from $45.3 million to approximately $124.6 million, and
would have increased its net property and equipment from $71.0 million to
approximately $102.8 million. Accounts receivable and cash would not have
increased on a pro forma basis as of December 31, 1996. In addition, the Company
will not assume any liabilities of Ericsson other than certain accrued
compensation obligations, which were $3.3 million as of December 31, 1996 (based
on exchange rates on such date). The Company does not expect to account for any
portion of the purchase price as an intangible asset, such as goodwill. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The foregoing discussion contains forward-looking statements relating to
the Company's anticipated costs in connection with the Ericsson Transaction, and
the Company's ability to limit such costs to the amount estimated is subject to
a number of risks including those referred to above and in "Risk
Factors -- Risks of Ericsson Transaction."
6
<PAGE> 9
THE COMPANY
Flextronics is incorporated in Singapore under the Companies Act, Chapter
50 of Singapore (the "Companies Act"). The Company's principal executive offices
are located at 514 Chai Chee Lane #04-13, Bedok Industrial Estate, Singapore
469029, and its telephone number is (65) 449-5255. The address of the Company's
principal U.S. office is 2241 Lundy Avenue, San Jose, California 95131, and its
telephone number is (408) 428-1300. "Flextronics" is a trademark of Flextronics.
This Prospectus also contains trademarks of other companies. Flextronics
prepares its consolidated financial statements in U.S. dollars.
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the Ordinary Shares
offered hereby. The discussion in this Prospectus contains certain
forward-looking statements, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
RISKS OF ERICSSON TRANSACTION
While the Company has entered into the Asset Transfer Agreement with
Ericsson to acquire the Karlskrona Facilities from Ericsson, it has not
consummated this transaction, and consummation is subject to certain conditions
precedent, including obtaining Swedish regulatory approvals, the receipt of
specified legal assurances, and the absence of certain adverse changes. Although
the Company anticipates closing this transaction by April 1, 1997, and the Asset
Transfer Agreement provides for a closing by no later than May 2, 1997, no
assurance can be given as to when, or whether, the Ericsson Transaction will be
completed. The Company intends to use the net proceeds from this offering to pay
a portion of the purchase price of the Karlskrona Facilities. If the Ericsson
Transaction is not consummated, the Company intends to use such proceeds for
working capital and general corporate purposes, including the planned expansion
of its operations in Doumen, China and San Jose, California. See "Use of
Proceeds." The Company also intends to incur a substantial amount of
indebtedness to pay a portion of the purchase price of the Karlskrona
Facilities, which will increase its interest expense in future periods. There
can be no assurance as to the availability or terms of such indebtedness.
The Ericsson Transaction represents a significant expansion of the
Company's operations, and entails a number of risks. In particular, the
Karlskrona Facilities have operated as captive manufacturing facilities for
Ericsson and will now be used as an integrated part of the Company's ongoing
manufacturing operations. This will require optimizing production lines,
separating the Karlskrona Facilities' management information systems from those
of Ericsson, implementing new management information systems, implementing the
Company's operating systems, and assimilating and managing existing personnel.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Employees." The difficulties of this
integration may be further complicated by the geographical distance of the
Karlskrona Facilities from the Company's current operations in Asia and the
United States. In addition, the Ericsson Transaction will increase the Company's
expenses and working capital requirements, and place burdens on the Company's
management resources. In the event the Company is unsuccessful in integrating
these operations, the Company would be materially adversely affected.
As a result of the Ericsson Transaction, the Company expects that sales to
Ericsson will represent a large portion of its net sales. Ericsson has not
previously been a substantial customer of the Company. The Company has no
experience operating in Sweden, which has relatively high manufacturing costs,
and there can be no assurance that the Company can achieve acceptable levels of
profitability, or reduce costs and prices to Ericsson over time as contemplated
by the Purchase Agreement. In addition, there can be no assurance that the
Company will not encounter difficulties in meeting Ericsson's expectations as to
product quality and timeliness. If Ericsson's requirements exceed the volume
anticipated by the Company, the Company may be unable to meet these requirements
on a timely basis. The Company's inability to meet Ericsson's volume, quality,
timeliness and cost requirements, and to quickly resolve any issues with
Ericsson, could have a material adverse effect on the Company and its results of
operations. There can be no assurance that Ericsson will purchase a sufficient
quantity of products from the Company to meet the Company's expectations or that
the Company will utilize a sufficient portion of the capacity of the Karlskrona
Facilities to achieve profitable operations.
The Company may seek to use the Karlskrona Facilities to manufacture
products for third parties. The Company has no commitments by any third party to
purchase manufacturing services to be provided at the
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Karlskrona Facilities, and no assurance can be given that the Company will be
successful in marketing and providing manufacturing services to third parties
from the Karlskrona Facilities. There can be no assurances that the Company will
utilize a sufficient portion of the capacity of the Karlskrona Facilities to
achieve profitable operations. Ericsson also has certain rights to be consulted
on the management of the Karlskrona Facilities and to approve the use of the
Karlskrona Facilities for Ericsson's competitors, or for other customers where
such use might adversely affect Ericsson's access to production capacity at the
facilities. Further, no assurances can be given as to the Company's ability to
expand manufacturing capacity at the Karlskrona Facilities.
The Purchase Agreement contains certain financial covenants that must be
maintained by the Company, and prohibits the Company from selling or relocating
the equipment acquired in the transaction without Ericsson's consent. In
addition, without Ericsson's consent, the Company may not enter into certain
transactions that could adversely affect its ability to continue to supply
products and services to Ericsson under the Purchase Agreement or its ability to
reduce costs and prices to Ericsson. A material breach by the Company of any of
the terms of the Purchase Agreement could allow Ericsson to repurchase the
assets conveyed to the Company at the Company's book value or to obtain other
relief, including the cancellation of outstanding purchase orders or termination
of the Purchase Agreement. See "Acquisition of Karlskrona Facilities."
INCREASED LEVERAGE
At December 31, 1996, on a pro forma basis after giving effect to the
issuance and sale of the Senior Subordinated Notes and the issuance and sale of
1,750,000 Ordinary Shares in this offering (at an assumed public offering price
of $21.25 per share) and the application of a portion of the net proceeds to
reduce short-term debt, the Company had consolidated indebtedness of
approximately $135.3 million. As a result of the issuance and sale of Senior
Subordinated Notes, the Company's ratio of long-term debt and capital lease
obligations to total capitalization at December 31, 1996 will increase from
approximately 25.1% to approximately 50.2% on a pro forma basis. See
"Capitalization" and "Selected Financial Data." Additionally, the Company and
its subsidiaries may incur debt through borrowing of up to $100.0 million under
an anticipated new credit facility subject to the satisfaction of certain
financial tests. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the Company and its shareholders, including the following: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, product development, acquisitions or other
purposes may be limited or impaired; (ii) the Company's operating flexibility
with respect to certain matters will be limited by covenants that will limit the
ability of the Company and certain of its subsidiaries to incur additional
indebtedness, grant liens, pay dividends, redeem capital stock or prepay certain
subordinated indebtedness and enter into sale and leaseback transactions; and
(iii) the Company's degree of leverage may make it more vulnerable to economic
downturns, may limit its ability to pursue other business opportunities and may
reduce its flexibility in responding to changing business and economic
conditions. The Company's ability to generate cash for the repayment of debt
will be dependent upon the future performance of the Company's businesses, which
will in turn be subject to financial, business, economic and other factors
affecting the business and operations of the Company, including factors beyond
its control, such as prevailing economic conditions.
The Company may seek growth through selective acquisitions, including
significant acquisitions. The Company could incur substantial indebtedness in
connection with a significant acquisition, in which event the Company's leverage
would be increased. See "Acquisition of Karlskrona Facilities."
MANAGEMENT OF EXPANSION AND CONSOLIDATION
The Company is currently experiencing a period of rapid expansion through
both internal growth and acquisitions, with net sales increasing from $80.7
million in fiscal 1992 to $448.3 million in fiscal 1996. 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. There can be no assurance that the Company's historical growth will
continue or that the Company will successfully manage the integration
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of the acquired operations. Expansion has caused, and is expected to continue to
cause, strain on the Company's infrastructure, including its managerial,
technical, financial and other resources. To manage further growth, the Company
must continue to enhance financial controls and hire additional engineering and
sales personnel. Continued growth will also require increased investments to
enhance management information systems capabilities and to add manufacturing
capacity. The Company may experience certain inefficiencies as it integrates new
operations and manages geographically dispersed operations. There can be no
assurance that the Company will be able to manage its expansion effectively, and
a failure to do so could have a material adverse effect on the Company's results
of operations. In addition, the Company's results of operations would be
adversely affected if its new facilities do not achieve growth sufficient to
offset increased expenditures associated with expansion.
Expansion through acquisition and internal growth has contributed to the
Company's incurring significant accounting charges and experiencing volatility
in its operating results. In the fourth quarter of fiscal 1996, the Company
reported a substantial loss as a result of the write-off of in-process research
and development charges related to the Astron acquisition and closure of a
facility in Malaysia and a facility in China. In the third quarter of fiscal
1997, the Company reported charges associated with the closure of its
manufacturing facilities in Texas and the write-off of obsolete equipment at the
nCHIP semiconductor fabrication facility. There can be no assurance that the
Company will not continue to experience volatility in its operating results or
incur write-offs in connection with its expansion efforts.
ACQUISITIONS
Acquisitions involve a number of risks in addition to those described under
"Management of Expansion and Consolidation" that could adversely affect the
Company, 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. The Company may not have had any experience with
technologies, processes and markets involved with the acquired business and
accordingly may lack the management and marketing experience that will be
necessary to successfully operate and integrate the business. The successful
operation of an acquired 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 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 technical,
management, sales and other personnel, that the market will favorably view the
Company's entry into a new industry or market or that the Company will realize
any of the other anticipated benefits of the acquisition. No assurance can be
given that any past or future acquisition by the Company will not materially
adversely affect the Company or that any such acquisition will enhance the
Company's business.
CUSTOMER CONCENTRATION; DEPENDENCE ON ELECTRONICS INDUSTRY
A small number of customers are currently responsible for a significant
portion of the Company's net sales. In fiscal 1996, the Company's five largest
customers accounted for approximately 52.0% of net sales, and in the nine months
ended December 31, 1996 its five largest customers accounted for approximately
49.4% of net sales. Approximately 14.1% of Flextronics' net sales for fiscal
1996, and 13.8% of its net sales for the nine months ended December 31, 1996,
were derived from sales to Lifescan (a Johnson & Johnson company). Flextronics
anticipates that a small number of its customers will continue to account for a
large portion of its net sales as it focuses on strengthening and broadening
relationships with leading OEMs. After consummation of the Ericsson Transaction,
the Company expects that sales to Ericsson will represent a significant portion
of its net sales. See "Risk Factors -- Risks of Ericsson Transaction."
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. Significant reductions in sales to any of
these customers, or the loss of one or more major customers, would have a
material adverse effect on the Company. The
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Company generally does not obtain firm long-term volume purchase commitments
from its customers, and over the past few years has experienced reduced
lead-times in customer orders. In addition, customer contracts can be canceled
and volume levels can be changed or delayed. The timely replacement of canceled,
delayed, or reduced contracts with new business cannot be assured. These risks
are exacerbated because a majority of the Company's sales are to customers in
the electronics industry, which is subject to rapid technological change and
product obsolescence. The factors affecting the electronics industry in general,
or any of the Company's major customers in particular, could have a material
adverse effect on the Company.
Credit terms are extended to customers after performing credit evaluations,
which continue throughout a customer's contract period. Credit losses have
occurred in the past, and no assurances can be given that credit losses, which
could be material, will not occur in the future. The Company's concentration of
customers increases the risk that any credit loss would have a material adverse
effect on the Company.
VARIABILITY OF CUSTOMER REQUIREMENTS AND OPERATING RESULTS
Contract manufacturers must provide increasingly rapid product turnaround
and respond to ever-shorter lead times. The Company generally does not obtain
long-term purchase orders but instead works with its customers to anticipate the
volume of future orders. In certain cases, the Company will procure components
without a customer commitment to pay for them, and the Company must continually
make other significant decisions for which it is responsible, including the
levels of business that it will seek and accept, production schedules, personnel
needs and other resource requirements. A variety of conditions, both specific to
the individual customer and generally affecting the industry, may cause
customers to cancel, reduce or delay orders. Cancellations, reductions or delays
by a significant customer or by a group of customers would adversely affect the
Company. On occasion, customers may require rapid increases in production, which
can stress the Company's resources and reduce margins. Although the Company has
increased its manufacturing capacity, there can be no assurance that the Company
will have sufficient capacity at any given time to meet its customers' demands
if such demands exceed anticipated levels.
In addition to the variability resulting from the short-term nature of its
customers' commitments, other factors have contributed, and may contribute in
the future to 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'
announcements, introductions and market acceptance of new products or new
generations of products; evolution 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; product mix; and changes or anticipated changes in economic
conditions. In addition, the Company's revenues are adversely affected by the
observance of local holidays during the fourth fiscal quarter in Malaysia and
China and the reduction in orders by certain customers in the fourth fiscal
quarter reflecting a seasonal slowdown following the Christmas holiday.
Expansion through acquisition and internal growth has contributed to the
Company's incurring significant accounting charges and to volatility in its
operating results. In the fourth quarter of fiscal 1996, the Company reported a
substantial loss as a result of the write off of in-process research and
development charges related to the Astron acquisition and closure of facilities
in Malaysia and China. In the third quarter of fiscal 1997, the Company reported
charges associated with the closure of its manufacturing facilities in Texas and
the write-off of obsolete equipment at the nCHIP semiconductor fabrication
facility.
The market segments served by the Company are also subject to economic
cycles and have in the past experienced, and are likely in the future to
experience, recessionary periods. A recessionary period affecting the industry
segments served by the Company could have a material adverse effect on the
Company's results of operations. Results of operations in any period should not
be considered indicative of the results to be expected for any future period,
and fluctuations in operating results may also result in fluctuations in the
price of the Company's Ordinary Shares. In future periods, the Company's revenue
or results of operations may be below the expectations of public market analysts
and investors. In such event, the price of the Company's Ordinary Shares would
likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
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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 customers' products become obsolete or fail to gain widespread
commercial acceptance, the Company's business may be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has made substantial investments in developing advanced
interconnect technological capabilities. See "Business -- Services." 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 the extent to which
customers design, manufacture and adopt systems based on these advanced
technologies. There can be no assurance that the Company will be able to develop
and exploit these technologies successfully. In addition, there can be no
assurance that the Company will be able to exploit new technologies as they are
developed or to adapt its manufacturing processes, technologies and facilities
to address emerging customer requirements.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal 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 many existing participants, including the Company,
have substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures, which could adversely affect the Company's
operating results. The Company believes there are more than 30 contract
manufacturers with annual revenues above $100.0 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. Failure to satisfy any of the foregoing requirements
could materially adversely affect the Company's competitive position.
RISK OF INCREASED TAXES
The Company has structured its operations 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 these tax incentives are not
renewed upon expiration, if the tax rates applicable to the Company are
rescinded or changed, or if tax authorities successfully challenge 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 would prevail in any such
dispute. If the Company's Asian profits became subject to U.S. income taxes, the
Company's worldwide effective tax rate would increase and its results of
operations and cash flow would be adversely affected. The expansion by the
Company of its operations in North America and Northern Europe may increase its
worldwide effective tax rate. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Provision for Income Taxes."
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RISKS OF INTERNATIONAL OPERATIONS
The Company's executive offices are located in Singapore and the United
States and the Company has substantial manufacturing operations located in
Singapore, Malaysia, China, the United States and the United Kingdom. In
addition, the Company is acquiring substantial manufacturing operations in
Sweden and is developing a manufacturing campus in Mexico, countries in which
the Company has never manufactured products. The geographical distances between
Asia, the United States and Europe create a number of logistical and
communications challenges. Because of the location of manufacturing facilities
in a number of countries, the Company is affected by economic and political
conditions in those countries, including fluctuations in the value of currency,
duties, possible employee turnover, labor unrest, less developed infrastructure,
longer payment cycles, greater difficulty in collecting accounts receivable, the
burdens and costs of compliance with a variety of foreign laws and, in certain
parts of the world, political instability. Changes in policies by the U.S. or
foreign governments resulting in, among other things, increased duties, higher
taxation, currency conversion limitations, restrictions on the transfer of
funds, limitations on imports or exports, or the expropriation of private
enterprises could also have a material adverse effect on the Company. The
Company could also 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. For example, trade preferences
extended by the United States to Malaysia in recent years were not renewed in
1997.
In particular, the Company's operations and assets are subject to
significant political, economic, legal and other uncertainties in China, where
the Company is substantially expanding its operations. 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 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 Singapore dollars, Hong Kong
dollars, Malaysian ringgit, British pounds sterling and Chinese renminbis. After
consummation of the Ericsson Transaction, the Company expects that a significant
portion of its business also will be conducted in Swedish kronor. 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. The Company has historically not
actively engaged in substantial exchange rate hedging activities and unless such
activities are successfully implemented, the Company will be subject to
significantly greater exchange rate fluctuation risk following the Ericsson
Transaction. There can be no assurance that the Company will implement any
hedging techniques or that if it does so, that such techniques will be
successful.
LIMITED AVAILABILITY OF COMPONENTS
A substantial majority of the Company's net sales are derived from turnkey
manufacturing in which the Company is responsible for procuring materials, which
typically results in the Company bearing the risk of component price increases.
At various times there have been shortages of certain electronics components,
including DRAMs, memory modules, logic devices, ASICs, laminates, specialized
capacitors and integrated circuits in bare-die form. Component shortages could
result in manufacturing and shipping delays or higher prices which could have a
material adverse effect on the Company.
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DEPENDENCE ON KEY PERSONNEL AND SKILLED EMPLOYEES
The Company's success depends to a large extent upon the continued services
of key managers. The loss of such personnel could have a material adverse effect
on the Company. The Company's business also depends upon its ability to continue
to recruit, train and retain skilled and semi-skilled employees, particularly
administrative, engineering and sales personnel. There is intense competition
for skilled and semi-skilled employees, particularly in the San Jose, California
market, and the Company's failure to recruit, train and retain such employees
could adversely affect the Company's results of operations. The Company's
ability to successfully integrate the Karlskrona Facilities also depends in part
on its ability to retain existing employees at these facilities.
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 is expanding its printed
circuit board fabrication operations in China. Proper handling, storage and
disposal of the metals and chemicals used in such manufacturing processes are
important considerations in avoiding environmental contamination. 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
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have a
material adverse effect on the Company.
PROTECTION OF INTELLECTUAL PROPERTY
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. In addition, 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 obtain and use information that the Company regards as
proprietary. Furthermore, there can be no assurance that others will not
independently develop similar technology or design around any patents issued to
the Company.
The Company may in the future be notified that it is infringing certain
patent 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 reasonable terms, if at all, 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 materially adversely affect the
Company.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
Certain provisions of the Companies Act and the Singapore Code on Takeovers
and Mergers could make it more difficult for a third party to acquire control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for Ordinary Shares of the Company. Certain of
such provisions impose various procedural and other requirements which could
make it more difficult for shareholders to effect certain corporate actions. See
"Description of Capital Shares -- Takeovers."
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VOLATILITY OF MARKET PRICE OF ORDINARY SHARES
The stock market in recent years has experienced significant price and
volume fluctuations that have affected the market prices of technology companies
and that have often been unrelated to or disproportionately impacted by the
operating performance of such companies. There can be no assurance that the
market for the Ordinary Shares will not be subject to similar fluctuations.
Factors such as fluctuations in the operating results of the Company,
announcements of technological innovations or events affecting other companies
in the electronics industry, currency fluctuations and general market conditions
may have a significant effect on the market prices of the Company's securities,
including the Ordinary Shares.
ENFORCEMENT OF CIVIL LIABILITIES
The Company is incorporated in Singapore under the Companies Act. Certain
of its directors and executive officers (and certain experts named in this
Prospectus) reside in Singapore. All or a substantial portion of the assets of
such persons, and a substantial portion of the assets of the Company (other than
its U.S. subsidiaries), are located outside the United States. As a result, it
may not be possible for persons purchasing Ordinary Shares to effect service of
process within the United States upon such persons or the Company or to enforce
against them, in the United States courts, judgments obtained in such courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. The Company has been advised by its Singapore legal advisors,
Allen & Gledhill, that there is doubt as to the enforceability in Singapore,
either in original actions or in actions for the enforcement of judgments of
United States courts, of civil liabilities predicated upon the federal
securities laws of the United States.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Ordinary Shares
offered hereby are estimated to be approximately $35.0 million. The Company
expects to use such net proceeds, together with net proceeds from the issuance
and sale of the Senior Subordinated Notes, or an alternative source of
financing, if any, to pay the purchase price of the Karlskrona Facilities. To
the extent that the proceeds from the sale of the Ordinary Shares, together with
the proceeds from other financing sources, exceed the purchase price of the
Karlskrona Facilities, such proceeds will be used for working capital and
general corporate purposes, including the planned expansion of its operations in
Doumen, China, San Jose, California and Guadalajara, Mexico. While the Company
has entered into an agreement with Ericsson to acquire the Karlskrona
Facilities, it has not consummated this transaction, and the consummation of the
Ericsson Transaction is subject to certain conditions precedent. If the Ericsson
Transaction is not consummated, the Company intends to use such proceeds for
working capital and general corporate purposes, including the planned expansion
of its operations in Doumen, China, San Jose, California and Guadalajara,
Mexico. See "Risk Factors -- Risks of Ericsson Transaction."
DIVIDENDS
Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Company's loan agreements prohibit the payment of
cash dividends without the lenders' prior consent. The Company anticipates that
all earnings in the foreseeable future will be retained to finance the
continuing development of its business.
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PRICE RANGE OF ORDINARY SHARES
The Company's Ordinary Shares are traded on the Nasdaq National Market
under the symbol "FLEXF." The following table shows the high and low closing
sale prices of the Company's Ordinary Shares since the beginning of the
Company's 1995 fiscal year.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1995
First Quarter...................................................... $ 14 $8 3/4
Second Quarter..................................................... 15 1/2 9
Third Quarter...................................................... 16 1/4 12 3/4
Fourth Quarter..................................................... 18 13
Fiscal 1996
First Quarter...................................................... $21 7/8 $13 1/2
Second Quarter..................................................... 26 3/4 21 3/4
Third Quarter...................................................... 30 21
Fourth Quarter..................................................... 35 3/4 25 3/4
Fiscal 1997
First Quarter...................................................... $ 39 $ 25
Second Quarter..................................................... 28 1/4 17
Third Quarter...................................................... 37 1/4 21
Fourth Quarter (through February 27, 1997)......................... 29 7/8 21 1/4
</TABLE>
On February 27, 1997, the closing sale price of the Ordinary Shares was
$21.25 per share.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the Company's capitalization as of December
31, 1996, as adjusted to give effect to the application of the estimated net
proceeds from the sale by the Company of the 1,750,000 Ordinary Shares offered
hereby at an assumed public offering price of $21.25 per share, and pro forma to
give further effect to the assumed incurrence of $100.0 million principal amount
of long-term indebtedness by the Company in connection with the acquisition of
Karlskrona Facilities.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
AS ADJUSTED
ACTUAL AS ADJUSTED(1) PRO FORMA(1)(2)
-------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt............................ $ 5,710 $ 5,710 $ --
Current portion of long-term debt and
capital leases........................... 16,910 16,910 16,910
Long-term debt, less current portion
Note payable............................. 5,000 5,000 5,000
Other long-term debt..................... 3,985 3,985 3,985
Senior Subordinated Notes(2)............. -- -- 100,000
Notes payable to shareholders............ 400 400 400
Capital leases........................... 9,034 9,034 9,034
Total long-term debt............. 18,419 18,419 118,419
Shareholders' equity:
Ordinary Shares, S$0.01 par value;
100,000,000 shares authorized,
13,581,791 shares issued and
outstanding, 15,331,791 shares issued
and outstanding as adjusted........... 87 99 99
Additional paid-in capital............... 94,652 129,608 129,608
Accumulated deficit...................... (11,137) (11,137) (11,137)
-------- --------
Total shareholders' equity....... $ 83,602 $118,570 $ 118,570
======== ========
Total capitalization............. $124,641 $159,609 $ 253,899
======== ========
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of the 1,750,000 Ordinary Shares offered hereby
(at an assumed public offering price of $21.25 per share and after deducting
the estimated underwriting discount and offering expenses payable by the
Company) and the receipt of the net proceeds therefrom. See "Use of
Proceeds."
(2) Gives pro forma effect to the issuance and sale of the Senior Subordinated
Notes, the net proceeds of which are expected to be used, together with the
net proceeds from the sale of the Ordinary Shares offered hereby, to pay the
purchase price for the Karlskrona Facilities, as if such transaction had
been consummated on December 31, 1996. No assurance can be given as to
whether, or on what terms, the Senior Subordinated Notes will be issued.
17
<PAGE> 20
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for each of nine months ended December 31, 1995 and 1996 and the fiscal
years ended March 31, 1992, 1993, 1994, 1995 and 1996. The selected financial
data set forth below as of March 31, 1995 and 1996 and for the fiscal years
ended March 31, 1994, 1995 and 1996 have 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
selected financial data set forth below as of March 31, 1992, 1993 and 1994 and
for the fiscal years ended March 31, 1992 and 1993 have been derived from
audited financial statements not included in this Prospectus. The selected
financial data as of December 31, 1996 and for the nine months ended December
31, 1995 and 1996 is derived from the unaudited financial statements of the
Company for such periods. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation have been made. These historical results are not necessarily
indicative of the results to be expected in the future. The following table is
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996(2) 1995 1996(3)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 80,729 $100,759 $131,345 $237,386 $448,346 $322,645 $362,264
Cost of sales...................................... 73,361 91,794 117,392 214,865 406,457 293,461 325,827
------- -------- -------- -------- -------- -------- --------
Gross profit..................................... 7,368 8,965 13,953 22,521 41,889 29,184 36,437
Selling, general and administrative expenses....... 7,252 7,131 8,667 11,468 18,587 13,255 19,101
Research and development........................... 2,737 81 202 91 31,562 -- --
Goodwill and intangible amortization............... 399 388 419 755 1,061 783 863
Provision for plant closings....................... 202 -- 830 -- 2,454 -- 2,321
------- -------- -------- -------- -------- -------- --------
Operating income (loss).......................... (3,222) 1,365 3,835 10,207 (11,775) 15,146 14,152
Interest expense and other, net.................... 2,898 2,329 1,376 1,043 1,846 1,121 1,450
Merger expenses.................................... -- -- -- 816 -- -- --
Income (loss) from joint venture................... -- -- (70) (729) -- -- --
------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes................ (6,120) (964) 2,389 7,619 (13,621) 14,025 12,702
Provision for income taxes......................... 398 264 654 1,463 3,791 2,399 2,166
Extraordinary gain................................. -- -- 416 -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $ (6,518) $ (1,228) $ 2,151 $ 6,156 $(17,412) $ 11,626 $ 10,536
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share........................ $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39) $ 0.89 $ 0.73
======= ======== ======== ======== ======== ======== ========
Weighted average Ordinary Shares and equivalents
used in per share calculations................... 7,284 7,382 7,730 12,103 12,536 13,130 14,377
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------------------------------- -------------
1992 1993 1994 1995 1996 1996
------- ------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................... $ 856 $(1,201) $ 30,669 $ 33,425 $ 27,676 $ 26,205
Total assets................................................. 41,734 52,430 103,129 116,117 214,588 217,934
Long-term debt and capital lease obligations, less current
portion.................................................... 7,514 17,243 4,755 6,890 28,360 18,419
Shareholders' equity (deficit)............................... (1,040) (2,256) 46,703 57,717 70,779 83,602
</TABLE>
- ---------------
(1) In January 1995, the Company acquired nCHIP in exchange for an aggregate of
2,450,000 Ordinary Shares in a transaction accounted for as a pooling of
interests. Accordingly, the financial data presented for each fiscal period
includes the historical results of nCHIP.
(2) 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 charges totaling $2.5 million for costs associated
with the closing of one of the Company's Malaysian plants and its Shekou,
China operations. Without taking these write-offs and charges into account,
the Company's net income and earnings per share would have been $16.6
million and $1.25, respectively, in fiscal 1996.
(3) In the third quarter of fiscal 1997, the Company incurred plant closing
expense of $2.3 million in connection with the closing of its Texas facility
and the write-off of obsolete equipment at the nCHIP semiconductor
fabrication facility.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed below and elsewhere herein contain forward-looking
statements regarding the future performance of the Company and future events.
These matters involve risks and uncertainties that could cause actual results to
differ materially from the statements contained herein. In addition to the
matters discussed below, see "Risk Factors" for information relating to such
risks and uncertainties.
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., which had been in the contract manufacturing
business since 1982. In recent years, the Company has substantially expanded its
manufacturing capacity, technological capabilities and service offerings,
through both acquisitions and internal growth. See "Risk Factors -- Management
of Expansion and Consolidation," "Risk Factors -- Acquisitions" and Note 13 of
Notes to Consolidated Financial Statements.
In March 1994, the Company acquired Relevant, a San Jose-based contract
manufacturer, for approximately $4.0 million in cash. In January 1995, the
Company acquired nCHIP in exchange for an aggregate of approximately 2,450,000
Ordinary Shares in a transaction accounted for as a pooling of interests.
Currently, the Company is engaged in negotiations to sell nCHIP's semiconductor
wafer fabrication facilities to a third party. See "-- Results of
Operations -- Provision for Plant Closings." In April 1995, the Company acquired
A&A, a contract manufacturer located in the United Kingdom, for a consideration
of $2.9 million in cash and 66,908 Ordinary Shares.
In February 1996, the Company acquired Astron in exchange for total
consideration of $45.6 million consisting of (i) $13,440,605 in cash, (ii) $15.0
million in 8% promissory notes, ($10.0 million of which was paid in February
1997 and $5.0 million of which is payable in February 1998), (iii) 238,684
Ordinary Shares issued at closing and (iv) Ordinary Shares with a value of $10.0
million to be issued on June 30, 1998. The Company is also required to pay an
earnout of up to an additional $12.5 million in cash and Ordinary Shares on or
about March 31, 1997, based on the pre-tax profit of Astron for the year ended
December 31, 1996. In addition, the Company has agreed to pay a consulting and
non-compete fee of $15.0 million to Stephen J. L. Rees on June 30, 1998
conditioned upon his remaining employed as Chairman of Astron through that time.
This amount will be expensed when paid. In the fourth quarter of fiscal 1996,
the Company wrote off $31.6 million of in-process research and development
related to the acquisition of Astron.
In November 1996, the Company acquired Fine Line in exchange for 223,321
Ordinary Shares in a pooling of interests transaction. In December 1996, the
Company acquired 40% of FICO for $5.2 million. Of this, the Company paid $3.0
million in December 1996, and the remaining amount is due in April 1997. The
Company also obtained an option to purchase the remaining 60% interest of FICO
in 1998 for a price that is dependent on the financial performance of FICO for
the period ending December 31, 1997.
In February 1997, the Company entered into the Asset Transfer Agreement
with Ericsson, under which the Company agreed to purchase the Karlskrona
Facilities for approximately 792 million Swedish kronor (approximately $109.2
million based on exchange rates at January 31, 1997), to be financed with the
net proceeds from this offering and anticipated debt financing. See "Use of
Proceeds" and "-- Liquidity and Capital Resources." In connection with this
transaction, the Company anticipates that it will record a charge to earnings of
approximately $3.0 million in the fourth fiscal quarter of fiscal 1997, relating
to the anticipated costs of separating the Karlskrona Facilities from Ericsson's
management information systems and implementing a new management information
system, as well as transaction costs for the acquisition. See "Acquisition of
Karlskrona Facilities" and "Risk Factors -- Risks of Ericsson Transaction."
19
<PAGE> 22
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>
NINE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 89.4 90.5 90.7 91.0 90.0
----- ----- ----- ----- -----
Gross profit..................................... 10.6 9.5 9.3 9.0 10.0
Selling, general and administrative expenses....... 6.6 4.9 4.2 4.1 5.3
Research and development........................... 0.2 -- 7.0 -- --
Goodwill and intangible assets amortization........ 0.3 0.3 0.2 0.2 0.2
Provision for plant closings....................... 0.6 -- 0.5 -- 0.6
----- ----- ----- ----- -----
Operating income (loss).......................... 2.9 4.3 (2.6) 4.7 3.9
Interest expense and other, net.................... 1.0 0.5 0.4 0.4 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) 4.3 3.5
Provision for income taxes......................... 0.5 0.6 0.9 0.7 0.6
Extraordinary gain................................. 0.3 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................................ 1.6% 2.6% (3.9%) 3.6% 2.9%
===== ===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the nine months ended December 31, 1996 increased 12.3% to
$362.3 million from $322.6 million for the nine months ended December 31, 1995.
The increase was primarily due to new customers in the computer and
communications industries, such as Microsoft, US Robotics and Advanced Fibre
Communications, and the inclusion of sales of Astron after it was acquired in
February 1996. This increase was partially offset by reduced sales to certain
existing customers, including Visioneer, Apple Computer, Logitech and Houston
Tracker Systems. The Company believes that the reduction in sales to these
customers was primarily due to reductions in these customers' sales to
end-users. See "Risk Factors -- Rapid Technological Change."
Net sales in fiscal 1996 increased 88.8% to $448.3 million from $237.4
million in fiscal 1995. This increase was primarily due to: increased 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 Braun/ThermoScan;
and inclusion of the sales of A&A and Astron after they were acquired in April
1995 and February 1996, respectively. This was partially offset by a significant
decline in sales to IBM due to IBM's efforts to consolidate more of its
manufacturing business internally.
Net sales in fiscal 1995 increased 80.8% to $237.4 million from $131.3
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 varies from period to period and is affected by, among other
things, product mix, component costs, product life cycles, unit volumes,
startup, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin increased to
10.0% for the nine months ended December 31, 1996 as compared to 9.0% for the
nine months ended December 31, 1995. The
20
<PAGE> 23
increase was mainly due to higher sales in the first two quarters of the year
resulting in better labor and overhead absorption, and the inclusion of Astron's
PCB business which has historically had a relatively higher gross profit margin
than the Company. This benefit was partially offset by underutilization of the
nCHIP semiconductor fabrication facility, and of the Company's Texas facility,
which is being closed, and related inventory write-offs. See "-- Provision for
Plant Closings." Gross margins may be adversely effected in the short term as
the Company commences production in new facilities, including the Karlskrona
Facilities, and may also be adversely affected by the relatively high cost of
manufacturing in Sweden. See "Acquisition of Karlskrona Facilities."
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 the nCHIP semiconductor fabrication
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 sales to new customers, which typically
entail higher expenses and lower margin initially, as well as a decline in
nCHIP's results of operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1996 increased to $19.1 million from $13.3 million in the nine
months ended December 31, 1995 and increased as a percentage of net sales to
5.3% from 4.1%. The increase in absolute dollars and as a percentage was
principally due to the inclusion of Astron's selling, general and administrative
expenses after its acquisition in February 1996; increased corporate salaries
and bonuses; increased sales and marketing expense; and travel and legal
expenses related to recent acquisitions.
Selling, general and administrative expenses in fiscal 1996 increased to
$18.6 million from $11.5 million in fiscal 1995, but decreased as a 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 the United States and the inclusion of A&A's and Astron's selling,
general and administrative expenses after their acquisitions in April 1995 and
February 1996, respectively.
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
inclusion of Relevant's selling, general and administrative expenses, and
provision for severance payments to certain nCHIP personnel.
Goodwill and Intangible Assets Amortization
Goodwill and intangible assets are amortized on a straight line basis.
Goodwill and intangible amortization for the nine months ended December 31, 1996
increased to $863,000 from $783,000 for the nine months ended December 31, 1995,
and increased to $1.1 million in fiscal 1996 from $755,000 in fiscal 1995,
primarily due to the Company's acquisitions of A&A and Astron. Goodwill and
intangible amortization increased to $755,000 in fiscal 1995 from $419,000 in
fiscal 1994 due to the acquisition of Relevant.
Provision for Plant Closings
As the Company has implemented its facilities consolidation strategy, it
has incurred expenses for plant closings in fiscal 1996 and the nine months
ended December 31, 1996. In the nine months ended December 31, 1996, the Company
incurred plant closing expense of $2.3 million in connection with the closing of
its Texas facility and the write-off of obsolete equipment at the nCHIP
semiconductor fabrication facility. The Texas facility had been primarily
dedicated to production for Global Village Communications
21
<PAGE> 24
and Apple Computer, to whom the Company does not anticipate making substantial
sales in future periods. In addition, during this period, the Company began
negotiations to sell the nCHIP semiconductor fabrication facility to a third
party. In the fourth quarter of fiscal 1997, the Company expects to incur
expenses of approximately $2.0 million in connection with its planned shift of
manufacturing operations from Singapore to lower cost manufacturing locations.
In the fourth quarter of fiscal 1996, the Company recorded charges
totalling $2.5 million for costs associated with the closing of one of the
Company's Malaysian plants and its Shekou, China operations. Production from the
Shekou facility was moved to the Company's plant in Xixiang, China. Without
taking this provision into account, the Company's net income and earnings per
share in fiscal 1996 would have been $16.6 million and $1.25, respectively. The
$2.5 million provision included a $1.0 million provision for inventory exposure
and $1.3 million associated with the write-off of certain obsolete equipment.
Research and Development
In the fourth quarter of fiscal 1996, the Company wrote off $31.6 million
of in-process research and development ("In-Process R&D") related to the
acquisition of Astron. The Company engaged Duff & Phelps Capital Markets Co.
("DPCM") to determine the fair market value of Astron's In-Process R&D, and DPCM
determined the valuation to be between $31.0 million and $37.0 million.
Interest Expense and Other, Net
Interest expense and other, net increased to $1.5 million for the nine
months ended December 31, 1996 from $1.1 million for the nine months ended
December 31, 1995, mainly due to indebtedness incurred in order to finance the
Astron acquisition, offset in part by a successful insurance claim. The Company
expects its interest expense to increase substantially as a result of the
indebtedness which it expects to incur to finance a portion of the purchase
price for the Karlskrona Facilities.
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
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 a weaker Malaysian
ringgit and Singapore dollar. See "Risk Factors -- Currency Fluctuations."
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, repayment of short-term advances in April 1994 and higher income earned on
cash balances for the first six months of fiscal 1995.
Income (Loss) from Joint Venture
Flextracker, the joint venture with Houston Tracker Systems ("HTS") in
which the Company previously owned a 49% interest, commenced operations in June
1993. 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 $1.0 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. 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.
22
<PAGE> 25
Merger Expenses
In January 1995, the Company acquired nCHIP and recorded a one-time
non-operating charge of approximately $816,000.
Provision for Income Taxes
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Singapore, Malaysia, Hong
Kong, Mauritius, China, the United Kingdom and the United States. Each of these
subsidiaries is subject to taxation in the country in which it has been formed.
The Company's Asian manufacturing subsidiaries have at various times been
granted certain tax relief in each of these countries, resulting in lower taxes
than would otherwise be the case under ordinary tax rates. See Note 7 of Notes
to Consolidated Financial Statements.
The Company's consolidated effective tax rate for any given period is
calculated by dividing the aggregate taxes incurred by each of the operating
subsidiaries and the holding company by the Company's consolidated pre-tax
income. Losses incurred by any subsidiary or by the holding company are not
deductible by the entities incorporated in other countries in the calculation of
their respective local taxes. For example, the charge for the closing of one
plant in Malaysia in fiscal 1996 was incurred by a Malaysian subsidiary that did
not have income against which this charge could be offset. The ordinary
corporate tax rates for calendar 1996 were 26%, 16.5% and 15% in Singapore, Hong
Kong and China, respectively, and 30% on manufacturing operations in Malaysia.
In addition, the tax rate is de minimis in Labuan, Malaysia and Mauritius where
the Company's offshore marketing and distribution subsidiaries are located.
The Company's consolidated effective tax rate was 17.1% for the nine months
ended December 31, 1996 and 19.2% in fiscal 1995. The provision for plant
closings of $2.5 million and the $31.6 million write-off of In-Process R&D in
fiscal 1996 resulted in aggregate net losses for that year, but the Company
incurred taxes on the profitable operations of certain of its subsidiaries. If
the provision for plant closings and In-Process R&D write-off are excluded, the
Company's fiscal 1996 consolidated effective tax rate would have been 18.6%.
The Company has structured its operations in Asia in a manner designed to
maximize income in countries where tax incentives have been extended to
encourage foreign investment or where income tax rates are low. The Company's
Singapore subsidiary was granted an investment allowance incentive in respect of
approved fixed capital expenditures subject to certain conditions. These
allowances have been utilized to reduce its taxable income since fiscal 1991,
and were fully utilized at the end of fiscal 1996. If the Singapore subsidiary
sells, leases or disposes of assets in respect of which investment allowances
have been granted before July 31, 1997, the amount of income previously exempted
from Singapore tax will then become taxable at the standard corporate tax rate
of 26.0%. The Company's investments in its plants in Xixiang and Doumen, China
fall under the "Foreign Investment Scheme" that entitles the Company to apply
for a five-year tax incentive. The Company obtained the incentive for the Doumen
plant in December 1995 and the Xixiang plant in October 1996. With the approval,
the Company's tax rates on income from these facilities during the incentive
period will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in
the first profitable year. In fiscal 1993, the Company transferred its offshore
marketing and distribution functions to a newly formed marketing subsidiary
located in Labuan, Malaysia, where the tax rate is de minimus. In February 1996,
the Company transferred Astron's sales and marketing business to a newly formed
subsidiary in Mauritius, where the tax rate is 0%. The Company's Malaysian
manufacturing subsidiary has obtained a five-year pioneer certificate from the
relevant authority that provides a tax exemption on manufacturing income from
certain products in Johore, Malaysia. To date, this incentive has had a limited
impact on the Company due to the relatively short history of its Malaysian
operations and its tax allowances and losses carry forward. The Company's
facility in Shekou, China, which was closed in fiscal 1996, was located in a
"Special Economic Zone" and was an approved "Product Export Enterprise" that
qualified for a special corporate income tax rate of 10.0%.
If tax incentives are not renewed upon expiration, if the tax rates
applicable to the Company are rescinded or changed, or if tax authorities
challenge successfully the manner in which profits are recognized among the
Company's subsidiaries, the Company's worldwide effective tax rate would
increase and its results
23
<PAGE> 26
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 would prevail in any such dispute. If the Company's Asian
profits became subject to U.S. income taxes, the Company's worldwide effective
tax rate would increase and its results of operations and cash flow would be
adversely affected. In addition, the expansion by the Company of its operations
in North America and Northern Europe may increase its worldwide effective tax
rate. See "Risk Factors -- Risk of Increased Taxes."
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 results of operations due to
a variety of factors. These factors include, among other things: timing of
orders; volume of orders relative to the Company's capacity; customers'
announcements, introductions and market acceptance of new products or new
generations of products; evolution 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; product mix; and changes or anticipated changes in economic
conditions. In addition, the Company's revenues are adversely affected by the
observance of local holidays during the fourth fiscal quarter in Malaysia and
China and the reduction in orders by certain customers in the fourth fiscal
quarter reflecting a seasonal slowdown following the Christmas holiday. The
market segments served by the Company are also subject to economic cycles and
have in the past experienced, and are likely in the future to experience,
recessionary periods. A recessionary period affecting the industry segments
served by the Company could have a material adverse effect on the Company's
results of operations. Results of operations in any period should not be
considered indicative of the results to be expected for any future period, and
fluctuations in operating results may also result in fluctuations in the price
of the Company's Ordinary Shares. In future periods, the Company's revenue or
results of operations may be below the expectations of public market analysts
and investors. In such event, the price of the Company's Ordinary Shares would
likely be materially adversely affected.
BACKLOG
The Company's backlog was $181.9 million at December 31, 1996 and $196.3
million at December 31, 1995. Backlog consists of contracts or purchase orders
with delivery dates scheduled within the next six months. Because of the timing
of orders, delivery intervals, customer and product mix and the possibility of
customer changes in delivery schedules, the Company's backlog as of any
particular date may not be indicative of actual sales for any succeeding period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from cash generated from operations,
bank debt, lease financing of capital equipment and the proceeds of public
offerings of equity securities. At December 31, 1996, the Company had cash
balances totaling $13.6 million, outstanding bank borrowings of $5.7 million,
and an aggregate of $42.3 million available for borrowing under its credit
facilities.
Net cash provided by operating activities was $40.1 million for the nine
months ended December 31, 1996, comprised primarily of net income, depreciation,
provision for plant closings and decreases in accounts receivable. Net cash used
for operating activities was $10.9 million for the nine months ended December
31, 1995, primarily due to increases in inventory and decreases in accounts
payable.
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<PAGE> 27
Net 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 income (adjusted to exclude
In-Process R&D write-off and provision for plant closings) of $16.6 million,
depreciation, amortization and allowance for doubtful accounts and obsolescence.
Cash used for operating activities in fiscal 1996 was primarily comprised of
increases in accounts receivable and inventories reflecting higher sales. Cash
provided by operating activities for fiscal 1995 was comprised primarily of net
income, depreciation, amortization, allowance for doubtful debts and the loss
from the Flextracker joint venture. Cash used for operating activities for
fiscal 1995 was comprised mainly of an increase in accounts receivable and
inventories.
Accounts receivable, net of allowance for doubtful accounts, decreased to
$67.2 million at December 31, 1996 from $78.1 million at March 31, 1996. The
decrease in accounts receivable was mainly due to improved collection of
accounts receivable during the nine months ended December 31, 1996. Inventories
decreased to $45.3 million at December 31, 1996 from $52.6 million at March 31,
1996. The Company's allowance for doubtful accounts increased to $4.3 million at
December 31, 1996 from $3.6 million at March 31, 1996. The Company's allowance
for inventory obsolescence increased to $5.9 million at December 31, 1996 from
$4.6 million at March 31, 1996. The increases in the allowances for both
doubtful accounts and inventory obsolescence were due to the increase in sales
in the nine-month period. See "Risk Factors -- Customer Concentration;
Dependence on Electronics Industry."
Net cash used for investing activities during the nine months ended
December 31, 1996 was $20.1 million which consisted primarily of expenditures
for: the construction in progress at the new campus in Doumen, China; machinery
and equipment in the San Jose, California and Xixiang, China facilities; the
purchases of land in Guadalajara, Mexico and San Jose, California; and the
investment in FICO. Net cash used for investing activities during the nine
months ended December 31, 1995 was $21.6 million which consisted primarily of
purchases of machinery and equipment in the Company's manufacturing facilities
located in Texas, California and Xixiang, China.
Net cash used for investing activities during fiscal 1996 was $29.0 million
which consisted primarily of $15.8 million of expenditures for machinery and
equipment in the Company's manufacturing facilities located in Texas, California
and Xixiang, China, as well as payment of $15.2 million for the cash portion of
the A&A and Astron acquisitions (net of cash acquired). Net cash used for
investing activities for fiscal 1995 was $10.2 million which consisted mainly of
purchases of property and equipment in three Asian plants and payment for the
acquisition of the net assets of Flextracker.
Net cash used for financing activities was $12.9 million for the nine
months ended December 31, 1996 and consisted primarily of repayment of bank
loans and capital lease obligations. Net cash provided by financing activities
was $36.1 million for the nine months ended December 31, 1995 and consisted
primarily of net proceeds from the issuance of share capital and borrowings from
banks. Bank borrowings decreased from $14.4 million at March 31, 1996 to $5.7
million at December 31, 1996 as the Company repaid bank loans using cash
provided by the operating activities.
Net cash provided by financing activities was $31.6 million in fiscal 1996,
consisting primarily of $22.3 million from the sale of 1,000,000 Ordinary Shares
and net bank borrowings of $12.3 million. Net cash used for financing activities
was $10.8 million for fiscal 1995, consisting primarily of repayment of bank
borrowings and notes payable, offset in part by proceeds from the sale of
Ordinary Shares and increased capital lease financing.
The Company has received a commitment from The First National Bank of
Boston (the "Bank") to provide two fully underwritten new revolving credit
agreements (together, the "New Credit Facility") under which, subject to
compliance with certain financial ratios and the satisfaction of customary
borrowing conditions, the Company and its United States subsidiary will be
permitted to borrow up to an aggregate of $100.0 million. Loans to the Company
will be guaranteed by certain of its subsidiaries and loans to the Company's
United States subsidiary will be guaranteed by the Company and by certain of the
Company's subsidiaries. The New Credit Facility will mature on the third
anniversary of the closing. The New Credit Facility is expected to be secured by
a first priority lien on all accounts receivable and inventory of the Company
and its subsidiaries, as well as a pledge of the Company's shares in certain of
its direct subsidiaries.
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<PAGE> 28
The execution of the New Credit Facility is anticipated to occur simultaneously
with the closing of the Ericsson Transaction; however, there can be no assurance
that the New Credit Facility will be consummated or that the Company will not
seek alternative sources of financing. The Bank's obligation to provide the New
Credit Facility is conditioned upon, among other things, the preparation,
execution and delivery of mutually acceptable loan documentation.
In addition to the anticipated New Credit Facility, the Company anticipates
issuing $100.0 million of Senior Subordinated Notes. The indenture governing the
Senior Subordinated Notes will impose certain restrictions on the Company and
its subsidiaries, including restrictions on the ability to incur indebtedness,
pay dividends, make certain investments, and engage in certain other activities.
The Senior Subordinated Notes may be required to be purchased by the Company
upon certain transactions involving a change in control of the Company, and in
certain circumstances with the proceeds of asset sales. However, no assurance
can be given as to whether, or on what terms, the Senior Subordinated Notes will
be issued.
The Company presently anticipates that its capital expenditures in the
fourth quarter of fiscal 1997 will be approximately $5.0 million to $7.0 million
(excluding the purchase price for the Karlskrona Facilities) and anticipate that
its capital expenditures in fiscal 1998 will be approximately $60.0 million,
primarily relating to the development of new and expanded facilities in San
Jose, California, Guadalajara, Mexico, and Doumen, China. In addition, the
Company will be required to expend cash in the fourth quarter of fiscal 1997 and
in fiscal 1998 pursuant to the terms of the Astron acquisition. The Company will
be required to make a principal payment of $5.0 million in February 1998,
pursuant to the terms of a note issued by it in connection with the Astron
acquisition, and will be required to pay an earnout of up to an additional $12.5
million in cash and Ordinary Shares on or about March 31, 1997, based on the
pre-tax profit of Astron for the year ended December 31, 1996. The Company is
also required to make a $15.0 million payment in cash and Ordinary Shares to
Stephen J. L. Rees on June 30, 1998, conditioned upon his remaining employed as
Chairman of Astron through that time. The Company believes that existing cash
balances, together with anticipated cash flow from operations and amounts
available under its existing and anticipated credit facilities, will be
sufficient to fund its operations (other than the Ericsson Transaction) through
fiscal 1998.
To finance the Ericsson Transaction, the Company anticipates using a
combination of the net proceeds of this offering and the proposed issuance and
sale of the Senior Subordinated Notes. No assurance can be given as to whether,
or on what terms, the Senior Subordinated Notes will be issued. In the event
that the proposed issuance of the Senior Subordinated Notes is not consummated,
the Company intends to seek alternative debt financing. No assurance can be
given as to the availability or terms of any such alternative debt financing.
See "Acquisition of Karlskrona Facilities," "Risk Factors -- Risks of Ericsson
Transaction" and " -- Increased Leverage."
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<PAGE> 29
BUSINESS
The Company is a leading provider of advanced contract manufacturing
services to OEMs in the communications, computer, consumer and medical
electronics industries. Flextronics offers a full range of services including
product design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and finished products manufactured by Flextronics
incorporate advanced interconnect, miniaturization and packaging technologies,
such as SMT, MCM and COB technologies. The Company's strategy is to use its
global and advanced technological expertise to provide its customers with a
complete manufacturing solution, highly responsive and flexible service,
accelerated time to market and reduced production costs. The Company targets
leading OEMs in growing vertical markets with which it believes it can establish
long-term relationships, and serves its customers on a global basis from its
strategically located facilities in North America, Asia and Northern Europe. The
Company's customers include Advanced Fibre Communications, Ascend
Communications, Braun/ThermoScan, Cisco Systems, Diebold, Harris DTS, Lifescan
(a Johnson & Johnson company), Microsoft, Philips Electronics and U.S. Robotics.
INDUSTRY OVERVIEW
Many OEMs in the electronics industry are increasingly utilizing contract
manufacturing services in their business and manufacturing strategies, and are
seeking to outsource a broad range of manufacturing and related engineering
services. Outsourcing allows OEMs to take advantage of the manufacturing
expertise and capital investments of contract manufacturers, thereby enabling
OEMs to concentrate on their core competencies. According to an independent
industry study, these trends and overall growth in OEMs' markets have resulted
in a compound annual growth rate in the electronics contract manufacturing
industry of over 30% from 1992 through 1996, to approximately $60 billion.
According to this study, the industry is expected to grow to approximately $110
billion by 1999. OEMs utilize contract manufacturers to:
Reduce Production Costs. The competitive environment for OEMs requires
that they achieve a low-cost manufacturing solution, and that they
quickly reduce production costs for new products. Due to their
established manufacturing expertise and infrastructure, contract
manufacturers can frequently provide OEMs with higher levels of
responsiveness, increased flexibility and reduced overall production
costs than in-house manufacturing operations. The production scale,
infrastructure, purchasing volume and expertise of leading contract
manufacturers can further enable OEMs to reduce costs earlier in the
product life cycle.
Accelerate Time to Market. Rapid technological advances and shorter
product life cycles require OEMs to reduce the time required to bring a
product to market in order to remain competitive. By providing
engineering services, established infrastructure and advanced
manufacturing expertise, contract manufacturers can help OEMs shorten
their product introduction cycles.
Access Advanced Manufacturing and Design Capabilities. As electronic
products have become smaller and more technologically advanced,
manufacturing processes have become more automated and complex, making
it increasingly difficult for OEMs to maintain the design and
manufacturing expertise necessary to remain competitive. Contract
manufacturers enable OEMs to gain access to advanced manufacturing
facilities, packaging technologies and design expertise.
Focus Resources. Because the electronics industry is experiencing
increased competition and technological change, 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 competencies.
Reduce Investment. As electronic products have become more
technologically advanced, internal manufacturing has required
significantly increased investment for working capital, capital
equipment, labor, systems and infrastructure. Contract manufacturers
enable OEMs to gain access to advanced, high volume manufacturing
capabilities without making the capital investments required for
internal production.
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<PAGE> 30
Improve Inventory Management and Purchasing Power. OEMs are faced with
increasing challenges in planning, procuring and managing their
inventories efficiently due to frequent design changes, short product
life cycles, large investments in electronic components, component price
fluctuations and the need to achieve economies of scale in materials
procurement. Contract manufacturers' inventory management expertise and
volume procurement capabilities can reduce OEM production and inventory
costs, helping them respond to competitive pressures and increase their
return on assets.
Access Worldwide Manufacturing Capabilities. 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 such OEMs a variety of options on manufacturing locations to
better address their objectives regarding costs, shipment location,
frequency of interaction with manufacturing specialists and local
content requirements of end-market countries. In addition, OEMs in
Europe and other international markets are increasingly recognizing the
benefits of outsourcing.
STRATEGY
The Company's objective is to enhance its position as a leading provider of
advanced contract manufacturing and design services to OEMs worldwide. The
Company's strategy to meet this objective includes the following key elements:
Leverage Global Presence. The Company has established a manufacturing
presence in the world's major electronics markets -- Asia, North America
and Europe -- in order to serve the increasing outsourcing needs of
regional OEMs and to provide the global capabilities required by larger
OEMs. The Company is substantially increasing overall capacity by
developing manufacturing campuses in China and Mexico, expanding its
operations in San Jose, California and acquiring the Karlskrona
Facilities in Sweden. By increasing the scale and the scope of the
services offered in each site, the Company believes that it can better
address the needs of leading OEMs that are increasingly seeking to
outsource high volume production of advanced products.
Provide a Complete Manufacturing Solution. The Company believes that
OEMs are increasingly requiring a wider range of advanced services from
contract manufacturers. Building on its integrated engineering and
manufacturing capabilities, the Company provides its customers with
services ranging from initial product design and development and
prototype production to final product assembly and distribution to OEMs'
customers. The Company believes that this provides greater control over
quality, delivery and cost, and enables the Company to offer its
customers a complete cost-effective solution.
Provide Advanced Technological Capabilities. Through its continuing
investment in advanced packaging and interconnect technologies (such as
MCM, COB and miniature gold-finished PCB capabilities), as well as its
investment in advanced design and engineering capabilities (such as
those offered by Fine Line), the Company is able to offer its customers
a variety of advanced design and manufacturing solutions. In particular,
the Company believes that its ability to meet growing market demand for
miniaturized electronic products will be critical to its ongoing
success, and has developed and acquired a number of innovative
technologies to address this demand.
Accelerate Customers' Time to Market. The Company's engineering
services group provides integrated product design and prototyping
services to help customers accelerate their time to market for new
products. By participating in product design and prototype development,
the Company often reduces the costs of manufacturing the product. In
addition, by designing products to improve manufacturability and by
participating in the transition to volume production, the Company
believes that its engineering services group can significantly
accelerate the time to volume production. By working closely with its
suppliers and customers throughout the design and manufacturing process,
the Company can enhance responsiveness and flexibility, increase
manufacturing efficiency and reduce total cycle times.
Increase Efficiency Through Logistics. The Company is streamlining and
simplifying production logistics at its large, strategically located
facilities to decrease the costs associated with the handling and
managing of materials. The Company plans to incorporate suppliers of
custom components in its facilities in China and Mexico, to further
reduce material and transportation costs. The Company
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also intends to establish warehousing capabilities from which it can
ship products into customers' distribution channels.
Target Leading OEMs in Growing Vertical Markets. The Company has
focused its marketing efforts on fast growing industry sectors that are
increasingly outsourcing manufacturing operations, such as the
communications, computer, consumer electronics and medical industries.
The Company seeks to maintain a balance of customers among these
industries, establishing long-term relationships with leading OEMs to
become an integral part of their operations.
There can be no assurance that the Company's strategy, even if successfully
implemented, will reduce the risks associated with the Company's business. See
"Risk Factors."
CUSTOMERS
The Company's customers consist of a select group of OEMs in the
communications, computer, consumer electronics and medical industries. Within
these industries, the Company's strategy is to seek long-term relationships with
leading companies that seek to outsource significant production volumes of
complex products. In fiscal 1996, the Company's five largest customers accounted
for approximately 52.0% of net sales. The loss of one or more major customers
would have a material adverse effect on the Company. See "Risk
Factors -- Customer Concentration; Dependence on Electronics Industry."
The following table lists in alphabetical order certain of the Company's
largest customers with which the Company expects to continue to conduct
significant business in fiscal 1998 and the products for which the Company
provides manufacturing services.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
---------------------------------------------------- -----------------------------------
<S> <C>
Advanced Fibre Communications....................... Local line loop carriers
Braun/ThermoScan.................................... Temperature monitoring systems
Diebold............................................. Automatic teller machines
IBM................................................. Tape drive systems
Lifescan (a Johnson & Johnson company).............. Portable glucose monitoring system
Microcom............................................ Modems
Microsoft........................................... Computer peripheral devices
Polycom............................................. Teleconferencing systems
U.S. Robotics....................................... Pilot electronic organizers
</TABLE>
In addition, in fiscal 1997 the Company has entered into relationships with
a number of new significant customers, including Ascend Communications
(telecommunications products), Auspex (drive carriers), Cisco Systems (data
communications products), Harris DTS (network switches) and Philips Electronics
(video cameras).
The Company and Ericsson entered into a multi-year purchase agreement in
February 1997, and the Company believes that, as a result, sales by Ericsson
will account for a significant portion of its net sales in fiscal 1998. See
"Acquisition of Karlskrona Facilities" and "Risk Factors -- Risks of Ericsson
Transaction."
SALES AND MARKETING
The Company achieves worldwide sales coverage through a 24-person direct
sales force, which focuses on generating new accounts, and through 43 program
managers, who are responsible for managing relationships with existing customers
and making follow-on sales. In North America, the Company maintains sales
offices in California and Massachusetts, as well as recently established sales
offices in Florida and Guadalajara, Mexico. The Company's Asian sales offices
are located in Singapore, Hong Kong and Malaysia. In Europe, the Company
maintains sales offices in England and the Netherlands, and intends to establish
additional European sales offices in France, Germany and Sweden. In addition to
its sales force, the Company's executive staff plays an integral role in the
Company's marketing efforts.
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<PAGE> 32
FACILITIES
The Company has manufacturing facilities located in Singapore, Malaysia,
China, the United Kingdom and the United States. In addition, the Company
provides engineering services at its facilities in Singapore, California and
Massachusetts. All of the Company's manufacturing facilities are registered to
the quality requirements of the International Organization for Standardization
(ISO 9002) or are in the process of final certification.
Certain information about the Company's manufacturing and engineering
facilities is set forth below:
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED SQUARE FEET LEASED(1) SERVICES
- ------------------------- --------- ------------- --------- ----------------------------------
<S> <C> <C> <C> <C>
Existing Manufacturing Facilities
Singapore(2)........... 1982 47,000 Leased Complex, high value-added PCB
assembly.
Johore, Malaysia....... 1991 80,000 Owned Full systems manufacturing; PCB
assembly.
Xixiang, China......... 1995 90,000 Leased High volume PCB assembly.
Doumen, China.......... 1995(3) 175,000(4) Owned Fabrication and assembly of high
density, miniaturized PCBs.
San Jose, CA........... 1994 65,000 Leased Full systems manufacturing; PCB
assembly.
San Jose, CA........... 1996 32,500 Leased Complex, high value-added PCB
assembly.
San Jose, CA........... 1989(5) 30,000 Leased Advanced packaging and MCM design
and fabrication.
Tonypandy, Wales....... 1983(6) 50,000 Owned Full systems manufacturing; medium
complexity PCB assembly.
Existing Engineering Facilities
Westford, MA........... 1987 9,112 Leased Design and prototype services.
Singapore.............. 1982 (7) -- Design and prototype services.
San Jose, CA........... 1989 (7) -- Design and prototype services.
Los Gatos, CA.......... 1986(8) 15,000 Leased Design and prototype services.
Facilities Under Development
San Jose, CA........... 1997(9) 73,000 Owned Complex, high value-added PCB
assembly.
San Jose, CA........... 1996(9) 71,000 Leased Engineering services and corporate
functions.
Doumen, China.......... 1996(9) 185,000 Owned Fabrication and assembly of high
density, miniaturized PCBs;
plastic injection molding.
Guadalajara, Mexico.... 1997(9) 101,000 Owned High volume PCB assembly.
</TABLE>
- ---------------
(1) The leases for the Company's leased facilities expire between December 1997
and July 2005. In addition, the Company has a 47,000 square foot
manufacturing facility in Richardson, Texas that is being closed. The
Company leases this facility under a lease that expires in April 2000, and
the Company is seeking to sublet this facility.
(2) The Company intends to discontinue manufacturing operations at this
facility.
(3) Acquired by the Company in February 1996 in connection with the Astron
acquisition.
(4) Includes 75,000 square feet used for dormitories and other functions.
(5) Acquired by the Company in January 1995 in connection with the nCHIP
acquisition.
(6) Acquired by the Company in April 1995 in connection with the A&A
acquisition.
(7) Located within the 47,000 square foot manufacturing facility in Singapore
and the 30,000 square foot manufacturing facility in San Jose, California,
respectively.
(8) Acquired by the Company in March 1996 in connection with the Fine Line
acquisition.
(9) Refers to date of commencement of construction or of lease term.
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<PAGE> 33
The Company has recently begun to consolidate and expand its manufacturing
facilities, with the goal of concentrating its activities in a smaller number of
larger, strategically located sites. The Company is closing its Richardson,
Texas facility and reducing production levels at its Singapore facility, while
substantially increasing overall capacity by expanding operations in North
America, Asia and Europe. In North America, the Company has recently leased a
new 71,000 square foot facility, and is constructing a planned 73,000 square
foot facility, each adjacent to the Company's existing San Jose operations, and
it also is developing a planned 101,000 square foot manufacturing facility on a
32-acre campus site in Guadalajara, Mexico. In Asia, the Company is expanding
its Doumen facilities into a planned 360,000 square foot campus by developing an
additional 185,000 square feet. In Europe, the Company has entered into an
agreement to acquire the 330,000 square foot Karlskrona Facilities.
The campus facilities planned for Doumen, China and Guadalajara, Mexico are
designed to be integrated facilities that can produce many of the custom
components used by the Company, to manufacture products for customers, to
warehouse the products and to distribute them directly to customer's
distribution channels. The Company believes that by offering all of those
capabilities at the same site, it can reduce material and transportation costs,
simplify logistics and communications, and improve inventory management,
providing customers with a more complete, cost-effective manufacturing solution.
SERVICES
The Company provides a broad range of advanced engineering, manufacturing
and distribution services to OEM customers on a turnkey basis. These services
include product design, PCB fabrication and assembly, materials procurement,
inventory management, final system assembly and test, packaging and
distribution. The components, subassemblies and finished products manufactured
by Flextronics incorporate advanced interconnect, miniaturization and packaging
technologies, such as SMT, MCM and COB technologies. While an increasing portion
of the Company's revenue is derived from the manufacture and assembly of final
products for OEM customers, the Company also designs and manufactures PCB
assemblies, MCM products and miniature gold-finished PCBs that the customer then
incorporates into its products.
Engineering Services
The engineering services group coordinates and integrates the Company's
worldwide design, prototype and other engineering capabilities. Its focused,
integrated approach provides Flextronics' customers with advanced service and
support and leverages the Company's technological capabilities. As a result, the
engineering services group enables the Company to strengthen its relationship
with manufacturing customers as well as to attract new customers who require
advanced design services.
The engineering services group actively assists customers with initial
product design in order to reduce the time from design to prototype, improve
product manufacturability and reduce product costs. The Company provides a full
range of electrical, thermal and mechanical design services, including CAE and
CAD-based design services, manufacturing engineering services, circuit board
layout and test development. The engineering services group also coordinates
industrial design and tooling for product manufacturing. After product design,
the Company provides prototype assemblies for fast turnaround. During the
prototype process, Company engineers work with customer engineers to enhance
production efficiency and improve product design. The engineering services group
then assists with the transition to volume production. By participating in
product design and prototype development, the Company can reduce manufacturing
costs and accelerate the time to volume production.
The Company's recent acquisitions have provided it with substantial
advanced engineering capabilities. The Company's 1996 acquisition of Fine Line,
a leading San Jose-based provider of quick-turn circuit board layout and
prototype services, provides the Company with substantial expertise in a broad
range of advanced circuit board designs, and the Company's January 1995
acquisition of nCHIP provides advanced MCM design capabilities. Flextronics is
integrating the Fine Line and nCHIP capabilities with the Company's existing
design and prototype capabilities in its engineering services group. The Company
anticipates establishing
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<PAGE> 34
additional design and prototype capabilities in the Karlskrona Facilities. The
Company also plans to expand its capabilities in Boston, Massachusetts and San
Jose, California.
Materials Procurement and Management
Materials procurement and management consists of the planning, purchasing,
expediting and warehousing of the components and materials used in the
manufacturing process. The Company's inventory management expertise and volume
procurement capabilities contribute to cost reductions and reduce total cycle
time. The Company generally orders components after it has a firm purchase order
or letter of authorization from a customer. However, in the case of long
lead-time items, the Company will occasionally order components in advance of
orders, based on customer forecasts, to ensure adequate and timely supply.
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. See "Risk
Factors -- Limited Availability of Components." The campuses under development
in China and Mexico are designed to provide many of the custom components used
by the Company on-site, in order to reduce material and transportation costs,
simplify logistics and facilitate inventory management.
Assembly and Manufacturing
The Company's assembly and manufacturing operations include PCB assembly
and the manufacture of subsystems and complete products. Its PCB assembly
activities primarily consist of the placement and attachment of electronic and
mechanical components on printed circuit boards using both SMT and traditional
pin-through-hole ("PTH") technology. The Company also assembles subsystems and
systems incorporating PCBs and complex electromechanical components, and,
increasingly, manufactures and packages final products for shipment directly to
the customer or its distribution channels. The Company employs just-in-time,
ship-to-stock and ship-to-line programs, continuous flow manufacturing, demand
flow processes and statistical process control. The Company has expanded the
number of production lines for finished product assembly, burn-in and test to
meet growing demand and increased customer requirements.
As OEMs seek to provide greater functionality in smaller products, they
increasingly require advanced manufacturing technologies and processes. Most of
the Company's PCB assembly involves the use of SMT, which is the leading
electronics assembly technique for more sophisticated products. SMT is a
computer-automated process which permits attachment of components directly on
both sides of a PCB. As a result, it allows higher integration of electronic
components, offering smaller size, lower cost and higher reliability than
traditional manufacturing processes. By allowing increasingly complex circuits
to be packaged with the components placed in closer proximity to each other,
surface mount technology greatly enhances circuit processing speed, and
therefore board and system performance. The Company also provides traditional
PTH electronics assembly using PCBs and leaded components for lower cost
products.
In addition, the Company has invested in emerging technologies that extend
its miniaturization capabilities. The Company's January 1995 acquisition of
nCHIP provided it with advanced capabilities to manufacture MCMs (collections of
integrated circuit chips interconnected within a single package), and the
Company now offers a range of MCM technologies from low-cost laminate MCMs to
high-performance, deposited thin-film MCMs. The Company believes that its MCMs
can offer cost, size and performance advantages compared to conventional and
interconnect technologies. The Company assembles completed MCMs in its San Jose,
California facilities and also utilizes an outside assembly company. Substrates
for the Company's MCMs are manufactured on the Company's semiconductor wafer
fabrication line in San Jose and by outside foundries. The Company is engaged in
negotiations to sell the semiconductor wafer fabrication line to a third party.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
The Company's February 1996 acquisition of Astron provided it with
significant capabilities to fabricate miniature gold-finished PCBs for
specialized applications such as cellular phones, pagers and optical
electronics. These advanced laminate substrates can significantly improve a
product's performance, while reducing its size and cost. The Company's
miniature, gold-finished PCBs are fabricated in the Company's
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<PAGE> 35
facility in Doumen, China. The Company is currently expanding this facility to
provide the capacity to fabricate other complex PCBs.
COB technology represents a configuration in which a bare, unpackaged
semiconductor is attached directly onto a PCB and then encapsulated with a
polymeric material. COB technology facilitates miniaturized, low-profile
assemblies, and can result in lower costs and reduced time to market.
FICO, in which the Company has a 40% investment, produces injection molded
plastics for electronics companies throughout Asia from its 120,000 square foot
facilities in Shenzhen, China. Flextronics intends to locate FICO operations
within the campus under development in Doumen, China.
Test
After assembly, the Company offers computer-aided testing of PCBs,
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-circuit tests verify that all components have been properly
inserted and that the electrical circuits are complete. Functional tests
determine if the board or system assembly is performing to customer
specifications. Flextronics either designs and procures test fixtures and
develops its own test software or utilizes its customers' existing test fixtures
and test software. In addition, the Company also provides environmental stress
tests of the board or system assembly.
Distribution
The Company offers its customers flexible, just-in-time delivery programs
allowing product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, the Company is warehousing products for customers
and shipping those products directly into their distribution channels. The
Company believes that this service can provide customers with a more
comprehensive solution and enable them to be more responsive to market demands.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal 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 many existing participants, including the Company,
have significantly expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures which could adversely affect the Company's
operating results. 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. Failure to satisfy any of the foregoing requirements could materially
adversely affect the Company's competitive position.
EMPLOYEES
As of December 31, 1996, the Company employed 4,477 persons. In addition,
the Company expects to add approximately 930 employees in Sweden with the
acquisition of the Karlskrona Facilities. None of the Company's employees are
represented by a labor union except for (i) the Company's non-management
employees located in Singapore and (ii) the Company's hourly employees in the
United Kingdom. In
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<PAGE> 36
addition, substantially all of the employees to be added with the Karlskrona
Facilities are represented by trade unions. 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, the
Company 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. See "Risk Factors -- Dependence on Key Personnel and Skilled
Employees."
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<PAGE> 37
MANAGEMENT
The names, ages and positions of the Company's directors and officers are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------
<S> <C> <C>
Michael E. Marks............ 46 Chairman of the Board and Chief Executive Officer
Tsui Sung Lam............... 47 President, Chief Operating Officer and Director
Robert R. B. Dykes(1)(2).... 47 Senior Vice President of Finance and
Administration and Director
Dennis P. Stradford......... 50 Senior Vice President of Sales and Marketing
Goh Chan Peng............... 42 Chief Financial Officer
Teo Buck Song............... 39 Vice President, Purchasing
Michael McNamara............ 39 Vice President, President of United States
Operations
Hans D. Nilsson............. 41 Vice President, General Manager of European
Operations
Stephen J. L. Rees.......... 35 Director, Chairman of Astron Group
Michael J. Moritz(1)........ 42 Director
Richard L. Sharp(2)......... 49 Director
Bernard J. Lacroute......... 53 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Michael E. Marks. Mr. Marks has been the Company's Chief Executive Officer
since January 1994 and its Chairman of the Board since July 1993. He has been a
Director of the Company since December 1991. From November 1990 to December
1993, Mr. Marks was President and Chief Executive Officer of Metcal, Inc., a
precision heating instrument company ("Metcal"). Mr. Marks received a B.A. and
M.A. from Oberlin College and an M.B.A. from the Harvard Business School.
Tsui Sung Lam. Mr. Tsui has been the Company's President and Chief
Operating Officer since January 1994, and a Director since 1991. From June 1990
to December 1993, he was the Company's Managing Director and Chief Executive
Officer. From 1982 to June 1990, Mr. Tsui served in various positions for
Flextronics, Inc., the Company's predecessor, including Vice President of Asian
Operations. Mr. Tsui received Diplomas in Production Engineering and Management
Studies from Hong Kong Polytechnic, and a Certificate in Industrial Engineering
from Hong Kong University.
Robert R. B. Dykes. Mr. Dykes has served as a Director of the Company since
January 1994 and since February 1997, has served as its Senior Vice President of
Finance and Administration. Mr. Dykes was Executive Vice President, Worldwide
Operations and Chief Financial Officer of Symantec Corporation, an application
and system software products company, from 1988 to February 1997.
Dennis P. Stradford. Mr. Stradford has served as Senior Vice President,
Sales and Marketing since December 1990. From October 1985 to February 1990, he
served as Senior Vice President, Sales and Marketing at Flextronics, Inc. Mr.
Stradford received a B.A. from San Jose State University and an M.A. and M.Div.
from St. Patrick's College.
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
Flextronics, Inc., 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. From 1988 to April 1994, he was Director of Purchasing at Flex Holdings.
From 1982 to 1988, he served in various operational capacities at Flextronics,
Inc., including Purchasing Manager and Production Material Control Manager. Mr.
Teo received a Production Engineering Diploma from Singapore Polytechnic.
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<PAGE> 38
Michael McNamara. Mr. McNamara has served as Vice President and President
of United States Operations since April 1994. From May 1993 to March 1994, he
was President and Chief Executive Officer of Relevant, 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 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 and
General Manager of European Operations since April 1994. From April 1991 to
April 1994, he was Senior Vice President at Metcal. Mr. Nilsson received an M.S.
in electrical engineering from Chalmers University of Technology, Sweden and an
M.B.A. from Stanford University.
Stephen J. L. Rees. Mr. Rees has served as a Director of the Company since
April 1996 and as Chairman and Chief Executive Officer of Astron since the
acquisition of Astron by the Company in February 1996. Mr. Rees has been
Chairman and Chief Executive Officer of Astron since November 1991. Mr. Rees
holds a B.A. in Finance from the City of London Business School and graduated in
Production Technology and Mechanical Engineering from the HTL St. Polten
Technical Institute in Austria.
Michael J. Moritz. Mr. Moritz has served as a Director of the Company since
July 1993. Mr. Moritz has been a General Partner of Sequoia Capital, a venture
capital firm, since 1988. Mr. Moritz also serves as director of Visigenic
Software, Inc., Yahoo! Inc. and several privately-held companies.
Richard L. Sharp. Mr. Sharp has served as a Director of the Company since
July 1993. He has been the Chairman, President, Chief Executive Officer and a
director of Circuit City Stores, Inc., a consumer electronics and appliances
retailer, since June 1986. Mr. Sharp also serves as a director of S&K Famous
Brands, Inc. and the James River Corporation.
Bernard J. Lacroute. Mr. Lacroute has served as a Director of the Company
since July 1993. Mr. Lacroute has been a partner of Kleiner Perkins Caufield &
Byers, a Northern California venture capital firm, since 1989. Mr. Lacroute also
serves as a director of Radius Inc. and several privately-held companies.
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<PAGE> 39
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Ordinary Shares as of February
15, 1997, and as adjusted to reflect the sale of shares offered by the Company
pursuant to this Prospectus, by (i) each of the Company's directors, the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers in fiscal 1996, (ii) all directors and
executive officers as a group, and (iii) each person who is known by the Company
to own beneficially more than 5% of the Company's Ordinary Shares. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all the shares beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OWNED PRIOR PERCENT
BENEFICIALLY TO OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING(2) OFFERING(3)
- --------------------------------------------------- -------------------- ------------- -------------
<S> <C> <C> <C>
Ronald Baron(4).................................... 1,931,600 14.2% 12.6%
c/o Baron Capital Management, Inc.
767 Fifth Avenue
24th Floor New York, New York 10153
Sequoia Capital(5)................................. 961,186 7.1% 6.2%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
The Capital Group Companies(6)..................... 781,500 5.7% 5.1%
333 South Hope Street
Los Angeles, California 90071
Richard L. Sharp(7)................................ 946,894 6.9% 6.1%
c/o Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Michael E. Marks(8)................................ 363,716 2.6% 2.3%
Tsui Sung Lam(9)................................... 67,794 * *
Dennis P. Stradford(10)............................ 45,272 * *
Goh Chan Peng(11).................................. 35,891 * *
Michael McNamara(12)............................... 78,662 * *
Robert R. B. Dykes(13)............................. 36,575 * *
Bernard J. Lacroute(14)............................ 47,102 * *
Michael Moritz(5).................................. 961,186 7.1% 6.2%
Stephen J. L. Rees(15)............................. 45,547 * *
All directors and executive officers as a group (10
persons)(16)..................................... 2,628,639 18.6% 16.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has voting or investment power with respect to such
shares. Ordinary Shares subject to options that are currently exercisable
or exercisable within 60 days of February 15, 1997 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Percentage ownership is based upon 13,625,922 outstanding Ordinary Shares
as of February 15, 1997.
(3) Assumes that the Underwriters' over-allotment options to purchase up to an
aggregate of 262,500 Ordinary Shares from the Company are not exercised.
(4) Based on information supplied by Mr. Baron in a Schedule 13D filed with the
Commission on January 26, 1997. Includes 205,000 shares held by Baron
Capital Partners, L.P. and Baron Investment Partners, L.P., of which Mr.
Baron is general partner. Mr. Baron may be deemed to have sole power to
vote and direct the disposition of such shares. Also includes 1,465,000
shares held by Baron Asset Fund
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<PAGE> 40
and Baron Growth & Income Fund, which are advised by BAMCO, Inc., and 261,600
shares held by investment advisory clients of Baron Capital Management, Inc.
BAMCO, Inc. and Baron Capital Management, Inc. are controlled by Mr. Baron, and
Mr. Baron may be deemed to share power to vote and dispose of such shares.
(5) Includes 787,853 shares held by Sequoia Capital Growth Fund, a limited
partnership, 50,291 shares held by Sequoia Technology Partners III, a
limited partnership, 80167 shares held by Sequoia Capital VII, a limited
partnership, 3,900 shares held by Sequoia Technology Partners VII, a
limited partnership and 2,600 shares held by Sequoia 1995, a limited
corporation. Sequoia Partners (CF) is the general partner of Sequoia
Capital Growth Fund and has sole voting and investment power over such
shares. The general partners of Sequoia Partners (CF) are Donald T.
Valentine, Pierre R. Lamond, Thomas F. Stephenson, Michael J. Moritz and
Gordon Russell. The general partners of Sequoia Technology Partners III are
Donald T. Valentine, Pierre R. Lamond, Thomas F. Stephenson and Gordon
Russell. The general partner of Sequoia Capital VII and Sequoia Technology
Partners VII is Sequoia Capital VII-A Management, LLC. The general partners
of Sequoia Capital VII-A Management, LLC are Mr. Moritz, Douglas Leone,
Mark Stevens, Thomas Stephenson and J. Thomas McMurray. Also includes
26,375 shares subject to options exercisable within 60 days of February 15,
1997 held by Mr. Moritz.
(6) Includes 781,500 shares beneficially owned by Capital Research and
Management Company.
(7) Includes 225,000 shares beneficially owned by Bethany Limited Partnership.
Mr. Sharp, the general partner of Bethany Limited Partnership, may be
deemed to share voting and investment power with respect to such shares.
Mr. Sharp disclaims beneficial ownership of all such shares except to the
extent of his proportionate interest therein. Also includes 36,375 shares
subject to options exercisable within 60 days of February 15, 1997 held by
Mr. Sharp.
(8) Includes 137,209 shares subject to options exercisable within 60 days of
February 15, 1997 held by Mr. Marks.
(9) Includes 64,500 shares subject to options exercisable within 60 days of
February 15, 1997 held by Mr. Tsui.
(10) Includes 1,773 shares held in an IRA rollover account. Also includes 6,499
shares subject to options exercisable within 60 days of February 15, 1997
held by Mr. Stradford.
(11) Includes 35,750 shares subject to options exercisable within 60 days of
February 15, 1997 held by Mr. Goh.
(12) Includes 31,250 shares subject to options exercisable within 60 days of
February 15, 1997 held by Mr. McNamara.
(13) Includes 36,375 shares subject to options exercisable within 60 days of
February 15, 1997 held by Mr. Dykes.
(14) Represents 10,727 shares held by the Bernard and Ronni Lacroute Trust and
36,375 shares subject to options exercisable within 60 days of February 15,
1997 held by Mr. Lacroute.
(15) Includes 3,754 shares held by Mrs. Janine Margaret Rees. Also includes
12,500 shares subject to options exercisable within 60 days of February 15,
1997 held by Mr. Rees.
(16) Includes 423,208 shares subject to options exercisable within 60 days of
February 15, 1997.
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<PAGE> 41
DESCRIPTION OF CAPITAL SHARES
The following statements are brief summaries of the capital structure of
the Company and of the more important rights and privileges of shareholders
conferred by the laws of Singapore and the Company's Articles of Association
(the "Articles"). These statements summarize the material provisions of the
Articles but are qualified by reference to the Articles, which have been
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus forms a part. The Articles are available at the Company's San
Jose, California office and at the registered office of the Company in
Singapore.
ORDINARY SHARES
The authorized capital of the Company consists of 100,000,000 Ordinary
Shares, par value S$0.01. There is a provision in the Articles to enable the
Company in certain circumstances to issue shares with preferential, deferred or
other special rights or restrictions as the directors may determine. The
directors may issue shares at a premium and a sum equal to the aggregate amount
or value of the premium will, subject to certain exceptions, be transferred to a
share premium account.
All shares presently issued are fully paid and existing shareholders are
not subject to any calls on such shares. All shares are in registered form. The
Company can neither purchase its own shares nor, except in the circumstances
permitted by the Companies Act, grant any financial assistance for the
acquisition or proposed acquisition of its own shares.
NEW SHARES
New shares may only be issued with the prior approval of the Company in a
general meeting. General approval may be sought from the Company in a general
meeting for the issue of shares. Such approval, if granted, will lapse at the
next Annual General Meeting or the expiration of the period within which the
next Annual General Meeting is required to be held, whichever is the earlier.
The shareholders have provided general authority to issue any remaining unissued
shares, up to 100,000,000 Ordinary Shares, prior to the next Annual General
Meeting. Unless otherwise determined by the Company in a general meeting, any
new shares shall, before they are issued, be offered to existing shareholders in
proportion, as nearly as may be, to the number of shares then held by them
respectively. Subject to this and the provisions of the Companies Act, all new
shares are under the control of the directors who may allot and issue the same
with such rights and restrictions as they may think fit.
SHAREHOLDERS
Only persons who are registered in the books of the Company are recognized
as shareholders and absolute owners of the shares. On February 15, 1997, there
were approximately 508 holders of Ordinary Shares. The Company may, on giving
not less than 14 days' notice, close the register of members for any time or
times but the register may not be closed for more than 30 days in any calendar
year. Such closure is normally made for the purpose of determining shareholders'
entitlement to receive dividends and other distributions and would, in the usual
case, not exceed 10 days.
TRANSFER OF SHARES
Subject to applicable securities laws, shares are freely transferable but
the directors may decline to register any transfer of shares on which the
Company has a lien, and in the case of shares not fully paid up the directors
may refuse, at their discretion, to register or transfer shares to a transferee
of whom they do not approve. Shares may be transferred by a duly signed
instrument of transfer in a form approved by the directors. The directors may
decline to register any transfer unless, among other things, it has been duly
stamped and is presented for registration together with the share certificate
and such other evidence of title as they may require. The Company will replace
lost or destroyed certificates for shares upon notice to the Company and upon,
among other things, the applicant furnishing such evidence and indemnity as the
directors may require.
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<PAGE> 42
SHAREHOLDERS' MEETINGS
The Company is required to hold an Annual General Meeting in each year. The
directors may convene an Extraordinary General Meeting whenever they think fit
and they must do so upon the request in writing of shareholders representing not
less than one-tenth of the total voting rights of all shareholders. In addition,
two or more shareholders holding not less than one-tenth of the issued share
capital of the Company may call a meeting of the Company. Unless otherwise
required by law or by the Articles, voting at general meetings is by ordinary
resolution (requiring an affirmative vote of a simple majority of the votes cast
at a meeting of which at least 14 days' written notice is given). An ordinary
resolution suffices, for example, in respect of appointments of directors. A
special resolution (requiring an affirmative vote of at least 75% of the votes
cast at the meeting of which at least 21 days' written notice is given) is
necessary for certain matters under Singapore law, such as an alteration of the
Articles.
VOTING RIGHTS
Voting at any meeting of shareholders is by a show of hands unless a poll
is duly demanded. If voting is by a show of hands, every shareholder who is
present in person or by proxy at the meeting has one vote. On a poll every
shareholder who is present in person or by proxy has one vote for every share
held by him. A poll may be demanded by the chairman of the meeting or by not
less than three members present in person or by proxy and entitled to vote or by
shareholders present in person or by proxy and representing in the aggregate not
less than one-tenth of the total voting rights of all shareholders having the
right to attend and vote at the meeting.
DIVIDENDS
Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Company's current loan agreements prohibit the
payment of cash dividends without the lenders' prior consent. The Company
anticipates that all earnings in the foreseeable future will be retained to
finance the continuing development of its business.
BONUS AND RIGHTS ISSUE
The Company in a general meeting may, upon the recommendation of the
directors, capitalize any reserves or profits (including profits or monies
carried and standing to any reserve or to the share premium account) and
distribute the same as bonus shares credited as paid-up to the shareholders in
proportion to their shareholdings. The directors may also issue to shareholders
rights to take up additional shares, in proportion to their shareholdings. Such
rights are subject to any conditions attached to such issue and the regulations
of the stock exchange on which the shares are listed.
TAKEOVERS
The Singapore Code on Takeovers and Mergers regulates the acquisition of
shares of public companies. Any person acquiring an interest (either on his own
or together with parties acting in concert with him) in 25% or more of the
voting shares in the Company is obliged to extend a takeover offer for the
remaining shares, in accordance with the provisions of such code. "Parties
acting in concert" include related and associated companies, directors
(including their relatives), pension funds, discretionary funds and financial
advisers (in respect of shares held by them and funds managed by them on a
discretionary basis). An offer for consideration other than cash must be
accompanied by a cash alternative at not less than the highest price paid by the
offeror or parties acting in concert with him within the preceding 12 months. A
mandatory takeover offer is also required to be made if a person holding between
25% and 50% of the voting shares acquires additional shares representing more
than 3% of the voting shares in any 12 month period.
LIQUIDATION OR OTHER RETURN OF CAPITAL
On a winding-up or other return of capital, subject to any special rights
attaching to any other class of shares, holders of Ordinary Shares will be
entitled to participate in any surplus assets in proportion to their
shareholdings.
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<PAGE> 43
INDEMNITY
As permitted by the laws of Singapore, the Articles provide that, subject
to the Companies Act, the Company's directors and officers will be indemnified
by the Company against any liability incurred by them in defending any
proceedings, whether civil or criminal, which relate to anything done or omitted
to have been done as an officer, director or employee of the Company and in
which judgment is given in their favor or in which they are acquitted or in
connection with any application under any statute for relief from liability in
respect thereof in which relief is granted by the court. Directors and officers
may not be indemnified by the Company against any liability which by law would
otherwise attach to them in respect of any negligence, default, breach of duty
or breach of trust of which they may be guilty in relation to the Company.
LIMITATIONS ON RIGHTS TO HOLD OR VOTE ORDINARY SHARES
Except as discussed in "Takeovers," there are no limitations imposed by the
laws of Singapore or by the Articles on the right of nonresident shareholders to
hold or vote Ordinary Shares.
TRANSFER AGENT
The Transfer Agent is The First National Bank of Boston, 150 Royall Street,
M/S 45-01-07, Canton, Massachusetts 02021.
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<PAGE> 44
TAXATION
This summary of Singapore and U.S. tax considerations is based on current
law and is provided for general information. The discussion does not purport to
deal with all aspects of taxation that may be relevant to particular
shareholders in light of their investment or tax circumstances, or to certain
types of shareholders (including insurance companies, tax-exempt organizations,
regulated investment companies, financial institutions or broker-dealers, and
shareholders that are not U.S. Shareholders (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 26.0%. Under Singapore's taxation
system, the tax paid by a company is deemed paid by its shareholders. Thus, the
shareholders receive dividends net of the tax paid by 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 of the market value
of the shares. The stamp duty is borne by the purchaser unless there is an
agreement to the contrary. Where the instrument of transfer is executed outside
of Singapore, stamp duty must be paid if the instrument of transfer is received
in Singapore.
INCOME TAXATION UNDER UNITED STATES LAW
Shareholders that are (i) corporations or partnerships organized under the
laws of the United States, 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") will be required to
report as income for U.S. income tax purposes the amount of any 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 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 such dividend is included in income) 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
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<PAGE> 45
dividend payment is converted into U.S. dollars. Non-corporate U.S. Shareholders
and corporate U.S. shareholders holding less than 10% of the voting stock of the
Company will not be entitled to an indirect foreign tax credit for the amount of
Singapore corporate income tax paid by the Company; a domestic corporation which
owns 10% or more of the voting stock of the Company may be entitled to an
indirect foreign tax credit for such taxes. Such dividend income, however, will
generally be subject to the separate limitation for "non-controlled Section 902
income" for purposes of the foreign tax credit limitation. 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 than U.S. dollars, the U.S. dollar amount
realized (as determined on the trade date) is determined by translating the
foreign currency into U.S. dollars 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. An accrual basis taxpayer may elect to use the spot rate in effect on
the settlement date of the sale by filing a statement with the U.S.
Shareholder's first return in which the election is effective clearly indicating
that the election has been made. 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.
If over 50% of the Company's stock (by vote or value) were owned by U.S.
Shareholders who individually held 10% or more of the Company's voting stock,
such U.S. Shareholders potentially would be required to include in income a
portion or all of their pro rata share of the Company's and its non-U.S.
subsidiaries' earnings and profits. If 50% or more of the Company's assets
during a taxable year produced or were held for the production of passive
income, as defined in section 1296(b) of the Code (e.g., certain forms of
dividends, interest and royalties), or 75% or more of the Company's gross income
for a taxable year was passive income, adverse U.S. tax consequences could
result to U.S. shareholders of the Company.
Shareholders that are not U.S. Shareholders ("non-U.S. shareholders") will
not be required to report for U.S. federal income tax purposes the amount of any
dividend received from the Company. Non-U.S. shareholders, upon the sale or
exchange of a share, will not be required to recognize gain or loss for U.S.
federal income tax purposes.
ESTATE TAXATION
In the case of an individual who is not domiciled in Singapore, a Singapore
estate tax is imposed on the value of all movable and immovable properties
situated in Singapore. 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$600,000. Any such excess will be taxed at a rate equal to 5% on
the first S$12,000,000 of the individual's Singapore chargeable assets and
thereafter at a rate equal to 10%. An individual shareholder who is a U.S.
citizen or resident (for U.S. estate tax purposes) also will have the value of
the shares included in the individual's gross estate for U.S. estate tax
purposes. An individual shareholder generally will be entitled to a tax credit
against the shareholder's U.S. estate tax to the extent the individual
shareholder actually pays Singapore estate tax on the value of the shares;
however, such tax credit is generally limited to the percentage of the U.S.
estate tax attributable to the inclusion of the value of the shares included in
the shareholder's gross estate for U.S. estate tax purposes, adjusted further by
a pro rata apportionment of available exemptions. Individuals who are domiciled
in Singapore should consult their own tax advisors regarding the Singapore
estate tax consequences of their investment.
43
<PAGE> 46
UNDERWRITING
The Underwriters named below (the "U.S. Underwriters") have severally
agreed, subject to the terms and conditions in the underwriting agreement (the
"U.S. Underwriting Agreement") by and among the Company and the U.S.
Underwriters, to purchase from the Company the number of Ordinary Shares
indicated below opposite their respective names, at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters are committed to purchase all of the Ordinary Shares offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below) if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Cowen & Company...........................................................
UBS Securities............................................................
---------
Total........................................................... 1,312,500
=========
</TABLE>
The Company also has entered into an underwriting agreement (the
"International Underwriting Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions set
forth in the International Underwriting Agreement, and concurrently with the
sale of 1,312,500 Ordinary Shares to the U.S. Underwriters, the Company has
agreed to sell to the International Managers, and the International Managers
severally have agreed to purchase, an aggregate of 437,500 Ordinary Shares. The
offering price per share and the total underwriting discount per share are
identical under the U.S. Underwriting Agreement and the International
Underwriting Agreement.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the U.S. Underwriters and the International Managers, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Ordinary Shares being sold pursuant to each such Agreement if any of
the Ordinary Shares being sold pursuant to each such Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting U.S. Underwriters
or International Managers may be increased. The purchases of Ordinary Shares by
the U.S. Underwriters and the International Managers are conditioned upon one
another.
The U.S. Underwriters have advised the Company that they propose initially
to offer the Ordinary Shares to the public on the terms set forth on the cover
page of this Prospectus. The U.S. Underwriters may allow selected dealers a
concession of not more than $ per share; and the U.S. Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the public offering, the offering
price and other selling terms may be changed by the U.S. Underwriters. The
Ordinary Shares are offered subject to receipt and acceptance by the U.S.
Underwriters, and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted to the U.S. Underwriters an over-allotment option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 196,875 additional Ordinary Shares at the same price per share as
the initial shares to be purchased by the U.S. Underwriters. The U.S.
Underwriters may exercise such option only to cover over-allotments made in the
sale of the Ordinary Shares that the U.S Underwriters have agreed to purchase.
To the extent the U.S. Underwriters exercise such option, each U.S. Underwriter
will be committed, subject to certain conditions, to purchase such additional
shares in approximately the same proportion as set forth in the above table. The
Company has also granted an option to the International Managers, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 65,625 additional Ordinary Shares to cover over-allotments, if any,
on terms similar to those granted to the U.S. Underwriters.
44
<PAGE> 47
The U.S. Underwriters and the International Managers have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International Managers
of such number of Ordinary Shares as may be mutually agreed. The prices of any
Ordinary Shares so sold shall be the public offering price, less an amount not
greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell Ordinary Shares will not offer to sell or sell
Ordinary Shares to persons who are non-United States or Canadian persons or to
persons they believe intend to resell to persons who are non-United States or
Canadian persons, and the International Managers and any dealer to whom they
sell Ordinary Shares will not offer to sell or sell Ordinary Shares to United
States or Canadian persons or to persons they believe intend to resell to United
States or Canadian persons, except, in each case, for exceptions set forth in
the Intersyndicate Agreement.
The U.S. Underwriting Agreement provides that the Company will indemnify
the U.S. Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the U.S. Underwriters
may be required to make in respect thereof.
The Company has agreed, following completion of this offering, not to
issue, offer, sell, contract to sell or otherwise dispose of any Ordinary Shares
or securities convertible into or exchangeable or exercisable for Ordinary
Shares without the prior written consent of Montgomery Securities for a period
of 90 days after the date of this Prospectus, except that the Company may,
without such consent, (i) grant options pursuant to its existing employee
benefit plans or issue Ordinary Shares upon exercise of outstanding stock
options, and (ii) issue Ordinary Shares in connection with acquisitions. The
officers and directors and certain employees of the Company have agreed that
they will not sell in excess of an aggregate of 100,000 Ordinary Shares without
the prior written consent of Montgomery Securities for a period of 90 days after
the date of this Prospectus.
In connection with this offering, certain U.S. Underwriters and selling
group members may engage in passive market making transactions in the Ordinary
Shares on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
that are limited by the bid prices of independent market makers and completing
purchases in response to order flow at prices limited by such bids. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Ordinary Shares during a specified period and must be discontinued for any day
in which such limit is reached. Passive market making may stabilize the market
price of the Ordinary Shares at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
CERTAIN LEGAL MATTERS
The validity of the Ordinary Shares offered hereby will be passed upon on
behalf of the Company by Allen & Gledhill, Singapore, legal advisors to the
Company, and on behalf of the Underwriters by Arfat Selvam & Gunasingham,
Singapore legal advisors to the Underwriters. Certain United States legal
matters in connection with this offering will be passed upon for the Company by
Fenwick & West LLP and for the Underwriters by Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, a Professional Corporation.
45
<PAGE> 48
EXPERTS
The consolidated financial statements and schedules of Flextronics at March
31, 1995 and 1996 and for each of the three years in the period ended March 31,
1996 included in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, as set forth in their reports thereon
included herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of such Firm as experts in accounting
and auditing.
The financial statements and schedules of Astron at December 31, 1995 and
for each of the two years in the period ended December 31, 1995 incorporated by
reference into this Prospectus and Registration Statement have been audited by
Deloitte Touche Tomatsu International, independent auditors, as set forth in
their report thereon incorporated by reference herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements and schedules of A&A as of June 30, 1993 and 1994
and for each of the two years in the period ended June 30, 1993 and for the
eighteen month period ended December 31, 1994 incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand, independent auditors, as set
forth in their report thereon, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
46
<PAGE> 49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Flextronics International Ltd. Consolidated Balance Sheets as of March 31, 1995 and
1996................................................................................ F-3
Flextronics International Ltd. Consolidated Statements of Operations for the fiscal
years ended March 31, 1994, 1995 and 1996........................................... F-4
Flextronics International Ltd. Consolidated Statements of Shareholders' Equity for the
fiscal years ended March 31, 1994, 1995 and 1996.................................... F-5
Flextronics International Ltd. Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1994, 1995 and 1996........................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
Flextronics International Ltd. Condensed Consolidated Balance Sheets as of December
31, 1996 and as of March 31, 1996................................................... F-22
Flextronics International Ltd. Condensed Consolidated Statements of Income for the
three months ended December 31, 1995 and 1996....................................... F-23
Flextronics International Ltd. Condensed Consolidated Statements of Income for the
nine months ended December 31, 1995 and 1996........................................ F-24
Flextronics International Ltd. Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1995 and 1996........................................ F-25
Notes to Condensed Consolidated Financial Statements.................................. F-26
</TABLE>
F-1
<PAGE> 50
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 flow for each of the three years in the
period ended March 31, 1996, in conformity with U.S. Generally Accepted
Accounting Principles.
/s/ Ernst & Young
ERNST & YOUNG
Singapore
May 13, 1996
F-2
<PAGE> 51
FLEXTRONICS INTERNATIONAL LTD.
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.
F-3
<PAGE> 52
FLEXTRONICS INTERNATIONAL LTD.
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.
F-4
<PAGE> 53
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS "A" CLASS "B"
CONVERTIBLE ------------------------ TOTAL
------------------- 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 year..... -- -- -- -- -- -- -- (17,412) (17,412)
---------- ------ --- --- -------- ------ ---------- -------- ------------
BALANCE AT MARCH 31,
1996................ -- $ -- -- $ -- 13,213 $ 85 $ 93,634 $(22,940) $ 70,779
========= ======= ========== ========== ======== ======= ========= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 54
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS 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 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)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase 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 to join 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)
</TABLE>
F-6
<PAGE> 55
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing 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.
F-7
<PAGE> 56
FLEXTRONICS INTERNATIONAL LTD.
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 to
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 systems 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
Basics 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 inter-company 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.
F-8
<PAGE> 57
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 communications, computer,
consumer electronics and medical 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
favorable 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.
F-9
<PAGE> 58
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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: allowances -- 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.
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 $14 per share as
if they were outstanding for all periods presented.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<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-dilutive, whereas, under SAB No. 83, such options are
considered outstanding even if the effect of including them is anti-dilutive.
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.
F-10
<PAGE> 59
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $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 maintain certain financial
ratios and other covenants. As of 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 borrowing 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 calendar year 1996.
F-11
<PAGE> 60
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<S> <C>
Fiscal Years Ending March 31,
1997.................................................................. $ 7,960
1998.................................................................. 5,987
1999.................................................................. 3,411
2000.................................................................. 1,472
2001.................................................................. 503
Thereafter............................................................ --
-------
Total installment payments................................................. 19,333
Amount representing interest............................................... (2,477)
-------
Present value of net installation 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>
<S> <C>
Fiscal Years Ending March 31,
1997................................................................... $2,177
1998................................................................... 1,782
1999................................................................... 1,530
2000................................................................... 1,147
2001................................................................... 793
Thereafter.................................................................. 1,890
------
$9,319
======
</TABLE>
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.
F-12
<PAGE> 61
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The domestic and foreign components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<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,
--------------------------
1994 1995 1996
---- ------ ------
(IN THOUSANDS)
<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,
-----------------------------
1994 1995 1996
----- ------- -------
(IN THOUSANDS)
<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 and 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>
F-13
<PAGE> 62
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
======== ========
The net deferred tax liability is classified as follows:
Non-current liability........................................ $ 994 $ 1,256
Current asset................................................ (220) (260)
Non-current asset............................................ (84) --
-------- --------
$ 690 $ 996
======== ========
</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 subsidiaries 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 $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.
F-14
<PAGE> 63
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $0.77 to $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 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 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.
F-15
<PAGE> 64
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Executive 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
F-16
<PAGE> 65
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 intangible which
are being amortized on a straight line basis over their estimated useful life of
three years.
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 238,684 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 pro forma 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 amortization of intangibles and goodwill. The unaudited
pro forma information is based on acquired entities' results of operations for
the years ended December 31, 1994 and 1995 as the fiscal year and of these
entities and the rest of the group are non-coterminus. These pro forma results
have been prepared for
F-17
<PAGE> 66
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
YEAR ENDED MARCH 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATE
UNAUDITED)
<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 interest 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,
1994 1994
----------- ------------
(IN THOUSANDS)
<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>
F-18
<PAGE> 67
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 occurred 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 coterminus. 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>
YEAR ENDED MARCH 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATE
UNAUDITED)
<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>
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>
F-19
<PAGE> 68
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales for similar classes of products within the Company's business segment
is presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PRODUCT TYPE
Medical.................................................... $ 30,076 $ 49,152 $ 78,322
Computer, computer peripherals and telecommunications...... 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,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<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
======== ======== ========
</TABLE>
F-20
<PAGE> 69
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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.
F-21
<PAGE> 70
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH
DECEMBER 31, 31,
1996 1996*
------------ --------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................... $ 13,578 $ 6,546
Accounts receivable, net........................................... 67,194 78,114
Inventories -- Note B.............................................. 45,262 52,637
Other current assets............................................... 4,343 4,087
-------- --------
Total current assets............................................... 130,377 141,384
-------- --------
Property and equipment
At cost............................................................ 110,716 98,998
Accumulated depreciation........................................... (39,715) (37,896)
-------- --------
Net property and equipment......................................... 71,001 61,102
-------- --------
Other non-current assets............................................. 16,556 12,102
-------- --------
TOTAL ASSETS......................................................... $217,934 $214,588
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank borrowings.................................................... $ 5,710 $ 14,379
Current portion of capital lease and long-term debt................ 21,908 20,934
Accounts payable................................................... 59,500 64,625
Other current liabilities.......................................... 17,054 13,770
-------- --------
Total current liabilities.......................................... 104,172 113,708
-------- --------
Long term debt, less current portion................................. 18,985 17,554
Capital leases, less current portion................................. 9,034 10,120
Deferred income taxes................................................ 1,256 1,256
Notes payable to shareholders........................................ 400 686
Minority interest.................................................... 485 485
Shareholders' equity
Ordinary shares, S$0.01 par value:
Authorized -- 100,000,000 shares at March 31, 1996 and December
31, 1996
Issued and outstanding -- 13,213,289 shares at March 31, 1996
and 13,581,791 shares at December 31, 1996..................... 87 85
Additional paid-in capital......................................... 94,652 93,634
Accumulated deficit................................................ (11,137) (22,940)
-------- --------
Total shareholders' equity......................................... 83,602 70,779
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $217,934 $214,588
======== ========
</TABLE>
- ---------------
* The balance sheet at March 31, 1996 has been derived from audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
F-22
<PAGE> 71
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $121,525 $131,816
Costs and expenses:
Cost of sales........................................................ 111,477 119,996
Selling, general and administrative expenses......................... 6,922 4,989
Goodwill and intangible amortization................................. 288 264
Provision for plant closings......................................... 2,321 0
Interest expense and other, net...................................... 78 354
-------- --------
121,086 125,603
Income before income taxes........................................... 439 6,213
Provision for income taxes........................................... 371 1,211
-------- --------
Net income after income taxes.......................................... $ 68 $ 5,002
======== ========
Earnings per share:
Net income per share................................................. $ 0.01 $ 0.37
-------- --------
Weighted average ordinary shares and equivalents....................... 14,470 13,702
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE> 72
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $362,264 $322,645
Costs and expenses:
Cost of sales........................................................ 325,827 293,461
Selling, general and administrative expenses......................... 19,101 13,255
Goodwill and intangible amortization................................. 863 783
Provision for plant closings......................................... 2,321 0
Interest expense and other, net...................................... 1,450 1,121
-------- --------
349,562 308,620
Income before income taxes........................................... 12,702 14,025
Provision for income taxes........................................... 2,166 2,399
-------- --------
Net income after income taxes.......................................... $ 10,536 $ 11,626
======== ========
Earnings per share:
Net income per share................................................. $ 0.73 $ 0.89
======== ========
Weighted average ordinary shares and equivalents....................... 14,377 13,130
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 73
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used for) operating activities................... $ 40,097 $(10,894)
Investing activities:
Purchases of property and equipment.................................. (17,857) (18,542)
Proceeds from sale of property and equipment......................... 732 103
Payment for business acquired, net of cash acquired.................. 0 (3,116)
Investment........................................................... (3,000) 0
-------- --------
Net cash used for investing activities................................. (20,125) (21,555)
-------- --------
Financing activities:
Borrowings from (repayment) to banks................................. (8,645) 8,225
Source (repayment) of capital lease obligations...................... (4,851) 3,023
Source (repayment) of long-term debt................................. 574 1,947
Repayment of loan from related party................................. 1,381 0
Loan made to related party........................................... (1,938) 0
Net proceeds from issuance of share capital.......................... 825 22,929
Investment...........................................................
Repayment of notes payable........................................... (286) (23)
-------- --------
Net cash provided by (used for) financing activities................... (12,940) 36,101
-------- --------
Net increase in cash................................................... 7,032 3,652
Cash, beginning of period.............................................. 6,546 4,751
-------- --------
Cash, end of period.................................................... $ 13,578 $ 8,403
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 74
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included elsewhere herein for the year ended March 31,
1996.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................ $ 40,610 $42,202
Work-in-process.............................................. 9,573 14,049
Finished goods............................................... 1,028 962
------- -------
$ 51,211 $57,213
Less: Allowance for obsolescence............................. (5,949) (4,576)
------- -------
$ 45,262 $52,637
======= =======
</TABLE>
NOTE C -- ACQUISITION
On November 25, 1996, the Company acquired Fine Line Printed Circuit Design
Inc. ("Fine Line"), a circuit board layout and prototype operation located in
San Jose, California. The acquisition was accounted for as a pooling of
interests and the Company has issued 223,321 Ordinary Shares of S$0.01 par value
per share in exchange for all of the outstanding capital stock of Fine Line.
Prior period financial statements were not restated because the financial
results of Fine Line did not have a material impact on the consolidated result.
On December 20, 1996, the Company acquired 40% of FICO Investment Holding
Limited ("FICO") for $5.2 million, of which $3.0 million was paid in December
1996 and the balance is due in April 1997. The Company has an option to purchase
the remaining 60% of FICO in 1998 and the consideration for the remaining 60% is
dependent on the financial performance of FICO for period ending December 31,
1997. FICO produces injection molded plastics for electronics companies with
manufacturing facilities in Shenzhen, China.
F-26
<PAGE> 75
======================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by any of the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the dates as of which information is given in this Prospectus. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such solicitation.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Acquisition of Karlskrona
Facilities.......................... 5
The Company........................... 7
Risk Factors.......................... 8
Enforcement of Civil Liabilities...... 15
Use of Proceeds....................... 15
Dividends............................. 15
Price Range of Ordinary Shares........ 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 27
Management............................ 35
Principal Shareholders................ 37
Description of Capital Shares......... 39
Taxation.............................. 42
Underwriting.......................... 44
Certain Legal Matters................. 45
Experts............................... 46
Consolidated Financial Statements..... F-1
</TABLE>
======================================================
======================================================
1,750,000 SHARES
LOGO
ORDINARY SHARES
-------------------------
PROSPECTUS
-------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
Dated March , 1997
===================================================
<PAGE> 76
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
SUBJECT TO COMPLETION FEBRUARY 28, 1997
1,750,000 SHARES
LOGO
ORDINARY SHARES
All of the 1,750,000 Ordinary Shares offered hereby are being sold by
Flextronics International Ltd. ("Flextronics" or the "Company"). Of the
1,750,000 Ordinary Shares offered hereby, 437,500 shares initially are being
offered outside the United States and Canada by the International Managers and
1,312,500 shares initially are being offered in a concurrent offering in the
United States and Canada by the U.S. Underwriters. The public offering price and
the underwriting discount per share are identical for both of the offerings. See
"Underwriting."
The Company's Ordinary Shares are quoted on the Nasdaq National Market
under the symbol "FLEXF." On February 27, 1997, the last reported sale price for
the Ordinary Shares was $21 1/4 per share. See "Price Range of Ordinary Shares."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE ORDINARY
SHARES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Per Share...................... $ $ $
Total(3)....................... $ $ $
========================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
International Managers and the U.S. Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $360,000.
(3) The Company has granted to the International Managers and the U.S.
Underwriters 30-day options to purchase up to 65,625 and 196,875 additional
Ordinary Shares, respectively, in each case solely to cover over-allotments,
if any. If these options are exercised in full, the Price to Public will
total $ , the Underwriting Discount will total $ , and
the Proceeds to Company will total $ .
The Ordinary Shares are offered by the International Managers and the U.S.
Underwriters subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the certificates representing such shares will be made against payment therefor
at the office of Montgomery Securities on or about March , 1997.
------------------------
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
The date of this Prospectus is March , 1997.
X-5
<PAGE> 77
UNDERWRITING
The underwriters named below (the "International Managers") have severally
agreed, subject to the terms and conditions in the underwriting agreement (the
"International Underwriting Agreement") by and among the Company and the
International Managers, to purchase from the Company the number of Ordinary
Shares indicated below opposite their respective names, at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The International Underwriting Agreement provides that the
obligations of the International Managers are subject to certain conditions
precedent and that the International Managers are committed to purchase all of
the Ordinary Shares offered hereby (other than those covered by the
International Managers' over-allotment option described below) if they purchase
any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
UBS Limited...............................................................
Montgomery Securities.....................................................
Cowen & Company...........................................................
---------
Total........................................................... 437,500
=========
</TABLE>
The Company also has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with certain underwriters in the United States and
Canada (the "U.S. Underwriters" and, together with the International Managers,
the "Underwriters"). Subject to the terms and conditions set forth in the U.S.
Underwriting Agreement, and concurrently with the sale of 437,500 Ordinary
Shares to the International Managers, the Company has agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of 1,312,500 Ordinary Shares. The offering price per share and the
total underwriting discount per share are identical under the International
Underwriting Agreement and the U.S. Underwriting Agreement.
In the International Underwriting Agreement and the U.S. Underwriting
Agreement, the International Managers and the U.S. Underwriters, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Ordinary Shares being sold pursuant to each such Agreement if any of
the Ordinary Shares being sold pursuant to each such Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting International
Managers or U.S. Underwriters may be increased. The purchases of Ordinary Shares
by the International Managers and the U.S. Underwriters are conditioned upon one
another.
The International Managers propose initially to offer the shares to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain banks, brokers and dealers (the "Selling Group") at
such price less a concession not in excess of per share, and the
International Managers may allow, and the members of the Selling Group may
reallow, with the consent of Montgomery Securities, a discount not in excess of
$ per share to other International Managers or to other members of the
Selling Group. After the public offering, the public offering price, concession
and discount may be changed.
The Company has granted to the International Managers an over-allotment
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 65,625 additional Ordinary Shares at the same price per share
as the initial shares to be purchased by the International Managers. The
International Managers may exercise such option only to cover over-allotments
made in the sale of the Ordinary Shares that the International Managers have
agreed to purchase. To the extent the International Managers exercise such
option, each International Manager will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Company has also granted an
option to the U.S. Underwriters, exercisable during the 30-day period after the
date of this Prospectus, to purchase up to an aggregate of 196,875 additional
Ordinary Shares to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
The International Managers and the U.S. Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the International Managers and the U.S. Underwriters
of such number of Ordinary Shares as may be mutually agreed. The prices of any
Ordinary Shares so sold shall be the public offering price, less an amount not
greater than the selling concession.
X-2
<PAGE> 78
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell Ordinary Shares will not offer to sell or sell
Ordinary Shares to persons who are non-United States or Canadian persons or to
persons they believe intend to resell to persons who are non-United States or
Canadian persons, and the International Managers and any dealer to whom they
sell Ordinary Shares will not offer to sell or sell Ordinary Shares to United
States or Canadian persons or to persons they believe intend to resell to United
States or Canadian persons, except, in each case, for exceptions set forth in
the Intersyndicate Agreement.
The International Underwriting Agreement provides that the Company will
indemnify the International Managers against certain liabilities, including
civil liabilities under the Securities Act, or will contribute to payments the
International Managers may be required to make in respect thereof.
The Company has agreed, following completion of this offering, not to
issue, offer, sell, contract to sell or otherwise dispose of any Ordinary Shares
or securities convertible into or exchangeable or exercisable for Ordinary
Shares without the prior written consent of Montgomery Securities for a period
of 90 days after the date of this Prospectus, except that the Company may,
without such consent, (i) grant options pursuant to its existing employee
benefit plans or issue Ordinary Shares upon exercise of outstanding stock
options, and (ii) issue Ordinary Shares in connection with acquisitions. The
officers and directors of the Company have agreed that they will not sell more
than an aggregate of 100,000 Ordinary Shares without the prior written consent
of Montgomery Securities for a period of 90 days after the date of this
Prospectus.
Each International Manager has agreed that (i) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Ordinary Shares offered
hereby in the United Kingdom by means of any document except in circumstances
which do not constitute an offer to the public for the purposes of the Public
Offers of Securities Regulations 1995, (ii) it has complied and will comply with
all applicable provisions of the Public Offers of Securities Regulations 1995
and the Financial Services Act 1986 with respect to anything done by it in
relation to the Ordinary Shares in, from or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in connection
with the issuance of Ordinary Shares if that person is of a kind who falls
within Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996.
In connection with this offering, certain U.S. Underwriters and selling
group members may engage in passive market making transactions in the Ordinary
Shares on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
that are limited by the bid prices of independent market makers and completing
purchases in response to order flow at prices limited by such bids. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Ordinary Shares during a specified period and must be discontinued for any day
in which such limit is reached. Passive market making may stabilize the market
price of the Ordinary Shares at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
CERTAIN LEGAL MATTERS
The validity of the Ordinary Shares offered hereby will be passed upon on
behalf of the Company by Allen & Gledhill, Singapore, legal advisors to the
Company, and on behalf of the Underwriters by Arfat Selvam & Gunasingham,
Singapore legal advisors to the Underwriters. Certain United States legal
matters in connection with this offering will be passed upon for the Company by
Fenwick & West LLP and for the Underwriters by Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, a Professional Corporation.
X-3
<PAGE> 79
EXPERTS
The consolidated financial statements and schedules of Flextronics at March
31, 1994, 1995 and 1996 and for each of the three years in the period ended
March 31, 1996 included in this Prospectus and Registration Statement have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such Firm as experts in
accounting and auditing.
The financial statements and schedules of Astron at December 31, 1995 and
for each of the two years in the period ended December 31, 1995 incorporated by
reference into this Prospectus and Registration Statement have been audited by
Deloitte Touche Tomatsu International, independent auditors, as set forth in
their report thereon incorporated by reference herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements and schedules of A&A as of June 30, 1993 and 1994
and for each of the two years in the period ended June 30, 1993 and for the
eighteen month period ended December 31, 1994 incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand, independent auditors, as set
forth in their report thereon, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
X-4
<PAGE> 80
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by any of the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the dates as of which information is given in this Prospectus. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such solicitation.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Acquisition of Karlskrona
Facilities.......................... 5
The Company........................... 7
Risk Factors.......................... 8
Enforcement of Civil Liabilities...... 15
Use of Proceeds....................... 15
Dividends............................. 15
Price Range of Ordinary Shares........ 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 27
Management............................ 35
Principal Shareholders................ 37
Description of Capital Shares......... 39
Taxation.............................. 42
Underwriting.......................... 44
Certain Legal Matters................. 45
Experts............................... 46
Consolidated Financial Statements..... F-1
</TABLE>
======================================================
======================================================
1,750,000 SHARES
LOGO
ORDINARY SHARES
-------------------------
PROSPECTUS
-------------------------
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
Dated March , 1997
===================================================
X-5
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the Ordinary Shares being registered.
All amounts are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 16,085
NASD filing fee........................................................... 5,808
Nasdaq National Market filing fee......................................... 17,500
Accounting fees and expenses.............................................. 35,000
Legal fees and expenses................................................... 200,000
Printing.................................................................. 75,000
Blue sky fees and expenses................................................ 10,000
Miscellaneous............................................................. 607
-----
Total........................................................... $360,000
=====
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 155 of the Company's Articles of Association provides that, subject
to the Companies Act, every director or officer shall be entitled to be
indemnified by the Company against all liabilities incurred by him in the
execution and discharge of his duties or in relation thereto including any
liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of the Company and (i) in which judgment is given in his
favor (or the proceedings otherwise disposed of without finding or admission of
any material breach of duty), (ii) in which he is acquitted or (iii) in
connection with any application under any statute for relief from liability in
respect of any such act or omission in which relief is granted to him by the
court and further, that no director or other officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or for
joining in any receipt or other act for conformity or for any loss or expense
happening to the Company through the insufficiency or deficiency of title to any
property acquired by order of the directors for the Company or for the
insufficiency or deficiency of any security upon which any of the monies of the
Company are invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person with whom any monies, securities or
effects are deposited or for any other loss or misfortune which happens in the
execution of his duties unless the same happens through his own negligence,
willful default, breach of duty or breach of trust. Section 172 of the Companies
Act prohibits a company from indemnifying its directors or officers against
liability which by law would otherwise attach to them in respect of any
negligence, default, breach of duty or breach of trust of which they may be
guilty in relation to a Company, except to the extent permitted under Article
155 of the Company's Articles of Association, and any such indemnity is void and
unenforceable. The Company has entered into Indemnification Agreements with its
officers and directors. The Indemnification Agreements provide the Company's
officers and directors with indemnification to the maximum extent permitted by
the Companies Act.
The Company has obtained a policy of directors' and officers' liability
insurance that will insure directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
II-1
<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the
Registrant, nCHIP Acquisition Corporation and nCHIP (the "Reorganization
Agreement"). Certain
Disclosure Schedules of nCHIP and the Registrant 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 Registrant'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 Registrant, nCHIP Acquisition Corporation and nCHIP. (Incorporated by reference
to Exhibit 2.7 of the Registrant's registration statement on Form S-4, No.
33-85842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the Registrant, A&A and
all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1 of the
Registrant'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
Registrant's registration statement on Form S-4, No. 33-85842.)
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac Sales Limited
dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event reported on February 2, 1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and Flextronics
International Sweden AB dated as February 12, 1997. Certain schedules have been
omitted. The Company agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.+
3.1 Memorandum of Association of the Registrant. (Incorporated by reference to Exhibit
3.1 of the Registrant's registration statement on Form S-1, No. 33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by reference to Exhibit 3.2
of the Registrant's registration statement on Form S-4, No. 33-85842.)
5.1 Opinion and Consent of Allen & Gledhill with respect to the Ordinary Shares being
registered.+
11.1 Statement regarding computation of per share earnings.
23.1 Consent of Ernst & Young.+
23.2 Consent of Allen & Gledhill (included in Exhibit 5.1).+
23.3 Consent of Deloitte Touche Tomatsu International.*
23.4 Consent of Coopers & Lybrand.+
24.1 Power of Attorney (included in the signature page of this Registration Statement).+
</TABLE>
- ---------------
+Previously filed.
*To be filed by amendment.
II-2
<PAGE> 83
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Jose, State of California, on February 28,
1997.
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ MICHAEL E. MARKS
------------------------------------
Michael E. Marks
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement 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
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
/s/ MICHAEL E. MARKS Chairman of the Board, and February 28, 1997
- ------------------------------------------ Chief Executive Officer
Michael E. Marks (principal executive officer)
/s/ TSUI SUNG LAM President, Chief Operating February 28, 1997
- ------------------------------------------ Officer and Director
Tsui Sung Lam
/s/ GOH CHAN PENG Chief Financial Officer February 28, 1997
- ------------------------------------------ (principal financial and
Goh Chan Peng accounting officer)
/s/ ROBERT R.B. DYKES Senior Vice President of February 28, 1997
- ------------------------------------------ Finance and Administration and
Robert R.B. Dykes Director
* Director February 28, 1997
- ------------------------------------------
Bernard J. Lacroute
* Director February 28, 1997
- ------------------------------------------
Michael J. Moritz
* Chairman, Astron Group Limited February 28, 1997
- ------------------------------------------ Director
Stephen J.L. Rees
* Director February 28, 1997
- ------------------------------------------
Richard L. Sharp
*By: /s/ MICHAEL E. MARKS
- ------------------------------------------
Michael E. Marks
Attorney-in-fact
</TABLE>
II-4
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among
the Registrant, nCHIP Acquisition Corporation and nCHIP (the
"Reorganization Agreement"). Certain Disclosure Schedules of nCHIP and the
Registrant 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 Registrant'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 Registrant, nCHIP Acquisition Corporation and nCHIP.
(Incorporated by reference to Exhibit 2.7 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the Registrant,
A&A and all of the shareholders of A&A. (Incorporated by reference to
Exhibit 2.1 of the Registrant'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 Registrant's registration statement on Form S-4, No.
33-85842.)
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac Sales
Limited dated as of January 6, 1996. (Incorporated by reference to Exhibit
2.1 of the Registrant's Current Report on Form 8-K for the event reported
on February 2, 1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and
Flextronics International Sweden AB dated as February 12, 1997. Certain
schedules have been omitted. The Company agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon request.+
3.1 Memorandum of Association of the Registrant. (Incorporated by reference to
Exhibit 3.1 of the Registrant's registration statement on Form S-1, No.
33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's registration statement on Form S-4, No.
33-85842.)
5.1 Opinion and Consent of Allen & Gledhill with respect to the Ordinary
Shares being registered.+
11.1 Statement regarding computation of per share earnings.
23.1 Consent of Ernst & Young.+
23.2 Consent of Allen & Gledhill (included in Exhibit 5.1).+
23.3 Consent of Deloitte Touche Tomatsu International.*
23.4 Consent of Coopers & Lybrand.+
24.1 Power of Attorney (included in the signature page of this Registration
Statement).+
</TABLE>
- ---------------
+Previously filed.
*To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
1,312,500 SHARES
FLEXTRONICS INTERNATIONAL LTD.
ORDINARY SHARES
_____________________
U.S. UNDERWRITING AGREEMENT
_____________________
______ __, 1997
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, CA 94111
Dear Sirs:
1. Introductory. Flextronics International Ltd., a Singapore
company (the "Company"), proposes to issue and sell 1,312,500 of its authorized
but unissued Ordinary Shares S$.01 par value each in the capital of the Company
(the "Ordinary Shares") to the several underwriters named in Schedule A annexed
hereto (the "Underwriters"), for whom you are acting as Representatives. The
1,312,500 shares to be sold by the Company are referred to as the "Firm Common
Shares." In addition, the Company proposes to grant to the Underwriters an
option to purchase up to 196,875 additional Ordinary Shares (the "Optional
Common Shares"), as provided in Section 4 hereof. The Firm Common Shares and,
to the extent such option is exercised, the Optional Common Shares are
hereinafter collectively referred to as the "Common Shares."
It is understood that the Company is concurrently entering into
an agreement dated the date hereof (the "International Underwriting Agreement")
providing for (i) the offering by the Company of 437,500 Ordinary Shares (the
"Firm International Common Shares") through arrangements with certain
underwriters outside the United States and Canada (the "International
Managers"), and (ii) the grant by the Company to the International Managers of
an option to purchase up to 65,625 additional Ordinary Shares solely to cover
over-allotments, if any. It is understood that the Company is not obligated to
sell, and the Underwriters are not obligated to purchase, any Firm Common
Shares unless all of the Firm International Common Shares are contemporaneously
purchased by the International Managers.
-1-
<PAGE> 2
The Underwriters and the International Managers will concurrently
enter into an Intersyndicate Agreement of even date herewith providing for the
coordination of certain transactions among the Underwriters and the
International Managers under the direction of Montgomery Securities.
You have advised the Company that the Underwriters propose to
make a public offering of the Common Shares on the effective date of the
registration statement hereinafter referred to, or as soon thereafter as in
your judgment is advisable.
The Company hereby confirms its agreement with respect to the
purchase of the Common Shares by the Underwriters as follows:
2. Representations and Warranties of the Company. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) A registration statement on Form S-3 (File No.
333-_____) with respect to the Common Shares has been prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission. The Company has prepared and has filed or proposes
to file prior to the effective date of such registration statement an amendment
or amendments to such registration statement, which amendment or amendments
have been or will be similarly prepared. There have been delivered to you four
signed copies of such registration statement and amendments, together with four
copies of each exhibit filed therewith. Conformed copies of such registration
statement and amendments (but without exhibits) and of the related preliminary
prospectus have been delivered to you in such reasonable quantities as you have
requested for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (ii) a final prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations, or (iii) a term sheet (the "Term Sheet")
as described in and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the Term Sheet
and Preliminary Prospectus, if a final prospectus is not used, shall include
all Rule 430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was executed
and delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus) as
the Company shall have previously advised you in writing would be included or
made therein.
The term "Registration Statement" as used in this Agreement shall
mean such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment thereto
becomes effective prior to the First Closing Date (as hereinafter defined),
shall also mean such registration statement
-2-
<PAGE> 3
as so amended; provided, however, that such term shall also include (i) all
documents incorporated or deemed to be incorporated by reference therein
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Exchange Act"), (ii) all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations, and (iii) a registration statement, if any, filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the Common
Shares. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" as used in
this Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet is not used
and no filing pursuant to Rule 424(b) of the Rules and Regulations is required,
the form of final prospectus included in the Registration Statement at the time
such registration statement becomes effective, or (iii) if a Term Sheet is
used, the Term Sheet in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, together with the
Preliminary Prospectus included in the Registration Statement at the time it
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to by omitted
from Registration Statement when it becomes effective pursuant to Rule 430A of
the Rules and Regulations.
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include
the filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements of the
Act and the Rules and Regulations and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will contain all
material statements and information required to be included therein by the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or
-3-
<PAGE> 4
supplement thereto, will include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, no
representation or warranty contained in this subsection 2(b) shall be
applicable to information contained in or omitted from any Preliminary
Prospectus, the Registration Statement, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly or
through the Representatives, specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.1 to the Company's Annual Report on Form 10-K
for the Company's fiscal year ended March 31, 1996. The Company has been duly
incorporated and is validly existing as a public company under the laws of
Singapore. Each of the subsidiaries of the Company has been duly incorporated
and is validly existing in their respective jurisdictions of incorporation or
formation. The Company and each of its subsidiaries has full power and
authority (corporate and other) to own and lease their respective properties
and conduct their respective businesses; the Company owns all of the
outstanding capital stock or joint venture interests of its subsidiaries, free
and clear of all claims, liens, charges and encumbrances; the Company and each
of its subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material
to the conduct of their respective businesses, all of which are valid and in
full force and effect; the Company and each of its subsidiaries are duly
qualified to do business and in good standing as foreign corporations in each
jurisdiction in which the ownership or leasing of properties or the conduct of
their respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company or the subsidiary; and no proceedings has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and issued share
capital as set forth under the heading "Capitalization" in the Prospectus; the
issued and outstanding Ordinary Shares have been duly authorized and validly
issued, are fully paid, have been issued in compliance with all federal and
state securities laws, whether of Singapore, the United States or otherwise,
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and conform to the description
thereof contained in the Prospectus. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as disclosed in
the Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock schemes, plans or arrangements, and the options or other rights
granted and exercised thereunder, set
-4-
<PAGE> 5
forth in the Prospectus accurately and fairly presents the information required
to be shown with respect to such schemes, plans, arrangements, options and
rights.
(e) The Common Shares to be purchased by the
Underwriters from the Company have been duly authorized and, when issued,
delivered and paid for in the manner set forth in this Agreement, will be duly
authorized, validly issued and fully paid, and will conform to the description
thereof contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale of the
Common Shares by the Company pursuant to this Agreement. No shareholder of the
Company has any right which has not been waived to require the Company to
register the sale of any shares owned by such shareholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Common Shares to be sold by the
Company as contemplated herein other than the Board of Directors' approval of
the list of purchasers of the Common Shares, which will occur prior to the
First Closing.
(f) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company in accordance with its terms. The making and performance of this
Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provisions of the Memorandum and Articles of
Association, Certificate of Incorporation, or other organizational documents,
of the Company or any of its subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon notice
or the passage of time or both, a default under any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of its respective properties may be bound or
affected (except as to conflicts, breaches, violations or defaults of any of
the foregoing that individually or in the aggregate would not be material to
the Company), any statute or any authorization, judgment, decree, order, rule
or regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its subsidiaries or
any of their respective properties. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement, except
for compliance with the Act, the Blue Sky laws applicable to the public
offering of the Common Shares by the several Underwriters and the clearance of
such offering with the National Association of Securities Dealers, Inc. (the
"NASD").
(g) Ernst & Young LLP, who have expressed their opinion
with respect to the consolidated financial statements and schedules filed with
the Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent accountants as
required by the Act, the Rules and Regulations and the Exchange Act.
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<PAGE> 6
(h) The consolidated financial statements and schedules
of the Company and its subsidiaries, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of the respective
dates of such financial statements and schedules, and the results of operations
and changes in financial position of the Company and its subsidiaries for the
respective periods covered thereby. Such statements, schedules and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis as certified by the independent
accountants named in subsection 2(g). No other financial statements or
schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Prospectus Summary--Summary Selected Financial Data," "Capitalization" and
"Selected Financial Data" fairly present the information set forth therein on
the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as
to defaults which individually or in the aggregate would not be material to the
Company, neither the Company nor any of its subsidiaries is in violation or
default of any provision of its memorandum and Articles of Association,
Certificate of Incorporation, or other organizational documents, or is in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts which
constitutes an event of default on the part of the Company or any such
subsidiary as defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
(j) There are no contracts or other documents required
to be described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have
not been described or filed as required. The descriptions of the contracts so
described in the Prospectus are accurate; all such contracts are in full force
and effect on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's knowledge, any other party is in
breach of or default under any of such contracts.
(k) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is or may be
the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings might, individually or in the aggregate, prevent
or adversely affect the transactions contemplated by this Agreement or result
in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or, to the best of the Company's
knowledge, prospects of the Company and its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent which might be expected to affect adversely such condition,
properties, business, results of operations or, to the best of Company's
knowledge, prospects. Neither the Company nor any of its subsidiaries is a
party or subject to the
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<PAGE> 7
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good
and marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by the
Company and its subsidiaries. The Company or the applicable subsidiary holds
its leased properties under valid and binding leases, with such exceptions as
are not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed
to be conducted as described in the Registration Statement.
(m) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as described
in or specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business;
(ii) the Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its issued share capital and the Company and its subsidiaries
are not in default in the payment of principal or interest on any outstanding
debt obligations; (iv) there has not been any change in the share capital
(other than upon the sale of the Common Shares hereunder and the exercise of
options disclosed in the Prospectus) or indebtedness material to the Company
and its subsidiaries (other than in the ordinary course of business); and (v)
there has not been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations or, to the best of the
Company's knowledge, prospects of the Company and its subsidiaries.
(n) Except as disclosed in or specifically contemplated
by the Prospectus, the Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted; the
expiration of any trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or, to the best of the Company's knowledge, prospects of
the Company or its subsidiaries; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret or other
similar rights of others, and there is no claim being made against the Company
or its subsidiaries regarding trademark, trade name, patent, mask work,
copyright, license, trade secret or other infringement which could have a
material
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<PAGE> 8
adverse effect on the condition (financial or otherwise), business, results of
operations or, to the best of the Company's knowledge, prospects of the Company
and its subsidiaries.
(o) The Company has not been advised, and has no reason
to believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not materially
adversely affect the condition (financial or otherwise), business, results of
operations or, to the best of the Company's knowledge, prospects of the Company
and its subsidiaries.
(p) The Company and its subsidiaries have filed all
necessary federal, national, state, provincial, foreign and other income and
franchise tax returns and have paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company or its subsidiaries which could
materially and adversely affect the business, operations or properties of the
Company and its subsidiaries.
(q) The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
(t) Neither the Company nor any of its subsidiaries has
at any time during the last five years (i) made any unlawful contribution to
any candidate for public office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the price of
the Ordinary Shares to facilitate the sale or resale of the Common Shares.
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<PAGE> 9
(v) Subject to the approval of the list of purchasers by
the Board of Directors of the Company as referred to in (e) above, no transfer
taxes are required to be paid in connection with the sale and delivery of the
Common Shares to the Underwriters hereunder.
(w) The Ordinary Shares (including the Common Shares)
are registered pursuant to Section 12(g) of the Exchange Act and are listed on
the Nasdaq National Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Ordinary
Shares under the Exchange Act or delisting the Ordinary Shares from the Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration or
listing.
(x) The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or hereafter
are filed with the Commission, complied and will comply in all material
respects with the requirements of the Exchange Act, and, when read together
with the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto become effective and at the First Closing
Date and the Second Closing Date, as the case may be, will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
3. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant
to the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that they
have been authorized by each of the other Underwriters as the Representatives
to enter into this Agreement on its behalf and to act for it in the manner
herein provided.
4. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, and upon
the terms but subject to the conditions herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of 1,312,500
Firm Common Shares and (ii) the Underwriters agree, severally and not jointly,
to purchase from the Company the respective number of Firm Common Shares set
forth opposite their names on Schedule A. The purchase price per Firm Common
Share to be paid by the several Underwriters to the Company shall be $[_____]
per share.
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<PAGE> 10
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed to by the Company and the Representatives) at
6:00 a.m., on [_____], or such other time and date not later than 10:30 a.m.,
on the later of the fifth full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date
that is 48 hours after the date that the Prospectus has been recirculated, if
applicable (the time and date of such closing are called the "First Closing
Date"). The Company hereby acknowledges that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination
by the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay due to the issuance of a stop
order as contemplated by the provisions of Section 9.
In addition, on the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
196,875 Optional Common Shares from the Company at the purchase price per share
to be paid by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
upon notice by the Representatives to the Company, which notice may be given at
any time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the term "First Closing Date" shall refer to the
time and date of delivery of certificates for the Firm Common Shares and the
Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may
determine) that bears the same proportion to the total number of Optional
Common Shares to be purchased as the number of Firm Common Shares set forth on
Schedule A opposite the name of such Underwriter bears to the total number of
Firm Common Shares. The Representatives may cancel the option at any time
prior to its expiration by giving written notice of such cancellation to the
Company.
The Representatives hereby advise the Company that the
Underwriters intend to offer for sale to the public, as described in the
Prospectus, the Common Shares as soon after this Agreement has been executed
and the Registration Statement
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<PAGE> 11
has been declared effective as the Representatives, in their sole judgment,
have determined is advisable and practicable. The Representatives hereby
further advise the Company that (i) the Underwriters will offer the Common
Shares for sale to the public initially at a price of $[_____] per share and to
certain dealers selected by the Representatives at a price that represents a
concession of not more than $[_____] per share from such initial public
offering price and (ii) any Underwriter may allow, and such dealers may
reallow, a concession of not more than $[_____] per share to any other
Underwriter or to certain other dealers.
Payment for the Common Shares to be sold by the Company shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as a Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have
been received by the Representatives by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
The Company shall deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters certificates for
the Firm Common Shares to be sold by it at the First Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The Company shall also deliver, or
cause to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The
certificates for the Common Shares shall be in definitive form and registered
in such names and denominations as the Representatives shall have requested at
least two full business days prior to the First Closing Date (or the Second
Closing Date, as the case may be) and shall be made available for inspection on
the business day preceding the First Closing Date (or the Second Closing Date,
as the case may be) at a location in New York City as the Representatives may
designate. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition of the obligations of the
Underwriters.
Not later than 12:00 Noon San Francisco time on the second
business day following later of the date of this Agreement or the date the
Common Shares are released by the Underwriters for sale to the public, the
Company shall deliver, or cause to be delivered, copies of the Prospectus in
such quantities and at such places as the Representatives shall request.
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<PAGE> 12
5. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing of
the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed, pursuant
to the applicable paragraph of Rule 424(b) of the Rules and Regulations within
the time period prescribed and will provide evidence satisfactory to you of
such timely filing. The Company will promptly advise you in writing (i) of the
receipt of any comments of the Commission, (ii) of any request of the
Commission for amendment of or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus or for additional information, (iii) when the Registration Statement
shall have become effective, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose. If the Commission shall enter
any such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment. The Company
will not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus (including any amendment or supplement through incorporation by
reference of any report filed under the Exchange Act) of which you have not
been furnished with a copy a reasonable time prior to such filing or to which
you reasonably object or which is not in compliance with the Act and the Rules
and Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rules 424(b), 430A and 434, as
applicable, of the Rules and Regulations with respect to information omitted
from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred
to in Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event occurs, as a
result of which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the Rules
and Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and
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<PAGE> 13
will use its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a prospectus
after such nine-month period, the Company upon request, but at the expense of
such Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days
after the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule 158(c) of
the Rules and Regulations), the Company will make generally available to its
security holders an earning statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
(e) During such period as a prospectus is required by
law to be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you or mail to your order copies
of the Registration Statement, the Prospectus, the Preliminary Prospectus and
all amendments and supplements to any such documents (including any documents
incorporated or deemed incorporated by reference therein) in each case as soon
as available and in such quantities as you may request, for the purposes
contemplated by the Act.
(f) The Company shall cooperate with you and your
counsel in order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate (including those of Canada) and under the
applicable securities laws of such other nations as you may designate, will
comply with such laws and will continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the distribution of the
Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified. The Company will advise you
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company, with your cooperation,
will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, shareholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly
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<PAGE> 14
Report on Form 10-Q, Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Ordinary Shares.
(h) During the period of 90 days after the first date
that any of the Common Shares are released by you for sale to the public,
without the prior written consent of either Montgomery Securities or each of
the Representatives (which consent may be withheld at the sole discretion of
Montgomery Securities or the Representatives, as the case may be), the Company
will not issue, offer, sell, grant options to purchase or otherwise dispose of
any of the Company's equity securities or any other securities convertible into
or exchangeable with its Ordinary Shares or other equity security, other than
pursuant to outstanding stock options and warrants disclosed in the Prospectus
and other than the grant of options or the issuance of the Company's equity
securities pursuant to the Company's employee share option plans described in
the Prospectus or the issuance of Ordinary Shares in connection with
acquisitions.
(i) The Company will apply the net proceeds of the sale
of the Common Shares sold by it substantially in accordance with its statements
under the caption "Use of Proceeds" in the Prospectus.
(j) During such period as a prospectus is required by
law to be delivered in connection with sales by an Underwriter or dealer, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
The Representatives, on behalf of the Underwriters, may, in their
sole discretion, waive in writing the performance by the Company of any one or
more of the foregoing covenants set forth in Section 5 herein or extend the
time for their performance.
6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or
is terminated, the Company agrees to pay all costs, fees and expenses incurred
in connection with the performance of its obligations hereunder and in
connection with the transactions contemplated hereby, including without
limiting the generality of the foregoing (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Ordinary Shares, (iii) all necessary issue, transfer and other
stamp taxes in connection with the issuance and sale of the Common Shares to
the Underwriters, (iv) all fees and expenses of the Company's counsel and the
Company's independent accountants, including fees of counsel or independent
accountants with respect to any subsidiary of the Company, (v) all costs and
expenses incurred in connection with the printing, filing, shipping and
distribution of the Registration Statement, each Preliminary Prospectus and the
Prospectus (including all exhibits and financial statements) and all amendments
and supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all
filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
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<PAGE> 15
Common Shares for offer and sale under the Blue Sky laws (including those of
Canada) and under the applicable securities laws of such other nations as you
may designate, (vii) the filing fee incident to the review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares by the NASD, and (viii) all other fees, costs and expenses referred to
in Item 13 of the Registration Statement. Except as provided in this Section
6, Section 8 and Section 10 hereof, the Underwriters shall pay all of their own
expenses, including the fees and disbursements of their counsel (excluding
those relating to qualification, registration or exemption under the Blue Sky
laws (including those of Canada) and under the applicable securities laws of
such other nations as you may designate, and the Blue Sky memorandum referred
to above).
7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Ordinary Shares on the First Closing Date and the Optional Ordinary Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company herein set forth as of the date
hereof and as of the First Closing Date or the Second Closing Date, as the case
may be, to the accuracy of the statements of Company officers made pursuant to
the provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 p.m., Washington, D.C. time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if the
filing of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b) of the Rules and Regulations, the Prospectus shall have been filed
in the manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or,
to the knowledge of the Company or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the authorized or
issued share capital of the Company or any of its subsidiaries other than
pursuant to the exercise of outstanding options disclosed in the Prospectus or
any material change in the indebtedness (other than in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as set forth
or contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered into
by the Company or any of its subsidiaries, which is not in the ordinary course
of business or which could result in a material reduction in the future
earnings of the Company and its subsidiaries, (iii) no loss or damage (whether
or not insured) to the property of the Company or any of its subsidiaries shall
have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of the
Company and its subsidiaries, (iv) no legal or
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<PAGE> 16
governmental action, suit or proceeding affecting the Company or any of its
subsidiaries which is material to the Company and its subsidiaries or which
affects or may affect the transactions contemplated by this Agreement shall
have been instituted or threatened, and (v) there shall not have been any
material change in the condition (financial or otherwise), business,
management, results of operations or prospects of the Company and its
subsidiaries which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the Common
Shares as contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided below:
(i) (A) An opinion of Allen & Gledhill,
counsel for the Company, addressed to the Underwriters and dated the First
Closing Date, or the Second Closing Date, as the case may be, to the effect
that:
(1) Each of the Company and its
Singapore subsidiary has been duly incorporated and is validly existing as a
corporation (public corporation in the case of the Company) under the laws of
its jurisdiction of incorporation, and has full corporate power and authority
to own its properties and conduct its business as described in the Registration
Statement;
(2) As of the respective Closing
Date, the authorized issued and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus as the same
refers to "Actual" authorized, issued and outstanding shares; all necessary and
proper corporate proceedings have been taken in order to authorize validly such
authorized Ordinary Shares; all outstanding Ordinary Shares have been duly and
validly issued, are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase any securities contained in the Memorandum and Articles of
Association of the Company or Singapore law or any material agreement to which
the Company or any subsidiary is a party; the outstanding Ordinary Shares were
issued in compliance with all laws of Singapore, that impose any restrictions
or requirements on, or otherwise regulate, the sale of securities; and the
Ordinary Shares conform to the description thereof contained in the Prospectus;
(3) All of the issued and
outstanding shares of the Company's Singapore subsidiary have been duly and
validly authorized and issued and are fully paid; to such counsel's knowledge
all shares of the Company's subsidiaries are owned beneficially by the Company
free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or other defects of title whatsoever, except as
described in the Registration Statement;
(4) The certificates evidencing the
Common Shares to be delivered by the Company hereunder are in due and proper
form under Singapore law, and when the Company's seal thereon has been affixed
in accordance
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<PAGE> 17
with the Company's Articles of Association, and delivered to you or upon your
order against payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Ordinary Shares represented thereby will
be duly authorized and validly issued and fully paid, will not have been issued
in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities and will conform in all respects to the
description thereof contained in the Prospectus;
(5) Except as disclosed in or
specifically contemplated by the Prospectus, to such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for the issuance
of, and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
(6) To the best of such counsel's
knowledge, there are no legal or governmental actions, suits or proceedings
pending against the Company which are required to be described in the
Prospectus which are not described as required;
(7) The Company has full right,
power and authority under Singapore law to enter into this Agreement and to
sell and deliver the Ordinary Shares to be sold by it to the several
Underwriters; this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company in accordance with its terms, except as enforceability
may be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and except as to those provisions relating to indemnity or contribution for
liabilities arising under the Act as to which no opinion need be expressed; and
no approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body in Singapore is required for the
execution and delivery of this Agreement by the Company or the consummation of
the transactions contemplated by this Agreement;
(8) The execution and performance of
this Agreement and the consummation of the transactions herein contemplated
will not violate any of the provisions of the Memorandum and Articles of
Association of the Company or its Singapore subsidiary or, so far as is known
to such counsel, violate any decree, statute or rule of Singapore or any
material agreement to which the Company or its Singapore subsidiary is a party;
(9) To such counsel's knowledge,
neither the Company nor its Singapore subsidiary is in violation of its
Memorandum and Articles of Association, or other organizational documents, or
in breach of or default with respect to any provision of any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company or any such subsidiary is
a party or by which it or any of its properties may
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<PAGE> 18
be bound or affected, except where such default would not materially adversely
affect the Company and its subsidiaries; and, to such counsel's knowledge, the
Company and its Singapore subsidiary are in compliance with all decrees,
statutes or governmental rule of Singapore, to which they are subject, except
where noncompliance would not materially adversely affect the Company and its
subsidiaries;
(10) The statements made in the
Prospectus under "Enforcement of Civil Liabilities," "Description of Capital
Shares" and "Taxation," to the extent they constitute summaries of the laws of
Singapore, are accurate, complete and fair summaries;
(11) The choice of California law as
the law governing this Agreement is valid and binding under the laws of
Singapore, except to the extent that any term of this Agreement or provision of
California law applicable to this Agreement is incompatible with the public
policy of Singapore; the consent to jurisdiction as provided in Section 19 of
this Agreement is valid and binding upon the Company under the laws of
Singapore.
(12) No stamp or other issuance or
transaction taxes or duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the Underwriters to the government of
Singapore or any subdivision or taxing authority thereof or therein in
connection with (a) the sale and delivery by the Company of the Common Shares
to or for the accounts of the Underwriters and (b) the sale and delivery of the
Common Shares inside or outside of Singapore by the Underwriters to the
purchasers thereof (excluding any Singapore income tax on the income of any
Underwriter whose net income is subject to tax by the government of Singapore).
In rendering such opinion, such counsel may state that with
respect to all matters of the laws of the United States, they are relying on
the opinion of Fenwick & West LLP, provided that such counsel states they
believe that both you and they are justified in relying on such opinion.
(B) An opinion of Fenwick & West LLP,
special counsel to the Company, addressed to the Underwriters and dated the
First Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(1) Flextronics International (USA),
Inc. (the "U.S. Sub") has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the jurisdiction of its
incorporation; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction, if
any, in the United States in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries; and the U.S. Sub
has full corporate power and authority to own its properties and conduct its
business as currently conducted;
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<PAGE> 19
(2) To such counsel's knowledge, the
issued and outstanding Ordinary Shares issued after August 2, 1995 were issued
in compliance with United States federal and California securities laws;
(3) All of the issued and
outstanding shares of the U.S. Sub have been duly and validly authorized and
issued and are fully paid and nonassessable and to such counsel's knowledge are
owned beneficially by the Company free and clear of all liens, encumbrances,
equities, claims, security interests, voting trusts or other defects of title
whatsoever;
(4) Except as disclosed in or
specifically contemplated by the Prospectus, to such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for the issuance
of, and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
(5) a. The Registration Statement
has become effective under the Act, and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or preventing
the use of the Prospectus has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission; any
required filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules and Regulations has been made in the manner and within the
time period required by such Rule 424(b);
b. The Registration Statement, the
Prospectus (including any document incorporated by reference therein) and each
amendment or supplement thereto (except for the financial statements and
schedules included therein as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the Act,
the Rules and Regulations and the Exchange Act;
c. To such counsel's knowledge,
there are no franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not
disclosed or filed or incorporated by reference, as required;
d. To such counsel's knowledge,
there are no legal or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described in the
Prospectus which are not described as required;
(6) The Company has full right,
power and authority to enter into this Agreement and to sell and deliver the
Ordinary Shares to be sold by it to the several Underwriters; this Agreement
has been duly and validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by and on behalf of
the Company, and is a valid and
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<PAGE> 20
binding agreement of the Company in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no opinion need
be expressed; and no approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required under United States
federal or California law for the execution and delivery of this Agreement by
the Company or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and effect
under the Act and such as may be required under applicable Blue Sky laws in
connection with the purchase and distribution of the Common Shares by the
Underwriters and the clearance of such offering with the NASD;
(7) The execution and performance of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default under, any
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument listed on an appendix to such opinion, and
reasonably acceptable to counsel to the Underwriters, to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its or their property may be bound or affected which is
material to the Company and its subsidiaries, or violate any of the provisions
of the Memorandum and Articles of Association, or other organizational
documents, of the Company or the U.S. Sub or, so far as is known to such
counsel, violate any statute, judgment, decree, order, rule or regulation of
any court or governmental body having jurisdiction over the Company or the U.S.
Sub or any of their respective property;
(8) No U.S. Sub is in violation of
its Articles or Certificate of Incorporation, as the case may be;
(9) Each document filed pursuant to
the Exchange Act (other than the financial statements and supporting schedules
included therein, as to which no opinion need be rendered) and incorporated or
deemed to be incorporated by reference in the Prospectus complied when so filed
as to form in all material respects with the Exchange Act.
In rendering such opinion, such counsel may state that with
respect to all matters of the laws of Singapore or pertaining to the Memorandum
or Articles of Association of the Company, they are relying solely on the
opinion of Allen & Gledhill.
Fenwick & West LLP shall also include a statement to the effect
that nothing has come to such counsel's attention that would lead such counsel
to believe that, either at the effective date of the Registration Statement or
at the applicable Closing Date, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, contains any untrue statement of a
material fact or omits to state
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<PAGE> 21
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
Fenwick & West LLP shall also provide a separate opinion, dated
the First Closing Date or the Second Closing Date, as the case may be, to the
effect that the statements in the Prospectus under "Taxation," to the extent
they constitute summaries of tax laws of the United States, are accurate,
complete and fair summaries as of the applicable Closing Date.
(C) Opinions of counsel in Hong Kong,
Malaysia and the People's Republic of China regarding certain matters relating
to the subsidiaries incorporated in, or the laws of, such countries that would
constitute significant subsidiaries as referred to in Regulation S-X of the
Rules and Regulations, in form reasonably acceptable to counsel for the
Underwriters.
(D) In rendering the foregoing opinions,
such counsel may rely as to matters of fact on certificates of officers of the
Company and of governmental officials.
(ii) Such opinion or opinions of Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, a Professional Corporation, and Arfat Selvam
& Gunasingham, counsel for the Underwriters, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the incorporation
of the Company, the sufficiency of all corporate proceedings and other legal
matters relating to this Agreement, the validity of the Common Shares, the
Registration Statement and the Prospectus and other related matters as you may
reasonably require, and the Company shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass upon such matters.
In connection with such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental officials.
(iii) A certificate of the Company executed by the
Chairman of the Board, the President and the Chief Financial Officer of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied on or prior to such Closing Date;
(2) The Commission has not issued any
order preventing or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the Registration
Statement has been issued; and to the best of the knowledge of the respective
signers, no proceedings for that purpose have been instituted or are pending
under the Act;
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<PAGE> 22
(3) Each of the respective signers of the
certificate has carefully examined the Registration Statement and the
Prospectus; to the best of his knowledge, the Registration Statement and the
Prospectus and any amendments or supplements thereto contain all statements
required to be stated therein regarding the Company and its subsidiaries; and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement, written or oral, transaction or
event has occurred which should have been set forth in an amendment to the
Registration Statement or in a supplement to or amendment of any prospectus
which has not been disclosed in such a supplement or amendment:
(5) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there has not been
any material adverse change or a development involving a material adverse
change in the condition (financial or otherwise), business, properties, results
of operations, management or, to the best knowledge of the respective signing
officers, prospects of the Company and its subsidiaries; and no legal or
governmental action, suit or proceeding is pending or threatened against the
Company or any of its subsidiaries which is material to the Company and its
subsidiaries, whether or not arising from transactions in the ordinary course
of business, or which may adversely affect the transactions contemplated by
this Agreement; since such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered into any verbal or written
agreement or other transaction not in the ordinary course of business or which
could result in a material reduction in the future earnings of the Company or
incurred any material liability or obligation, direct, contingent or indirect,
made any change in its capital stock, made any material change in its
short-term debt or funded debt or repurchased or otherwise acquired any of the
Company's capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock payable to
shareholders of record on a date prior to the First Closing Date or Second
Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and
except as disclosed in or contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike, fire,
flood, windstorm, accident or other calamity (whether or not insured).
(iv) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from Ernst & Young
LLP, independent accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a
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<PAGE> 23
Second Closing) to be dated the Second Closing Date, in form and substance
satisfactory to the Representatives.
(v) Contemporaneously with the purchase by the
Underwriters of the Firm Common Shares under this Agreement, the International
Managers shall have purchased the Firm International Common Shares under the
International Underwriting Agreement.
(vi) On or before the First Closing Date, letters
from each officer and director and certain other employees of the Company, in
form and substance satisfactory to you, confirming that for a period of 90 days
after the first date that any of the Common Shares are released by you for sale
to the public, such person will not directly or indirectly sell or offer to
sell or otherwise dispose of any Ordinary Shares or any right to acquire such
shares without the prior written consent of either Montgomery Securities or
each of the Representatives, which consent may be withheld at the sole
discretion of Montgomery Securities or each of the Representatives, as the case
may be, subject to exceptions allowing the immediate sale of an aggregate of
approximately 100,000 Ordinary Shares by certain of said individuals.
All such opinions, certificates, letters and documents shall be
in compliance with the provisions hereof only if they are satisfactory to you
and to Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional
Corporation, counsel for the Underwriters. The Company shall furnish you with
such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company without liability on the part of any Underwriter
or the Company except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in
Section 10 hereof.
8. Reimbursement of Underwriters' Expenses. Notwithstanding
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Sections 7 or 13, or if the sale to the Underwriters of the Common
Shares at the First Closing is not consummated because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or to comply with any provision hereof, the Company agrees to reimburse you and
the other Underwriters upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by you and them in connection with the proposed
purchase and the sale of the Common Shares, including but not limited to fees
and disbursements of counsel, printing expenses, travel expenses, postage,
telegraph charges and telephone charges relating directly to the offering
contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 6 and Section 10 shall at all times be effective and shall
apply.
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<PAGE> 24
9. Effectiveness of Registration Statement. The parties will
use their best efforts to cause the Registration Statement to become effective,
to prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
10. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof as contemplated below) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state in any of
them a material fact required to be stated therein or necessary to make the
statements in any of them not misleading, or arise out of or are based in whole
or in part on any inaccuracy in the representations and warranties of the
Company contained herein or any failure of the Company to perform its
obligations hereunder or under law; and will reimburse each Underwriter and
each such controlling person for any legal and other expenses as such expenses
are reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
the information furnished to the Company pursuant to Section 3 hereof; and
provided further, that the indemnity provided in this Section 10(a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, charge, liability
or litigation based upon any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state therein a material fact
purchased Ordinary Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected was not sent or given to such person within the time required by the
Act and the Rules and Regulations thereunder. In addition to its other
obligations under this Section 10(a), the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or failure to perform its obligations
hereunder, all as described in this Section 10(a), it will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or
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<PAGE> 25
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of its obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank
of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages, liabilities
or expenses to which the Company, or any such director, officer or controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 3
hereof; and will reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. In addition to its other
obligations under this Section 10(b), each Underwriter severally agrees that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 10(b)
which relates to information furnished to the Company pursuant to Section 3
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director or controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company (and,
to the extent applicable, each officer, director or
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<PAGE> 26
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the Company (and, to the extent applicable, each officer,
director or controlling person) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the
Company within 30 days of a request for reimbursement, shall hear interest at
the Prime Rate from the date of such request. This indemnity agreement will be
in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained in
this Section or to the extent it is not prejudiced as a proximate result of
such failure. In case any such action is brought against any indemnified party
and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with all other indemnifying
parties similarly notified, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying party.
-26-
<PAGE> 27
(d) If the indemnification provided for in this Section
10 is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other hand, from
the offering of the Common Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received
by the Company, on the one hand, and the Underwriters, on the other hand, shall
be deemed to be in the same proportion, in the case of the Company, as the
total price paid to the Company for the Common Shares sold by it to the
Underwriters (net of underwriting commissions but before deducting expenses)
bears to the total price to the public set forth on the cover of the
Prospectus, and in the case of the Underwriters as the underwriting commissions
received by them bears to the total of such amounts paid to the Company and
received by the Underwriters as underwriting commissions. The relative fault
of the Company, on the one hand, and the Underwriters, on the other hand, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company,
on the one hand, or the Underwriters, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
subparagraph (c) of this Section 10, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in subparagraph (c) of this
Section 10 with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 10 were determined
solely by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 10, no
Underwriter shall be required to contribute any amount in excess of the amount
of the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act)
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<PAGE> 28
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 10 are several in proportion to their respective
underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 10(a)
and 10(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 10(a) and 10(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 10(a) and 10(b) hereof.
11. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares in the
manner as described herein, that, except as hereinafter in this paragraph
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
Underwriter or Underwriters default in their obligations to purchase Common
Shares hereunder on either the First or Second Closing Date and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase on such Closing Date does not exceed 10% of the
total number of Common Shares which the Underwriters are obligated to purchase
on such Closing Date, the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Common Shares which such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company except for the expenses to be paid by the Company pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to
be purchased by the non-defaulting Underwriters or by another party or parties,
the Representatives or the Company shall have the right to postpone the First
or Second
-28-
<PAGE> 29
Closing Date, as the case may be, for not more than five business days in order
that the necessary changes in the Registration Statement, Prospectus and any
other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for
an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 15 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement
has not become effective, at 2:00 p.m., California time, on the first full
business day following the effectiveness of the Registration Statement, or (ii)
if at the time of execution of this Agreement the Registration Statement has
been declared effective, at 2:00 p.m., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the
public. For the purposes of this Section 12, the Common Shares shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
telegrams (i) advising Underwriters that the Common Shares are released for
public offerings or (ii) offering the Common Shares for sale to securities
dealers, whichever may occur first.
13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by
notice to you or by you by notice to the Company at any time prior to the time
this Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
Underwriter (except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in
Section 10 hereof) or of any Underwriter to the Company (except to the extent
provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior
to the First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD,
or trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect
-29-
<PAGE> 30
any statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv)
if there shall be any action, suit or proceeding pending or threatened, or
there shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any of
its subsidiaries or the transactions contemplated by this Agreement, which, in
the reasonable judgment of the Representatives, may materially and adversely
affect the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination pursuant to
this subsection (b) shall be without liability on the part of any Underwriter
to the Company or on the part of the Company to any Underwriter (except for
expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 10 hereof).
(c) This Agreement shall also terminate at 5:00 p.m.,
California time, on the tenth full business day after the Registration
Statement shall have become effective if the initial public offering price of
the Common Shares shall not then as yet have been determined. Any termination
pursuant to this subsection (c) shall be without liability on the part of any
Underwriter to the Company or on the part of the Company to any Underwriter
(except for expenses to be paid or reimbursed by the Company pursuant to
Sections 6 and 8 hereof and except to the extent provided in Section 10
hereof).
14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
15. Notices. All communications hereunder shall be in writing
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Richard A. Smith, with a copy to Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, Three Embarcadero Center, Seventh Floor, San Francisco, CA
94111, Attention: Daniel J. Winnike; and if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at 514 Chai Chee
Lane, #04-13, Bedok Industrial Estate, Singapore 1646, Attention: President and
Chief Operating Officer and 2241 Lundy Avenue, San Jose, CA 95131, Attention:
Chief Executive Officer, with a copy to Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, CA 94306, Attention: Gordon Davidson. Any of the parties
hereto may change the address for receipt of communications hereunder by giving
notice to the others.
16. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to
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<PAGE> 31
Section 11 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 10, and in each case their
respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall
not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
17. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
18. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
19. Applicable Law.
(a) This Agreement shall be governed by and construed in
accordance with the internal laws (and not the laws pertaining to conflicts of
laws) of the State of California.
(b) The Company, by the execution and delivery of this
Agreement, agrees that, until the fifth anniversary date of the First Closing
Date, service of process may be made upon it at 2241 Lundy Avenue, San Jose, CA
95131 (or any successor pursuant to the last sentence of this paragraph) in San
Jose, California in any suit or proceeding against the Company instituted by
any Underwriter or by any person controlling any Underwriter based on or
arising under this Agreement in any United States federal or state court in the
State of California, City and County of San Francisco, and expressly accepts
and submits to the nonexclusive jurisdiction of any such court in respect of
any such suit or proceeding. The Company, by the execution and delivery of
this Agreement, irrevocably designates and appoints until the fifth anniversary
date of the First Closing Date (or until a successor is appointed pursuant to
the last sentence of this paragraph) Michael Marks and all other persons who
are the Chief Executive Officer, the President, the Secretary or a Vice
President of the Company during the five year period following the First
Closing Date as the authorized agents of the Company upon whom process may be
served in any suit or proceeding, it being understood that the designation and
appointment of Mr. Marks and other persons presently serving as such officers
as such authorized agent shall become effective immediately without any further
action on the part of the Company and shall become effective as to each other
person who is hereafter elected or appointed to any such office by the Company
upon such election or appointment. The Company represents to each Underwriter
that they have notified Mr. Marks and other persons presently serving as such
officers of such designation and appointment and that all such persons have
accepted the same in
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<PAGE> 32
writing and that it will so notify, and obtain the consent in writing of, each
person so elected or appointed to any such office in the future. The Company
further agrees that, to the extent permitted by law, service of process upon
any such person shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. The Company further agrees to
take any and all action, including the execution and filing of all such
instruments and documents, as may be necessary to continue such designation and
appointment in full force and effect for five years from the First Closing
Date. Notwithstanding the foregoing the Company agrees, if requested by you,
to appoint CT Corporation System in San Francisco, California as successor to
such persons on the terms provided above, provided such successor accepts such
appointment in writing.
Nothing in this Section 19 should be construed as a general
consent to service of process as to which any shareholder of the Company or any
other person may rely in connection with any suit or proceeding against the
Company.
20. General. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and you.
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<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement between the Company and the several
Underwriters including you, all in accordance with its terms.
Very truly yours,
FLEXTRONICS INTERNATIONAL LTD.
By:
---------------------------------------
Chairman of the Board and
Chief Executive Officer
The foregoing Underwriting
Agreement is hereby confirmed and
accepted by us in San Francisco,
California as of the date first above
written.
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
By MONTGOMERY SECURITIES
By:
--------------------------------------
Senior Managing Director
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<PAGE> 34
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Cowen & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
UBS Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312,500
</TABLE>
-34-
<PAGE> 1
EXHIBIT 1.2
437,500 SHARES
FLEXTRONICS INTERNATIONAL LTD.
ORDINARY SHARES
_____________________
INTERNATIONAL
UNDERWRITING AGREEMENT
_____________________
______ __, 1997
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, CA 94111
Dear Sirs:
1. Introductory. Flextronics International Ltd., a Singapore
company (the "Company"), proposes to issue and sell 437,500 of its authorized
but unissued Ordinary Shares, S$.01 par value each in the capital of the
Company (the "Ordinary Shares"), to the several underwriters named in Schedule
A annexed hereto (the "International Managers"), for whom you are acting as
Lead Managers. The 437,500 shares to be sold by the Company are referred to as
the "Firm International Common Shares." In addition, the Company proposes to
grant to the International Managers an option to purchase up to 65,625
additional Ordinary Shares (the "Optional International Common Shares"), as
provided in Section 4 hereof. The Firm International Common Shares and, to the
extent such option is exercised, the Optional International Common Shares are
hereinafter collectively referred to as the "International Common Shares."
It is understood that the Company is concurrently entering into
an agreement dated the date hereof (the "U.S. Underwriting Agreement")
providing for (i) the offering by the Company of 1,312,500 Ordinary Shares (the
"Firm U.S. Common Shares") through arrangements with certain underwriters in
the United States and Canada (the "U.S. Underwriters"), and (ii) the grant by
the Company to the U.S. Underwriters of an option to purchase up to 196,875
additional Ordinary Shares solely to cover over-allotments, if any. It is
understood that the Company is not obligated to sell, and the
-1-
<PAGE> 2
International Managers are not obligated to purchase, the Firm International
Common Shares unless all of the Firm U.S. Common Shares are contemporaneously
purchased by the U.S. Underwriters.
The U.S. Underwriters and the International Managers will
concurrently enter into an Intersyndicate Agreement of even date herewith
providing for the coordination of certain transactions among the International
Managers and the International Managers under the direction of Montgomery
Securities.
You have advised the Company that the International Managers
propose to make a public offering of the International Common Shares on the
effective date of the registration statement hereinafter referred to, or as
soon thereafter as in your judgment is advisable.
The Company hereby confirms its agreement with respect to the
purchase of the International Common Shares by the International Managers as
follows:
2. Representations and Warranties of the Company. The Company
hereby represents, warrants and covenants to each International Manager as
follows:
(a) A registration statement on Form S-3 (File No.
333-_____) with respect to the International Common Shares has been prepared by
the Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The Company has prepared
and has filed or proposes to file prior to the effective date of such
registration statement an amendment or amendments to such registration
statement, which amendment or amendments have been or will be similarly
prepared. There have been delivered to you four signed copies of such
registration statement and amendments, together with four copies of each
exhibit filed therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary prospectus
have been delivered to you in such reasonable quantities as you have requested
for each of the International Managers. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (ii) a final prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations, or (iii) a term sheet (the "Term Sheet")
as described in and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the Term Sheet
and Preliminary Prospectus, if a final prospectus is not used, shall include
all Rule 430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was executed
and delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus) as
the Company shall have previously advised you in writing would be included or
made therein.
-2-
<PAGE> 3
The term "Registration Statement" as used in this Agreement shall
mean such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment thereto
becomes effective prior to the First Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended; provided, however,
that such term shall also include (i) all documents incorporated or deemed to
be incorporated by reference therein pursuant to the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act"), (ii) all Rule 430A Information deemed to be
included in such registration statement at the time such registration statement
becomes effective as provided by Rule 430A of the Rules and Regulations, and
(iii) a registration statement, if any, filed pursuant to Rule 462(b) of the
Rules and Regulations relating to the Common Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean either (i) the prospectus
relating to the International Common Shares in the form in which it is first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, (ii) if a Term Sheet is not used and no filing pursuant to Rule 424(b) of
the Rules and Regulations is required, the form of final prospectus included in
the Registration Statement at the time such registration statement becomes
effective, or (iii) if a Term Sheet is used, the Term Sheet in the form in
which it is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations, together with the Preliminary Prospectus included in the
Registration Statement at the time it becomes effective. The term "Rule 430A
Information" means information with respect to the International Common Shares
and the offering thereof permitted to by omitted from Registration Statement
when it becomes effective pursuant to Rule 430A of the Rules and Regulations.
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include
the filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements of the
Act and the Rules and Regulations and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter
-3-
<PAGE> 4
mentioned, the Registration Statement and the Prospectus, and any amendments or
supplements thereto, will contain all material statements and information
required to be included therein by the Act and the Rules and Regulations, and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any International
Manager, directly or through the Lead Managers, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.1 to the Company's Annual Report on Form 10-K
for the Company's fiscal year ended March 31, 1996. The Company has been duly
incorporated and is validly existing as a public company under the laws of
Singapore. Each of the subsidiaries of the Company has been duly incorporated
and is validly existing in their respective jurisdictions of incorporation or
formation. The Company and each of its subsidiaries has full power and
authority (corporate and other) to own and lease their respective properties
and conduct their respective businesses; the Company owns all of the
outstanding capital stock or joint venture interests of its subsidiaries, free
and clear of all claims, liens, charges and encumbrances; the Company and each
of its subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material
to the conduct of their respective businesses, all of which are valid and in
full force and effect; the Company and each of its subsidiaries are duly
qualified to do business and in good standing as foreign corporations in each
jurisdiction in which the ownership or leasing of properties or the conduct of
their respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company or the subsidiary; and no proceedings has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and issued share
capital as set forth under the heading "Capitalization" in the Prospectus; the
issued and outstanding Ordinary Shares have been duly authorized and validly
issued, are fully paid, have been issued in compliance with all federal and
state securities laws, whether of Singapore, the United States or otherwise,
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and conform to the description
thereof contained in the Prospectus. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as disclosed in
the Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive rights or
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<PAGE> 5
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock schemes, plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
schemes, plans, arrangements, options and rights.
(e) The International Common Shares to be purchased by
the International Managers from the Company have been duly authorized and, when
issued, delivered and paid for in the manner set forth in this Agreement, will
be duly authorized, validly issued and fully paid, and will conform to the
description thereof contained in the Prospectus. No preemptive rights or other
rights to subscribe for or purchase exist with respect to the issuance and sale
of the International Common Shares by the Company pursuant to this Agreement.
No shareholder of the Company has any right which has not been waived to
require the Company to register the sale of any shares owned by such
shareholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the shareholders or the Board
of Directors of the Company will be required for the issuance and sale of the
International Common Shares to be sold by the Company as contemplated herein
other than the Board of Directors' approval of the list of purchasers of the
International Common Shares, which will occur prior to the First Closing.
(f) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company in accordance with its terms. The making and performance of this
Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provisions of the Memorandum and Articles of
Association, Certificate of Incorporation, or other organizational documents,
of the Company or any of its subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon notice
or the passage of time or both, a default under any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of its respective properties may be bound or
affected (except as to conflicts, breaches, violations or defaults of any of
the foregoing that individually or in the aggregate would not be material to
the Company), any statute or any authorization, judgment, decree, order, rule
or regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its subsidiaries or
any of their respective properties. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement, except
for compliance with the Act, the Blue Sky laws applicable to the public
offering of the International Common Shares by the several International
Managers and the
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<PAGE> 6
clearance of such offering with the National Association of Securities Dealers,
Inc. (the "NASD").
(g) Ernst & Young LLP, who have expressed their opinion
with respect to the consolidated financial statements and schedules filed with
the Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent accountants as
required by the Act, the Rules and Regulations and the Exchange Act.
(h) The consolidated financial statements and schedules
of the Company and its subsidiaries, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of the respective
dates of such financial statements and schedules, and the results of operations
and changes in financial position of the Company and its subsidiaries for the
respective periods covered thereby. Such statements, schedules and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis as certified by the independent
accountants named in subsection 2(g). No other financial statements or
schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Prospectus Summary--Summary Selected Financial Data," "Capitalization" and
"Selected Financial Data" fairly present the information set forth therein on
the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as
to defaults which individually or in the aggregate would not be material to the
Company, neither the Company nor any of its subsidiaries is in violation or
default of any provision of its memorandum and Articles of Association,
Certificate of Incorporation, or other organizational documents, or is in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts which
constitutes an event of default on the part of the Company or any such
subsidiary as defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
(j) There are no contracts or other documents required
to be described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have
not been described or filed as required. The descriptions of the contracts so
described in the Prospectus are accurate; all such contracts are in full force
and effect on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's knowledge, any other party is in
breach of or default under any of such contracts.
(k) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is or may be
the
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<PAGE> 7
subject, or related to environmental or discrimination matters, which actions,
suits or proceedings might, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the condition (financial or otherwise), properties,
business, results of operations or, to the best of the Company's knowledge,
prospects of the Company and its subsidiaries; and no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent which
might be expected to affect adversely such condition, properties, business,
results of operations or, to the best of Company's knowledge, prospects.
Neither the Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good
and marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by the
Company and its subsidiaries. The Company or the applicable subsidiary holds
its leased properties under valid and binding leases, with such exceptions as
are not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed
to be conducted as described in the Registration Statement.
(m) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as described
in or specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business;
(ii) the Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its issued share capital and the Company and its subsidiaries
are not in default in the payment of principal or interest on any outstanding
debt obligations; (iv) there has not been any change in the share capital
(other than upon the sale of the International Common Shares hereunder and the
exercise of options disclosed in the Prospectus) or indebtedness material to
the Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or, to the best of the Company's knowledge, prospects of the Company and its
subsidiaries.
(n) Except as disclosed in or specifically contemplated
by the Prospectus, the Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their businesses as now conducted; the
expiration of any
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<PAGE> 8
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals or governmental authorizations would not have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or, to the best of the Company's knowledge, prospects of the Company
or its subsidiaries; and the Company has no knowledge of any material
infringement by it or its subsidiaries of trademark, trade name rights, patent
rights, mask works, copyrights, licenses, trade secret or other similar rights
of others, and there is no claim being made against the Company or its
subsidiaries regarding trademark, trade name, patent, mask work, copyright,
license, trade secret or other infringement which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or, to the best of the Company's knowledge, prospects of the Company
and its subsidiaries.
(o) The Company has not been advised, and has no reason
to believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations; except where failure to be so in compliance would not materially
adversely affect the condition (financial or otherwise), business, results of
operations or, to the best of the Company's knowledge, prospects of the Company
and its subsidiaries.
(p) The Company and its subsidiaries have filed all
necessary federal, national, state, provincial, foreign and other income and
franchise tax returns and have paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company or its subsidiaries which could
materially and adversely affect the business, operations or properties of the
Company and its subsidiaries.
(q) The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in connection
with the offering and sale of the International Common Shares other than the
Prospectus, the Registration Statement and the other materials permitted by the
Act.
(s) Each of the Company and its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
(t) Neither the Company nor any of its subsidiaries has
at any time during the last five years (i) made any unlawful contribution to
any candidate for public office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any governmental officer or
official, or other person charged
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<PAGE> 9
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the price of
the Ordinary Shares to facilitate the sale or resale of the International
Common Shares.
(v) Subject to the approval of the list of purchasers by
the Board of Directors of the Company as referred to in (e) above, no transfer
taxes are required to be paid in connection with the sale and delivery of the
International Common Shares to the International Managers hereunder.
(w) The Ordinary Shares (including the International
Common Shares) are registered pursuant to Section 12(g) of the Exchange Act and
are listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Ordinary Shares under the Exchange Act or delisting the Ordinary Shares
from the Nasdaq National Market, nor has the Company received any notification
that the Commission or the NASD is contemplating terminating such registration
or listing.
(x) The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or hereafter
are filed with the Commission, complied and will comply in all material
respects with the requirements of the Exchange Act, and, when read together
with the other information in the Prospectus, at the time the Registration
Statement and any amendments thereto become effective and at the First Closing
Date and the Second Closing Date, as the case may be, will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Any certificate signed by an officer of the Company and delivered
to the Lead Managers or to counsel for the International Managers shall be
deemed to be a representation and warranty by the Company to each International
Manager as to the matters covered thereby.
3. Representations and Warranties of the International
Managers. The Lead Managers, on behalf of the several International Managers,
represent and warrant to the Company that the information set forth (i) on the
cover page of the Prospectus with respect to price, underwriting discounts and
commissions and terms of offering and (ii) under "Underwriting" in the
Prospectus was furnished to the Company by and on behalf of the International
Managers for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. The Lead
Managers represent and warrant that they have been authorized by each of the
other International Managers as the Lead Managers to enter into this Agreement
on its behalf and to act for it in the manner herein provided.
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<PAGE> 10
4. Purchase, Sale and Delivery of International Common Shares.
Upon the terms herein set forth, the Company agrees to issue and sell to the
several International Managers an aggregate of 437,500 Firm International
Common Shares. On the basis of the representations, warranties and agreements
herein contained, and upon the terms but subject to the conditions herein set
forth, the International Managers agree, severally and not jointly, to purchase
from the Company the respective number of Firm International Common Shares set
forth opposite their names on Schedule A. The purchase price per Firm Common
Share to be paid by the several International Managers to the Company shall be
$[_____] per share.
Delivery of certificates for the Firm International Common Shares
to be purchased by the International Managers and payment therefor shall be
made at the offices of Montgomery Securities, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Lead Managers) at 6:00 a.m., on [_____], or such other time and date
not later than 10:30 a.m., on the later of the fifth full business day
following the first date that any of the International Common Shares are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectus has been recirculated, if applicable (the time and
date of such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Lead Managers may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the Lead Managers
to recirculate to the public copies of an amended or supplemented Prospectus or
a delay due to the issuance of a stop order as contemplated by the provisions
of Section 9.
In addition, on the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Company hereby grants an option to the several
International Managers to purchase, severally and not jointly, up to an
aggregate of 65,625 Optional International Common Shares from the Company at
the purchase price per share to be paid by the International Managers for the
Firm International Common Shares. The option granted hereunder is for use by
the International Managers solely in covering any over-allotments in connection
with the sale and distribution of the Firm International Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
upon notice by the Lead Managers to the Company, which notice may be given at
any time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional International Common Shares as to
which the International Managers are exercising the option, (ii) the names and
denominations in which the certificates for the Optional International Common
Shares are to be registered and (iii) the time, date and place at which such
certificates will be delivered (which time and date may be simultaneous with,
but not earlier than, the First Closing Date; and in such case the term "First
Closing Date" shall refer to the time and date of delivery of certificates for
the Firm International Common Shares and the Optional International Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the Lead
Managers and shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. If any Optional International
Common Shares are to be purchased, each
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<PAGE> 11
International Manager agrees, severally and not jointly, to purchase the number
of Optional International Common Shares (subject to such adjustments to
eliminate fractional shares as the Lead Managers may determine) that bears the
same proportion to the total number of Optional International Common Shares to
be purchased as the number of Firm International Common Shares set forth on
Schedule A opposite the name of such International Manager bears to the total
number of Firm International Common Shares. The Lead Managers may cancel the
option at any time prior to its expiration by giving written notice of such
cancellation to the Company.
The Lead Managers hereby advise the Company that the
International Managers intend to offer for sale to the public, as described in
the Prospectus, the International Common Shares as soon after this Agreement
has been executed and the Registration Statement has been declared effective as
the Lead Managers, in their sole judgment, have determined is advisable and
practicable. The Lead Managers hereby further advise the Company that (i) the
International Managers will offer the International Common Shares for sale to
the public initially at a price of $[_____] per share and to certain dealers
selected by the Lead Managers at a price that represents a concession of not
more than $[_____] per share from such initial public offering price and (ii)
any International Manager may allow, and such dealers may reallow, a concession
of not more than $[_____] per share to any other International Manager or to
certain other dealers.
Payment for the International Common Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company.
It is understood that the Lead Managers have been authorized, for
their own accounts and the accounts of the several International Managers, to
accept delivery of and receipt for, and make payment of the purchase price for,
the Firm International Common Shares and any Optional International Common
Shares the International Managers have agreed to purchase. Montgomery
Securities, individually and not as a representative of the International
Managers, may (but shall not be obligated to) make payment for any
International Common Shares to be purchased by any International Manager whose
funds shall not have been received by the Lead Managers by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
International Manager, but any such payment shall not relieve such
International Manager from any of its obligations under this Agreement.
The Company shall deliver, or cause to be delivered, to the Lead
Managers for the accounts of the several International Managers certificates
for the Firm International Common Shares to be sold by it at the First Closing
Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered, to the Lead Managers for the
accounts of the several International Managers, certificates for the Optional
International Common Shares the International Managers have agreed to purchase
at the First Closing Date or the Second Closing Date, as the case may be,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The certificates for the
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<PAGE> 12
International Common Shares shall be in definitive form and registered in such
names and denominations as the Lead Managers shall have requested at least two
full business days prior to the First Closing Date (or the Second Closing Date,
as the case may be) and shall be made available for inspection on the business
day preceding the First Closing Date (or the Second Closing Date, as the case
may be) at a location in New York City as the Lead Managers may designate.
Time shall be of the essence, and delivery at the time and place specified in
this Agreement is a further condition of the obligations of the International
Managers.
Not later than 12:00 Noon San Francisco time on the second
business day following the later of the date of this Agreement or the date the
International Common Shares are released by the International Managers for sale
to the public, the Company shall deliver, or cause to be delivered, copies of
the Prospectus in such quantities and at such places as the Lead Managers shall
request.
5. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing of
the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed, pursuant
to the applicable paragraph of Rule 424(b) of the Rules and Regulations within
the time period prescribed and will provide evidence satisfactory to you of
such timely filing. The Company will promptly advise you in writing (i) of the
receipt of any comments of the Commission, (ii) of any request of the
Commission for amendment of or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus or for additional information, (iii) when the Registration Statement
shall have become effective, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose. If the Commission shall enter
any such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment. The Company
will not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus (including any amendment or supplement through incorporation by
reference of any report filed under the Exchange Act) of which you have not
been furnished with a copy a reasonable time prior to such filing or to which
you reasonably object or which is not in compliance with the Act and the Rules
and Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several International Managers to continue
the distribution of the International Common Shares and will use its best
efforts to cause the same to
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<PAGE> 13
become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rules 424(b), 430A and 434, as
applicable, of the Rules and Regulations with respect to information omitted
from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred
to in Section 10(a)(3) of the Act during which a prospectus relating to the
International Common Shares is required to be delivered under the Act any event
occurs, as a result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or if it is necessary at any time to amend
the Prospectus, including any amendments or supplements, to comply with the Act
or the Rules and Regulations, the Company will promptly advise you thereof and
will promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance and will use its best
efforts to cause the same to become effective as soon as possible; and, in case
any International Manager is required to deliver a prospectus after such
nine-month period, the Company upon request, but at the expense of such
International Manager, will promptly prepare such amendment or amendments to
the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(d) As soon as practicable, but not later than 45 days
after the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule 158(c) of
the Rules and Regulations), the Company will make generally available to its
security holders an earning statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
(e) During such period as a prospectus is required by
law to be delivered in connection with sales by an International Manager or
dealer, the Company, at its expense, but only for the nine-month period
referred to in Section 10(a)(3) of the Act, will furnish to you or mail to your
order copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents (including
any documents incorporated or deemed incorporated by reference therein) in each
case as soon as available and in such quantities as you may request, for the
purposes contemplated by the Act.
(f) The Company shall cooperate with you and your
counsel in order to qualify or register the International Common Shares for
sale under (or obtain exemptions from the application of) the Blue Sky laws of
such jurisdictions as you designate (including those of Canada) and under the
applicable securities laws of such other nations as you may designate, will
comply with such laws and will continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the distribution of the
International Common Shares. The Company shall
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<PAGE> 14
not be required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
presently qualified. The Company will advise you promptly of the suspension of
the qualification or registration of (or any such exemption relating to) the
International Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Lead Managers and, upon request of the Lead
Managers, to each of the other International Managers: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, shareholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10-Q, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Ordinary Shares.
(h) During the period of 90 days after the first date
that any of the International Common Shares are released by you for sale to the
public, without the prior written consent of either Montgomery Securities or
each of the Lead Managers (which consent may be withheld at the sole discretion
of Montgomery Securities or the Lead Managers, as the case may be), the Company
will not issue, offer, sell, grant options to purchase or otherwise dispose of
any of the Company's equity securities or any other securities convertible into
or exchangeable with its Ordinary Shares or other equity security, other than
pursuant to outstanding stock options and warrants disclosed in the Prospectus
and other than the grant of options or the issuance of the Company's equity
securities pursuant to the Company's employee share option plans described in
the Prospectus or the issuance of Ordinary Shares in connection with
acquisitions.
(i) The Company will apply the net proceeds of the sale
of the International Common Shares sold by it substantially in accordance with
its statements under the caption "Use of Proceeds" in the Prospectus.
(j) During such period as a prospectus is required by
law to be delivered in connection with sales by an International Manager or
dealer, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner
and within the time periods required by the Exchange Act.
The Lead Managers, on behalf of the International Managers, may,
in their sole discretion, waive in writing the performance by the Company of
any one or more
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<PAGE> 15
of the foregoing covenants set forth in Section 5 herein or extend the time for
their performance.
6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or
is terminated, the Company agrees to pay all costs, fees and expenses incurred
in connection with the performance of its obligations hereunder and in
connection with the transactions contemplated hereby, including without
limiting the generality of the foregoing (i) all expenses incident to the
issuance and delivery of the International Common Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Ordinary Shares, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the International
Common Shares to the International Managers, (iv) all fees and expenses of the
Company's counsel and the Company's independent accountants, including fees of
counsel or independent accountants with respect to any subsidiary of the
Company, (v) all costs and expenses incurred in connection with the printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement,
the Underwriters' Questionnaire, the Underwriters' Power of Attorney and the
Blue Sky memorandum, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the International Managers in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the International Common Shares for offer
and sale under the Blue Sky laws (including those of Canada) and under the
applicable securities laws of such other nations as you may designate, (vii)
the filing fee incident to the review and approval of the International
Managers' participation in the offering and distribution of the International
Common Shares by the NASD, and (viii) all other fees, costs and expenses
referred to in Item 13 of the Registration Statement. Except as provided in
this Section 6, Section 8 and Section 10 hereof, the International Managers
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the Blue Sky laws (including those of Canada) and under the
applicable securities laws of such other nations as you may designate, and the
Blue Sky memorandum referred to above).
7. Conditions of the Obligations of the International
Managers. The obligations of the several International Managers to purchase
and pay for the Firm Ordinary Shares on the First Closing Date and the Optional
Ordinary Shares on the Second Closing Date shall be subject to the accuracy of
the representations and warranties on the part of the Company herein set forth
as of the date hereof and as of the First Closing Date or the Second Closing
Date, as the case may be, to the accuracy of the statements of Company officers
made pursuant to the provisions hereof, to the performance by the Company of
its obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 p.m., Washington, D.C. time, on the date of this
Agreement, or at such
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<PAGE> 16
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or,
to the knowledge of the Company or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the authorized or
issued share capital of the Company or any of its subsidiaries other than
pursuant to the exercise of outstanding options disclosed in the Prospectus or
any material change in the indebtedness (other than in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as set forth
or contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered into
by the Company or any of its subsidiaries, which is not in the ordinary course
of business or which could result in a material reduction in the future
earnings of the Company and its subsidiaries, (iii) no loss or damage (whether
or not insured) to the property of the Company or any of its subsidiaries shall
have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of the
Company and its subsidiaries, (iv) no legal or governmental action, suit or
proceeding affecting the Company or any of its subsidiaries which is material
to the Company and its subsidiaries or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened, and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of operations
or prospects of the Company and its subsidiaries which makes it impractical or
inadvisable in the judgment of the Lead Managers to proceed with the public
offering or purchase the International Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Lead
Managers of the International Managers, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided below:
(i) (A) An opinion of Allen & Gledhill,
counsel for the Company, addressed to the International Managers and dated the
First Closing Date, or the Second Closing Date, as the case may be, to the
effect that:
(1) Each of the Company and its
Singapore subsidiary has been duly incorporated and is validly existing as a
corporation (public corporation in the case of the Company) under the laws of
its jurisdiction of incorporation, and has full corporate power and authority
to own its properties and conduct its business as described in the Registration
Statement;
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<PAGE> 17
(2) As of the respective Closing
Date, the authorized issued and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus as the same
refers to "Actual" authorized, issued and outstanding shares; all necessary and
proper corporate proceedings have been taken in order to authorize validly such
authorized Ordinary Shares; all outstanding Ordinary Shares have been duly and
validly issued, are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase any securities contained in the Memorandum and Articles of
Association of the Company or Singapore law or any material agreement to which
the Company or any subsidiary is a party; the outstanding Ordinary Shares were
issued in compliance with all laws of Singapore, that impose any restrictions
or requirements on, or otherwise regulate, the sale of securities; and the
Ordinary Shares conform to the description thereof contained in the Prospectus;
(3) All of the issued and
outstanding shares of the Company's Singapore subsidiary have been duly and
validly authorized and issued and are fully paid; to such counsel's knowledge
all shares of the Company's subsidiaries are owned beneficially by the Company
free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or other defects of title whatsoever, except as
described in the Registration Statement;
(4) The certificates evidencing the
International Common Shares to be delivered by the Company hereunder are in due
and proper form under Singapore law, and when the Company's seal thereon has
been affixed in accordance with the Company's Articles of Association, and
delivered to you or upon your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement, the Ordinary
Shares represented thereby will be duly authorized and validly issued and fully
paid, will not have been issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities and will conform
in all respects to the description thereof contained in the Prospectus;
(5) Except as disclosed in or
specifically contemplated by the Prospectus, to such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for the issuance
of, and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
(6) To the best of such counsel's
knowledge, there are no legal or governmental actions, suits or proceedings
pending against the Company which are required to be described in the
Prospectus which are not described as required;
(7) The Company has full right,
power and authority under Singapore law to enter into this Agreement and to
sell and deliver the Ordinary Shares to be sold by it to the several
International Managers; this
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<PAGE> 18
Agreement has been duly and validly authorized by all necessary corporate
action by the Company, has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of the Company
in accordance with its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and except as to
those provisions relating to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be expressed; and no approval,
authorization, order, consent, registration, filing, qualification, license or
permit of or with any court, regulatory, administrative or other governmental
body in Singapore is required for the execution and delivery of this Agreement
by the Company or the consummation of the transactions contemplated by this
Agreement;
(8) The execution and performance of
this Agreement and the consummation of the transactions herein contemplated
will not violate any of the provisions of the Memorandum and Articles of
Association of the Company or its Singapore subsidiary or, so far as is known
to such counsel, violate any decree, statute or rule of Singapore or any
material agreement to which the Company or its Singapore subsidiary is a party;
(9) To such counsel's knowledge,
neither the Company nor its Singapore subsidiary is in violation of its
Memorandum and Articles of Association, or other organizational documents, or
in breach of or default with respect to any provision of any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company or any such subsidiary is
a party or by which it or any of its properties may be bound or affected,
except where such default would not materially adversely affect the Company and
its subsidiaries; and, to such counsel's knowledge, the Company and its
Singapore subsidiary are in compliance with all decrees, statutes or
governmental rule of Singapore, to which they are subject, except where
noncompliance would not materially adversely affect the Company and its
subsidiaries;
(10) The statements made in the
Prospectus under "Enforcement of Civil Liabilities," "Description of Capital
Shares" and "Taxation," to the extent they constitute summaries of the laws of
Singapore are accurate, complete and fair summaries;
(11) The choice of California law as
the law governing this Agreement is valid and binding under the laws of
Singapore, except to the extent that any term of this Agreement or provision of
California law applicable to this Agreement is incompatible with the public
policy of Singapore; the consent to jurisdiction as provided in Section 19 of
this Agreement is valid and binding upon the Company under the laws of
Singapore.
(12) No stamp or other issuance or
transaction taxes or duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the International Managers to the
government of Singapore or any subdivision or taxing authority thereof or
therein in connection with (a) the sale and
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<PAGE> 19
delivery by the Company of the International Common Shares to or for the
accounts of the International Managers and (b) the sale and delivery of the
International Common Shares inside or outside of Singapore by the International
Managers to the purchasers thereof (excluding any Singapore income tax on the
income of any International Manager whose net income is subject to tax by the
government of Singapore).
In rendering such opinion, such counsel may state that with
respect to all matters of the laws of the United States, they are relying on
the opinion of Fenwick & West LLP, provided that such counsel states they
believe that both you and they are justified in relying on such opinion.
(B) An opinion of Fenwick & West LLP,
special counsel to the Company, addressed to the International Managers and
dated the First Closing Date or the Second Closing Date, as the case may be, to
the effect that:
(1) Flextronics International (USA),
Inc. (the "U.S. Sub") has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the jurisdiction of its
incorporation; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction, if
any, in the United States in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries; and the U.S. Sub
has full corporate power and authority to own its properties and conduct its
business as currently conducted;
(2) To such counsel's knowledge, the
issued and outstanding Ordinary Shares issued after August 2, 1995 were issued
in compliance with United States federal and California securities laws;
(3) All of the issued and
outstanding shares of the U.S. Sub have been duly and validly authorized and
issued and are fully paid and nonassessable and to such counsel's knowledge are
owned beneficially by the Company free and clear of all liens, encumbrances,
equities, claims, security interests, voting trusts or other defects of title
whatsoever;
(4) Except as disclosed in or
specifically contemplated by the Prospectus, to such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for the issuance
of, and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
(5) a. The Registration Statement
has become effective under the Act, and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or preventing
the use of the Prospectus has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission; any
required filing of the Prospectus
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<PAGE> 20
and any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner and within the time period required by such Rule
424(b);
b. The Registration Statement, the
Prospectus (including any document incorporated by reference therein) and each
amendment or supplement thereto (except for the financial statements and
schedules included therein as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the Act,
the Rules and Regulations and the Exchange Act;
c. To such counsel's knowledge,
there are no franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not
disclosed or filed or incorporated by reference, as required;
d. To such counsel's knowledge,
there are no legal or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described in the
Prospectus which are not described as required;
(6) The Company has full right,
power and authority to enter into this Agreement and to sell and deliver the
Ordinary Shares to be sold by it to the several International Managers; this
Agreement has been duly and validly authorized by all necessary corporate
action by the Company, has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of the Company
in accordance with its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and except as to
those provisions relating to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be expressed; and no approval,
authorization, order, consent, registration, filing, qualification, license or
permit of or with any court, regulatory, administrative or other governmental
body is required under United States federal or California law for the
execution and delivery of this Agreement by the Company or the consummation of
the transactions contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the Act and such as may be
required under applicable Blue Sky laws in connection with the purchase and
distribution of the International Common Shares by the International Managers
and the clearance of such offering with the NASD;
(7) The execution and performance of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default under, any
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument listed on an appendix to such opinion, and
reasonably acceptable to counsel to the International Managers, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of its or their property may be bound or affected
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<PAGE> 21
which is material to the Company and its subsidiaries, or violate any of the
provisions of the Memorandum and Articles of Association, or other
organizational documents, of the Company or the U.S. Sub or, so far as is known
to such counsel, violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having jurisdiction over the
Company or the U.S. Sub or any of their respective property;
(8) No U.S. Sub is in violation of
its Articles or Certificate of Incorporation, as the case may be;
(9) Each document filed pursuant to
the Exchange Act (other than the financial statements and supporting schedules
included therein, as to which no opinion need be rendered) and incorporated or
deemed to be incorporated by reference in the Prospectus complied when so filed
as to form in all material respects with the Exchange Act.
In rendering such opinion, such counsel may state that with
respect to all matters of the laws of Singapore or pertaining to the Memorandum
or Articles of Association of the Company, they are relying solely on the
opinion of Allen & Gledhill.
Fenwick & West LLP shall also include a statement to the effect
that nothing has come to such counsel's attention that would lead such counsel
to believe that, either at the effective date of the Registration Statement or
at the applicable Closing Date, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
Fenwick & West LLP shall also provide a separate opinion, dated
the First Closing Date or the Second Closing Date, as the case may be, to the
effect that the statements in the Prospectus under "Taxable," to the extent
they constitute summaries of the laws of the United States, are accurate,
complete and fair summaries as of the applicable Closing Date.
(C) Opinions of counsel in Hong Kong,
Malaysia and the People's Republic of China regarding certain matters relating
to the subsidiaries incorporated in, or the laws of, such countries that would
constitute significant subsidiaries as referred to in Regulation S-X of the
Rules and Regulations, in form reasonably acceptable to counsel to the
International Managers.
(D) In rendering the foregoing opinions,
such counsel may rely as to matters of fact on certificates of officers of the
Company and of governmental officials.
(ii) Such opinion or opinions of Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, a Professional Corporation, and Arfat Selvam
& Gunasingham, counsel for the International Managers, dated the First Closing
Date or
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<PAGE> 22
the Second Closing Date, as the case may be, with respect to the incorporation
of the Company, the sufficiency of all corporate proceedings and other legal
matters relating to this Agreement, the validity of the International Common
Shares, the Registration Statement and the Prospectus and other related matters
as you may reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to them such papers and records
as they may reasonably request for the purpose of enabling them to pass upon
such matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
(iii) A certificate of the Company executed by the
Chairman of the Board, the President and the Chief Financial Officer of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied on or prior to such Closing Date;
(2) The Commission has not issued any
order preventing or suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the Registration
Statement has been issued; and to the best of the knowledge of the respective
signers, no proceedings for that purpose have been instituted or are pending
under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration Statement and the
Prospectus; to the best of his knowledge, the Registration Statement and the
Prospectus and any amendments or supplements thereto contain all statements
required to be stated therein regarding the Company and its subsidiaries; and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement, written or oral, transaction or
event has occurred which should have been set forth in an amendment to the
Registration Statement or in a supplement to or amendment of any prospectus
which has not been disclosed in such a supplement or amendment:
(5) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there has not been
any material adverse change or a development involving a material adverse
change in the condition (financial or otherwise), business, properties, results
of operations, management or, to the best knowledge of the respective signing
officers, prospects of the Company and its subsidiaries; and no legal or
governmental action, suit or proceeding is pending or threatened against the
Company or any of its subsidiaries which is material to the Company and its
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<PAGE> 23
subsidiaries, whether or not arising from transactions in the ordinary course
of business, or which may adversely affect the transactions contemplated by
this Agreement; since such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered into any verbal or written
agreement or other transaction not in the ordinary course of business or which
could result in a material reduction in the future earnings of the Company or
incurred any material liability or obligation, direct, contingent or indirect,
made any change in its capital stock, made any material change in its
short-term debt or funded debt or repurchased or otherwise acquired any of the
Company's capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock payable to
shareholders of record on a date prior to the First Closing Date or Second
Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and
except as disclosed in or contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike, fire,
flood, windstorm, accident or other calamity (whether or not insured).
(iv) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date a letter
addressed to you, as Lead Managers of the International Managers, from Ernst &
Young LLP, independent accountants, the first one to be dated the day before
the date of this Agreement, the second one to be dated the First Closing Date
and the third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to the Lead Managers.
(v) Contemporaneously with the purchase by the
International Managers of the International Firm Common Shares under this
Agreement, the U.S. Underwriters shall have purchased the Firm U.S. Common
Shares under the U.S. Underwriting Agreement.
(vi) On or before the First Closing Date, letters
from each director and officer and certain other employees of the Company, in
form and substance satisfactory to you, confirming that for a period of 90 days
after the first date that any of the International Common Shares are released
by you for sale to the public, such person will not directly or indirectly sell
or offer to sell or otherwise dispose of any Ordinary Shares or any right to
acquire such shares without the prior written consent of either Montgomery
Securities or each of the Lead Managers, which consent may be withheld at the
sole discretion of Montgomery Securities or each of the Lead Managers, as the
case may be, subject to exceptions allowing the immediate sale of an aggregate
of approximately 100,000 Ordinary Shares by certain of said individuals.
All such opinions, certificates, letters and documents shall be
in compliance with the provisions hereof only if they are satisfactory to you
and to
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<PAGE> 24
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation,
counsel for the International Managers. The Company shall furnish you with
such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request.
If any condition to the International Managers' obligations
hereunder to be satisfied prior to or at the First Closing Date is not so
satisfied, this Agreement at your election will terminate upon notification by
you as Lead Managers to the Company without liability on the part of any
International Manager or the Company except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to the
extent provided in Section 10 hereof.
8. Reimbursement of International Managers' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Sections 7 or 13, or if the sale to the
International Managers of the Common Shares at the First Closing is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse you and the other International Managers upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
International Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage,
telegraph charges and telephone charges relating directly to the offering
contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 6 and Section 10 shall at all times be effective and shall
apply.
9. Effectiveness of Registration Statement. The parties will
use their best efforts to cause the Registration Statement to become effective,
to prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
10. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each International Manager and each person, if any, who controls any
International Manager within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which such International
Manager or such controlling person may become subject, under the Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, or arise out of or are
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<PAGE> 25
based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law; and will reimburse each
International Manager and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by such International Manager
or such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information furnished to
the Company pursuant to Section 3 hereof; and provided further, that the
indemnity provided in this Section 10(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any International Manager from
whom the person asserting any loss, claim, charge, liability or litigation
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Ordinary Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected was not
sent or given to such person within the time required by the Act and the Rules
and Regulations thereunder. In addition to its other obligations under this
Section 10(a), the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, or any inaccuracy in the representations and warranties
of the Company herein or failure to perform its obligations hereunder, all as
described in this Section 10(a), it will reimburse each International Manager
on a quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of its obligation
to reimburse each International Manager for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each International Manager shall
promptly return it together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America NT&SA,
San Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an International Manager within 30 days of a
request for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each International Manager will severally indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer or
controlling person may become
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<PAGE> 26
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent of such
International Manager), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 3
hereof; and will reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. In addition to its other
obligations under this Section 10(b), each International Manager severally
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 10(b) which relates to information furnished to the Company pursuant to
Section 3 hereof, it will reimburse the Company (and, to the extent applicable,
each officer, director or controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the International Managers' obligation to reimburse the
Company (and, to the extent applicable, each officer, director or controlling
person) for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director or
controlling person) shall promptly return it to the International Managers
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the
Company within 30 days of a request for reimbursement, shall hear interest at
the Prime Rate from the date of such request. This indemnity agreement will be
in addition to any liability which such International Manager may otherwise
have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained in
this Section or to the extent it is not prejudiced as a proximate result of
such failure. In case any such action is brought against any
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<PAGE> 27
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Lead Managers in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section
10 is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, on the one hand, and the International Managers, on the other
hand, from the offering of the International Common Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand, and the International Managers, on the other hand, in connection
with the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company on the one hand, and the
International Managers, on the other hand, shall be deemed to be in the same
proportion, in the case of the Company as the total price paid to the Company
for the International Common Shares sold by it to the International Managers
(net of underwriting commissions but before deducting expenses) bears to
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<PAGE> 28
the total price to the public set forth on the cover of the Prospectus, and in
the case of the International Managers as the underwriting commissions received
by them bears to the total of such amounts paid to the Company and received by
the International Managers as underwriting commissions. The relative fault of
the Company, on the one hand, and the International Managers, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied by
the Company, on the one hand, or the International Managers, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 10, any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 10 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be
required with respect to any action for which notice has been given under
subparagraph (c) for purposes of indemnification. The Company and the
International Managers agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined solely by pro rata
allocation (even if the International Managers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 10, no International
Manager shall be required to contribute any amount in excess of the amount of
the total underwriting commissions received by such International Manager in
connection with the International Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The International Managers' obligations to contribute
pursuant to this Section 10 are several in proportion to their respective
underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 10(a)
and 10(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 10(a) and 10(b)
hereof and would not resolve the ultimate propriety or
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<PAGE> 29
enforceability of the obligation to reimburse expenses which is created by the
provisions of such Sections 10(a) and 10(b) hereof.
11. Default of International Managers. It shall be a condition
to this Agreement and the obligation of the Company to sell and deliver the
International Common Shares hereunder, and of each International Manager to
purchase the International Common Shares in the manner as described herein,
that, except as hereinafter in this paragraph provided, each of the
International Managers shall purchase and pay for all the International Common
Shares agreed to be purchased by such International Manager hereunder upon
tender to the Lead Managers of all such shares in accordance with the terms
hereof. If any International Manager or International Managers default in
their obligations to purchase International Common Shares hereunder on either
the First or Second Closing Date and the aggregate number of International
Common Shares which such defaulting International Manager or International
Managers agreed but failed to purchase on such Closing Date does not exceed 10%
of the total number of International Common Shares which the International
Managers are obligated to purchase on such Closing Date, the non-defaulting
International Managers shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the International Common Shares
which such defaulting International Managers agreed but failed to purchase on
such Closing Date. If any International Manager or International Managers so
default and the aggregate number of International Common Shares with respect to
which such default occurs is more than the above percentage and arrangements
satisfactory to the Lead Managers and the Company for the purchase of such
International Common Shares by other persons are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of
any non-defaulting International Manager or the Company except for the expenses
to be paid by the Company pursuant to Sections 6 and 8 hereof and except to the
extent provided in Section 10 hereof.
In the event that International Common Shares to which a default
relates are to be purchased by the non-defaulting International Managers or by
another party or parties, the Lead Managers or the Company shall have the right
to postpone the First or Second Closing Date, as the case may be, for not more
than five business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term
"International Manager" includes any person substituted for an International
Manager under this Section. Nothing herein will relieve a defaulting
International Manager from liability for its default.
12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 15 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement
has not become effective, at 2:00 p.m., California time, on the first full
business day following the effectiveness of the Registration Statement, or (ii)
if at the time of execution of this Agreement the Registration Statement has
been declared effective, at 2:00 p.m., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
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<PAGE> 30
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the International Common Shares for sale
to the public. For the purposes of this Section 12, the International Common
Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the International Common
Shares or upon the release by you of telegrams (i) advising International
Managers that the International Common Shares are released for public offerings
or (ii) offering the International Common Shares for sale to securities
dealers, whichever may occur first.
13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by
notice to you or by you by notice to the Company at any time prior to the time
this Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
International Manager (except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent provided
in Section 10 hereof) or of any International Manager to the Company (except to
the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior
to the First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD,
or trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Lead Managers, to affect
adversely the marketability of the International Common Shares, (iii) if any
adverse event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information contained in the
Registration Statement or Prospectus or which is not reflected in the
Registration Statement or Prospectus but should be reflected therein in order
to make the statements or information contained therein not misleading in any
material respect, or (iv) if there shall be any action, suit or proceeding
pending or threatened, or there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Lead Managers, may
materially and adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the International Common Shares.
Any termination pursuant to this subsection (b) shall be without liability on
the part of any International Manager to the Company or on the part of the
Company to any International Manager (except for expenses to be paid or
reimbursed by the Company
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<PAGE> 31
pursuant to Sections 6 and 8 hereof and except to the extent provided in
Section 10 hereof).
(c) This Agreement shall also terminate at 5:00 p.m.,
California time, on the tenth full business day after the Registration
Statement shall have become effective if the initial public offering price of
the International Common Shares shall not then as yet have been determined.
Any termination pursuant to this subsection (c) shall be without liability on
the part of any International Manager to the Company or on the part of the
Company to any International Manager (except for expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to the
extent provided in Section 10 hereof).
14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several International
Managers set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
International Manager or the Company or any of its or their partners, officers
or directors or any controlling person, as the case may be, and will survive
delivery of and payment for the International Common Shares sold hereunder and
any termination of this Agreement.
15. Notices. All communications hereunder shall be in writing
and, if sent to the Lead Managers shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Richard A. Smith, with a copy to Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, Three Embarcadero Center, Seventh Floor, San Francisco, CA
94111, Attention: Daniel J. Winnike; and if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at 514 Chai Chee
Lane, #04-13, Bedok Industrial Estate, Singapore 1646, Attention: President and
Chief Operating Officer and 2241 Lundy Avenue, San Jose, CA 95131, Attention:
Chief Executive Officer with a copy to Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, CA 94306, Attention: Gordon Davidson. Any of the parties
hereto may change the address for receipt of communications hereunder by giving
notice to the others.
16. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute International
Managers pursuant to Section 11 hereof, and to the benefit of the officers and
directors and controlling persons referred to in Section 10, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall
not include any purchaser of the International Common Shares as such from any
of the International Managers merely by reason of such purchase.
17. Representation of International Managers. You will act as
Lead Managers for the several International Managers in connection with all
dealings hereunder, and any action under or in respect of this Agreement taken
by you jointly
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<PAGE> 32
or by Montgomery Securities, as Lead Managers, will be binding upon all the
International Managers.
18. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
19. Applicable Law.
(a) This Agreement shall be governed by and construed in
accordance with the internal laws (and not the laws pertaining to conflicts of
laws) of the State of California.
(b) The Company, by the execution and delivery of this
Agreement, agrees that, until the fifth anniversary date of the First Closing
Date, service of process may be made upon it at 2241 Lundy Avenue, San Jose, CA
95131 (or any successor pursuant to the last sentence of this paragraph) in San
Jose, California in any suit or proceeding against the Company instituted by
any International Manager or by any person controlling any International
Manager based on or arising under this Agreement in any United States federal
or state court in the State of California, City and County of San Francisco,
and expressly accepts and submits to the nonexclusive jurisdiction of any such
court in respect of any such suit or proceeding. The Company, by the execution
and delivery of this Agreement, irrevocably designates and appoints until the
fifth anniversary date of the First Closing Date (or until a successor is
appointed pursuant to the last sentence of this paragraph) Michael Marks and
all other persons who are the Chief Executive Officer, the President, the
Secretary or a Vice President of the Company during the five year period
following the First Closing Date as the authorized agents of the Company upon
whom process may be served in any suit or proceeding, it being understood that
the designation and appointment of Mr. Marks and other persons presently
serving as such officers as such authorized agent shall become effective
immediately without any further action on the part of the Company and shall
become effective as to each other person who is hereafter elected or appointed
to any such office by the Company upon such election or appointment. The
Company represents to each International Manager that they have notified Mr.
Marks and other persons presently serving as such officers of such designation
and appointment and that all such persons have accepted the same in writing and
that it will so notify, and obtain the consent in writing of, each person so
elected or appointed to any such office in the future. The Company further
agrees that, to the extent permitted by law, service of process upon any such
person shall be deemed in every respect effective service of process upon the
Company in any such suit or proceeding. The Company further agrees to take any
and all action, including the execution and filing of all such instruments and
documents, as may be necessary to continue such designation and appointment in
full force and effect for five years from the First Closing Date.
Notwithstanding the foregoing the Company agrees, if requested by you, to
appoint
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<PAGE> 33
CT Corporation System in San Francisco, California as successor to such persons
on the terms provided above, provided such successor accepts such appointment
in writing.
Nothing in this Section 19 should be construed as a general
consent to service of process as to which any shareholder of the Company or any
other person may rely in connection with any suit or proceeding against the
Company.
20. General. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and you.
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<PAGE> 34
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement between the Company and the several
International Managers including you, all in accordance with its terms.
Very truly yours,
FLEXTRONICS INTERNATIONAL LTD.
By:
------------------------------------
Chairman of the Board and
Chief Executive Officer
The foregoing Underwriting
Agreement is hereby confirmed and
accepted by us in San Francisco,
California as of the date first above
written.
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
By MONTGOMERY SECURITIES
By:
--------------------------------------
Senior Managing Director
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<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
International Common
Name of International Manager Shares to be Purchased
- ----------------------------- ----------------------
<S> <C>
UBS Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Cowen & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,500
</TABLE>
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<PAGE> 1
Exhibit 11.1
FLEXTRONICS INTERNATIONAL LTD.
Computation of net income (loss) per share
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Year Ended Ended Ended
March 31, December 31, December 31,
--------------------------------- ------------ -----------
1994 1995 1996 1996 1996
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Shares issued and outstanding 6,779 11,404 12,536 13,420 13,335
Common stock equivalents
warrants and stock options 951 699 1,050 1,042
------ ------- ------- ------- -------
7,730 12,103 12,536 14,470 14,377
====== ======= ======== ======= =======
Net income (loss) before extraordinary gain $1,735 $ 6,156 $(17,412) $ 68 $10,536
Extraordinary gain 416
------ ------- -------- ------- -------
Net income (loss) after extraordinary gain $2,151 $ 6,156 $(17,412) $ 68 $10,536
====== ======= ========= ======= =======
Earnings per share:
Net income (loss) before extraordinary gain $ 0.23 $ 0.51 $ (1.39) $ 0.01 $ 0.73
Extraordinary gain 0.05
------ ------- -------- ------- -------
Net income (loss) after extraordinary gain $ 0.28 $ 0.51 $ (1.39) $ 0.01 $ 0.73
====== ======= ======= ======= =======
</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.
