SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
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[ ] Definitive Proxy Statement the Commission only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FLEXTRONICS INTERNATIONAL LTD.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[FLEXTRONICS LOGO]
FLEXTRONICS INTERNATIONAL LTD.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 29, 2002
To our shareholders:
You are cordially invited to attend and NOTICE IS HEREBY GIVEN of the Annual
General Meeting of FLEXTRONICS INTERNATIONAL LTD. which will be held at our
principal offices located at 2090 Fortune Drive, San Jose, California, United
States of America, at 9:00 a.m., Pacific Daylight Time (PDT), on August 29, 2002
for the following purposes:
AS ORDINARY BUSINESS
1. To re-elect the following Directors, who will retire pursuant to Article 95
of our Articles of Association, to the Board of Directors:
(a) Michael Marks; and
(b) Michael Moritz.
2. To consider and, if thought fit, to pass the following resolution:
RESOLVED THAT, pursuant to Section 153(6) of the Companies Act, Cap. 50.
Mr. Patrick Foley be and hereby is re-appointed as a Director to the Board
of Directors, to hold such office from the date of this Annual General
Meeting until our next Annual General Meeting.
3. To receive and adopt our Audited Accounts for the fiscal year ended March
31, 2002 together with the Reports of the Directors and Auditors thereon.
4. To consider and vote upon a proposal to appoint Deloitte & Touche LLP as
our independent auditors for the fiscal year ending March 31, 2003 in place
of Arthur Andersen LLP, and to authorize the Board of Directors to fix
their remuneration.
AS SPECIAL BUSINESS
5. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT approval be and is hereby given for the amendment of our 2001
Equity Incentive Plan, which we refer to as the 2001 Plan, to provide that:
(a) under the automatic option grant program of the 2001 Plan, individuals
who first become non-employee directors will automatically receive
options to subscribe for 25,000 ordinary shares, rather than the
20,000 ordinary shares currently provided for under the 2001 Plan, and
eligible continuing directors will automatically annually receive
options to subscribe for 12,500 ordinary shares on the date of the
Annual General Meeting, including the 2002 Annual General Meeting,
rather than the 6,000 ordinary shares currently provided for under the
2001 Plan; and
(b) under the discretionary option grant program of the 2001 Plan,
non-employee directors will be eligible to receive options to purchase
up to an aggregate of 100,000 ordinary shares per calendar year,
rather than the 50,000 ordinary shares currently provided for under
the 2001 Plan.
6. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT approval be and is hereby given for our 1997 Employee Share
Purchase Plan, which we refer to as the Share Purchase Plan, to be amended
to increase the maximum number of ordinary shares authorized for issuance
under the Share Purchase Plan from 2,400,000 ordinary shares to 3,400,000
ordinary shares and that an additional 1,000,000 ordinary shares be
reserved for issuance under the Share Purchase Plan, and that such ordinary
shares, when issued and paid for in accordance with the terms of the Share
Purchase Plan, shall be validly issued, fully paid and nonassessable
ordinary shares in our capital.
7. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT pursuant to the provisions of Section 161 of the Companies
Act, Cap. 50, and notwithstanding the provisions of Article 46 of our
Articles of Association but subject otherwise to the provisions of that Act
and our Articles of Association, authority be and is hereby given to our
Directors to:
(a) (i) allot and issue ordinary shares in our capital; and/or
(ii) make or grant offers, agreements or options that might or would
require ordinary shares in our capital to be allotted and issued
whether after the expiration of this authority or otherwise
(including but not limited to the creation and issue of warrants,
debentures or other instruments convertible into ordinary shares
in our capital),
at any time to and/or with such persons and upon such terms and
conditions and for such purposes as our Directors may in their absolute
discretion deem fit, and with such rights or restrictions as our
Directors may think fit to impose and as are set forth in our Articles
of Association aforesaid; and
(b) (notwithstanding the authority conferred by this resolution may have
ceased to be in force) allot and issue ordinary shares in our capital
in pursuance of any offer, agreement or option made or granted by our
Directors while this resolution was in force,
and that such authority shall continue in force until the conclusion of our
next Annual General Meeting or the expiration of the period within which
our next Annual General Meeting is required by law to be held, whichever is
the earlier.
8. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT:
(a) at the sole discretion of our Directors at any time after the date of
this Meeting, but on or before 5:00 p.m., PDT, August 31, 2003, a sum
of up to S$___ and, in the event that any new ordinary shares are
allotted and issued by us after the close of business on July 2, 2002,
which we refer to in this proposal as the Record Date, but on or
before 5:00 p.m., PDT, August 31, 2003, an additional amount of S$0.01
for each new ordinary share so allotted and issued, standing to the
credit of our Share Premium Account as at March 31, 2002, which we
refer to as the Capital Sum, be capitalized and distributed amongst
the persons who, on a date specified by our Board of Directors after
the date of this Meeting, but no later than 5:00 p.m., PDT, August 31,
2003, are the registered holders, whom we refer to as the Registered
Shareholders, of existing ordinary shares of S$0.01 each in our
capital, on the footing that the Registered Shareholders become
entitled to such sum as capital in terms of Article 133 of our
Articles of Association. The whole of the Capital Sum shall be applied
in payment in full of the aggregate par value of up to ___ new
ordinary shares of S$0.01 each in our capital and, in the event that
any new shares are allotted and issued by us after the Record Date but
on or before 5:00 p.m., PDT, August 31, 2003, an additional one new
ordinary share of S$0.01 each in our capital for each new ordinary
share so allotted and issued, which shares together we refer to as the
Bonus Shares. The Bonus Shares will rank in all respects pari passu
with our existing ordinary shares;
(b) accordingly, the Directors be and are hereby granted the authority to
allot and issue, at their sole discretion after the date of this
Meeting, but on or before 5:00 p.m., PDT, August 31, 2003, the Bonus
Shares credited
as fully paid to the Registered Shareholders, as nearly as
practicable, in the proportion of one Bonus Share for every one
existing ordinary share then held by the Registered Shareholders,
fractions being disregarded;
(c) the Bonus Shares, if and when allotted and issued, shall be treated
for all purposes as an increase in the nominal amount of our issued
capital and not as income;
(d) the aggregate number of Bonus Shares representing fractional interests
be disposed of by the Directors in such manner as they may deem fit to
be in our interests; and
(e) the Directors be and are hereby authorized to take such steps and
exercise such discretion as they may deem fit in connection with the
matters referred to in this resolution.
9. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT:
(a) for the purposes of Sections 76C and 76E of the Companies Act, Cap.
50, the exercise by our Directors of all our powers to purchase or
otherwise acquire issued ordinary shares of S$0.01 each fully paid in
our capital, not exceeding in aggregate the number of issued ordinary
shares representing 10% of our issued ordinary share capital at the
date of the passing of this resolution, at such price or prices as may
be determined by our Directors from time to time up to the maximum
purchase price described in paragraph (c) below, whether by way of:
(i) market purchases on the Nasdaq National Market or any other
securities exchange on which our ordinary shares may for the time
being be listed and quoted; and/or
(ii) off-market purchases (if effected other than on the Nasdaq
National Market or, as the case may be, any other securities
exchange on which our ordinary shares may for the time being be
listed and quoted) in accordance with any equal access scheme(s)
as may be determined or formulated by our Directors as they
consider fit, which scheme(s) shall satisfy all the conditions
prescribed by the Companies Act. Cap. 50;
and otherwise in accordance with all other laws and regulations and
rules of the Nasdaq National Market or, as the case may be, any other
securities exchange on which our ordinary shares may for the time
being be listed and quoted as may for the time being be applicable, be
and is hereby authorized and approved generally and unconditionally;
(b) unless varied or revoked by us in a general meeting, the authority
conferred on our Directors pursuant to the mandate contained in
paragraph (a) above may be exercised by our Directors at any time and
from time to time during the period commencing from the date of the
passing of this resolution and expiring on the earlier of:
(i) the date on which our next Annual General Meeting is held; and
(ii) the date by which our next Annual General Meeting is required by
law to be held;
(c) the maximum purchase price (excluding brokerage, commission,
applicable goods and services tax and other related expenses) which
may be paid for an ordinary share purchased or acquired by us pursuant
to the mandate contained in paragraph (a) above shall not exceed:
(i) in the case of a market purchase of an ordinary share, one
hundred and five percent (105%) of the Average Closing Price of
our ordinary shares; and
(ii) in the case of an off-market purchase pursuant to an equal access
scheme, one hundred and ten percent (110%) of the Average Closing
Price of our ordinary shares.
For the above purposes, the term Average Closing Price means the
average of the last dealt prices of an ordinary share for the five
consecutive trading days on which our ordinary shares are transacted
on the Nasdaq National Market or, as the case may be, any other
securities exchange on which our ordinary shares may for the time
being be listed and quoted , immediately preceding the date of the
market purchase by us or, as the case may be, the date of the making
of the offer pursuant to the off-market purchase. The date of the
making of the offer refers to the date on which we announce our
intention to make an offer for the purchase or acquisition of ordinary
shares from holders of our ordinary shares, stating therein the
purchase price (which shall not be more than the maximum purchase
price calculated on the foregoing basis) for each ordinary share and
the relevant terms of the equal access scheme for effecting the
off-market purchase; and
(d) our Directors and/or any of them be and are hereby authorized to
complete and do all such acts and things (including executing such
documents as may be required) as they and/or he may consider expedient
or necessary to give effect to the transactions contemplated and/or
authorized by this resolution.
AS ORDINARY BUSINESS
10. To transact any other business as may properly be transacted at any Annual
General Meeting.
The Board of Directors has fixed the close of business on July 2, 2002
as the record date for determining those shareholders who will be entitled to
receive copies of this Notice and accompanying proxy statement. However,
shareholders of record on August 29, 2002 will be entitled to vote at the Annual
General Meeting. A shareholder (member) entitled to attend and vote at the
Annual General Meeting is entitled to appoint a proxy to attend and vote on his
or her behalf. A proxy need not also be a shareholder (member). Representation
of at least 33 1/3% of all outstanding ordinary shares of Flextronics
International Ltd. is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. An instrument appointing a proxy
must be left at EquiServe L.P., P.O. Box 8040, Boston, MA 02266-8040, United
States of America, not less than 48 hours before the time appointed for holding
the meeting. Your proxy may be revoked at any time prior to the time it is
voted.
Only funds legally available for purchasing or acquiring our issued
ordinary shares in accordance with our Articles of Association and the
applicable laws of Singapore will be utilized for the purchase or acquisition
by us of our own issued ordinary shares pursuant to the proposed share purchase
mandate referred to in Proposal No. 9 above. We intend to use our internal
sources of funds to finance the purchase or acquisition of our issued ordinary
shares. The amount of financing required for us to purchase or acquire our
issued ordinary shares, and the impact on our financial position, cannot be
ascertained as at the date of this Notice as these will depend on the number of
ordinary shares purchased or acquired and the price at which such ordinary
shares are purchased or acquired. Our net tangible assets and the consolidated
net tangible assets of us and our subsidiaries will be reduced by the dollar
value of the ordinary shares purchased or acquired. The purchase or acquisition
of 10% of our issued ordinary shares as at the date of the Annual General
Meeting will not have any material impact on our consolidated earnings for the
current financial year.
By Order of the Board of Directors,
Bernard Liew Jin Yang
Yap Lune Teng
Joint Secretaries
Singapore
July __, 2002
SHAREHOLDERS SHOULD READ THIS ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES.
TABLE OF CONTENTS
PAGE
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Proxy Statement for Annual General Meeting of Shareholders of Flextronics International Ltd.:
Voting Rights and Solicitation of Proxies............................................................ 1
Proposals No. 1 and 2 -- Re-Election and Re-Appointment of Directors................................ 2
Executive Compensation........................................................................... 4
Summary Compensation Table.................................................................. 4
Option Grants in Fiscal 2002................................................................ 4
Aggregated Option Exercises in Fiscal 2002 and Option Values at March 31, 2002.............. 5
Employment Agreements with Executive Officers...............................................
Compensation Committee Interlocks and Insider Participation................................. 6
Compensation Committee Report on Executive Compensation.......................................... 6
Stock Price Performance Graph.................................................................... 8
Compliance Under Section 16(a) of the Securities Exchange Act of 1934............................ 9
Security Ownership of Certain Beneficial Owners and Management................................... 9
Certain Relationships and Related Transactions................................................... 11
Proposal No. 3 -- Receive and Adopt Audited Accounts................................................. 13
Proposal No. 4 -- Appointment of Independent Auditors................................................ 13
Audit Committee Report........................................................................... 14
Proposal No. 5 -- Amendment of 2001 Equity Incentive Plan............................................ 15
Proposal No. 6 -- Amendment of 1997 Employee Share Purchase Plan..................................... 20
Other Equity Compensation Plans.................................................................. 24
Proposal No. 7 -- Authorization of Board to Allot and Issue Shares and Grant Options................. 25
Proposal No. 8 -- Authorization of Distribution of Bonus Shares...................................... 25
Proposal No. 9 -- Authorization of Share Purchase Mandate............................................ 26
Shareholder Proposals for the 2003 Annual General Meeting............................................ 29
Other Matters........................................................................................ 29
Financial Statements...................................................................................... S-1
PROXY STATEMENT FOR
ANNUAL GENERAL MEETING OF
SHAREHOLDERS OF
FLEXTRONICS INTERNATIONAL LTD.
TO BE HELD ON AUGUST 29, 2002
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of Flextronics International Ltd. of proxies to be
voted at the Annual General Meeting, which will be held at 9:00 a.m., Pacific
Daylight Time (PDT), on August 29, 2002 at our principal offices located at 2090
Fortune Drive, San Jose, California in the United States of America, or at any
adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual General Meeting. This proxy statement and the
included proxy card were first mailed to shareholders of record on or about July
__, 2002. The entire cost of soliciting proxies will be borne by us. Following
the original mailing of the proxies and other soliciting materials, we and/or
our agents may also solicit proxies by mail, telephone, telegraph or in person.
Following the original mailing of the proxies and other soliciting materials, we
will request that brokers, custodians, nominees and other record holders of our
ordinary shares forward copies of the proxy and other soliciting materials to
persons for whom they hold ordinary shares and request authority for the
exercise of proxies. In these cases, we will reimburse the record holders for
their reasonable expenses if they ask us to do so. We have retained Georgeson
Shareholder, an independent proxy solicitation firm, to assist in soliciting
proxies at an estimated fee of $10,000 plus reimbursement of reasonable
expenses.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The close of business on July 2, 2002 was the record date for
shareholders entitled to notice of the Annual General Meeting. As of that date,
we had ___ ordinary shares, S$0.01 par value per share, issued and outstanding.
All of the ordinary shares issued and outstanding on August 29, 2002 are
entitled to vote at the Annual General Meeting, and shareholders of record on
August 29, 2002 entitled to vote at the meeting will on a poll have one vote for
each ordinary share so held on the matters to be voted upon.
Ordinary shares represented by proxies in the accompanying form which
are properly executed and returned to us will be voted at the Annual General
Meeting in accordance with the shareholders' instructions contained therein.
Representation of at least 33 1/3% of all issued and outstanding ordinary shares
is required to constitute a quorum. The affirmative vote by a show of hands of a
simple majority of the shareholders present and voting at the Annual General
Meeting, or if a poll is demanded by the chair or by any 10% or greater
shareholder in accordance with our Articles of Association, a simple majority of
the shares voting at the Annual General Meeting, is required to re-elect the
Directors nominated pursuant to Proposal No. 1, to approve Proposals No. 3 and
4, and to approve the ordinary resolutions in Proposals No. 7, 8 and 9. The
affirmative vote by a show of hands of a majority of not less than 75% of the
shareholders entitled to vote at the Annual General Meeting, or if a poll is
demanded, a majority of not less than 75% of the shares voting at the Annual
General Meeting, is required to approve Proposal No. 2. The affirmative vote of
a majority of the shares voting in person or by proxy at the Annual General
Meeting is required to approve Proposals No. 5 and 6. Abstentions and broker
non-votes are each included in the determination of the number of shares present
for quorum purposes. Neither abstentions nor broker non-votes are counted in
tabulations of the votes cast on proposals presented to shareholders.
In the absence of contrary instructions, shares represented by proxies
will be voted FOR Proposals No. 1 through 9. Management does not know of any
matters to be presented at this Annual General Meeting other than those set
forth in this proxy statement and in the Notice accompanying this proxy
statement. If other matters should properly come before the meeting, the proxy
holders will vote on such matters in accordance with their best judgment. Any
shareholder of record has the right to revoke his or her proxy at any time prior
to voting at the Annual General Meeting by submitting a subsequently dated proxy
or by attending the meeting and voting in person. To be effective, a proxy must
be deposited at EquiServe L.P., P.O. Box 8040, Boston, MA 02266-8040, United
States of America, at least 48 hours before the time set for the Annual General
Meeting.
1
We have prepared, in accordance with Singapore law, Singapore statutory
financial statements to be distributed as part of this proxy statement. Except
as otherwise stated herein, all monetary amounts in this proxy statement have
been presented in U.S. dollars.
PROPOSALS NO. 1 AND 2:
RE-ELECTION AND RE-APPOINTMENT OF DIRECTORS
Under Article 95 of our Articles of Association, at each Annual General
Meeting, at least one-third of the Directors, or, if their number is not a
multiple of three, then the number nearest to but not less than one-third of the
Directors, are required to retire from office. The Directors required to retire
in each year are those who have been in office longest since their last
re-election or appointment. As between persons who became or were last
re-elected Directors on the same day, those required to retire are (unless they
otherwise agree among themselves) determined by lot. Retiring Directors are
eligible for re-election. Mr. Marks and Mr. Moritz are the two members of the
Board of Directors who will retire by rotation in the manner stated above. They
are eligible for re-election and have been nominated to stand for re-election at
the 2002 Annual General Meeting.
Under Section 153(2) of the Companies Act, Cap. 50, the office of a
director of a public company or of a subsidiary of a public company becomes
vacant at the conclusion of the Annual General Meeting commencing after such
director attains the age of 70 years. However, under Section 153(6), a person of
or over the age of 70 years may, by resolution be appointed or re-appointed as a
director of that company to hold office until the next annual general meeting of
the company or be authorized to continue in office as a director until the next
annual general meeting of the company. Notice of such resolution must be duly
given within the period of time required for notice to be given to the members
of the company of an annual general meeting. Such resolution must be passed by a
majority of not less than 75% of such shareholders (members) of the company as
are entitled to and do vote, in person or, where proxies are allowed, by proxy,
at a general meeting of that company. Mr. Foley turned 70 in 2002, and, under
Singapore law, his office as a Director will therefore become vacant at the
conclusion of the 2002 Annual General Meeting. It is accordingly proposed that a
resolution be passed at the 2002 Annual General Meeting, pursuant to Section
153(6) of the Companies Act, Cap. 50, to re-appoint Mr. Foley as a Director to
hold office from the date of the 2002 Annual General Meeting until the 2003
Annual General Meeting.
The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for Directors listed below. In the event any
nominee is unable or declines to serve as a Director at the time of the Annual
General Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors, in accordance with Article 100 of
our Articles of Association, to fill the vacancy. In the event that additional
persons are nominated for election as Directors, in accordance with Article 100
of our Articles of Association, the proxy holders intend to vote all proxies
received by them for the nominees listed below. As of the date of this proxy
statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as a Director.
NOMINEES TO BOARD OF DIRECTORS
Michael E. Marks (age 51) -- Mr. Marks has served as our Chief
Executive Officer since January 1994. He has served as a member of our Board of
Directors since December 1991 and as Chairman of our Board since July 1993. He
received a B.A. and M.A. from Oberlin College and a M.B.A. from Harvard Business
School.
Michael J. Moritz (age 47) -- Mr. Moritz has served as a member of our
Board of Directors since July 1993. Since 1988, he has been a General Partner of
Sequoia Capital, a venture capital firm. Mr. Moritz also serves as a director of
Yahoo! Inc., PayPal Inc., Saba Software and several privately-held companies.
Patrick Foley (age 70) -- Mr. Foley has served as a member of our Board
of Directors since October 1997. Mr. Foley served in various positions with DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company from September 1988 to 2001,
most recently as its Chairman, President and Chief Executive Officer. He also
serves as a director of Continental Airlines, Inc., Del Monte Corporation,
Foundation Health Systems, Inc., and Glenborough Realty Trust, Inc.
DIRECTORS NOT STANDING FOR RE-ELECTION
2
Goh Thiam Poh Tommie (age 51) -- Mr. Goh has been a member of our Board
of Directors since December 2000. He founded JIT Electronics Pte Ltd in 1988,
which we acquired in November 2000.
Richard L. Sharp (age 55) -- Mr. Sharp has served as a member of our
Board of Directors since July 1993. Mr. Sharp served in various positions with
Circuit City Stores, Inc., a consumer electronics and personal computer, from
1982 to 2002. Mr. Sharp joined Circuit City as an Executive Vice President in
1982. He was President from 1984 to 1997, Chief Executive Officer from 1986 to
2000 and Chairman of the Board from 1994 to 2002.
RESIGNING DIRECTOR
Mr. Chuen Fah Alain Ahkong has tendered his resignation from our Board
of Directors, and our Board has accepted his resignation effective as of August
29, 2002, the date of our Annual General Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" THE
RE-ELECTION OF MR. MARKS AND MR. MORITZ
AND THE RE-APPOINTMENT OF MR. FOLEY
TO THE BOARD OF DIRECTORS
BOARD AND COMMITTEE MEETINGS
Our Board of Directors held a total of 48 administrative meetings and
one regularly scheduled meeting during fiscal 2002. During the period for which
each current director was a director or a committee member, all directors
attended at least 75% of the aggregate of the total number of regularly
scheduled meetings of the Board together with the total number of meetings held
by all committees of the Board on which he served. Only Mr. Marks and Mr. Moritz
attended 75% of the aggregate of the total number of administrative meetings of
the board.
The Board of Directors has an Audit Committee, a Compensation Committee
and a Finance Committee. The Board does not have a nominating committee or other
committee performing similar functions.
Audit Committee. The Audit Committee is currently composed of Mr.
Foley, Mr. Moritz and Mr. Ahkong. Mr. Ahkong will serve on the Audit Committee
until his resignation on the date of our Annual General Meeting. At that time,
we expect that Mr. Goh will be appointed to serve on the Audit Committee. Our
audit committee reviews and monitors our financial statements and accounting
practices, makes recommendations to our board regarding the selection of
independent auditors and reviews the results and scope of audits and other
services provided by our independent auditors. The Audit Committee held four
meetings in fiscal 2002.
Compensation Committee. The Compensation Committee is currently
composed of Mr. Sharp and Mr. Moritz. The Compensation Committee recommends to
the Board of Directors compensation for our key employees and administers the
employee share option plans. The Compensation Committee held two meetings in
fiscal 2002.
Finance Committee. The Finance Committee is currently composed of Mr.
Marks and Mr. Moritz. The Finance Committee reviews and approves various
financial matters that are not reserved to the Board of Directors. The Finance
Committee held 32 meetings in fiscal 2002.
DIRECTOR COMPENSATION
Each individual who first becomes a non-employee Board member is
granted a stock option to purchase 20,000 ordinary shares, pursuant to our 2001
Plan. After this initial grant, pursuant to the terms of the automatic option
grant provisions of the 2001 Plan, on the date of each Annual General Meeting,
each individual who is at that time serving as a non-employee director receives
options to subscribe for 6,000 ordinary shares. Pursuant to this program, Mr.
Ahkong, Mr. Goh, Mr. Moritz, Mr. Sharp and Mr. Foley each received option grants
for 6,000 ordinary shares in fiscal 2002. If Proposal No. 5 is approved by our
shareholders, individuals who first become non-employee directors will
automatically receive options to subscribe for 25,000 ordinary shares and
eligible continuing directors will automatically annually receive options to
subscribe for 12,500 ordinary shares on the date of each Annual General Meeting,
including the 2002 Annual General Meeting.
3
In addition, all directors receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors. No non-employee director receives any cash compensation for services
rendered as a director. No director who is our employee receives compensation
for services rendered as a director.
EXECUTIVE COMPENSATION
The following table presents information concerning the compensation
paid or accrued by us for services rendered during fiscal 2002, 2001 and 2000 by
our Chief Executive Officer and each of our four other most highly compensated
executive officers whose total salary and bonus for fiscal 2002 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------------ ------- ------------
Michael E. Marks.................... 2002 $266,528 $ -- $ 5,008(2) 600,000 $5,113(6)
Chairman and 2001 600,000 1,285,000 5,082(2) 1,036,456 8,627(7)
Chief Executive Officer 2000 450,000 363,750 230,385(3) 600,000 8,350(8)
Ronny Nilsson....................... 2002 378,501 -- 28,472(4) 158,333 31,027(9)
President, Flextronics Network 2001 362,545 405,350 10,154(2) 200,000 33,614(9)
Services 2000 317,684 129,563 17,436(5) 160,000 34,884(9)
Michael McNamara ................... 2002 243,750 -- 3,868(2) 400,000 2,639(10)
President, Americas Operations 2001 450,000 831,250 3,925(2) 600,000 4,702(11)
2000 375,000 201,250 3,867(2) 600,000 4,750(11)
Robert R.B. Dykes .................. 2002 202,965 -- 4,600(2) 316,667 3,541(12)
President, Systems Group and 2001 425,000 798,125 4,668(2) 400,000 5,329(11)
Chief Financial Officer 2000 337,500 156,000 4,599(2) 240,000 3,500(11)
Ronald R. Snyder(1)................. 2002 167,148 -- 4,200(2) 266,667 90(13)
President, Flextronics Design 2001 358,057 560,613 7,700(2) 284,000 45(13)
Services 2000 -- -- -- -- --
(1) Mr. Snyder joined us in April 2001, following our acquisition of the DII
Group Inc.
(2) Represents a vehicle allowance.
(3) Represents a vehicle allowance of $3,868 and foregiveness of a promissory
note due to one of our subsidiaries of $200,000 and foregiveness of
interest payment of $26,517 on the promissory note.
(4) Represents a vehicle allowance of $ 8,667 and forgiveness of interest
payment of $19,805 on a promissory note due to one of our subsidiaries.
(5) Represents a vehicle allowance of $10,166 and an apartment allowance of
$7,270.
(6) Represents our contributions to the 401(k) plan of $2,574 and life
insurance premium payments of $2,539.
(7) Represents our contributions to the 401(k) plan of $4,750 and life
insurance premium payments of $3,877
(8) Represents our contributions to the 401(k) plan of $4,750 and life
insurance premium payments of $3,600.
(9) Represents our contributions to a pension retirement fund.
(10) Represents our contributions to the 401(k) plan of $2,574 and life
insurance premium payments of $65.
(11) Represents our contributions to the 401(k) plan.
(12) Represents our contributions to the 401(k) plan of $1,109, life insurance
premium payments of $138 and spousal health insurance premium payments of
$2,294.
(13) Represents life insurance premium payments.
OPTION GRANTS IN FISCAL 2002
4
The following table presents information regarding option grants during
fiscal 2002 to our Chief Executive Officer and each of our four other most
highly compensated executive officers. All options were granted pursuant to our
1993 Share Option Plan.
The options shown in the table were granted at fair market value and
are incentive stock options (to the extent permitted under the Internal Revenue
Code). Options granted after October 1, 2000 generally expire ten years from the
date of grant, subject to earlier termination upon termination of the optionee's
employment. The options granted to Mr. Nilsson will expire four years from the
date of grant.
Options granted in September 2001 were awarded in lieu of the
optionee's annual salary and bonus compensation. These options become
exercisable over a one-year period, with 1/12th of the shares vesting for each
full calendar month that the optionee renders services to us thereafter. Options
granted in October 2001 become exercisable over a four-year period, with 25% of
the shares vesting on the first anniversary of the date of grant and 1/36th of
the remaining shares vesting for each full calendar month that the optionee
renders services to us thereafter. See "Change in Control Arrangements" below
for a description of the acceleration provisions of these options. The exercise
price of each option may be paid in cash or through a cashless exercise
procedure involving a same-day sale of the purchase shares. We granted options
to purchase an aggregate of 8,979,567 ordinary shares to our employees during
fiscal 2002.
In accordance with the rules of the Securities and Exchange Commission,
the table presents the potential realizable values that would exist for the
options at the end of their four- or ten-year terms, as the case may be. These
values are based on assumed rates of annual compound stock price appreciation of
5% and 10% from the date the option was granted to the end of the option term.
Potential realizable values are based on assumed annual rates of return mandated
by rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future ordinary share prices. The closing sale price
per ordinary share as reported on the Nasdaq National Market on March 28, 2002,
the last trading day of fiscal 2002, was $18.25.
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION FOR OPTION TERM
NAME GRANTED FISCAL 2002 SHARE DATE 5% 10%
---- ------- ----------- ----- ---- -- ---
Michael E. Marks........... 200,000 2.2% $13.98 09/21/2011 $1,758,389 $4,456,104
400,000 4.5 15.90 10/01/2011 3,999,770 10,136,202
Ronny Nilsson.............. 33,333 0.4 13.98 09/21/2005 100,425 216,268
125,000 1.4 15.90 10/01/2005 428,319 922,399
Michael McNamara........... 150,000 1.7 13.98 09/21/2011 1,318,792 3,342,078
250,000 2.8 15.90 10/01/2011 2,499,856 6,335,126
Robert R.B. Dykes.......... 141,667 1.6 13.98 09/21/2011 1,245,529 3,156,414
175,000 2.0 15.90 10/01/2011 1,749,899 4,434,588
Ronald R. Snyder........... 116,667 1.3 13.98 09/21/2011 1,025,730 2,599,401
150,000 1.7 15.90 10/01/2011 1,499,914 3,801,076
AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND OPTION VALUES AT MARCH 31, 2002
The following table presents information concerning the exercise of
options during fiscal 2002 by our Chief Executive Officer and each of our four
other most highly compensated executive officers. The amounts set forth in the
column entitled "Value Realized" represent the fair market value of the ordinary
shares underlying the option on the date of exercise less the aggregate exercise
price of the option.
In addition, the table includes the number of shares covered by both
exercisable and unexercisable stock options as of March 31, 2002. Also reported
are values of "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding stock options and $18.25 per
share, which was the closing price per ordinary share as reported on the Nasdaq
National Market on March 28, 2002, the last day of trading for fiscal 2002.
These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized.
5
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED MARCH 31, 2002 MARCH 31, 2002
NAME ON EXERCISE VALUE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------------- ------ -------- ------ --------
Michael E. Marks .......... 3,320,206 $65,654,794 1,058,329 1,891,671 $13,611,379 $21,976,121
Ronny Nilsson ............. 510,000 11,653,380 531,666 16,667 6,052,905 304,173
Michael McNamara .......... 2,664 50,779 2,537,927 1,186,503 42,895,293 14,125,555
Robert R.B. Dykes ......... 130,000 3,292,432 1,416,832 676,669 23,575,934 7,330,459
Ronald R. Snyder .......... -- -- 553,330 427,085 8,615,460 3,802,114
CHANGE IN CONTROL ARRANGEMENTS
In August 2001, the Compensation Committee of our Board of Directors
approved the amendment of the outstanding options that we have granted to our
executive officers to provide that if the executive officer is terminated
without cause or leaves for good reason within the first 12 months following a
change in control transaction, the vesting of any unvested portion of the option
will be accelerated in full, or if the executive officer is still employed upon
the first year anniversary of such a change of control, the vesting of any
unvested portion of the option will be accelerated in full. We anticipate that
in the future, option agreements with our executive officers may contain similar
acceleration provisions. Each option includes a limited stock appreciation right
pursuant to which the option will automatically be canceled upon the occurrence
of certain hostile tender offers, in return for a cash distribution from us
based on the tender offer price per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of our Board of Directors
during fiscal 2002 were Mr. Sharp and Mr. Moritz. None of our executive officers
serve on our Compensation Committee. No interlocking relationships exist between
our Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of our
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 which might incorporate this proxy statement by reference to future
filings under those statutes, the following Compensation Committee Report on
Executive Compensation will not be incorporated by reference into any of those
previous filings; nor will such report be incorporated by reference into any
future filings made by us under those statutes.
The Compensation Committee of the Board of Directors sets the base
salaries and approves individual bonus programs for our executive officers and
authorizes option grants to our executive officers. The Compensation Committee
has complete discretion in establishing the terms of option grants to executive
officers.
Each member of the Compensation Committee is a non-employee director
within the meaning of Section 16 of the Securities Exchange Act of 1934 and an
outside director within the meaning of Section 162(m) of the Internal Revenue
Code. The current members of the Compensation Committee are Mr. Sharp and Mr.
Moritz. The following is a summary of the policies that affect the compensation
paid to executive officers, as reflected in the tables and text presented
elsewhere in this proxy statement.
General Compensation Policy. Our overall policy is to offer our
executive officers cash-based and equity-based compensation opportunities based
upon their personal performance, our financial performance and their
contribution to that performance. One of our primary objectives is to have a
significant portion of each officer's compensation contingent upon our
performance as well as upon his or her own level of performance. The principal
factors taken into account in establishing each executive officer's compensation
package are summarized below. Additional factors may be taken into account to a
lesser degree, and the relative weight given to each factor varies with each
individual at the discretion of the Compensation Committee. The Compensation
Committee may, at its
6
discretion, apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
Cash-Based Compensation. We set base salary for executive officers on
the basis of personal performance and internal and industry comparability
considerations. Bonuses are generally paid at the discretion of the Compensation
Committee. In determining the amount of the bonus to be paid to each executive
officer, including the Chief Executive Officer, we first establish a percentage
of the officer's base salary as a target bonus. The amount of the actual bonus
paid to the officer can be greater or less than this percentage, and depends on
our net income, the performance of our operations that are under the officer's
supervision and other performance factors, each as compared to budgeted
performance for the period. We also have a 401(k) retirement savings plan for
U.S. employees to which we can contribute a portion of profits and such
contribution is allocated to eligible participants in proportion to their total
compensation for the year relative to the total aggregate compensation for all
eligible participants.
Long-Term Equity-Based Compensation. The Compensation Committee grants
stock options, which are designed to align the interests of our executive
officers with those of the shareholders and provide each individual with a
significant incentive to manage our company from the perspective of an owner,
with an equity stake in the business. Each grant generally allows the officer to
acquire our ordinary shares at a fixed price per share (the market price on the
grant date) over a period of up to ten years, thus providing a return to the
officer only if he or she remains in our employ and the market price of the
shares appreciates over the option term. The size of the option grant to each
executive officer generally is set at a level that is intended to create a
meaningful opportunity for share ownership based upon the individual's current
position with us, but there is also taken into account the individual's
potential for future responsibility and promotion over the option term, the
individual's personal performance in recent periods and the number of options
held by the individual at the time of grant. The relative weight given to these
factors varies with each individual at the sole discretion of the Compensation
Committee.
Chief Executive Officer Compensation. Mr. Marks' base salary is based
on our expectation of his personal performance and comparisons to the base
salaries of our other executive officers and in the industry.
With respect to Mr. Marks' base salary, it is our intent to provide him
with a level of stability and certainty each year and not have this particular
component of compensation affected to any significant degree by short-term
company performance factors. In September 2001, the Compensation Committee
granted Mr. Marks options to purchase 200,000 ordinary shares at an exercise
price of $13.98 per share in lieu of part of his annual base salary. As a
result, Mr. Marks' base salary was reduced from $600,000 in fiscal 2001 to
$266,528 in fiscal 2002. In October 2001, the Compensation Committee granted Mr.
Marks options to purchase 400,000 ordinary shares at an exercise price of $15.90
per share. The Compensation Committee based its decision regarding the size of
the option grants to Mr. Marks on an analysis of option grants to Chief
Executive Officers in the industry with similar responsibilities. As with our
other executive officers, we also provided for the acceleration of all his
unvested options in the event that, following certain mergers or acquisitions by
us, Mr. Marks' employment with us is terminated or his duties are substantially
reduced or changed.
Deduction Limit for Executive Compensation. Section 162(m) of the
Internal Revenue Code limits federal income tax deductions for compensation paid
to the chief executive officer and the four other most highly compensated
officers of a public company to $1.0 million per year, but contains an exception
for performance-based compensation that satisfies certain conditions.
We believe that stock options granted to our executive officers qualify
for the performance-based exception to the deduction limit and because it is
unlikely that other compensation payable to any of our executive officers would
exceed the deduction limit in the near future, the Compensation Committee has
not yet qualified compensation other than options for the performance-based
exception. In approving the amount and form of compensation for our executive
officers, the Compensation Committee will continue to consider all elements of
cost to us of providing that compensation.
Submitted by the Compensation Committee
of the Board of Directors:
7
Richard L. Sharp
Michael J. Moritz
STOCK PRICE PERFORMANCE GRAPH
[PLOT POINTS]
FLEXTRONICS INTL LTD
Cumulative Total Return
---------------------------------------------------------------------------
3/96 3/97 3/98 3/99 3/00 3/01
FLEXTRONICS INTERNATIONAL LTD. 100.00 65.16 141.60 334.43 923.78 393.44
S & P 500 100.00 119.82 177.34 210.07 247.77 194.06
NEW PEER GROUP 100.00 141.00 221.39 425.33 889.99 428.29
OLD PEER GROUP 100.00 141.00 221.39 425.33 845.85 401.75
Notwithstanding anything to the contrary set forth in any of our
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 which might incorporate this proxy statement by reference to future
filings under those statutes, the following performance graph will not be
incorporated by reference into any of those previous filings; nor will such
performance graph be incorporated by reference into any future filings made by
us under those statutes.
The graph below compares the cumulative total shareholder return on our
ordinary shares, the Standard & Poor's 500 Stock Index and a peer group that
includes Benchmark Electronics, Inc., Celestica, Inc., Jabil Circuit, Inc.,
Sanmina-SCI Corporation and Solectron Corporation. In fiscal 2001, we compared
the return with a peer group that consisted of Celestica, Inc., Jabil Circuit,
Inc., Sanmina Corporation, SCI Systems, Inc., which was acquired by Sanmina
Corporation, and Solectron Corporation.
The graph assumes that $100 was invested in our ordinary shares, in the
Standard & Poor's 500 Stock Index and in the peer group described above on March
31, 1997 and reflects the annual return through March 31, 2002, assuming
dividend reinvestment.
The comparisons in the graph below are based on historical data and are
not indicative of, or intended to forecast, the possible future performances of
our ordinary shares.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG FLEXTRONICS INTERNATIONAL LTD., THE S&P 500 STOCK INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
* $100 invested on 3/31/97 in stock or index-including reinvestment of
dividends. Fiscal year ended March 31.
CUMULATIVE TOTAL RETURN
MARCH 31,
--------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Flextronics International Ltd...... $100.00 $217.30 $513.21 $1417.62 $603.77 $734.59
S&P 500............................ 100.00 148.00 175.32 206.78 161.95 162.35
New Peer Group..................... 100.00 162.63 357.02 694.22 350.42 251.17
Old Peer Group..................... 100.00 162.63 362.55 709.40 357.89 253.00
8
COMPLIANCE UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers, and persons who own more than 10% of our
ordinary shares to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and the Nasdaq National
Market. Such persons are required by Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such forms furnished to us and
written representations from our executive officers and directors, we believe
that all Section 16(a) filing requirements for the year ended March 31, 2002
were met with the exception of the following: Mr. Goh failed to timely file Form
4 for May 2001; Mr. Goh, Mr. McNamara and Mr. Moritz failed to timely file Forms
4 for August 2001; Mr. Marks failed to timely file a Form 4 for October 2001;
Mr. Marks and Mr. Nilsson failed to timely file Forms 4 for November 2001; and
Mr. Marks failed to timely file a Form 4 for December 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 1, 2002 regarding
the beneficial ownership of our ordinary shares, by:
- each shareholder known to us to be the beneficial owner of
more than 5% of our ordinary shares;
- each director;
- each executive officer named in the Summary Compensation
Table; and
- all directors and executive officers as a group.
Information in this table as to our directors and executive officers is
based upon information supplied by these individuals. Information in this table
as to our 5% shareholders is based solely upon the Schedules 13G filed by these
shareholders with the Securities and Exchange Commission. Where information
regarding shareholders is based on Schedules 13G, the number of shares owned is
as of the date for which information was provided in such schedules.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned by
any person who has voting or investment power with respect to such shares.
Ordinary shares subject to options that are currently exercisable or exercisable
within 60 days of June 1, 2002 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all the shares
beneficially owned, subject to community property laws where applicable.
In the table below, percentage ownership is based on 514,711,882
ordinary shares outstanding as of June 1, 2002.
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
------------------------------------ ---------------- -------
5% SHAREHOLDERS:
Entities associated with AXA Financial, Inc.(1) ....................... 71,873,802 14.0%
1290 Avenue of the Americas
New York, NY 10104
Janus Capital Corporation(2)........................................... 26,091,299 5.1
100 Fillmore Street
Denver, Colorado 80206-4923
EXECUTIVE OFFICERS AND DIRECTORS:
Richard L. Sharp(3) ................................................... 6,067,452 1.2
Goh Thiam Poh Tommie .................................................. 4,803,114 *
9
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
------------------------------------ ---------------- -------
Michael E. Marks(4) ................................................... 4,464,942 * %
Michael McNamara(5) ................................................... 3,437,863 *
Robert R.B. Dykes(6) .................................................. 1,772,077 *
Ronald R. Snyder(7) ................................................... 994,483 *
Ronny Nilsson(8) ...................................................... 857,777 *
Michael J. Moritz(9) .................................................. 460,932 *
Patrick Foley(10) ..................................................... 173,500 *
Chuen Fah Alain Ahkong(11) ............................................ 34,175 *
All 12 directors and executive officers as a group(12) ................ 23,809,753 4.6%
----------
* Less than 1%.
(1) Based on information supplied by AXA Financial, Inc. in an amended Schedule
13G filed with the Securities and Exchange Commission on February 12, 2002.
(2) Based on information supplied by Janus Capital Corporation in a Schedule
13G filed with the Securities and Exchange Commission on February 13, 2002.
(3) Includes 1,480,000 shares beneficially owned by Bethany Limited
Partnership. Mr. Sharp, the general partner of Bethany Limited Partnership,
has voting and investment power over such shares and may be deemed to
beneficially own such shares. Mr. Sharp disclaims beneficial ownership of
all such shares except to the extent of his proportionate interest
therein. Also includes 612,000 shares held by RLS Charitable Remainder
Unitrust of which Mr. Sharp is a co-trustee and 77,500 shares subject to
options exercisable within 60 days of June 1, 2002 held by Mr. Sharp.
(4) Includes 48,000 shares held by trusts for Mr. Marks' minor children. Also
includes 1,524,998 shares subject to options exercisable within 60 days of
June 1, 2002.
(5) Includes 351,728 shares acquired upon exercise of options on June 4, 2002.
Includes 2,472,701 additional shares subject to options exercisable within
60 days of June 1, 2002.
(6) Includes 670,000 shares acquired upon exercise of options on June 4, 2002.
Includes 883,222 additional shares subject to options exercisable within
60 days of June 1, 2002 held by Mr. Dykes. Includes shares and options
held by partnerships owned and controlled by Mr. Dykes.
(7) Includes 650,553 shares subject to options exercisable within 60 days of
June 1, 2002.
(8) Includes 522,777 shares subject to options exercisable within 60 days of
June 1, 2002.
(9) Includes 383,432 shares held by the Maximus Trust. Also includes 77,500
shares subject to options exercisable within 60 days of June 1, 2002 held
by Mr. Moritz.
(10) Represents 173,500 shares subject to options exercisable within 60 days of
June 1, 2002.
(11) Represents 34,175 shares subject to options exercisable within 60 days of
June 1, 2002.
(12) Includes 7,013,886 shares subject to options exercisable within 60 days of
June 1, 2002.
10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than compensation agreements and other arrangements, which are
described in "Executive Compensation," and the transactions described below,
during fiscal 2002, there was not, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000;
and
- in which any director, executive officer, holder of more than
5% of our ordinary shares or any member of their immediate
family had or will have a direct or indirect material
interest.
LOANS TO EXECUTIVE OFFICERS
Mr. McNamara.
On November 25, 1998, one of our subsidiaries, Flextronics
International USA, Inc., which we refer to in this section as Flextronics USA,
loaned $130,000 to Mr. McNamara. Mr. McNamara executed a promissory note in
favor of Flextronics USA that bears interest at a rate of 7.25% per year and
matures on November 25, 2003. The remaining outstanding balance of the loan as
of March 31, 2002 was $156,427 (representing $130,000 in principal and $26,427
in accrued interest).
On October 11, 2000, Flextronics USA loaned $152,236 to Mr. McNamara.
This represented the principal and interest then due on a loan previously made
to Mr. McNamara on October 22, 1996, which loan was canceled at that time. Mr.
McNamara executed a promissory note in favor of Flextronics USA that bears
interest compounded quarterly at a rate of 5.96% per year and matures on
November 11, 2003. The remaining outstanding balance of the loan as of March 31,
2002 was $165,745 (representing $152,236 in principal and $13,509 in accrued
interest).
On May 3, 2001, Flextronics USA loaned $1,095,977 to Mr. McNamara. This
represented the principal and interest then due on a loan previously made to Mr.
McNamara on April 14, 1999, which loan was canceled at that time. Mr. McNamara
executed a promissory note in favor of Flextronics USA that bears interest
compounded quarterly at a rate of 4.19% per year and matures on May 3, 2003. The
remaining outstanding balance of the loan as of March 31, 2002 was $1,137,800
(representing $1,095,977 in principal and $41,823 in accrued interest).
On December 12, 2001, Flextronics USA loaned $6,000,000 to Mr.
McNamara. Mr. McNamara executed a promissory note in favor of Flextronics USA
that bears interest at a rate of 2.48% per year and matures on December 1, 2004.
The remaining outstanding balance of the loan as of March 31, 2002 was
$6,044,844 (representing $6,000,000 in principal and $44,844 in accrued
interest).
On February 11, 2002, Flextronics USA loaned $187,550 to Mr. McNamara.
Mr. McNamara executed a promissory note in favor of Flextronics USA that bears
interest compounded semi-annually at a rate of 3.53% per year and matures on
May 11, 2002. The remaining outstanding balance of the loan as of March 31, 2002
was $188,439 (representing $187,550 in principal and $889 in accrued interest).
On May 31, 2002, Flextronics USA loaned $1,022,227 to Mr. McNamara. Mr.
McNamara executed a Loan and Security Agreement and a promissory note in favor
of Flextronics USA that bears interest at a rate of 3.21% and matures on May 31,
2003.
Mr. Nilsson.
On January 24, 2000, Flextronics International Ltd. loaned Swedish
Kronor 3,200,000 to Mr. Ronny Nilsson. Mr. Nilsson executed a promissory note in
favor of Flextronics International Ltd. that bore interest at a rate of 4.50%
per year and matured on March 31, 2002. In fiscal 2002, Mr. Nilsson paid the
principal in full and accrued interest on the loan of $19,805 was forgiven.
11
On May 4, 2001, one of our subsidiaries, Flextronics International
N.V., loaned $973,610 to Mr. Nilsson. Mr. Nilsson executed a promissory note in
favor of Flextronics International N.V. that bears interest compounded quarterly
at a rate of 4.19% per year and matures on May 4, 2002. The remaining
outstanding balance of the loan as of March 31, 2002 was $1,010,716
(representing $973,610 in principal and $37,106 in accrued interest).
Mr. Dykes.
On May 29, 2002, Flextronics USA loaned $1,947,221 to Mr. Robert R.B.
Dykes. Mr. Dykes executed a Loan and Security Agreement and a promissory note in
favor of Flextronics USA that bears interest at a rate of 5.85% per year and
matures on May 29, 2006.
Mr. Smach.
On April 3, 2000, Flextronics USA loaned $1,000,000 to Mr. Thomas J.
Smach. Mr. Smach executed a Loan and Security Agreement and a promissory note in
favor of Flextronics USA that does not bear interest and matures on April 3,
2005. The remaining outstanding balance of the loan as of March 31, 2002 was
$1,000,000 in principal.
OTHER LOANS TO EXECUTIVE OFFICERS
In connection with an investment partnership of our executive officers,
Glouple Ventures LLC, one of our subsidiaries, Flextronics International, NV,
which we refer to in this section as Flextronics NV, has entered into the
following transactions with our executive officers.
- in July 2000, Flextronics NV loaned $76,922 to each of Messrs.
Dykes, Marks, McNamara, Nilsson, Smach and Snyder, and each
executed a promissory note in favor of Flextronics NV that
bears interest at a rate of 6.40% and matures on August 15,
2010;
- in August 2000, Flextronics NV loaned an aggregate of $51,157
to each of Messrs. Dykes, Marks, McNamara, Nilsson, Smach and
Snyder, and each executed promissory notes in favor of
Flextronics NV that bear interest at a rate of 6.22% and
mature on August 15, 2010;
- in November 2000, Flextronics NV loaned an aggregate of
$428,286 to each of Messrs. Dykes, Marks, McNamara, Nilsson,
Smach and Snyder, and each executed promissory notes in favor
of Flextronics NV that bear interest at a rate of 6.09% and
mature on August 15, 2010;
- in August 2001, Flextronics NV loaned an aggregate of $71,429
to each of Messrs. Dykes, Marks, McNamara, Nilsson, Smach and
Snyder, and each executed a promissory note in favor of
Flextronics NV that bears interest at a rate of 5.72% and
matures on August 15, 2010;
- in November 2001, Flextronics NV loaned an aggregate of
$58,298 to each of Messrs. Dykes, Marks, McNamara, Nilsson,
Smach and Snyder, and each executed a promissory note in favor
of Flextronics NV that bears interest at a rate of 5.05% and
matures on August 15, 2010; and
- in December 2001, Flextronics NV loaned an aggregate of $7,692
to each of Messrs. Dykes, Marks, McNamara, Nilsson, Smach and
Snyder, and each executed a promissory note in favor of
Flextronics NV that bears interest at a rate of 5.05% and
matures on August 15, 2010
As of March 31, 2002, the entire principal amount of these loans from
Flextronics NV, together with $313,734 of accrued interest, was outstanding. We
do not intend for any further loans to be made by Flextronics NV to our
executive officers.
12
INVESTMENT IN SOFTCHAIN
During fiscal 2002, we and Glouple Ventures, invested a total of $2.5
million in convertible promissory notes of SoftChain, Inc., a private company.
These notes are convertible into the capital stock of SoftChain. During fiscal
2002, we also acquired a license from SoftChain to use its supply chain
software. Mr. Dykes is a director of SoftChain and holds approximately 16% of
the capital stock of SoftChain on a fully-diluted basis. In addition, members of
Mr. Dykes' family hold approximately 1% of the capital stock of SoftChain on a
fully-diluted basis.
PROPOSAL NO. 3:
TO RECEIVE AND ADOPT OUR AUDITED ACCOUNTS,
INCLUDING THE REPORTS OF THE DIRECTORS AND AUDITORS
Our Annual Report on Form 10-K for the fiscal year ended March 31, 2002
accompanies this proxy statement. The Annual Report on Form 10-K includes our
consolidated financial statements, prepared in conformity with generally
accepted accounting principles in the United States, or U.S. GAAP. Our Singapore
statutory financial statements, prepared in conformity with the provisions of
the Singapore Companies Act, is included in this proxy statement. The U.S. GAAP
financial statements and the Singapore statutory financial statements are
accompanied by Auditors' Reports of Arthur Andersen LLP, our independent
auditors for the fiscal year ended March 31, 2002. We publish our U.S. GAAP
financial statements in U.S. dollars, which is the principal currency in which
we conduct our business. Our Singapore statutory financial statements have been
prepared and circulated to shareholders as a part of this proxy statement as
required by Singapore law.
THE BOARD RECOMMENDS A VOTE "FOR" THE RECEIPT AND ADOPTION OF
OUR U.S. GAAP FINANCIAL STATEMENTS AND
SINGAPORE STATUTORY FINANCIAL STATEMENTS,
INCLUDING THE AUDITORS' REPORTS INCLUDED THEREIN AND
THE DIRECTORS' REPORT INCLUDED IN
THE SINGAPORE STATUTORY FINANCIAL STATEMENTS.
PROPOSAL NO. 4:
APPOINTMENT OF INDEPENDENT AUDITORS AND
AUTHORIZATION OF BOARD TO FIX THEIR REMUNERATION
The Board of Directors intends to engage Deloitte & Touche LLP as
independent auditors to audit our accounts and records for the fiscal year
ending March 31, 2003, and to perform other appropriate services. We expect that
a representative from Deloitte & Touche LLP will be present at the 2002 Annual
General Meeting. Such representative will have the opportunity to make a
statement if he so desires and is expected to be available to respond to
appropriate questions.
On May 3, 2002, the Audit Committee of our Board of Directors
determined that it would replace Arthur Andersen LLP as our independent auditors
and resolved, subject to shareholder approval, to appoint Deloitte & Touche LLP
as our independent auditors for the fiscal year ending March 31, 2003. For
Singapore statutory law purposes, the appointment of Deloitte & Touche LLP is
subject to shareholder approval at the 2002 Annual General Meeting. A notice
of nomination of the proposed new auditors, Deloitte & Touche LLP, given by one
of our shareholders is enclosed with this proxy statement, as required by
Singapore law.
The report of Arthur Andersen LLP for the fiscal years ended March 31,
2002 and March 31, 2001 did not contain an adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the fiscal years ended March 31, 2002 and March
31, 2001 and the interim period from April 1, 2002 through May 3, 2002, there
were no disagreements between us and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if
13
not resolved to the satisfaction of Arthur Andersen LLP would have caused it to
make reference to the subject matter of the disagreement in connection with its
report. No reportable event, as described in Item 304(a)(1)(v) of Regulation
S-K, has occurred during our fiscal years ended March 31, 2002 and March 31,
2001 or the interim period from April 1, 2002 through May 3, 2002.
During the fiscal years ended March 31, 2002 and March 31, 2001 and the
interim period from April 1, 2002 through May 3, 2002, we did not consult with
Deloitte & Touche LLP on (i) either the application of accounting principles to
a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, and neither a
written report nor oral advice was provided to us that Deloitte & Touche LLP
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) the subject of
any disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and the
related instructions, or reportable event.
THE BOARD RECOMMENDS A VOTE "FOR" THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR FISCAL 2003 IN PLACE OF ARTHUR ANDERSEN LLP
AND AUTHORIZATION FOR THE BOARD TO FIX THEIR REMUNERATION.
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board of Directors in overseeing of
Flextronics' financial accounting and reporting processes and systems of
internal controls. The committee also evaluates the performance and independence
of Flextronics' independent auditors. The Audit Committee operates under a
written charter. Under the written charter, the Audit Committee consists of at
least three directors, a majority of whom are not officers or employees of
Flextronics. The current members of the committee are Mr. Ahkong, Mr. Foley and
Mr. Moritz. Each is an "independent" director as defined by the rules of the
Nasdaq National Market.
Flextronics' financial and senior management supervise its systems of
internal controls and the financial reporting process. Flextronics' independent
auditors perform an independent audit of Flextronics' consolidated financial
statements in accordance with generally accepted accounting principles in the
United States and issue a report on these consolidated financial statements. The
Audit Committee monitors these processes.
The Audit Committee has reviewed Flextronics' audited consolidated
financial statements for the fiscal year ended March 31, 2002 and has met with
both the management of Flextronics and its independent auditors to discuss the
consolidated financial statements. Flextronics' management represented to the
Audit Committee that its audited consolidated financial statements were prepared
in accordance with generally accepted accounting principles in the United
States.
The Audit Committee also discussed with Flextronics' independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees. The Audit Committee has also
received from Flextronics' independent auditors the written disclosures and
letter required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed with Flextronics'
independent auditors the independence of that firm. The Audit Committee has also
considered whether the provision of non-audit services by Flextronics'
independent auditors is compatible with maintaining the independence of the
independent auditors.
Based on the Audit Committee's discussions with the management of
Flextronics and Flextronics' independent auditors and based on the Audit
Committee's review of Flextronics' audited consolidated financial statements
together with the report of Flextronics' independent auditors on the
consolidated financial statements and the representations of Flextronics'
management with regard to these consolidated financial statements, the Audit
Committee recommended to Flextronics' Board of Directors that the audited
consolidated financial statements be included in Flextronics' Annual Report on
Form 10-K for the fiscal year ended March 31, 2002, filed with the Securities
and Exchange Commission on May 3, 2002.
14
During the fiscal year ended March 31, 2002, the aggregate fees billed
by Arthur Andersen LLP, Flextronics' auditors during fiscal 2002, for
professional services were as follows:
- Audit Fees. The aggregate fees billed by Arthur Andersen LLP
for professional services rendered for the audit of
Flextronics' annual consolidated financial statements for the
fiscal year ended March 31, 2002 including all statutory
audits required for Flextronics' subsidiaries and for the
review of the consolidated financial statements included in
Flextronics' Forms 10-Q for the fiscal year ended March 31,
2002 were approximately $3,600,000;
- Financial Information Systems Design and Implementation Fees.
There were no fees billed by Arthur Andersen LLP for
professional services rendered for financial information
systems design and implementation for the fiscal year ended
March 31, 2002; and
- All Other Fees. The aggregate fees billed by Arthur Andersen
LLP for services other than those described above for the
fiscal year ended March 31, 2002 totaled approximately
$5,900,000, including audit-related fees of $1,600,000 and
other fees of $4,300,000. Audit-related fees included benefit
plan audits, acquisition-related due diligence, accounting
consultation, various attest services under professional
standards, assistance with registration statements, comfort
letters and consents. Other fees were primarily for tax
services performed worldwide.
Submitted by the Audit
Committee of the Board of
Directors:
Chuen Fah Alain Ahkong
Patrick Foley
Michael J. Moritz
PROPOSAL NO. 5:
ORDINARY RESOLUTION TO APPROVE THE INCREASE IN THE NUMBER OF ORDINARY
SHARES AUTHORIZED FOR ISSUANCE UNDER THE 2001 EQUITY INCENTIVE PLAN
Our shareholders are being asked to approve an amendment to our 2001
Equity Incentive Plan, which was adopted by the Board of Directors and approved
by the shareholders in 2001, and which we refer to as the 2001 Plan, to provide
that:
(a) under the automatic option grant program of the 2001 Plan,
individuals who first become non-employee directors will
automatically receive options to subscribe for 25,000 ordinary
shares, rather than the 20,000 ordinary shares currently provided
for under the 2001 Plan, and eligible continuing directors will
automatically annually receive options to subscribe for 12,500
ordinary shares on the date of each Annual General Meeting,
including the 2002 Annual General Meeting, rather than the 6,000
ordinary shares currently provided for under the 2001 Plan; and
(b) under the discretionary option grant program of the 2001 Plan,
non-employee directors will be eligible to receive options to
purchase up to an aggregate of 100,000 ordinary shares per
calendar year, rather than the 50,000 ordinary shares currently
provided for under the 2001 Plan.
The Board believes these amendments are necessary for us to continue to
attract and retain the services of qualified non-employee directors. As of June
1, 2002, there were 6,096,787 ordinary shares available for issuance under the
2001 Plan.
15
2001 PLAN HISTORY
The Board of Directors adopted the 2001 Plan in August 2001 and our
shareholders approved the adoption in September 2001.
ORDINARY SHARES SUBJECT TO THE 2001 PLAN
The ordinary shares subject to issuance under the 2001 Plan consist of
our authorized but unissued ordinary shares. A total of 7,000,000 ordinary
shares have been reserved for issuance by the Board over the ten-year term of
the 2001 Plan plus ordinary shares that are subject to issuance upon exercise of
options granted under the 2001 Plan but that cease to be subject to such option
for any reason other than exercise or surrender of such option. In addition to
the ordinary shares reserved by the Board, subject to the terms of the 2001
Plan, the remaining ordinary shares that were available for issuance under our
1993 Share Option Plan and any ordinary shares issuable upon exercise of options
granted under our 1993 Share Option Plan that expire or become unexercisable for
any reason without having been exercised in full will be available for grant
under the 2001 Plan.
In no event may any one participant in the 2001 Plan be granted options
to purchase more than 4,000,000 ordinary shares in the aggregate per calendar
year under the 2001 Plan.
In the event any change is made to our outstanding ordinary shares by
reason of any recapitalization, bonus issue, stock split, combination of shares,
exchange of shares or other changes affecting the outstanding shares as a class
without our receipt of consideration, appropriate adjustments will be made to
the maximum number and/or class of securities issuable under the 2001 Plan, the
maximum number and/or class of securities for which any participant may be
granted options over the term of the 2001 Plan and the number and/or class of
securities and price per share in effect under each outstanding option, and the
class of securities for which automatic option grants are to be subsequently
made to newly elected or continuing non-employee directors.
ADMINISTRATION
The 2001 Plan contains two separate equity incentive programs,
including a discretionary option grant program and an automatic option grant
program. The discretionary option grant program is administered by the
Compensation Committee with respect to executive officers and directors and by
the Chairman of our Board, Mr. Marks, with respect to all other employees. The
Compensation Committee and the Chairman of the Board are referred to in this
section as the Plan Administrator. The Plan Administrator has complete
discretion, subject to the provisions of the 2001 Plan, to authorize option
grants under the 2001 Plan. However, all grants under the automatic option grant
program must be made in strict compliance with the provisions of that program,
and no administrative discretion can be exercised by the Plan Administrator with
respect to the grants made under that program.
ELIGIBILITY
Our executive officers, members of our Board of Directors, and all of
our employees and those of our subsidiaries and parents are eligible to
participate in the discretionary option grant program. Non-employee directors
are also eligible to participate in the automatic option grant program.
Non-employee directors may not participate in the automatic option grant program
if such participation is prohibited or restricted, either absolutely or subject
to various securities requirements, whether legal or administrative, then being
complied with in the jurisdiction in which such director is a resident.
Non-employee directors are eligible to receive options to purchase an aggregate
of 50,000 ordinary shares per calendar year. If this Proposal No. 5 is approved
by our shareholders, non-employee directors would be eligible to receive options
to purchase an aggregate of 100,000 ordinary shares per calendar year.
As of June 1, 2002 approximately 6 executive officers, 6 directors and
approximately 18,500 employees were eligible to participate in the 2001 Plan,
and 5 non-employee directors were eligible to participate in the automatic
option grant program.
16
TRANSFERABILITY
In general, awards granted under the 2001 Plan may not be transferred
in any manner other than by will or by the laws of descent and distribution.
Awards may be transferred to family members through a gift or domestic relations
order. Subject to applicable laws, certain optionees who reside outside of the
United States and Singapore may assign their award to a financial institution
located outside of the United States and Singapore.
EQUITY INCENTIVE PROGRAMS
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the discretionary option grant program at
an exercise price per share not less than 100% of the fair market value per
ordinary share on the option grant date. Each option granted under this program
are generally exercisable as determined by the Compensation Committee. Options
will not be exercisable more than ten years after the date of grant, and options
granted to non-employees will not be exercisable more than five years after the
date of grant.
Options granted under the 2001 Plan generally may be exercised as to
vested shares for a period of time after the termination of the option holder's
service to us or a parent or subsidiary. Generally, the Plan Administrator has
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
AUTOMATIC OPTION GRANT PROGRAM
Under the automatic option grant program, each individual who first
becomes a non-employee director, will automatically be granted at that time
stock options to purchase 20,000 ordinary shares. In addition, on the date of
each Annual General Meeting, individuals who first become non-employee directors
on that date automatically will be granted options to purchase 20,000 ordinary
shares, and continuing non-employee directors automatically will be granted
options to purchase 6,000 ordinary shares. If this Proposal No. 5 is approved by
our shareholders, following the effective date of the amendment to the 2001
Plan, the individuals who first become non-employee directors will automatically
receive options to subscribe for 25,000 ordinary shares and eligible continuing
directors will automatically annually receive options to subscribe for 12,500
ordinary shares.
Each option granted under this program must have an exercise price per
share equal to 100% of the fair market value per ordinary share on the grant
date and a maximum term of five years. Each option becomes exercisable as to 25%
of the total shares one year after the date of grant and as to 1/48 of the total
shares each month thereafter.
Each automatic option grant will automatically accelerate upon an
acquisition of us by merger or asset sale or a hostile change in control of us.
In addition, upon the successful completion of a hostile take-over, each
automatic option grant which has been outstanding for at least six months may be
surrendered to us for a cash distribution per surrendered option share in an
amount equal to the excess of (a) the take-over price per share over (b) the
exercise price payable for such share.
VALUATION
The fair market value per ordinary share on any relevant date under the
2001 Plan is the closing sales price per share on that date on the Nasdaq
National Market. As of June 14, 2002, the closing price of our ordinary shares
on the Nasdaq National Market was $9.54 per share.
ACCELERATION
17
Except for grants made under the automatic option grant program
described above, in the event of a dissolution or liquidation or if we are
acquired by merger or asset sale, each outstanding option under the
discretionary option grant program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of such transaction,
become fully exercisable with respect to the total number of shares then subject
to such option and may be exercised for all or any portion of such shares.
However, subject to the specific terms of an optionee's option agreement, an
outstanding option under the 2001 Plan shall not so accelerate if and to the
extent such option is either to be assumed or replaced with a comparable option
to purchase shares of the capital stock of the successor corporation or parent
thereof, such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
such transaction or the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The acceleration of vesting in the event of a change in the ownership
or control of us may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of us.
PAYMENT FOR OPTIONS
Option holders may pay the exercise price of vested, outstanding
options in cash, by executing a same-day sale, by cancellation of indebtedness ,
by conversion of a convertible note issued by us or through waiver of
compensation.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or modify the 2001 Plan in
any or all respects, except that any such amendment or modification cannot
adversely affect the rights of options previously granted under the 2001 Plan
unless approved by our shareholders. The Board may terminate the 2001 Plan at
any time. In addition, the automatic option grant program may not be amended
more frequently than once every six months, other than to the extent necessary
to comply with applicable U.S. income tax laws and regulations. In addition, the
Board may not, without the approval of our shareholders,
- amend the Plan to materially increase the maximum number of
ordinary shares issuable under the 2001 Plan, the number of
ordinary shares for which options may be granted to
newly-elected or continuing non-employee directors, or the
maximum number of ordinary shares for which any one individual
participating in the 2001 Plan may be granted options;
- materially modify the eligibility requirements for
participation in the 2001 Plan; or
- materially increase the benefits accruing to participants in
the 2001 Plan.
TERM OF THE 2001 PLAN
Unless terminated earlier, the 2001 Plan will continue until August
2011, ten years after the date the 2001 Plan was adopted by the Board of
Directors.
FEDERAL INCOME TAX CONSEQUENCES OF OPTION GRANTS
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY
STATEMENT OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO US AND
EMPLOYEES PARTICIPATING IN THE 2001 PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL
DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS
BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING
THE TAX CONSEQUENCES OF PARTICIPATION IN THE 2001 PLAN. THE FOLLOWING DISCUSSION
DOES NOT
18
PURPORT TO DESCRIBE STATE OR LOCAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES
FOR PARTICIPANTS IN COUNTRIES OTHER THAN THE UNITED STATES.
Options granted under the 2001 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The United Stated federal income tax treatment for the two types of options
differs as follows:
Incentive Stock Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised unless the optionee is subject to
the alternative minimum tax. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into either qualifying or
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made after the optionee has held the shares for more than two years after the
option grant date and more than one year after the exercise date. Upon a
qualifying disposition, the optionee will recognize capital gain or loss. If
either of these two holding periods is not satisfied, then a disqualifying
disposition will result. Upon a disqualifying disposition, any gain up to the
difference between the option exercise price and the fair market value of the
shares on the later of the date of exercise or the date of vesting, or, if less,
the amount realized on the sale of shares, will be treated as ordinary income.
Any additional gain will be capital gain.
If the optionee makes a disqualifying disposition of the purchased
shares, then we will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of the fair market
value of such shares on the option exercise date over the exercise price paid
for the shares. In no other instance will we be allowed a deduction with respect
to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
NEW PLAN BENEFITS
The amount of future option grants under the discretionary option grant
program of the 2001 Plan to:
- our Chief Executive Officer;
- the four other most highly compensated executive officers
whose salary for the fiscal year exceeded $100,000;
- all current executive officers as a group;
- all current directors, who are not executive officers, as a
group; and
- all employees, including all officers who are not executive
officers, as a group;
are not determinable because, under the terms of the discretionary option grant
program of the 2001 Plan, such grants are made in the discretion of the Plan
Administrator or its designees. Future option exercise prices under the 2001
Plan are not determinable because they are based upon the fair market value of
our ordinary shares on the date of grant.
The following table shows the option grants that were made during the
fiscal year ended March 31, 2002 to these individuals:
19
WEIGHTED AVERAGE
EXERCISED PRICE NUMBER OF
NAME AND POSITION (PER SHARE) (1) SHARES
----------------- --------------- ------
Michael E. Marks....................................... $15.26 600,000
Chairman and
Chief Executive Officer
Michael McNamara ...................................... 15.18 400,000
President, Americas Operations
Robert R.B. Dykes ..................................... 15.04 316,667
President, Systems Group and Chief Financial
Officer
Ronald R. Snyder....................................... 15.06 266,667
President, Flextronics Design Services
Ronny Nilsson.......................................... 15.50 158,333
President, Flextronics Network Services
All current executive officers as a group (6 persons).. 15.18 1,966,667
All current directors who are not executive officers
as a group (5 persons).............................. 14.10 30,000
All employees, including officers who are not
executive officers, as a group...................... 16.51 7,012,900
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE INCREASE IN THE NUMBER OF SHARES AUTHORIZED
FOR ISSUANCE TO DIRECTORS UNDER THE AUTOMATIC OPTION
GRANT PROGRAM OF THE 2001 EQUITY INCENTIVE PLAN.
PROPOSAL NO. 6:
ORDINARY RESOLUTION TO APPROVE THE INCREASE IN THE NUMBER OF ORDINARY
SHARES AUTHORIZED FOR ISSUANCE UNDER THE 1997 EMPLOYEE SHARE PURCHASE PLAN
Our shareholders are being asked to approve an amendment to our 1997
Employee Share Purchase Plan, which was adopted by the Board of Directors and
approved by the shareholders in 1997, and which we refer to as the Share
Purchase Plan, to increase the number of our ordinary shares authorized for
issuance under the Share Purchase Plan by 1,000,000 ordinary shares, from
2,400,000 ordinary shares to 3,400,000 ordinary shares.
As of June 1, 2002, there were 190,102 ordinary shares available for
issuance under the Share Purchase Plan and if this Proposal No. 6 is approved,
1,190,102 ordinary shares will be available for issuance under the Share
Purchase Plan. The Board believes the share increase is necessary for us to
continue to have a sufficient reserve of ordinary shares available under the
Share Purchase Plan to attract and retain the services of key employees and
other qualified personnel essential to our long-term success and to effectively
compete for qualified personnel in our markets.
SHARE PURCHASE PLAN HISTORY
The Board of Directors adopted the Share Purchase Plan in September
1997 and our shareholders approved the adoption in October 1997. Our
shareholders approved amendments to the Share Purchase Plan in August 1999 and
September 2000. The purpose of the Share Purchase Plan is to provide our
employees and employees of our subsidiaries and parents as designated by the
Board of Directors as eligible to participate in the Share Purchase Plan with a
convenient means to acquire an equity interest in us through payroll deductions
and to provide an incentive for continued employment. We intend that the Share
Purchase Plan will qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended.
20
ORDINARY SHARES SUBJECT TO THE SHARE PURCHASE PLAN
The ordinary shares subject to issuance under the Share Purchase Plan
consist of our authorized but unissued ordinary shares. A total of 2,400,000
ordinary shares has been reserved for issuance by the Board under the Share
Purchase Plan. This number of ordinary shares is subject to proportional
adjustment to reflect stock splits, bonus issues and other similar events.
ADMINISTRATION
The Share Purchase Plan will be administered by the Board of Directors
or a committee of at least two members of the Board, which we refer to in this
section as the Committee. The interpretation or construction by the Committee of
any provisions of the Share Purchase Plan will be final and binding on all
employees.
ELIGIBILITY
All of our employees and those of any of our subsidiaries and parent
are eligible to participate in an Offering Period, as defined below, under the
Share Purchase Plan, except (a) employees who are not employed by us or, as the
case may be, by a subsidiary or parent, one month before the beginning of such
Offering Period; (b) employees who are customarily employed for 20 hours or less
per week; (c) employees who are customarily employed for five months or less in
a calendar year; (d) employees who own shares or hold options to purchase shares
or who, as a result of participation in the Share Purchase Plan, would own
shares or hold options to purchase shares, possessing 5% or more of the total
combined voting power or value of all classes of our shares or any of our
subsidiaries and parent; and (e) individuals who provide services to us as
independent contractors who are reclassified as common law employees for any
purpose other than federal income and employment tax purposes.
As of June 1, 2002, approximately 2,077 persons were eligible to
participate in the Share Purchase Plan and 2,209,898 shares had been issued
pursuant to the Share Purchase Plan.
Employees participate in the Share Purchase Plan through payroll
deductions. An employee sets the rate of such payroll deductions, which may not
be less than 2% nor more than 10% of the employee's compensation, including base
salary, commissions, bonuses and shift premiums before any deductions from the
employee's salary pursuant to Sections 125 or 401(k) of the Internal Revenue
Code. No employee is permitted to purchase shares under the Share Purchase Plan
at a rate which, when aggregated with such employee's rights to purchase stock
under all of our similar purchase plans, exceeds $25,000 in fair market value
determined as of the Offering Date for each calendar year.
TRANSFERABILITY
In general, rights under the Share Purchase Plan may not be transferred
in any manner other than by will or by the laws of descent and distribution.
OFFERING PERIODS
Each offering of ordinary shares under the Share Purchase Plan is for a
period of six months, which we refer to as an Offering Period. Offering Periods
are planned to commence on December 1 and June 1 of each year and end on May 31
and November 30 of each year, respectively. Each Offering Period consists of one
six-month Purchase Period during which payroll deductions of the employees are
accumulated under the Share Purchase Plan. The Board of Directors has the power
to set the beginning of any Offering Period and to change the date or the
duration of Offering Periods or Purchase Periods without shareholder approval,
including adopting 24-month Offering Periods consisting of four six-month
Purchase Periods, if such change is announced at least 15 days before the
scheduled beginning of the first Offering Period or Purchase Period to be
affected. The first day of each Offering Period is the "Offering Date" for such
Offering Period and the last business day of each Purchase Period is the
"Purchase Date" for such Purchase Period.
21
Employees will participate in the Share Purchase Plan during each
Offering Period through regular payroll deductions as described above. Employees
may elect to participate in any Offering Period by enrolling as provided under
the terms of the Share Purchase Plan. Once enrolled, an employee will
automatically participate in each succeeding Offering Period unless the employee
withdraws from the Offering Period or the Share Purchase Plan is terminated.
After the rate of payroll deductions for an Offering Period has been set by an
employee, that rate will continue to be effective for the remainder of the
Offering Period (and for all subsequent Offering Periods in which the employee
is automatically enrolled) unless otherwise changed by the employee. The
employee may increase or lower the rate of payroll deductions for any subsequent
Offering Period, but may only lower the rate of payroll deductions for an
ongoing Offering Period. No more than one change may be made during a single
Offering Period.
PURCHASE PRICE
The purchase price of ordinary shares that may be acquired in any
Purchase Period under the Share Purchase Plan is 85% of the lesser of: (a) the
fair market value of the ordinary shares on the Offering Date; or (b) the fair
market value of the ordinary shares on the Purchase Date. In no event may the
purchase price be less than the par value of the ordinary shares. The fair
market value of our ordinary shares is deemed to be the closing price of our
ordinary shares on the Nasdaq National Market on the date of determination as
reported in The Wall Street Journal. As of May 31, 2002, the closing price of
our ordinary shares on the Nasdaq National Market was $13.23 per share.
PURCHASE OF SHARES UNDER THE SHARE PURCHASE PLAN
The number of whole shares an employee may purchase in any Purchase
Period will be determined by dividing the total payroll amount withheld from the
employee during the Purchase Period pursuant to the Share Purchase Plan by the
purchase price for each share determined as described above, rounded down to the
nearest whole number. The purchase will take place automatically on the Purchase
Date of such Purchase Period.
WITHDRAWAL
An employee may withdraw from any Offering Period. Upon withdrawal, the
accumulated payroll deductions will be returned to the withdrawn employee,
without interest, provided that the withdrawal occurs at least 15 days before
the related Purchase Date. If the withdrawal occurs less than 15 days before
such Purchase Date, payroll deductions will continue for the remainder of that
Purchase Period. No further payroll deductions for the purchase of shares will
be made for the succeeding Offering Period unless the employee enrolls in the
new Offering Period at least 15 days before the Offering Date.
AMENDMENT AND TERMINATION OF THE SHARE PURCHASE PLAN
The Board of Directors may at any time amend, terminate or extend the
term of the Share Purchase Plan, except that any such termination cannot affect
the terms of subscription rights previously granted under the Share Purchase
Plan, nor may any amendment make any change to the terms of subscription rights
previously granted which would adversely affect the right of any participant,
nor may any amendment be made without shareholder approval if such amendment
would:
- increase the number of shares that may be issued under the
Share Purchase Plan; or
- change the designation of the employees, or class of
employees, eligible for participation in the Share Purchase
Plan.
TERM OF THE SHARE PURCHASE PLAN
The Share Purchase Plan will continue until the earlier to occur of:
(a) termination of the Share Purchase Plan by the Board of Directors; (b) the
issuance of all the ordinary shares reserved for issuance under the Share
Purchase Plan; or (c) September 2007, ten years after the date the Share
Purchase Plan was adopted by the Board of Directors.
22
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY
STATEMENT OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO US AND
EMPLOYEES PARTICIPATING IN THE SHARE PURCHASE PLAN. FEDERAL TAX LAWS MAY CHANGE
AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE
WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING
EMPLOYEE HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX
ADVISER REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE SHARE PURCHASE
PLAN. THE FOLLOWING DISCUSSION DOES NOT PURPORT TO DESCRIBE STATE OR LOCAL
INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES FOR PARTICIPANTS IN COUNTRIES OTHER
THAN THE UNITED STATES.
The Share Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Tax Treatment for Employees. Employees will not recognize income for
federal income tax purposes either upon enrollment in the Share Purchase Plan or
upon the purchase of shares. All tax consequences are deferred until an employee
sells the shares, disposes of the shares by gift or dies. Payroll deductions,
however, remain fully taxable as ordinary income at the time the deduction is
taken, and there is no deferral of the ordinary income accessed on these
amounts.
If ordinary shares are held for more than one year after the date of
purchase and more than two years from the beginning of the applicable Offering
Period, or if the employee dies while owning the shares, the employee realizes
ordinary income on a sale, or a disposition by way of gift or upon death, to the
extent of the lesser of: (a) 15% of the fair market value of ordinary shares at
the beginning of the Offering Period; or (b) the actual gain, the amount by
which the fair market value of the ordinary shares on the date of sale, gift or
death exceeds the purchase price. All additional gain upon the sale of shares is
treated as capital gain. If the shares are sold and the sale price is less than
the purchase price, there is no ordinary income and the employee has a capital
loss for the difference between the sale price and the purchase price.
If the ordinary shares are sold or are otherwise disposed of including
by way of gift, but not death, bequest or inheritance, (in any case, a
"disqualifying disposition") within either the one-year or the two-year holding
periods described above, the employee realizes ordinary income at the time of
sale or other disposition, taxable to the extent that the fair market value of
the ordinary shares at the date of purchase is greater than the purchase price.
This excess will constitute ordinary income, not currently subject to
withholding, in the year of the sale or other disposition even if no gain is
realized on the sale or if a gratuitous transfer is made. The difference, if
any, between the proceeds of sale and the aggregate fair market value of the
ordinary shares at the date of purchase is a capital gain or loss. Capital gains
may be offset by capital losses, and up to $3,000 of capital losses may be used
annually against ordinary income.
Tax Treatment for Flextronics. We will be entitled to a deduction in
connection with the disposition of shares acquired under the Share Purchase Plan
only to the extent that the employee recognizes ordinary income on a
disqualifying disposition of the shares. We will treat any transfer of record
ownership of shares as a disposition, unless we are notified to the contrary. In
order to enable us to learn of disqualifying dispositions and ascertain the
amount of the deductions to which it is entitled, employees will be required to
notify us in writing of the date and terms of any disposition of shares
purchased under the Share Purchase Plan.
ERISA. The Share Purchase Plan is not subject to any of the provisions
of the Employee Retirement Income Security Act of 1974 nor is it qualified under
Section 401(a) of the Internal Revenue Code.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE INCREASE IN THE NUMBER OF ORDINARY SHARES AUTHORIZED
FOR ISSUANCE UNDER THE 1997 EMPLOYEE SHARE PURCHASE PLAN.
23
OTHER EQUITY COMPENSATION PLANS
As of March 31, 2001, we maintained the 2001 Equity Incentive Plan and
1997 Employee Share Purchase Plan, both of which were approved by our
shareholders, and the 1997 Interim Option Plan, 1998 Interim Option Plan and
1999 Interim Option Plan. None of these Interim Option Plans is subject to
shareholder approval. The terms of the 2001 Equity Incentive Plan and 1997
Employee Share Purchase Plan are described above. The Interim Option Plans are
described more fully below.
The following table gives information about equity awards under these
plans as of March 31, 2002.
(A) (B) (C)
NUMBER OF ORDINARY SHARES
NUMBER OF ORDINARY WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
SHARES TO BE ISSUED EXERCISE PRICE EQUITY COMPENSATION PLANS
UPON EXERCISE OF OUTSTANDING (EXCLUDING ORDINARY SHARES
PLAN CATEGORY OF OUTSTANDING OPTIONS OPTIONS REFLECTED IN COLUMN (A))
------------- ---------------------- ------- ------------------------
Equity compensation plans approved by
shareholders........................ 33,975,652 $17.84 6,691,359(1)
Equity compensation plans not approved
by shareholders(3).................. 3,547,859 8.08 2,866,999(2)
TOTAL............................... 37,543,511 $16.92 9,558,358
-----------
(1) Of these, 6,060,736 ordinary shares remained available for grant under
the 2001 Equity Incentive Plan and 630,623 ordinary shares remain
available for purchase under the 1997 Employee Share Purchase Plan.
Assuming that Proposal No. 6 is approved, 1,630,623 shares would be
available for purchase under the 1997 Employee Share Purchase Plan
(2) Of these, 2,197,165 ordinary shares remained available for grant under
the 1999 Interim Option Plan, 177,470 ordinary shares under the 1998
Interim Option Plan and 492,364 shares under the 1997 Interim Option
Plan. Does not include 20,000,000 shares reserved for issuance under
the 2002 Interim Option Plan, which was adopted after March 31, 2002.
See "Interim Option Plans" below for more information regarding these
plans.
(3) In connection with acquisitions, we have assumed the option plans,
which we refer to as the Assumed Plans, and the underlying options of
the acquired companies. Options to purchase a total of 8,097,628 shares
under the Assumed Plans have been assumed. These options have a
weighted average exercise price of $6.12 per share. These options have
been converted into options to purchase our ordinary shares on the
terms specified in the applicable acquisition agreement, but are
otherwise administered in accordance with the terms of the Assumed
Plans. Options under the Assumed Plans generally vest over four years
and expire 10 years from the date of grant. No further awards will be
made under the Assumed Plans. Statistics regarding the options under
the Assumed Plans are not included in the above table.
INTERIM OPTION PLANS
Our 1997 Interim Option Plan, our 1998 Interim Option Plan and our 1999
Interim Option Plan were adopted by our Board in June 1997, January 1998 and
December 1998, respectively. In May 2002, we adopted the 2002 Interim Option
Plan. The adoption of these interim plans was necessitated by our internal
growth, our multiple acquisitions and the need to provide equity compensation
for employees consistent with competitors and peer companies. These interim
plans are not subject to shareholder approval.
The Board reserved an aggregate of 2,000,000 ordinary shares, 3,144,000
ordinary shares, 5,200,000 ordinary shares and 20,000,000 ordinary shares for
issuance under the 1997 Plan, the 1998 Plan, the 1999 Plan and the 2002 Plan,
respectively. These plans provide for the grant to qualified persons of
non-statutory stock options to purchase our ordinary shares. Information
regarding outstanding options under the 1997 Plan, the 1998 Plan and the 1999
Plan as of March 31, 2002 is set forth in the table above. Since March 31, 2002,
we have granted additional
24
options under the these plans. As of June 1, 2002, we had a total of 22,959,048
shares available for issuance under our 1997 Plan, 1998 Plan, 1999 Plan and 2002
Plan.
Shares subject to options granted pursuant to these interim plans that
expire or terminate for any reason without being exercised will again become
available for grant and issuance pursuant to awards under the interim plans.
Options granted under these plans have an exercise price of not less than 85% of
the fair market value of the underlying ordinary shares on the date of grant.
Options issued under these plans generally vest over a four-year period and
expire five years from the date of grant in the case of the 1997 Plan, the 1998
Plan and the 1999 Plan, and expire ten years from the date of grant in the case
of the 2002 Plan. The other general terms of the these interim plans are similar
to our 2001 Equity Incentive Plan.
PROPOSAL NO. 7:
ORDINARY RESOLUTION TO APPROVE VARIOUS MATTERS
RELATING TO ORDINARY SHARE ISSUANCES
We are incorporated in the Republic of Singapore. Under Singapore law,
new ordinary shares may only be issued with the prior approval of our
shareholders at a general meeting. Such approval, if granted, is effective from
the date of the meeting at which it was given to the conclusion of the next
Annual General Meeting of our shareholders or the expiration of the period
within which the next Annual General Meeting is required by law to be held,
whichever is the earlier. The Board believes that it is advisable and in our
best interest for our shareholders to authorize the Directors to issue new
ordinary shares for financing future transactions, acquisitions and other proper
corporate opportunities and purposes. Having additional ordinary shares
available and authorized for issuance in the future gives us greater flexibility
to pursue corporate opportunities and enables the Directors to issue new
ordinary shares without the expense and delay of an extraordinary general
meeting of shareholders.
We are seeking shareholder approval to issue new ordinary shares, and
to make or grant offers agreements or options that might or would require the
issue of new ordinary shares, during the period from the date of the 2002 Annual
General Meeting to the date of the 2003 Annual General Meeting. If obtained,
shareholder approval of this proposal will lapse on the date of the 2003 Annual
General Meeting or the expiration of the period within which the 2003 Annual
General Meeting is required by law to be held, whichever is earlier.
THE BOARD RECOMMENDS A VOTE "FOR" THE RESOLUTION
RELATING TO ORDINARY SHARE ISSUANCES
PROPOSAL NO. 8:
ORDINARY RESOLUTION TO APPROVE A BONUS ISSUE OF ONE ORDINARY SHARE FOR
EVERY ONE EXISTING ORDINARY SHARE HELD BY OUR SHAREHOLDERS
Under Singapore law, a company may capitalize its reserves and apply
such capitalized sum in payment for additional ordinary shares, which may then
be allotted and issued, to its shareholders, credited as fully paid, in a
transaction commonly referred to as a "bonus issue." A bonus issue is similar to
a stock dividend by a Delaware or California corporation. However, under our
Articles of Association, we may allot and issue shares in a bonus issue, which
we refer to as bonus shares, only upon recommendation of the Board of Directors
and with the prior approval of our shareholders at a general meeting. The Board
believes that it is advisable and has recommended that it is in the best
interest for our shareholders that the Board be granted the authority to allot
and issue, at its sole discretion. after the date of the 2002 Annual General
Meeting, but on or before 5:00 p.m., PDT, August 31, 2003, a bonus issue of up
to an aggregate of __ bonus shares and, in the event that any new ordinary
shares are allotted and issued by us after the close of business on July 2,
2002, which we refer to in this proposal as the Record Date, but on or before
5:00 p.m., PDT, August 31, 2003, an additional one bonus share for each new
ordinary share so allotted and issued, to be credited as fully paid, which we
refer to as the Bonus Shares.
25
The Board believes that such discretionary authority is in the best
interest of our shareholders since it provides the Board an opportunity to
review economic and financial conditions prior to making the decision as to
whether a bonus issue should be effected.
If the Board exercises its authority to allot and issue the Bonus
Shares after the date of the 2002 Annual General Meeting but on or before 5:00
p.m., PDT, August 31, 2003, then the Bonus Shares are to be allotted and issued
to the holders of record of the ordinary shares on the date specified by our
Board of Directors after the date of the 2002 Annual General Meeting, but no
later than 5:00 p.m., PDT, August 31, 2003, on the basis of one bonus share for
every one ordinary share then held. Fractional bonus shares will not be issued,
but will be disposed of in such a manner as the Board of Directors deems fit. As
a result, if the bonus issue is approved at the 2002 Annual General Meeting and
the Board exercises its authority to allot and issue the Bonus Shares after the
date of the 2002 Annual General Meeting, but on or before 5:00 p.m., PDT, August
31, 2003, then each holder of record of ordinary shares on the date specified by
our Board of Directors after the date of the 2002 Annual General Meeting, but no
later than 5:00 p.m., PDT, August 31, 2003, would receive an additional one
ordinary share, credited as fully paid, for every one ordinary share then held
of record by such shareholder. If the bonus issue is approved at the 2002 Annual
General Meeting but the Board does not exercise its authority to allot and issue
the Bonus Shares after the date of the 2002 Annual General Meeting, but on or
before 5:00 p.m., PDT, August 31, 2003, then no bonus issue would be effected
and, accordingly, no bonus shares would be allotted and issued to shareholders.
The Bonus Shares, if and when allotted and issued, would rank pari
passu in all respects with the existing ordinary shares, and would have
identical rights. A sum of up to S$__ and, in the event that any new ordinary
shares are allotted and issued by us after the Record Date, but on or before
5:00 p.m., PDT, August 31, 2003, an additional amount of S$0.01 for each new
share so allotted and issued, from our Share Premium Account as at March 31,
2002, which sum we refer to as the Capital Sum, would be capitalized and applied
in paying up in full the Bonus Shares to be issued. Accordingly, our issued and
paid up capital would increase by up to S$__ after the allotment and issuance of
the Bonus Shares and, in the event that any new shares are allotted and issued
by us after the Record Date but on or before 5:00 p.m., PDT, August 31, 2003, an
additional amount of $0.01 each for each new share so allotted and issued.
Deloitte & Touche LLP have advised us that the balance in our Share Premium
Account at March 31, 2002 is sufficient for the purpose of the bonus issue.
THE BOARD RECOMMENDS A VOTE "FOR" THE
RESOLUTION APPROVING THE PROPOSED BONUS ISSUE.
PROPOSAL NO. 9:
ORDINARY RESOLUTION TO APPROVE THE PROPOSED SHARE PURCHASE MANDATE
THE PROPOSED SHARE PURCHASE MANDATE
Our purchases or acquisitions of our ordinary shares must be made in
accordance with, and in the manner prescribed by, the Companies Act, Cap. 50,
the listing rules of the Nasdaq National Market and such other laws and
regulations as may for the time being be applicable.
It is a requirement that a company that wishes to purchase or otherwise
acquire its own shares should obtain the approval of its shareholders to do so
at a general meeting of its shareholders. Accordingly, approval is being sought
from shareholders at the Annual General Meeting for a general and unconditional
mandate, which we refer to as the Share Purchase Mandate, to be given for the
purchase or acquisition by us of our issued ordinary shares. Accordingly, this
resolution will be proposed as an Ordinary Resolution pursuant to which the
Share Purchase Mandate will be given to the Directors to exercise all our powers
to purchase or otherwise acquire our issued ordinary shares on the terms of the
Share Purchase Mandate.
If approved by shareholders at the Annual General Meeting, the
authority conferred by the Share Purchase Mandate will continue in force until
the earlier of the date of our next Annual General Meeting or the date by which
our next Annual General Meeting is required by law to be held.
26
The authority and limitations placed on our share purchases or
acquisitions under the proposed Share Purchase Mandate are summarized below:
(a) Maximum number of ordinary shares
We may purchase or acquire only ordinary shares which are issued
and fully paid up. The total number of ordinary shares which we
may purchase or acquire is limited to that number of ordinary
shares representing not more than 10% of our issued ordinary share
capital at the date of the Annual General Meeting at which the
Share Purchase Mandate is approved.
Purely for illustrative purposes, on the basis of ___ issued
ordinary shares as at July 2, 2002, and assuming that no further
ordinary shares are issued on or prior to the Annual General
Meeting, pursuant to the proposed Share Purchase Mandate, we may
purchase not more than ___ issued ordinary shares (representing
10% of our issued ordinary share capital at that date).
(b) Duration of authority
Purchases or acquisitions of ordinary shares may be made, at any
time and from time to time, on and from the date of approval of
the Share Purchase Mandate up to the earlier of:
(i) the date on which our next Annual General Meeting is held or
required by law to be held; or
(ii) the date on which the authority conferred by the Share
Purchase Mandate is revoked or varied.
(c) Manner of purchases or acquisitions of ordinary shares
Purchases or acquisitions of ordinary shares may be made by way
of:
(i) market purchases on the Nasdaq National Market or any other
securities exchange on which our ordinary shares may for the
time being be listed and quoted, through one or more duly
licensed dealers appointed by us for the purpose; and/or
(ii) off-market purchases (if effected other than on the Nasdaq
National Market or, as the case may be, any other securities
exchange on which our ordinary shares may for the time being
be listed and quoted), in accordance with an equal access
scheme.
In connection with or in relation to any equal access scheme or
schemes, our Directors may impose such terms and conditions which
are not inconsistent with the Share Purchase Mandate, the listing
rules of the Nasdaq National Market and the Singapore Companies
Act, as they consider fit in our interests in. An equal access
scheme must, however, satisfy all the following conditions:
(1) offers for the purchase or acquisition of ordinary shares
shall be made to every person who holds ordinary shares to
purchase or acquire the same percentage of their ordinary
shares;
(2) all of those persons shall be given a reasonable opportunity
to accept the offers made; and
(3) the terms of all the offers are the same (except that there
shall be disregarded (1) differences in consideration
attributable to the fact that offers may relate to ordinary
shares with different accrued dividend entitlements and (2)
differences in the offers introduced solely to ensure that
each person is left with a whole number of ordinary shares).
27
(d) Purchase price
The purchase price (excluding brokerage, commission, applicable
goods and services tax and other related expenses) to be paid for
an ordinary share will be determined by our Directors. The maximum
purchase price to be paid for the ordinary shares as determined by
our Directors must not exceed:
(i) in the case of a market purchase, 105% of the Average
Closing Price of our ordinary shares; and
(ii) in the case of an off-market purchase pursuant to an equal
access scheme, 110% of the Average Closing Price of our
ordinary shares,
in either case, excluding related expenses of the purchase
or acquisition.
For the above purposes, the term Average Closing Price means the
average of the last dealt prices of an ordinary share for the five
consecutive trading days on which our ordinary shares are
transacted on the Nasdaq National Market or, as the case may be,
any other securities exchange on which our ordinary shares may for
the time being be listed and quoted, immediately preceding the
date of the market purchase by us or, as the case may be, the date
of the making of the offer pursuant to the off-market purchase.
The date of the making of the offer refers to the date on which we
announce our intention to make an offer for the purchase or
acquisition of ordinary shares from holders of ordinary shares,
stating the purchase price (which shall not be more than the
maximum purchase price calculated on the foregoing basis) for each
ordinary share and the relevant terms of the equal access scheme
for effecting the off-market purchase.
SOURCES OF FUNDS
Only funds legally available for purchasing or acquiring ordinary
shares in accordance with our Articles of Association and applicable laws of
Singapore, shall be utilized. We intend to use our internal sources of funds to
finance our purchase or acquisition of ordinary shares. We do not intend to
obtain or incur any borrowings to finance our purchase or acquisition of
ordinary shares. The Directors do not propose to exercise the Share Purchase
Mandate in a manner and to such extent that our working capital requirements and
those of our subsidiaries would be materially affected.
Any purchases and acquisitions of ordinary shares must be made out of
our distributable profits which are available for payment as dividends,
excluding any amount in our share premium account and capital redemption reserve
fund.
STATUS OF PURCHASED OR ACQUIRED ORDINARY SHARES
Any ordinary share we purchase or acquire is deemed cancelled
immediately on purchase or acquisition, and all rights and privileges attached
to that ordinary share will expire on cancellation.
We will cancel and destroy certificates in respect of purchased or
acquired ordinary shares as soon as reasonably practicable following settlement
of any purchase or acquisition of such ordinary shares.
FINANCIAL EFFECTS
The amount by which our issued share capital is diminished on
cancellation of ordinary shares purchased or acquired must be transferred to a
reserve called the "capital redemption reserve." In the event we implement a
bonus issue of shares in the future, such reserve may be applied by us in paying
up any unissued shares to be allotted and issued to our shareholders as fully
paid bonus shares.
Our total issued share capital will be diminished by the total nominal
amount (or par value) of the ordinary shares purchased or acquired by us. The
consideration paid by us for the purchase or acquisition of ordinary shares
28
(excluding related brokerage, goods and services tax, stamp duties and clearance
fees) will correspondingly reduce the amount available for the distribution of
cash dividends by us.
Our net tangible assets of us and the consolidated net tangible assets
of us and our subsidiaries will be reduced by the dollar value of the ordinary
shares purchased or acquired. The purchase or acquisition of up to 10% of our
issued ordinary share capital as at the date of the Annual General Meeting will
not have any material impact on our consolidated earnings for the current
financial year.
RATIONALE FOR THE SHARE PURCHASE MANDATE
We presently maintain listing status on the Nasdaq National Market. Our
need to repurchase our ordinary shares reflects in part the practices of our
competitors and in part the dominance of the U.S. capital markets for us. Many
international companies, including those in the United States, United Kingdom
and Hong Kong are permitted by their governing jurisdictions to buy back their
own shares. Share repurchases are thus widely available to and utilized by many
other companies with which we compete for talent, capital, and investor and
analyst interest.
Share repurchase programs are important because of volatility in the
stock market. A share repurchase program tends to buffer short term share price
volatility, provide additional liquidity to the market and offset the effects of
short-term speculators and investors. Minimizing unnecessary volatility bolsters
shareholder confidence and employee morale. The latter can be a critical factor
in employee retention, especially in the U.S. Silicon Valley, where we have
significant operations. Minimizing extreme volatility can also facilitate use of
our ordinary shares for acquisitions of other companies, which can enable us to
acquire ongoing technological improvements with minimal cash outlay.
TAKE-OVER IMPLICATIONS
If, as a result of our purchase or acquisition of our issued ordinary
shares, a shareholder's proportionate interest in our voting capital increases,
such increase will be treated as an acquisition for the purposes of The
Singapore Code on Take-overs and Mergers. If such increase results in a change
of effective control, or, as a result of such increase, a shareholder or a group
of shareholders acting in concert obtains or consolidates effective control of
us, such shareholder or group of shareholders acting in concert could become
obliged to make a take-over offer for us under Rule 14 of The Singapore Code on
Take-overs and Mergers.
Under The Singapore Code on Take-overs and Mergers, persons acting in
concert comprise individuals or companies who, pursuant to an agreement or
understanding (whether formal or informal) co-operate, through the acquisition
by any of them of shares in a company to obtain or consolidate effective control
of that company. Unless the contrary is established, the following persons will
be presumed to be acting in concert, namely, (i) a company with any of its
directors (together with their close relatives, related trusts as well as
companies controlled by any of the directors, their close relatives and related
trusts) and (ii) a company, its parent, subsidiaries and fellow subsidiaries,
and their associated companies and companies of which such companies are
associated companies, all with each other. For this purpose, ownership or
control of at least 20% but not more than 50% of the equity share capital of a
company will be regarded as the test of associated company status.
The circumstances under which shareholders (including Directors) and
persons acting in concert with them respectively will incur an obligation to
make a take-over offer under Rule 14 of The Singapore Code on Take-overs and
Mergers after a purchase or acquisition of our issued ordinary shares by us are
set out in Appendix 2 of The Singapore Code on Take-overs and Mergers.
The effect of Appendix 2 is that, unless exempted, Directors and
persons acting in concert with them will incur an obligation to make a take-over
offer under Rule 14 if, as a result of us purchasing or acquiring our issued
ordinary shares, the voting rights of such Directors and their concert parties
would increase to 30% or more, or if the voting rights of such Directors and
their concert parties fall between 30% and 50% of our voting rights, the voting
rights of such Directors and their concert parties would increase by more than
1% in any period of six months.
Under Appendix 2, a shareholder not acting in concert with the
Directors will not be required to make a take-over offer under Rule 14 if, as a
result of us purchasing or acquiring our issued ordinary shares, the voting
rights of such shareholder in us would increase to 30% or more, or if such
shareholder holds between 30% and 50% of our voting rights, the voting rights of
such shareholder would increase by more than 1% in any period of six months.
Such shareholder need not abstain from voting in respect of the resolution
authorizing the Share Purchase Mandate.
Shareholders who are in doubt as to their obligations, if any, to make
a mandatory take-over offer under The Singapore Code on Take-overs and Mergers
as a result of any share purchase by us should consult the Securities Industry
Council of Singapore and/or their professional advisers at the earliest
opportunity.
THE BOARD RECOMMENDS A VOTE "FOR" THE RESOLUTION
RELATING TO THE PROPOSED SHARE PURCHASE MANDATE.
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL GENERAL MEETING
Shareholder proposals intended to be considered at the 2003 Annual
General Meeting of Shareholders must be received by us no less than 120 days
prior to August 29, 2003. Any proposals must be mailed to our San Jose,
California offices, 2090 Fortune Drive, San Jose, California 95131, Attention:
Chief Executive Officer. Such proposals may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
General Meeting other than those set forth herein and in the notice accompanying
this proxy statement.
It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO
EXECUTE PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS
BEEN ENCLOSED FOR YOUR CONVENIENCE. Shareholders who are present at the meeting
may revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
Bernard Liew Jin Yang
Yap Lune Teng
Joint Secretaries
July __, 2002
Singapore
29
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
(INCORPORATED IN SINGAPORE)
INDEX TO SINGAPORE STATUTORY FINANCIAL STATEMENTS
PAGE
Directors' Report............................................................................... 2
Statement by Directors.......................................................................... 12
Auditors' Report................................................................................ 13
Consolidated Financial Statements of Flextronics International Ltd. and its Subsidiaries........ 14
Supplementary Financial Statements of Flextronics International Ltd. (Parent Company)........... 43
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
DIRECTORS' REPORT
MARCH 31, 2002
(Currency - U.S. dollars unless otherwise stated)
DIRECTORS
The directors of the Company in office at the date of this report are:
Michael E. Marks
Michael J. Moritz
Richard L. Sharp
Patrick Foley
Chuen Fah Alain Ahkong
Goh Thiam Poh, Tommie
PRINCIPAL ACTIVITIES
The Company, which is listed on the Nasdaq National Market in the United
States of America, is principally engaged in investment holding. The principal
activities of the subsidiaries include the assembly of printed circuit boards,
or PCBs, and complete systems and products, fabrication and assembly of plastic
and metal enclosures, fabrication of PCBs and backplanes, and fabrication and
assembly of photonics components. Certain subsidiaries are also engaged in
design and technology services; logistics services, such as materials
procurement, inventory management, vendor management, packaging, and
distribution; automation of key components of the supply chain through advanced
information technologies; and other after-market services such as repair and
warranty services and network and communications installation and maintenance.
There were no significant changes in the nature of these activities during
the financial year, except for the newly incorporated and acquired subsidiaries.
EMPLOYEES
The total number of employees in the Company and the Group at the end of
the financial year was nil and approximately 78,000, respectively (2000: nil and
approximately 75,000).
RESULTS FOR THE FINANCIAL YEAR
(IN THOUSANDS)
The Company realized net income amounting to $137,537 for the financial
year. The Group realized a net loss of $153,748 for the financial year.
TRANSFERS TO OR FROM RESERVES OR PROVISIONS
Except as shown in the financial statements, there were no material
transfers to or from reserves or provisions during the year.
ACQUISITION AND DISPOSAL OF SUBSIDIARIES
During the financial year, the Group acquired the following subsidiaries:
2
NET TANGIBLE ASSETS/
(LIABILITIES) AT DATE
NAME OF COMPANY INTEREST ACQUIRED CONSIDERATION OF ACQUISITION
--------------- ----------------- ------------- ---------------------
% $'000 $'000
Held by the Company
Flextronics Enclosures (HK) Ltd.
(formerly known as Kingdom Advanced
Products) 100 12,864 (8,488)
Held by Subsidiaries
Flextronics Semiconductor Design, 100 34,245 (11,412)
Inc. (formerly known as ASIC
International, Inc.)
Remix Technologies, Inc. 100 9,527 --
Telcom Global Solutions Holdings,
Inc. and its subsidiaries 100 46,841 (12,817)
Instrumentation Engineering, Inc. 100 87,810 (8,892)
The Orbiant Group and its 91 80,594 (116,381)
subsidiaries
(Certain subsidiaries of) Xerox
Corporation 100 165,069 59,989
DNA Enterprises 100 2,660 (812)
During the financial year, the Group incorporated the following subsidiaries:
THE GROUP'S
COUNTRY OF EFFECTIVE
NAME OF SUBSIDIARY INCORPORATION PRINCIPAL ACTIVITY SHAREHOLDINGS
------------------ ------------- ------------------------------ -------------
%
Held by Subsidiaries
Flextronics Beteiligungs GmbH Austria Investment holding 100
Flextronics Holding Aktiengsellchaft Austria Treasury Services 100
Flextronics Int. Kft. France Manufacture of electronics and 100
telecommunication products
Flextronics Manufacturing France SNC France Manufacture of electronics and 100
telecommunication products
Flextronics Logistics (Singapore) Singapore Logistic services 100
Pte. Ltd.
Flextronics Network Services Thailand Network and communications 83
(Thailand) Ltd. installation and maintenance
services
3
The following subsidiaries were liquidated during the financial year:
Net tangible
NAME OF SUBSIDIARY Interest disposed of Consideration assets
------------------ -------------------- ------------- ------------
% $ $
Flextronics International Packages &
Packing Materials Poland Sp.zo.o 100 - -
Except as disclosed above, there were no other acquisitions or disposals
of subsidiaries during the financial year.
ISSUE OF SHARES AND DEBENTURES
During the financial year,
(i) the Company issued the following shares:
(a) 20,000,000 Ordinary Shares of S$0.01 each for cash at $25.96 per
share respectively for public offering with proceeds amounting to
$503.8 million, net of issuance costs of $15.4 million.
(b) 7,989,287 Ordinary Shares of S$0.01 each for cash at a premium of
$42.2 million, net of expenses, by virtue of the exercise of share
options previously granted.
(c) 767,301 Ordinary Shares of S$0.01 each for cash at a premium of
$15.4 million, net of expenses, by virtue of the Employee Share
Purchase Plan.
(d) 1,104,076 Ordinary Shares of S$0.01 each at a premium of $31.5
million for the acquisition of Flextronics Semiconductor Design,
Inc. (formerly known as ASIC International, Inc.), which was held by
Flextronics International Holding Corp., a wholly owned subsidiary
of the Company.
(e) 1,985,117 Ordinary Shares of S$0.01 each for the acquisition of
Telcom Global Solutions Holdings, Inc. and its subsidiaries at a
premium of $41.9 million, which were held by Flextronics
International PA, Inc., a wholly owned subsidiary of the Company.
(f) 4,175,191 Ordinary Shares of S$0.01 each at a premium of $90.0
million for the acquisition of Instrumentation Engineering, Inc.,
which was held by Flextronics International USA, Inc., a wholly
owned subsidiary of Flextronics International Holding Corp., which
is in turn a wholly owned subsidiary of the Company.
(g) 442,625 Ordinary Shares of S$0.01 each at a premium of $15.1 million
related to contingent purchase price adjustments related to the
acquisition of Ojala-Yhtma Oy. and its subsidiary, which is held by
a wholly owned subsidiary of the Company, in the prior financial
year.
(h) 177,781 Ordinary Shares of S$0.01 each at a premium of $4.1 million
related to contingent purchase price adjustments related to the
acquisition of Flextronics Photonics PPT, Inc. (formerly known as
Photonics Packaging Technologies, Inc.), which is held by a wholly
owned subsidiary of the Company, in the prior financial year.
In connection with the Group's strategic alliance with Motorola Inc.
("Motorola") in financial year 2001, Motorola paid $100.0 million for an equity
instrument that entitled it to acquire 22,000,000 million Flextronics Ordinary
Shares at any time through December 31, 2005 upon meeting targeted purchase
levels or making additional payments to the Group. The issuance of this equity
instrument resulted in a one-time charge equal to the excess of the fair value
of the equity instrument issued over the $100.0 million proceeds received. As a
result, the one-time non-cash charge amounted to approximately $286.5 million
offset by a corresponding credit to additional paid-in capital in financial year
2001.
4
In the current financial year, the Group entered into an agreement with
Motorola under which it repurchased this equity instrument for $112.0 million.
The fair value of the equity instrument on the date it was repurchased exceeded
the amount paid to repurchase the equity instrument. Accordingly, the Group
accounted for the repurchase of the equity instrument as a reduction to
shareholders' equity in the accompanying consolidated statement of shareholders'
equity.
During the financial year, its subsidiaries issued the following shares:
Name of company Shares issued Purpose
------------------------------ ----------------------------------- -----------------------------------
Flextronics International $13.6 million par value For investment of capital
Tecnologia Ltda.
Flextronics Manufacturing Mex, 39,775,000 Ordinary Shares of $1.08 For investment of capital
S.A. de C.V. each
Flextronics Manufacturing Mex, 22,789,873 Ordinary Shares of For investment of capital
S.A. de C.V. $5.41 each
Flextronics Manufacturing Mex, 4,950 Ordinary Shares of $1.09 each For investment of capital
S.A. de C.V.
Flextronics Manufacturing Mex, 229,834,764 Ordinary Shares of For investment of capital
S.A. de C.V. $1.00 each
Flextronics International USA, 800,000 Ordinary Shares, of $0.04 For investment of capital
Inc. each, $20.0 million additional
paid-in capital
Flextronics International USA, 1,000 Ordinary Shares. Of $50.00 For investment of capital
Inc. each
Flextronics Manufacturing 55,600,000 Ordinary Shares of For incorporation
Aguascalientes, S.A. de C.V. $0.11 each
Flextronics Plastics, S.A. de 16,525,085 Ordinary Shares of For investment of capital
C.V. $1.08 each
Flextronics Holding (Singapore) $71.8 million additional paid-in For investment of capital
Pte. Ltd. capital
Flextronics Manufacturing $4.6 million additional paid-in For investment of capital
(Shanghai) Co. Ltd. capital
Flextronics (Penang) Sdn. Bhd. $13.6 million additional paid-in For incorporation and investment of
capital capital
Flextronics Plastics $74.1 million par value For investment of capital
(Singapore) Pte. Ltd.
Flextronics Technologies 5,876,353 Ordinary Shares of $0.22 For investment of capital
(India) Pvt. Ltd. each
Flextronics Industrial (Zhuhai) $6.0 million par value For investment of capital
Co., Ltd.
5
Flextronics Technology $1.7 million par value For investment of capital
(Shenzhen) Co. Ltd.
Flextronics International Cork $11.0 million par value For investment of capital
B.V.
Flextronics International Cork $42.5 million additional paid-in For investment of capital
B.V. capital
Flextronics International Kft. $5.5 million par value, $36.0 For investment of capital
million additional paid-in capital
Flextronics International Kft. $16.8 million additional paid-in For acquisition
capital
Flextronics Udine S.p.A $3.3 million additional paid-in For investment of capital
capital
Flextronics Beteiligungs GmbH $30,680 Ordinary Shares For incorporation
Flextronics Beteiligungs GmbH $482,118 additional paid-in capital For investment of capital
Flextronics Holding Finland Oy. $13.2 million additional paid-in For investment of capital
capital
Flextronics Design Finland Oy. 26 Ordinary Shares of $80.08 each For acquisition
Flextronics International PA, $35.5 million additional paid-in For incorporation
Inc. capital
Flextronics International PA, $42.3 million additional paid-in For acquisition
Inc. capital
Flextronics International PA, $11.8 million additional paid-in For investment of capital
Inc. capital
Flextronics Logistics S.A. de 19,531,375 Ordinary Shares, $2.1 For investment of capital
C.V., GDL, Mexico million additional paid-in capital
Flextronics Logistics 500,000 Ordinary Shares of $.55 For incorporation
(Singapore) Pte. Ltd. each
Irish Express Logistics $11.7 million additional paid-in For investment of capital
capital
IEC Logistics, Inc. $13.9 million additional paid-in For investment of capital
capital
Multilayer Technology GmbH & $817,789 additional paid-in capital For investment of capital
Co. KG
Multek Brazil Ltda. $3.0 million additional paid-in For investment of capital
capital
Flextronics Network Services $3.0 million par value For investment of capital
Sweden AB
Flextronics Network Services $164,000 par value, $32.8 million For investment of capital
Sweden AB additional paid-in capital
Flextronics Network Services $59,000 par value, $0.5 million For investment of capital
Sweden AB additional paid-in capital
6
Flextronics Network Services $0.2 million par value, $0.7 For investment of capital
Sweden AB million additional paid-in capital
Telcom Global Solutions $41.9 million additional paid-in For acquisition
Holdings, Inc. capital
Flextronics International $5.6 million par value For investment of capital
Avellino S.p.A
Flextronics International 1,000 shares at $11.78 each, $23.7 For investment of capital
Denmark A/S million additional paid-in capital
Flextronics International $39.1 million additional paid-in For investment of capital
Poland Sp.zo.o capital
Except as disclosed above, neither the Company nor its subsidiaries issued
any shares or debentures during the financial year.
ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURES
Neither at the end nor at any time during the financial year was the
Company a party to any arrangement whose object was to enable the directors of
the Company to acquire benefits by means of the acquisition of shares or
debentures of the Company or any other body corporate.
DIRECTORS' INTEREST IN SHARES AND DEBENTURES
The interests of the directors who held office at the end of the financial
year in the shares or debentures of the Company and related corporations were as
follows:
Holdings in the name of the director,
by trust or by partnership
-------------------------------------
March 31, 2001 March 31, 2002
---------------- ----------------
Ordinary shares of $0.01 each
Michael E. Marks 2,119,738 2,939,944
Michael J. Moritz 359,432 383,432
Richard L. Sharp 5,965,952 5,989,952
Patrick Foley 40,000 --
Goh Thiam Poh, Tommie 5,573,114 4,803,114
Exercise
March 31, 2001 March 31, 2002 price Exercisable period
---------------- ---------------- ---------- -------------------------
Options to acquire Ordinary Shares of $0.01 each
Michael E. Marks 720 -- $ 2.8907 11.8.1996 to 11.8.2001
40,946 -- 2.8907 11.8.1996 to 11.8.2001
792,084 16,667 4.1875 12.11.1997 to 12.11.2002
3,200,000 733,333 6.0000 10.28.1998 to 10.28.2003
26,004 26,004 14.5000 10.1.1999 to 10.1.2004
573,996 573,996 14.5000 10.1.1999 to 10.1.2004
36,456 -- 4.5742 4.7.2000 to 4.7.2005
1,000,000 1,000,000 23.1875 12.20.2000 to 12.20.2010
-- 200,000 13.9800 9.21.2001 to 9.21.2011
7
-- 400,000 15.9000 10.1.2001 to 10.1.2011
Michael J. Moritz 24,000 -- 2.1563 8.15.1996 to 8.15.2001
24,000 24,000 5.5625 10.14.1997 to 10.14.2002
24,000 24,000 4.0000 9.18.1998 to 9.18.2003
24,000 24,000 13.8750 8.27.1999 to 8.27.2004
6,000 6,000 42.0313 9.21.2000 to 9.21.2005
-- 6,000 14.1000 9.20.2001 to 9.20.2011
Richard L. Sharp 24,000 -- 2.1563 8.15.1996 to 8.15.2001
24,000 24,000 5.5625 10.14.1997 to 10.14.2002
24,000 24,000 4.0000 9.18.1998 to 9.18.2003
24,000 24,000 13.8750 8.27.1999 to 8.27.2004
6,000 6,000 42.0313 9.21.2000 to 9.21.2005
-- 6,000 14.1000 9.20.2001 to 9.20.2011
Patrick Foley 120,000 120,000 5.5625 10.14.1997 to 10.14.2002
24,000 24,000 4.0000 9.18.1998 to 9.18.2003
24,000 24,000 13.8750 8.27.1999 to 8.27.2004
6,000 6,000 42.0313 9.21.2000 to 9.21.2005
-- 6,000 14.1000 9.20.2001 to 9.20.2011
Chuen Fah Alain Ahkong 24,000 4,000 4.0000 9.18.1998 to 9.18.2003
24,000 24,000 13.8750 8.27.1999 to 8.27.2004
6,000 6,000 42.0313 9.21.2000 to 9.21.2005
-- 2,700 23.0200 7.6.2001 to 7.6.2011
-- 6,000 14.1000 9.20.2001 to 9.20.2011
Goh Thiam Poh, Tommie -- 6,000 14.1000 9.20.2001 to 9.20.2011
Other than as disclosed above, no other directors of the Company had an
interest in any shares or debentures of the Company or related corporations
either at the beginning or end of the financial year.
DIRECTORS' CONTRACTUAL BENEFITS
Since the end of the previous financial year, no director has received or
become entitled to receive a benefit by reason of a contract made by the Company
or a related corporation with the director or with a firm of which he is a
member or with a company in which he has a substantial financial interest except
for any professional fees paid to a firm of which the director is a member.
DIVIDENDS
No dividend has been paid or declared since the end of the previous
financial year. The directors of the Company do not recommend payment of a
dividend during the financial year.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Before the financial statements of the Company were prepared, the
directors took reasonable steps to ensure that proper action had been taken in
relation to writing off bad debts and providing for doubtful accounts of the
Company, and satisfied themselves that all known bad debts had been written off
and that adequate provision had been made for doubtful accounts.
At the date of this report, the directors are not aware of any
circumstances which would render the amount of bad debts written off or the
amount of allowance for doubtful accounts in the consolidated financial
statements inadequate to any substantial extent.
8
CURRENT ASSETS
Before the financial statements of the Group and the Company were
prepared, the directors took reasonable steps to ensure that any current assets
which were unlikely to realize their book values in the ordinary course of the
business had been written down to their estimated realizable values or that
adequate provision had been made for the diminution in values of such current
assets.
At the date of this report, the directors are not aware of any
circumstances, which would render the values attributed to current assets in the
accompanying consolidated financial statements of the Group and the accompanying
supplementary financial statements of the Company misleading.
CHARGES AND CONTINGENT LIABILITIES
At the date of this report, no charge on the assets of the Company or any
corporation in the Group has arisen which secures the liabilities of any other
person and no contingent liability has arisen since the end of the financial
year.
ABILITY TO MEET OBLIGATIONS
No contingent or other liability of the Company or any corporation in the
Group has become enforceable, or is likely to become enforceable, within the
period of twelve months after the end of the financial year which will or may
affect the ability of the Company and the Group to meet their obligations as and
when they fall due.
OTHER CIRCUMSTANCES AFFECTING FINANCIAL STATEMENTS
At the date of this report, the directors are not aware of any
circumstances not otherwise dealt with in this report or the financial
statements of the Group and the Company, which would render any amount stated in
the accompanying consolidated and supplementary financial statements misleading.
MATERIAL AND UNUSUAL TRANSACTIONS
In the opinion of the directors, except as disclosed in Note 9 of the
accompanying consolidated financial statements of the Group and the accompanying
supplementary financial statements of the Company, the results of the operations
of the Group and of the Company for the financial year ended March 31, 2002 have
not been substantially affected by any item, transaction or event of a material
and unusual nature.
MATERIAL AND UNUSUAL TRANSACTIONS AFTER THE FINANCIAL YEAR
In the opinion of the directors, in the interval between the end of the
financial year and the date of this report, no item, transaction or event of a
material and unusual nature, likely to affect substantially the results of the
operations of the Company and of the Group for the financial year in which this
report is made, has arisen.
SHARE OPTIONS AND SHARE OPTION PLANS (SCHEMES)
2001 Equity Incentive Plan (the "2001 Plan")
During the financial year ended March 31, 2002, options for a total of
1,437,835 Ordinary Shares in the Company were granted with an exercise price
ranging from $14.34 to $22.99 and a weighted average exercise price of $15.5773
under the 2001 Plan. No Ordinary Shares in the Company were issued during the
financial year by virtue of the exercise of options granted under the 2001 Plan.
As at March 31, 2002, the number and class of unissued shares under option
granted under the 2001 Plan was 6,060,736 Ordinary Shares, net of cancellation
of options for 8,886,729 Ordinary Shares. The expiration dates range from
October 1, 2006 to February 29, 2012.
1993 Share Option Plan (the "1993 Plan")
During the financial year ended March 31, 2002, options for a total of
7,510,876 Ordinary Shares in the Company were granted with an exercise price
ranging from $13.00 to $23.02 and a weighted average exercise price of $15.61
under the 1993 Plan. A total of 2,222,486
9
Ordinary Shares in the Company were issued during the financial year by virtue
of the exercise of options granted under the 1993 Plan. Pursuant to the adoption
of the 2001 Plan in October 2001, remaining unissued shares under the 1993 Plan
will be available for issuance under the 2001 Plan. As such, as at March 31,
2002, there were no unissued shares under option granted under the 1993 Plan.
Upon adoption of the 2001 Plan, no additional options will be granted under the
1993 Plan. The expiration dates range from June 2, 2002 to February 29, 2012.
1997 Interim Option Plan (the "1997 Plan")
During the financial year ended March 31, 2002, no options were granted
under the 1997 Plan. A total of 154,261 Ordinary Shares in the Company were
issued during the financial year by virtue of the exercise of options granted
under the 1997 Plan. As at March 31, 2002, the number and class of unissued
shares under option granted under the 1997 Plan was 492,364 Ordinary Shares, net
of cancellation of options for 664,084 Ordinary Shares. The expiration dates
range from June 5, 2002 to June 2, 2003.
1998 Interim Option Plan (the "1998 Plan")
During the financial year ended March 31, 2002, no options were granted
under the 1998 Plan. A total of 442,002 Ordinary Shares in the Company were
issued during the financial year by virtue of the exercise of options granted
under the 1998 Plan. As at March 31, 2002, the number and class of unissued
shares under option granted under the 1998 Plan was 177,470 Ordinary Shares, net
of cancellation of options for 232,870 Ordinary Shares. The expiration dates
range from December 11, 2002 to October 12, 2003.
1999 Interim Option Plan (the "1999 Plan")
During the financial year ended March 31, 2002, no options were granted
under the 1999 Plan. A total of 349,580 Ordinary Shares in the Company were
issued during the financial year by virtue of exercise of options granted under
the 1999 Plan. As at March 31, 2002, the number and class of unissued shares
under option granted under the 1999 Plan was 2,197,165 Ordinary Shares, net of
cancellation of options for 390,077 Ordinary Shares. The expiration dates range
from December 15, 2003 to September 7, 2004.
Assumed Option Plans (the "Assumed Plans")
The Company has certain option plans and the underlying options of
companies, which the Company has merged with or acquired. Total options assumed
under these plans amounted to 8,097,628. Options under the Assumed Plans have
been converted into the Company's options and adjusted to effect the appropriate
conversion ratio as specified by the applicable acquisition agreement, but are
otherwise administered in accordance with the terms of the Assumed Plans. A
total of 4,808,291 Ordinary Shares of the Company were issued during the
financial year by virtue of exercise of options granted under the Assumed Plans.
No further option grants will be awarded under the Assumed Plans.
Employee Share Purchase Plan (the `ESPP')
The ESPP was approved by the shareholders in October 1997. Under the ESPP,
employees may purchase, on a periodic basis, a limited number of Ordinary Shares
through payroll deductions over a six-month period up to 10% of each
participant's compensation. The per share purchase price is 85% of the fair
market value of the shares at the beginning or end of the offering period,
whichever is lower. A total of 767,301 Ordinary Shares were sold under the ESPP
during the current financial year. The per-share weighted average fair value of
Ordinary Shares sold under the ESPP in financial year 2002 was $20.08.
AUDITORS
On May 3, 2002, the Audit Committee of the Company's Board of Directors
determined that it would replace Arthur Andersen LLP as the Company's
independent auditors and resolved, subject to the approval of the Company's
shareholders, to appoint Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending March 31, 2003 in place of Arthur Andersen
LLP. For Singapore statutory law purposes, the appointment of Deloitte & Touche
LLP will be subject to and submitted for the approval of the Company's
shareholders at the Company's 2002 Annual General Meeting.
10
ON BEHALF OF THE BOARD OF DIRECTORS
MICHAEL E. MARKS CHUEN FAH ALAIN AHKONG
Director Director
Singapore
July __, 2002
11
STATEMENT BY DIRECTORS
In the opinion of the directors, the accompanying financial statements set
out on pages 12 to 55 are drawn up so as to give a true and fair view of the
state of affairs of the Group and the Company as at March 31, 2002 and the
results and changes in equity of the Group and the Company and the cash flows of
the Group and the Company for the year then ended and at the date of this
statement there are reasonable grounds to believe that the Company will be able
to pay its debts as and when they fall due.
ON BEHALF OF THE BOARD OF DIRECTORS
MICHAEL E. MARKS CHUEN FAH ALAIN AHKONG
Director Director
12
AUDITORS' REPORT TO THE MEMBERS OF
FLEXTRONICS INTERNATIONAL LTD.
We have audited the consolidated financial statements of the Flextronics
International Ltd and its subsidiaries ("the Group") set out on pages 14 to 42
and the supplementary financial statements of Flextronics International Ltd
("the Company") set out on pages 43 to 56 as at 31 March 2002 and for the year
then ended, collectively the "statutory financial statements". These statutory
financial statements are the responsibility of the Company's directors. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Singapore Standards on Auditing.
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 the
directors, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion:
(a) the statutory financial statements are properly drawn up in accordance
with the provisions of the Companies Act, modified by specific disclosure
exemption granted by the Registrar of Companies and Business of Singapore
and accounting principles generally accepted in the United States, and so
as to give a true and fair view of:
(i) the state of affairs of the Group and of the Company as at 31 March
2002 and of the results and changes in equity of the Group and of
the Company and cash flows of the Group and of the Company for the
year then ended; and
(ii) the other matters required by Section 201 of the Act to be dealt
with in the statutory financial statements;
(b) the accounting and other records and the registers required by the Act to
be kept by the Company and by those subsidiaries incorporated in Singapore
of which we are the auditors have been properly kept in accordance with
the provisions of the Act.
We have considered the financial statements and auditors' reports of all
subsidiaries, of which we have not acted as auditors, being financial statements
included in the consolidated financial statements.
We are satisfied that the financial statements of the subsidiaries that have
been consolidated with the financial statements of the Company are in form and
content appropriate and proper for the purposes of the preparation of the
consolidated financial statements and we have received satisfactory information
and explanations as required by us for those purposes.
The auditors' reports relating to the financial statements of the subsidiaries
were not subject to any material qualification and, in respect of subsidiaries
incorporated in Singapore, did not include any comment made under Section 207
(3) of the Act.
ARTHUR ANDERSEN
Certified Public Accountants
Singapore
June __, 2002
CONSOLIDATED FINANCIAL STATEMENTS OF FLEXTRONICS INTERNATIONAL LTD AND ITS
SUBSIDIARIES:
13
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
MARCH 31,
---------------------------
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................................... $ 745,124 $ 631,588
Accounts receivable, less allowance for doubtful accounts of $41,649 and $44,419 as of March 31,
2002 and 2001, respectively .................................................................... 1,866,576 1,651,252
Inventories, net ................................................................................ 1,292,230 1,787,055
Deferred income taxes ........................................................................... 51,954 42,595
Other current assets ............................................................................ 597,303 343,557
----------- -----------
Total current assets ......................................................................... 4,553,187 4,456,047
Property, plant and equipment, net ................................................................ 2,032,495 1,828,441
Deferred income taxes ............................................................................. 312,996 139,678
Goodwill and other intangibles, net ............................................................... 1,538,148 983,384
Other assets ...................................................................................... 207,873 164,105
----------- -----------
Total assets ................................................................................. $ 8,644,699 $ 7,571,655
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt ........................................... $ 282,478 $ 298,052
Current portion of capital lease obligations .................................................... 16,557 27,602
Accounts payable ................................................................................ 1,962,630 1,480,468
Other current liabilities ....................................................................... 896,639 735,184
----------- -----------
Total current liabilities .................................................................... 3,158,304 2,541,306
Long-term debt, net of current portion ............................................................ 843,082 879,525
Capital lease obligations, net of current portion ................................................. 20,211 37,788
Other liabilities ................................................................................. 167,606 82,675
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Ordinary shares, S$.01 par value; authorized -- 1,500,000,000 shares; issued and outstanding --
513,011,778 and 476,370,089 as of March 31, 2002 and 2001, respectively ........................ 3,043 2,841
Additional paid-in capital ...................................................................... 4,898,807 4,266,938
Retained deficit ................................................................................ (286,640) (132,892)
Accumulated other comprehensive loss ............................................................ (159,714) (106,526)
----------- -----------
Total shareholders' equity ................................................................... 4,455,496 4,030,361
----------- -----------
Total liabilities and shareholders' equity ................................................... $ 8,644,699 $ 7,571,655
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
14
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ................................. $ 13,104,847 $ 12,109,699 $ 6,959,122
Cost of sales ............................. 12,224,969 11,127,896 6,335,242
Unusual charges ........................... 464,391 510,495 7,519
------------ ------------ ------------
Gross profit ......................... 415,487 471,308 616,361
Selling, general and administrative ....... 443,586 430,109 319,952
Goodwill and other intangibles amortization 12,615 63,541 41,326
Unusual charges ........................... 110,035 462,847 3,523
Interest and other expense, net ........... 91,853 67,115 69,912
------------ ------------ ------------
Income (loss) before income taxes .... (242,602) (552,304) 181,648
Provision for (benefit from) income taxes . (88,854) (106,285) 23,080
------------ ------------ ------------
Net income (loss) .................... $ (153,748) $ (446,019) $ 158,568
============ ============ ============
Earnings (loss) per share:
Basic ................................... $ (0.31) $ (1.01) $ 0.44
============ ============ ============
Diluted ................................. $ (0.31) $ (1.01) $ 0.42
============ ============ ============
Shares used in computing per share amounts:
Basic ................................... 489,553 441,991 356,338
============ ============ ============
Diluted ................................. 489,553 441,991 383,119
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
15
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED MARCH 31,
------------------------------------
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS)
Net income (loss)......................................................... $ (153,748) $ (446,019) $ 158,568
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax..................... (44,450) (49,844) (16,783)
Unrealized gain (loss) on investments and derivatives, net of tax....... (3,799) (55,851) 59,704
---------- ---------- ----------
Comprehensive income (loss)............................................... $ (201,997) $ (551,714) $ 201,489
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
16
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
ACCUMULATED
ORDINARY SHARES ADDITIONAL RETAINED OTHER
----------------------------- PAID-IN EARNINGS COMPREHENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS)
----------- ----------- ----------- ----------- --------------
(IN THOUSANDS)
BALANCE AT MARCH 31, 1999 ................ 313,222(1) $ 1,898(1) $ 710,420(1) $ 244,619 $ (32,138)
Adjustment to conform fiscal year of
pooled entity ......................... -- -- -- (818) --
Impact of immaterial pooling of
interests acquisitions ................ 1,847 6 1,607 (2,062) --
Issuance of common stock ................ 2,448 14 9,975 -- --
Exercise of stock options ............... 4,991 29 18,068 -- --
Ordinary shares issued under Employee
Stock Purchase Plan ................... 2,118 13 8,822 -- --
Tax benefit on employee stock plans ..... -- -- 4,785 -- --
Sale of ordinary shares in public
offering, net of offering costs ....... 67,018 391 1,158,382 -- --
Conversion of convertible notes ......... 14,792 86 84,988 -- --
Dividends paid to former shareholders ... -- -- -- (26,572) --
Deferred stock compensation ............. -- -- (1) -- --
Amortization of deferred stock
compensation .......................... -- -- -- -- --
Net income .............................. -- -- -- 158,568 --
Change in unrealized gain (loss) on
available for sale securities ......... -- -- -- -- 59,704
Foreign currency translation ........... -- -- -- -- (19,072)
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 ................ 406,436 2,437 1,997,046 373,735 8,494
Adjustment to conform fiscal year of
pooled entities ....................... 6,882 40 4,056 (58,306) (3,787)
Impact of immaterial pooling of
interests acquisitions ................ 728 4 2,482 (2,112) --
Issuance of ordinary shares for
acquisitions .......................... 10,825 63 365,422 -- --
Exercise of stock options ............... 11,405 66 69,504 -- --
Ordinary shares issued under Employee
Stock Purchase Plan ................... 445 3 8,911 -- --
Tax benefit on employee stock plans ..... -- -- 11,537 -- --
Sale of ordinary shares in public
offering, net of offering costs ....... 39,650 228 1,421,443 -- --
Dividends paid to former shareholders ... -- -- -- (190) --
Amortization of deferred stock
compensation .......................... -- -- -- -- --
Issuance of equity instrument (Note 9) .. -- -- 386,537 -- --
Net loss ................................ -- -- -- (446,019) --
Change in unrealized gain (loss) on
available for sale securities ......... -- -- -- -- (55,851)
Foreign currency translation ............ -- -- -- -- (55,382)
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2001 ................ 476,371 2,841 4,266,938 (132,892) (106,526)
Issuance of ordinary shares for
acquisitions .......................... 7,885 45 182,544 -- --
Exercise of stock options ............... 7,989 44 42,227 -- --
Ordinary shares issued under Employee
Stock Purchase Plan ................... 767 4 15,407 -- --
Sale of ordinary shares in public
offering, net of offering costs ....... 20,000 109 503,691 -- --
Repurchase of equity instrument (Note 9). -- -- (112,000) -- --
Net loss ................................ -- -- -- (153,748) --
Change in unrealized gain (loss) on
available for sale securities ......... -- -- -- -- (3,853)
Change in derivative instruments ........ -- -- -- -- 54
Foreign currency translation ............ -- -- -- -- (49,389)
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2002 ................ 513,012 $ 3,043 $ 4,898,807 $ (286,640) $ (159,714)
=========== =========== =========== =========== ===========
TOTAL
DEFERRED SHAREHOLDERS'
COMPENSATION EQUITY
------------ ------------
BALANCE AT MARCH 31, 1999 ................ $ (9,494) $ 915,305
Adjustment to conform fiscal year of
pooled entity ......................... -- (818)
Impact of immaterial pooling of
interests acquisitions ................ -- (449)
Issuance of common stock ................ -- 9,989
Exercise of stock options ............... -- 18,097
Ordinary shares issued under Employee
Stock Purchase Plan ................... -- 8,835
Tax benefit on employee stock plans ..... -- 4,785
Sale of ordinary shares in public
offering, net of offering costs ....... -- 1,158,773
Conversion of convertible notes ......... -- 85,074
Dividends paid to former shareholders ... -- (26,572)
Deferred stock compensation ............. 361 360
Amortization of deferred stock
compensation .......................... 4,049 4,049
Net income .............................. -- 158,568
Change in unrealized gain (loss) on
available for sale securities ......... -- 59,704
Foreign currency translation ............ -- (19,072)
----------- -----------
BALANCE AT MARCH 31, 2000 ................ (5,084) 2,376,628
Adjustment to conform fiscal year of
pooled entities ....................... -- (57,997)
Impact of immaterial pooling of
interests acquisitions ................ -- 374
Issuance of ordinary shares for
acquisitions .......................... -- 365,485
Exercise of stock options ............... -- 69,570
Ordinary shares issued under Employee
Stock Purchase Plan ................... -- 8,914
Tax benefit on employee stock plans .... -- 11,537
Sale of ordinary shares in public
offering, net of offering costs ....... -- 1,421,671
Dividends paid to former shareholders ... -- (190)
Amortization of deferred stock
compensation .......................... 5,084 5,084
Issuance of equity instrument (Note 9) .. -- 386,537
Net loss ................................ -- (446,019)
Change in unrealized gain (loss) on
available for sale securities ......... -- (55,851)
Foreign currency translation ............ -- (55,382)
----------- -----------
BALANCE AT MARCH 31, 2001 ................ -- 4,030,361
Issuance of ordinary shares for
acquisitions .......................... -- 182,589
Exercise of stock options ............... -- 42,271
Ordinary shares issued under Employee
Stock Purchase Plan ................... -- 15,411
Sale of ordinary shares in public
offering, net of offering costs ....... -- 503,800
Repurchase of equity instrument (Note 9). -- (112,000)
Net loss ................................ -- (153,748)
Change in unrealized gain (loss) on
available for sale securities ......... -- (3,853)
Change in derivative instruments ........ -- 54
Foreign currency translation ............ -- (49,389)
----------- -----------
BALANCE AT MARCH 31, 2002 ................ $ -- $ 4,455,496
=========== ===========
----------
(1) Restated to properly reflect treasury stock of The DII Group, Inc.
(acquired in a pooling of interests transaction in fiscal 2001).
The accompanying notes are an integral part of these consolidated
financial statements.
17
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
-------------------------------------------
2002 2001 2000
----------- ----------- -----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (153,748) $ (446,019) $ 158,568
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation, amortization and non-cash impairment charges ............... 483,631 518,985 187,597
Loss (gain) on sales of equipment ........................................ 2,258 (1,382) 2,818
Provision for doubtful accounts .......................................... 3,664 9,429 12,534
Provision for inventory valuation ........................................ 4,977 33,634 32,345
Equity in earnings of associated companies ............................... -- (79) (1,591)
Gain on sales of subsidiaries and long-term investments .................. -- -- (365)
Amortization of deferred stock compensation .............................. -- 5,084 4,049
Non-cash charge from issuance of equity instrument ....................... -- 286,537 --
Minority interest expense and other non-cash unusual charges ............. 150,130 139,067 (2,414)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable .................................................... (163,712) (581,225) (444,306)
Inventories ............................................................ 639,954 (559,842) (597,698)
Other current assets ................................................... (242,242) (159,902) (89,464)
Other current liabilities, including accounts payable .................. 316,673 465,732 719,673
Deferred income taxes .................................................. (182,677) (179,744) (16,107)
----------- ----------- -----------
Net cash provided by (used in) operating activities ................... 858,908 (469,725) (34,361)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of dispositions ................... (330,392) (711,227) (462,398)
Purchases of OEM facilities and related assets ............................. (396,346) (239,042) (249,755)
Proceeds from sales of subsidiaries and investments ........................ 20,558 46,910 35,871
Other investments and notes receivable ..................................... (62,582) (54,398) (117,391)
Acquisitions of businesses, net of cash acquired ........................... (314,498) (158,882) (85,743)
----------- ----------- -----------
Net cash used in investing activities ................................. (1,083,260) (1,116,639) (879,416)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and proceeds from long-term debt ........................... 1,268,564 1,420,594 342,691
Repayments of bank borrowings and long-term debt ........................... (1,314,881) (1,451,114) (120,231)
Repayments of capital lease obligations .................................... (33,822) (31,788) (40,930)
Dividends paid to former shareholders ...................................... -- (190) (26,572)
Proceeds from exercise of stock options and Employee Stock Purchase Plan ... 57,682 78,484 26,932
Net proceeds from issuance of common stock ................................. -- -- 9,989
Net proceeds from sale of ordinary shares in public offering ............... 503,800 1,421,671 1,158,773
Proceeds from issuance of equity instrument ................................ -- 100,000 --
Repurchase of equity instrument ............................................ (112,000) -- --
Other ...................................................................... -- -- 977
----------- ----------- -----------
Net cash provided by financing activities ............................. 369,343 1,537,657 1,351,629
----------- ----------- -----------
Effect on cash from:
Exchange rate changes .................................................... (31,455) (34,048) (8,150)
Adjustment to conform fiscal year of pooled entities ..................... -- (32,706) (818)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ....................... 113,536 (115,461) 428,884
Cash and cash equivalents, beginning of year ............................... 631,588 747,049 318,165
----------- ----------- -----------
Cash and cash equivalents, end of year ..................................... $ 745,124 $ 631,588 $ 747,049
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
18
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") was
incorporated in the Republic of Singapore in May 1990. Flextronics
provides electronics manufacturing services, or EMS, to original equipment
manufacturers, or OEMs, primarily in the handheld electronics devices,
information technologies infrastructure, communications infrastructure,
computer and office automation, and consumer devices industries. The
Company provides a network of design, engineering and manufacturing
operations in 28 countries across four continents. Flextronics provides
customers with the opportunity to outsource on a global basis, with
end-to-end operational solutions where the Company takes responsibility
for engineering, new product introduction and implementation, supply chain
management, manufacturing and logistics management, with the goal of
delivering a complete packaged product. The Company provides complete
product design and technology services; logistics services, such as
materials procurement, inventory management, vendor management, packaging
and distribution; and automation of key components of the supply chain
through advanced information technologies. The company also offers other
after-market services such as repair and warranty services and network and
communications installation and maintenance.
2. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore dollars (S$) or Euros (E).
The accompanying consolidated financial statements include the accounts of
Flextronics and its wholly and majority-owned subsidiaries, after elimination of
all significant intercompany accounts and transactions.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
TRANSLATION OF FOREIGN CURRENCIES
The financial position and results of operations of the Company's
certain Chinese, Danish, certain Italian, Norwegian, Polish, Spanish,
Swedish, Swiss and UK subsidiaries are measured using their respective
local currencies as the functional currency. Accordingly, for these
subsidiaries all assets and liabilities are translated into U.S. dollars
at current exchange rates as of the respective balance sheet date. Revenue
and expense items are translated at the average exchange rates prevailing
during the period. Cumulative translation gains and losses from the
translation of these subsidiaries' financial statements are reported as a
separate component of shareholders' equity. The Company's Austrian, Dutch,
Finnish, French, German, Hungarian, Irish and certain Italian subsidiaries
have adopted the Euro as their functional currency.
CASH, CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments with a maturity of three months or less at
date of purchase are carried at fair market value and considered to be cash
equivalents. Cash and cash equivalents consist of cash deposited in checking and
money market accounts, corporate debt securities and certificates of deposit.
The Company's short-term investments are comprised of public corporate
equity securities and are included within Other Current Assets in the Company's
consolidated balance sheets and carried at fair market value. All investments
are generally held in the Company's name with major financial institutions
acting as custodians. The specific identification method is used to determine
the cost of securities disposed of, with realized gains and losses reflected in
19
other income and expense. During fiscal year 2002, the Company sold all of its
marketable equity securities and realized gains of approximately $2.0 million
compared to $33.4 million of realized gains in fiscal year 2001. All of the
Company's short-term investments were classified as available-for-sale.
Unrealized gains and losses on these investments are included as a separate
component of shareholders' equity, net of any related tax effect.
Cash equivalents and short-term investments consist of the following (in
thousands):
MARCH 31, 2002 MARCH 31, 2001
--------------- ---------------------------------------
UNREALIZED FAIR
COST/FAIR VALUE COST GAINS (LOSSES) VALUE
--------------- ----------- -------------- ----------
Money market funds............................ $ 450,236 $ 344,499 $ -- $ 344,499
Certificates of deposits...................... 8,877 272 -- 272
Corporate debt securities..................... -- 5,264 -- 5,264
Corporate equity securities................... -- 1,622 3,853 5,475
----------- ----------- ------- ----------
$ 459,113 $ 351,657 $ 3,853 $ 355,510
=========== =========== ======= ==========
Included in cash and cash equivalents......... $ 459,113 $ 350,035 $ -- $ 350,035
Included in other current assets.............. -- 1,622 3,853 5,475
----------- ----------- ------- ----------
$ 459,113 $ 351,657 $ 3,853 $ 355,510
=========== =========== ======= ==========
The Company also has certain investments in non-publicly traded
technology companies. These investments are included within Other Assets
in the Company's consolidated balance sheet and are carried at cost. The
Company continuously monitors these investments for impairment and makes
appropriate reductions in carrying values when necessary. During fiscal
2002 and 2001, the Company recorded an unusual charge of $38.4 million and
$9.5 million, respectively, for other than temporary impairment of its
investments in certain of these non-publicly traded companies. See Note 9,
"Unusual Charges" for further discussion.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated
useful lives of the related assets (one to thirty years), with the
exception of building leasehold improvements, which are amortized over the
life of the lease, if shorter. Repairs and maintenance costs are expensed
as incurred. Property, plant and equipment was comprised of the following
as of March 31 (in thousands):
2002 2001
----------- -----------
Machinery and equipment.............................. $ 1,399,601 $ 1,209,422
Buildings............................................ 693,764 596,070
Leasehold improvements............................... 98,521 168,764
Computer equipment and software...................... 225,706 167,115
Other, including land................................ 447,585 305,719
----------- -----------
2,865,177 2,447,090
Accumulated depreciation and amortization............ (832,682) (618,649)
----------- -----------
Property, plant and equipment, net................... $ 2,032,495 $ 1,828,441
=========== ===========
The Company reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of property and
equipment is measured by comparing its carrying amount to projected
discounted cash flows the property and equipment are expected to generate.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
property and equipment, exceeds its fair market value. Refer to Note 9,
"Unusual Charges," for discussion of the Company's adjustments to the
carrying value of property, plant and equipment.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily accounts receivable, cash
equivalents and investments. The Company performs ongoing credit evaluations of
its customers' financial condition and makes provisions for doubtful accounts
based on the outcome of its credit evaluations. The Company maintains cash and
cash equivalents with various financial institutions that management believes to
be of high credit quality. These financial institutions are located in many
different locations throughout the world.
20
In fiscal 2002 and fiscal 2000, Ericsson Telecom AB ("Ericsson") accounted
for approximately 15% and 12% of net sales, respectively. No customer accounted
for more than 10% of net sales in fiscal 2001. We have increasingly focused on
sales to larger companies and to customers in the telecommunications,
networking, consumer electronics and computer industries. In fiscal 2002, 2001
and 2000, our ten largest customers accounted for approximately 64%, 59% and 57%
of our net sales, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
basis) or market value. Cost is comprised of direct materials, labor and
overhead. As of March 31, the components of inventories, net of applicable
reserves, were as follows (in thousands):
2002 2001
------------ ------------
Raw materials............... $ 939,222 $ 1,346,427
Work-in-process............. 221,846 301,875
Finished goods.............. 131,162 138,753
------------ ------------
$ 1,292,230 $ 1,787,055
============ ============
OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following as of March 31
(in thousands):
2002 2001
---------- ----------
Income taxes................................................. $ 17,869 $ 33,777
Accrued payroll.............................................. 199,658 182,217
Sales taxes and other taxes.................................. 119,144 20,797
Accrued expenses for unusual charges (see Note 9)............ 161,147 170,384
Other accrued liabilities.................................... 398,821 328,009
---------- ----------
$ 896,639 $ 735,184
========== ==========
INCOME TAXES
The Company provides for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires the asset and
liability method of accounting for income taxes. Under this method,
deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying the applicable statutory tax rate to
the differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition
in Financial Statements." SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. The Company adopted SAB 101 as required in the fourth quarter
of fiscal 2001 and the adoption of SAB 101 did not have a material impact
on the Company's consolidated financial statements.
The Company's net sales are primarily comprised of manufacturing services.
Our manufacturing services include the assembly of printed circuit boards, or
PCBs, and complete systems and products, fabrication and assembly of plastic and
metal enclosures, fabrication of PCBs and backplanes, and fabrication and
assembly of photonics components.
21
Throughout the production process, the Company offers other services, including
design and technology; logistics, such as materials procurement, inventory
management, vendor management, packaging, and distribution; and automation of
key components of the supply chain through advanced information technologies.
The Company offers after-market services such as repair and warranty services
and network installation.
Revenue from manufacturing services is generally recognized upon shipment
of the manufactured product. Revenue from other services and after-market
services is generally recognized as the services are performed.
INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net was comprised of the following for the
years ended March 31 (in thousands):
2002 2001 2000
---------- ---------- ----------
Interest expense.................................... $ 116,436 $ 135,243 $ 84,198
Interest income..................................... (18,342) (32,219) (22,681)
Foreign exchange (gain) loss........................ 4,513 (4,028) 2,128
Other (income) expense, net......................... (10,754) (31,881) 6,267
---------- ---------- ----------
Total interest and other expense, net.......... $ 91,853 $ 67,115 $ 69,912
========== ========== ==========
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
ordinary shares outstanding during the applicable periods.
Diluted earnings per share is computed using the weighted average number
of ordinary shares and dilutive ordinary share equivalents outstanding during
the applicable periods. Ordinary share equivalents include ordinary shares
issuable upon the exercise of stock options and other equity instruments, and
are computed using the treasury stock method.
Earnings per share data were computed as follows for the years ended March
31 (in thousands, except per share amounts):
2002 2001 2000
------------ ------------ ------------
Basic earnings (loss) per share:
Net income (loss).................................................... $ (153,748) $ (446,019) $ 158,568
------------ ------------ ------------
Shares used in computation:
Weighted-average ordinary shares outstanding......................... 489,553 441,991 356,338
============ ============ ============
Basic earnings (loss) per share........................................ $ (0.31) $ (1.01) $ 0.44
============ ============ ============
Diluted earnings (loss) per share:
Net income (loss).................................................... $ (153,748) $ (446,019) $ 158,568
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible subordinated notes.... -- -- 400
Amortization (net of tax) of debt issuance costs on convertible
subordinated notes................................................ -- -- 33
------------ ------------ ------------
Net income (loss) available to shareholders........................ $ (153,748) $ (446,019) $ 159,001
Shares used in computation:
Weighted-average ordinary shares outstanding......................... 489,553 441,991 356,338
Shares applicable to exercise of dilutive options(1)................. -- -- 25,021
Shares applicable to deferred stock compensation..................... -- -- 302
Shares applicable to convertible subordinated notes.................. -- -- 1,458
------------ ------------ ------------
Shares applicable to diluted earnings.............................. 489,553 441,991 383,119
============ ============ ============
Diluted earnings (loss) per share...................................... $ (0.31) $ (1.01) $ 0.42
============ ============ ============
----------
(1) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive. Options to
purchase 961,436 shares outstanding during the fiscal year March 31, 2000,
were excluded from the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of
the Company's ordinary shares.
22
The ordinary share equivalents from stock options and other equity
instruments were antidilutive for the fiscal years ended March 31, 2002 and
March 31, 2001, and therefore not assumed to be converted for diluted earnings
per share computation.
NEW ACCOUNTING PRONOUNCEMENTS
Goodwill and Other Intangibles
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 and No. 142, "Business Combinations" and "Goodwill and Other
Intangible Assets." SFAS No. 141 requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. Under SFAS
No. 142, goodwill is no longer subject to amortization over its estimated useful
life. Rather, goodwill is subject to at least an annual assessment for
impairment, applying a fair-value based test. Additionally, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the acquirer's intent to do so. Other intangibles will continue to
be valued and amortized over their estimated useful lives; in-process research
and development will continue to be written off immediately.
The Company adopted SFAS No. 142 in the first quarter of fiscal 2002 and
no longer amortizes goodwill, thereby eliminating annual goodwill
amortization of approximately $124.2 million, based on anticipated
amortization that would have been incurred under the prior accounting
standard for fiscal 2002. Prior to adoption of SFAS No. 142, the Company
amortized any excess of cost over net assets acquired (goodwill) using the
straight-line method over estimated lives generally ranging from two to
fifteen years.
The Company evaluates goodwill and other intangibles for impairment, at
least on an annual basis and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable from its estimated
future cash flows. Recoverability of goodwill is measured at the reporting unit
level by comparing the reporting unit's carrying amount, including goodwill, to
the fair value of the reporting unit, based on projected discounted future
results of the unit using a discount rate reflecting the Company's average cost
of funds. If the carrying amount of the reporting unit exceeds its fair value,
goodwill is considered impaired and a second test is performed to measure the
amount of impairment loss, if any. To date, the Company has not recognized any
impairment of its goodwill and other intangible assets in connection with its
adoption of SFAS No. 142. However, no assurances can be given that future
evaluations of goodwill will not result in charges as a result of future
impairment.
During fiscal year 2002, $532.2 million of goodwill resulted from various
business acquisitions as further described in Note 11, "Business Combinations
and Purchases of Assets," as well as contingent purchase price adjustments and
other adjustments from historical acquisitions.
Goodwill information for each reportable segment is as follows (in
thousands):
AS OF AS OF
APRIL 1, GOODWILL MARCH 31,
2001 ACQUIRED 2002
----------- ----------- -------------
Segments:
Asia....................... $ 186,515 $ 55,181 $ 241,696
Americas................... 300,041 232,858 532,899
Western Europe............. 346,873 196,785 543,658
Central Europe............. 123,862 47,334 171,196
----------- ----------- -------------
$ 957,291 $ 532,158 $ 1,489,449
=========== =========== =============
Net income (loss) for the fiscal years ended March 31, 2001 and 2000
adjusted to exclude goodwill amortization, net of tax are as follows (in
thousands):
23
MARCH 31, MARCH 31,
2001 2000
----------- -----------
Net income (loss):
As reported......................................... $ (446,019) $ 158,568
Add back: goodwill amortization, net of tax......... 50,573 33,909
----------- -----------
Adjusted............................................ $ (395,446) $ 192,477
=========== ===========
The proforma effects of the adoption on earnings (loss) per share of
the Company for the fiscal years ended March 31, 2001 and 2000 are as
follows:
MARCH 31, MARCH 31,
2001 2000
--------- ---------
Basic earnings (loss) per share:
As reported.......................................... $ (1.01) $ 0.44
Add back: goodwill amortization, net of tax.......... 0.12 0.10
-------- --------
Adjusted............................................. $ (0.89) $ 0.54
======== ========
Diluted earnings (loss) per share:
As reported.......................................... $ (1.01) $ 0.42
Add back: goodwill amortization, net of tax.......... 0.12 0.08
-------- --------
Adjusted............................................. $ (0.89) $ 0.50
======== ========
All of the Company's acquired intangible assets are subject to
amortization over their estimated useful lives. Intangible assets are
comprised of contractual agreements, patents and trademarks, developed
technologies and other acquired intangibles. Contractual agreements are
being amortized over periods up to 10 years. Patents and trademarks and
developed technologies are being amortized on a straight-line basis over
periods of up to 10 years. Other acquired intangibles relate to favorable
leases and customer lists, and are amortized on a straight-line basis over
one to ten years. No significant residual value is estimated for the
intangible assets. During fiscal year 2002, there were $33.7 million of
additions to intangible assets. Currently, the Company is in the process
of determining the value of its intangible assets acquired from Telia
(please see Note 11, "Business Combinations and Purchases of Assets").
Intangible assets amortization for the fiscal years ended March 31, 2002,
2001 and 2000 was approximately $12.6 million, $7.3 million, and $3.6
million, respectively. The components of intangible assets are as follows
(in thousands):
MARCH 31, 2002 MARCH 31, 2001
----------------------------------- ----------------------------------
GROSS NET GROSS NET
CARRYING ACCUMULATED CARRYING CARRYING ACCUMULATED CARRYING
AMOUNT AMORTIZATION AMOUNT AMOUNT AMORTIZATION AMOUNT
--------- ------------ --------- --------- ------------ ---------
Intangibles:
Contractual agreements............. $ 44,168 $ (9,081) $ 35,087 $ 17,304 $ (1,714) $ 15,590
Patents and trademarks............. 206 (93) 113 7,625 (5,514) 2,111
Developed technologies............. 1,901 (512) 1,389 1,275 (850) 425
Other acquired intangibles......... 31,276 (19,166) 12,110 17,629 (9,662) 7,967
--------- ---------- --------- --------- ---------- ---------
Total................................ $ 77,551 $ (28,852) $ 48,699 $ 43,833 $ (17,740) $ 26,093
========= ========== ========= ========= ========== =========
Expected future estimated annual amortization expense is as follows (in
thousands):
Fiscal Years:
2003......................................... $ 16,077
2004......................................... 13,507
2005......................................... 7,295
2006......................................... 6,284
2007......................................... 4,980
Thereafter................................... 556
---------
Total amortization expense..................... $ 48,699
=========
Derivative Instruments and Hedging Activities
On April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
No. 138. All derivative instruments are recorded on the balance sheet at fair
value. If the derivative is designated as a cash flow hedge, the effective
portion of changes in the fair value of the derivative is recorded in Other
Comprehensive Income ("OCI") and is recognized in the statement of operations
when the hedged item affects earnings. Ineffective portions of changes in the
fair value of cash flow hedges are immediately recognized in earnings. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the
24
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings in the current period. For derivative instruments not designated as
hedging instruments under SFAS 133, changes in fair values are recognized in
earnings in the current period. Such instruments are typically forward contracts
used to hedge foreign currency balance sheet exposures.
The Company is exposed to foreign currency exchange rate risk inherent in
forecasted sales, cost of sales and assets and liabilities denominated in
non-functional currencies. The Company has established currency risk management
programs to protect against reductions in value and volatility of future cash
flows caused by changes in foreign currency exchange rates. The Company enters
into short-term foreign currency forward contracts to hedge only those currency
exposures associated with certain assets and liabilities, mainly accounts
receivable and accounts payable, and cash flows denominated in non-functional
currencies.
At March 31, 2002, the fair value of these short-term foreign currency
forward contracts was recorded as an asset amounting to $54,000. At the same
date the Company had in OCI recorded immaterial deferred gains relating to our
foreign currency forward contracts. These gains are expected to be recognized in
earnings over the next twelve months. The gains and losses recognized in
earnings due to hedge ineffectiveness were immaterial.
Trade Receivables Securitization
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities -- a
replacement of FASB Statement No. 125." The new standard carries forward some
provisions of SFAS No. 125, but modifies the methods of accounting for
securitizations and other transfers of financial assets and collateral, in
addition to requiring additional disclosures. The Company adopted SFAS No. 140
in the first quarter of fiscal 2002. The adoption of SFAS No. 140 did not have a
material impact on the financial position or results of operations of the
Company.
Asset Retirement Obligations
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" to be effective for all fiscal years beginning after
June 15, 2002, with early adoption permitted. SFAS No. 143 establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. It also provides accounting
guidance for legal obligations associated with the retirement of tangible
long-lived assets. The company will adopt SFAS No. 143 in fiscal 2004. The
Company does not believe the adoption of SFAS No. 143 will have a material
impact on the Company's financial position or results of operations.
Long-Lived Asset Impairment
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121 and requires that one accounting model be used for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and by
broadening the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 will be effective for fiscal years beginning after
December 15, 2001. The Company will adopt SFAS No. 144 in the first quarter of
fiscal year 2003. The Company does not believe the adoption of SFAS No. 144 will
have a material impact on the Company's financial position or results of
operations.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
The following information relates to fiscal years ended March 31 (in
thousands):
2002 2001 2000
---------- ---------- ----------
Cash paid for:
Interest........................................................... $ 120,399 $ 68,363 $ 78,293
Income taxes....................................................... 22,157 15,312 12,927
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations................. 3,921 10,318 50,897
Conversion of convertible notes to common stock.................... -- -- 85,074
Issuance of ordinary shares for purchases of OEM assets............ -- 26,902 --
Issuance of ordinary shares for acquisitions of businesses......... 182,589 338,583 --
25
4. BANK BORROWINGS AND LONG-TERM DEBT
In June 2000, the Company issued approximately $645.0 million of senior
subordinated notes, consisting of $500.0 million of 9.875% notes and E150.0
million of 9.75% notes. Interest is payable on July 1 and January 1 of each
year, commencing January 1, 2001. The notes mature on July 1, 2010. The Company
may redeem the notes on or after July 1, 2005. The approximate fair value of the
9.875% senior subordinated notes and the 9.75% euro senior subordinated notes
based on broker trading prices was 105.5% and 107.25% of the face value on March
31, 2002, respectively.
Additionally, the Company has $150.0 million in unsecured senior
subordinated notes due in 2007 outstanding with an annual interest rate of
8.75%. Interest is payable on April 15 and October 15 of each year. The notes
mature on October 15, 2007. The approximate fair value of the unsecured senior
subordinated notes based on broker trading prices was 101.25% of the face value
on March 31, 2002.
The indentures relating to the notes contain certain covenants that, among
other things, limit the ability of the Company and certain of its subsidiaries
to (i) incur additional debt, (ii) issue or sell stock of certain subsidiaries,
(iii) engage in asset sales, and (iv) make distributions or pay dividends. The
covenants are subject to a number of significant expectations and limitations.
As of March 31, 2002, the Company was in compliance with its debt covenants.
In March 2002, the Company replaced its existing credit facilities, with
an $800.0 million Revolving Credit Facility ("Credit Facility") with a syndicate
of domestic and foreign banks. The Credit Facility consisted of two separate
credit agreements, one providing for up to $400.0 million principal amount of
revolving credit loans to the Company and designated subsidiaries ("Tranche A")
and one providing for up to $400.0 million principal amount of revolving credit
loans to a U.S. subsidiary of the Company ("Tranche B"). Both Tranche A and
Tranche B are split one-third to a 364-day and two-thirds to a three-year
facility. Borrowings under the Credit Facility bear interest, at the Company's
option, at either: (i) the base rate (as defined in the Credit Facility); or
(ii) the LIBOR rate (as defined in the Credit Facility) plus the applicable
margin for LIBOR loans ranging between 0.875% and 2.25%, based on the company's
credit ratings and facility usage. The Company is required to pay a quarterly
commitment fee ranging from 0.125% to 0.50% per annum, based on the Company's
credit ratings, of the unutilized portion of the Credit Facility.
The Credit Facility is unsecured, and contains certain restrictions on the
Company's ability to (i) incur certain debt, (ii) make certain investments and
(iii) make certain acquisitions of other entities. The Credit Facility also
requires that the Company maintain certain financial covenants, including, among
other things, a maximum ratio of total indebtedness to EBITDA (earnings before
interest expense, taxes, depreciation, and amortization), a minimum ratio of
fixed charge coverage, and a minimum net worth, as defined, during the term of
the Credit Facility. Borrowings under the Credit Facility are guaranteed by the
Company and certain of its subsidiaries. As of March 31, 2002, there were no
borrowings outstanding under the Credit Facility and the Company was in
compliance with its covenants.
Certain subsidiaries of the Company have various lines of credit available
with annual interest rates generally ranging from 2.13% to 9.0%. These lines of
credit expire on various dates through 2003. The Company also has term loans
with annual interest rates generally below 8.0% with terms of up to 15 years.
These lines of credit and term loans are primarily secured by assignment of
account receivables and assets.
The Company has financed the purchase of certain facilities with
mortgages. The mortgages generally have terms of up to 10 years and annual
interest rates ranging from 2.0% to 9.0% and are secured by the underlying
properties with a net book value of approximately $31.8 million at March 31,
2002.
Bank borrowings and long-term debt was comprised of the following at March
31 (in thousands):
2002 2001
------------ -------------
Senior subordinated notes........................ $ 778,269 $ 779,596
Outstanding under lines of credit................ 194,609 219,579
Mortgages........................................ 15,554 43,340
Term loans and other debt........................ 137,128 135,062
------------ -------------
1,125,560 1,177,577
Current portion................................ (282,478) (298,052)
------------ -------------
Non-current portion............................ $ 843,082 $ 879,525
============ =============
26
Maturities for the Company's bank borrowings and other long-term debt are
as follows for the years ending March 31 (in thousands):
2003................................... $ 282,478
2004................................... 26,193
2005................................... 15,635
2006................................... 8,473
2007................................... 4,592
Thereafter............................. 788,189
------------
$ 1,125,560
============
5. FINANCIAL INSTRUMENTS
The value of the Company's cash and cash equivalents, investments,
accounts receivable and accounts payable carrying amount approximates fair
value. The fair value of the Company's long-term debt (see Note 4, "Bank
Borrowings and Long-Term Debt") is determined based on current broker trading
prices. The Company's cash equivalents are comprised of cash deposited in money
market accounts, corporate debt securities and certificates of deposit (see Note
2, "Summary of Accounting Policies"). The Company's investment policy limits the
amount of credit exposure to 20% of the total investment portfolio in any single
issuer.
The Company enters into forward exchange contracts to hedge underlying
transactional currency exposures and does not engage in foreign currency
speculation. The credit risk of these forward contracts is minimal since the
contracts are with large financial institutions. The Company hedges committed
exposures and these forward contracts generally do not subject the Company to
risk of accounting losses. The gains and losses on forward contracts generally
offset the gains and losses on the assets, liabilities and transactions hedged.
The Company's off-balance sheet financial instruments consisted of $200.4
million of aggregate foreign currency forward contracts outstanding at the end
of fiscal year 2001. On April 1, 2001, the Company adopted SFAS No. 133, as
amended by SFAS No. 137 and No. 138, and as such all foreign currency forward
contracts are reported on the balance sheet at fair value. The aggregate
outstanding contracts at the end of fiscal year 2002 was $475.4 million. The
majority of these foreign exchange contracts expire in less than one month, and
almost all expire within three months. They will settle in Euro, British pound,
Japanese yen, Norwegian kronor, Singapore dollar, Swedish kronor, Swiss franc
and United States dollar.
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 2002 and 2001, the Company has financed a total of $81.0
million and $142.8 million, respectively, in machinery and equipment purchases
with capital leases. Accumulated depreciation for property and equipment under
capital leases totaled $36.8 million and $61.2 million at March 31, 2002 and
2001, respectively. These capital leases have interest rates ranging from 2.09%
to 17.9%. The Company also leases certain of its facilities under non-cancelable
operating leases. The capital and operating leases expire in various years
through 2034 and require the following minimum lease payments for the years
ended March 31 (in thousands):
CAPITAL OPERATING
--------- -----------
2003.................................................. $ 24,414 $ 107,966
2004.................................................. 9,364 73,769
2005.................................................. 2,079 40,955
2006.................................................. 1,468 27,114
2007.................................................. 207 21,057
Thereafter............................................ 1,409 108,366
--------- -----------
Minimum lease payments................................ 38,941 $ 379,227
===========
Amount representing interest.......................... (2,173)
---------
Present value of minimum lease payments............... 36,768
Current portion....................................... (16,557)
---------
Capital lease obligations, net of current portion..... $ 20,211
---------
27
Total rent expense was $93.0 million, $78.7 million, $50.7 million and for
the years ended March 31, 2002, 2001 and 2000, respectively.
Included in the above remaining operating lease payments are payments
under two leases on properties located in Mexico and Texas in the amounts of
$22.9 million and $39.4 million, respectively. Upon the expiration of these
leases in 2006 and 2008, respectively, the Company may renew the leases for an
additional five years subject to certain approvals and conditions, or arrange a
sale of the buildings to a third party. The Company also has the right to
purchase the buildings at fair market value at the end of the lease terms, or to
terminate the leases at any time by paying the outstanding termination value.
The Company has provided a residual value guarantee, which means that if the
building is sold to a third party, the Company is responsible for making up any
shortfall between the actual sales price and the amount funded under the leases.
The Company believes that the fair market value at March 31, 2002 exceeds the
value of the residual guarantee.
In fiscal 2002, the Company entered into a receivables securitization
agreement and sold a designated pool of qualified trade receivables to a third
party qualified special purpose entity, which in turn sold an undivided
ownership interest to a conduit, administrated by an unaffiliated financial
institution. The agreement, which expires in March 2003, is subject to annual
renewal and has a current maximum limit of $250.0 million. As of March 31, 2002,
we received net cash proceeds of $105.3 million, which reflects the net accounts
receivable sold from the start of the securitization agreement. The accounts
receivable balances that were sold were removed from the consolidated balance
sheet and the proceeds received from the sale are reflected as cash provided by
operating activities in the consolidated statement of cash flows. The Company
accounts for its sale of receivables to the qualified special purpose entity, as
sales under SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities."
The Company participates in the securitization agreement as an investor
conduit. This is to allow the operating subsidiaries to receive full cash
payment for sold receivables, less a deferred purchase price receivable, which
amounted to $10.0 million on March 31, 2002, representing a reserve for
potential credit losses, interest and fees. Depending on the collection
performance of sold receivables, the Company's portion of the total investment
varies. On March 31, 2002, the Company's investment was approximately $53.5
million, classified as Other Assets in the Company's consolidated balance sheet.
The Company will continue to service, administer and collect the
receivables on the behalf of the limited purpose entity and receives a servicing
fee approximately 1% of sold receivables per annum, which management has
determined approximates market compensation for these services. The Company pays
facility and commitment fees of up to 0.24% for unused amounts under the line
and program fees of up to 0.34% of outstanding amounts.
We are party to various legal proceedings that arise in the normal course
of business. In the opinion of management, the ultimate disposition of these
proceedings will not have a material adverse effect on our consolidated
financial position, liquidity or results of operations.
7. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes
were comprised of the following for the years ended March 31 (in thousands):
2002 2001 2000
---------- ---------- ----------
Singapore.......................... $ 146,820 $ (269,771) $ 32,377
Foreign............................ (389,422) (282,533) 149,271
---------- ---------- ----------
Total......................... $ (242,602) $ (552,304) $ 181,648
========== ========== ==========
The provision for (benefit from) income taxes consisted of the following
for the years ended March 31 (in thousands):
28
2002 2001 2000
---------- ---------- ----------
Current:
Singapore.......................................... $ 2,807 $ 6,607 $ 839
Foreign............................................ 22,760 27,170 35,406
---------- ---------- ----------
25,567 33,777 36,245
---------- ---------- ----------
Deferred:
Singapore.......................................... 1,913 (2,206) 2,870
Foreign............................................ (116,334) (137,856) (16,035)
---------- ---------- ----------
(114,421) (140,062) (13,165)
---------- ---------- ----------
Provision for (benefit from) income taxes....... $ (88,854) $ (106,285) $ 23,080
========== ========== ==========
The Singapore statutory income tax rate was approximately 24.5% for
each of the years in the two year period ended March 31, 2002 and 26.0%
the period ended March 31, 2000. The reconciliation of the income tax
expense (benefit) expected based on Singapore statutory income tax rates
to the provision for income taxes included in the consolidated statements
of operations for the years ended March 31 is as follows (in thousands):
2002 2001 2000
---------- ---------- ----------
Income taxes based on Singapore statutory rates........... $ (59,438) $ (135,315) $ 47,133
Effect of tax rate differential........................... (131,261) (138,105) (41,984)
Goodwill and other intangibles amortization............... 3,091 15,568 4,334
Motorola unusual charge................................... -- 70,201 --
Merger expenses........................................... -- 16,059 --
Change in valuation allowance............................. 116,226 26,848 15,993
Other..................................................... (17,472) 38,459 (2,396)
---------- ---------- ----------
Provision for (benefit from) income taxes............ $ (88,854) $ (106,285) $ 23,080
========== ========== ==========
The components of deferred income taxes are as follows as of March 31 (in
thousands):
2002 2001
---------- ----------
Deferred tax liabilities:
Fixed assets................................................. $ (16,323) $ --
Intangible assets............................................ -- (6,665)
Others....................................................... (3,555) (803)
---------- ----------
Total deferred tax liabilities............................ (19,878) (7,468)
---------- ----------
Deferred tax assets:
Fixed assets................................................. -- 15,855
Intangible assets............................................ 8,944 --
Deferred compensation........................................ 60,939 43,147
Provision for inventory obsolescence......................... 37,792 35,760
Provision for doubtful accounts.............................. 10,963 8,782
Net operating loss and other carryforwards................... 508,626 145,274
Others....................................................... 50,382 43,715
---------- ----------
677,646 292,533
Valuation allowances........................................... (292,818) (102,792)
---------- ----------
Total deferred tax asset.................................. $ 384,828 $ 189,741
---------- ----------
Net deferred tax asset......................................... $ 364,950 $ 182,273
---------- ----------
The net deferred tax asset is classified as follows:
Current...................................................... $ 51,954 $ 42,595
Long-term.................................................... 312,996 139,678
---------- ----------
Total..................................................... $ 364,950 $ 182,273
========== ==========
A deferred tax asset arises from available loss carryforwards and
non-deductible accruals. The Company has total tax loss carryforwards of
approximately $1.3 billion, a portion of which begin expiring in tax year 2010.
The utilization of these tax loss deductions is limited to the future operations
of the Company in the tax jurisdictions in which such loss deductions arose. As
a result, management is uncertain as to when or whether these operations will
generate sufficient profit to realize the deferred tax asset benefit. The
valuation allowance provides a reserve against deferred tax assets that may
expire or go unutilized by the Company. However, management has determined that
it is more likely than not that the Company will realize certain of these
benefits and, accordingly, has recognized a deferred tax asset from these
benefits. Approximately $20.0 million of the valuation allowance relates to
income tax benefits arising from the exercise of stock options which will be
credited directly to stockholders' equity and will not be available to benefit
the income tax provision in any future period.
29
The amount of deferred tax assets considered realizable, however, could be
reduced or increased in the near-term if facts, including the amount of taxable
income or the mix of taxable income between subsidiaries, differ from
management's estimates.
The Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiaries, as such earnings are not intended by
management to be repatriated in the foreseeable future. Determination of the
amount of the unrecognized deferred tax liability on these undistributed
earnings is not practicable.
8. SHAREHOLDERS' EQUITY
SECONDARY OFFERINGS
During fiscal 2002, 2001, and 2000, the Company completed various
secondary offerings of its ordinary shares. The Company received net proceeds of
approximately $503.8 million (20,000,000 ordinary shares sold) $1.4 billion
(39,650,000 ordinary shares sold) and $1.2 billion (67,018,000 ordinary shares
sold) in fiscal years 2002, 2001 and 2000, respectively.
STOCK SPLITS
In fiscal 2001, the Company effected a 2:1 stock split. A distribution of
209,001,331 ordinary shares occurred on October 16, 2000. In fiscal 2000, the
Company effected a 2:1 stock split, resulting in the distribution of 57,497,204
ordinary shares on December 22, 1999. Each of the stock splits was effected as a
bonus issue (the Singapore equivalent of a stock dividend). The Company has
accounted for these transactions as a stock split and all share and per share
amounts have been retroactively restated to reflect all stock splits.
STRATEGIC ALLIANCE
In connection with the Company's strategic alliance with Motorola Inc.
("Motorola") in May 2000, Motorola paid $100.0 million for an equity instrument
that entitled it to acquire 22,000,000 million Flextronics ordinary shares at
any time through December 31, 2005 upon meeting targeted purchase levels or
making additional payments to the Company. The issuance of this equity
instrument resulted in a one-time charge equal to the excess of the fair value
of the equity instrument issued over the $100.0 million proceeds received. As a
result, the one-time non-cash charge amounted to approximately $286.5 million
offset by a corresponding credit to additional paid-in capital in the first
quarter of fiscal 2001.
In June 2001, the Company entered into an agreement with Motorola under
which it repurchased this equity instrument for $112.0 million. The fair value
of the equity instrument on the date it was repurchased exceeded the amount paid
to repurchase the equity instrument. Accordingly, the Company accounted for the
repurchase of the equity instrument as a reduction to shareholders' equity in
the accompanying consolidated statement of shareholders' equity.
STOCK-BASED COMPENSATION
The Company's 2001 Equity Incentive Plan (the "2001 Plan") provides for
grants of up to 7,000,000 stock options. Additionally, the remaining shares that
are available under the Company's 1993 Share Option Plan (the "1993 Plan") and
any shares issuable upon exercise of the options granted under the 1993 Plan
that expire or become unexercisable for any reason without having been exercised
in full, will be available for grant under the 2001 Plan. The adoption of the
2001 Plan mandated that no additional options be granted under the 1993 Plan.
Any options outstanding under the 1993 Plan will remain outstanding until
exercised or until they terminate or expire by their terms. The 2001 Plan
contains two separate equity incentive programs including a discretionary option
grant program and an automatic option grant program. The discretionary option
grant program is administered by the Compensation Committee with respect to
officers and directors and by the Chairman of the Company's Board, with respect
to all other employees.
Options issued under the 2001 Plan and 1993 Plan generally vest over 4
years. Options granted under the 2001 Plan expire 10 years from the date of
grant. Pursuant to an amendment to the provisions relating to the term of
options provided under the 1993 Plan, options granted subsequent to October 1,
2000 expire 10 years from the date of grant,
30
rather than the five-year term previously provided. The 2001 Plan and 1993 Plan
provide for option grants at an exercise price equal to the fair market value
per ordinary share on the option grant date.
The Company's 1997, 1998 and 1999 Interim Option Plans provide for grants
of up to 2,000,000, 3,144,000, and 5,200,000 stock options, respectively. These
plans provide grants of non-statutory stock options to employees and other
qualified individuals to purchase ordinary shares of the Company. Options under
these plans cannot be granted to executive officers and directors. All Interim
Option Plans have an exercise price of not less than 85% of the fair market
value of the underlying stock on the date of grant. Options issued under these
plans generally vest over 4 years and expire 5 years from the date of grant.
The Company's Employee Stock Purchase Plan (the "Purchase Plan") provides
for issuance of up to 2,400,000 ordinary shares. The Purchase Plan was approved
by the shareholders in October 1997. Under the Purchase Plan, employees may
purchase, on a periodic basis, a limited number of ordinary shares through
payroll deductions over a six-month period up to 10% of each participant's
compensation. The per share purchase price is 85% of the fair market value of
the stock at the beginning or end of the offering period, whichever is lower.
The ordinary shares sold under this plan in fiscal 2002, 2001 and 2000, amounted
to 767,301, 445,476 and 2,117,740, respectively. The weighted-average fair value
of ordinary shares sold under this plan in fiscal 2002, 2001 and 2000 was
$20.08, $20.00 and $7.74 per share, respectively.
The following table gives information about equity awards under the
Company's 2001 Plan; 1993 Plan; 1997, 1998 and 1999 Interim Option Plans; and
Purchase Plan.
(A) (B) (C)
NUMBER OF ORDINARY SHARES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF ORDINARY WEIGHTED-AVERAGE EQUITY COMPENSATION
SHARES TO BE ISSUED EXERCISE PRICE PLANS (EXCLUDING ORDINARY
UPON EXERCISE OF OF OUTSTANDING SHARES REFLECTED
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS IN COLUMN (A))
------------- ------------------- ---------------- -------------------------
Equity compensation plans approved by shareholders... 33,975,652 $ 17.84 6,691,359(1)
Equity compensation plans not approved by
shareholders(3).................................... 3,547,859 $ 8.08 2,866,999(2)
---------- ------- ---------
Total................................................ 37,523,511 $ 16.92 9,558,358
========== ======= =========
----------
(1) Of these shares, 6,060,736 shares remain available for grant under the
2001 Plan and 630,623 shares remain available for purchase under the
Purchase Plan.
(2) Of these shares, 2,197,165 shares remain available for grant under the
1999 Interim Option Plan, 177,470 shares remain available for grant under
the 1998 Interim Option Plan and 492,364 shares remain available for grant
under the 1997 Interim Option Plan.
(3) The Company has certain option plans and the underlying options of
companies, which the Company has merged with or acquired (the "Assumed
Plans"). Total stock options assumed under these plans amounted to
8,097,628. These options have a weighted average exercise price of $6.12
per share. Options under the Assumed Plans have been converted into the
Company's options and adjusted to effect the appropriate conversion ratio
as specified by the applicable acquisition agreement, but are otherwise
administered in accordance with the terms of the Assumed Plans. Options
under the Assumed Plans generally vest over 4 years and expire 10 years
from the date of grant. No further awards will be made under the Assumed
Plans. Statistics regarding the assumed options are not included in the
above table.
The following table presents the activity for options outstanding under
all of the stock option plans as of March 31 ("Price" reflects the weighted
average exercise price):
31
2002 2001 2000
--------------------- --------------------- ---------------------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- ---------- ---------
Outstanding, beginning of year ............... 47,235,431 $ 13.35 44,853,772 $ 7.46 39,283,808 $ 4.25
Granted ...................................... 9,009,567 16.51 14,655,646 23.23 11,668,916 13.49
Exercised .................................... (7,989,287) 5.43 (11,404,613) 5.54 (4,990,596) 3.57
Forfeited .................................... (2,614,572) 18.86 (869,374) 23.98 (1,108,356) 6.30
---------- ---------- ----------
Outstanding, end of year ..................... 45,641,139 $ 15.00 47,235,431 $ 13.35 44,853,772 $ 7.46
========== ========== ==========
Exercisable, end of year ..................... 24,490,124 21,065,008 13,583,702
========== ========== ==========
Weighted average fair value per option granted $ 12.43 $ 12.60 $ 7.44
========== ========== ==========
The following table presents the composition of options outstanding and
exercisable as of March 31, 2002 ("Price" and "Life" reflect the weighted
average exercise price and weighted average contractual life unless otherwise
noted):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF -------------------- ----------------------------
EXERCISE PRICES AMOUNT PRICE LIFE AMOUNT PRICE
--------------- ---------- ------- ---- ---------- -------
$0.39 - $5.61 9,849,974 $ 3.73 2.90 9,432,591 $ 3.70
6.00 - 13.98 9,532,019 9.03 4.26 6,657,655 8.59
14.03 - 18.19 9,967,710 15.33 6.56 2,493,666 14.79
18.53 - 23.19 9,534,444 22.72 8.18 2,902,109 22.55
23.61 - 44.12 6,756,992 28.43 3.42 3,004,103 28.43
---------- ----------
Total, March 31, 2002 45,641,139 $ 15.00 5.16 24,490,124 $ 11.43
========== ==========
The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option plans and employee stock purchase plans and has adopted the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation."
Because the exercise price of the Company's stock options has equaled the fair
value of the underlying stock on the date of grant, no compensation expense has
been recognized under APB Opinion No. 25. Had the compensation cost for the
Company's stock-based compensation plans been determined based on the fair
values of these options, the Company's fiscal 2002, 2001 and 2000 net income
(loss) and earnings (loss) per share would have been adjusted to the proforma
amounts indicated below:
YEARS ENDED MARCH 31,
-----------------------------------
2002 2001 2000
---------- ---------- ----------
Net income (loss):
As reported............................ $ (153,748) $ (446,019) $ 158,568
Proforma............................... (220,925) (596,494) 133,319
Basic earnings (loss) per share:
As reported............................ $ (0.31) $ (1.01) $ 0.44
Proforma............................... (0.45) (1.35) 0.37
Diluted earnings (loss) per share:
As reported............................ $ (0.31) $ (1.01) $ 0.42
Proforma............................... (0.45) (1.35) 0.35
In accordance with the disclosure provisions of SFAS No. 123, the fair
value of employee stock options granted during fiscal 2002, 2001 and 2000 was
estimated at the date of grant using the Black-Scholes model and the following
weighted average assumptions:
YEARS ENDED MARCH 31,
------------------------------
2002 2001 2000
-------- -------- --------
Volatility........................... 62% 62% 58%
Risk-free interest rate range........ 6.3% 6.3% 6.2%
Dividend yield....................... 0% 0% 0%
Expected lives....................... 9.6 yrs 3.6 yrs 3.5 yrs
Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the proforma net income (loss) and earnings (loss) per
share disclosures may not reflect the associated fair value of the outstanding
options.
9. UNUSUAL CHARGES
FISCAL 2002
32
The Company recognized unusual pre-tax charges of approximately $574.4
million during fiscal 2002, of which $530.0 million related to closures of
several manufacturing facilities and $44.4 million was primarily for the
impairment of investments in certain technology companies. As further discussed
below, $464.4 million of the charges relating to facility closures have been
classified as a component of Cost of Sales.
Unusual charges recorded in fiscal 2002 by segments are as follows:
Americas, $265.8 million; Asia, $70.7 million; Western Europe, $185.4 million;
and Central Europe, $52.5 million.
The components of the unusual charges recorded in fiscal 2002 are as follows
(in thousands):
Facility closure costs:
Severance.......................................... $ 153,598 cash
Long-lived asset impairment...................... 163,724 non-cash
Other exit costs................................. 212,660 cash/non-cash
------------
Total facility closure costs.................. 529,982
Other unusual charges.............................. 44,444 cash/non-cash
------------
Total Unusual Charges......................... 574,426
------------
Income tax benefit................................. (122,948)
------------
Net Unusual Charges........................... $ 451,478
============
In connection with the fiscal 2002 facility closures, the Company developed
formal plans to exit certain activities and involuntarily terminate employees.
Management's plan to exit an activity included the identification of duplicate
manufacturing and administrative facilities for closure or consolidation into
other facilities. Management currently anticipates that the facility closures
and activities to which all of these charges relate will be substantially
completed within one year of the commitment dates of the respective exit plans,
except for certain long-term contractual obligations.
Of the total pre-tax facility closure costs recorded in fiscal 2002, $153.6
million related to employee termination costs, of which $118.4 million has been
classified as a component of Cost of Sales. As a result of the various exit
plans, the Company identified 13,391 employees to be involuntarily terminated
related to the various facility closures. As of March 31, 2002, 7,444 employees
had been terminated, and another 5,947 employees had been notified that they are
to be terminated upon completion of the various facility closures and
consolidations. During fiscal 2002, the Company paid employee termination costs
of approximately $86.0 million, related to the fiscal 2002 restructuring
activities. The remaining $67.6 million of employee termination costs was
classified as accrued liabilities as of March 31, 2002 and is expected to be
paid out within one year of the commitment dates of the respective exit plans.
The unusual pre-tax charges recorded in fiscal 2002 included $163.7 million
for the write-down of property, plant and equipment associated with various
manufacturing and administrative facility closures from their carrying value of
$232.6 million. This amount has been classified as a component of Cost of Sales
during fiscal 2002. Certain assets will be held for use and remain in service
until their anticipated disposal dates pursuant to the exit plans. Since the
assets will remain in service from the date of the decision to dispose of these
assets to the anticipated disposal date, the assets are being depreciated over
this expected period. For assets being held for use, an impairment loss is
recognized if the carrying amount of the asset exceeds its fair value. Certain
other assets will be held for disposal as these assets are no longer required in
operations. Assets held for disposal are no longer being depreciated. For assets
being held for disposal, an impairment loss is recognized if the carrying amount
of the asset exceeds its fair value less cost to sell. The impaired long-lived
assets consisted of machinery and equipment of $105.7 million and building and
improvements of $58.0 million.
The unusual pre-tax charges, also included approximately $212.7 million for
other exit costs. Approximately $182.3 million of this amount has been
classified as a component of Cost of Sales. Other exit costs included
contractual obligations totaling $61.6 million, which were incurred directly as
a result of the various exit plans. The contractual obligations consisted of
facility lease terminations amounting to $27.2 million, equipment lease
terminations amounting to $13.2 million and payments to suppliers and third
parties to terminate contractual agreements amounting to $21.2 million. The
Company expects to make payments associated with its contractual obligations
with respect to facility and equipment leases through the end of fiscal 2007 and
with respect to the other contractual obligations with suppliers and third
parties through fiscal 2003. Other exit costs also included charges of $98.0
million relating to asset impairments resulting from customer contracts that
were breached, when they were terminated by the Company, as a result of various
facility closures. These asset impairments
33
were determined based on the difference between the carrying amount and the
realizable value of the impaired inventory and accounts receivable. The Company
disposed of the impaired assets, primarily through scrapping and write-offs, by
the end of fiscal 2002. Also included in other exit costs were charges amounting
to $8.0 million for the incremental costs for warranty work incurred by the
Company for products sold prior to the commitment dates of the various exit
plans. Other exit costs also included $8.2 million of facility refurbishment and
abandonment costs related to certain building repair work necessary to prepare
the exited facilities for sale or return the facilities to its landlords. The
remaining $36.9 million, primarily included incremental amounts of legal and
environmental costs, and various government obligations payable by the Company
as a direct result of its facility closures. The Company paid approximately
$42.5 million of other exit costs in fiscal 2002, related to the fiscal 2002
facility closures. Additionally, approximately $111.5 million of non-cash
charges were utilized during fiscal 2002. The remaining balance includes
approximately $46.7 million, classified as accrued liabilities as of March 31,
2002, which will be substantially paid out within one year of the commitment
dates of the respective exit plans; and certain long-term contractual
obligations of approximately $12.0 million, classified as other long-term
liabilities as of March 31, 2002.
FISCAL 2001
The Company recognized unusual pre-tax charges of approximately $973.3
million during fiscal year 2001. Of this amount, $493.1 million was recorded in
the first quarter and was comprised of approximately $286.5 million related to
the issuance of an equity instrument to Motorola combined with approximately
$206.6 million of expenses resulting from The DII Group, Inc. and Palo Alto
Products International Pte. Ltd. mergers and related facility closures. In the
second quarter, unusual pre-tax charges amounted to approximately $48.4 million
associated with the mergers with Chatham Technologies, Inc. and Lightning Metal
Specialties (and related entities) and related facility closures. In the third
quarter, the Company recognized unusual pre-tax charges of approximately $46.3
million, primarily related to the merger with JIT Holdings Ltd. and related
facility closures. During the fourth quarter, the Company recognized unusual
pre-tax charges, amounting to $376.1 million related to closures of several
manufacturing facilities and $9.5 million of other unusual charges, specifically
for the impairment of investments in certain technology companies.
On May 30, 2000, the Company entered into a strategic alliance for product
manufacturing with Motorola. In connection with this strategic alliance,
Motorola paid $100.0 million for an equity instrument that entitled it to
acquire 22,000,000 million Flextronics ordinary shares at any time through
December 31, 2005, upon meeting targeted purchase levels or making additional
payments to the Company. The issuance of this equity instrument resulted in a
one-time non-cash charge equal to the excess of the fair value of the equity
instrument issued over the $100.0 million proceeds received. As a result, the
one-time non-cash charge amounted to approximately $286.5 million offset by a
corresponding credit to additional paid-in capital in the first quarter of
fiscal 2001. In June 2001, the Company entered into an agreement with Motorola
under which the Company repurchased this equity instrument for $112.0 million.
Unusual charges excluding the Motorola equity instrument by segments are as
follows: Americas, $553.1 million; Asia, $86.5 million; Western Europe, $32.9
million; and Central Europe, $14.3 million. Unusual charges related to the
Motorola equity instrument is not specific to a particular segment, and as such,
has not been allocated to a particular geographic segment.
The components of the unusual charges recorded in fiscal 2001 are as follows
(in thousands):
FIRST SECOND THIRD FOURTH TOTAL FISCAL
QUARTER QUARTER QUARTER QUARTER 2001 NATURE OF
CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
----------- --------- --------- ------------ ------------ -------------
Facility closure costs:
Severance.................................. $ 62,487 $ 5,677 $ 3,606 $ 60,703 $ 132,473 cash
Long-lived asset impairment................ 46,646 14,373 16,469 155,046 232,534 non-cash
Other exit costs........................... 24,201 5,650 19,703 160,368 209,922 cash/non-cash
----------- --------- --------- ------------ ------------
Total facility closure costs............. 133,334 25,700 39,778 376,117 574,929
Direct transaction costs:
Professional fees.......................... 50,851 7,247 6,250 -- 64,348 cash
Other costs................................ 22,382 15,448 248 -- 38,078 cash/non-cash
----------- --------- --------- ------------ ------------
Total direct transaction costs........... 73,233 22,695 6,498 -- 102,426
----------- --------- --------- ------------ ------------
Motorola equity instrument................... 286,537 -- -- -- 286,537 non-cash
----------- --------- --------- ------------ ------------
Other unusual charges........................ -- -- -- 9,450 9,450 non-cash
----------- --------- --------- ------------ ------------
34
Total Unusual Charges.................... 493,104 48,395 46,276 385,567 973,342
----------- --------- --------- ------------ ------------
Income tax benefit........................... (30,000) (6,000) (6,500) (110,000) (152,500)
----------- --------- --------- ------------ ------------
Net Unusual Charges...................... $ 463,104 $ 42,395 $ 39,776 $ 275,567 $ 820,842
=========== ========= ========= ============ ============
In connection with the fiscal 2001 facility closures, the Company developed
formal plans to exit certain activities and involuntarily terminate employees.
Management's plan to exit an activity included the identification of duplicate
manufacturing and administrative facilities for closure or consolidation into
other facilities. Management currently anticipates that the facility closures
and activities to which all of these charges relate will be substantially
completed within one year of the commitment dates of the respective exit plans,
except for certain long-term contractual obligations. As discussed below, $510.5
million of the charges relating to facility closures have been classified as a
component of Cost of Sales during the fiscal year ended March 31, 2001.
Of the total pre-tax facility closure costs recorded in fiscal 2001, $132.5
million related to employee termination costs, of which $68.1 million has been
classified as a component of Cost of Sales. As a result of the various exit
plans, we identified 11,269 employees to be involuntarily terminated related to
the various mergers and facility closures. As of March 31, 2002, substantially
all the employees have been terminated. The remaining headcount are working to
finalize our exit plans and will be terminated by the end of the first quarter
of fiscal 2003. During fiscal 2002, the Company paid employee termination costs
of approximately $47.4 million. The remaining $24.3 million of employee
termination costs was classified as accrued liabilities as of March 31, 2002 and
is expected to be paid by the end of the first quarter of fiscal 2003, except
for certain long-term contractual obligations, which will be completed by the
end of fiscal 2005.
The unusual pre-tax charges recorded in fiscal 2001 included $232.5 million
for the write-down of long-lived assets to fair value. This amount has been
classified as a component of Cost of Sales during fiscal 2001. Included in the
long-lived asset impairment are charges of $229.1 million, which related to
property, plant and equipment associated with the various manufacturing and
administrative facility closures, which were written down to their fair value of
$192.0 million as of March 31, 2001. Certain assets will be held for use and
remain in service until their anticipated disposal dates pursuant to the exit
plans. Since the assets will remain in service from the date of the decision to
dispose of these assets to the anticipated disposal date, the assets are being
depreciated over this expected period. For assets being held for use, an
impairment loss is recognized if the carrying amount of the asset exceeds its
fair value. Certain other assets will be held for disposal, as these assets are
no longer required in operations. Assets held for disposal are no longer being
depreciated. For assets being held for disposal, an impairment loss is
recognized if the carrying amount of the asset exceeds its fair value less cost
to sell. The impaired long-lived assets consisted primarily of machinery and
equipment of $153.0 million and building and improvements of $76.1 million. The
long-lived asset impairment also included the write-off of the remaining
goodwill and other intangibles related to certain closed facilities of $3.4
million.
The unusual pre-tax charges recorded in fiscal 2001 also included
approximately $209.9 million for other exit costs, which have been classified as
a component of Cost of Sales. Other exit costs included contractual obligations
totaling $85.4 million, which were incurred directly as a result of the various
exit plans. These contractual obligations consisted of facility lease
terminations amounting to $26.5 million, equipment lease terminations amounting
to $31.4 million and payments to suppliers and other third parties to terminate
contractual agreements amounting to $27.5 million. The Company expects to make
payments associated with its contractual obligations with respect to facility
and equipment leases through the end of fiscal 2006. All payments with respect
to the other contractual obligations with suppliers and other third parties were
paid in fiscal 2002. Other exit costs also included charges of $77.0 million
relating to asset impairments resulting from customer contracts that were
breached, when they were terminated by the Company, as a result of various
facility closures. These asset impairments were determined based on the
difference between the carrying amount and the realizable value of the impaired
inventory and accounts receivable. The Company disposed of the impaired assets,
primarily through scrapping and write-offs, by the end of fiscal 2001. Also
included in other exit costs were charges amounting to $16.1 million for the
incremental costs for warranty work incurred by us for products sold prior to
the commitment dates of the various exit plans. Other exit costs also included
$11.6 million of facility refurbishment and abandonment costs related to certain
building repair work necessary to prepare the exited facilities for sale or
return the facilities to its landlords. The remaining $19.8 million of other
exit costs recorded were primarily associated with incremental amounts of legal
and environmental costs, incurred directly as a result of the various exit plans
and facility closures. During fiscal 2002, the Company paid other exit costs of
approximately $81.4 million. Additionally, approximately $3.9 million of other
exit costs were non-cash charges utilized during fiscal 2002. The remaining
$10.0 million of other exit costs was classified as accrued liabilities as of
March 31, 2002 and is expected to be paid out within one year of the commitment
dates of the respective exit plans, except for certain long-term contractual
obligations, as discussed above.
35
The direct transaction costs recorded in fiscal 2001 included approximately
$64.3 million of costs primarily related to investment banking and financial
advisory fees as well as legal and accounting costs associated with the merger
transactions. Other direct transaction costs which totaled approximately $38.1
million were mainly comprised of accelerated debt prepayment expense,
accelerated executive stock compensation and benefit-related expenses.
Approximately $28.2 million of the direct transaction costs were non-cash
charges utilized during fiscal 2001. During fiscal 2002, the Company paid
approximately $2.7 million of direct transaction costs. The remaining $0.6
million of direct transaction costs was classified in accrued liabilities as of
March 31, 2002 and is expected to be substantially paid out in the first quarter
of fiscal 2003.
The following table summarizes the balance of the facility closure costs as
of March 31, 2002 and the type and amount of closure costs provisioned for and
utilized during fiscal 2001 and 2002.
LONG-LIVED
ASSET OTHER EXIT
SEVERANCE IMPAIRMENT COSTS TOTAL
------------ ------------ ------------ ------------
Balance at March 31, 2000................................ $ -- $ -- $ -- $ --
Activities during the year:
Provision.............................................. 132,473 232,534 219,372 584,379
Cash charges........................................... (60,739) -- (23,116) (83,855)
Non-cash charges....................................... -- (232,534) (100,913) (333,447)
------------ ------------ ------------ ------------
Balance at March 31, 2001................................ 71,734 -- 95,343 167,077
Activities during the year:
Provision.............................................. 153,598 163,724 212,660 529,982
Cash charges........................................... (133,453) -- (123,902) (257,355)
Non-cash charges....................................... -- (163,724) (115,433) (279,157)
------------ ------------ ------------ ------------
Balances at March 31, 2002............................... $ 91,879 $ -- $ 68,668 $ 160,547
============ ============ ============ ============
Less: current portion.................................... 87,896 -- 56,707 144,603
------------ ------------ ------------ ------------
Accrued facility closure costs net of current portion.... $ 3,983 $ -- $ 11,961 $ 15,944
============ ============ ============ ============
FISCAL 2000
In fiscal 2000, the Company recognized unusual pre-tax charges in the
Americas business segment of $7.5 million related to the operations of Chatham,
which included severance and related charges of approximately $4.4 million and
other facility exit costs of approximately $3.1 million.
Additionally, unusual pre-tax charges in the Western Europe business segment
of $3.5 million were recorded in fiscal 2000, related to the Kyrel EMS Oyj
merger. The unusual charges consisted of a transfer tax of $1.7 million,
approximately $0.4 million of investment banking fees and approximately $1.4
million of legal and accounting fees.
10. RELATED PARTY TRANSACTIONS
The Company has loaned approximately $8.6 million to various executive
officers of the Company. Each loan is evidenced by a promissory note in favor of
the Company and is generally secured by a deed of trust on property of the
officer. Certain notes are non-interest bearing and others have interest rates
ranging from 2.48% to 7.25%. The remaining outstanding balance of the loans,
including accrued interest, as of March 31, 2002 was approximately $8.7 million.
Additionally, in connection with an investment partnership, one of the
Company's subsidiaries has entered into loans with various officers of the
Company. The only members of the partnership are the various officers of the
Company. Each loan is evidenced by a full recourse promissory note in favor of
the subsidiary. Interest rates on the notes range from 5.72% to 6.09%. The
remaining balance of the loans, including accrued interest, as of March 31, 2002
was approximately $10.3 million.
11. BUSINESS COMBINATIONS AND PURCHASES OF ASSETS
FISCAL 2002
Business Acquisitions and Purchases of Assets
36
In April 2001, the Company entered into a definitive agreement with Ericsson
to provide a substantial portion of Ericsson's mobile phone production and
distribution requirements. The Company assumed responsibility for product
assembly, new product prototyping, supply chain management and logistics
management in which we process customer orders from Ericsson and configure and
ship products to Ericsson's customers. In connection with this relationship, the
Company employed the existing workforce for certain operations, and purchased
from Ericsson certain inventory, equipment and other assets, and assumed certain
accounts payable and accrued expenses at their net book value of approximately
$363.9 million. This acquisition was accounted for as a purchase of assets.
In July 2001, the Company acquired Alcatel SA's ("Alcatel") manufacturing
facility and related assets located in Laval, France. The acquisition was
accounted for as a purchase of assets. In connection with this acquisition, the
Company entered into a long-term supply agreement with Alcatel to provide
printed circuit board assembly, final systems assembly and various engineering
support services. The Company purchased from Alcatel certain inventory,
equipment and other assets, and assumed certain accounts payable and accrued
expenses at their net book value of approximately $32.4 million.
In October 2001, the Company announced a manufacturing agreement with Xerox
Corporation ("Xerox"). The Company acquired Xerox's manufacturing business
operations in Aguascalientes, Mexico; Penang, Malaysia; Resende, Brazil;
Toronto, Canada and Venray; Netherlands. The Company has purchased certain
assets totaling $165.1 million in fiscal 2002 and estimates an additional $30.0
million of assets to be purchased in the first quarter of fiscal 2003.
Additionally, the Company entered into a five-year agreement for the manufacture
of certain Xerox office equipment and components.
In December 2001, the Company completed its acquisition of 91% of The
Orbiant Group ("Orbiant") from Telia, Sweden's largest telecommunications
network provider. Orbiant is a provider of services focusing on the design,
operation, maintenance and management of telecommunications networks. The cash
purchase price, net of cash acquired, amounted to approximately $80.6 million.
During fiscal 2002, the Company completed certain other business
acquisitions that were immaterial to the Company's results from operations and
financial position. The aggregate cash purchase price for these acquisition, net
of cash acquired, amounted to approximately $68.8 million. Additionally,
approximately 7.3 million ordinary shares were issued for the acquisitions,
which equated to approximately $163.4 million of purchase price. The fair value
of the ordinary shares issued was determined based on the quoted market prices
of the Company's ordinary shares for a reasonable period, generally three days,
before and after the date the terms of the acquisitions were agreed and
announced. The aggregate purchase price paid for these business acquisitions was
allocated to the net assets acquired based on their estimated fair values at the
dates of the acquisitions.
The costs of the fiscal 2002 acquisitions, including estimated acquisition
closing costs, have been allocated on the basis of the estimated fair value of
assets acquired and liabilities assumed. The purchase price for certain of these
acquisitions is subject to adjustments for contingent consideration, based upon
the businesses achieving specified levels of earnings through December 2004. The
contingent consideration has not been recorded as purchase price, pending the
outcome of the contingency. Goodwill and intangibles resulting from these
acquisitions amounted to approximately $548.8 million. The respective
intangibles associated with these acquisitions are amortized over various years,
none of which exceed ten years. Also, during the current fiscal year, the
Company increased goodwill in the amount of approximately $34.2 million for
contingent purchase price adjustments and other adjustments for historical
acquisitions, which included the issuance of approximately 0.6 million ordinary
shares.
The acquisitions described above have been accounted for by the purchase
method of accounting, and accordingly the results of the acquired businesses
were included in the Company's consolidated statements of operations from the
acquisition dates forward. Comparative proforma information has not been
presented, as the results of the acquired operations were not material to the
Company's consolidated financials statements on either an individual or an
aggregate basis.
FISCAL 2001
Pooling of Interests Mergers
In fiscal 2001, Flextronics acquired 100% of the outstanding shares of The
DII Group, Inc. ("DII"), Lightning Metal Specialties and related entities
("Lightning"), Chatham Technologies, Inc. ("Chatham"), Palo Alto Products
International Pte.
37
Ltd. ("Palo Alto Products International") and JIT Holdings Ltd. ("JIT"). These
acquisitions were accounted for as pooling of interests and the consolidated
financial statements have been prepared to give retroactive effect to the
mergers.
DII is a leading provider of electronics manufacturing and design services.
As a result of the merger, in April 2000, the Company issued approximately 120.8
million ordinary shares for all of the outstanding shares of DII common stock,
based upon the exchange ratio of 3.22 Flextronics ordinary shares for each share
of DII common stock.
Lightning is a provider of fully integrated electronic packaging systems. As
a result of the merger, in August 2000, the Company issued approximately 2.6
million ordinary shares for all of the outstanding shares of Lightning common
stock and interests.
Chatham is a leading provider of integrated electronic packaging systems to
the communications industry. As a result of the merger, in August 2000, the
Company issued approximately 15.2 million ordinary shares for all of the
outstanding Chatham capital stock and interests.
DII and Lightning operated under a calendar year end prior to merging with
Flextronics and, accordingly, their respective balance sheets, statements of
operations, shareholders' equity and cash flows as of December 31, 1999 and for
each of the two years ended December 31, 1999 have been combined with the
Company's consolidated financial statements as of March 31, 2000 and for each of
the two fiscal years ended March 31, 2000. Chatham operated under a fiscal year
which ended on the Saturday closest to September 30 prior to merging with
Flextronics and, accordingly, Chatham's balance sheets, statements of
operations, shareholders' equity and cash flows as of September 24, 1999 and for
each of the two years ended September 24, 1999 have been combined with the
Company's consolidated financial statements as of March 31, 2000 and for each of
the two fiscal years ended March 31, 2000.
Starting in fiscal 2001, DII, Lightning and Chatham changed their respective
year-ends to conform to the Company's March 31 year-end. Accordingly, DII's and
Lightning's operations for the three months ended March 31, 2000, and Chatham's
operations for the six months ended March 31, 2000, have been excluded from the
consolidated results of operations for fiscal 2001 and reported as an adjustment
to retained earnings. Total net sales, gross profit, selling, general and
administrative expenses, operating loss and total net loss related to the
omitted periods amounted to approximately $898.3 million, $50.0 million, $66.6
million, $33.0 million and $58.3 million, respectively. During the omitted
periods, total cash flows used in operating and investing activities amounted to
approximately $24.9 million and $28 million, respectively, and financing
activities provided approximately $20.2 million.
The net loss of $58.3 million for the omitted period consisted primarily of
the net losses of DII and Chatham, with each company representing about half of
the net loss for the omitted period. With respect to Chatham, the net loss for
that acquired company was relatively consistent both before and during the
omitted period. In the case of DII, the results for that acquired company during
the omitted period was adversely effected by the uncertainties created by the
merger with the Company, which closed April 3, 2000. DII experienced several
customer cancellations during the omitted period due to customer concerns over
the merger and resulting supplier concentration issues. DII also experienced
lower employee productivity during the omitted period due to the uncertainty
over anticipated employee terminations as a result of the merger. The net loss
for Chatham and DII in the omitted period prompted the Company to develop formal
plans to exit certain activities, close certain facilities and involuntarily
terminate employees in the periods following the acquisitions of each company,
which resulted in the unusual charges recorded in fiscal 2001. See Note 9,
"Unusual Charges" for further discussion.
Palo Alto Products International is an enclosure design and plastic molding
company. The Company merged with Palo Alto Products International in April 2000
by exchanging approximately 7.2 million ordinary shares of Flextronics for all
of the outstanding shares of Palo Alto Products International common stock.
JIT is a global provider of electronics manufacturing and design services.
The Company merged with JIT in November 2000, by exchanging approximately 17.3
million ordinary shares of Flextronics for all of the outstanding shares of JIT
common stock.
Palo Alto Products International and JIT operated under the same fiscal year
end as Flextronics, and accordingly, their respective balance sheets, statements
of operations, shareholders' equity and cash flows have been combined with the
Company's consolidated financial statements as of March 31, 1999 and 2000 and
for each of the three fiscal years ended March 31, 2000.
38
The Company also completed several other immaterial pooling of interests
transactions. In connection with these mergers, the Company issued approximately
0.7 million ordinary shares. The historical operations of these entities were
not material to the Company's consolidated operations on either an individual or
an aggregate basis; therefore, prior period statements have not been restated
for these acquisitions.
Business Acquisitions
In fiscal 2001, the Company completed several immaterial business
acquisitions. These transactions have been accounted for under the purchase
method of accounting and accordingly, the results of the acquired businesses
were included in the Company's consolidated statements of operations from the
acquisition dates forward. Comparative proforma information has not been
presented, as the results of the acquired operations were not material to the
Company's consolidated financial statements. In connection with these business
acquisitions, the Company paid total cash consideration of approximately $146.4
million, net of cash acquired, and issued approximately 9.8 million ordinary
shares, which equated to approximately $338.6 million of purchase price. The
fair value of the ordinary shares issued were determined based on the quoted
market prices of the Company's ordinary shares for a reasonable period,
generally three days, before and after the date the terms of the acquisitions
were agreed to and announced.
The aggregate purchase price paid for these business acquisitions was
allocated to the net assets acquired based on their estimated fair values at the
dates of the acquisitions. The purchase price for certain acquisitions is
subject to adjustments for contingent consideration, based upon the businesses
achieving specified levels of earnings through December 2003. The contingent
consideration has not been recorded as purchase price, pending the outcome of
the contingency. The fair value of the net liabilities acquired, amounted to
approximately $117.3 million, including estimated acquisition costs. The costs
of acquisitions have been allocated on the basis of the estimated fair value of
assets acquired and liabilities assumed. Goodwill and intangibles resulting from
these acquisitions amounted to approximately $602.3 million. The respective
intangibles associated with these acquisitions are amortized over various years,
none of which exceed ten years. Also, the Company increased goodwill in the
amount of approximately $12.5 million for contingent purchase price adjustments
for historical acquisitions.
FISCAL 2000
Pooling of Interests Merger
In fiscal 2000, the Company acquired 100% of the outstanding shares of Kyrel
Ems Oyj ("Kyrel") and PCB Assembly, Inc. ("PCB"). These acquisitions were
accounted for as pooling of interests and the consolidated financial statements
have been prepared to give retroactive effect to the mergers.
Kyrel is an electronics manufacturing services provider with operations in
Finland and France. As a result of the merger, the Company issued approximately
7.3 million ordinary shares in exchange for all the outstanding Kyrel shares.
Kyrel operated under a calendar year end, prior to merging with Flextronics, and
accordingly, Kyrel's balance sheets, statements of operations, shareholders'
equity and cash flows as of December 31, 1997 and 1998 and for each of the three
years ended December 31, 1998 have been combined with the Company's consolidated
financial statements as of March 31, 1998 and 1999 and for each of the three
fiscal years ended March 31, 1999. In fiscal 2000, Kyrel's fiscal year end was
changed to conform to the Company's fiscal year end. Accordingly, Kyrel's
operations for the three months ended March 31, 1999, have been excluded from
the consolidated results of operations for fiscal 2000 and have been reported as
an adjustment to retained earnings in the first quarter of fiscal 2000.
PCB is an electronics manufacturing service provider based in the United
States. As a result of the merger, the Company issued approximately 2.2 million
ordinary shares in exchange for all the outstanding PCB shares, of which
approximately 0.2 million ordinary shares are to be issued upon resolution of
certain general and specific contingencies. PCB operated under the same fiscal
year end as the Company and, accordingly, their respective balance sheets,
statements of operations, shareholders' equity and cash flows have been combined
with Flextronics' consolidated financial statements as of March 31, 1999 and
2000 and for each of the three fiscal years ended March 31, 2000.
The Company also completed several other immaterial pooling of interests
transactions in fiscal 2000. In connection with these mergers, the Company
issued 1.8 million ordinary shares. The historical operations of these entities
were not material
39
to the Company's consolidated operations on either an individual or an aggregate
basis; therefore, prior period statements have not been restated for these
acquisitions.
Business Acquisitions
In fiscal 2000, the Company acquired several immaterial businesses and made
a payment of an earn-out arrangement to the former owners of Great Sino
Electronics Technology (a company acquired by DII in August 1998, as further
discussed below). These transactions have been accounted for under the purchase
method of accounting and accordingly, the results of the acquired businesses
were included in the Company's consolidated statements of operations from the
acquisition dates forward. Comparative proforma information has not been
presented, as the results of the acquired operations were not material to the
Company's consolidated financial statements. In connection with these business
acquisitions, the Company paid total cash consideration of approximately $51.6
million, net of cash acquired.
The aggregate purchase price paid for these business acquisitions was
allocated to the net assets acquired based on their estimated fair values at the
dates of the acquisitions. The fair value of the net assets acquired amounted to
approximately $17.9 million, including estimated acquisition costs. The costs of
acquisitions have been allocated on the basis of estimated fair values of assets
acquired and liabilities assumed. Goodwill and intangibles resulting from these
acquisitions amounted to approximately $33.7 million. The respective intangibles
associated with these acquisitions are amortized over ten years. Also, the
Company increased goodwill in the amount of approximately $34.1 million for
contingent purchase price adjustments for historical acquisitions during fiscal
2000.
12. SEGMENT REPORTING
The Company operates and is managed internally by four geographic business
segments. The operating segments include Asia, Americas, Western Europe and
Central Europe. Each operating segment has a regional president that reports to
the Company's Chairman and Chief Executive Officer, who is the chief decision
maker. Revenues are generally attributable to the country in which the product
is manufactured.
Information about segments for the years ended March 31 is as follows (in
thousands):
2002 2001 2000
--------------- --------------- -------------
Net Sales:
Asia....................................................... $ 3,374,749 $ 2,467,629 $ 1,588,665
Americas................................................... 4,155,750 5,466,547 2,936,441
Western Europe............................................. 3,271,961 2,356,281 1,391,965
Central Europe............................................. 3,011,623 2,147,788 1,132,242
Intercompany eliminations.................................. (709,236) (328,546) (90,191)
-------------- -------------- -------------
$ 13,104,847 $ 12,109,699 $ 6,959,122
============== ============== =============
Income (Loss) before Income Taxes:
Asia....................................................... $ 103,722 $ 13,611 $ 102,541
Americas................................................... (152,458) (319,420) (4,149)
Western Europe............................................. (137,457) 7,740 23,833
Central Europe............................................. (5,173) 33,333 44,107
Intercompany eliminations, corporate allocations and
Motorola one-time non-cash charge (see Note 9)............ (51,236) (287,568) 15,316
-------------- -------------- -------------
$ (242,602) $ (552,304) $ 181,648
============== ============== =============
Long-Lived Assets:
Asia....................................................... $ 584,470 $ 503,094 $ 449,824
Americas................................................... 717,898 636,399 712,215
Western Europe............................................. 397,020 371,064 275,935
Central Europe............................................. 333,107 317,884 171,165
-------------- -------------- -------------
$ 2,032,495 $ 1,828,441 $ 1,609,139
============== ============== =============
Depreciation and Amortization:*
Asia....................................................... $ 71,906 $ 54,038 $ 39,889
Americas................................................... 107,515 126,012 86,967
Western Europe............................................. 84,739 56,667 42,534
Central Europe............................................. 55,747 49,734 18,207
-------------- -------------- -------------
$ 319,907 $ 286,451 $ 187,597
============== ============== =============
40
Capital Expenditures:
Asia....................................................... $ 109,623 $ 178,557 $ 155,243
Americas................................................... 126,761 284,340 214,224
Western Europe............................................. 63,703 125,072 52,396
Central Europe............................................. 67,160 193,252 83,570
-------------- -------------- -------------
$ 367,247 $ 781,221 $ 505,433
============== ============== =============
----------
* Excludes unusual charges related to property, plant and equipment and
goodwill impairment charges of $163,724 and $232,534 in fiscal 2002 and
fiscal 2001, respectively. See Note 9, "Unusual Charges," for additional
information regarding unusual charges.
For purposes of the preceding tables, "Asia" includes China, India,
Malaysia, Singapore, Taiwan and Thailand, "Americas" includes Brazil, Canada,
Mexico and the U.S., "Western Europe" includes Denmark, Finland, France,
Germany, Netherlands, Norway, Poland, Spain, Sweden, Switzerland and the United
Kingdom and "Central Europe" includes Austria, the Czech Republic, Hungary,
Ireland, Israel, Italy and Scotland.
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts.
During fiscal 2002, Hungary, Malaysia, Mexico and Sweden accounted for
approximately 12%, 18%, 16% and 11% of net sales, respectively. No other foreign
country accounted for more than 10% of net sales in fiscal 2002. China accounted
for approximately 16% of long-lived assets at March 31, 2002. No other foreign
country accounted for more than 10% of long-lived assets at March 31, 2002.
During fiscal 2001, China accounted for over 10% of net sales. No other
foreign country accounted for more than 10% of net sales in fiscal 2001. China
and Hungary accounted for approximately 17% and 11% of long-lived assets at
March 31, 2001, respectively. No other foreign country accounted for more than
10% of long-lived assets at March 31, 2001.
During fiscal 2000, China, Hungary and Sweden accounted for approximately
11%, 12% and 12% of net sales, respectively. No other foreign country accounted
for more than 10% of net sales in fiscal 2000. China accounted for approximately
24% of long-lived assets at March 31, 2000. No other foreign country accounted
for more than 10% of long-lived assets at March 31, 2000.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data
for fiscal years 2002 and 2001:
FISCAL YEAR ENDED MARCH 31, 2002
--------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................. $3,110,598 $3,244,918 $3,453,039 $3,296,292
Cost of sales............................. 2,878,803 3,036,169 3,226,461 3,083,536
Unusual charges........................... -- 439,448 -- 24,943
---------- ---------- ---------- ----------
Gross profit (loss)..................... 231,795 (230,699) 226,578 187,813
Selling, general and administrative....... 108,816 105,488 109,341 119,941
Goodwill and other intangibles amortization 2,256 3,802 3,053 3,504
Unusual charges........................... -- 76,647 -- 33,388
Interest and other expense (income), net.. 22,366 22,184 22,746 24,557
---------- ---------- ---------- ----------
Income (loss) before income taxes........ 98,357 (438,820) 91,438 6,423
Provision for (benefit from) income taxes. 10,029 (109,015) 9,449 683
---------- ---------- ---------- ----------
Net income (loss)....................... $ 88,328 $ (329,805) $ 81,989 $ 5,740
========== ========== ========== ==========
Diluted earnings (loss) per share......... $ 0.17 $ (0.69) $ 0.16 $ 0.01
========== ========== ========== ==========
Shares used in computing diluted per share
amounts.................................. 511,987 481,381 507,942 526,797
========== ========== ========== ==========
FISCAL YEAR ENDED MARCH 31, 2001
--------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................. $2,676,974 $3,078,998 $3,239,293 $3,114,434
Cost of sales............................. 2,470,408 2,829,406 2,964,034 2,864,048
Unusual charges........................... 83,721 24,268 38,550 363,956
---------- ---------- ---------- ----------
Gross profit (loss)..................... 122,845 225,324 236,709 (113,570)
Selling, general and administrative....... 94,918 107,931 113,736 113,524
Goodwill and other intangibles amortization 9,370 12,505 15,141 26,525
Unusual charges........................... 409,383 24,127 7,726 21,611
Interest and other expense (income), net.. (4,199) 22,359 22,092 26,863
---------- ---------- ---------- ----------
Income (loss) before income taxes........ (386,627) 58,402 78,014 (302,093)
Provision for (benefit from) income taxes. (16,065) 8,475 10,232 (108,927)
---------- ---------- ---------- ----------
Net income (loss)....................... $ (370,562) $ 49,927 $ 67,782 $ (193,166)
========== ========== ========== ==========
Diluted earnings (loss) per share......... $ (0.88) $ 0.10 $ 0.14 $ (0.41)
=========== ========== ========== ==========
Shares used in computing diluted per share
amounts.................................. 418,857 480,801 478,657 468,069
========== ========== ========== ==========
41
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
YEARS ENDED MARCH 31, 2002, 2001 AND 2000
ADDITIONS
--------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING EFFECT OF COSTS AND DEDUCTIONS/ AT END
OF YEAR ACQUISITIONS EXPENSES WRITE-OFFS OF YEAR
------------ ------------ -------- ---------- -------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended March 31, 2000.............................. $ 16,939 $ 1,123 $ 12,534 $ (5,639) $ 24,957
Year ended March 31, 2001.............................. 24,957 10,293 9,429 (260) 44,419
Year ended March 31, 2002.............................. 44,419 5,935 3,664 (12,369) 41,649
Accrual for unusual charges:
Year ended March 31, 2000.............................. 6,554 -- -- (5,623) 931
Year ended March 31, 2001.............................. 931 -- 686,805 (517,352) 170,384
Year ended March 31, 2002.............................. 170,384 -- 574,426 (583,663) 161,147
Reserve for inventory obsolescence:
Year ended March 31, 2000.............................. 29,812 3,046 32,345 (3,411) 61,792
Year ended March 31, 2001.............................. 61,792 34,341 33,634 (24,668) 105,099
Year ended March 31, 2002.............................. 105,099 2,561 4,977 (38,331) 74,306
42
SUPPLEMENTARY FINANCIAL STATEMENTS OF FLEXTRONICS INTERNATIONAL LTD. (PARENT
COMPANY):
FLEXTRONICS INTERNATIONAL LTD.
BALANCE SHEETS
MARCH 31,
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................................................... $ 490,915 $ 348,795
Short-term investments ........................................................................ -- 1,687
Due from subsidiaries ......................................................................... 1,252,807 719,591
Other current assets .......................................................................... 10,555 10,102
----------- -----------
Total current assets ....................................................................... 1,754,277 1,080,175
Goodwill and other intangibles, net ............................................................. 61,860 --
Other investments ............................................................................... 29,273 72,107
Investment in subsidiaries ...................................................................... 2,773,792 2,348,393
Due from subsidiaries ........................................................................... 1,277,649 1,130,918
Other assets .................................................................................... 91,121 14,782
----------- -----------
Total assets ............................................................................... $ 5,987,972 $ 4,646,375
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to subsidiaries ........................................................................... $ 683,716 $ 149,871
Other current liabilities ..................................................................... 36,453 25,056
----------- -----------
Total current liabilities .................................................................. 720,169 174,927
Long-term debt .................................................................................. 778,269 779,596
Other liabilities ............................................................................... -- 750
Due to subsidiaries ............................................................................. 333,328 300,245
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Ordinary shares, S$.01 par value; authorized -- 1,500,000,000 shares; issued and outstanding --
513,011,778 and 476,370,089 as of March 31, 2002 and 2001, respectively ...................... 3,043 2,841
Additional paid-in capital .................................................................... 4,218,027 3,586,158
Retained deficit .............................................................................. (61,152) (198,689)
Accumulated other comprehensive income (loss) ................................................. (3,712) 547
----------- -----------
Total shareholders' equity ................................................................. 4,156,206 3,390,857
----------- -----------
Total liabilities and shareholders' equity ................................................. $ 5,987,972 $ 4,646,375
=========== ===========
The accompanying notes are an integral part of these
supplementary financial statements.
43
FLEXTRONICS INTERNATIONAL LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
--------------------------------
2002 2001
--------------- ---------------
(IN THOUSANDS)
Selling, general and administrative.............. $ 17,292 $ 13,995
Unusual charges.................................. 37,019 306,620
Interest and other expense (income), net......... (191,849) (83,531)
--------------- ---------------
Income (loss) before income taxes........... 137,538 (237,084)
Provision for income taxes....................... 1 515
-------------- --------------
Net income (loss)........................... $ 137,537 $ (237,599)
============== ==============
The accompanying notes are an integral part of these
supplementary financial statements.
44
FLEXTRONICS INTERNATIONAL LTD.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED MARCH 31,
--------------------------------
2002 2001
--------------- ---------------
(IN THOUSANDS)
Net income (loss)................................................................... $ 137,537 $ (237,599)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax............................ (3,519) 178
Unrealized gain (loss) on investments, net of tax.............................. (349) (50,572)
--------------- ---------------
Comprehensive income (loss)......................................................... $ 133,669 $ (287,993)
============== ==============
The accompanying notes are an integral part of these
supplementary financial statements.
45
FLEXTRONICS INTERNATIONAL LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2001 AND 2002
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
ORDINARY SHARES PAID-IN EARNINGS COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) EQUITY
------ ------ ------- --------- ------------- ------
(IN THOUSANDS)
BALANCE AT MARCH 31, 2000 ................ 406,436(1) $2,437(1) $ 1,350,809(1) $ 38,910 $ 50,921 $ 1,443,077
Adjustment to conform fiscal year of
pooled entities ....................... 6,882 40 -- -- -- 40
Impact of immaterial pooling of
interests acquisitions ................ 728 4 -- -- -- 4
Issuance of ordinary shares for
acquisitions........................... 10,825 63 365,422 -- -- 365,485
Exercise of stock options .............. 11,405 66 53,036 -- -- 53,102
Ordinary shares issued under Employee
Stock Purchase Plan ................... 445 3 8,911 -- -- 8,914
Sale of ordinary shares in public
offering, net of offering costs ....... 39,650 228 1,421,443 -- -- 1,421,671
Issuance of equity instrument .......... -- -- 386,537 -- -- 386,537
Net loss ............................... -- -- -- (237,599) -- (237,599)
Change in unrealized gain (loss) on
available for sale securities ......... -- -- -- -- (50,572) (50,572)
Foreign currency translation ........... -- -- -- -- 198 198
------- ------ ----------- --------- --------- -----------
BALANCE AT MARCH 31, 2001 ................ 476,371 2,841 3,586,158 (198,689) 547 3,390,857
Issuance of ordinary shares for
acquisitions .......................... 7,885 45 182,544 -- -- 182,589
Exercise of stock options .............. 7,989 44 42,227 -- -- 42,271
Ordinary shares issued under Employee
Stock Purchase Plan ................... 767 4 15,407 -- -- 15,411
Sale of ordinary shares in public
offering, net of offering costs ....... 20,000 109 503,691 -- -- 503,800
Repurchase of equity instrument (Note 9) -- -- (112,000) -- -- (112,000)
Net loss ............................... -- -- -- 137,537 -- 137,537
Change in unrealized gain (loss) on
available for sale securities ......... -- -- -- -- (349) (349)
Foreign currency translation ........... -- -- -- -- (3,910) (3,910)
------- ------ ----------- --------- --------- -----------
BALANCE AT MARCH 31, 2002 ................ 513,012 $3,043 $ 4,218,027 $ (61,152) $ (3,712) $ 4,156,206
======= ====== =========== ========= ========= ===========
(1) Restated to properly reflect treasury stock of The DII Group, Inc. (acquired
in a pooling of interests transaction in fiscal 2001).
The accompanying notes are an integral part of these
supplementary financial statements.
46
FLEXTRONICS INTERNATIONAL LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
----------------------------
2002 2001
---------- ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 137,537 $ (237,599)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Non-cash unusual charge from issuance of equity instrument ............... -- 286,537
Other non-cash unusual charges ........................................... 37,019 7,500
Gain on investment in subsidiaries ....................................... (125,807) (17,249)
Changes in operating assets and liabilities:
Other current assets ................................................... (9,895) (44,194)
Other current liabilities .............................................. 8,876 15,846
Short-term receivables and payables with intercompanies ................ 84,835 (140,949)
--------- -----------
Net cash provided by (used in) operating activities ................... 132,565 (130,108)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments ......................................... 8,419 44,501
Other investments and notes receivable ..................................... (62,534) (65,659)
Acquisition of business, net of cash acquired .............................. (51,700) --
Loans with intercompanies .................................................. (118,833) (392,736)
Investment in subsidiaries ................................................. (211,369) (1,738,437)
--------- -----------
Net cash used in investing activities ................................. (436,017) (2,152,331)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and proceeds from long-term debt ........................... -- 629,596
Repayments of bank borrowings and long-term debt ........................... -- (2,000)
Proceeds from exercise of stock options and Employee Stock Purchase Plan ... 57,682 62,016
Net proceeds from sale of ordinary shares in public offering ............... 503,800 1,421,671
Proceeds from issuance of equity instrument ................................ -- 100,000
Repurchase of equity instrument ............................................ (112,000) --
--------- -----------
Net cash provided by financing activities ............................. 449,482 2,211,283
--------- -----------
Effect on cash from:
Exchange rate changes .................................................... (3,910) 198
Adjustment to conform fiscal year of pooled entities ..................... -- 40
--------- -----------
Net increase (decrease) in cash and cash equivalents ....................... 142,120 (70,918)
Cash and cash equivalents, beginning of year ............................... 348,795 419,713
--------- -----------
Cash and cash equivalents, end of year ..................................... $ 490,915 $ 348,795
========= ===========
The accompanying notes are an integral part of these
supplementary financial statements.
47
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTARY FINANCIAL STATEMENTS
MARCH 31, 2002
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. (the "Company") was incorporated in the
Republic of Singapore. It is principally engaged in investment holding. The
address of the Company's registered office is 36 Robinson Road, #18-01, City
House, Singapore 068877.
2. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore dollars (S$) or Euros (E).
The accompanying supplementary financial statements solely include the
standalone accounts of Flextronics International Ltd., the parent company.
Except for the fact that these financial statements are prepared on a
non-consolidated basis, these financial statements are prepared in accordance
with accounting principles generally accepted in the United States.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company is the U.S. dollar, with the
exception of its Cayman branch which is measured in Euros. Accordingly, the
financial position and results of operations of the Cayman branch are measured
using the Euro as the functional currency. Accordingly, all assets and
liabilities of the Cayman branch are translated into U.S. dollars at current
exchange rates as of the applicable balance sheet date. Income and expense items
are translated at the average exchange rate prevailing during the period.
Cumulative translation gains and losses from the translation of the branch's
financial statements are reported as a separate component of shareholders'
equity.
CASH, CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments with a maturity of three months or less at
date of purchase are carried at fair market value and considered to be cash
equivalents. Cash and cash equivalents consist of cash deposited in checking and
money market accounts.
The Company's short-term investments are comprised of public corporate
equity securities and are carried at fair market value. All investments are
generally held in the Company's name with major financial institutions acting as
custodians. The specific identification method is used to determine the cost of
securities disposed of, with realized gains and losses reflected in other income
and expense. During fiscal year 2002, the Company sold all of its marketable
equity securities and realized gains of approximately $0.3 million compared to
$30.4 million of realized gains in fiscal year 2001. All of the Company's
short-term investments were classified as available-for-sale. Unrealized gains
and losses on these investments are included as a separate component of
shareholders' equity, net of any related tax effect.
Cash equivalents and short-term investments consist of the following (in
thousands):
MARCH 31, 2002 MARCH 31, 2001
----------------- ---------------------------------------------
UNREALIZED FAIR
COST/FAIR VALUE COST GAINS (LOSSES) VALUE
--------------- -------- ------------- ----------
Money market funds .................. $450,236 $323,682 $ -- $323,682
2
Corporate equity securities ......... -- 1,338 349 1,687
-------- -------- -------- --------
$450,236 $325,020 $ 349 $325,369
======== ======== ======== ========
Included in cash and cash equivalents $450,236 $323,682 $ -- $323,682
Included in short-term investments .. -- 1,338 349 1,687
-------- -------- -------- --------
$450,236 $325,020 $ 349 $325,369
======== ======== ======== ========
The Company also has certain investments in non-publicly
traded technology companies. These investments are classified as Other
Investments in the Company's balance sheet and are carried at cost. The
Company continuously monitors these investments for impairment and
makes appropriate reductions in carrying values when necessary. During
fiscal 2002 and 2001, the Company recorded an unusual charge of $37.0
million and $7.5 million, respectively, for other than temporary
impairment of its investments in certain of these companies. See Note
9, "Unusual Charges" for further discussion.
DUE FROM/DUE TO SUBSIDIARIES
Balances due from and to subsidiaries are unsecured. Certain obligations are
non-interest bearing and others have rates ranging from 3.75% to 10.0% (2001:
5.85% to 10.0%) per annum.
INVESTMENT IN SUBSIDIARIES
Investment in subsidiaries are stated at cost. Provision is made where there
is a decline in the value that is other than temporary.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash equivalents and investments.
The Company maintains cash and cash equivalents with various financial
institutions that management believes to be of high credit quality. These
financial institutions are located in many different locations throughout the
world.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following as of March 31 (in
thousands):
2002 2001
----------- -----------
Accrued interest expense........................................ $ 21,274 $ 21,260
Accrued professional fees....................................... 2,051 1,118
Accrued expenses for unusual charges (Note 9)................... -- 1,356
Other accrued liabilities....................................... 13,128 1,322
----------- -----------
$ 36,453 $ 25,056
=========== ===========
INTEREST AND OTHER EXPENSE (INCOME), NET
Interest and other expense (income), net was comprised of the following for
the years ended March 31 (in thousands):
2002 2001
------------ ------------
Interest expense................................................ $ 76,561 $ 60,084
3
Interest income................................................. (10,035) (16,390)
Intercompany interest income.................................... (51,187) (56,320)
Intercompany royalty income..................................... (28,422) (21,650)
Gain on sales of marketable securities.......................... (293) (30,416)
Gain on investment in subsidiaries.............................. (145,851) (17,249)
Other expense (income), net..................................... (32,622) (1,590)
------------ ------------
Total interest and other expense (income), net........ $ (191,849) $ (83,531)
============ ============
NEW ACCOUNTING PRONOUNCEMENTS
Goodwill and Other Intangibles
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 and No. 142,
"Business Combinations" and "Goodwill and Other Intangible Assets." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill is no longer subject
to amortization over its estimated useful life. Rather, goodwill is subject to
at least an annual assessment for impairment, applying a fair-value based test.
Additionally, an acquired intangible asset should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. Other
intangibles will continue to be valued and amortized over their estimated useful
lives; in-process research and development will continue to be written off
immediately. The Company adopted SFAS No. 142 in the first quarter of fiscal
2002 and no longer amortizes goodwill.
The Company evaluates goodwill and other intangibles for impairment, at
least on an annual basis and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable from its estimated
future cash flows. To date, the Company has not recognized any impairment of its
goodwill and other intangible assets in connection with its adoption of SFAS No.
142. However, no assurances can be given that future evaluations of goodwill
will not result in charges as a result of future impairment.
During fiscal year 2002, $29.7 million of goodwill resulted from payment by
the Company for the acquisition of certain manufacturing operations from Xerox
Corporation.
All of the Company's acquired intangible assets are subject to amortization
over their estimated useful lives. Intangible assets are comprised of
contractual agreements and developed technologies. Contractual agreements will
be amortized on a straight-line basis over 5 years. Developed technologies will
be amortized on a straight-line basis over 5 years. The Company recorded $32.2
million of additions to intangible assets during fiscal year 2002. No intangible
assets amortization was recorded in fiscal 2002, as all acquired intangibles
were purchased at the end of the fiscal year.
Expected future estimated annual amortization expense is as follows for the
years ending March 31 (in thousands):
2003............................................................................. $ 6,432
2004............................................................................. 6,432
2005............................................................................. 6,432
2006............................................................................. 6,432
2007............................................................................. 6,432
Thereafter....................................................................... --
--------
Total amortization expense......................................................... $ 32,160
=========
Derivative Instruments and Hedging Activities
On April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
No. 138. All derivative instruments are recorded on the balance sheet at fair
value. If the derivative is designated as a cash flow hedge, the effective
portion of changes in the fair value of the derivative is recorded in Other
Comprehensive Income ("OCI") and is recognized in the statement of operations
when the hedged item affects earnings. Ineffective portions of
4
changes in the fair value of cash flow hedges are immediately recognized in
earnings. If the derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in earnings in the current period. For derivative
instruments not designated as hedging instruments under SFAS 133, changes in
fair values are recognized in earnings in the current period. Such instruments
are typically forward contracts used to hedge foreign currency balance sheet
exposures.
Trade Receivables Securitization
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities -- a
replacement of FASB Statement No. 125." The new standard carries forward some
provisions of SFAS No. 125, but modifies the methods of accounting for
securitizations and other transfers of financial assets and collateral, in
addition to requiring additional disclosures. The Company adopted SFAS No. 140
in the first quarter of fiscal 2002. The adoption of SFAS No. 140 did not have a
material impact on the financial position or results of operations of the
Company.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
The following information relates to fiscal years ended March 31 (in
thousands):
2002 2001
----------- -----------
Cash paid for:
Interest................................................................ $ 76,174 $ 44,840
Income taxes............................................................ -- 1
Non-cash investing and financing activities:
Issuance of ordinary shares for purchases of OEM assets................. -- 26,902
Issuance of ordinary shares for acquisitions of businesses.............. 182,589 338,583
4. BANK BORROWINGS AND LONG-TERM DEBT
In June 2000, the Company issued approximately $645.0 million of senior
subordinated notes, consisting of $500.0 million of 9.875% notes and E150.0
million of 9.75% notes. Interest is payable on July 1 and January 1 of each
year, commencing January 1, 2001. The notes mature on July 1, 2010. The Company
may redeem the notes on or after July 1, 2005. The approximate fair value of the
9.875% senior subordinated notes and the 9.75% euro senior subordinated notes
based on broker trading prices was 105.5% and 107.25% of the face value on March
31, 2002, respectively.
Additionally, the Company has $150.0 million in unsecured senior
subordinated notes due in 2007 outstanding with an annual interest rate of
8.75%. Interest is payable on April 15 and October 15 of each year. The notes
mature on October 15, 2007. The approximate fair value of the unsecured senior
subordinated notes based on broker trading prices was 101.25% of the face value
on March 31, 2002.
The indentures relating to the notes contain certain covenants that, among
other things, limit the ability of the Group (the Company and its subsidiaries)
to (i) incur additional debt, (ii) issue or sell stock of certain subsidiaries,
(iii) engage in asset sales, and (iv) make distributions or pay dividends. The
covenants are subject to a number of significant expectations and limitations.
As of March 31, 2002, the Group was in compliance with its debt covenants.
In March 2002, the Group replaced its existing credit facilities, with an
$800.0 million Revolving Credit Facility ("Credit Facility") with a syndicate of
domestic and foreign banks. The Credit Facility consisted of two separate credit
agreements, one providing for up to $400.0 million principal amount of revolving
credit loans to the Company and designated subsidiaries ("Tranche A") and one
providing for up to $400.0 million principal amount of revolving credit loans to
a U.S. subsidiary of the Company ("Tranche B"). Both Tranche A and Tranche B are
split one-third to a 364-day and two-thirds to a three-year facility. Borrowings
under the Credit Facility bear interest, at the Group's option, at either: (i)
the base rate (as defined in the Credit Facility); or (ii) the LIBOR rate (as
defined in the Credit Facility) plus the applicable margin for LIBOR loans
ranging
5
between 0.875% and 2.25%, based on the Group's credit ratings and facility
usage. The Group is required to pay a quarterly commitment fee ranging from
0.125% to 0.50% per annum, based on the Group's credit ratings, of the
unutilized portion of the Credit Facility.
The Credit Facility is unsecured, and contains certain restrictions on the
Group's ability to (i) incur certain debt, (ii) make certain investments and
(iii) make certain acquisitions of other entities. The Credit Facility also
requires that the Group maintain certain financial covenants, including, among
other things, a maximum ratio of total indebtedness to EBITDA (earnings before
interest expense, taxes, depreciation, and amortization), a minimum ratio of
fixed charge coverage, and a minimum net worth, as defined, during the term of
the Credit Facility. Borrowings under the Credit Facility are guaranteed by the
Company and certain of its subsidiaries. As of March 31, 2002, there were no
borrowings outstanding under the Credit Facility and the Group was in compliance
with its covenants.
Long-term debt, of which none was current, was comprised of the following at
March 31 (in thousands):
2002 2001
------------- ---------
Senior subordinated notes...................................... $ 778,269 $ 779,596
Maturities for the Company's long-term debt are as follows for the years
ending March 31 (in thousands):
2003...................................................................... $ --
2004...................................................................... --
2005...................................................................... --
2006...................................................................... --
2007...................................................................... --
Thereafter................................................................ 778,269
------------
$ 778,269
5. FINANCIAL INSTRUMENTS
The value of the Company's cash and cash equivalents and investments
carrying amount approximates fair value. The fair value of the Company's
long-term debt (see Note 4, "Bank Borrowings and Long-Term Debt") is
determined based on current broker trading prices. The Company's cash
equivalents are comprised of cash deposited in money market funds (see Note
2, "Summary of Accounting Policies"). The Company's investment policy
limits the amount of credit exposure to 20% of the total investment
portfolio in any single issuer.
The Company enters into forward exchange contracts to hedge underlying
transactional currency exposures and does not engage in foreign currency
speculation. The credit risk of these forward contracts is minimal since the
contracts are with large financial institutions. The Company hedges committed
exposures and these forward contracts generally do not subject the Company to
risk of accounting losses. The gains and losses on forward contracts generally
offset the gains and losses on the assets, liabilities and transactions hedged.
The majority of these foreign exchange contracts expire in less than one month,
and almost all expire within three months.
6. COMMITMENTS AND CONTINGENCIES
In fiscal 2002, the Group entered into a receivables securitization
agreement and sold a designated pool of qualified trade receivables to a third
party qualified special purpose entity, which in turn sold an undivided
ownership interest to a conduit, administrated by an unaffiliated financial
institution. The agreement, which expires in March 2003, is subject to annual
renewal and has a current maximum limit of $250.0 million. The accounts
receivable balances that were sold were removed from the Group's consolidated
balance sheet and the proceeds received from the sale are reflected as cash
provided by operating activities in the Group's consolidated statement of cash
flows. The Group accounts for its sale of receivables to the qualified special
purpose entity, as sales under SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."
The Company participates in the securitization agreement as an investor
conduit. This is to allow the operating subsidiaries to receive full cash
payment for sold receivables, less a deferred purchase price
6
receivable, representing a reserve for potential credit losses, interest and
fees. Depending on the collection performance of sold receivables, the Company's
portion of the total investment varies. On March 31, 2002, the Company's
investment was approximately $53.5 million, classified as Other Assets in the
Company's balance sheet.
The Group will continue to service, administer and collect the receivables
on the behalf of the limited purpose entity and receives a servicing fee
approximately 1% of sold receivables per annum, which management has determined
approximates market compensation for these services. The Group pays facility and
commitment fees of up to 0.24% for unused amounts under the line and program
fees of up to 0.34% of outstanding amounts.
We are party to various legal proceedings that arise in the normal course of
business. In the opinion of management, the ultimate disposition of these
proceedings will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
7. INCOME TAXES
The Company is a Singapore corporation and is a non-resident for Singapore
tax purposes. Non-Singapore resident taxpayers, subject to certain exceptions,
are subject to income tax on 1) income that is accrued in or derived from
Singapore and 2) foreign income received in Singapore.
Since the Company did not derive income from or receive foreign income in
Singapore, it is not subject to Singapore income tax. To the extent that the
Company continues to meet the above-mentioned requirements as determined by
current law, no Singapore income tax will be imposed on the Company.
Accordingly, the Company records minimal current income tax expense and does not
record any deferred income taxes.
8. SHAREHOLDERS' EQUITY
SECONDARY OFFERINGS
During fiscal 2002 and 2001, the Company completed various secondary
offerings of its ordinary shares. The Company received net proceeds of
approximately $503.8 million (20,000,000 ordinary shares sold) and $1.4 billion
(39,650,000 ordinary shares sold) in fiscal years 2002 and 2001, respectively.
STOCK SPLITS
In fiscal 2001, the Company effected a 2:1 stock split. A distribution of
209,001,331 ordinary shares occurred on October 16, 2000. In fiscal 2000, the
Company effected a 2:1 stock split, resulting in the distribution of 57,497,204
ordinary shares on December 22, 1999. Each of the stock splits was effected as a
bonus issue (the Singapore equivalent of a stock dividend). The Company has
accounted for these transactions as a stock split and all share and per share
amounts have been retroactively restated to reflect all stock splits.
STRATEGIC ALLIANCE
In connection with the Group's strategic alliance with Motorola Inc.
("Motorola") in May 2000, Motorola paid $100.0 million for an equity instrument
that entitled it to acquire 22,000,000 million Flextronics ordinary shares at
any time through December 31, 2005 upon meeting targeted purchase levels or
making additional payments to the Group. The issuance of this equity instrument
resulted in a one-time charge equal to the excess of the fair value of the
equity instrument issued over the $100.0 million proceeds received. As a result,
the one-time non-cash charge amounted to approximately $286.5 million offset by
a corresponding credit to additional paid-in capital in fiscal 2001.
7
In June 2001, the Group entered into an agreement with Motorola under which
it repurchased this equity instrument for $112.0 million. The fair value of the
equity instrument on the date it was repurchased exceeded the amount paid to
repurchase the equity instrument. Accordingly, the Group accounted for the
repurchase of the equity instrument as a reduction to shareholders' equity in
the consolidated statement of shareholders' equity.
Shares Issued for Acquisitions
During fiscal 2002, the Company issued approximately 7.3 million ordinary
shares for acquisitions of certain businesses (by the Group), which equated to
approximately $163.4 million of purchase price. The fair value of the ordinary
shares was determined based on the quoted market prices of the Company's
ordinary shares for a reasonable period, generally three days, before and after
the date the terms of the acquisitions were agreed and announced. The acquired
companies include ASIC International, Inc. in May 2001, Telcom Global Solutions
Holdings, Inc. in August 2001 and Instrumentation Engineering, Inc. in October
2001. Also, during fiscal 2002, the Company issued 0.6 million ordinary shares
or approximately $19.2 million of purchase price for contingent price
adjustments and other adjustments for historical acquisitions.
During fiscal 2001, the Company issued approximately 10.8 million ordinary
shares for acquisitions of certain businesses and manufacturing operations (by
the Group), which equated to approximately $365.5 million of purchase price. The
fair value of the ordinary shares was determined based on the quoted market
prices of the Company's ordinary shares for a reasonable period, generally three
days, before and after the date the terms of the acquisitions were agreed and
announced. The acquired companies include Irish Express Logistics, Inc. in
August 2001, Photonics Packaging Technologies, Inc. in August 2001, Ojala-Yhtma
Oy. in January 2001, Li Xin Industries Ltd. in January 2001, Wave Optics, Inc.
in February 2001 and Ericsson Radio AB in March 2001. Also, during fiscal 2001,
the Company issued approximately 0.7 million ordinary shares in connection with
several immaterial pooling of interests transactions.
STOCK-BASED COMPENSATION
The Company's 2001 Equity Incentive Plan (the "2001 Plan") provides for
grants of up to 7,000,000 stock options. Additionally, the remaining shares that
are available under the Company's 1993 Share Option Plan (the "1993 Plan") and
any shares issuable upon exercise of the options granted under the 1993 Plan
that expire or become unexercisable for any reason without having been exercised
in full, will be available for grant under the 2001 Plan. The adoption of the
2001 Plan mandated that no additional options be granted under the 1993 Plan.
Any options outstanding under the 1993 Plan will remain outstanding until
exercised or until they terminate or expire by their terms. The 2001 Plan
contains two separate equity incentive programs including a discretionary option
grant program and an automatic option grant program. The discretionary option
grant program is administered by the Compensation Committee with respect to
officers and directors and by the Chairman of the Company's Board, with respect
to all other employees.
Options issued under the 2001 Plan and 1993 Plan generally vest over 4
years. Options granted under the 2001 Plan expire 10 years from the date of
grant. Pursuant to an amendment to the provisions relating to the term of
options provided under the 1993 Plan, options granted subsequent to October 1,
2000 expire 10 years from the date of grant, rather than the five-year term
previously provided. The 2001 Plan and 1993 Plan provide for option grants at an
exercise price equal to the fair market value per ordinary share on the option
grant date.
The Company's 1997, 1998 and 1999 Interim Option Plans provide for grants of
up to 2,000,000, 3,144,000, and 5,200,000 stock options, respectively. These
plans provide grants of non-statutory stock options to employees and other
qualified individuals to purchase ordinary shares of the Company. Options under
these plans cannot be granted to executive officers and directors. All Interim
Option Plans have an exercise price of not less than 85% of the fair market
value of the underlying stock on the date of grant. Options issued under these
plans generally vest over 4 years and expire 5 years from the date of grant.
The Company's Employee Stock Purchase Plan (the "Purchase Plan") provides
for issuance of up to 2,400,000 ordinary shares. The Purchase Plan was approved
by the shareholders in October 1997. Under the
8
Purchase Plan, employees may purchase, on a periodic basis, a limited number of
ordinary shares through payroll deductions over a six-month period up to 10% of
each participant's compensation. The per share purchase price is 85% of the fair
market value of the stock at the beginning or end of the offering period,
whichever is lower. The ordinary shares sold under this plan in fiscal 2002 and
2001, amounted to 767,301 and 445,476, respectively. The weighted-average fair
value of ordinary shares sold under this plan in fiscal 2002 and 2001 was $20.08
and $20.00 per share, respectively.
The following table gives information about equity awards under the
Company's 2001 Plan; 1993 Plan; 1997, 1998 and 1999 Interim Option Plans; and
Purchase Plan.
(A) (B) (C)
NUMBER OF ORDINARY SHARES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF ORDINARY WEIGHTED-AVERAGE EQUITY COMPENSATION
SHARES TO BE ISSUED EXERCISE PRICE PLANS (EXCLUDING ORDINARY
UPON EXERCISE OF OF OUTSTANDING SHARES REFLECTED
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS IN COLUMN (A))
------------- --------------------- ---------------- -------------------------
Equity compensation plans approved by shareholders... 33,975,652 $ 17.84 6,691,359(1)
Equity compensation plans not approved by
shareholders(3).................................... 3,547,859 $ 8.08 2,866,999(2)
----------- ------- ----------
Total................................................ 37,523,511 $ 16.92 9,558,358
=========== ======= ==========
----------
(1) Of these shares, 6,060,736 shares remain available for grant under the 2001
Plan and 630,623 shares remain available for purchase under the Purchase
Plan.
(2) Of these shares, 2,197,165 shares remain available for grant under the 1999
Interim Option Plan, 177,470 shares remain available for grant under the
1998 Interim Option Plan and 492,364 shares remain available for grant under
the 1997 Interim Option Plan.
(3) The Company has certain option plans and the underlying options of
companies, which the Company has merged with or acquired (the "Assumed
Plans"). Total stock options assumed under these plans amounted to
8,097,628. These options have a weighted average exercise price of $6.12 per
share. Options under the Assumed Plans have been converted into the
Company's options and adjusted to effect the appropriate conversion ratio as
specified by the applicable acquisition agreement, but are otherwise
administered in accordance with the terms of the Assumed Plans. Options
under the Assumed Plans generally vest over 4 years and expire 10 years from
the date of grant. No further awards will be made under the Assumed Plans.
Statistics regarding the assumed options are not included in the above
table.
The following table presents the activity for options outstanding under all
of the stock option plans as of March 31 ("Price" reflects the weighted average
exercise price):
2002 2001
------------------------- --------------------------
OPTIONS PRICE OPTIONS PRICE
-------------- -------- --------------- --------
Outstanding, beginning of year.................... 47,235,431 $ 13.35 44,853,772 $ 7.46
Granted........................................... 9,009,567 16.51 14,655,646 23.23
Exercised......................................... (7,989,287) 5.43 (11,404,613) 5.54
Forfeited......................................... (2,614,572) 18.86 (869,374) 23.98
-------------- ---------------
Outstanding, end of year.......................... 45,641,139 $ 15.00 47,235,431 $ 13.35
============== ===============
Exercisable, end of year.......................... 24,490,124 21,065,008
============== ===============
Weighted average fair value per option granted.... $ 12.43 $ 12.60
============== ===============
9
The following table presents the composition of options outstanding and
exercisable as of March 31, 2002 ("Price" and "Life" reflect the weighted
average exercise price and weighted average contractual life unless otherwise
noted):
RANGE OF OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- ------------------------------
EXERCISE PRICES AMOUNT PRICE LIFE AMOUNT PRICE
----------------- ------------ -------- ---- ----------- -------
$ 0.39 - $ 5.61 9,849,974 $ 3.73 2.90 9,432,591 $ 3.70
6.00 - 13.98 9,532,019 9.03 4.26 6,657,655 8.59
14.03 - 18.19 9,967,710 15.33 6.56 2,493,666 14.79
18.53 - 23.19 9,534,444 22.72 8.18 2,902,109 22.55
23.61 - 44.12 6,756,992 28.43 3.42 3,004,103 28.43
------------ ------------
Total, March 31, 2002 45,641,139 $ 15.00 5.16 24,490,124 $ 11.43
============ ============
The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option plans and employee stock purchase plans and has adopted the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation."
Because the exercise price of the Company's stock options has equaled the fair
value of the underlying stock on the date of grant, no compensation expense has
been recognized under APB Opinion No. 25. Had the compensation cost for the
Company's stock-based compensation plans been determined based on the fair
values of these options, the Group's fiscal 2002 and 2001 net income (loss) and
earnings (loss) per share would have been adjusted to the proforma amounts
indicated below:
YEARS ENDED MARCH 31,
------------------------------------
2002 2001
------------- -------------
Net income (loss):
As reported .................... $ (153,748) $ (446,019)
Proforma ....................... (220,925) (596,494)
Basic earnings (loss) per share:
As reported .................... $ (0.31) $ (1.01)
Proforma ....................... (0.45) (1.35)
Diluted earnings (loss) per share:
As reported .................... $ (0.31) $ (1.01)
Proforma ....................... (0.45) (1.35)
In accordance with the disclosure provisions of SFAS No. 123, the fair value
of employee stock options granted during fiscal 2002 and 2001 was estimated at
the date of grant using the Black-Scholes model and the following weighted
average assumptions:
YEARS ENDED MARCH 31,
-----------------------
2002 2001
--------- ---------
Volatility .................. 62% 62%
Risk-free interest rate range 6.3% 6.3%
Dividend yield .............. 0% 0%
Expected lives .............. 9.6 yrs 3.6 yrs
Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the proforma net income (loss) and earnings (loss) per
share disclosures may not reflect the associated fair value of the outstanding
options.
9. UNUSUAL CHARGES
The Company recognized unusual pre-tax charges of approximately $37.0
million and $306.6 million during fiscal years 2002 and 2001, respectively.
Unusual charges recorded in fiscal 2002, related to the impairment of
investments in certain technology companies. Unusual charges recorded in fiscal
2001, included approximately $286.5 million related to the issuance of an equity
instrument to Motorola, $12.6 million related to direct transactions costs in
connection with the various mergers consummated during fiscal 2001 and $7.5
million for impairment of investments in certain technology companies.
10
On May 30, 2000, the Group entered into a strategic alliance for product
manufacturing with Motorola. See Note 8, "Shareholders' Equity," for further
information concerning the strategic alliance. In connection with this strategic
alliance, Motorola paid $100.0 million for an equity instrument that entitles it
to acquire 22,000,000 Flextronics ordinary shares at any time through December
31, 2005, upon meeting targeted purchase levels or making additional payments to
the Group. The issuance of this equity instrument resulted in a one-time
non-cash charge equal to the excess of the fair value of the equity instrument
issued over the $100.0 million proceeds received. As a result, the one-time
non-cash charge amounted to approximately $286.5 million offset by a
corresponding credit to additional paid-in capital in fiscal 2001. In June 2001,
the Group entered into an agreement with Motorola under which it repurchased
this equity instrument for $112.0 million.
The direct transaction costs of approximately $12.6 million of costs
primarily related to investment banking and financial advisory fees as well as
legal and accounting costs associated with the various merger transactions by
the Group during fiscal 2001, including The DII Group, Inc., Lightning Metal
Specialties and related entities, Chatham Technologies, Inc., Palo Alto Products
International Pte. Ltd. and JIT Holdings, Ltd. As of March 31, 2002 and March
31, 2001, the remaining balance classified as Other Current Liabilities was nil
and $1.4 million, respectively.
10. AUDITORS' REMUNERATION
During the fiscal years ended March 31, 2002 and 2001, the aggregate fees
billed by the Company's independent auditors, Arthur Andersen LLP, for audit
services were $0.5 million and $0.9 million, respectively.
11
July __, 2002
Flextronics International Ltd.
36 Robinson Road #18-01
City House
Singapore 068877
Attn: Ms Yap Lune Teng
Joint Secretary
Dear Sirs:
RE: NOMINATION OF AUDITORS
I/We, the undersigned, being a member of your Company, hereby nominate
(pursuant to Section 205(11) of the Companies Act, Cap. 50 of Singapore) M/s
Deloitte & Touche for appointment as Auditors of your Company at your Company's
forthcoming Annual General Meeting in place of M/s Arthur Andersen.
Accordingly, I/we intend to propose the following resolution at your
Company's forthcoming Annual General Meeting:-
"THAT M/s Deloitte & Touche be and are hereby appointed as Auditors, in
place of M/s Arthur Andersen, to hold office until the conclusion of the next
Annual General Meeting at a fee to be determined by the Directors."
Yours faithfully
For and on behalf of
------------
Name:
Designation:
PARKING FACILITIES
Flextronics has reserved parking spaces for shareholders attending the meeting.
These spaces will be designated as "Reserved for Flextronics Shareholders'
Meeting."
DRIVING DIRECTIONS
The Annual General Meeting of Shareholders will be held at Flextronics principal
corporate offices located at 2090 Fortune Drive, San Jose, California, United
States of America.
[MAP]
Directions from Highway 101 (Northbound and Southbound)
- Montague Expressway Exit (head EAST)
- Take Montague Expressway to Trade Zone
- Right onto Trade Zone
- Right onto Lundy Avenue
- Right onto Fortune Drive (1st traffic light)
- Left into the third driveway
Directions from Highway 280 (Southbound)
- Take Highway 280 to Highway 680 (South)
- Capital Avenue Exit
- Left onto Trade Zone
- Left onto Lundy Avenue
- Right onto Fortune Drive (1st traffic light)
- Left into the third driveway
FLEXTRONICS INTERNATIONAL LTD.
2001 EQUITY INCENTIVE PLAN
As Adopted August 13, 2001
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options. Capitalized terms not defined in
the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 15,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 7,000,000 Shares plus shares that are subject to
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option. In addition, any authorized
shares not issued or subject to outstanding grants under the Company's 1993
Share Option Plan (the "PRIOR PLAN") that are forfeited or that are issuable
upon exercise of options granted pursuant to the Prior Plan that expire or
become unexercisable for any reason without having been exercised in full, will
no longer be available for grant and issuance under the Prior Plan, but will be
available for grant and issuance under this Plan. At all times the Company shall
reserve and keep available a sufficient number of Shares as shall be required to
satisfy the requirements of all outstanding Options granted under this Plan.
2.2 Adjustment of Shares. Should any change be made to the Shares
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Shares as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any Participant may be granted
Options over the term of the Plan, (iii) the number and/or class of securities
and price per Share in effect under each Option outstanding under Section 5 and
7, and (iv) the class of securities for which automatic Option grants are to be
subsequently made to newly elected or continuing Outside Directors under Section
7. Such adjustments to the outstanding Options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options, provided, however, that (i) fractions of a Share will not be
issued but will be replaced by a cash payment equal to the Fair Market Value of
such fraction of a Share, as determined by the Committee, and (ii) no such
adjustment shall be made if as a result, the Exercise Price would fall below the
par value of a Share and if such adjustment would but for this paragraph (ii)
result in the Exercise Price being less than the par value of a Share, the
Exercise Price payable shall be the par value of a Share. The adjustments
determined by the Committee shall be final, binding and conclusive. The
repricing, replacement or regranting of any previously granted Option, through
cancellation or by lowering the Exercise Price of such Option, shall be
prohibited unless the shareholders of the Company first approve such repricing,
replacement or regranting.
3. ELIGIBILITY. All Awards may be granted to employees, officers and
directors of the Company or any Parent or Subsidiary of the Company. No person
will be eligible to receive more than 4,000,000 Shares in any calendar year
under this Plan pursuant to the grant of Awards hereunder; provided, however,
that no Outside Director will be eligible to receive more than 100,000* Shares,
in the aggregate, in any calendar year under this Plan pursuant to the grant of
Awards hereunder. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 7 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have
----------
* The initial number of shares was 50,000. An amendment to increase this
number to 100,000 is being submitted to shareholders for approval at the
2002 Annual General Meeting to be held on August 29, 2002.
full power to implement and carry out this Plan. Except for automatic grants to
Outside Directors pursuant to Section 7 hereof, the Committee will have the
authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 7 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required
by the terms of Section 7 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided,
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however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that (i) no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of shares or stock of
the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT
SHAREHOLDER") will be exercisable after the expiration of five (5) years from
the date the ISO is granted and (ii) no Option granted to a person who is not an
employee of the Company or any Parent or Subsidiary of the Company on the date
of grant of that Option will be exercisable after the expiration of five (5)
years from the date the Option is granted. The Committee also may provide for
Options to become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted; provided that: (i) the
Exercise Price will be not less than 100% of the Fair Market Value of the Shares
on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten
Percent Shareholder will not be less than 110% of the Fair Market Value of the
Shares on the date of grant. In no event may the Exercise Price of an Option be
less than the par value of the Shares. Payment for the Shares purchased may be
made in accordance with Section 6 of this Plan.
5.5 Method of Exercise.
(a) Options may be exercised only by delivery to the Company
(or as the Company may direct) of a written stock option exercise agreement (the
"Exercise Agreement") (in the case of a written Exercise Agreement, in the form
approved by the Board or the Committee, which need not be the same for each
Participant), in each case stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
(b) A written Exercise Agreement may be communicated
electronically through the use of such security device (including, without
limitation, any logon identifier, password, personal identification number,
smartcard, digital certificate, digital signature, encryption device, electronic
key, and/or other code or any access procedure incorporating any one or more of
the foregoing) as may be designated by the Board or the Committee for use in
conjunction with the Plan from time to time ("Security Device"), or via an
electronic page, site, or environment designated by the Company which is
accessible only through the use of such Security Device, and such written
Exercise Agreement shall thereby be deemed to have been sent by the designated
holder of such Security Device. The Company (or its agent) may accept and act
upon any written Exercise Agreement issued and/or transmitted through the use of
the Participant's Security Device (whether actually authorized by the
Participant or not) as his authentic and duly authorized Exercise Agreement and
the Company (or its agent) may treat such Exercise Agreement as valid and
binding on the Participant notwithstanding any error, fraud, forgery, lack of
clarity or misunderstanding in the terms of such Exercise Agreement. All written
Exercise Agreements issued and/or transmitted through the use of the
Participant's Security Device (whether actually authorized by the Participant or
not) are irrevocable and binding on the Participant upon transmission to the
Company (or as the Company may direct) and the Company (or its agent) shall be
entitled to effect, perform or process such Exercise Agreement without the
Participant's further consent and without further reference to the Participant.
(c) The Company's records of the Exercise Agreements
(whether delivered or communicated electronically or in printed form), and its
record of any transactions maintained by any relevant person authorized by the
Company relating to or connected with the Plan, whether stored in audio,
electronic, printed or other form, shall be binding and conclusive on the
Participant and shall be conclusive evidence of such Exercise Agreements and/or
transactions. All such records shall be admissible in evidence and, in the case
of a written Exercise Agreement which has been communicated electronically, the
Participant shall not challenge or dispute the admissibility, reliability,
accuracy or the authenticity of the contents of such records merely on the basis
that such records were incorporated and/or set out in electronic form or were
produced by or are the output of a computer system, and the Participant waives
any of his rights (if any) to so object.
-3-
5.6 Termination. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, provided, that any Option
which is exercised beyond three (3) months after the
Termination Date shall be deemed to be an NQSO), but in any
event no later than the expiration date of the Options.
(b) If the Participant is Terminated because of the Participant's
death or Disability (or the Participant dies within three (3)
months after a Termination other than for Cause or because of
the Participant's Disability), then the Participant's Options
may be exercised only to the extent that such Options would
have been exercisable by the Participant on the Termination
Date and must be exercised by the Participant (or the
Participant's legal representative or authorized assignee) no
later than twelve (12) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, provided, that
any Option which is exercised beyond twelve (12) months after
the Termination Date when the Termination is for Participant's
Disability, shall be deemed to be an NQSO), but in any event
no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, then the
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such conditions
as are determined by the Committee (but in any event, no later
than the expiration date of the Options).
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed US$100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds US$100,000,
then the Options for the first US$100,000 worth of Shares to become exercisable
in such calendar year will be ISO and the Options for the amount in excess of
US$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted, and provided further that the exercise period of
any Option may not in any event be extended beyond the periods specified in
Section 5.3. Any outstanding ISO that is modified, extended, renewed or
otherwise altered will be treated in accordance with Section 424(h) of the Code.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
-4-
6. PAYMENT FOR SHARE PURCHASES.
6.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by waiver of compensation due or accrued to the
Participant for services rendered;
(c) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's Shares exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member
of the National Association of Securities Dealers
(an "NASD DEALER") whereby the Participant
irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to
the Company; or
(2) through a "margin" commitment from the Participant
and a NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from
the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the
Exercise Price directly to the Company;
(d) conversion of a convertible note issued by the Company,
the terms of which provide that it is convertible into
Shares issuable pursuant to the Plan (with the principal
amount and any accrued interest being converted and
credited dollar for dollar to the payment of the
Exercise Price); or
(e) by any combination of the foregoing.
7. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
7.1 Types of Options and Shares. Options granted under this Plan
and subject to this Section 7 shall be NQSOs.
7.2 Eligibility. Options subject to this Section 7 shall be
granted only to Outside Directors. In no event, however, may any Outside
Director be granted any Options under this Section 7 if such grant is (a)
prohibited, or (b) restricted (either absolutely or subject to various
securities requirements, whether legal or administrative, being complied with),
in the jurisdiction in which such Outside Director is resident under the
relevant securities laws of that jurisdiction.
7.3 Initial Grant. Each Outside Director who first becomes a
member of the Board after the Effective Date will automatically be granted an
Option for 25,000** Shares (an "INITIAL GRANT") on the date such Outside
Director first becomes a member of the Board. Each Outside Director who became a
member of the Board on or prior to the Effective Date and who did not receive a
prior option grant (under this Plan or otherwise and from the Company or any of
its corporate predecessors) will receive an Initial Grant on the Effective Date.
----------
** The initial number of shares was 20,000. An amendment to increase this
number to 25,000 is being submitted to shareholders for approval at the
2002 Annual General Meeting to be held on August 29, 2002.
-5-
7.4 Succeeding Grant. Immediately following each Annual General
Meeting of shareholders of the Company, each Outside Director will automatically
be granted an Option for 12,500*** Shares (a "SUCCEEDING GRANT"), provided, that
the Outside Director is a member of the Board on such date and has served
continuously as a member of the Board for a period of at least twelve (12)
months since the last Option grant (whether an Initial Grant or a Succeeding
Grant) to such Outside Director. If less than twelve (12) months has passed,
then the number of shares subject to the Succeeding Grant will be pro-rated
based on the number of days passed since the last Option grant to such Outside
Director, divided by 365 days.
7.5 Vesting and Exercisability. The date an Outside Director
receives an Initial Grant or a Succeeding Grant is referred to in this Plan as
the "START DATE" for such Option.
(a) Initial Grant. Each Initial Grant will vest and be exercisable
as to 25% of the Shares on the first one year anniversary of
the Start Date for such Initial Grant, and thereafter as to
1/48 of the Shares at the end of each full succeeding month,
so long as the Outside Director continuously remains a
director or a consultant of the Company.
(b) Succeeding Grant. Each Succeeding Grant will vest and be
exercisable as to 25% of the Shares on the first one year
anniversary of the Start Date for such Succeeding Grant, and
thereafter as to 1/48 of the Shares at the end of each full
succeeding month, so long as the Outside Director continuously
remains a director or a consultant of the Company.
No Options granted to an Outside Director will be exercisable after the
expiration of five (5) years from the date the Option is granted to such Outside
Director. If the Outside Director is Terminated, the Outside Director may
exercise such Outside Director's Options only to the extent that such Options
would have been exercisable upon the Termination Date for such period as set
forth in Section 5.6. Notwithstanding any provision to the contrary, in the
event of a Corporate Transaction described in Section 15.1, the vesting of all
Options granted to Outside Directors pursuant to this Section 7 will accelerate
and such Options will become exercisable in full prior to the consummation of
such event at such times and on such conditions as the Committee determines, and
must be exercised, if at all, within three (3) months of the consummation of
said event. Any Options not exercised within such three-month period shall
expire. Notwithstanding any provision to the contrary, in the event of a Hostile
Take-Over, the Outside Director shall have a thirty-day period in which to
surrender to the Company each option held by him or her under this Plan for a
period of at least six (6) months. The Outside Director shall in return be
entitled to a cash distribution from the Company in an amount equal to the
excess of (i) the Take-Over Price of the Shares at the time subject to the
surrendered Option (whether or not the Option is otherwise at the time
exercisable for those Shares) over (ii) the aggregate Exercise Price payable for
such Shares. Such cash distribution shall be paid within five (5) days following
the surrender of the Option to the Company. Neither the approval of the
Committee nor the consent of the Board shall be required in connection with such
option surrender and cash distribution. The Shares subject to each Option
surrendered in connection with the Hostile Take-Over shall NOT be available for
subsequent issuance under the Plan.
7.6 Exercise Price. The Exercise Price of an Option pursuant to an
Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares,
at the time that the Option is granted.
8. WITHHOLDING TAXES.
8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
----------
*** The initial number of shares was 6,000. An amendment to increase this
number to 12,500 is being submitted to shareholders for approval at the
2002 Annual General Meeting to be held on August 29, 2002.
-6-
8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion, and subject to compliance with all applicable laws and
regulations, allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
9. TRANSFERABILITY.
9.1 Except as otherwise provided in this Section 9, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by a Participant, and may not be made subject to execution,
attachment or similar process, otherwise than by will or by the laws of descent
and distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards. Notwithstanding the foregoing, (i)
Participants may transfer or assign their Options to Family Members through a
gift or a domestic relations order (and not in a transfer for value), and (ii)
if the terms of the applicable instrument evidencing the grant of an Option so
provide, Participants who reside outside of the United States and Singapore may
assign their Options to a financial institution outside of the United States and
Singapore that has been approved by the Committee, in accordance with the terms
of the applicable instrument, subject to Code regulations providing that any
transfer of an ISO may cause such ISO to become a NQSO. The Participant shall be
solely responsible for effecting any such assignment, and for ensuring that such
assignment is valid, legal and binding under all applicable laws. The Committee
shall have the discretion to adopt such rules as it deems necessary to ensure
that any assignment is in compliance with all applicable laws.
9.2 All Awards other than NQSO's. All Awards other than NQSO's
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
9.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" as defined below, (ii) by a transferee that is permitted pursuant to
clause (ii) of Section 9.2, for such period as may be authorized by the terms of
the applicable instrument evidencing the grant of the applicable Option, or by
the Committee, and (iii) after Participant's death, by the legal representative
of the Participant's heirs or legatees. "Permitted transfer" means any transfer
of an interest in such NQSO by gift or domestic relations order effected by the
Participant during the Participant's lifetime. A permitted transfer shall not
include any transfer for value; provided that the following shall be permitted
transfers and shall not be considered to be transfers for value: (a) a transfer
under a domestic relations order in settlement of marital property rights or (b)
a transfer to an entity in which more than fifty percent of the voting interests
are owned by Family Members or the Participant in exchange for an interest in
that entity.
10. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
11. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time and subject to compliance with all applicable laws and
regulations, authorize the Company, with the consent of
-7-
the respective Participants, to issue new Awards in exchange for the surrender
and cancellation of any or all outstanding Awards. The Committee may at any time
and subject to compliance with all applicable laws and regulations buy from a
Participant an Award previously granted with payment in cash, Shares or other
consideration, based on such terms and conditions as the Committee and the
Participant may agree.
13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 7 hereof, in the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative share
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction (each, a "CORPORATE TRANSACTION"), each Option which is at
the time outstanding under this Plan shall automatically accelerate so that each
such Option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of Shares at the time subject to such Option and may be exercised for all or any
portion of such Shares. However, subject to the specific terms of a
Participant's Award Agreement, an outstanding Option under this Plan shall not
so accelerate if and to the extent: (i) such Option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable Option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
Option is to be replaced with a cash incentive program of the successor
corporation which preserves the Option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such Option or (iii) the acceleration of
such Option is subject to other limitations imposed by the Committee at the time
of the Option grant. The determination of Option comparability under clause (i)
above shall be made by the Committee, and its determination shall be final,
binding and conclusive.
15.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 15 or
other specific terms of a Participant's Award Agreement, in the event of the
occurrence of any Corporate Transaction described in Section 15.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
-8-
15.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the Exercise Price and the number and nature of Shares issuable
upon exercise of any such Option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing Option, such new Option may be granted
with a similarly adjusted Exercise Price.
16. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective
on the date on which the Board adopts the Plan (the "EFFECTIVE DATE"). This Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve (12)
months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial shareholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the shareholders of the
Company; (c) in the event that initial shareholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled; and (d) in the event that shareholder approval of such increase is
not obtained within the time period provided herein, all Awards granted pursuant
to such increase will be cancelled.
17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of shareholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
18. AMENDMENT OR TERMINATION OF PLAN. The Board has complete and
exclusive power and authority to amend or modify the Plan (or any component
thereof) in any or all respects whatsoever. However, (i) no such amendment or
modification shall adversely affect rights and obligations with respect to
Options at the time outstanding under the Plan, unless the Participant consents
to such amendment, and (ii) the automatic grants to Outside Directors pursuant
to Section 7 may not be amended at intervals more frequently than once every six
(6) months, other than to the extent necessary to comply with applicable U.S.
income tax laws and regulations. In addition, the Board may not, without the
approval of the Company's shareholders, amend the Plan to (i) materially
increase the maximum number of Shares issuable under the Plan or the number of
Shares for which Options may be granted per newly-elected or continuing Outside
Director or the maximum number of Shares for which any one individual
participating in the Plan may be granted Options, (ii) materially modify the
eligibility requirements for plan participation or (iii) materially increase the
benefits accruing to Participants.
The Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the shareholders of the Company, amend this Plan in any
manner that requires such shareholder approval.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
20. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any Options granted under this Plan.
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"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means (a) the commission of an act of theft, embezzlement,
fraud, dishonesty, (b) a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company or (c) a failure to materially perform the customary
duties of the employee's employment.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Flextronics International Ltd. or any successor
corporation.
"DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of the Shares
determined as follows:
(a) if such Shares are then quoted on the Nasdaq National Market,
the closing price of such Shares on the Nasdaq National Market
on the date of determination as reported in The Wall Street
Journal;
(b) if such Shares are publicly traded and are then listed on a
national securities exchange, the closing price of such Shares
on the date of determination on the principal national
securities exchange on which the Shares are listed or admitted
to trading as reported in The Wall Street Journal;
(c) if such Shares are publicly traded but are not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid
and asked prices on the date of determination as reported in
The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person
with such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
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(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting
interest.
"HOSTILE TAKE-OVER" means a change in ownership of the Company
effected through the following transaction:
(a) the direct or indirect acquisition by any person or related
group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made
directly to the Company's shareholders which the Board does
not recommend such shareholders to accept, and
(b) the acceptance of more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer from
holders other than Insiders.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Shares are subject to Section 16 of
the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Sections 5 and 7.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Parent or Subsidiary.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing more than 50% of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Flextronics International Ltd. 2001 Equity
Incentive Plan, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means ordinary shares of par value S$0.01 each in the
capital of the Company reserved for issuance under this Plan, as adjusted
pursuant to Sections 2 and 15, and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing more than 50% of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TAKE-OVER PRICE" means the greater of (a) the Fair Market Value per
Share on the date the particular Option to purchase Shares is surrendered to the
Company in connection with a Hostile Take-Over or (b) the highest reported price
per Share paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered Option is an ISO, the Take-Over Price shall not
exceed the clause (a) price per Share.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer or director to the Company or a Parent
or Subsidiary of the Company. An employee will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military leave, or (iii)
any other leave of absence approved by the Committee, provided,
-11-
that such leave is for a period of not more than 90 days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated to employees in writing. In the case of any
employee on an approved leave of absence, the Committee may make such provisions
respecting suspension of vesting of the Award while on leave from the employ of
the Company or a Subsidiary as it may deem appropriate, except that in no event
may an Option be exercised after the expiration of the term set forth in the
Stock Option Agreement. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
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FLEXTRONICS INTERNATIONAL LTD.
1997 EMPLOYEE SHARE PURCHASE PLAN
As Adopted September 10, 1997
As Amended August 27, 1999 and September 21, 2000
1. ESTABLISHMENT OF PLAN. Flextronics International Ltd. (the "COMPANY")
proposes to grant options for purchase of the Company's Ordinary Shares to
eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Share Purchase Plan (this
"PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY"
(collectively, "PARTICIPATING SUBSIDIARIES") shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 3,400,000* Ordinary Shares of the Company are reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the "Committee"
shall mean either such committee or the Board if no committee has been
established. Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of this Plan shall be determined by the Committee
and its decisions shall be final and binding upon all participants. Members of
the Committee shall receive no compensation for their services in connection
with the administration of this Plan, other than standard fees as established
from time to time by the Board for services rendered by Board members serving on
Board committees. All expenses incurred in connection with the administration of
this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or Participating
Subsidiaries one month before the beginning of such Offering Period;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose shares would be
attributed to such employee pursuant to Section 424(d) of the Code, own shares
or hold options to purchase shares possessing five percent (5%) or more of the
total combined voting power or value of all classes of shares of the Company or
any of its Participating
----------
* The initial number of shares reserved for issuance was 600,000 shares. An
amendment to increase the n number of shares reserved for issuance to
1,600,000 shares was approved by shareholders on August 27, 1999. An
amendment to increase the number of shares reserved for issuance to
2,400,000 shares was approved by shareholders on September 21, 2000. An
amendment to increase the number of shares reserved for issuance to
3,400,000 shares is being submitted for shareholder approval at the Annual
General Meeting to be held on August 29, 2002. All share numbers reflect
the two-for-one stock splits effected as a bonus issue (the Singapore
equivalent of a stock dividend) paid on December 22, 1998, December 22,
1999 and October 16, 2000.
Subsidiaries or who, as a result of being granted an option under this Plan with
respect to such Offering Period, would own shares or hold options to purchase
shares possessing five percent (5%) or more of the total combined voting power
or value of all classes of shares of the Company or any of its Participating
Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any purpose other than federal income and employment
tax purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of six (6) months duration commencing on December 1 and June 1
of each year and ending on May 31 and November 30 of each year. Each Offering
Period shall consist of one (1) six-month purchase period (a "PURCHASE PERIOD")
during which payroll deductions of the participants are accumulated under this
Plan. The first Offering Period shall begin on December 1, 1997. The first
business day of each Offering Period is referred to as the "OFFERING DATE". The
last business day of each Purchase Period is referred to as the "PURCHASE DATE".
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to offerings (and specifically shall have the
power to change the duration of Offering Periods from six (6) months to
twenty-four (24) months) without shareholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
fifteen (15) days before such Offering Date unless a later time for filing the
subscription agreement authorizing payroll deductions is set by the Committee
for all eligible employees with respect to a given Offering Period. An eligible
employee who does not deliver a subscription agreement to the Treasury
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Treasury Department not later than fifteen (15) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of whole Ordinary Shares of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of an Ordinary Share of the
Company on the Offering Date (but in no event less than the par value of the
Company's Ordinary Shares), or (ii) eighty-five percent (85%) of the fair market
value of an Ordinary Share of the Company on the Purchase Date (but in no event
less than the par value of the Company's Ordinary Shares) and rounding down to
the nearest whole number, provided, however, that the number of Ordinary Shares
of the Company subject to any option granted pursuant to this Plan shall not
exceed the lesser of (a) the maximum number of shares set by the Committee
pursuant to Section 10(c) below with respect to the applicable Purchase Date, or
(b) the maximum number of shares which may be purchased pursuant to Section
10(b) below with respect to the applicable Purchase Date. The fair market value
of the Company's Ordinary Shares shall be determined as provided in Section 8
hereof.
8. PURCHASE PRICE. The purchase price per share at which an Ordinary Share
of the Company will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
-2-
Notwithstanding the foregoing, in no event may the purchase price of an
Ordinary Share of the Company be less than the par value. For purposes of this
Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of an
Ordinary Share of the Company determined as follows:
(a) if such Ordinary Shares are then quoted on the Nasdaq National
Market, the closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Ordinary Shares are publicly traded and are then listed
on a national securities exchange, the closing price on the date of
determination on the principal national securities exchange on which the
Ordinary Shares are listed or admitted to trading as reported in The Wall Street
Journal;
(c) if such Ordinary Shares are publicly traded but are not quoted
on the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal;
(d) if none of the foregoing is applicable, by the Board in good
faith.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary, overtime pay,
commissions, bonuses, and shift premiums not to exceed $250,000 per year,
provided however, that for purposes of determining a participant's base salary,
any election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the Offering
Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
fifteen (15) days before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole Ordinary
Shares of the Company reserved under the option granted to such participant with
respect to the Offering Period to the extent that such option is exercisable on
the Purchase Date. The purchase price per share shall be as specified in Section
8 of this Plan. Any cash remaining in a participant's account after such
purchase of shares shall be refunded to such participant in cash, without
interest; provided, however that any amount remaining in such participant's
account on a Purchase Date which is less than the amount necessary to purchase a
full Ordinary Share of the Company shall be carried forward, without interest,
into the
-3-
next Purchase Period or Offering Period, as the case may be. In the event that
this Plan has been oversubscribed, all funds not used to purchase shares on the
Purchase Date shall be returned to the participant, without interest. No
Ordinary Shares shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase shares under this Plan
at a rate which, when aggregated with his or her rights to purchase shares under
all other employee share purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of an
Ordinary Share of the Company on the Offering Date as the denominator may be
purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount, if any, exceed
the amounts permitted under Section 10(b) above. If a new Maximum Share Amount
is set, then all participants must be notified of such Maximum Share Amount
prior to the commencement of the next Offering Period. Once the Maximum Share
Amount is set, it shall continue to apply with respect to all succeeding
Purchase Dates and Offering Periods unless revised by the Committee as set forth
above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account which
are not used to purchase shares due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
-4-
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. Any funds accumulated
in a participant's account prior to the first day of such subsequent Offering
Period will be applied to the purchase of shares on the Purchase Date
immediately prior to the first day of such subsequent Offering Period. A
participant does not need to file any forms with the Company to automatically be
enrolled in the subsequent Offering Period
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in
this Plan is terminated by withdrawal, termination of employment or otherwise,
or in the event this Plan is terminated by the Board, the Company shall promptly
deliver to the participant all payroll deductions credited to such participant's
account. No interest shall accrue on the payroll deductions of a participant in
this Plan.
14. CAPITAL CHANGES. Subject to any required action by the shareholders of
the Company, the number of Ordinary Shares covered by each option under this
Plan which has not yet been exercised and the number of Ordinary Shares which
have been authorized for issuance under this Plan but have not yet been placed
under option (collectively, the "RESERVES"), as well as the price of each
Ordinary Share covered by each option under this Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued and outstanding Ordinary Shares of the Company resulting from a
stock split or the payment of a stock dividend (but only on the Ordinary Shares)
or any other increase or decrease in the number of issued and outstanding
Ordinary Shares effected without receipt of any consideration by the Company;
provided, however, that (a) conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration" and (b) no such adjustment shall be made if as a result, the
purchase price for each Ordinary Share shall fall below the par value thereof
and if such adjustment would but for this paragraph (b) result in the purchase
price being less than the par value of an Ordinary Share, the purchase price
payable shall be the par value of an Ordinary Share. Such adjustment shall be
made by the Committee, whose determination shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Ordinary Shares subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that the
options under this Plan shall terminate as of a date fixed by the Committee and
give each participant the right to exercise his or her option as to all of the
optioned shares, including shares which would not otherwise be exercisable. In
the event of (i) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company or their relative share holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the shareholders of the Company
immediately prior to such merger (other than any shareholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of substantially all of the assets of the Company, or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, each option under this Plan may
be assumed or an equivalent option may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. In the
event such surviving corporation refuses to assume or substitute options under
this
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Plan, (i) this Plan will terminate upon the consummation of such
transaction, unless otherwise provided by the Committee, and (ii) the Committee
may declare that the options under this Plan shall terminate as of a date fixed
by the Committee, and give each Participant the right to exercise such
participant's option as to all of the optioned shares. If the Committee makes an
option fully exercisable in the event of a merger, consolidation or sale of
assets, the Committee shall notify the participant that the option shall be
fully exercisable for a certain period, and the option and this Plan will
terminate upon the expiration of such period.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Ordinary Shares covered by each outstanding option, in the event
that the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of its outstanding Ordinary Shares,
or in the event of the Company being consolidated with or merged into any other
corporation, provided however, that no such adjustment shall be made if as a
result, the purchase price for each Ordinary Share would fall below the par
value thereof and if such adjustment would result in the purchase price being
less than the par value of an Ordinary Share, the purchase price payable shall
be the par value of an Ordinary Share.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of descent and
distribution) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be void and without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "NOTICE PERIOD"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; SHAREHOLDER APPROVAL. This Plan will become effective on the
date that it is adopted by the Board. This Plan shall be approved by the
shareholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to this Plan shall occur prior to such
shareholder approval. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by the
Board at any time), (b)
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issuance of all of the Ordinary Shares reserved for issuance under this Plan, or
(c) ten (10) years from the adoption of this Plan by the Board.
22. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or automated quotation system upon which the
shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
23. APPLICABLE LAW. The Plan shall be governed by the substantive laws of
Singapore.
24. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the shareholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
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FLEXTRONICS INTERNATIONAL LTD.
1997 INTERIM OPTION PLAN
As Adopted June 5, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options. Capitalized terms
not defined in the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 15,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 130,000 Shares. Subject to Sections 2.2 and 15,
Shares that are subject to issuance upon exercise of an Option but cease to be
subject to such Option for any reason other than exercise of such Option will
again be available for grant and issuance in connection with future Options
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan and (b) the
Exercise Prices of and number of Shares subject to outstanding Options will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that (i) fractions of a Share will not be issued but will be
replaced by a cash payment equal to the Fair Market Value of such fraction of a
Share, and (ii) no such adjustment shall be made if as a result, the Exercise
Price would fall below the par value of a Share and if such adjustment would but
for this paragraph (ii) result in the Exercise Price being less than the par
value of a Share, the Exercise Price payable shall be the par value of a Share
as determined by the Committee.
3. ELIGIBILITY. Options may be granted only to employees, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company; provided, however, that such employees, consultants,
independent contractors and advisors are not officers or directors of the
Company or any Parent, Subsidiary or Affiliate of the Company; and provided
further that such consultants, independent contractors and advisors (i) render
bona fide services not in connection with the offer and sale of securities in a
capital-raising transaction and (ii) are not residents of Singapore. No person
will be eligible to receive more than 50,000 Shares in any calendar year under
this Plan pursuant to the grant of Options hereunder, other than new employees
of the Company or of a Parent, Subsidiary or Affiliate of the Company who are
eligible to receive up to a maximum of 70,000 Shares in the calendar year in
which they commence their employment. A person may be granted more than one
Option under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other
agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to this
Plan;
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(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration subject to
Options;
(f) determine whether Options will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Options under this Plan or any other incentive or compensation
plan of the Company or any Parent, Subsidiary or Affiliate of the
Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of Options;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Option or any Award Agreement;
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Option will be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination will be final and binding
on the Company and on all persons having an interest in any Option under this
Plan. The Board may delegate to one or more officers of the Company the
authority to grant an Option under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Nonqualified Stock Options
("NQSOS") to eligible persons and will determine the number of Shares subject to
the Option, the Exercise Price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement and will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Award Agreement and a copy of this
Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Award
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of five (5) years from the date the Option is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of Shares
or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant. In no event may
the Exercise Price of an Option be less than the par value of the Shares.
Payment for the Shares purchased may be made in accordance with Section 6 of
this Plan.
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5.5 Method of Exercise. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Award Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3) months
after the Termination Date (or such shorter or longer time period as
may be determined by the Committee, but in any event, no later than
the expiration date of the Options.)
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after a
Termination other than because of Participant's death or
Disability), then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by Participant
on the Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee) no later
than twelve (12) months after the Termination Date (or such shorter
or longer time period as may be determined by the Committee, but in
any event no later than the expiration date of the Options.)
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that (a) any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted, and (b) no such modification, extension or
renewal shall be made if it would have the effect of extending the expiration
date of the Option(s) concerned to more than five (5) years from the date the
relevant Option(s) were first granted. The Committee may reduce the Exercise
Price of outstanding Options without the consent of Participants affected by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 of this Plan for Options granted on the date the action is taken to reduce
the Exercise Price.
6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant
to this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) provided that a public market for the Company's shares exists:
(1) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD DEALER") whereby the
Participant irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the
-3-
Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(b) by any combination of the foregoing.
7. WITHHOLDING TAXES. Whenever Shares are to be issued upon exercise of
an Option granted under this Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares. Whenever, under this Plan, payment upon exercise
of an Option is to be made in cash, such payment will be net of an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 Voting and Dividends. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
8.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Option will be exercisable only by the Participant, and any
elections with respect to an Option, may be made only by the Participant.
10. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
11. ESCROW. To enforce any restrictions on a Participant's Shares, the
Committee may require the Participant to deposit all certificates representing
Shares, together with stock powers or other instruments of transfer approved by
the Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates.
12. EXCHANGE AND CANCELLATION OF OPTIONS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
cancel an Option previously granted to a Participant with payment in cash,
Shares or other consideration, based on such terms and conditions as the
Committee and the Participant may agree.
13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not
be effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have
-4-
no obligation to issue or deliver certificates for Shares under this Plan prior
to: (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Options by Successor. In
the event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative share
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company (other than any shareholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the shareholders of the Company), any or all outstanding Options may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 15.1, the vesting of such Options will accelerate and the Options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and if such Options
are not exercised prior to the consummation of the corporate transaction, they
shall terminate in accordance with the provisions of this Plan.
15.2 Other Treatment of Options. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
15, in the event of the occurrence of any transaction described in Section 15.1,
any outstanding Options will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation, sale of assets or
other "corporate transaction."
15.3 Assumption of Options by the Company. The Company, from
time to time, also may substitute or assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Option under this Plan in substitution
of such other company's option; or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise price and the number and nature
of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new
-5-
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
16. EFFECTIVE DATE. This Plan will become effective on the date the
Board adopts this Plan (the "EFFECTIVE DATE").
17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of Singapore.
18. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
20. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AWARD AGREEMENT" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Option.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Flextronics International Ltd. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of the Shares
determined as follows:
(a) if such Shares are then quoted on the Nasdaq National Market, the
closing price of such Shares on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-6-
(b) if such Shares are publicly traded and are then listed on a national
securities exchange, the closing price of such Shares on the date of
determination on the principal national securities exchange on which
the Shares are listed or admitted to trading as reported in The Wall
Street Journal;
(c) if such Shares are publicly traded but are not quoted on the Nasdaq
National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on the date of determination as reported in The Wall Street Journal;
or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Shares are subject to Section 16 of
the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Option under this Plan, each of such corporations other than the
Company owns shares possessing 50% or more of the total combined voting power of
all classes of shares in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this Flextronics International Ltd. 1997 Interim Option
Plan, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means Ordinary Shares of the Company with a par value of
S$0.01 per share reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 15, and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns shares possessing 50% or more of the total combined
voting power of all classes of shares in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, consultant, independent contractor or advisor
to the Company or a Parent, Subsidiary or Affiliate of the Company, except in
the case of sick leave, military leave, or any other leave of absence approved
by the Committee. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
-7-
FLEXTRONICS INTERNATIONAL LTD.
1998 INTERIM OPTION PLAN
AS ADOPTED JANUARY 14, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options. Capitalized terms
not defined in the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 15,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 400,000 Shares. Subject to Sections 2.2 and 15,
Shares that are subject to issuance upon exercise of an Option but cease to be
subject to such Option for any reason other than exercise of such Option will
again be available for grant and issuance in connection with future Options
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan and (b) the
Exercise Prices of and number of Shares subject to outstanding Options will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that (i) fractions of a Share will not be issued but will be
replaced by a cash payment equal to the Fair Market Value of such fraction of a
Share, and (ii) no such adjustment shall be made if as a result, the Exercise
Price would fall below the par value of a Share and if such adjustment would but
for this paragraph (ii) result in the Exercise Price being less than the par
value of a Share, the Exercise Price payable shall be the par value of a Share
as determined by the Committee.
3. ELIGIBILITY. Options may be granted only to employees, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company or, upon the request of any such individual, to a trust
or other entity for the benefit of such individual; provided, however, that such
employees, consultants, independent contractors and advisors are not officers or
directors of the Company or any Parent, Subsidiary or Affiliate of the Company;
and provided further that such consultants, independent contractors and advisors
(i) render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction and (ii) are not residents of
Singapore. No person will be eligible to receive more than 50,000 Shares in any
calendar year under this Plan pursuant to the grant of Options hereunder, other
than new employees of the Company or of a Parent, Subsidiary or Affiliate of the
Company who are eligible to receive up to a maximum of 70,000 Shares in the
calendar year in which they commence their employment. A person may be granted
more than one Option under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other
agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to this
Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration subject to
Options;
(f) determine whether Options will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Options under this Plan or any other incentive or compensation
plan of the Company or any Parent, Subsidiary or Affiliate of the
Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of Options;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Option or any Award Agreement; (j)
determine whether an Option has been earned; and (k) make all other
determinations necessary or advisable for the administration of this
Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Option will be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination will be final and binding
on the Company and on all persons having an interest in any Option under this
Plan. The Board may delegate to one or more officers of the Company the
authority to grant an Option under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Nonqualified Stock Options
("NQSOs") to eligible persons and will determine the number of Shares subject to
the Option, the Exercise Price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement and will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Award Agreement and a copy of this
Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Award
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of five (5) years from the date the Option is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of Shares
or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant. In no event may
the Exercise Price of an Option be less than the par value of the Shares.
Payment for the Shares purchased may be made in accordance with Section 6 of
this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Award Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's Options only to
the extent that such Options would have been exercisable upon the
2
Termination Date no later than three (3) months after the Termination Date (or
such shorter or longer time period as may be determined by the Committee, but in
any event, no later than the expiration date of the Options.)
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after a Termination
other than because of Participant's death or Disability), then Participant's
Options may be exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized assignee) no
later than twelve (12) months after the Termination Date (or such shorter or
longer time period as may be determined by the Committee, but in any event no
later than the expiration date of the Options.)
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that (a) any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted, and (b) no such modification, extension or
renewal shall be made if it would have the effect of extending the expiration
date of the Option(s) concerned to more than five (5) years from the date the
relevant Option(s) were first granted. The Committee may reduce the Exercise
Price of outstanding Options without the consent of Participants affected by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 of this Plan for Options granted on the date the action is taken to reduce
the Exercise Price.
6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant
to this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) provided that a public market for the Company's shares exists:
(1) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(b) by any combination of the foregoing.
7. WITHHOLDING TAXES. Whenever Shares are to be issued upon exercise of
an Option granted under this Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares. Whenever, under this Plan, payment upon exercise
of an Option is to be made in cash, such payment will be net of an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 Voting and Dividends. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
3
8.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Option will be exercisable only by the Participant, and any
elections with respect to an Option, may be made only by the Participant.
Notwithstanding the foregoing, (i) Optionees may transfer or assign their
options (other than Incentive Stock Options) to family members (as defined
below) through a gift or a domestic relations order (and not in a transfer for
value), and (ii) if the terms of the applicable Award Agreement so provide,
Optionees who reside outside of the United States and Singapore may assign their
options to a financial institution outside of the United States and Singapore
that has been approved by the Committee, in accordance with the terms of the
applicable award agreement. The Optionee shall be solely responsible for
effecting any such assignment, and for ensuring that such assignment is valid,
legal and binding under all applicable laws. The Committee shall have the
discretion to establish such rules as it deems necessary to ensure that all such
assignments are made in compliance with all applicable laws. For purposes of
this paragraph, "family member" includes any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
employee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent of the beneficial interest, a foundation in
which these persons (or the employee) control the management of assets, and any
other entity in which these persons (or the employee) own more than fifty
percent of the voting interests.
10. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
11. ESCROW. To enforce any restrictions on a Participant's Shares, the
Committee may require the Participant to deposit all certificates representing
Shares, together with stock powers or other instruments of transfer approved by
the Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates.
12. EXCHANGE AND CANCELLATION OF OPTIONS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
cancel an Option previously granted to a Participant with payment in cash,
Shares or other consideration, based on such terms and conditions as the
Committee and the Participant may agree.
13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not
be effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
4
14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Options by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative share
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company (other than any shareholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the shareholders of the Company), any or all outstanding Options may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 15.1, the vesting of such Options will accelerate and the Options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and if such Options
are not exercised prior to the consummation of the corporate transaction, they
shall terminate in accordance with the provisions of this Plan.
15.2 Other Treatment of Options. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 15, in
the event of the occurrence of any transaction described in Section 15.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
15.3 Assumption of Options by the Company. The Company, from time
to time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Option under this Plan in substitution of
such other company's option; or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise price and the number and nature
of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
16. EFFECTIVE DATE. This Plan will become effective on the date the
Board adopts this Plan (the "Effective Date").
17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of Singapore.
5
18. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
20. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"Award Agreement" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Option.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to administer
this Plan, or if no such committee is appointed, the Board.
"Company" means Flextronics International Ltd. or any successor
corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of the Shares
determined as follows:
(a) if such Shares are then quoted on the Nasdaq National Market, the
closing price of such Shares on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Shares are publicly traded and are then listed on a national
securities exchange, the closing price of such Shares on the date of
determination on the principal national securities exchange on which
the Shares are listed or admitted to trading as reported in The Wall
Street Journal;
(c) if such Shares are publicly traded but are not quoted on the Nasdaq
National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on the date of determination as reported in The Wall Street Journal;
or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Shares are subject to Section 16 of
the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
Section 5.
6
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Option under this Plan, each of such corporations other than the
Company owns shares possessing 50% or more of the total combined voting power of
all classes of shares in one of the other corporations in such chain.
"Participant" means a person who receives an Option under this Plan.
"Plan" means this Flextronics International Ltd. 1998 Interim Option
Plan, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means Ordinary Shares of the Company with a par value of
S$0.01 per share reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 15, and any successor security.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns shares possessing 50% or more of the total combined
voting power of all classes of shares in one of the other corporations in such
chain.
"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, consultant, independent contractor or advisor
to the Company or a Parent, Subsidiary or Affiliate of the Company, except in
the case of sick leave, military leave, or any other leave of absence approved
by the Committee. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
7
FLEXTRONICS INTERNATIONAL LTD.
1999 INTERIM OPTION PLAN
As Adopted December 14, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options. Capitalized terms
not defined in the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 15,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,300,000* Shares. Subject to Sections 2.2 and 15,
Shares that are subject to issuance upon exercise of an Option but cease to be
subject to such Option for any reason other than exercise of such Option will
again be available for grant and issuance in connection with future Options
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan and (b) the
Exercise Prices of and number of Shares subject to outstanding Options will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that (i) fractions of a Share will not be issued but will be
replaced by a cash payment equal to the Fair Market Value of such fraction of a
Share, and (ii) no such adjustment shall be made if as a result, the Exercise
Price would fall below the par value of a Share and if such adjustment would but
for this paragraph (ii) result in the Exercise Price being less than the par
value of a Share, the Exercise Price payable shall be the par value of a Share
as determined by the Committee.
3. ELIGIBILITY. All Options issued under the Plan shall be Nonqualified
Stock Options ("NQSOS"). Options may be granted only to employees, officers,
directors, consultants, independent contractors and advisors of the Company or
any Parent, Subsidiary or Affiliate of the Company or, upon the request of any
such individual, to a trust or other entity for the benefit of such individual;
provided that Options awarded to officers or directors of the Company or any
Parent, Subsidiary or Affiliate of the Company may not exceed 30% of all Options
that are available for grant under the Plan; and provided further that such
consultants, independent contractors and advisors, and officers and directors
who are not employees of the Company or any Parent, Subsidiary or Affiliate of
the Company (a) render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction and (b) are not residents of
Singapore. A person may be granted more than one Option under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other
agreement or document executed pursuant to this Plan;
*Reflects two for one stock split in the form of a bonus issue (the equivalent
of a stock dividend) effective December 22, 1998.
(b) prescribe, amend and rescind rules and regulations relating to this
Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration subject to
Options;
(f) determine whether Options will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Options under this Plan or any other incentive or compensation
plan of the Company or any Parent, Subsidiary or Affiliate of the
Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of Options;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Option or any Award Agreement;
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Option will be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination will be final and binding
on the Company and on all persons having an interest in any Option under this
Plan. The Board may delegate to one or more officers of the Company the
authority to grant an Option under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant NQSOs to eligible persons and will
determine the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement and will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Award Agreement and a copy of this
Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Award
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of Shares
or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant. In no event may
the Exercise Price of an Option be less than the par value of the Shares.
Payment for the Shares purchased may be made in accordance with Section 6 of
this Plan.
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5.5 Method of Exercise. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Award Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3) months
after the Termination Date (or such shorter or longer time period as
may be determined by the Committee, but in any event, no later than
the expiration date of the Options.)
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after a
Termination other than because of Participant's death or
Disability), then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by Participant
on the Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee) no later
than twelve (12) months after the Termination Date (or such shorter
or longer time period as may be determined by the Committee, but in
any event no later than the expiration date of the Options.)
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that (a) any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted, and (b) no such modification, extension or
renewal shall be made if it would have the effect of extending the expiration
date of the Option(s) concerned to more than ten (10) years from the date the
relevant Option(s) were first granted. The Committee may reduce the Exercise
Price of outstanding Options without the consent of Participants affected by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 of this Plan for Options granted on the date the action is taken to reduce
the Exercise Price.
6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant
to this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) provided that a public market for the Company's shares exists:
(i) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD DEALER") whereby the
Participant irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
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(ii) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
(b) by any combination of the foregoing.
7. WITHHOLDING TAXES. Whenever Shares are to be issued upon exercise of
an Option granted under this Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares. Whenever, under this Plan, payment upon exercise
of an Option is to be made in cash, such payment will be net of an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 Voting and Dividends. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
8.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Option will be exercisable only by the Participant, and any
elections with respect to an Option, may be made only by the Participant.
Notwithstanding the foregoing, (i) Optionees may transfer or assign their
options (other than Incentive Stock Options) to family members (as defined
below) through a gift or a domestic relations order (and not in a transfer for
value), and (ii) if the terms of the applicable Award Agreement so provide,
Optionees who reside outside of the United States and Singapore may assign their
options to a financial institution outside of the United States and Singapore
that has been approved by the Committee, in accordance with the terms of the
applicable award agreement. The Optionee shall be solely responsible for
effecting any such assignment, and for ensuring that such assignment is valid,
legal and binding under all applicable laws. The Committee shall have the
discretion to establish such rules as it deems necessary to ensure that all such
assignments are made in compliance with all applicable laws. For purposes of
this paragraph, "family member" includes any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
employee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent of the beneficial interest, a foundation in
which these persons (or the employee) control the management of assets, and any
other entity in which these persons (or the employee) own more than fifty
percent of the voting interests.
10. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
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11. ESCROW. To enforce any restrictions on a Participant's Shares, the
Committee may require the Participant to deposit all certificates representing
Shares, together with stock powers or other instruments of transfer approved by
the Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have lapsed
or terminated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates.
12. EXCHANGE AND CANCELLATION OF OPTIONS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
cancel an Option previously granted to a Participant with payment in cash, or
other consideration, based on such terms and conditions as the Committee and the
Participant may agree.
13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not
be effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
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14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Options by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative share
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company (other than any shareholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the shareholders of the Company), any or all outstanding Options may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
shareholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 15.1, the vesting of such Options will accelerate and the Options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and if such Options
are not exercised prior to the consummation of the corporate transaction, they
shall terminate in accordance with the provisions of this Plan.
15.2 Other Treatment of Options. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 15, in
the event of the occurrence of any transaction described in Section 15.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
15.3 Assumption of Options by the Company. The Company, from time
to time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Option under this Plan in substitution of
such other company's option; or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise price and the number and nature
of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
16. EFFECTIVE DATE. This Plan will become effective on the date the
Board adopts this Plan (the "EFFECTIVE DATE").
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17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of Singapore.
18. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
20. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AWARD AGREEMENT" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Option.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Flextronics International Ltd. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of the Shares
determined as follows:
(a) if such Shares are then quoted on the Nasdaq National Market, the
closing price of such Shares on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Shares are publicly traded and are then listed on a national
securities exchange, the closing price of such Shares on the date of
determination on the principal national securities exchange on which
the Shares are listed or admitted to trading as reported in The Wall
Street Journal;
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(c) if such Shares are publicly traded but are not quoted on the Nasdaq
National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on the date of determination as reported in The Wall Street Journal;
or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Shares are subject to Section 16 of
the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Option under this Plan, each of such corporations other than the
Company owns shares possessing more than 50% of the total combined voting power
of all classes of shares in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this Flextronics International Ltd. 1999 Interim Option
Plan, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means Ordinary Shares of the Company with a par value of
S$0.01 per share reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 15, and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns shares possessing more than 50% of the total combined
voting power of all classes of shares in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor or advisor to the Company or a Parent, Subsidiary or Affiliate of the
Company, except in the case of sick leave, military leave, or any other leave of
absence approved by the Committee. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
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FLEXTRONICS INTERNATIONAL LTD.
2002 INTERIM INCENTIVE PLAN
As Adopted May 6, 2002
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Share Bonuses. Capitalized
terms not defined in the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 15,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 20,000,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) issuance pursuant to a
Share Bonus but cease to be subject to such Share Bonus for any reason other
than issuance pursuant to such Share Bonus; and (c) an Award that otherwise
terminates without Shares being issued. At all times the Company shall reserve
and keep available a sufficient number of Shares as shall be required to satisfy
the requirements of all outstanding Awards granted under this Plan.
2.2 Adjustment of Shares. Should any change be made to the Shares
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Shares as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan and (ii) the number
and/or class of securities and price per Share in effect under each Award
outstanding under Sections 5 and 6. Such adjustments to the outstanding Awards
are to be effected in a manner which shall preclude the enlargement or dilution
of rights and benefits under such Awards, provided, however, that (i) fractions
of a Share will not be issued but will be replaced by a cash payment equal to
the Fair Market Value of such fraction of a Share, as determined by the
Committee, and (ii) in the case of an Option granted under Section 5, no such
adjustment shall be made if as a result, the Exercise Price would fall below the
par value of a Share and if such adjustment would but for this paragraph (ii)
result in the Exercise Price being less than the par value of a Share, the
Exercise Price payable shall be the par value of a Share. The adjustments
determined by the Committee shall be final, binding and conclusive.
3. ELIGIBILITY. All Awards may be granted to employees, officers and
directors of the Company or any Parent or Subsidiary of the Company, provided
however, that non-executive directors of the Company shall be eligible for the
grant of Awards only to the extent permitted by, and subject to compliance with,
all applicable laws and regulations. A person may be granted more than one Award
under this Plan. Awards granted to officers and non-employee directors may not
exceed in the aggregate forty-nine percent (49%) of all Shares that are reserved
for grant under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. The
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options that are Nonqualified Stock
Options ("NQSOS") to eligible persons and will determine the number of Shares
subject to the Option, the Exercise Price of the Option, the period during which
the Option may be exercised, and all other terms and conditions of the Option,
subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as a
NQSO ("SHARE OPTION AGREEMENT"), and, except as otherwise required by the terms
of Section 7 hereof, will be in such form and contain such provisions (which
need not be the same for each Participant) as the Committee may from time to
time approve, and which will comply with and be subject to the terms and
conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Share Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Share Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no Option granted to a person who is not an
employee of the Company or any Parent or Subsidiary of the Company on the date
of grant of that Option will be exercisable after the expiration of five (5)
years from the date the Option is granted. The Committee also may provide for
Options to become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
2
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted. In no event may the
Exercise Price of an Option be less than the par value of the Shares. Payment
for the Shares purchased may be made in accordance with Section 7 of this Plan.
5.5 Method of Exercise.
(a) Options may be exercised only by delivery to the Company (or
as the Company may direct) of a written share option exercise
agreement (the "EXERCISE AGREEMENT") (in the case of a written
Exercise Agreement, in the form approved by the Board or the
Committee, which need not be the same for each Participant),
in each case stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such
Exercise Agreement, if any, and such representations and
agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise
Price for the number of Shares being purchased.
(b) A written Exercise Agreement may be communicated
electronically through the use of such security device
(including, without limitation, any logon identifier,
password, personal identification number, smartcard, digital
certificate, digital signature, encryption device, electronic
key, and/or other code or any access procedure incorporating
any one or more of the foregoing) as may be designated by the
Board or the Committee for use in conjunction with the Plan
from time to time ("SECURITY DEVICE"), or via an electronic
page, site, or environment designated by the Company which is
accessible only through the use of such Security Device, and
such written Exercise Agreement shall thereby be deemed to
have been sent by the designated holder of such Security
Device. The Company (or its agent) may accept and act upon any
written Exercise Agreement issued and/or transmitted through
the use of the Participant's Security Device (whether actually
authorized by the Participant or not) as his authentic and
duly authorized Exercise Agreement and the Company (or its
agent) may treat such Exercise Agreement as valid and binding
on the Participant notwithstanding any error, fraud, forgery,
lack of clarity or misunderstanding in the terms of such
Exercise Agreement. All written Exercise Agreements issued
and/or transmitted through the use of the Participant's
Security Device (whether actually authorized by the
Participant or not) are irrevocable and binding on the
Participant upon transmission to the Company (or as the
Company may direct) and the Company (or its agent) shall be
entitled to effect, perform or process such Exercise Agreement
without the Participant's further consent and without further
reference to the Participant.
(c) The Company's records of the Exercise Agreements (whether
delivered or communicated electronically or in printed form),
and its record of any transactions maintained by any relevant
person authorized by the Company relating to or connected with
the Plan, whether stored in audio, electronic, printed or
other form, shall be binding and conclusive on the Participant
and shall be conclusive evidence of such Exercise Agreements
and/or transactions. All such records shall be admissible in
evidence and, in the case of a written Exercise Agreement
which has been communicated electronically, the Participant
shall not challenge or dispute the admissibility, reliability,
accuracy or the authenticity of the contents of such records
merely on the basis that such records were incorporated and/or
set out in electronic form or were produced by or are the
output of a computer system, and the Participant waives any of
his rights (if any) to so object.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Share Option Agreement, exercise of an Option will always be subject to the
following:
3
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter or longer time period not exceeding five (5) years as
may be determined by the Committee), but in any event no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of the Participant's
death or Disability (or the Participant dies within three (3)
months after a Termination other than for Cause or because of
the Participant's Disability), then the Participant's Options
may be exercised only to the extent that such Options would
have been exercisable by the Participant on the Termination
Date and must be exercised by the Participant (or the
Participant's legal representative or authorized assignee) no
later than twelve (12) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee), but in any event
no later than the expiration date of the Options.
(c) If the Participant is Terminated for Cause, then the
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such conditions
as are determined by the Committee (but in any event, no later
than the expiration date of the Options).
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent the Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted, and provided further that the exercise period of
any Option may not in any event be extended beyond the periods specified in
Section 5.3.
6. SHARE BONUSES. The Committee may grant Share Bonuses and will
determine the number of Shares subject to the Share Bonus, the Purchase Price of
the Shares subject to the Share Bonus, and all other terms and conditions of the
Share Bonus, subject to the following:
6.1 Awards of Share Bonuses. Share Bonuses may be awarded pursuant
to an Award Agreement (the "SHARE BONUS AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Share Bonuses provide the Participant with the right to
receive a specified number of Shares at the end of a specified vesting period,
or periods, not to exceed, in the case of Participants who are employees of the
Company or any Parent or Subsidiary of the Company, ten (10) years from the date
of grant of the Share Bonus, and, in the case of Participants who are not
employees of the Company or any Parent or Subsidiary of the Company, five (5)
years from the date of grant of the Share Bonus ("VESTING PERIODS") upon receipt
of the Purchase Price, and may provide that such number will be increased, or
the right to receive Shares accelerated, upon the satisfaction of specified
performance goals. Share Bonuses may vary from Participant to Participant and
between groups of Participants, and may be based upon the achievement of the
Company, Parent or Subsidiary and/or individual performance factors or upon such
other criteria as the Committee may determine.
6.2 Terms of Share Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant pursuant to a Share Bonus. If
the Share Bonus is being earned upon the satisfaction of performance goals
pursuant to a Share Bonus Agreement, then the Committee will: (a) determine the
nature, length and starting date of any Performance Period for each Share Bonus;
(b) determine the applicable performance goals and Performance Factors, if any;
(c) determine the total number of Shares that may be awarded to the Participant,
(d)
4
determine the number of Shares that will be issued in each Performance Period
and the effect thereon of the satisfaction of the Performance Factors, including
any provision for acceleration of issuance of Shares, or increase in the number
of such Shares, and (e) determine whether any payment will be required for the
issuance of such Shares other than satisfaction of the Performance Factors and
the payment of the Purchase Price.
The Committee shall, as soon as practicable after the end of each
Vesting Period or, as the case may be, Performance Period, determine the extent
to which the Share Bonuses have vested or have been earned, and shall thereafter
procure the allotment and issuance to the Participant of the Shares to the
extent vested and/or earned against payment of the Purchase Price. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Share Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Share Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
6.3 Date of Grant. The date of grant of a Share Bonus will be the
date on which the Committee makes the determination to grant such Share Bonus,
unless otherwise specified by the Committee. The Share Bonus Agreement and a
copy of this Plan will be delivered to the Participant within a reasonable time
after the granting of the Share Bonus.
6.4 Purchase Price. The Purchase Price for each Share subject to a
Share Bonus will be equal to the par value of each such Share. Payment of the
Purchase Price for the Shares subject to a Share Bonus may be made in accordance
with Section 7 of this Plan.
6.5 Termination. The Share Bonus and all of the Company's
obligations and the Participant's rights under the Plan and the Share Bonus
Agreement (except the right to receive Shares already vested and Shares already
earned), shall terminate on the earlier of the Participant's Termination Date or
the date when all the Shares have been allotted and issued.
6.6 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Share Bonuses and authorize the grant of new Share
Bonuses in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Share Bonus previously granted.
7. PAYMENT FOR SHARE PURCHASES.
7.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by waiver of compensation due or accrued to the Participant
for services rendered;
(c) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's Shares exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
5
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects
to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company;
(d) conversion of a convertible note issued by the Company, the
terms of which provide that it is convertible into Shares
issuable pursuant to the Plan (with the principal amount and
any accrued interest being converted and credited dollar for
dollar to the payment of the Exercise Price or, as the case
may be, the Purchase Price);
(e) by the Company, as permitted by applicable laws; or
(f) by any combination of the foregoing.
8. WITHHOLDING TAXES. Whenever Shares are to be issued in satisfaction
of Awards granted under this Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares. Whenever, under this Plan, payments in
satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9. TRANSFERABILITY.
9.1 Except as otherwise provided in this Section 9, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by a Participant, and may not be made subject to execution,
attachment or similar process, otherwise than by will or by the laws of descent
and distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards. Notwithstanding the foregoing, (i)
Participants may transfer or assign their Awards to Family Members through a
gift or a domestic relations order (and not in a transfer for value), and (ii)
if the terms of the applicable instrument evidencing the grant of an Award so
provide, Participants who reside outside of the United States and Singapore may
assign their Awards to a financial institution outside of the United States and
Singapore that has been approved by the Committee, in accordance with the terms
of the applicable instrument. The Participant shall be solely responsible for
effecting any such assignment, and for ensuring that such assignment is valid,
legal and binding under all applicable laws. The Committee shall have the
discretion to adopt such rules as it deems necessary to ensure that any
assignment is in compliance with all applicable laws.
9.2 NQSOs. Unless otherwise restricted by the Committee, an NQSO
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" as defined below, (ii) by a transferee that is permitted pursuant to
clause (ii) of Section 9.1, for such period as may be authorized by the terms of
the applicable instrument evidencing the grant of the applicable Option, or by
the Committee, and (iii) after Participant's death, by the legal representative
of the Participant's heirs or legatees. "Permitted transfer" means any transfer
of an interest in such NQSO by gift or domestic relations order effected by the
Participant during the Participant's lifetime. A permitted transfer shall not
include any transfer for value; provided that the following shall be permitted
transfers and shall not be considered to be transfers for value: (a) a transfer
under a domestic relations order in settlement of marital property rights or (b)
a transfer to an entity in which more than fifty percent of the voting interests
are owned by Family Members or the Participant in exchange for an interest in
that entity.
10. PRIVILEGES OF SHARE OWNERSHIP. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
6
11. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such share transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time and subject to compliance with all applicable laws and
regulations, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time and subject to
compliance with all applicable laws and regulations buy from a Participant an
Award previously granted with payment in cash, Shares or other consideration,
based on such terms and conditions as the Committee and the Participant may
agree.
13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
15. CORPORATE TRANSACTIONS.
15.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative share
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction (each, a "CORPORATE TRANSACTION"), each Option which is at
the time outstanding under this Plan shall automatically accelerate so that each
such Option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of Shares at the time subject to such Option and may be exercised for all or any
portion of such Shares. However, subject to the specific terms of a
Participant's Award Agreement, an outstanding Option under this Plan shall not
so accelerate if and to the extent: (i) such Option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable Option to purchase shares of
the capital share of the successor corporation or parent thereof, (ii) such
Option is to be replaced with a cash incentive program of the successor
corporation which preserves the Option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such
7
Option or (iii) the acceleration of such Option is subject to other limitations
imposed by the Committee at the time of the Option grant. The determination of
Option comparability under clause (i) above shall be made by the Committee, and
its determination shall be final, binding and conclusive.
15.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 15 or
other specific terms of a Participant's Award Agreement, in the event of the
occurrence of any Corporate Transaction described in Section 15.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
15.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the Exercise Price and the number and nature of Shares issuable
upon exercise of any such Option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing Option, such new Option may be granted
with a similarly adjusted Exercise Price.
16. ADOPTION. This Plan will become effective on the date on which the
Board adopts the Plan (the "EFFECTIVE DATE").
17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board. This Plan and all agreements thereunder shall be governed
by and construed in accordance with the laws of the State of California.
18. AMENDMENT OR TERMINATION OF PLAN. The Board has complete and
exclusive power and authority to amend or modify the Plan (or any component
thereof) in any or all respects whatsoever. However, no such amendment or
modification shall adversely affect rights and obligations with respect to
Awards at the time outstanding under the Plan, unless the Participant consents
to such amendment.
The Board may at any time terminate or amend this Plan in any
respect, including without limitation amendment of any form of Award Agreement
or instrument to be executed pursuant to this Plan.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of share options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
20. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any Options or Share Bonuses granted under this Plan.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means (a) the commission of an act of theft, embezzlement,
fraud, dishonesty, (b) a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company or (c) a failure to materially perform the customary
duties of the employee's employment.
8
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Flextronics International Ltd. or any successor
corporation.
"DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of the Shares
determined as follows:
(a) if such Shares are then quoted on the Nasdaq National Market,
the closing price of such Shares on the Nasdaq National Market
on the date of determination as reported in The Wall Street
Journal;
(b) if such Shares are publicly traded and are then listed on a
national securities exchange, the closing price of such Shares
on the date of determination on the principal national
securities exchange on which the Shares are listed or admitted
to trading as reported in The Wall Street Journal;
(c) if such Shares are publicly traded but are not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid
and asked prices on the date of determination as reported in
The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person
with such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting
interest.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Shares are subject to Section 16 of
the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Sections 5.
9
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns shares possessing more than 50% of the
total combined voting power of all classes of shares in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PERFORMANCE FACTORS" means such factors as may be selected by the
Committee, in it sole discretion, including, but not limited to, the following
measures, to determine whether the performance goals established by the
Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added;
(k) Cash conversion cycle;
(l) Return on Invested Capital; and
(k) Individual confidential business objectives.
It is in the sole discretion of the Committee to determine if any extraordinary,
unusual or one-time charges are to be included or excluded in such Performance
Factors.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Share Bonuses.
"PLAN" means this Flextronics International Ltd. 2002 Interim
Incentive Plan, as amended from time to time.
"PURCHASE PRICE" means the price at which a holder of a Share Bonus
may purchase the Shares issuable pursuant to the Share Bonus.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
10
"SHARES" means ordinary shares of par value S$0.01 each in the
capital of the Company reserved for issuance under this Plan, as adjusted
pursuant to Sections 2 and 15, and any successor security.
"SHARE BONUS" means an award of Shares pursuant to Section 6.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns shares
possessing more than 50% of the total combined voting power of all classes of
shares in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer or director to the Company or a Parent
or Subsidiary of the Company. An employee will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military leave, or (iii)
any other leave of absence approved by the Committee. In the case of any
employee on an approved leave of absence, the Committee may make such provisions
respecting suspension of vesting of the Award while on leave from the employ of
the Company or a Subsidiary as it may deem appropriate, except that in no event
may an Option be exercised after the expiration of the term set forth in the
Share Option Agreement. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
11
[FORM OF PROXY CARD]
FLEXTRONICS INTERNATIONAL LTD.
2090 FORTUNE DRIVE
SAN JOSE, CALIFORNIA 95131
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned being a member of Flextronics International Ltd. (the
"Company") hereby appoints Michael Marks or failing Robert R.B. Dykes or failing
whom the Chairman of the Annual General Meeting as Proxy of the undersigned and
hereby authorizes the Proxy to represent and to vote, as designated on the
reverse side, all of the ordinary shares of the Company, held of record by the
undersigned on July 2, 2002, at the Annual General Meeting of the Company to be
held August 29, 2002, or at any adjournment thereof.
This Proxy, when properly executed and returned in a timely manner,
will be voted at the Annual General Meeting and any adjournments thereof in the
manner described herein. If no contrary indication is made, the proxy will be
voted FOR the Board of Director nominees, FOR Proposals No. 3 through 9 and in
accordance with the judgment of the persons named as proxies herein on any other
matters that may properly come before the Annual General Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE
SEE REVERSE SIDE
[X] Please mark votes as in this example.
The Board of Directors unanimously recommends a vote FOR the Board of
Director nominees and FOR Proposals No. 3 through 9. This Proxy, when properly
executed, will be voted as specified below. This Proxy will be voted FOR the
Board of Director nominees and FOR Proposals No. 3 through 9 if no specification
is made.
1(a). Re-election of Michael Marks as a Director of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1(b). Re-election of Michael Moritz as a Director of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Re-appointment of Patrick Foley as a Director of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To receive and adopt the Audited Accounts of the Company for the fiscal
year ended March 31, 2002, together with the Reports of the Directors
and Auditors thereon.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To appoint Deloitte & Touche LLP as independent auditors of the Company
for the fiscal year ending March 31, 2003 in place of Arthur Andersen
LLP.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To approve amendments to the Company's 2001 Equity Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To approve an amendment to the Company's 1997 Employee Share Purchase
Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. To approve the authorization for the Directors of the Company to allot
and issue ordinary shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
8. To approve the authorization for the Directors of the Company to allot
and issue bonus shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
9. To approve the authorization of the proposed share mandate relating to
acquisitions by Company or its own issued ordinary shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
This Proxy must be signed exactly as your name appears hereon. If more
than one name appears, all persons so designated should sign. Attorneys,
executors, administrators, trustees and guardians should indicate their
capacities. If the signatory is a corporation, please print full corporate name
and indicate capacity of duly authorized officer executing on behalf of the
corporation. If the signatory is a partnership, please print full partnership
name and indicate capacity of duly authorized person executing on behalf of the
partnership.
Signature: ______________________________________ Date: ______________, 2002
Signature: ______________________________________ Date: ______________, 2002
(Reverse Side)
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THIS PROXY CARD AND
RETURN IT PRIOR TO THE MEETING IN THE ENCLOSED ENVELOPE.