INTERNATIONAL MANUFACTURING SERVICES INC, 424B4, 1997-10-22

INTERNATIONAL MANUFACTURING SERVICES INC
424B4, 1997-10-22
PRINTED CIRCUIT BOARDS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Number 333-34557

5,000,000 SHARES

LOGO

CLASS A COMMON STOCK
------------------------

All of the 5,000,000 Shares of Class A Common Stock offered hereby are
being sold by International Manufacturing Services, Inc. (the "Company"). Prior
to this offering (the "Offering"), there has been no public market for the Class
A Common Stock of the Company. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The Class A
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "IMSX."

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................. $11.50 $0.805 $10.695
Total(3)................... $57,500,000 $4,025,000 $53,475,000
============================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(2) Before deducting expenses payable by the Company estimated at $1,000,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the Price to Public will total $66,125,000, the Underwriting Discount will
total $4,628,750 and the Proceeds to Company will total $61,496,250. See
"Underwriting."

The shares of Class A Common Stock are offered by the several Underwriters
named herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the certificates representing such shares will be made against payment therefor
at the office of NationsBanc Montgomery Securities, Inc. on or about October 27,
1997.
------------------------

NATIONSBANC MONTGOMERY SECURITIES, INC.

BT ALEX. BROWN

UBS SECURITIES

October 22, 1997
<PAGE> 2

[ARTWORK]

------------------------

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
------------------------

This Prospectus includes trademarks and trade names of the Company and
other entities.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF CLASS A
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors," and
the Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. The discussion in this Prospectus contains forward-looking
statements. Future events anticipated in the forward-looking statements
contained in this Prospectus are uncertain. Actual events, and the Company's
actual results, may differ materially from those predicted, assumed or discussed
in such forward-looking statements. Factors that may cause or contribute to such
differences include those discussed in "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as those discussed elsewhere in this Prospectus. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements, wherever they appear in this Prospectus.

THE COMPANY

International Manufacturing Services, Inc. (together with its subsidiaries,
the "Company") provides a broad range of advanced, integrated electronics
manufacturing services ("EMS") to electronics original equipment manufacturers
("OEMs") primarily in the computer peripherals, data communications and
telecommunications markets. The Company's services include product design,
prototyping, printed circuit board ("PCB") assembly, final system assembly,
materials procurement, inventory management, testing, packaging, distribution
and depot repair. The Company combines its manufacturing experience and
operational infrastructure in Asia with its design, prototype and manufacturing
capabilities in the United States to provide cost-effective, flexible EMS
solutions to its customers. The Company maintains its materials procurement
operations in Hong Kong to be near low cost suppliers and conducts volume
manufacturing operations in Thailand and China to access low cost labor, reduce
overhead and take advantage of certain local tax benefits.

According to Technology Forecasters, the worldwide market for electronics
manufacturing services was $59 billion in 1996 and is expected to grow, at an
annual rate of approximately 25% through the year 2001, to $178 billion. As OEMs
have become aware of the long-term advantages of outsourcing, EMS providers have
expanded the range of services offered and have become increasingly integral to
OEMs' overall enterprise strategies. Today, OEMs rely upon EMS providers'
advanced manufacturing capabilities and related services to obtain a number of
benefits, including: lower product cost; shorter new product introduction
cycles; more rapid time to market and time to volume production; reduced working
capital and capital expenditures; and more flexible response to design changes
and fluctuations in the availability of materials. Outsourcing also allows OEMs
to focus resources on their core competencies, such as research and development
and sales and marketing.

A key component of the Company's strategy is to leverage its presence in
low cost regions of Asia and its expertise in materials procurement and
manufacturing to provide technologically advanced, flexible and cost-effective
EMS solutions to OEMs' increasingly complex needs. In addition, the Company
intends to diversify its revenue base by establishing strategic relationships
with major and emerging OEMs in rapidly growing industry sectors, such as data
communications and telecommunications, while expanding the range of
manufacturing services it provides to its existing customer base. Further, by
participating in the early stages of product design and leveraging its volume
materials procurement capabilities, the Company seeks to increase manufacturing
efficiency and accelerate its customers' time to market and time to volume
production.

The Company's electronics manufacturing services range from the assembly of
PCBs and backplanes (interconnecting structures which hold, provide power to,
and connect data signals among PCB assemblies in electronic systems) to
subsystem and complete product assembly. The majority of these products include
complex, high density surface-mount assemblies. PCB assembly activity primarily
consists of the placement and attachment of electronic and mechanical components
on printed circuit boards using both surface-mount and pin-through-hole
technologies. The Company has recently added press-fit technology to its
existing capabilities for the manufacturing of backplane assemblies. The Company
also performs final assembly of customer products ("box-build") as well as a
range of testing, logistics, distribution and depot repair services.

3
<PAGE> 4

The Company's major customers include Maxtor Corporation ("Maxtor"), Bay
Networks, Inc., Asante Technologies, Inc., Polaroid Corporation and Symbios
Logic, Inc. The Company has also recently initiated significant customer
relationships with Advanced Fibre Communications and Polycom, Inc.

The Company's Hong Kong operations, which commenced business in 1983, were
acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other
manufacturing operations and assets. International Manufacturing Services, Inc.
was formed in November 1994 as a wholly-owned subsidiary of Maxtor. In June
1996, the Company was recapitalized as an independent company. In this regard,
the Company redeemed approximately 76.5% of Maxtor's share ownership with a
combination of $25.0 million cash, $20.0 million principal amount senior
subordinated notes (including $4.3 million rolled over from a previously
outstanding note payable) and a warrant for 300,000 shares of Class A Common
Stock. The Company raised the cash portion of the redemption price by issuing a
combination of common stock, preferred stock and $12.5 million principal amount
junior subordinated notes to a group of investors. These redemption and
financing transactions are collectively referred to in this prospectus as the
"Recapitalization." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and "Description of
Capital Stock."

The Company's executive offices are located at 2071 Concourse Drive, San
Jose, CA 95131, and its telephone number is (408) 953-1000.

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered....................... 5,000,000 shares
Common Stock to be outstanding after the
Offering......................................... 18,327,500 shares(1)
Use of proceeds.................................... For repayment of related party
indebtedness and bank borrowings,
capital expenditures and general
corporate purposes, including working
capital
Proposed Nasdaq National Market Symbol............. IMSX
</TABLE>

- ---------------

(1) Based on 10,818,075 shares of Class A Common Stock and 2,509,425 shares of
Class B Common Stock as of July 31, 1997, assuming conversion of all
outstanding shares of preferred stock into Common Stock as a result of this
Offering. Excludes (i) 2,895,000 shares issuable upon exercise of
outstanding options as of July 31, 1997 granted under the Company's 1996
Stock Option Plan, (ii) 420,000 shares reserved for future issuance as of
July 31, 1997 under the Company's 1996 Stock Option Plan, (iii) 250,000
shares reserved for future issuance under the Company's 1997 Employee Stock
Purchase Plan and 1997 Non-U.S. Employee Stock Purchase Plan, (iv) 1,750,000
shares reserved for future issuance under the Company's 1997 Stock Plan (of
which options to purchase up to 1,027,500 shares are intended to be granted
upon the effectiveness of this Offering at the initial public offering
price), and (v) 225,000 shares reserved for future issuance under the
Company's 1997 Director Option Plan (of which options to purchase 70,000
shares will be automatically granted upon the effectiveness of this Offering
at the initial public offering price). See "Management -- Compensation
Plans" and Note 14 of Notes to Consolidated Financial Statements.

As used in this Prospectus, the "Company" refers to International
Manufacturing Services, Inc. and its consolidated subsidiaries, unless context
otherwise indicates. Except as otherwise indicated, the information contained in
this Prospectus reflects a three-for-two stock split of the Common Stock and
Preferred Stock effected in September 1997 and assumes (i) the conversion of all
outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock (the "Preferred Stock") into 3,490,575 shares of Class A Common
Stock and 2,509,425 shares of Class B Common Stock, respectively, which will
occur upon the consummation of this Offering, (ii) the Company will file an
amended and restated certificate of incorporation concurrently with the closing
of this Offering to eliminate the Company's currently existing series of
Preferred Stock and authorize undesignated preferred stock, and (iii) no
exercise of the Underwriters' over-allotment option. "Common Stock" as used
herein refers collectively and without distinction to the Company's Class A
Common Stock and Class B Common Stock. See "Capitalization," "Description of
Capital Stock," "Underwriting" and Note 14 of Notes to Consolidated Financial
Statements.

4
<PAGE> 5

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) THREE MONTHS ENDED
--------------------------------------------------------- ---------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1993(2) 1994 1995 1996 1997(3) 1996(3) 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ 254 $ 3,089 $ 68,361 $ 80,546 $21,139 $34,500
Revenues from affiliates(4)......... 42,425 42,093 36,284 340,487 89,149 26,276 30,236
Total revenues.................... 42,425 42,347 39,373 408,848 169,695 47,415 64,736
Gross profit........................ 7,123 6,553 5,578 13,374 14,667 1,052 6,339
Income (loss) from operations....... 4,359 3,973 2,730 7,994 3,626 (3,652) 3,673
Net income (loss)................... 3,513 3,114 1,996 6,137 (599) (4,328) 2,081
Net income (loss) per share(5)...... $ (0.04) $ (0.27) $ 0.13
Shares used to compute net income
(loss) per share(5)............... 16,108 16,108 16,108
SUPPLEMENTAL DATA:
Supplemental net income (loss) per
share(6).......................... $ 0.06 $ (0.23) $ 0.14
</TABLE>

<TABLE>
<CAPTION>
AS OF JULY 31, 1997
------------------------
ACTUAL AS ADJUSTED(7)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 1,813 $ 26,788
Working capital................................................................ 5,827 38,302
Total assets................................................................... 70,809 95,784
Current-portion of long-term debt and bank borrowings.......................... 7,580 80
Long-term debt................................................................. 12,635 12,635
Long-term debt due Maxtor...................................................... 20,000 --
Total stockholders' equity (deficit)........................................... (8,536) 43,939
</TABLE>

- ---------------

(1) Prior to fiscal 1997, the Company's fiscal year ended on the Saturday
nearest to March 31. Commencing with fiscal 1997, the Company's fiscal year
ends on the Saturday nearest to April 30. Prior to June 1996, the Company's
operations were conducted through certain wholly-owned subsidiaries of
Maxtor.

(2) The consolidated statement of operations data for the fiscal year ended
March 31, 1993 are derived from unaudited consolidated financial statements.

(3) In the three months ended July 31, 1996, a $2.0 million inventory charge was
taken for a customer's cancellation of orders. Portions of this reserve were
subsequently reversed in the three months ended January 31, 1997 and April
30, 1997, because the customer purchased some of the inventory in question.
In the three months ended July 31, 1996 and in fiscal 1997, the Company also
recorded a restructuring charge of $3.0 million associated with the
relocation of its Hong Kong manufacturing operations to China.

(4) Revenues from affiliates include sales to Maxtor and other entities related
to Maxtor through Maxtor's parent company, Hyundai Electronics America. See
Note 12 of Notes to Consolidated Financial Statements. Sales to Maxtor were
made on a consignment basis (where Maxtor procured all materials used to
manufacture product and provided them to the Company at no charge) for years
prior to fiscal 1996, on a turnkey basis (where the Company procured all
materials used to manufacture product) for fiscal 1996, and on a partial
turnkey basis (where some materials were procured by the Company and some
materials were procured by Maxtor) for fiscal 1997 and the three months
ended July 31, 1997.

(5) For an explanation of the determination of net income (loss) per share and
per share calculations, see Note 1 of Notes to Consolidated Financial
Statements.

(6) Represents earnings per share as if long-term debt due to Maxtor and bank
borrowings had been retired at the beginning of the period or the date of
issuance of the debt, if later, and assumes that an equivalent amount was
financed through the sale of equity securities at the price of this Offering
(less underwriting discount and offering expenses).

(7) Adjusted to reflect the sale by the Company of 5,000,000 shares of Class A
Common Stock offered hereby at an initial public offering price of $11.50
per share, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."

5
<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Class A Common Stock offered hereby. The discussion in this Prospectus
contains forward-looking statements. Future events anticipated in the
forward-looking statements contained in this Prospectus are uncertain. Actual
events, and the Company's actual results, may differ materially from those
predicted, assumed or discussed in such forward-looking statements. Factors that
may cause or contribute to such differences include, but are not limited to,
those discussed below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." The cautionary statements
made in this Prospectus should be read as being applicable to all related
forward-looking statements, wherever they appear in this Prospectus.

SHORT PERIOD OF INDEPENDENT OPERATIONS; NO ASSURANCE OF FUTURE PROFITABILITY

The Company's Hong Kong operations, which commenced business in 1983, were
acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other
manufacturing operations and assets. International Manufacturing Services, Inc.
was formed in November 1994 as a wholly-owned subsidiary of Maxtor. In June
1996, the Company was recapitalized as an independent company. Through December
1996, the Company was dependent upon Maxtor for certain financial and
administrative services. The Company has limited experience operating as an
independent entity, and there can be no assurance that it will be able to
operate effectively as an independent company. The Company only began
implementing independent financial and consolidated reporting systems and
procedures in June 1996. The Company believes that continued enhancements in
financial, management and operational information systems will be needed to
manage any expansion of the Company's operations. The failure to implement such
enhancements could have a material adverse effect upon the Company's business,
financial condition and operating results. See "Certain Transactions."

The Company's limited history of operations as an independent entity make
reliable predictions of future operating results difficult. In particular, the
Company's performance to date should not be considered indicative of future
results. There can be no assurance that any of the Company's business strategies
will be successful or that the Company will be able to sustain growth or
profitability on an annual or quarterly basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

VARIABILITY OF OPERATING RESULTS

The primary factors affecting the Company's annual and quarterly operating
results are: timing of customer orders; price competition; volume of orders
received relative to the Company's capacity; announcements, introductions and
market acceptance of a customer's new products; evolution in the life cycles of
customer products; timing of expenditures in anticipation of future customer
orders; effectiveness in managing manufacturing processes; changes in cost and
availability of labor and components; fluctuations in material costs; the mix of
material costs relative to labor and manufacturing overhead costs; and the mix
of revenues derived from consignment and turnkey manufacturing (consignment
manufacturing, where the customer procures materials, tends to result in higher
gross margins but lower revenues, and turnkey manufacturing, where the Company
procures materials, tends to result in lower gross margins but higher revenues).
Other factors affecting operating results include the Company's level of
experience in manufacturing a particular product, the degree of automation used
in the assembly process, the efficiencies achieved by the Company in managing
inventories and fixed assets, and customer product delivery requirements. An
adverse change in any one of these factors or a combination thereof could have a
material adverse effect on the Company's future business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company has no long-term volume purchase commitments from any customer
other than Maxtor. From time to time, the Company may procure materials without
a customer purchase commitment. The Company must continually make other
significant decisions based on estimates of future conditions, including the
level of business that it will accept, production schedules, personnel needs and
other resource requirements. A variety of conditions, however, both specific to
particular customers and generally affecting the market segments served by the
Company, may cause customers to cancel, reduce or delay orders. The level and
timing of a customer's orders may vary due to a number of factors including
product design changes, the customer's attempts to balance its inventory,
changes in the customer's manufacturing strategy, acquisitions of

6
<PAGE> 7

or consolidations among customers, and variations in demand for the customer's
products. Most of the Company's customers typically do not commit to firm
delivery dates more than one quarter in advance. The Company's inability to
forecast the level of customer orders with certainty makes it difficult to
schedule production and maximize utilization of manufacturing capacity. In the
past, anticipated orders from several of the Company's customers have failed to
materialize or have been deferred in certain cases. On other occasions,
customers have required rapid increases in production which have placed a
significant burden on the Company's resources. Such customer order fluctuations
and deferrals have had a material adverse effect on the Company's results of
operations in the past, and there can be no assurance that the Company will not
experience such effects in the future. In addition, the Company's customers have
the ability to request that manufacturing be performed on a consignment, turnkey
or partial turnkey basis, which can cause significant fluctuations in the
Company's revenues and gross margins. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Backlog."

The Company's business has experienced and is expected to continue to
experience significant seasonality due, among other things, to the slowdown
during the summer months which historically has occurred in the electronics
industry. Typically, the Company's revenues are lowest during the first half of
a fiscal year and highest during the second half of the fiscal year, which ends
in April. In addition, the market segments served by the Company are subject to
economic cycles and have in the past experienced, and are likely in the future
to experience, recessionary periods. A recessionary period affecting the
industry segments served by the Company could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company occasionally experiences constraints in production capacity around
national holidays in Thailand and China. Results of operations in any period
should not be considered indicative of the results to be expected for any future
period, and fluctuations in operating results may also result in variations in
the price of the Class A Common Stock. In future periods, the Company's total
revenues or results of operations may be below the expectations of public market
analysts and investors; in such event, the price of the Class A Common Stock
would likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

CUSTOMER CONCENTRATION; DEPENDENCE ON CERTAIN INDUSTRIES

For fiscal 1996 and fiscal 1997, and for the three months ended July 31,
1997, Maxtor accounted for approximately 83.1%, 48.6% and 44.1% of total
revenues, respectively, and Bay Networks, Inc. ("Bay Networks") accounted for
approximately 1.6%, 31.3% and 42.1% of the Company's total revenues,
respectively. For fiscal 1996, Diamond Multimedia Systems, Inc. ("Diamond
Multimedia") accounted for approximately 12.8% of total revenues. The Company
expects to continue to depend upon a relatively small number of customers for a
significant percentage of its total revenues. There can be no assurance that the
Company's principal customers will continue to purchase services from the
Company at current levels, or at all. In the past, certain of the Company's
customers have significantly reduced or delayed the volume of manufacturing
services ordered from the Company. There can be no assurance that present or
future customers will not terminate their manufacturing arrangements with the
Company or significantly change, reduce or delay the manufacturing services
ordered from the Company. Significant reductions in sales to any of the
Company's principal customers, or the loss of any one or more major customers,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has no long-term volume
purchase commitments from any customers other than Maxtor. The timely
replacement of canceled, delayed or reduced contracts with new business cannot
be assured. These risks are accentuated because a majority of the Company's
sales are to customers in the electronics industry, which is subject to rapid
technological change and product obsolescence. Accordingly, the Company is
dependent upon the continued growth, viability and financial stability of its
customers, which are in turn substantially dependent on the growth of the
computer peripherals, data communications and telecommunication markets. Any
factors adversely affecting the electronics industry in general, or any of the
Company's major customers in particular, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customers, Sales and Marketing."

7
<PAGE> 8

MAXTOR CORPORATION -- BUSINESS RISKS; AFFILIATION

Maxtor is a wholly-owned subsidiary of Hyundai Electronics America and
historically has been the Company's largest customer. Maxtor develops,
manufactures and markets hard disk drive storage products for personal computer
systems. Maxtor's business depends in large part upon its ability to continue to
develop and market new hard disk drive products successfully. Any adverse
developments affecting Maxtor could adversely affect its demand for the
Company's services. Maxtor has experienced losses in each of the past five
fiscal years. During the first half of fiscal 1997, orders from Maxtor were
reduced significantly below what the Company expected, and the Company's
operating results were adversely affected. The loss of Maxtor's sales volume or
a significant portion thereof would have a material adverse effect on the
Company's business, financial condition and results of operations.

Maxtor is contractually entitled to one representative on the Company's
Board of Directors. Although Maxtor and the Company have separate managements
and boards of directors, Maxtor is a major customer of the Company, a major
shareholder, and an executive officer of Maxtor is a member of the Company's
board of directors. This creates the risk that the Company may give preference
to Maxtor over other customers in the allocation of components in short supply
or production capacity or in the pricing of manufacturing services. Concern over
such risks could affect the willingness of customers and potential customers of
the Company to conduct business with the Company. In an attempt to reduce
potential pricing and other conflicts, in June 1996, the Company and Maxtor
executed a three-year manufacturing services agreement (the "Manufacturing
Agreement"), the terms of which the Company believes are no less favorable to
the Company and no more favorable to Maxtor than arrangements that either
company could negotiate with others in an arm's-length transaction. Pursuant to
the Manufacturing Agreement, the Company has agreed to provide certain products
and services to Maxtor at specified prices per unit. In addition, Maxtor has
agreed to place purchase orders for the Company's manufacture of such products
in accordance with certain minimum quarterly volume purchase commitments, which
commitments decrease upon each twelve month anniversary of the effective date of
the Manufacturing Agreement. Maxtor's commitment to place purchase orders for
the Company's manufacture of products is conditioned upon the Company's
providing products competitive in both price and quality with alternative
suppliers of Maxtor. In the event that Maxtor determines that the products the
Company manufactures are not price or quality competitive, and the Company fails
within a specified time period to become competitive in price or quality, then
Maxtor's quarterly volume purchase commitments shall be reduced to the extent of
products not price or quality competitive. See "Certain Transactions." In
addition, Maxtor has a second source supplier of services provided by the
Company. Conflicts of interest could arise, however, notwithstanding such
agreement or upon its termination or renegotiation.

LIMITED AVAILABILITY OF MATERIALS

A significant portion of the Company's total revenues is derived from
turnkey manufacturing, in which the Company performs both materials procurement
and assembly services and bears the risk of materials price increases. Almost
all products manufactured by the Company require one or more materials that are
ordered from single or sole sources. Some of these materials are allocated by
such single or sole sources in response to supply shortages. In some cases,
supply shortages may substantially curtail the Company's production of all
assemblies using that component. Further, at various times there have been
industry wide shortages of electronic components, particularly DRAMs, memory
modules, logic devices, microprocessors, specialized capacitors, crystals, ASICs
and other integrated circuits. From time to time, the Company has experienced
supply shortages with respect to various of these components, although such
shortages have not had a material adverse effect on the Company's operating
results. Nonetheless, materials shortages in the future could result in
manufacturing and shipping delays or price increases, which could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Selected Quarterly Operating Results" and
"Business -- International Manufacturing Capability."

8
<PAGE> 9

COMPETITION

The electronics assembly and manufacturing industry is intensely
competitive and includes numerous local, national and international companies, a
number of which have achieved substantial market share. The Company believes
that the primary competitive factors in its targeted markets are cost,
manufacturing technology, product quality, responsiveness and flexibility, the
range of services provided and the location of facilities. To be competitive,
the Company must provide technologically advanced manufacturing services, high
product quality levels, flexible production schedules and reliable delivery of
finished products on a timely and price competitive basis. Failure to satisfy
any of the foregoing requirements could materially and adversely affect the
Company's competitive position. The Company competes against numerous domestic
and foreign manufacturers, including Flextronics International Ltd., Jabil
Circuits, Inc., Sanmina Corporation, SCI Systems, Inc. ("SCI") and Solectron
Corporation, as well as certain large Asia entities. The Company also faces
indirect competition from the manufacturing operations of its current and
prospective customers, which continually evaluate the merits of manufacturing
products internally rather than using the services of EMS providers. Many of the
Company's competitors have more geographically diversified international
operations, as well as substantially greater manufacturing, financial, volume
procurement, research and development, and marketing resources than the Company.
In recent years, the EMS industry has attracted new entrants, including large
OEMs with excess manufacturing capacity, and many existing participants have
substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities through both internal expansion and
acquisitions. In the event of a decrease in overall demand for EMS services,
this increased capacity could result in substantial pricing pressures, which
could have a material adverse effect on the Company's business, financial
condition or operating results. See "Business -- Competition."

FUTURE CAPITAL NEEDS

The Company believes that, in order to achieve its long-term expansion
objectives and maintain and enhance its competitive position, it will need
significant financial resources over the next several years for capital
expenditures including investments in management information systems, working
capital and debt service. The Company has added significant manufacturing
capacity and increased capital expenditures over the past year. It has relocated
its Hong Kong manufacturing facilities to China, expanded its facilities in
Thailand, established a manufacturing facility in San Jose and, through the
acquisition of Pentagon Systems, Inc. ("Pentagon Systems"), established a design
and prototype production operation in San Jose. The Company also continues to
invest in manufacturing equipment and management information systems. The
Company anticipates that its capital expenditures will continue to increase as
the Company expands its facilities in Asia, invests in necessary equipment to
continue new product production, and continues to invest in new technologies and
equipment to increase the performance and the cost efficiency of its
manufacturing operations. The Company also intends to use a portion of the net
proceeds of this Offering to repay $20.0 million principal amount senior
subordinated notes due Maxtor (the "Maxtor Notes") and all of its outstanding
bank borrowings, which was $7.5 million at July 31, 1997. Upon completion of
this Offering and the application of the estimated net proceeds therefrom, as of
July 31, 1997, the Company would have had approximately $38.3 million in working
capital, including approximately $26.8 million in cash and cash equivalents.
After this Offering, the Company will still have outstanding approximately $12.5
million aggregate principal amount of junior subordinated notes. Accordingly,
upon completion of this Offering, the Company will continue to have limited cash
resources and significant future obligations and expects that it will require
additional capital to support future growth, if any. The precise amount and
timing of the Company's future funding needs cannot be determined at this time
and will depend upon a number of factors, including the demand for the Company's
services and the Company's management of its working capital. The Company may
not be able to obtain additional financing on acceptable terms or at all. If the
Company is unable to obtain sufficient capital, it could be required to curtail
its capital expenditures and facilities expansion, which could materially
adversely affect the Company's business, financial condition and results of
operations. Moreover, the Company's need to raise additional capital through the
issuance of equity securities may result in additional dilution to earnings per
share. See "Use of Proceeds," "Capitalization," "Dilution" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

9
<PAGE> 10

RISKS OF INTERNATIONAL OPERATIONS

Substantially all of the Company's manufacturing operations are located in
Thailand and China. The distance between Asia and the United States creates
logistical barriers, and the Company's success depends in part on its ability to
convince OEMs in the United States that the advantages of the Company's
Asia-based manufacturing facilities outweigh any perceived inconvenience or
uncertainty of overseas manufacturing.

The Company may be affected by economic and political conditions in each of
the countries in which it operates and certain other risks of doing business
abroad, including import duties, changes to import and export regulations
(including quotas), possible restrictions on the transfer of funds, employee
turnover, labor or civil unrest, long payment cycles, greater difficulty in
collecting accounts receivable, the burdens and cost of compliance with a
variety of foreign laws, and, in certain parts of the world, political
instability. For example, the Company could be adversely affected if the current
policies encouraging foreign investments or foreign trade by Thailand and China
were to be abandoned. In addition, the attractiveness of the Company's services
to its United States customers is affected by United States trade policies, such
as "most favored nation" status and trade preferences, which are reviewed
periodically by the United States government. In the past, United States
government officials have discussed the possible refusal of the United States to
extend China's "most favored nation" status. Changes in policies by the United
States or foreign governments could result in, for example, increased duties,
higher taxation, currency conversion limitations, hostility toward United
States-owned operations, limitations on imports or exports, or the expropriation
of private enterprises, any of which could have a material adverse effect on the
Company's business, financial condition or results of operations.

The Company's operations and assets are subject to significant political,
economic, legal and other uncertainties in China and Thailand. Under its current
leadership, the Chinese government has been pursuing economic reform policies,
including the encouragement of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time. Moreover, despite progress in developing its legal system,
China does not have a comprehensive and highly developed system of laws,
particularly with respect to foreign investment activities and foreign trade.
Enforcement of existing and future laws and contracts is uncertain, and
implementation and interpretation thereof may be inconsistent. As the Chinese
legal system develops, the promulgation of new laws, changes to existing laws
and the preemption of local regulations by national laws may adversely affect
foreign operations in China. While Thailand has a longer history of promoting
foreign investments than China, Thailand has recently experienced economic
turmoil and a significant devaluation of the Thai currency. There can be no
assurance that this period of economic turmoil will not result in the reversal
of current policies encouraging foreign investment and trade, restrictions on
the transfer of funds overseas, employee turnover, labor unrest or other
domestic Thai economic problems that could adversely affect the Company. To
date, economic problems in Thailand have not had an adverse impact on the
Company's business, financial condition or results of operations, but there can
be no assurance that there will not be such an impact in the future.

RISK OF INCREASED TAXES

The Company has structured its global operations to take advantage of the
generally lower statutory income tax rates in Asian countries and certain tax
holidays in China and Thailand that have been extended to encourage foreign
investment. As part of this structure, the Company renders certain technical and
administrative services on behalf of its Asia subsidiaries in the United States.
If tax rates were to rise, if the Company's tax holidays were not renewed or if
tax authorities were to challenge successfully the adequacy of the amounts paid
to the Company for these services or generally the manner in which profits are
recognized and allocated among the Company and its subsidiaries, the Company's
taxes would increase and its business, financial condition, results of
operations or cash flow could be materially adversely affected. The Company
believes that profits from its operations in Asia are not sufficiently connected
to the United States to give rise to United States taxation, but there can be no
assurance that United States tax authorities will not challenge the Company's
position or, if such challenge is made, that the Company would prevail in any
such dispute. In certain circumstances, United States tax law requires a United
States parent corporation to recognize as current income profits earned by its
foreign subsidiaries. The Company believes that, except for certain passive
income which is not expected to be material in amount, these laws should not be
applicable to the subsidiaries'

10
<PAGE> 11

activities and income, but there can be no assurance that United States tax
authorities will not challenge the Company's position or, if such challenge is
made, that the Company would prevail in any such dispute. If the Company's
profits from its Asia operations become subject to United States income taxes,
the Company's taxes could increase, and its results of operations and cash flow
could be materially adversely affected. The expansion by the Company of its
operations in the United States may also increase its effective tax rate. The
current maximum United States federal income tax rate is 35.0%; the Company
currently expects its effective income tax rate for fiscal 1998 to be
approximately 14%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Provision for
Income Taxes."

CURRENCY FLUCTUATIONS

While the Company transacts business predominately in United States
dollars, and substantially all of its revenues are collected in United States
dollars, a portion of the Company's costs are denominated in other currencies,
such as the Thai baht, the Hong Kong dollar and the Chinese renminbi. As a
result, changes in the relation of these and other currencies to the United
States dollar will affect the Company's costs of goods sold and operating
expenses and could result in exchange losses. To date, the recent economic
problems in Thailand, including the devaluation of the Thai baht, have not had
an adverse impact on the Company's business, financial condition or results of
operations, but there can be no assurance that there will not be such an impact
in the future. The impact of future exchange rate fluctuations on the Company's
results of operations cannot be accurately predicted. From time to time the
Company has engaged in, and may continue to engage in, exchange rate hedging
activities, although to date such hedging activities have not been material.
There can be no assurance that any hedging techniques implemented by the Company
will be successful.

MANAGEMENT OF GROWTH AND EXPANDED OPERATIONS

During fiscal 1997 and through the three months ended July 31, 1997, the
Company experienced a period of rapid expansion through both internal growth and
acquisition. Expansion has caused, and is expected to continue to cause, strain
on the Company's infrastructure, including its managerial, technical, financial
and other resources. To manage further growth, the Company must continue to
enhance financial and operational controls, develop additional executive
officers and hire qualified personnel. Continued growth will also require
increased investments to add manufacturing capacity and to enhance management
information systems. The Company may experience certain inefficiencies as it
integrates new operations and manages geographically dispersed operations. There
can be no assurance that the Company will be able to manage its expansion
effectively, and a failure to do so could have a material adverse effect on the
Company's business, financial condition or results of operations.

New operations, whether foreign or domestic, can require significant
start-up costs and capital expenditures. In the event that the Company continues
to expand its domestic or international operations, there can be no assurance
the Company will be successful in generating revenue to recover start-up and
operating costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and
" -- International Manufacturing Capability."

DEPENDENCE ON KEY PERSONNEL

The Company's continued success depends to a large extent upon the efforts
and abilities of key managerial and technical employees. The Company's business
will also depend upon its ability to continue to attract and retain qualified
employees. Although the Company has been successful in retaining key managerial
and technical employees to date, the loss of services of certain key employees,
in particular any of its three executive officers, could have a material adverse
effect on the Company's business, financial condition or results of operations.
None of the Company's key employees is party to an agreement that provides the
Company with assurance as to his or her continued employment. Moreover, the
Company does not maintain key-man life insurance on any of its personnel. See
"Management."

RISKS ASSOCIATED WITH ACQUISITIONS

The Company's business strategy includes the expansion of its business and
manufacturing capabilities, including through acquisitions. Although the Company
is not currently contemplating any material acquisition or reviewing any
particular opportunity, the Company occasionally reviews various acquisition
prospects, including companies or manufacturing process technologies
complementary to the Company's business.

11
<PAGE> 12

Acquisitions involve numerous risks, including: difficulties in the assimilation
of the operations, products, personnel and cultures of the acquired companies;
the ability to manage geographically remote units effectively; the diversion of
management attention from other day-to-day business concerns; difficulties
entering markets in which the Company has limited or no direct experience; and
the potential loss of key employees of the acquired companies. In addition,
acquisitions may result in dilutive issuances of equity securities; incurrence
of additional debt; reduction of existing cash balances; amortization expenses
related to goodwill and other intangible assets; and other charges to operations
that may have a material adverse effect on the Company's business, financial
condition or results of operations. Moreover, there can be no assurance that any
equity or debt financings proposed in connection with any acquisition would be
available to the Company on acceptable terms, or at all, if suitable strategic
acquisition opportunities were to arise. Although the Company expects to analyze
any opportunity before committing its resources, there can be no assurance that
any acquisition that is completed will result in long-term benefits to the
Company or that it will be able to manage the resulting business effectively.

TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT

The markets in which the Company's customers compete are characterized by
rapid technological change, evolving industry standards and frequent product
introductions and enhancements. The Company is continually evaluating the
advantages and feasibility of new manufacturing processes. The Company believes
that its future success will depend upon its ability to deliver manufacturing
services which meet changing customer needs and to successfully anticipate or
respond to technological changes in manufacturing processes on a cost-effective
and timely basis. There can be no assurance that the Company will be successful
in these efforts. See "Business -- Services."

CONCENTRATION OF STOCK OWNERSHIP

Upon completion of this Offering, the current directors and executive
officers of the Company and their respective affiliates will, in the aggregate,
beneficially own approximately 72.3% of the Company's outstanding shares of
Common Stock (including shares issuable pursuant to stock options which may be
exercised within 60 days of July 31, 1997). As a result, such persons, acting
together, would have the ability to approve or disapprove significant corporate
transactions. In addition, effective upon the closing of the Offering, the Board
of Directors will have the authority to issue up to 10,000,000 shares of
undesignated preferred stock, to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any unissued series of undesignated preferred stock, and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. The preferred stock could
be issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The concentration of ownership and the issuance of
preferred stock under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock."

ENVIRONMENTAL COMPLIANCE

The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. Although the Company believes that it is currently in
compliance with all material environmental regulations, any failure by the
Company to comply with present and future regulations could subject it to future
liabilities or cause affected operations to be suspended. In addition, such
regulations could restrict the Company's ability to expand its facilities or
could require the Company to acquire costly equipment or to incur other
significant expenses to comply with environmental regulations.

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's certificate of incorporation and bylaws contain provisions
that may discourage or prevent certain types of transactions involving an actual
or potential change in control of the Company, including transactions in which
the stockholders might otherwise receive a premium for their shares over
then-current market prices, and may limit the ability of the stockholders to
approve transactions that they may deem to be in their best interest. In
addition, the Board of Directors has the authority to fix the rights and
preferences of up to 10,000,000 shares of undesignated preferred stock and to
issue such shares without action by the Company's stockholders, which may have
the effect of delaying or preventing a change in control of the

12
<PAGE> 13

Company. It is possible that the provisions in the Company's certificate of
incorporation and bylaws, and the ability of the Board of Directors to issue the
preferred stock, may have the effect of delaying, deferring or preventing a
change of control of the Company, may discourage bids for the Class A Common
Stock at a premium over its market price, and may adversely affect the market
price of the Class A Common Stock and the voting and other rights of the holders
of Class A Common Stock.

SHARES ELIGIBLE FOR FUTURE SALES; REGISTRATION RIGHTS

Sales of a substantial number of shares of Class A Common Stock in the
public market following this Offering could adversely affect the market price
for the Company's Class A Common Stock. The number of shares of Class A Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
effective date of the Offering made hereby without the prior written consent of
NationsBanc Montgomery Securities, Inc., which may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements. As a result of these restrictions, shares of Common Stock
will be eligible for future sale as follows: on the date of this Prospectus, no
shares other than the 5,000,000 shares offered hereby; 180 days after the
effective date of the Offering, an additional 14,327,211 shares (including
1,509,711 shares issuable upon exercise of outstanding options) will be eligible
for sale. In addition, the Company intends to file within 90 days after the
effective date of this Offering a registration statement on Form S-8, covering
the shares of Class A Common Stock subject to outstanding options or reserved
for issuance under the Company's stock and stock option plans. See
"Management -- Compensation Plans." Effective 180 days after the date of this
Offering, holders of approximately 13,327,500 shares of Class A Common Stock
will be entitled to certain registration rights with respect to such shares. If
such holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have a
material adverse effect on the market price for the Class A Common Stock. See
"Shares Eligible for Future Sale."

NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active public market for the
Class A Common Stock will develop or be sustained after the Offering. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the underwriters in this Offering and may not
be indicative of future market prices. The market price of the Company's Class A
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results and other factors, such as
announcements of new products by the Company or its competitors and changes in
financial estimates by securities analysts or other events or factors. Moreover,
the stock market and the market prices for many technology companies have in
recent years experienced significant price and volume fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are traded. Broad market fluctuations, as well
as economic conditions generally and in the EMS industry specifically, may
adversely affect the market price of the Class A Common Stock. There can be no
assurance that the market price of the Class A Common Stock will not decline
below the initial public offering price. See "Underwriting."

DILUTION

Investors participating in this Offering will incur immediate and
substantial dilution of book value. To the extent that outstanding options to
purchase Class A Common Stock are exercised, there will be further dilution. See
"Dilution" and "Underwriting."

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of 5,000,000 shares of Class
A Common Stock being offered hereby will be approximately $52.5 million at an
initial public offering price of $11.50 per share (approximately $60.5 million
if the Underwriters' over-allotment option is exercised in full). Approximately
$20.0 million of the net proceeds will be used to pay down indebtedness under
the Maxtor Notes, which are payable in three equal installments on June 10,
1999, June 10, 2000 and June 10, 2001 and currently bear interest at a weighted
average rate of approximately 9.7% per annum. See "Certain Transactions." The
Company also intends to repay all of its outstanding bank borrowings, which it
currently anticipates will be approximately $19.0 million upon completion of
this Offering. Such bank borrowings bear interest at either the prime rate plus
1.5% or LIBOR plus 2.25% and mature in June 2001. At July 31, 1997, the amount
of such bank borrowings outstanding was approximately $7.5 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company expects to use the
remaining net proceeds from this Offering for capital expenditures and general
corporate purposes, including working capital. A portion of the proceeds may
also be used to acquire or invest in complementary businesses or products, to
obtain the right to use complementary technologies or to expand operations into
new geographic regions; however, there are no negotiations or discussions with
respect to any such transactions at the present time. Pending use of the net
proceeds for the above purposes, the Company intends to invest such funds in
short-term, interest-bearing, investment-grade obligations.

DIVIDEND POLICY

For the foreseeable future, the Company expects to retain any earnings to
finance the expansion and development of its business. The payment of dividends
is within the discretion of the Company's Board of Directors and will depend on
the earnings, capital requirements and operating and financial condition of the
Company, among other factors. In addition, the Company's credit facility
restricts the Company's ability to declare dividends.

14
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company and
certain short-term liabilities as of July 31, 1997, (i) on an actual basis, (ii)
pro forma to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock as a result of this Offering and the amendment
of the Company's certificate of incorporation, and (iii) as adjusted to reflect
the sale of 5,000,000 shares of Class A Common Stock offered hereby (at an
initial public offering price of $11.50 per share and after deducting the
estimated underwriting discounts and offering expenses) and the application of
the estimated net proceeds therefrom.

<TABLE>
<CAPTION>
JULY 31, 1997
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank borrowings........................................... $ 7,500 $ 7,500 $ --
Current portion of long-term debt......................... 80 80 80
======== ======== ========
Long-term debt, less current portion:
Long-term debt.......................................... $ 12,635 $ 12,635 $ 12,635
Long-term debt due Maxtor............................... 20,000 20,000 --
-------- -------- --------
Total long-term debt............................ 32,635 32,635 12,635
Total stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 8,509,425 shares
authorized actual; 10,000,000 authorized pro forma
and as adjusted; 6,000,000 issued and outstanding
actual; none issued and outstanding pro forma and as
adjusted............................................. 6 -- --
Common Stock, $0.001 par value; 25,500,000 shares
authorized actual; 100,000,000 authorized pro forma
and as adjusted; 7,327,500 issued and outstanding
actual; 13,327,500 issued and outstanding pro forma;
and 18,327,500 issued and outstanding as
adjusted(1).......................................... 7 13 18
Additional paid-in capital.............................. 12,793 12,793 65,263
Distributions in excess of net book value(2)............ (20,608) (20,608) (20,608)
Accumulated deficit..................................... (734) (734) (734)
-------- -------- --------
Total stockholders' equity (deficit)................. (8,536) (8,536) 43,939
-------- -------- --------
Total capitalization............................ $ 24,099 $ 24,099 $ 56,574
======== ======== ========
</TABLE>

- ---------------

(1) Shares issued and outstanding as adjusted represents 15,818,075 shares of
Class A Common Stock and 2,509,425 shares of Class B Common Stock, and
excludes (i) 2,895,000 shares of Common Stock issuable upon exercise of
outstanding options granted under the Company's 1996 Stock Option Plan, (ii)
420,000 shares reserved for future issuance under the Company's 1996 Stock
Option Plan, (iii) 250,000 shares reserved for future issuance under the
Company's 1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock
Purchase Plan, (iv) 1,750,000 shares reserved for future issuance under the
Company's 1997 Stock Plan (of which options to purchase up to 1,027,500
shares are intended to be granted upon the effectiveness of this Offering at
the initial public offering price) and (v) 225,000 shares reserved for
future issuance under the Company's 1997 Director Option Plan (of which
options to purchase 70,000 shares will be granted upon the effectiveness of
this Offering at the initial public offering price). See
"Management -- Compensation Plans" and Note 14 of Notes to Consolidated
Financial Statements.

(2) See Note 1 of Notes to Consolidated Financial Statements for the factors
used to determine distributions in excess of net book value.

15
<PAGE> 16

DILUTION

The net tangible book (deficit) value of the Company as of July 31, 1997,
after giving effect to the automatic conversion of the Preferred Stock upon the
closing of this Offering, was ($10,468,000), or ($0.71) per share of Common
Stock. Net tangible book value per share is determined by dividing the tangible
book value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock at that date. After giving effect
to the sale by the Company of the 5,000,000 shares of Class A Common Stock
offered hereby (based upon an initial public offering price of $11.50 per share
and after deducting estimated underwriting discounts and estimated offering
expenses), the Company's net tangible book value at July 31, 1997 would have
been $42,007,000, or $2.12 per share. This represents an immediate increase in
net tangible book value to existing stockholders of $2.83 per share and an
immediate dilution to new public investors of $9.38 per share. The following
table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.................... $11.50
Net tangible book value (deficit) per share as of July
31, 1997.............................................. ($0.71)
Increase in net tangible book value per share
attributable to new public investors.................. 2.83
------
Net tangible book value per share after Offering........... 2.12
------
Dilution per share to new public investors................. $ 9.38
======
</TABLE>

The following table summarizes, on a pro forma basis as of July 31, 1997,
the differences between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors (based upon an initial
public offering price of $11.50 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 14,837,211 74.8% $14,604,000 20.2% $ 0.98
New public investors..... 5,000,000 25.2 57,500,000 79.8 $ 11.50
---------- ----- ----------- -----
Total.......... 19,837,211 100.0% $72,104,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing computations (a) include 1,509,711 shares of Common Stock at a
weighted average exercise price of $0.80 per share issuable upon exercise of
outstanding options granted under the Company's 1996 Stock Option Plan and
exercisable within 60 days of July 31, 1997 (giving effect to the vesting of
certain options as a result of the Offering), but (b) exclude (i) 1,385,289
shares of Common Stock at a weighted average exercise price of $1.27 per share
issuable upon exercise of outstanding options granted under the Company's 1996
Stock Option Plan but not exercisable within 60 days of July 31, 1997, (ii)
420,000 shares reserved for future issuance under the Company's 1996 Stock
Option Plan, (iii) 250,000 shares reserved for future issuance under the
Company's 1997 Employee Stock Purchase Plan and 1997 Non-U.S. Employee Stock
Purchase Plan, (iv) 1,750,000 shares reserved for future issuance under the
Company's 1997 Stock Plan (of which options to purchase up to 1,027,500 shares
are intended to be granted upon the effectiveness of this Offering at the
initial public offering price), and (v) 225,000 shares reserved for future
issuance under the Company's 1997 Director Option Plan (of which options to
purchase 70,000 shares will be automatically granted upon the effectiveness of
this Offering at the initial public offering price). See "Management --
Compensation Plans" and Note 14 of Notes to Consolidated Financial Statements.

16
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere herein. The consolidated statement of operations data set
forth below with respect to the years ended March 31, 1995 and 1996 and April
30, 1997, and the consolidated balance sheet data at March 31, 1996 and April
30, 1997, are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Prospectus. The
consolidated statement of operations data for the year ended March 31, 1994, and
the consolidated balance sheet data at March 31, 1995, are derived from, and are
qualified by reference to, the audited consolidated financial statements not
included herein. The consolidated statement of operations data for the year
ended March 31, 1993, and the consolidated balance sheet data at March 31, 1993
and 1994, are derived from, and are qualified by reference to, unaudited
consolidated financial statements not included herein. The selected consolidated
financial data for the three months ended July 31, 1996 and 1997, and as of July
31, 1997, are derived from, and are qualified by reference to, unaudited
consolidated financial statements included elsewhere herein. The unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company believes are necessary for a
fair presentation of such information for the periods presented. Operating
results for the three months ended July 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending April 30, 1998 or any
other future period. The information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEARS ENDED(1) ENDED
--------------------------------------------------------- -------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1993(2) 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from product sales:(3)
Affiliates(4)................................. $ -- $ -- $ -- $340,487 $ 89,149 $26,276 $30,236
Other......................................... -- 254 3,089 68,361 80,546 21,139 34,500
Other revenues:(3)
Affiliates(4)................................. 42,425 42,093 36,284 -- -- -- --
------- ------- ------- -------- -------- ------- -------
Total revenues.............................. 42,425 42,347 39,373 408,848 169,695 47,415 64,736
Cost of revenues from product sales(5).......... -- -- 2,649 395,474 155,028 46,363 58,397
Cost of other revenues.......................... 35,302 35,794 31,146 -- -- -- --
------- ------- ------- -------- -------- ------- -------
Gross profit.................................... 7,123 6,553 5,578 13,374 14,667 1,052 6,339
Operating expenses:
Selling, general and administrative........... 2,764 2,580 2,848 5,380 8,041 1,704 2,845
Restructuring charge(6)....................... -- -- -- -- 3,000 3,000 (179)
------- ------- ------- -------- -------- ------- -------
Total operating expenses.................... 2,764 2,580 2,848 5,380 11,041 4,704 2,666
Income (loss) from operations................... 4,359 3,973 2,730 7,994 3,626 (3,652) 3,673
Interest expense, net........................... 161 197 180 64 3,972 676 1,255
------- ------- ------- -------- -------- ------- -------
Income (loss) before income taxes............... 4,198 3,776 2,550 7,930 (346) (4,328) 2,418
Provision for income taxes...................... 685 662 554 1,793 253 -- 337
------- ------- ------- -------- -------- ------- -------
Net income (loss)............................... $ 3,513 $ 3,114 $ 1,996 $ 6,137 $ (599) $(4,328) $ 2,081
======= ======= ======= ======== ======== ======= =======
Net income (loss) per share..................... $ (0.04) $ (0.27) $ 0.13
======== ======= =======
Shares used to compute net income (loss) per
share(7)...................................... 16,108 16,108.. 16,108
SUPPLEMENTAL DATA:
Supplemental income (loss) per share(8)......... $ 0.06 $ (0.23) $ 0.14
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, MARCH 31, APRIL 30, JULY 31,
1993(2) 1994(2) 1995 1996 1997 1997
--------- --------- --------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 6,316 $ 7,583 $ 7,834 $10,716 $ 3,980 $ 5,827
Total assets.................................... 24,316 21,764 24,943 83,687 60,471 70,809
Long-term debt, less current portion............ 2,889 1,845 708 -- 12,660 12,635
Long-term debt due Maxtor....................... 8,469 8,469 8,469 4,300 20,000 20,000
Total stockholders' equity (deficit)............ 7,352 6,666 8,662 17,666 (10,367) (8,536)
</TABLE>

- ---------------

(2) The consolidated statement of operations data for the year ended March 31,
1993, and the consolidated balance sheet data at March 31, 1993 and 1994,
are derived from, and are qualified by reference to, unaudited consolidated
financial statements not included herein.

17
<PAGE> 18

(3) Revenues from product sales include revenues derived from sales made on a
turnkey or a partial turnkey basis. Other revenues include revenues from
sales made on a consignment basis.

(5) Cost of revenues for the three months ended July 31, 1996 included a $2.0
million inventory charge associated with a customer's cancellation of
orders. Portions of this reserve were subsequently reversed in the three
months ended January 31, 1997 and April 30, 1997, because the customer
purchased some of the inventory in question.

(6) In June 1996, the Company relocated its Hong Kong manufacturing operations
to China. The restructuring charge totaled $3.0 million and involved the
termination of approximately 900 employees for approximately $2.3 million
and excess facilities costs of approximately $700,000. As of July 31, 1997,
the Company had completed all of its restructuring actions.

(7) Net income per share data for prior fiscal years have not been presented as
such amounts are not deemed to be meaningful in view of the significant
change in capital structure of the Company in June 1996 as a result of the
Recapitalization. See Note 1 of Notes to Consolidated Financial Statements
for an explanation of the method used to determine the number of shares for
computing per share amounts.

(8) Represents earnings per share as if long-term debt due to Maxtor and bank
borrowings had been retired at the beginning of the period or the date of
issuance of the debt, if later, and assumes that an equivalent amount was
financed through the sale of equity securities at the price of this Offering
(less underwriting discount and offering expenses).

18
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

International Manufacturing Services, Inc. provides product design,
prototyping, printed circuit board assembly, final system assembly, materials
procurement, inventory management, testing, packaging, distribution and depot
repair services to original equipment manufacturers in the electronics industry.
The Company's Hong Kong operations, which commenced business in 1983, were
acquired in 1990 by Maxtor, a manufacturer of hard disk drives, along with other
manufacturing operations and assets. International Manufacturing Services, Inc.
was formed in November 1994 as a wholly-owned subsidiary of Maxtor, and in June
1996 the Company was recapitalized as an independent company.

On June 13, 1996, the Company redeemed approximately 76.5% of Maxtor's
share ownership with a combination of $25.0 million cash, $20.0 million
principal amount Maxtor Notes and a warrant for 300,000 shares of Class A Common
Stock, which warrant is not currently exercisable and terminates if the Maxtor
Notes are repaid prior to June 13, 1998. The Company raised the cash portion of
the redemption price by issuing to a group of investors a combination of Common
Stock, Preferred Stock and junior subordinated notes. These redemption and
financing transactions are collectively referred to in this Prospectus as the
"Recapitalization." For accounting purposes, the redemption of Maxtor's share
ownership was treated as a recapitalization and, accordingly, no change in the
accounting basis of the Company's assets was made. See "Certain Transactions,"
"Description of Capital Stock" and Note 1 of Notes to Consolidated Financial
Statements.

Prior to fiscal 1996, substantially all the Company's revenues were derived
from sales to Maxtor. In connection with the Recapitalization, Maxtor agreed to
purchase from the Company certain quarterly minimum quantities of products
through June 1999, provided that the Company continues to be competitive on the
bases of price and quality. Over the last two fiscal years, the Company has
evolved from being a captive EMS provider to Maxtor to an independent EMS
provider serving 15 additional customers. These customers collectively
represented approximately 55.9% of total revenues for the three months ended
July 31, 1997. The Company typically enters into manufacturing contracts with
each of its customers, but has no long-term volume purchase commitments from any
customer other than Maxtor. The Company remains dependent upon a relatively
small number of customers for a significant percentage of its revenues. For
fiscal 1996 and 1997, and the three months ended July 31, 1997, Maxtor accounted
for approximately 83.1%, 48.6% and 44.1% of total revenues, respectively, and
Bay Networks accounted for approximately 1.6%, 31.3% and 42.1% of total
revenues, respectively. For fiscal 1996, Diamond Multimedia accounted for
approximately 12.8% of total revenues.

During fiscal 1997, the Company took significant steps to expand its
manufacturing operations and to broaden the range of the manufacturing services
it provides. As part of its strategy to locate operations in low cost regions,
the Company transferred its Hong Kong manufacturing operations to China while
retaining its component procurement and regional administrative functions in
Hong Kong. In connection with the relocation, the Company recorded a charge of
$3.0 million associated with employee severance and excess facilities costs. The
Company also expanded its manufacturing facilities in Thailand from 41,000
square feet to 93,000 square feet. In January 1997, the Company acquired the
assets of Pentagon Systems, a design and prototype production company, for $4.4
million cash, 450,000 shares of Class A Common Stock and assumed certain
liabilities. The Company recorded goodwill of $3.4 million in connection with
the acquisition, which is being amortized over seven years on a straight line
basis. In May 1997, the Company commenced manufacturing operations in San Jose,
California.

The Company has chosen to locate its manufacturing facilities in certain
countries in Asia to improve operational efficiencies and to take advantage of
generally lower income tax rates and the availability of tax incentives extended
to encourage foreign investment. The Company has operating subsidiaries located
in foreign countries, some of which enjoy multiple year tax holidays. As a
result, the Company estimates its effective tax rate for fiscal 1998 to be
approximately 14%.

19
<PAGE> 20

The Company's sales to Maxtor were made on a consignment basis during
fiscal 1995, on a turnkey basis during fiscal 1996, and on a partial turnkey
basis during fiscal 1997. To date, the Company's sales to customers other than
Maxtor generally have been performed on a turnkey basis. The extent to which
revenues are generated on a turnkey or consignment basis has a significant
effect on the level of the Company's total revenues and gross margin. For
revenues generated on a turnkey basis, the Company procures all materials used
to manufacture the customer's product, which results in higher revenue per unit.
For revenues generated on a consignment basis, the customer procures the
materials and provides them to the Company at no charge. As a result, revenues
from turnkey manufacturing tend to be higher and gross margins tend to be lower
than revenues and margins generated from consignment manufacturing. The
Company's total revenues and overall gross margin may fluctuate significantly
from period to period depending upon the mix of revenues derived from turnkey
and consignment manufacturing. Moreover, the Company's agreement with Maxtor
permits Maxtor to consign component parts to the Company from time to time. The
Company believes that Maxtor and other customers consider various factors in
choosing to allocate procurement responsibility to the Company, including their
relationships with key component suppliers and their ability to obtain
components at lower prices than obtainable by the Company. Because none of the
Company's customers, including Maxtor, is committed over the long term to any
particular manufacturing basis, the Company is unable to predict the mix of
revenues derived from turnkey and consignment manufacturing for any future
period. See "Certain Transactions."

The Company carries property insurance, as well as cargo insurance, to
cover consignment inventory in its possession. The Company determines the extent
of its insurance coverage by anticipating the level of consigned inventory as
well as the level of turnkey inventory; however, there can be no assurance that
any such insurance will be adequate to cover any inventory losses suffered.

The United States dollar is the functional currency of the Company's
foreign subsidiaries and substantially all of its revenues are collected in
United States dollars. Exchange gains and losses resulting from transactions
denominated in currencies other than the United States dollar are included in
results of operations for the year. To date, such amounts have not been
material, and the Company has not undertaken any material foreign currency
hedging activities.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1997

Total Revenues

The Company's total revenues increased 36.5% from $47.4 million in the
three months ended July 31, 1996 to $64.7 million in the three months ended July
31, 1997. Revenues from affiliates increased 15.1% from $26.3 million in the
three months ended July 31, 1996 to $30.2 million in the three months ended July
31, 1997. Revenues from other customers increased 63.2% from $21.1 million in
the three months ended July 31, 1996 to $34.5 million in the three months ended
July 31, 1997. The increase in total revenues was the result of increases in the
volume of units shipped primarily to Maxtor, Bay Networks and new accounts in
the data communications and telecommunications industries. Revenues from sales
to Maxtor and affiliates increased by approximately $4.0 million, and revenues
from sales to Bay Networks increased by approximately $11.7 million over the
comparable period of the prior fiscal year. Additionally, revenues were affected
by a favorable mix of revenues derived from sales made on a turnkey basis and
revenue of $1.6 million generated from newly offered design services.

Gross Profit

Gross profit consists of total revenues less the costs of revenues, which
includes the cost of materials, the cost of labor and manufacturing overhead.
Gross profit increased from $1.1 million in the three months ended July 31, 1996
to $6.3 million in the three months ended July 31, 1997. Gross margin (gross
profit as a percentage of total revenues) increased from 2.2% to 9.8% for the
same periods. Gross profit and gross margin in the three months ended July 31,
1996 were adversely affected by a $2.0 million inventory charge associated with
a financially troubled customer's cancellation of orders. Increases in gross
profit and gross margin during

20
<PAGE> 21

the three months ended July 31, 1997 were also attributable to direct labor
savings of approximately $2.4 million resulting from the relocation of the
Company's Hong Kong manufacturing facility to China, where direct labor hourly
rates are significantly lower than in Hong Kong and the higher utilization rate
of the Company's manufacturing facilities. This effect, however, was partially
offset by associated reductions in selling prices, as the Company passed through
certain cost savings to its customers.

The Company's gross margin may fluctuate from period to period depending
upon the mix of revenues derived from turnkey and consignment manufacturing,
product mix, production efficiencies, utilization of manufacturing capacity and
pricing within the electronics industry.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel
and related overhead costs for sales, marketing, finance, human resources,
information systems and general management. Selling, general and administrative
expenses increased 67.0% from $1.7 million in the three months ended July 31,
1996 to $2.8 million in the three months ended July 31, 1997. As a percentage of
total revenues, selling, general and administrative expenses increased from 3.6%
to 4.4% for the same periods. The increase in absolute dollars was the result of
increased personnel costs and marketing expenses of approximately $424,000 to
support new customer development, the inclusion of approximately $320,000 of
expenses attributable to Pentagon Systems and, to a lesser extent, increased
administrative expenses associated with the new manufacturing facility in China
and expanded operations in Thailand. Such increase was offset in part by the
absence in fiscal 1997 of certain compensation expenses. In June 1996, Robert G.
Behlman, the Company's President, Chief Executive Officer and Chairman of the
Board of Directors purchased 150,000 shares of Class A Common Stock for an
aggregate purchase price of approximately $111,000 paid by means of a full
recourse note in favor of the Company. In July 1996, the Board of Directors
forgave the note in recognition of Mr. Behlman's contribution to the successful
completion of the Recapitalization. The forgiveness of the note was recorded by
the Company as additional compensation to Mr. Behlman. The Company anticipates
that its selling, general and administrative expenses will generally continue to
increase in absolute dollars for the foreseeable future.

Net Interest Expense

Net interest expense increased from approximately $676,000 in the three
months ended July 31, 1996 to approximately $1.3 million in the three months
ended July 31, 1997. The increase was primarily due to Recapitalization-related
interest expense for a full quarter in fiscal 1998 compared to a partial quarter
of such interest expense in the comparable prior period.

Provision for Income Taxes

For the three months ended July 31, 1996, the Company incurred losses and
did not provide for any income taxes. For the three months ended July 31, 1997,
the Company recorded a provision for income taxes of $337,000.

The Company conducts its operations through subsidiaries in China,
Thailand, Hong Kong, the Cayman Islands and the United States, each of which is
subject to the taxation rules of the country in which it operates. The Company
has structured its global operations to take advantage of the generally lower
statutory income tax rates in Asian countries and certain tax holidays in China
and Thailand that have been extended to encourage foreign investment. The
Company's Hong Kong subsidiary is subject to local income taxes at a statutory
rate of 16.5%. The Company's Thailand subsidiary enjoys a full tax holiday from
the current local statutory rate of 30.0% through the year 2003 and a tax rate
of one-half of the then current local statutory rate for the ensuing five
calendar years. The Company expects to be granted a full tax holiday from the
current local statutory rate of 30.0% for its China subsidiary's calendar 1997
and 1998 operations and a tax rate of one-half of the then current local
statutory rate for the ensuing three calendar years. These tax holidays result
in a permanent tax savings to the Company from the related foreign income taxes
for the duration of the holiday.

The Company's effective income tax rate is a function of the mix of income
in the various countries in which it operates and the applicable income tax
rates in such countries. The Company derives substantially all of its income
from its foreign operations for which it either enjoys certain tax holidays or
pays foreign income taxes at local statutory rates, which are significantly
lower than the United States statutory rate of 35.0%. The Company currently
expects its effective tax rate for fiscal 1998 to be approximately 14%. To date,
the

21
<PAGE> 22

Company has generated losses from its United States operations, and it does not
anticipate this trend to change in the near future. The losses incurred in any
national jurisdiction are not deductible by entities in other jurisdictions in
the calculation of their respective local taxes. To date, the Company's income
taxes have consisted primarily of taxes paid by its Hong Kong subsidiary. A
change in the mix of income generated by the Company's domestic and various
foreign operations may cause the Company's tax rate to fluctuate.

If tax rates were to rise, if the Company's tax holidays were not renewed,
or if tax authorities were to challenge successfully the adequacy or the manner
in which profits are recognized and allocated among the Company and its domestic
and foreign subsidiaries, the Company's taxes could increase and its business,
financial condition, results of operations or cash flow could be materially
adversely affected. In certain circumstances, United States tax law requires a
United States parent corporation to recognize as current income profits earned
by its foreign subsidiaries. The Company believes that these laws should not be
applicable to its subsidiaries' activities and income. There can be no assurance
that United States tax authorities will not challenge the Company's position or,
if such challenge is made, that the Company would prevail in any such dispute.
If the Company's operations in the United States become profitable or profits
from its Asia operations become subject to United States income taxes, the
Company's taxes could increase, and its results of operations and cash flow
could be materially adversely affected. Expansion of the Company's operations in
the United States may also increase its effective tax rate. The current maximum
United States federal income tax rate is 35.0%. The Company currently expects
its effective income tax rate for fiscal 1998 to be approximately 14%. See "Risk
Factors -- Risk of Increased Taxes."

FISCAL YEARS ENDED MARCH 31, 1995 AND 1996 AND APRIL 30, 1997

Total Revenues

The Company's total revenues increased from $39.4 million in fiscal 1995 to
$408.8 million in fiscal 1996 and then decreased to $169.7 million in fiscal
1997. The increase in revenues from fiscal 1995 to fiscal 1996 was due to an
increase of $304.2 million in revenues from Maxtor and affiliates and a $65.3
million increase in revenues from other customers. Revenues from Maxtor and
affiliates increased from fiscal 1995 to fiscal 1996 due primarily to a change
in the terms on which the Company transacted its sales to Maxtor, as well as an
approximately 23% increase in the volume of units shipped. Through fiscal 1995,
sales to Maxtor were made on a consignment basis, in which Maxtor procured all
materials used to manufacture products and provided them to the Company at no
charge. In fiscal 1996, the terms of sales to Maxtor were changed, and the
Company billed Maxtor on a full turnkey basis. Accordingly, the costs of all
materials used in products manufactured for Maxtor during fiscal 1996 were
included in revenues, and revenues increased. The $239.2 million decrease in
total revenues from fiscal 1996 to fiscal 1997 resulted primarily from a
decrease of $251.4 million in revenues from Maxtor and affiliates, which was
partially offset by an increase of $12.2 million in revenues from other
customers. Revenues from Maxtor and affiliates decreased primarily due to a
further change in the terms on which sales were made to Maxtor, from a full
turnkey to a partial turnkey basis, and a decrease of approximately 12% in the
volume of units shipped to Maxtor. Under this partial turnkey arrangement,
Maxtor procured certain key materials used to manufacture product, which
accounted for a substantial portion of the total material costs. Accordingly,
the Company's revenues decreased significantly. Revenues from other customers
increased from $3.1 million in fiscal 1995 to $68.4 million in fiscal 1996 and
to $80.5 million in fiscal 1997. The Company's revenues from other customers,
which are derived primarily from sales made on a turnkey basis, increased
significantly from fiscal 1995 through fiscal 1997 principally due to an
increase in the volume of units shipped. Such volume increases, in turn,
reflected increases in the number of new OEM customers in the computer
peripherals industry in fiscal 1996 and the data communications industry in
fiscal 1997, and increases in orders from existing customers in each year,
offset in part in fiscal 1997 by decreased revenues from a previously greater
than 10% customer.

Gross Profit

Gross profit increased 139.8% from $5.6 million in fiscal 1995 to $13.4
million in fiscal 1996 and then increased 9.7% to $14.7 million in fiscal 1997.
Gross profit increased in fiscal 1996 primarily due to increased sales to new
customers and an increased volume of shipments to Maxtor. During fiscal 1997,
the relocation of the Company's Hong Kong manufacturing operations to China
reduced the Company's direct labor costs by

22
<PAGE> 23

approximately $6.5 million compared to fiscal 1996. This effect, however, was
partially offset by associated reductions in selling prices, as the Company
passed through certain cost savings to its customers, and the decline in unit
volumes to Maxtor.

The Company's gross margins, which are computed by dividing gross profits
by revenues, from product sales are affected significantly by the mix of
revenues derived from sales made on a full turnkey versus a partial turnkey
basis. The Company generally obtains lower margins from full turnkey sales as
compared to partial turnkey sales. For partial turnkey sales, the Company is
responsible for procuring only a portion of the components as compared to full
turnkey sales, wherein the Company procures, and accordingly bills to customers
costs of, all components in a product. Relatedly, revenues from full turnkey
sales tend to be higher than revenues from partial turnkey sales. However, the
differences in revenues between partial turnkey and full turnkey sales do not
result in a proportionate difference in gross profits, as customers generally
pay lower margins for material procurement activities undertaken by the Company.
Consequently, revenue increases attributable to a higher mix of full turnkey
revenues do not translate into a proportionate increase in gross profits, and,
as a result, gross margins tend to be lower. Typically, the Company's gross
margins from consignment sales tend to be higher than gross margins from turnkey
sales. Nevertheless, in fiscal 1995, the Company's gross margin from turnkey
sales approximated the gross margin from consignment sales. The Company believes
that given the limited amount of revenues derived from turnkey sales in 1995,
gross margin from turnkey sales in 1995 is not representative of normal gross
margins.

Gross margins decreased from 14.2% in fiscal 1995 to 3.3% in fiscal 1996
due primarily to a shift in the terms of sales to Maxtor from consignment in
fiscal 1995 to full turnkey in fiscal 1996. Gross margins improved to 8.6% in
fiscal 1997 due primarily to a shift in the terms of sales to Maxtor from full
turnkey to partial turnkey and the reduction in direct labor costs attributable
to relocation of the Company's Hong Kong manufacturing operations to China.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 88.9% from $2.8
million in fiscal 1995 to $5.4 million in fiscal 1996 and then increased 49.5%
to $8.0 million in fiscal 1997. As a percentage of total revenues, selling,
general and administrative expenses were 7.2%, 1.3% and 4.7%, respectively, for
the same periods. The increase in absolute dollars from fiscal 1995 to fiscal
1996 was the result of increased expenditures of approximately $1.0 million
associated with the opening of the Company's new manufacturing facility in
Thailand and the establishment of a sales and marketing organization to support
sales to new customers. The increase in absolute dollars and as a percentage of
total revenues from fiscal 1996 to fiscal 1997 was the result of increased
personnel costs and marketing expenses in the United States to support new
customer development aggregating approximately $1.5 million, increased expenses
of approximately $350,000 to support the establishment of the new manufacturing
facility in China, and the inclusion of approximately $400,000 of Pentagon
Systems' expenses commencing with its acquisition in January 1997. During fiscal
1997, the Company recorded $163,000 of goodwill amortization resulting from the
Company's acquisition of Pentagon Systems in January 1997.

Restructuring Charge

During fiscal 1997, the Company recorded a charge of $3.0 million
associated with the relocation of its Hong Kong manufacturing operations to
China. As of July 31, 1997, the Company had completed all such restructuring
activities. See Note 5 of Notes to Consolidated Financial Statements.

Net Interest Expense

Net interest expense decreased from $180,000 in fiscal 1995 to $64,000 in
fiscal 1996, as a result of the partial repayment of a previously outstanding
term note, and increased to $4.0 million in fiscal 1997, due to the indebtedness
incurred in connection with the Recapitalization.

Provision for Income Taxes

The Company's provision for income taxes for fiscal 1995, 1996 and 1997
consisted primarily of foreign income taxes related to its Hong Kong operations.
During these periods, the Company's United States

23
<PAGE> 24

operations generated losses, for which the Company did not record any tax
benefit. Historically, the Company's effective tax rate has been lower than the
United States federal statutory rate of 35.0% due primarily to the fact that
income generated by its foreign operations has been subject to lower or no
foreign income taxes. At April 30, 1997, the Company had United States federal
net operating loss carryforwards of approximately $6.0 million, of which
approximately $4.4 million were subject to certain annual limitations on
utilization. As of such date, the Company had gross United States deferred tax
assets of approximately $2.4 million. Based on factors which include the
Company's history of losses generated by its United States operations and lack
of carryback capacity, the Company believes that it is more likely than not that
the Company will not be able to realize its United States deferred tax assets.
Accordingly, a full valuation reserve for such assets has been recorded. See
Note 11 of Notes to Consolidated Financial Statements.

Change in Fiscal Year

During fiscal 1997, the Company changed its financial reporting year end
from the Saturday nearest to March 31, to the Saturday nearest to April 30. As a
result of this change, the Company had a one month transition period.

During the one month ended April 30, 1996, the Company had revenues, gross
profit and net income of $23.5 million, $1.7 million and $1.3 million,
respectively. The revenues and profitability during this one month period were
favorably affected by an increase in unit shipments to Maxtor. Net income for
April 1996 was also favorably affected by reversals of approximately $350,000 of
previously established employee bonus awards due to changes to the awards made
by management.

24
<PAGE> 25

SELECTED QUARTERLY OPERATING RESULTS

The following tables set forth selected unaudited statement of operations
data in dollar amounts and as a percentage of total revenues for each of the
five quarters through the period ended July 31, 1997. The unaudited data have
been prepared on the same basis as the audited consolidated financial statements
contained in this Prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information for the periods presented. Such statement of operations data should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. The Company's results of
operations fluctuated and are likely to continue to fluctuate significantly from
quarter to quarter. Results of operations in any period should not be considered
indicative of the results to be expected in any future period.

<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1996 1996 1997 1997 1997
-------- ----------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 21,139 $16,851 $20,222 $ 22,334 $ 34,500
Revenues from affiliates...................... 26,276 20,709 18,806 23,358 30,236
------- ------- ------- ------- -------
Total revenues...................... 47,415 37,560 39,028 45,692 64,736
Cost of revenues.............................. 46,363 33,430 34,841 40,394 58,397
------- ------- ------- ------- -------
Gross profit.................................. 1,052 4,130 4,187 5,298 6,339
Operating expenses:
Selling, general and administrative......... 1,704 1,729 1,870 2,738 2,845
Restructuring charge........................ 3,000 -- -- -- (179)
------- ------- ------- ------- -------
Total operating expenses............ 4,704 1,729 1,870 2,738 2,666
Income (loss) from operations................. (3,652) 2,401 2,317 2,560 3,673
Interest expense, net......................... 676 1,063 915 1,318 1,255
------- ------- ------- ------- -------
Income (loss) before income taxes............. (4,328) 1,338 1,402 1,242 2,418
Provision for income taxes.................... -- -- -- 253 337
------- ------- ------- ------- -------
Net income (loss)............................. $ (4,328) $ 1,338 $ 1,402 $ 989 $ 2,081
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1996 1996 1997 1997 1997
-------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................................... 44.6% 44.9% 51.8% 48.9% 53.3%
Revenues from affiliates...................... 55.4 55.1 48.2 51.1 46.7
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues.............................. 97.8 89.0 89.3 88.4 90.2
----- ----- ----- ----- -----
Gross margin.................................. 2.2 11.0 10.7 11.6 9.8
Operating expenses:
Selling, general and administrative......... 3.6 4.6 4.8 6.0 4.4
Restructuring charge........................ 6.3 0.0 0.0 0.0 (0.3)
----- ----- ----- ----- -----
Total operating expenses............ 9.9 4.6 4.8 6.0 4.1
Income (loss) from operations................. (7.7) 6.4 5.9 5.6 5.7
Interest expense, net......................... 1.4 2.8 2.3 2.9 1.9
----- ----- ----- ----- -----
Income (loss) before income taxes............. (9.1) 3.6 3.6 2.7 3.7
Provision for income taxes.................... 0.0 0.0 0.0 0.6 0.5
----- ----- ----- ----- -----
Net income (loss)............................. (9.1)% 3.6% 3.6% 2.1% 3.2%
===== ===== ===== ===== =====
</TABLE>

Total revenues during fiscal 1997 varied significantly from quarter to
quarter, generally reflecting changes in demand from existing customers and the
mix of revenues derived from turnkey and consignment manufacturing. In
particular, the Company experienced a significant decline in demand from its
three largest customers in the three months ended October 31, 1996 and January
31, 1997 due to reasons unrelated to the Company. In the three months ended
April 30, 1997, demand from existing customers increased and the

25
<PAGE> 26

Company also added new customers. In addition, in the three months ended April
30, 1997 and July 31, 1997, as the Company's revenues increased, so did the
percentage of total revenues derived on a turnkey basis.

Gross profit and gross margin in the three months ended July 31, 1996 were
adversely affected by a $2.0 million inventory charge associated with a
financially troubled customer's cancellation of orders. A portion of this
reserve was subsequently reversed in the three months ended January 31, 1997 and
April 30, 1997, because the customer purchased some of the inventory in
question. Gross margin was favorably affected in the three months ended October
31, 1996, January 31, 1997 and April 30, 1997 by reduced manufacturing costs as
a result of the relocation of the Company's Hong Kong manufacturing operations
to China. The decline in gross margin in the three months ended July 31, 1997
reflects a higher proportion of revenues derived on a turnkey basis.

The primary factors affecting the Company's annual and quarterly operating
results are: timing of customer orders; price competition; volume of orders
received relative to the Company's capacity; announcements, introductions and
market acceptance of a customer's new products; evolution in the life cycles of
customer products; timing of expenditures in anticipation of future customer
orders; effectiveness in managing manufacturing processes; changes in cost and
availability of labor and components; fluctuations in material costs; the mix of
materials costs relative to labor and manufacturing overhead costs; and the mix
of revenues derived from consignment and turnkey manufacturing (consignment
manufacturing tends to result in higher gross margins but lower revenues, and
turnkey manufacturing tends to result in lower gross margins but higher
revenues). Other factors affecting operating results include the Company's level
of experience in manufacturing a particular product, the degree of automation
used in the assembly process, the efficiencies achieved by the Company in
managing inventories and fixed assets, and customer product delivery
requirements. An adverse change in any one of these factors or a combination
thereof could have a material adverse effect on the Company's future business,
financial condition or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Prior to June 1996, the Company was a wholly-owned subsidiary of Maxtor and
funded its operations through cash provided by operations and intercompany
financing provided by Maxtor. Since the Recapitalization, the Company has funded
its working capital needs and capital expenditures through borrowings under its
credit facility and cash provided by operations. At July 31, 1997, the Company's
principal sources of liquidity consisted of cash provided by operations and
available borrowings under the Company's credit facilities.

Cash provided by operating activities for fiscal 1995, 1996 and 1997 and
the three months ended July 31, 1997 was $5.5 million, $7.7 million, $6.9
million and $3.2 million, respectively.

Cash used in investing activities in fiscal 1995 and 1996 totaled $4.1
million and $8.9 million, respectively, and related primarily to the purchase of
equipment and leasehold improvements associated with the establishment of the
Company's Thailand facility. In fiscal 1997, cash used in investing activities
totaled $12.1 million, primarily as a result of capital expenditures for
equipment and leasehold improvements associated with establishing the Company's
China operations, expanding its Thailand operations and initiating manufacturing
in its California facilities, as well as the Company's acquisition of Pentagon
Systems. In the three months ended July 31, 1997, cash used in investing
activities totaled $2.5 million for the purchase of property and equipment.

During fiscal 1997, the Company generated $7.1 million from financing
activities, including $12.1 million in net proceeds from sales of Common Stock
and Preferred Stock, $12.5 million from issuances of 12.0% junior subordinated
notes, and $9.0 million from borrowings under its line of credit. Approximately
$25.0 million of these amounts were used to redeem a portion of Maxtor's share
ownership in the Company in the Recapitalization. See "Certain Transactions."

In conjunction with the Recapitalization, the Company issued the Maxtor
Notes, which require early repayment upon the successful completion of an
initial public offering. The amount of repayment varies depending upon the net
proceeds to the Company from the public offering, with total repayment required
if the Company receives at least $45.0 million. The Company intends to repay the
Maxtor Notes in their entirety

26
<PAGE> 27

out of the net proceeds of this Offering. During the three months ended July 31,
1997, the Company repaid $1.5 million of its bank line of credit.

The Company has a committed line of credit with Chase Manhattan Bank that,
subject to certain limitations, provides for up to $32.0 million of borrowing
capacity to fund working capital and capital expenditures. The line of credit
expires June 21, 2001, with availability of borrowings declining on a quarterly
basis beginning in July 1997. The availability of the line of credit will be
reduced by $10.0 million upon the completion of this Offering to a maximum
availability of $21.8 million. The Company intends to renegotiate its credit
agreement after the completion of this Offering. At July 31, 1997, borrowings
under the line of credit were $7.5 million, compared to $9.0 million at April
30, 1997. Additional borrowings of $24.3 million were available under the line
of credit at July 31, 1997. At July 31, 1997, the effective interest rate under
the line of credit was approximately 7.9%. In addition, the Company intends to
repay the outstanding borrowings under the line of credit with the proceeds of
this Offering. See "Use of Proceeds." Borrowings under the line of credit are
secured by all of the Company's assets. The line of credit requires that the
Company maintain compliance with certain financial minimums, including with
respect to earnings before income tax, depreciation and amortization ("EBITDA"),
and certain financial ratios, including EBITDA to interest expense, EBITDA less
capital expenditures to interest expense, and total debt to EBITDA. The line of
credit also imposes certain restrictions, including limits on amounts
attributable to capital leases, performance bonds, permitted investments,
dividends, employee loans, amendments of certain existing agreements and
instruments, prepayments of other indebtedness, and capital expenditures. As of
July 31, 1997, the Company was in compliance with all such covenants and
restrictions.

The Company's future liquidity and cash requirements will depend upon many
factors, including the level of its operations, the degree and pace of its
expansion or acquisition of facilities and adoption of new manufacturing
technology, and the mix of revenues derived from consignment and turnkey
manufacturing. The Company anticipates that its planned purchases of capital
equipment for fiscal 1998 will require aggregate expenditures of approximately
$17.0 million, of which approximately $2.5 million have been made as of July 31,
1997. The Company believes that the proceeds of this Offering, funds available
under its line of credit and any cash generated from operations will be
sufficient to satisfy its currently anticipated working capital, capital
expenditure and debt service requirements for at least the next twelve months.
Nonetheless, in the event that the Company experiences significant continued
growth, the Company may need to finance such growth and any corresponding
working capital needs with additional public and private offerings of its debt
or equity. There can be no assurance as to the availability of such financing
or, if available, the terms thereof.

27
<PAGE> 28

BUSINESS

GENERAL

International Manufacturing Services, Inc. (the "Company") provides a broad
range of integrated, advanced manufacturing services to electronics original
equipment manufacturers in the computer peripherals, data communications,
telecommunications and other segments of the electronics industry. The Company
offers a full range of services, including product design, prototyping, printed
circuit board assembly, final system assembly, materials procurement, inventory
management, testing, packaging, distribution and depot repair. Major customers
include Maxtor, Bay Networks, Asante, Polaroid and Symbios Logic. In addition,
the Company has recently initiated significant customer relationships with
Advanced Fibre Communications and Polycom.

INDUSTRY BACKGROUND

Original equipment manufacturers in the electronics industry have become
increasingly reliant upon independent providers of electronics manufacturing
services to deliver an expanding range of manufacturing and related services.
OEMs, which historically utilized the services of EMS providers primarily to
obtain extra manufacturing capacity during periods of peak demand, have become
aware of the longer term advantages of outsourcing, and view EMS providers as
increasingly integral to their overall enterprise strategies. OEMs rely upon EMS
providers for a broad range of manufacturing related services, including:
product design; component selection and sourcing; procurement and inventory
control; design for manufacturability; PCB assembly; system level assembly; test
process design and implementation; packaging and shipment; distribution and
order fulfillment; and warranty and repair. According to Technology Forecasters
estimates, the worldwide market for electronics manufacturing services was $59
billion in 1996 and is expected to grow, at an annual rate of approximately 25%
through the year 2001, to $178 billion.

As OEMs seek to enhance their position in today's global marketplace, they
are increasingly turning to EMS providers to access advanced design expertise,
volume materials procurement and flexible, high volume manufacturing
capabilities. Access to such outsourcing capabilities provides OEMs with a range
of benefits, including: lower product cost; shorter new product introduction
cycles; more rapid time to market and time to volume production; reduced working
capital and capital expenditures; and more flexible response to design changes
and fluctuations in the availability of materials. Outsourcing also allows OEMs
to focus resources on their core competencies, such as research and development
and sales and marketing.

The EMS industry is highly fragmented, with a relatively small number of
participants having revenues over $500 million. Certain EMS providers have
sought through acquisitions to broaden the range of manufacturing capabilities
they offer and to expand the scope of their manufacturing operations. In
addition, certain OEMs have sold or spun-off their captive manufacturing
operations. OEMs desire strategic relationships with EMS providers who deliver a
broad range of high quality services in a timely and cost-effective manner. EMS
providers can lower OEM direct manufacturing costs for both labor and materials,
as well as their indirect costs, such as time to market and volume production,
materials purchasing and handling, and flexibility to respond to market demands.
Certain EMS providers can also lower costs by locating their operations in
regions of the world, such as Asia, Latin America or Eastern Europe, that offer
lower labor and infrastructure costs, advantageous tax treatment, and proximity
to production facilities of manufacturers of electronic components and related
materials.

In view of the foregoing factors, the Company believes that in order to
succeed, an EMS provider must offer a broad range of high quality manufacturing
services, obtain significant economies of scale in component procurement, and
manage multiple international facilities providing advanced manufacturing
capabilities in lower cost countries.

28
<PAGE> 29

STRATEGY

The Company's objective is to strengthen its position as a leading provider
of advanced, cost-effective, integrated electronics manufacturing services to
OEMs in the electronics industry. To achieve this objective, the Company is
pursuing the following strategies:

Provide Advanced, Cost-Effective EMS Solutions. The Company strives to
provide cost-effective, technologically advanced manufacturing solutions to
OEMs' increasingly complex needs. By leveraging its historical expertise in the
procurement of materials for, and the manufacturing of, computer peripherals,
the Company is able to provide significant cost advantages to OEMs in a variety
of industry sectors. The Company has located its materials procurement,
technical support and regional administrative operations in Hong Kong, near low
cost suppliers of electronic and system level components, and maintains volume
manufacturing operations in Thailand and China to access low cost labor and
overhead and to take advantage of certain local tax benefits. Further, as part
of its strategy to provide advanced manufacturing services in low cost regions,
the Company has equipped each of its manufacturing facilities with advanced
manufacturing technologies and staffed each of its operations with highly
skilled engineers and other professionals.

Diversify Customer Base. The Company intends to diversify its revenue base
by adding new customers in rapidly growing industry sectors, while expanding the
range of manufacturing services that it provides to its existing customers. The
Company seeks strategic relationships with major and emerging OEMs in industry
sectors, such as data communications and telecommunications, that require the
custom design and flexible manufacturing capabilities that the Company offers.
Over the last two fiscal years, the Company has evolved from being a captive EMS
provider to Maxtor to an independent EMS provider serving 15 additional OEM
customers. Customers other than Maxtor collectively represented approximately
56% of total revenues for the three months ended July 31, 1997.

Provide a Broad Range of Manufacturing Services. The Company offers its
customers a comprehensive EMS solution, with services that include: initial
circuit board layout, product design and prototype production; materials
sourcing and management; assembly of complex printed circuit boards, including
backplanes, system level subassemblies and final products; system testing;
packaging, distribution and fulfillment; and post production warranty and
repair. In January 1997, the Company added advanced PCB design layout and
prototype production capabilities by acquiring Pentagon Systems, a design and
prototype production firm with over ten years experience serving Silicon Valley
companies.

Accelerate Customers' Time to Market and Time to Volume. The Company's
expertise in design, materials management and manufacturing reduces its
customers' time to market. The custom design center operates on a twenty-four
hour-a-day basis to provide shorter design cycles. The Company's access to its
customers' product information early in the design cycle and its volume
procurement relationships with component suppliers enables the Company to
establish the materials supply chain necessary to ensure volume availability of
components for rapid transitions to volume production. As a result of its prior
experience in manufacturing for the computer peripherals industry, the Company
has also developed organizational disciplines to respond to rapid changes in
volume production.

Leverage International Manufacturing Capabilities. The Company applies its
manufacturing experience, operational infrastructure in Asia, and design,
prototype and manufacturing capabilities in the United States to provide
cost-effective flexible EMS solutions to its customers. The Company's primary
volume manufacturing operations, based in Asia, offer advanced capabilities and
technologies which the Company believes have generally been available primarily
in higher cost world regions. The Company's operations are also structured to
integrate its international operations in order to provide its customers
flexible service from multiple facilities. For example, to reduce overall costs,
the Company may perform manufacturing services at one facility and complete
system level assembly at another. The Company intends to continue to broaden its
manufacturing and engineering expertise and capabilities by expanding its
current facilities, by developing a manufacturing presence in other low cost
geographic markets and by pursuing strategic acquisitions. The Company is
currently in the process of leasing additional manufacturing space in San Jose.
In addition, although it has no specific plans and commitments in this regard,
the Company is also continually evaluating expansion into other low-cost
geographic areas.

29
<PAGE> 30

INTERNATIONAL MANUFACTURING CAPABILITY

The Company has manufacturing facilities located in Thailand, China and the
United States. During fiscal 1997, the Company transferred its Hong Kong
manufacturing operations to a new manufacturing facility in China with 12 SMT
lines and over 1,000 employees. The Company's Hong Kong operation now performs
materials procurement for the Company's manufacturing operations, certain
engineering and quality management functions as well as regional administrative
functions. In fiscal 1997, the Company also expanded its manufacturing
operations in Thailand by adding two SMT lines and approximately 52,000 square
feet of manufacturing capacity. The Company's manufacturing facilities in Asia
are registered to the quality requirements of the International Organization for
Standardization (ISO 9002), and its California manufacturing facility is
expected to receive ISO certification by the end of fiscal 1998 following full
implementation at such facility of ISO 9002 compliant procedures and the passing
of certification audits. The Company believes that it has sufficient space
within and adjacent to its current China and Thailand facilities to accommodate
possible expansion needs in the foreseeable future.

In January 1997, the Company further broadened the range of its
manufacturing related services by acquiring the assets of Pentagon Systems, a
design and prototype production company in San Jose, California with two
prototype SMT lines. With its access to engineering resources in Karachi,
Pakistan, the Company now offers twenty-four hour-a-day design services.

Certain additional information as of July 31, 1997 about the Company's
global facilities, all of which are leased under leases expiring within
approximately one to fifteen years, is set forth below:

<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
APPROXIMATE YEAR SMT NUMBER OF
LOCATION SQUARE FEET COMMENCED SERVICES LINES EMPLOYEES
- -----------------------------------------------------------------------------------------------------------
Changping, China 97,000 1996 Complex PCB assembly, systems level 12 1,049
assembly, backplane assembly
- -----------------------------------------------------------------------------------------------------------
Siracha, Thailand 93,000 1995 Complex PCB assembly, systems level 7 1,118
assembly
- -----------------------------------------------------------------------------------------------------------
Hong Kong 80,000 1983 Engineering services, quality -- 149
management, materials procurement
management, regional administration
functions
- -----------------------------------------------------------------------------------------------------------
San Jose, California 20,000 1996 Full systems manufacturing, backplane 1 45
assembly, PCB assembly, program
management and corporate headquarters
- -----------------------------------------------------------------------------------------------------------
San Jose, California 14,000 1987* Design, prototype and pre-production 2 51
services
- -----------------------------------------------------------------------------------------------------------
</TABLE>

* The Company acquired this facility as part of its acquisition of Pentagon
Systems in January 1997.

The Company's operations are structured to provide its customers with
competitive levels of service. The Company utilizes its electronic
communications and access to a global freight infrastructure to integrate its
marketing, design and prototype and manufacturing functions in the United States
with its high volume manufacturing operations in Asia. The Company's success in
developing new customers depends in part on its ability to convince OEMs that
the advantages of the Company's principally Asia-based manufacturing operations
outweigh any perceived inconvenience or uncertainty of overseas manufacturing.
See "Risk Factors -- Risks of International Operations," and "-- Management of
Growth and Expanded Operations."

SERVICES

The Company offers a broad range of integrated advanced electronic
manufacturing services to OEMs in the computer peripherals, data communications
and telecommunications and other market segments.

Custom Design Services. The Company's custom design services include
initial PCB design, design for manufacturability and prototype production. The
objective of these services is to improve product manufacturability, decrease
time to market and reduce overall costs. The Company's design center located in
San Jose, California, together with its access to engineering resources in
Pakistan, offers twenty-four hour-a-day product design services. This center,
acquired by the Company in connection with the Pentagon Systems acquisition,

30
<PAGE> 31

has over ten years of experience in assisting customers with initial circuit
board design and has expertise in radio frequency products, PCBs with higher
layer counts, and complex PCB assemblies where components require ball-grid
array and/or fine pitch packaging.

Materials Management. From its Hong Kong-based logistics center, the
Company provides comprehensive materials management, including planning,
purchasing, scheduling and other activities associated with the manufacturing
process. The Company has extensive experience in materials management,
particularly with product lines characterized by rapid volume ramps, schedule
changes and short product life cycles. The Company generally orders components
after it has a firm purchase order or formal authorization from the customer and
uses real time inventory management tools and automated material tracking
systems to achieve inventory accuracy and efficiency. The Company's materials
management capabilities assist customers in reducing manufacturing costs and
total cycle time. The Company's primary materials procurement function is
located in Hong Kong near low cost suppliers of electronic components and
box-build materials.

Assembly and Manufacturing. The Company provides a broad range of
electronics assembly and manufacturing services, including PCB assembly and the
manufacture of both subsystems and complete products. The majority of such
products incorporate complex, high density surface-mount assemblies. The PCB
assembly activity primarily consists of the placement and attachment of
electronic and mechanical components on printed circuit boards using both
surface-mount and pin-through-hole technologies. The Company has recently added
press fit technology to its existing capabilities for the manufacture of
backplane assemblies. The Company is continually evaluating the advantages and
feasibility of new manufacturing technologies and intends to continue to invest
in new technologies to maintain its reputation for advanced manufacturing
capabilities. The Company is also establishing a system of standardized
processes, equipment and quality procedures to provide maximum flexibility,
process consistency and interchangeability across multiple production lines and
facilities.

In addition, the Company performs box-build assembly of customer products.
Such services can include procurement and assembly of sheet metal, plastics,
cables, connectors, power supplies and other materials. Such completed products
are then packaged and shipped by the Company to the customer or, in certain
instances, directly to its distribution channel or end users. The Company's
development of this box-build capability is intended to take advantage of the
lower cost structures of its Asia-based operations and their proximity to
manufacturers of electronics and box-build components.

Testing Services. The Company provides a range of test capabilities,
including development and implementation of test software and test fixtures for
in-circuit testing, functional testing, system level testing, burn-in and
environmental stress testing. The breadth of these capabilities is designed to
ensure that the Company provides its customers with high quality products which
reduce the need for OEMs to perform separate or repeat testing.

Logistics Support and Distribution Services. The Company's logistics
services include disk duplication (floppy/CD ROM), documentation duplication
(manuals, warranty cards, etc.) and other customer packaging requirements.
Products may be distributed directly to the customer, the customer's
distribution center or directly to the end user. The Company also offers
just-in-time delivery programs allowing shipments of PCB assemblies or
subsystems to be coordinated with the customer's manufacturing process.

Depot Repair Services. The Company's depot repair capability enables its
customers to service products in different markets. These services include
warranty and post-warranty repairs and field return failures.

The markets for the products of the Company's customers are highly
competitive. The Company believes that its future success will depend upon its
ability to market manufacturing services which meet changing customer needs,
maintain technological leadership and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. There can be no assurance that the Company will be successful in
providing these services. See "Risk Factors."

31
<PAGE> 32

CUSTOMERS, SALES AND MARKETING

The Company's customers consist of OEMs in the computer peripherals, data
communications and telecommunications and other sectors of the electronics
industry. Over the last two fiscal years, the Company has evolved from being a
captive EMS provider to Maxtor to an independent EMS provider serving 15
additional OEM customers. Customers other than Maxtor collectively represented
approximately 56% of total revenues for the three months ended July 31, 1997.
For fiscal 1995, 1996 and 1997, and for the three months ended July 31, 1997,
Maxtor accounted for approximately 92.0%, 83.1%, 48.6% and 44.1% of total
revenues, respectively. For fiscal 1996 and 1997, and for the three months ended
July 31, 1997, Bay Networks accounted for approximately 1.6%, 31.3% and 42.1% of
the Company's total revenues, respectively. For fiscal 1996, Diamond Multimedia
accounted for approximately 12.8% of total revenues.

The following table presents information regarding certain key customers
with which the Company is currently conducting business.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
INDUSTRY SEGMENT CUSTOMER CUSTOMER END PRODUCT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Peripherals and Diamond Multimedia Systems, Inc. Multimedia Graphics Cards
Components Maxtor Corporation Hard Disk Drives
Symbios Logic Inc. Scanner Controllers
- ----------------------------------------------------------------------------------------------------------
Data Communications Asante Technologies, Inc. Networking Devices
Bay Networks, Inc. Networking Devices
Farallon Communications, Inc. Networking Devices
- ----------------------------------------------------------------------------------------------------------
Telecommunications Advanced Fibre Communications, Inc. Telecommunications Switching
Equipment
Polycom, Inc. Telecommunications Conferencing
Equipment
- ----------------------------------------------------------------------------------------------------------
Industrial Polaroid Corporation Scanners
Semi Power Systems, Inc. Motor Control Electronics
- ----------------------------------------------------------------------------------------------------------
</TABLE>

The Company has also provided product design or prototyping services to a
number of customers, including National Semiconductor Corporation, S3
Incorporated, LSI Logic Corporation, Sony Corporation and 3Com Corporation.

The Company sells its services to OEMs in the electronics industry
worldwide through its sales and marketing staff and its senior executive
management. As of July 31, 1997, the Company employed 42 persons in its sales,
marketing and program management departments. Moreover, each member of the
Company's executive staff is assigned responsibility for specific high-level
relationships with both existing key customers and prospective accounts. In
addition, the Company's sales and marketing staff works closely with two
manufacturers' representatives in developing relationships with additional OEM
customers and providing sales force coverage to the eastern and southwestern
regions of the United States.

Significant reductions in sales to any of the Company's principal
customers, or the loss of any major customer, would have a material adverse
effect on the Company. There can be no assurance that Maxtor and Bay Networks
will continue to purchase services from the Company, at current levels, or at
all, or that the Company will be successful in its strategy to diversify its
customer base. These risks are accentuated because a majority of the Company's
sales are to customers in the electronics industry, which is subject to rapid
technological change and product obsolescence. The Company is, therefore,
dependent on the continued growth, viability and financial stability of its
customers, which are in turn substantially dependent on the growth of the
computer peripherals, data communications, telecommunications and other sectors
of the electronics industry. The factors affecting the electronics industry in
general, or any of the Company's major customers in particular, could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Risk Factors -- Customer Concentration; Dependence
on Certain Industries."

32
<PAGE> 33

BACKLOG

The Company's backlog was $50.5 million at March 30, 1996, $53.6 million at
April 30, 1997 and $88.5 million at July 31, 1997. Backlog consists of purchase
orders and firm forecasts with delivery dates scheduled within the next six
months. The Company believes that the EMS industry has been increasingly
characterized by shorter lead times for customer orders and the implementation
of just-in-time systems. For these reasons, and because of the timing of orders,
delivery intervals, customer and product mix and the possibility of customer
changes in delivery schedules, the Company's backlog as of any particular date
may not be a meaningful indicator of future financial results.

COMPETITION

The electronics assembly and manufacturing industry is intensely
competitive and consists of numerous local, national and international
companies, a number of which have achieved substantial market share. The Company
believes that the primary competitive factors in its targeted markets are cost,
manufacturing technology, product quality, responsiveness and flexibility, the
range of services provided and the location of facilities. To be competitive,
the Company must provide technologically advanced manufacturing services, high
product quality levels, flexible production schedules and reliable delivery of
finished products on a timely and price competitive basis. Failure to satisfy
any of the foregoing requirements could materially and adversely affect the
Company's competitive position. The Company competes against numerous domestic
and foreign manufacturers, including Flextronics International Ltd., Jabil
Circuits, Inc., Sanmina Corporation, SCI Systems, Inc. and Solectron
Corporation, as well as certain large Asia entities. The Company also faces
indirect competition from the manufacturing operations of its current and
prospective customers, which continually evaluate the merits of manufacturing
products internally rather than using the services of EMS providers. Many of the
Company's competitors have more geographically diversified international
operations, as well as substantially greater manufacturing, financial, volume
procurement, research and development and marketing resources than the Company.
In recent years, the EMS industry has attracted new entrants, including large
OEMs with excess manufacturing capacity, and many existing participants have
substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities through both internal expansion and
acquisitions. In the event of a decrease in overall demand for EMS services,
this increased capacity could result in substantial pricing pressures, which
could have a material adverse effect on the Company's business, financial
condition or operating results.

EMPLOYEES

At July 31, 1997, the Company had 2,412 employees. None of the Company's
employees is represented by a labor union. The Company believes that its
employee relations are good.

Recruitment of personnel in the EMS industry is highly competitive. The
Company believes that its future success will depend, to a large extent, on its
ability to attract and retain key employees. Although to date the Company has
been successful in retaining key managerial employees the loss of services of
certain of these key employees, particularly any of its executive officers,
could have a material adverse effect on the Company.

33
<PAGE> 34

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The following table sets forth certain information regarding the executive
officers, directors and other key employees of the Company as of July 31, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Robert G. Behlman.................. 53 President, Chief Executive Officer and
Chairman of the Board of Directors
Nathan Kawaye...................... 44 Senior Vice President and Chief Financial
Officer
Neo Kia Quek....................... 50 Senior Vice President, Manufacturing
Operations
William J. Almon(1)................ 64 Director
Dixon R. Doll...................... 54 Director
John A. Downer(2).................. 39 Director
Fredric W. Harman(1)............... 37 Director
Mark Rossi(1)...................... 41 Director
J. Larry Smart(2).................. 50 Director
Paul J. Tufano(2).................. 43 Director
Other Key Employees
Anthony Pham....................... 37 Vice President, Sales and Customer Support
Iris Grable........................ 48 Vice President, Marketing and Business
Development
Muder Kothari...................... 43 Vice President, and General Manager, United
States Operations
Gary M. Workman.................... 51 Senior Vice President, Business Development
</TABLE>

- ---------------

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

Robert G. Behlman has been President, Chief Executive Officer and Chairman
of the Board of Directors of the Company since its formation in November 1994.
From July 1994 to November 1994, Mr. Behlman served as a consultant to Maxtor, a
manufacturer of hard disk drives. From September 1992 until May 1994, Mr.
Behlman served as Vice President and Chief Operating Officer of Sanmina
Corporation, an integrated electronics manufacturer. From August 1988 until
September 1992, Mr. Behlman held senior management positions at SCI, a contract
manufacturer of electronic components, including Vice President of Business
Development (Western Region) from March 1991 to September 1992 and Vice
President and General Manager (San Jose, California plant) from August 1988 to
March 1991. Mr. Behlman received a B.S. in Industrial Engineering from
California Polytechnic University, Pomona.

Nathan Kawaye has served as Senior Vice President and Chief Financial
Officer of the Company since August 1996. From November 1991 to July 1996, Mr.
Kawaye held senior management positions at Maxtor, including Vice President and
Chief Financial Officer. From 1989 to 1991, Mr. Kawaye was Vice President,
Finance and Administration and Chief Financial Officer of Sigma Circuits, a
manufacturer of printed circuit boards. Mr. Kawaye held various financial
management positions including Vice President, Chief Financial Officer of Priam
Corporation, a disk drive manufacturer, from 1983 to 1989 and held financial
management positions at Intel Corporation from 1979 to 1983. Mr. Kawaye received
a B.S. in Biochemistry from the University of California at Berkeley and a
M.B.A. from the University of California at Los Angeles.

Neo Kia Quek has served as Senior Vice President, Manufacturing Operations
since the Company's inception in November 1994. From 1988 to November 1994, Mr.
Quek held various management positions at SCI including Plant Manager and Vice
President (Thailand). Previously, Mr. Quek was at Seagate Technology, Inc., a
disk drive manufacturer, heading its worldwide repair center in Singpore, and
held various

34
<PAGE> 35

management positions at General Electric Corporation (Singapore), including
Managing Director. Mr. Quek received degrees from the Singapore Technical
Teacher's College and the Singapore Institute of Management.

William J. Almon has been a director of the Company since June 1996. He has
served as Chairman of the Board of Directors and Chief Executive Officer of
StorMedia Incorporated ("StorMedia"), a supplier of thin film disks for hard
disk drives, since May 1994. Prior to joining StorMedia, Mr. Almon served as an
independent consultant from February 1993 to May 1994. From 1988 to February
1993, Mr. Almon was President and Chief Operating Officer of Conner Peripherals,
Inc., an independent disk drive manufacturer. Prior thereto, Mr. Almon served in
various management capacities, including Vice President, Low End Storage
Products, of IBM. Mr. Almon is also a director of Read-Rite Corporation, a
supplier of thin film magnetic heads for disk drives, and Sigma Designs, Inc., a
provider of multimedia imaging display systems. Mr. Almon received a B.S. in
Electrical Engineering from the United States Military Academy, West Point.

Dixon R. Doll has been a director of the Company since June 1996. He has
served as Managing General Partner of Doll Capital Management, a venture capital
investment firm, since June 1996. From September 1994 to June 1996, Mr. Doll was
an independent venture capitalist. From 1985 to September 1994, Mr. Doll served
as General Partner of Accel Partners, a venture capital investment firm. Mr.
Doll has held various senior management positions at DMW Group LLC and
predecessor entities, including Chairman of the Board of Directors and Chief
Executive Officer, from 1973 to the present. Mr. Doll is also a director of
Network Equipment Technologies, Inc., a manufacturer of multi-service
communications products, Racotek, Inc., a supplier of mobile data communication
software, and a number of private companies. Mr. Doll received a B.S. in
Electrical Engineering from Kansas State University and a M.S.E. and Ph.D. from
the University of Michigan.

John A. Downer has been a director of the Company since June 1996. Since
December 1996, Mr. Downer has served as Managing Director of Cornerstone Equity
Investors, L.L.C. ("Cornerstone"), a venture capital firm and successor to
Prudential Equity Investors, Inc. ("Prudential"). From 1989 to December 1996,
Mr. Downer was a partner of various venture capital funds managed by Prudential.
Mr. Downer is also a director of StorMedia. Mr. Downer received a B.A., M.B.A.
and J.D. from Harvard University.

Fredric W. Harman has been a director of the Company since June 1996. Mr.
Harman has served as General Partner of Oak Investment Partners, a venture
capital firm, since July 1994. From 1991 to July 1994, Mr. Harman was General
Partner of Morgan Stanley Venture Capital, Inc., a venture capital firm. Mr.
Harman is also a director of ILOG S.A., a provider of software components for
computer graphics and resource optimization, and SPSS Inc., a developer of
statistical software products. Mr. Harman received a B.S. and a M.S. in
Electrical Engineering from Stanford University and a M.B.A. from Harvard
University.

Mark Rossi has been a director of the Company since 1996. Mr. Rossi has
served as Senior Managing Director of Cornerstone since December 1996. From 1983
to 1996, Mr. Rossi was a partner of various venture capital funds managed by
Prudential. Mr. Rossi is also a director of StorMedia. Mr. Rossi holds a B.A.
from Saint Vincent College and a M.B.A. from Northwestern University.

J. Larry Smart has been a director of the Company since June 1996. He has
served as Chief Executive Officer and a director of Visioneer, Inc., a developer
and marketer of intelligent paper input systems and image management software,
since April 1997. From July 1995 to March 1997, Mr. Smart served as Chief
Executive Officer, President and Chairman of the Board of Directors of
Streamlogic Corporation (formerly Micropolis Corporation), a developer and
marketer of data management solutions. From April 1994 to March 1995, Mr. Smart
served as President and Chief Executive Officer of Maxtor, and from 1991 to
February 1994, he was Chief Executive Officer and a director of Southwall
Technologies, Inc., a manufacturer of commercial, thin-film materials. Mr. Smart
is also a director of Western Micro Technology, Inc., a computer systems
distributor. Mr. Smart received a B.S.I.M. from the Georgia Institute of
Technology and a M.B.A. from Southern Methodist University.

35
<PAGE> 36

Paul J. Tufano has been a director of the Company since October 1996. Since
August 1996, Mr. Tufano has served as Vice President, Finance and Chief
Financial Officer of Maxtor. From 1979 to July 1996, Mr. Tufano held various
management positions at IBM, including manager of worldwide logistics for IBM's
Storage Systems Division from October 1995 to July 1996. Mr. Tufano holds a B.S.
in Economics from St. John's University and a M.B.A. from Columbia University.

Anthony Pham has been Vice President, Sales and Customer Support since the
Company's formation in November 1994. From 1984 to November 1994, Mr. Pham
served in management positions, including International Business Development
Manager, at SCI. Mr. Pham received a B.S. in Computer Science from the
California Sate University at Hayward.

Iris Grable has been Vice President, Marketing and Business Development of
the Company since its formation in November 1994. From November 1993 to November
1994 she served as Asian Sales Manager at AVEX Electronics Corporation, an EMS
provider, and from May 1988 to November 1994, Ms. Grable served as Marketing
Manager at SCI. Prior thereto, Ms. Grable held management positions at
Micropolis Corporation and Pertec Peripheral Corporation, a computer peripherals
manufacturer. Ms. Grable received a B.S. in Business Management from Pepperdine
University.

Muder Kothari has served as the Company's Vice President and General
Manager, United States Operations since the Company acquired Pentagon Systems in
January 1997. Mr. Kothari founded Pentagon Systems, and from its inception in
December 1987 to December 1996 served as its President and Chief Executive
Officer. From 1982 to 1987, Mr. Kothari held management positions at
Ungermann-Bass, Inc., a network computer systems provider.

Gary M. Workman joined the Company as Senior Vice President, Business
Development in December 1996. From 1972 to November 1996, Mr. Workman held
various management positions at Anixter International, Inc., a distributor of
LAN and WAN solutions, including President of Anixter Asia/Pacific Division
(Singapore) from 1992 to November 1996. Mr. Workman received a B.S. in Business
and Marketing from Central Washington University.

BOARD OF DIRECTORS

The Company's Board of Directors has eight members, including seven
non-employee directors. Messrs. Behlman, Harman, Tufano, Downer and Rossi were
elected directors pursuant to a stockholders agreement; the provisions providing
for their appointments terminate upon effectiveness of this Offering, except as
to Mr. Tufano. Maxtor is contractually entitled to appoint one director to the
Company's Board of Directors until such time as the Maxtor Notes have been fully
repaid and Maxtor holds fewer than 1,492,500 shares of Class A Common Stock. It
is expected that all current directors will continue to serve after the
Offering.

In July 1996, the Board of Directors formed a Compensation Committee and an
Audit Committee. Prior thereto, decisions regarding the compensation of
executive officers were made by the Board of Directors as a whole. The
Compensation Committee, which currently consists of Messrs. Rossi, Harman and
Almon, makes recommendations to the Board concerning the compensation for the
Company's officers and administers the Company's 1996 Stock Option Plan, 1997
Stock Plan, 1997 Director Option Plan and 1997 Employee Stock Purchase Plan and
1997 Non-U.S. Employee Stock Purchase Plan. The Audit Committee, which currently
consists of Messrs. Downer, Smart and Tufano, reviews the Company's financial
controls, evaluates the scope of the annual audit, reviews audit results,
consults with management and the Company's independent auditors prior to the
presentation of financial statements to stockholders, and, as appropriate,
initiates inquiries into aspects of the Company's internal accounting controls
and financial affairs.

DIRECTOR COMPENSATION

Directors receive no cash remuneration for serving on the Board of
Directors but are reimbursed for reasonable out-of-pocket expenses they incur in
attending board and committee meetings. Messrs. Almon, Doll and Smart each
received options to purchase 37,500 shares of Class A Common Stock upon their
initial

36
<PAGE> 37

elections, pursuant to the 1996 Stock Option Plan. Upon effectiveness of this
Offering, directors who are employees of the Company will be eligible to receive
stock options pursuant to the 1996 Stock Option Plan and 1997 Stock Plan;
non-employee directors will receive stock options pursuant to the automatic
option grant provisions of the 1997 Director Option Plan and will be eligible to
receive stock options pursuant to the 1997 Stock Plan. Options to purchase
10,000 shares of Class A Common Stock will be automatically granted to each of
the Company's non-employee directors upon the effectiveness of this Offering at
the initial public offering price.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee currently consists of Messrs. Rossi, Harman and
Almon. No member of the Compensation Committee or executive officer of the
Company has a relationship that would constitute an interlocking relationship
with executive officers and directors of another entity.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for any
liability arising with respect to (i) any breach of their duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, or (iii) any
transaction from which the director derived an improper personal benefit.

The Company's certificate of incorporation further provides that the
Company must indemnify its directors and executive officers and may indemnify
its other officers and employees and agents to the fullest extent permitted by
Delaware law. The Company believes that indemnification under its certificate of
incorporation covers negligence and gross negligence on the part of indemnified
parties. The Company's certificate of incorporation also permits the Company to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether Delaware law would permit indemnification.

The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's
certificate of incorporation. These agreements, among other things, require the
Company to indemnify such directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company and to obtain
directors and officers liability insurance, if available, on reasonable terms.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would
be required or permitted. The Company is not aware of any pending or threatened
litigation or proceeding that might result in a claim for such indemnification.

37
<PAGE> 38

EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation paid by the Company during the fiscal year ended April 30, 1997 to
the Company's Chief Executive Officer and each of the Company's other executive
officers whose salary and bonus for such fiscal year exceeded $100,000
(collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS
- --------------------------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Robert G. Behlman............................ $217,598 $57,000 $ 206,045(2) 825,000
President, Chief Executive Officer and
Chairman of the Board of Directors
Nathan Kawaye(3)............................. 134,987 26,250 -- 225,000
Senior Vice President and Chief Financial
Officer
Neo Kia Quek................................. 220,578 95,811 -- 262,500
Senior Vice President, Manufacturing
Operations
</TABLE>

- ---------------

(1) Excludes perquisites and other personal benefits which for each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for such officer.

(2) Consists of a release by the Company of Mr. Behlman's payment obligations
under a full recourse promissory note in connection with the purchase of
150,000 shares of the Company's Class A Common Stock and compensation in the
amount of Mr. Behlman's tax liability associated therewith. See "Certain
Transactions."

(3) Mr. Kawaye's employment with the Company commenced August 1, 1996.
Accordingly, salary and bonus amounts reflect service for only that portion
of the fiscal year in which Mr. Kawaye served as an employee of the Company.

STOCK OPTIONS

The following table sets forth, as to the Named Executive Officers,
information concerning stock options granted during the fiscal year ended April
30, 1997.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------- ASSUMED ANNUAL RATE OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(5)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE(4) 5% 10%
---------- -------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Behlman......... 825,000 30.0% $0.737463 06/12/06 $382,621 $969,643
Nathan Kawaye............. 225,000 8.2 0.737463 06/12/06 104,351 264,448
Neo Kia Quek.............. 262,500 9.5 0.737463 06/12/06 121,743 308,523
</TABLE>

- ---------------

(1) All options were granted on June 13, 1996 under the Company's 1996 Stock
Option Plan, were vested as to 25% of the shares at the date of grant, and
continue to vest at the rate of 1/16 of the remaining shares at the end of
each quarterly anniversary thereafter, subject to continued service as an
employee or consultant; provided that each quarterly vesting date shall be
accelerated by the equivalent of one year upon consummation of this
Offering. The term of each option is ten years.

(2) Based upon options to purchase an aggregate of 2,752,500 shares of Class A
Common Stock that were granted to employees, including the Named Executive
Officers, during the fiscal year ended April 30, 1997 (excluding options to
purchase 36,750 shares of Class A Common Stock which were granted to
employees and subsequently canceled during the fiscal year ended April 30,
1997).

(3) The exercise price per share of each option was equal to the fair market
value of the underlying Class A Common Stock on the date of grant as
determined by the Board of Directors.

(4) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon the death of the
optionee.

(5) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future financial performance of the Company, overall
market conditions and the option holder's continued employment through the
vesting period.

38
<PAGE> 39

On September 15, 1997, the Compensation Committee of the Board of Directors
approved, contingent upon the effectiveness of this Offering, the grant of
options to purchase at the initial public offering price 195,000 shares of Class
A Common Stock to each of Messrs. Kawaye and Quek under the 1997 Stock Plan.

OPTION EXERCISES AND HOLDINGS

The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended April 30, 1997 with respect to
each of the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Behlman.............. -- -- 322,266 502,734 $ 729,139 $ 1,137,454
Nathan Kawaye.................. -- -- 87,891 137,109 $ 198,857 $ 310,214
Neo Kia Quek................... -- -- 102,539 159,961 $ 231,998 $ 361,918
</TABLE>

- ---------------

(1) Calculated by determining the difference between the fair market value of
the Common Stock as of the fiscal year ended April 30, 1997, as adjusted by
the Company's Board of Directors in August 1997 ($3.00), and the per share
exercise price of the options ($0.737463).

OFFER LETTERS

Each of the Company's employees, including each of its executive officers,
has received an offer letter from the Company which sets forth compensation and
related terms of such persons' employment. All such persons are employed on an
at-will basis.

COMPENSATION PLANS

1996 Stock Option Plan

The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted in June
1996. The 1996 Plan provides for the grant to employees of the Company
(including officers and employee directors) of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant of nonstatutory stock options to employees and
consultants of the Company. The 1996 Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator") in a
manner that complies with Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. The Administrator has discretion, within the limits of the 1996 Plan,
to select the optionees, determine the number of shares to be subject to each
option and determine the exercise price of each option. The 1996 Plan authorizes
the issuance of up to 3,352,500 shares of Class A Common Stock. As of July 31,
1997, 37,500 shares had been issued pursuant to the 1996 Plan, options to
purchase 2,895,000 shares were outstanding, and 420,000 shares remained
available for future grants. The exercise price of incentive stock options
granted under the 1996 Plan must be at least equal to the fair market value per
share of the Class A Common Stock on the date of grant. The exercise price of
nonstatutory stock options granted under the 1996 Plan is determined by the
Administrator. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of stock of the Company, the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date and the maximum term of the option must
not exceed five years. The term of all other options granted under the 1996 Plan
may not exceed ten years.

In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially of the assets of the Company, the 1996 Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
successor corporation. If the successor corporation refuses to assume or
substitute for the options, the optionee will have the right to exercise the
option as to all or a portion of the stock subject thereto, including shares
which would

39
<PAGE> 40

not otherwise be exercisable. Unless terminated sooner, the 1996 Plan will
terminate ten years from its effective date. The Board has authority to amend or
terminate the 1996 Plan, provided no such action may impair the rights of any
optionholder without the written consent of such holder.

1997 Stock Plan

The Company's 1997 Stock Plan (the "1997 Plan") was adopted in August 1997
and will become effective upon the effectiveness of this Offering. The 1997 Plan
provides for the grant to employees of the Company (including officers and
employee directors) of incentive stock options, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants of the Company. As with the 1996 Plan, the 1997 Plan is administered
by the Board of Directors or a committee of the Board of Directors, which
selects the optionees, determines the number of shares subject to each option or
right and determines the exercise price of each option or right. The 1997 Plan
authorizes the issuance of up to 1,750,000 shares of Class A Common Stock. The
exercise price of incentive stock options granted under the 1997 Plan must be at
least equal to the fair market value of the Class A Common Stock on the date of
grant. The exercise price of nonstatutory stock options granted under the 1997
Plan is determined by the Administrator. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of stock
of the Company, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date, and the maximum
term of an incentive stock option must not exceed five years. The term of all
other options granted under the 1997 Plan may not exceed ten years. No person
may receive an option for more than 250,000 shares in any one fiscal year,
except that an employee may receive an option for up to 500,000 shares in the
year such employee is hired by the Company.

In the event of a merger of the Company with or into another corporation,
or the sale of all or substantially all of the assets of the Company, the 1997
Plan requires that each outstanding option or right be assumed or an equivalent
option or right substituted by the successor corporation or a parent or
subsidiary of such successor corporation. If the successor corporation refuses
to assume or substitute for the options or rights, the holder of such options or
rights will have the right to exercise the options or rights as to all or a
portion of the stock subject thereto, including shares which would not otherwise
be exercisable. Unless terminated sooner, the 1997 Plan will terminate ten years
from its effective date. The Board has authority to amend or terminate the 1997
Plan, provided no such action may impair the rights of the holder of any
outstanding options or rights without the written consent of such holder.

1997 Director Option Plan

The Company's 1997 Director Option Plan (the "Director Plan") was adopted
in August 1997 and will become effective upon the effectiveness of this
Offering. A total of 225,000 shares of Common Stock has been reserved for
issuance under the Director Plan. The Director Plan provides for the grant of
nonstatutory stock options to nonemployee directors of the Company (the "Outside
Directors"). The grants are made pursuant to an automatic, nondiscretionary
grant mechanism. The Director Plan provides that each Outside Director is
granted a nonstatutory stock option to purchase 25,000 shares of Common Stock on
the date upon which such person first becomes an Outside Director (the "First
Option"). Thereafter, each Outside Director is automatically granted an option
to purchase 10,000 shares of Common Stock on the date such Outside Director is
reelected to the Board of Directors by the Company's stockholders at the
Company's annual meeting of stockholders (a "Subsequent Option"), if, on such
date, such Outside Director has served on the Company's Board of Directors for
at least six months. Outside Directors on the effective date of the Company's
this Offering will receive nonstatutory stock option for 10,000 shares of Class
A Common Stock (the "IPO Option"). The Director Plan provides that the First
Option, the IPO Option and all Subsequent Options become exercisable as to 25%
of the shares subject to the option one year after the grant date and as to
1/48 of the shares subject to the option for each month thereafter. The exercise
price per share of all options granted under the Director Plan is equal to the
fair market value of a share of the Company's Common Stock on the date of grant.
Options granted to Outside Directors under the Director Plan have a ten year
term, but terminate earlier upon termination of an Outside Director's status as
a director. In the event of the merger or sale of substantially all of the
assets of the Company, all outstanding options must be assumed or substituted

40
<PAGE> 41

by the successor corporation, or if they are not assumed or substituted for,
they become fully vested and exercisable. If the options are assumed or
substituted for, they also will become fully exercisable if the director is
terminated other than upon voluntary termination. Until terminated earlier, the
Director Plan has a term of ten years.

1997 Employee Stock Purchase Plan

The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in August 1997 and will become effective upon the effectiveness of this
Offering. A total of 250,000 shares of Class A Common Stock less any shares
issued under the 1997 Non-U.S. Employee Stock Purchase Plan has been reserved
for issuance under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, will have successive six month offering
periods, with the first offering period commencing on the date of the closing of
this Offering and ending on the last business day in the period ending May 31,
1998. Employees are eligible to participate if they are regularly employed by
the Company for at least twenty hours per week and more than five months in any
calendar year.

The Purchase Plan permits eligible employees to purchase Class A Common
Stock through payroll deductions, which may not exceed 15% during the first
offering period, and 10% thereafter, of an employee's base compensation,
including commissions, but exclusive of bonuses and overtime, at a price equal
to 85% of the fair market value of the Class A Common Stock at either the
beginning or the end of each six month offering period, whichever is lower. In
the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, the Purchase Plan
provides that a new exercise date will be set for each option under the plan,
which exercise date must occur before the date of the merger or asset sale.
Unless terminated sooner, the Purchase Plan will terminate ten years after its
effective date. The Board of Directors has authority to amend or terminate the
Purchase Plan, provided no such action may adversely affect the rights of any
participant.

1997 Non-U.S. Employee Stock Purchase Plan

The Company's 1997 Non-U.S. Employee Stock Purchase Plan (the "Non-U.S.
Purchase Plan") was adopted in August 1997 and will become effective upon the
effectiveness of this Offering. A total of 250,000 shares of Class A Common
Stock less any shares issued under the Purchase Plan has been reserved for
issuance under the Non-U.S. Purchase Plan. The Non-U.S. Purchase Plan has the
same terms as the Purchase Plan except that the Non-U.S. Purchase Plan is not
qualified under Section 423 of the Code and the Board of Directors may vary the
terms of the Non-U.S. Purchase Plan to conform to applicable local law.

Management Incentive Plan

The Company has adopted a Management Incentive Plan designed to reward
management and key employees for achieving certain financial performance
objectives determined by the Board of Directors on an annual basis. Quarterly
payouts are set as a percentage of base compensation, subject to certain
holdbacks for officers of the Company.

41
<PAGE> 42

CERTAIN TRANSACTIONS

Prior to June 1996, the Company's business was operated through certain
wholly-owned subsidiaries of Maxtor Corporation. In June 1996, the Company
effected a series of related transactions, whereby these subsidiaries were
consolidated as subsidiaries of the Company, and the Company was recapitalized
as an independent entity. To effect such a consolidation, Maxtor first
contributed to the Company all outstanding stock of IMS International
Manufacturing Services Limited, an exempted company incorporated in the Cayman
Islands; IMS International Manufacturing Services (Thailand) Limited, a company
organized under the laws of Thailand; and IMS International Manufacturing
Services (Hong Kong) Limited, a company organized under the laws of Hong Kong.

The Company then raised $25.0 million through the issuance of (a) 3,390,000
shares of Common Stock at a per share purchase price of $0.74, (b) 6,000,000
shares of Preferred Stock at a per share purchase price of $1.67, which shares
are convertible into 6,000,000 shares of Common Stock and (c) subordinated
promissory notes in the aggregate principal amount of $12.5 million. These
securities were issued to a number of new investors, including Prudential
Private Equity Investors III, L.P., Oak Investment Partners VI, L.P. and Oak
Affiliates Fund L.P., Brinson Venture Capital Fund III, L.P. and Brinson Trust
Company, Doll Technology Investment Fund, and certain other investors, including
directors William J. Almon and J. Larry Smart. John A. Downer and Mark Rossi,
also directors of the Company, are a Managing Director and a Senior Managing
Director, respectively, of Cornerstone Equity Investors, L.L.C., which serves as
the investment advisor for Prudential Equity Investors, Inc., the general
partner of Prudential Private Equity Investors III, L.P. Fredric W. Harman,
another director of the Company, is a Managing Member of Oak Associates VI, LLC,
which is the General Partner of Oak Investment Partners VI, L.P. Mr. Harman is
also a Managing Member of Oak Affiliates, LLC, which is the General Partner of
the Oak VI Affiliate Fund, L.P. Dixon R. Doll, another director of the Company,
is the Managing Director of Doll Technology Investment Management LLC, which is
the General Partner of Doll Technology Investment Fund. The Company also
obtained a revolving credit facility of $32.0 million.

The following table sets forth the aggregate number of shares of Common
Stock, Preferred Stock and subordinated notes received by each of the principal
parties in connection with the Recapitalization and the amount of consideration
contributed therefor.

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE PRINCIPAL
NUMBER OF PURCHASE NUMBER OF PURCHASE AMOUNT OF
SHARES OF PRICE FOR SHARES OF PRICE FOR SUBORDINATED TOTAL
COMMON COMMON PREFERRED PREFERRED NOTES PURCHASE
STOCK STOCK STOCK(1) STOCK PURCHASED PRICE
--------- ---------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Prudential Private Equity
Investors III, L.P.................... 1,637,370 $1,207,500 2,898,000 $4,830,000 $6,037,500 $12,075,000
Entities Associated with Oak Investment
Partners.............................. 1,356,000 1,000,000 2,400,000 4,000,000 5,000,000 10,000,000
Entities Associated with Brinson
Partners, Inc......................... 277,980 205,000 492,000 820,000 1,025,000 2,050,000
Doll Technology Investment Fund......... 71,400 25,000 60,000 100,000 125,000 250,000
William J. Almon........................ 33,900 25,000 60,000 100,000 125,000 250,000
J. Larry Smart.......................... 13,560 10,000 24,000 40,000 50,000 100,000
</TABLE>

- ---------------

(1) Of the Preferred Stock issued to Prudential Private Equity Investors III,
L.P., 388,575 shares were issued as Series A Preferred Stock, and 2,509,425
shares were issued as Series B Preferred Stock. The Preferred Stock issued
to all other persons was issued as Series A Preferred Stock.

In connection with the above transactions, the Company redeemed from Maxtor
shares of Common Stock representing approximately 76.5% of the Company's then
outstanding capital stock in exchange for $25.0 million in cash, three senior
subordinated notes from the Company in the aggregate principal amount of $20.0
million, and a warrant to purchase 300,000 shares of Common Stock at an exercise
price of $6.67 per share. For accounting purposes, the redemption of Maxtor's
share ownership was treated as a recapitalization and, accordingly, no change in
the accounting basis of the Company's assets was made. See Note 1 of Notes to
Consolidated Financial Statements.

42
<PAGE> 43

In June 1996, Robert G. Behlman, the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, purchased 75,000 shares of Class
A Common Stock for an aggregate purchase price of $55,310 paid in cash, and an
additional 150,000 shares of Class A Common Stock for an aggregate purchase
price of approximately $110,619 paid by means of a full recourse promissory note
in favor of the Company. This note was forgiven on July 26, 1996 in recognition
of Mr. Behlman's contribution to the successful completion of the
Recapitalization and Mr. Behlman's tax liability associated therewith was paid
by the Company as compensation.

The following summarizes the number of shares of Class A Common Stock
purchased on June 13, 1996 by Named Executive Officers, and the number of shares
of Class A Common Stock subject to options granted to each officer and director:
Robert G. Behlman purchased 225,000 shares of Common Stock (as set forth above)
and was granted stock options to purchase 825,000 shares; Nathan Kawaye
purchased 75,000 shares of Common Stock and was granted stock options to
purchase 225,000 shares; Neo Kia Quek purchased 75,000 shares of Common Stock
and was granted stock options to purchase 262,500 shares; William J. Almon was
granted stock options to purchase 37,500 shares; Dixon R. Doll was granted
options to purchase 37,500 shares of Class A Common Stock (which options were
subsequently exercised and the resulting shares subjected to a similar vesting
schedule with respect to a repurchase right in favor of the Company); and J.
Larry Smart was granted stock options to purchase 37,500 shares. These options
and restricted stock were granted under the 1996 Stock Option Plan, were vested
as to 25% of the shares at the date of grant and continue to vest at the rate of
1/16 of the remaining shares at the end of each quarterly anniversary
thereafter, subject to continued service to the Company, provided that each
quarterly vesting date shall be accelerated by the equivalent of one year upon
consummation of this Offering.

In June 1996 in connection with the Recapitalization, the Company entered
into a Manufacturing Services Agreement (the "Manufacturing Agreement") with
Maxtor. Pursuant to the Manufacturing Agreement, the Company has agreed for a
three year term to provide certain products and manufacturing services to Maxtor
at specified prices per unit. In addition, Maxtor has agreed to place purchase
orders for the Company's manufacture of such products in accordance with certain
minimum quarterly volume purchase commitments, which commitments decrease upon
each twelve month anniversary of the effective date of the Manufacturing
Agreement. Moreover, in the event that Maxtor requests rescheduling of the
delivery dates of products specified in the Manufacturing Agreement, Maxtor has
agreed to give notice in advance of such rescheduling request. The Company's
ability to accept or reject Maxtor's rescheduling requests is contingent upon
length of time prior to the originally scheduled shipment date that Maxtor
provides notice to the Company of such rescheduling. The terms of the
Manufacturing Agreement also allow Maxtor to consign to the Company, from time
to time, certain component parts, equipment and other materials for the
Company's use in assembling and testing products it manufactures under the
Manufacturing Agreement. Maxtor has agreed to indemnify the Company, subject to
certain limitations and conditions, for any and all claims and expenses relating
to (i) Maxtor's negligence or intentional misconduct in its distribution, sale
or use of any product manufactured by the Company pursuant to the Manufacturing
Agreement and (ii) allegations of infringement or misappropriation of the
intellectual property rights of any third party arising out of the use of a
Maxtor design. The Company, in turn, has agreed to indemnify Maxtor, subject to
certain notice and other conditions, for any and all claims and expenses
relating to (i) allegations of infringement or misappropriation against Maxtor
arising from products supplied by the Company, (ii) processes used by the
Company to manufacture products specified in the Agreement and (iii) the
intellectual property of any third party not arising out of the use of a Maxtor
design. Maxtor's commitment to place purchase orders for the Company's
manufacture of products is conditioned upon the Company's providing products
competitive in both price and quality with alternative suppliers of Maxtor. In
the event that Maxtor determines that the products the Company manufactures are
not price or quality competitive, and the Company fails within a specified time
period to become competitive in price or quality, then Maxtor's quarterly volume
purchase commitments shall be reduced to the extent of products not price or
quality competitive. There can be no assurance that the Company will satisfy the
pricing and quality criteria established by Maxtor. Any significant reduction in
the volume of sales to Maxtor would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Maxtor Corporation -- Business Risks; Affiliation."

43
<PAGE> 44

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of July 31, 1997 and as adjusted to
reflect the sale of Common Stock offered hereby for (i) each person who is known
by the Company to beneficially own more than 5% of the Common Stock, (ii) each
of the Company's directors, (iii) each of the Named Executive Officers and (iv)
all directors and executive officers as a group. Except as indicated in the
table above or the footnotes thereto and pursuant to applicable community
property laws, the stockholders named in the table have sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name, and the address of each 5% stockholder is c/o International
Manufacturing Services, Inc., 2071 Concourse Drive, San Jose, California 95131.

<TABLE>
<CAPTION>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Prudential Private Equity Investors III, L.P.(2)........... 4,535,370 34.0% 24.7%
John A. Downer(3)
Mark Rossi(3)
717 Fifth Avenue, 11th Floor
New York, New York 10022
Entities associated with Oak Investment Partners VI,
L.P.(4).................................................. 3,756,000 28.2% 20.5%
Fredric W. Harman(3)(4)
525 University Avenue, Suite 1300
Palo Alto, California 94031
Maxtor Corporation......................................... 2,985,000 22.4% 16.3%
Paul Tufano(3)(5)
510 Cottonwood Drive
Milpitas, California 95035
Entities associated with Brinson Partners, Inc.(6)......... 769,980 5.8% 4.2%
209 LaSalle Street, Suite 114
Chicago, Illinois 60604
Robert G. Behlman(3)(7).................................... 779,297 5.6% 4.1%
N. K. Quek(8).............................................. 251,367 1.9% 1.4%
Nathan Kawaye(9)........................................... 226,172 1.7% 1.2%
Doll Technology Investment Fund(10)........................ 131,400 1.0% *
Dixon R. Doll(3)
J. Larry Smart(3)(11)...................................... 62,755 * *
William J. Almon(3)(12).................................... 25,195 * *

All executive officers and directors as a group (14
persons)(13)............................................. 14,097,531 97.1% 72.3%
</TABLE>

- ---------------

* Less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days of July 31,
1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person.

(2) Includes 2,509,425 shares of the Company's Class B Common Stock. Messrs.
Downer and Rossi, directors of the Company, are Managing Director and
Senior Managing Director, respectively, of Cornerstone Equity Investors,
L.L.C. ("Cornerstone"), which acts as the investment advisor to Prudential
Private Equity Investors III, L.P. ("PPEI") pursuant to an Investment
Advisory Agreement (the "Investment Advisory Agreement) dated as of July
19, 1996. The Investment Advisory Agreement gives Cornerstone the authority
to direct the voting and disposition of the Common Stock owned by
Prudential. Prudential and The Prudential Insurance Company of America may
restrict or terminate such authority at any time. As a result of the
authority granted pursuant to the Investment Advisory Agreement,
Cornerstone may be deemed to be a beneficial owner of any shares of Common
Stock held

44
<PAGE> 45

by PPEI. Each of Messrs. Downer and Rossi disclaims any beneficial
ownership of the shares held by PPEI, except to the extent of his
proportionate partnership interest therein.

(3) The named person is a director of the Company.

(4) Includes 3,670,364 shares held by Oak Investment Partners VI, L.P. and
85,637 shares held by Oak VI Affiliates Fund, L.P. Mr. Harman disclaims any
beneficial ownership of the shares held by Oak Investment Partners VI, L.P.
and Oak VI Affiliates Fund, L.P., except to the extent of his pecuniary
interests in the respective entities.

(5) Mr. Tufano disclaims any beneficial ownership of the shares held by Maxtor
Corporation, except to the extent of his pecuniary interest therein.

(6) Includes 662,015 shares held by Brinson Venture Capital Fund III, L.P. and
107,966 shares held by Brinson Trust Company, as Trustee of the Brinson MAP
Venture Capital Fund III.

(7) Includes 554,297 shares issuable pursuant to stock options which may be
exercised within 60 days.

(8) Includes 176,367 shares issuable pursuant to stock options which may be
exercised within 60 days.

(9) Includes 151,172 shares issuable pursuant to stock options which may be
exercised within 60 days.

(10) Includes (i) 93,900 shares held by Doll Technology Investment Fund and (ii)
37,500 shares held personally by Mr. Doll which are subject to a repurchase
right in favor of the Company upon cessation of Mr. Doll's service to the
Company. Mr. Doll is the Managing Member of Doll Technology Investment
Management LLC, the general partner of Doll Technology Investment Fund. Mr.
Doll disclaims any beneficial ownership of the shares held by Doll
Technology Investment Fund, except to the extent of his pecuniary interest
therein.

(11) Includes 25,195 shares issuable pursuant to stock options which may be
exercised within 60 days and includes 24,000 shares held by the J. Larry
Smart and Cheryl L. Smart Trust.

(12) Includes 25,195 shares issuable pursuant to stock options which may be
exercised within 60 days. Excludes 60,000 shares transferred by Mr. Almon
to the William J. Almon, Jr. Irrevocable Trust in November 1996, and an
aggregate of 33,900 shares transferred by Mr. Almon to family members in
December 1996, all shares of which Mr. Almon disclaims beneficial
ownership.

(13) Includes 1,183,680 shares issuable pursuant to stock options which may be
exercised within 60 days.

45
<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The authorized capital stock of the Company upon the closing of the sale of
the shares offered hereby will consist of 75,000,000 shares of Class A Common
Stock, $0.001 par value, 25,000,000 shares of Class B Common Stock, $0.001 par
value, and 10,000,000 shares of undesignated preferred stock, $0.001 par value.

Class A Common Stock

The holders of Class A Common Stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors and paid out of funds
legally available therefor, subject to the simultaneous payment of dividends to
the holders of Class B Common Stock. See "Class B Common Stock" below. Holders
of shares of Class A Common Stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Class A Common Stock
are entitled to receive and share ratably, along with the holders of Class B
Common Stock, in all assets remaining available for distribution to
stockholders, after payment of any preferential amounts to which the holders of
preferred stock may be entitled. The Class A Common Stock has no preemptive
rights and is not redeemable, assessable or entitled to the benefits of any
sinking fund. Shares of Class A Common Stock held by Prudential Private Equity
Investors III, L.P. ("PPEI"), Prudential Insurance Company of America or any of
its affiliates may be converted at the option of the holder thereof into an
equal number of fully paid and non-assessable shares of Class B Common Stock.
Shares of Class A Common Stock held by all other persons are not convertible.
All outstanding shares of Class A Common Stock are, and the Class A Common Stock
to be issued in this Offering will be, validly issued, fully paid and
nonassessable.

Class B Common Stock

The holders of Class B Common Stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors and paid out of funds
legally available therefor. Such dividends shall be equal to dividends declared
on Class A Common Stock; provided, however, that in the event that the holders
of Class A Common Stock receive a dividend payable in shares of Class A Common
Stock, the holders of Class B Common Stock are entitled to receive a
proportionate number of shares of Class B Common Stock. In the event of the
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Class B Common Stock are entitled to receive and share ratably,
along with the holders of Class A Common Stock, in all assets remaining
available for distribution to stockholders, after payment of any preferential
amounts to which the holders of preferred stock may be entitled. The Class B
Common Stock has no preemptive rights and is not redeemable or assessable, or
entitled to the benefits of any sinking fund. All outstanding shares of Class B
Common Stock are validly issued, fully paid and nonassessable.

Holders of Class B Common Stock have no rights to vote except upon the
occurrence of a Voting Event (as defined in the Company's certificate of
incorporation) and then vote as a single class with the Class A Common Stock, or
as expressly provided by law. Each share of Class B Common Stock shall have a
number of votes equal to the number of shares of Class A Common Stock into which
it is then convertible, which, as of the date of this Prospectus, was one for
one. The Voting Events include, without limitation, (i) an amendment to the
Company's certificate of incorporation, (ii) the liquidation, dissolution,
winding-up or bankruptcy of the Company or reclassification of its capital stock
and (iii) the consolidation, merger or other business combination of the Company
or its subsidiaries, requiring submission for approval to the stockholders of
the Company, or the sale of all or substantially all of its assets.

Holders of Class B Common Stock have the right to convert any such shares
to Class A Common Stock upon the occurrence of a Conversion Event (as defined in
the Company's certificate of incorporation), subject to certain restrictions.
Conversion Events with respect to shares of Class B Common Stock include,
without limitation, (i) sale of substantially all of the Company's assets or any
acquisition of the Company by means of a merger or stock acquisition, (ii) the
incurrence of two consecutive quarterly net losses from operations by the
Company, (iii) the transfer of such shares of Class B Common Stock to an
unaffiliated party by the holder, (iv) the resignation or replacement during any
twelve-month period of more than 30% of the

46
<PAGE> 47

Company's directors, (v) receipt by PPEI of notice of default or event of
default by the Company or any of its subsidiaries on any indebtedness for
borrowed money as to which the Class B stockholder is not a holder, (vi) the
transfer of shares of Class B Common Stock by PPEI or any of its affiliates to a
party not affiliated with PPEI or any of its affiliates and (vi) if, after
giving effect to the conversion of such shares of Class B Common Stock, PPEI and
its affiliates would not collectively hold the greater of (x) an amount equal to
4.9% of the aggregate amount of voting capital stock of the Company then
outstanding and (y) the lesser of (1) one share less than the aggregate amount
of voting capital stock of the Company held by a single other stockholder not
affiliated with PPEI or its affiliates and (2) an amount equal to 19.9% of the
aggregate amount of voting capital stock of the Company then outstanding. PPEI
is the only holder of Class B Common Stock as of the date of this Prospectus,
and intends to periodically convert shares of Class B Common Stock into Class A
Common Stock in order to maintain ownership of 19.9% of the outstanding voting
stock.

Preferred Stock

The Board of Directors of the Company is authorized, without further
stockholder action, to authorize and issue any of the 10,000,000 undesignated
shares of preferred stock in one or more series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion rights,
preemption rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences of such shares of the
preferred stock. The issuance of any class or series of preferred stock could
adversely affect the rights of the holders of Common Stock by restricting
dividends on, diluting the power of, impairing the liquidation rights of Common
Stock, or delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any preferred stock.

WARRANT

In connection with the Recapitalization, on June 13, 1996, the Company
issued to Maxtor a warrant to purchase 300,000 shares of Class A Common Stock at
an exercise price (the "Exercise Price") of $6.67 per share (the "Maxtor
Warrant"), subject to certain customary, proportionate adjustments in the event
that the Company engages in a merger, reclassification, stock split or the like.
Maxtor may exercise the Maxtor Warrant on or after June 13, 1998, by means of
(i) a cash payment in an amount equal to the Exercise Price or (ii) in the event
the Common Stock is publicly traded, a net issue exercise whereby Maxtor would
receive shares equal to the value of the Maxtor Warrant, as calculated pursuant
to the terms set forth therein. The Maxtor Warrant expires upon the earlier to
occur of (x) June 12, 2006 and (y) such time as the Maxtor Notes issued in
connection with the Recapitalization shall have been fully paid by the Company,
if the final payment has been made prior to June 13, 1998. Full payment of the
Maxtor Notes is expected to occur upon completion of this Offering.

REGISTRATION RIGHTS

Under the terms of the Stockholders Agreement dated as of June 13, 1996 and
Amendment No. 1 to Stockholders Agreement dated as of December 24, 1996, each
among the Company and all current holders of its outstanding stock
(collectively, the "Rights Agreements"), following the closing of this Offering,
the holders of 13,327,500 shares of Common Stock (the "Registrable Securities")
will be entitled to certain rights with respect to the registration of such
shares of Common Stock under the Securities Act. Under the Rights Agreements, if
the Company proposes to register any of its Common Stock under the Securities
Act, certain holders of Registrable Securities are entitled to notice of such
registration and to include their Registrable Securities therein. Beginning six
months after the closing of the Offering, (i) Maxtor and (ii) the holders of at
least fifty percent (50%) of the Registrable Securities (other than Maxtor),
have the right to require the Company, on not more than two and four occasions,
respectively, to file a registration statement under the Securities Act in order
to register all or any part of their Registrable Securities (a "Demand
Registration") and to pay all registration expenses in connection with any
registration so initiated. The Company may defer such registrations: (x) during
the period commencing with the date 60 days prior to the Company's good faith
estimate of the date of filing of, and ending on the date 120 days after the
effective date of, a Company-initiated registration; (y) during the period
ending 6 months after any other registration; and (z) during the period ending
six months after a Demand Registration, if the Company and the holders of more
than 50% of the Registrable Securities agree that such a Demand Registration
would reasonably be expected to have an

47
<PAGE> 48

adverse effect on any proposal by the Company to engage in any acquisition of
assets, merger or similar transaction. In addition, the underwriters have the
right to limit the number of shares included in such registrations, in the event
that the underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in the offering related to such registration without
adversely affecting the marketability of that offering. Further, when Form S-3
becomes available to the Company, the holders of Registrable Securities agree
that they will not request a long-form registration, but may require the Company
to register, any number of times, all or any portion of their Registrable
Securities on Form S-3, subject to certain conditions and limitations. See
"Shares Eligible for Future Sale."

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

Certificate of Incorporation and Bylaws

Certain provisions of the Company's certificate of incorporation and bylaws
are designed to enhance the likelihood of continuity and stability in the
Company's Board of Directors and in the policies formulated thereby.
Accordingly, such provisions may have the effect of preventing, discouraging or
delaying any potential acquisition proposals or changes in the control of the
Company and of preventing changes in the management of the Company.

Effect of Delaware Anti-Takeover Statute

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Class A Common Stock is
The First National Bank of Boston.

LISTING

The Company's Class A Common Stock has been approved for listing on the
Nasdaq National Market under the trading symbol IMSX.

48
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 18,327,500 shares
of Common Stock outstanding. Of these shares, the 5,000,000 shares sold in this
Offering will be freely tradeable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. Approximately 14,327,211 additional shares
(including 1,509,711 shares issuable upon exercise of outstanding options) will
be available for sale in the public market following the expiration of the
180-day lockup agreements with the Representatives of the Underwriters or the
Company, subject in some cases to compliance with the volume and other
limitations of Rule 144.

<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
- ------------------------------ ------------------ -----------------------------------------------
<S> <C> <C>
Upon Effectiveness............ 5,000,000 Freely tradeable shares sold in Offering and
shares saleable under Rule 144 that are not
subject to 180 day lockup
180 days...................... 14,327,211 Lockup released; shares saleable under 144(k)
or 701
Thereafter.................... 510,000 Restricted securities held for one year or less
</TABLE>

In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
Prospectus a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 18,327,500 shares
immediately after this Offering) or (ii) the average weekly trading volume of
Class A Common Stock during the four calendar weeks preceding such sale, subject
to the filing of a Form 144 with respect to such sale. A person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above. Persons deemed to be affiliates must always sell pursuant to Rule 144,
even after the applicable holding periods have been satisfied.

The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Class A Common
Stock of the Company, the personal circumstances of the sellers and other
factors. Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that a significant public market for
the Class A Common Stock will develop or be sustained after this Offering. Any
future sale of substantial amounts of the Common Stock in the open market may
adversely affect the market price of the Class A Common Stock offered hereby.

The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of NationsBanc Montgomery Securities, Inc. for a
period of 180 days from the date of this Prospectus (the "180-day Lockup
Period"), except that the Company may, without such consent, grant options and
sell shares pursuant to the 1996 Plan, the 1997 Plan, the Director Plan, the
Purchase Plan and the Non-U.S. Purchase Plan.

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register certain shares of Common Stock subject to outstanding
options or reserved for issuance under the 1996 Plan, the 1997 Plan, the
Director Plan, the Purchase Plan and the Non-U.S. Purchase Plan within 90 days
after the date of this Prospectus, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act.

Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of July 31, 1997, the holders of options exercisable into
approximately 1,509,711 shares of Class A Common Stock will be eligible to sell
their shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day Lockup Period.

49
<PAGE> 50

In addition, after this Offering, the holders of 13,327,500 shares of
Common Stock will be entitled to certain rights with respect to registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
"Description of Capital Stock -- Registration Rights."

50
<PAGE> 51

UNDERWRITING

The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities, Inc., BT Alex. Brown Incorporated and UBS
Securities LLC (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase from
the Company the number of shares of Class A Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain terms and conditions precedent and that the Underwriters are
committed to purchase all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
NationsBanc Montgomery Securities, Inc............................ 1,285,000
BT Alex. Brown Incorporated....................................... 980,000
UBS Securities LLC................................................ 980,000
Cowen & Company................................................... 150,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 150,000
A.G. Edwards & Sons, Inc. ........................................ 150,000
Hambrecht & Quist LLC............................................. 150,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 150,000
Morgan Stanley & Co. Incorporated................................. 150,000
BancAmerica Robertson Stephens.................................... 150,000
Salomon Brothers Inc. ............................................ 150,000
Schroder & Co. Inc. .............................................. 150,000
Adams, Harkness & Hill, Inc. ..................................... 75,000
William Blair & Company, L.L.C. .................................. 75,000
J.C. Bradford & Co. .............................................. 75,000
The Robinson-Humphrey Company, LLC................................ 75,000
Cruttenden Roth Incorporated...................................... 35,000
Hampshire Securities Corporation.................................. 35,000
H.C. Wainwright & Co., Inc. ...................................... 35,000
-------
Total................................................... 5,000,000
=======
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to initially offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $0.47 per share, and the Underwriters may allow, and
any such dealers may reallow, a concession of not more than $0.10 per share to
certain other dealers. After the initial public offering, the price and other
selling terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.

The Company has granted to the Underwriters an over-allotment option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 750,000 additional shares of Class A Common Stock to
cover over-allotments, if any, at the same price per share as the initial
5,000,000 shares to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may exercise this option only to cover over-allotments made in
connection with the Offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments to the Underwriters may be
required to make in respect thereof.

Each director and officer of the Company and certain other holders of
Common Stock prior to this Offering have agreed not to sell, offer to sell, or
otherwise dispose of any rights with respect to any shares of Common Stock, any
options or warrants to purchase Common Stock, or any securities convertible or
exchangeable for Common Stock, owned directly by such holders or with respect to
which they have power of disposition for a period of 180 days after the date of
this Prospectus without the prior written consent of

51
<PAGE> 52

NationsBanc Montgomery Securities, Inc. In addition, the Company has agreed not
to sell, offer to sell, contract to sell or otherwise sell or dispose of any
shares of Common Stock or any rights to acquire Common Stock, other than
pursuant to the 1996 Plan, the 1997 Plan, the Director Plan, the Purchase Plan
and the Non-U.S. Purchase Plan, upon exercise of outstanding options and
warrants, for a period of 180 days after the date of this Prospectus without the
prior written consent of NationsBanc Montgomery Securities, Inc. NationsBanc
Montgomery Securities, Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. See "Shares Eligible for Future Sale."

During and after the Offering, the Underwriters may purchase and sell Class
A Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Representatives also may impose
penalty bids, whereby selling concessions allowed to an Underwriter or a
syndicate member in respect of the Common Stock originally sold in the Offering
by such Underwriter or syndicate member may be reclaimed if such securities are
repurchased by the Representatives in stabilizing or short-covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of Class A Common Stock, which may be higher than the price that
might otherwise prevail in the open market. These transactions may be effected
on the Nasdaq National Market or otherwise and these activities, if commenced,
may be discontinued at any time.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Class A Common Stock to accounts over which they
exercise discretionary authority.

Upon consummation of the Offering, Montgomery Associates 1992, L.P.
("Montgomery Associates"), an affiliate of NationsBanc Montgomery Securities,
Inc., will beneficially own 46,950 shares of Class A Common Stock and a $62,500
principal amount 12% junior subordinated note.

Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. Consequently, the initial public offering price has
been determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations were the history of, and
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, the present state of the Company's development, the
prospects for future earnings of the Company, the prevailing market conditions
at the time of the Offering, market valuations of publicly traded companies that
the Company and the Representatives believe to be comparable to the Company, and
other factors deemed relevant. See "Risk Factors -- No Prior Market for Common
Stock; Possible Volatility of Stock Price" and "-- Dilution."

LEGAL MATTERS

The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation ("WSG&R"), Palo Alto, California. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation
("HRNCF&R"), San Francisco, California. Jeffrey D. Saper, a member of WSG&R, is
Secretary of the Company. Upon consummation of this Offering, Mr. Saper will
beneficially own 23,945 shares of Class A Common Stock and a $31,875 principal
amount 12% junior subordinated note, and certain members of WSG&R, and
investment partnerships of which such persons are partners, will beneficially
own 23,006 shares of Class A Common Stock and $30,625 principal amount 12%
junior subordinated notes. Also upon consummation of this Offering, a director
of HRNCF&R will beneficially own 9,390 shares of Class A Common Stock and a
$12,500 principal amount 12% junior subordinated note.

EXPERTS

The consolidated financial statements of the Company as of April 30, 1997
and for the year then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting. The
consolidated financial statements of the Company as of March 31, 1996 and for
the two years in the period then ended, included in this Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report, given upon the authority of such firm as experts in accounting and
auditing.

52
<PAGE> 53

CHANGE OF ACCOUNTANTS

On March 11, 1996, Ernst & Young LLP was dismissed and Price Waterhouse LLP
was engaged as the Company's independent accountants effective fiscal 1997.
Ernst & Young LLP as independent auditors of Maxtor performed the role of the
Company's independent auditors through the issuance of their report concerning
the fiscal 1996 accounts dated April 25, 1996. The dismissal of Ernst & Young
LLP and the appointment of Price Waterhouse LLP was approved by the Company's
Board of Directors. Prior to March 1996, the Company had not consulted with
Price Waterhouse LLP on items which included the Company's accounting principles
or the form of audit report to be issued on the Company's financial statements.

The reports of Ernst & Young LLP on the financial statements of the
registrant for the two years ended March 31, 1996 and March 31, 1995 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.

In connection with the audits by Ernst & Young LLP of the two fiscal years
of the registrant ended March 31, 1996 and March 31, 1995, and the subsequent
period through June 12, 1996, there were no disagreements between the registrant
and Ernst & Young LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which, if not
resolved to the satisfaction of Ernst & Young LLP, would have caused them to
make reference to the matter in their report. Ernst & Young LLP has not been
associated with any financial statements of the registrant subsequent to March
31, 1996.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete,
and in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. Information concerning the Company is also
available for inspection at the offices of the Nasdaq National Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.

53
<PAGE> 54

INTERNATIONAL MANUFACTURING SERVICES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Report of Independent Auditors........................................................ F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)............................. F-6
Consolidated Statements of Cash Flows................................................. F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
International Manufacturing Services, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders' equity
(deficit) present fairly, in all material respects, the financial position of
International Manufacturing Services, Inc. and its subsidiaries at April 30,
1997, and the results of their operations and their cash flows for the year then
ended and for the one month period ended April 30, 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Jose, California
July 3, 1997, except for Note 14
which is as of September 16, 1997

F-2
<PAGE> 56

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We have audited the accompanying consolidated balance sheet of International
Manufacturing Services, Inc. as of March 31, 1996 (formerly the combined balance
sheet of Maxtor (Hong Kong) Limited, International Manufacturing Services
(Delaware), Inc., International Manufacturing Services (Cayman Islands),
Limited, and International Manufacturing Services (Thailand) each of which was a
wholly owned subsidiary of Maxtor Corporation), and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each of
the two fiscal years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Manufacturing Services, Inc. at March 31, 1996, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
April 25, 1996, except for Note 14
as to which the date is September 16, 1997

F-3
<PAGE> 57

INTERNATIONAL MANUFACTURING SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
(DEFICIT)
JULY 31,
MARCH 31, APRIL 30, JULY 31, 1997
1996 1997 1997 NOTE 1
--------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 938 $ 2,828 $ 1,813
Accounts receivable, less allowance for doubtful
accounts of $235, $210 and $276 (unaudited)... 12,892 10,976 10,237
Accounts receivable from Maxtor and affiliates... 11,915 5,344 6,461
Inventories...................................... 45,009 20,242 32,091
Other current assets............................. 1,383 2,612 1,779
------- -------- --------
Total current assets..................... 72,137 42,002 52,381
Property and equipment, net........................ 10,822 13,936 14,767
Other assets....................................... 728 4,533 3,661
------- -------- --------
$83,687 $ 60,471 $ 70,809
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $47,351 $ 22,570 $ 30,938
Accounts payable to Maxtor....................... 8,536 358 84
Accrued liabilities.............................. 3,681 5,484 7,081
Income taxes payable............................. 1,145 531 871
Bank borrowings.................................. -- 9,000 7,500
Current portion of long-term debt................ 708 79 80
------- -------- --------
Total current liabilities................ 61,421 38,022 46,554
Long-term debt..................................... -- 12,660 12,635
Long-term debt due to Maxtor....................... 4,300 20,000 20,000
Deferred tax liabilities........................... 300 156 156
Commitments (Notes 6 and 7)
Stockholder's equity (deficit):
Preferred stock $0.001 par value; 8,509,425
shares authorized actual; 10,000,000 shares
authorized pro forma (unaudited), 6,000,000
shares issued and outstanding actual; none
issued and outstanding pro forma
(unaudited)................................... -- 6 6 $ --
Common Stock $0.001 par value; 25,500,000 shares
authorized actual (15,000,000 as of March 31,
1996);
100,000,000 shares authorized pro forma
(unaudited);
15,000,000 and 7,327,500 shares issued and
outstanding actual, 7,327,500 shares issued
and
outstanding (unaudited); and 13,327,500 shares
issued
and outstanding pro forma (unaudited)......... 15 7 7 13
Additional paid-in capital....................... 4,506 12,793 12,793 12,793
Distributions in excess of net book value (Note
1)............................................ -- (20,608) (20,608) (20,608)
Retained earnings (accumulated deficit).......... 13,145 (2,565) (734) (734)
------- -------- -------- --------
Total stockholders' equity (deficit)..... 17,666 (10,367) (8,536) $ (8,536)
========
------- -------- --------
$83,687 $ 60,471 $ 70,809
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 58

INTERNATIONAL MANUFACTURING SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------- -------------------
MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from product sales:
Affiliates................................... $ -- $ 340,487 $ 89,149 $ 26,276 $ 30,236
Other........................................ 3,089 68,361 80,546 21,139 34,500
Other revenues:
Affiliates................................... 36,284 -- -- -- --
------- -------- -------- ------- -------
Total revenues....................... 39,373 408,848 169,695 47,415 64,736
Cost of revenues from product sales............ 2,649 395,474 155,028 46,363 58,397
Cost of other revenues......................... 31,146 -- -- -- --
------- -------- -------- ------- -------
Gross profit................................... 5,578 13,374 14,667 1,052 6,339
------- -------- -------- ------- -------
Selling, general and administrative............ 2,848 5,380 8,041 1,704 2,845
Restructuring charge........................... -- -- 3,000 3,000 (179)
------- -------- -------- ------- -------
Total operating expenses............. 2,848 5,380 11,041 4,704 2,666
Income (loss) from operations.................. 2,730 7,994 3,626 (3,652) 3,673
Interest expense............................... 180 64 4,048 676 1,277
Interest income................................ -- -- (76) -- (22)
------- -------- -------- ------- -------
Income (loss) before income taxes.............. 2,550 7,930 (346) (4,328) 2,418
Provision for income taxes..................... 554 1,793 253 -- 337
------- -------- -------- ------- -------
Net income (loss).............................. $ 1,996 $ 6,137 (599) (4,328) 2,081
======= ========
Dividends on convertible preferred stock....... 883 133 250
-------- ------- -------
Net income (loss) available for common
stockholders................................. $ (1,482) $ (4,461) $ 1,831
======== ======= =======
Net income (loss) per share.................... $ (0.04) $ (0.27) $ 0.13
======== ======= =======
Shares used to compute net income (loss) per
share........................................ 16,108 16,108 16,108
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 59

INTERNATIONAL MANUFACTURING SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CONVERTIBLE DISTRIBUTIONS RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL IN EXCESS EARNINGS
------------------ -------------------- PAID-IN OF NET BOOK (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL VALUE DEFICIT) TOTAL
--------- ------ ----------- ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994...... -- $ -- 15,000,000 $ 15 $ 1,639 $ -- $ 5,012 $ 6,666
Net income..................... -- -- -- -- -- -- 1,996 1,996
--------- ---- ----------- ---- ------ -------- -------- --------
Balance at March 31, 1995...... -- -- 15,000,000 15 1,639 -- 7,008 8,662
Capital contribution........... -- -- -- -- 2,867 -- -- 2,867
Net income..................... -- -- -- -- -- -- 6,137 6,137
--------- ---- ----------- ---- ------ -------- -------- --------
Balance at March 31, 1996...... -- -- 15,000,000 15 4,506 -- 13,145 17,666
Net income for the month of
April 1996 to reflect the
change in the Company's
fiscal year end (Note 3)..... -- -- -- -- -- -- 1,343 1,343
Recapitalization and redemption
of Maxtor stock.............. -- -- (12,015,000) (12) (4,507) (20,608) (15,571) (40,698)
Issuance of common stock, net
of issuance costs............ -- -- 3,705,000 4 2,420 -- -- 2,424
Issuance of common stock in
exchange for services
rendered..................... -- -- 150,000 -- 111 -- -- 111
Issuance of convertible
preferred stock, net of
issuance costs............... 6,000,000 6 -- -- 9,530 -- -- 9,536
Issuance of common stock on
Pentagon Acquisition......... -- -- 450,000 -- 705 -- -- 705
Issuance of common stock upon
exercise of options.......... -- -- 37,500 -- 28 -- -- 28
Net loss....................... -- -- -- -- -- -- (599) (599)
Dividends on convertible
preferred stock.............. -- -- -- -- -- -- (883) (883)
--------- ---- ----------- ---- ------ -------- -------- --------
Balance at April 30, 1997...... 6,000,000 6 7,327,500 7 12,793 (20,608) (2,565) (10,367)
Net income (unaudited)......... -- -- -- -- -- -- 2,081 2,081
Dividends on convertible
preferred stock
(unaudited).................. -- -- -- -- -- -- (250) (250)
--------- ---- ----------- ---- ------ -------- -------- --------
Balance at July 31, 1997
(unaudited).................. 6,000,000 $ 6 7,327,500 $ 7 $ 12,793 $ (20,608) $ (734) $ (8,536)
========= ==== =========== ==== ====== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 60

INTERNATIONAL MANUFACTURING SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------- ---------------------
MARCH 31, MARCH 31, APRIL 30, JULY 31, JULY 31,
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)............................................. $ 1,996 $ 6,137 $ (599) $ (4,328) $ 2,081
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................... 4,751 6,145 6,347 1,694 1,983
Deferred income taxes....................................... (66) 300 (144) -- --
Forgiveness of note receivable.............................. -- -- 111 111 --
(Gain) loss on disposal of property and equipment........... (20) 12 -- -- --
Changes in assets and liabilities:
Accounts receivable....................................... (210) (12,682) 5,440 7,153 739
Accounts receivable from Maxtor and affiliates............ (60) (4,676) 4,124 1,812 (1,117)
Inventories............................................... (1,432) (43,577) 3,154 1,957 (11,849)
Other current assets...................................... (1,520) 985 (955) (351) 833
Other assets.............................................. (207) 321 (703) (1,347) 546
Accounts payable.......................................... 2,652 44,358 (5,561) (9,833) 8,368
Accounts payable to Maxtor................................ -- 8,536 (4,565) (4,818) (274)
Accrued liabilities....................................... 599 1,029 805 2,809 1,511
Income taxes payable...................................... (957) 822 (600) (60) 340
------- -------- ------- ------- --------
Net cash provided by (used in) operating activities.... 5,526 7,710 6,854 (5,201) 3,161
------- -------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment, net....................... (4,919) (8,980) (8,372) (356) (2,488)
Proceeds from disposal of property and equipment.............. 818 45 -- -- --
Acquisition of Pentagon Systems, net of cash acquired of
$700........................................................ -- -- (3,716) -- --
------- -------- ------- ------- --------
Net cash used in investing activities.................. (4,101) (8,935) (12,088) (356) (2,488)
------- -------- ------- ------- --------
Cash flows from financing activities:
Borrowings (repayments) under line of credit.................. -- -- 9,000 8,000 (1,500)
Proceeds from issuance of notes............................... -- -- 12,500 12,500 --
Proceeds from issuance of convertible preferred stock......... -- -- 9,536 9,536 --
Recapitalization and distributions to Maxtor.................. -- -- (24,998) (24,998) --
Principal payments on debt and capital lease obligations...... (1,045) (1,136) (606) (502) (24)
Payment of dividends.......................................... -- -- (797) -- (164)
Capital contribution.......................................... -- 2,867 -- -- --
Proceeds from issuance of common stock........................ -- -- 2,452 2,424 --
------- -------- ------- ------- --------
Net cash provided by (used in) financing activities.... (1,045) 1,731 7,087 6,960 (1,688)
------- -------- ------- ------- --------
Net change in cash and cash equivalents......................... 380 506 1,853 1,403 (1,015)
Cash and cash equivalents at beginning of period................ 52 432 975 975 2,828
------- -------- ------- ------- --------
Cash and cash equivalents at end of period...................... $ 432 $ 938 $ 2,828 $ 2,378 $ 1,813
======= ======== ======= ======= ========
Supplemental disclosures:
Cash paid for:
Interest.................................................... $ 180 $ 100 $ 2,867 $ 179 $ 922
Income taxes................................................ 1,511 672 832 -- --
Noncash investing and financing activities:
Items settled through accounts receivable from affiliates
Fixed assets transferred from affiliates.................... $ 965 $ (912) -- -- --
Offset of long-term debt to Maxtor against receivable from
Maxtor.................................................... -- 4,169 -- -- --
Issuance of note payable to Maxtor in connection with the
recapitalization............................................ -- -- (15,700) (15,700) --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 61

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

International Manufacturing Services, Inc. ("IMS" or the "Company")
provides original equipment manufacturers (OEMs) with design, prototype,
pre-production services, printed circuit board assembly, product sub-assembly
and final assembly. Customers also take advantage of a full range of test
services, including in-circuit, functional and environmental stress testing at
the Company's manufacturing sites in Hong Kong, China and Thailand. The
Company's services are sold in transactions denominated in U.S. dollars on a
worldwide basis to OEMs.

FISCAL YEAR

Prior to fiscal 1997, the Company's fiscal year ended on the Saturday
nearest to March 31. Commencing with fiscal 1997 the Company's fiscal year ends
on the Saturday nearest to April 30. The Company reports quarterly results on
thirteen-week quarterly periods, each ending on the Saturday nearest to
month-end. For purposes of presentation, the Company has indicated its fiscal
year as ending on March 31 or April 30, as the case may be and its interim
quarterly periods as ending on the respective calendar month-ends. Results of
operations for the month of April 1996 were credited directly to retained
earnings (see Note 3).

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. Intercompany transactions and balances are
eliminated in consolidation.

These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could vary
from those estimates.

RECAPITALIZATION

Until June 13, 1996, the Company was a wholly-owned subsidiary of Maxtor
Corporation (Maxtor). Maxtor acquired the Company's operations as a result of
acquisition of certain assets in 1990. Maxtor conducted the Company's business
under distinct wholly-owned subsidiaries incorporated in Delaware, Cayman,
Thailand and Hong Kong, all of which were consolidated pursuant to a legal
reorganization in June 1996. Subsequent to the legal reorganization, Maxtor
diluted its ownership of IMS to 23.5% through a series of recapitalization and
redemption agreements. Under these agreements IMS raised cash of $25.0 million
($24.0 million, net of issuance costs) by issuing a combination of common stock,
convertible preferred stock and junior subordinated notes to a group of
investors.

IMS redeemed approximately 76.5% of Maxtor's outstanding shares for $25.0
million in cash and issuance of senior subordinated notes payable of $20.0
million (including $4.3 million rolled over from a previously outstanding note
payable to Maxtor) and warrants to purchase an additional 300,000 shares of
common stock (see Notes 6 and 9). Additionally, Maxtor agreed to purchase from
IMS certain minimum quantities of products for a period of three years.

The redemption of Maxtor's ownership interest has been accounted for as a
recapitalization, and accordingly, no change in the accounting basis of the
Company's net assets has been made in the accompanying financial statements. The
amount of cash paid and note payable issued to Maxtor exceeded the Company's net
assets on the date of the transaction and has been recorded in the equity
section as distributions in excess of net book value. As of May 31, 1996 (the
month end immediately prior to the

F-8
<PAGE> 62

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

recapitalization), the Company had approximately $54 million in assets
(unaudited) and approximately $34 million in liabilities (unaudited).

Had the above noted debt and preferred stock financing and recapitalization
transactions taken place at the beginning of fiscal 1997, the Company's pro
forma loss, pro forma loss allocable to common stockholders and pro forma loss
per share would have been $969,000, $1,977,000 and $0.06, respectively
(unaudited).

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments, which are purchased
with a maturity of three months or less, to be cash equivalents. At March 31,
1996 and April 30, 1997, all of the Company's investments were classified as
cash equivalents on the balance sheet. At March 31, 1996 and April 30, 1997, the
fair value of the Company's investments approximated cost.

The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" and,
classifies investment securities as either held-to-maturity or
available-for-sale. At March 31, 1996 and April 30, 1997, the Company did not
hold any investment securities.

INVENTORIES

Inventories are stated at the lower of cost or market, cost being
determined under the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, which are generally three to five years. Assets held
under capital leases are amortized using the straight line method over the term
of the lease or their estimated useful lives, whichever is shorter.

GOODWILL

Goodwill, arising from the Pentagon Systems acquisition (see Note 4), has
been included in other assets and is being amortized over its estimated useful
life of seven years.

LONG-TERM ASSETS

The Company periodically reviews the recoverability of long-term assets
including goodwill, whenever events or changes in circumstances indicate that
the carrying amount of an asset might not be recoverable.

REVENUE RECOGNITION

Revenue is recognized upon product shipment. A provision for the estimated
cost to repair or replace products under warranty is recorded at the time of
sale based on historical experience.

Revenue and related costs can vary significantly based on whether projects
are contracted on a turnkey basis where the Company purchases all materials to
manufacture the goods, or contracted on a consignment basis, where materials are
provided by the customer. Revenues from product sales include revenues derived
from projects contracted on a turnkey basis. Other revenues include revenues
from projects contracted on a consignment basis. Accordingly, the accompanying
statements of operations reflect no materials cost for consignment sale
revenues. During fiscal 1997, sales to Maxtor were contracted for on a partial
consignment basis and sales to other customers were contracted for on a turnkey
basis. However, during fiscal 1996,

F-9
<PAGE> 63

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

substantially all projects were contracted for on a turnkey basis, and in fiscal
1995, sales to Maxtor were generally contracted for on a consignment basis.

FOREIGN CURRENCY TRANSLATION

The U.S. dollar is the functional currency of the Company's foreign
subsidiaries. Exchange gains and losses resulting from transactions denominated
in currencies other than the U.S. dollar are included in the results of
operations for the year. To date such gains and losses have not been material.
The Company has not undertaken any material foreign currency hedging activities.

INCOME TAXES

The Company accounts for income taxes using an asset and liability approach
and recognizes deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements. No provision for U.S. deferred income taxes is made for the
undistributed earnings of the Company's foreign subsidiaries to the extent such
earnings are deemed to be indefinitely reinvested in such operations. Prior to
the Recapitalization, the Company's income (loss) from its U.S. operations was
included in the consolidated tax returns of Maxtor. For the purposes of
preparing these financial statements, the Company has computed its provision for
income taxes for periods prior to the Recapitalization on a separate return
basis.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. The Company's policy is
to grant options with an exercise price equal to the fair market value of the
underlying common stock as determined by the Board of Directors on the grant
date. The Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation" (see Note 9).

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the "if
converted" method) and stock options (using the "treasury stock" method). Common
equivalent shares are excluded from the computation if their effect is
antidilutive, except that, pursuant to a Securities and Exchange Commission
Staff Accounting Bulletin, convertible preferred stock and warrants (using the
"if converted" method) and common equivalent shares (using the "treasury stock"
method and the initial public offering price) issued in conjunction with and
subsequent to the recapitalization of the Company have been included in the
computation as if they were outstanding for all periods for which net income
(loss) per share data has been presented.

Net income per share data for fiscal 1995 and 1996 have not been presented
as such amounts are not deemed to be meaningful in view of the significant
change in capital structure of the Company in June 1996 as a result of the
recapitalization.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. The Company's investment policies limit the amount of
credit exposure to any one financial institution and restrict placement of these
investments to financial institutions evaluated as highly credit-worthy. The
Company's products are sold worldwide to OEMs with an

F-10
<PAGE> 64

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

emphasis on the United States market. The Company performs ongoing credit
evaluations of its customers' financial condition and at times requires
collateral for its receivables. The Company maintains reserves for potential
credit losses. As of March 31, 1996, two customers accounted for approximately
46% and 37% of the accounts receivable balance. As of April 30, 1997, three
customers accounted for approximately 34%, 32% and 11% of the accounts
receivable balance.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's fiscal period ending January 31, 1998. The
Statement adjusts the calculation of earnings per share under generally accepted
accounting principles. Under the new standard, primary earnings per share is
replaced by basic earnings per share and fully diluted earnings per share is
replaced by diluted earnings per share. If the Company had adopted this
Statement for the year ended April 30, 1997 and for the three month period ended
July 31, 1997, the Company's pro forma earnings (loss) per share would have been
as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JULY 31,
APRIL 30, ----------------
1997 1996 1997
---------- ------ -----
(UNAUDITED)
<S> <C> <C> <C>
Basic income (loss) per share................... $(0.04) $(0.32) $0.16
Diluted income (loss) per share................. (0.04) (0.27) 0.13
</TABLE>

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (FAS
130) and No. 131 "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). The Company does not believe that FAS 130 and 131 will
have any material impact on its financial statement reporting requirements.

PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

If the Offering is consummated, all shares of convertible preferred stock
outstanding at the closing date will automatically convert into an aggregate of
6,000,000 shares of Common Stock. The pro forma effect of such conversion has
been reflected in the accompanying unaudited pro forma balance sheet as of July
31, 1997.

INTERIM RESULTS (UNAUDITED)

The accompanying consolidated balance sheet as of July 31, 1997, the
consolidated statements of operations and of cash flows for the three months
ended July 31, 1996 and 1997 and the consolidated statement of stockholders'
equity (deficit) for the three months ended July 31, 1997 are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of the results
for the interim periods. The data disclosed in the consolidated financial
statements as of such dates and for such periods are unaudited.

F-11
<PAGE> 65

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
MARCH 31, APRIL 30, JULY 31,
1996 1997 1997
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories:
Raw materials............................. $ 35,351 $ 17,675 $ 26,755
Work-in-process........................... 8,087 2,359 4,419
Finished Goods............................ 1,571 208 917
-------- -------- --------
Total inventories............... $ 45,009 $ 20,242 $ 32,091
======== ======== ========
Property and equipment:
Machinery and equipment................... $ 30,229 $ 37,228 $ 37,868
Furniture and fixtures.................... 1,883 2,018 2,890
Leasehold improvements.................... 2,576 4,027 4,037
-------- -------- --------
34,688 43,273 44,795
Less accumulated depreciation and
amortization............................ (23,866) (29,337) (30,028)
-------- -------- --------
Total property and equipment.... $ 10,822 $ 13,936 $ 14,767
======== ======== ========
Accrued liabilities:
Accrued employee compensation............. $ 2,246 $ 1,197 $ 1,781
Other accrued liabilities................. 1,435 4,287 5,300
-------- -------- --------
$ 3,681 $ 5,484 $ 7,081
======== ======== ========
</TABLE>

Machinery and equipment at April 30, 1997 and July 31, 1997 (unaudited)
include approximately $321,000 of assets under leases that have been
capitalized. Accumulated depreciation for such equipment at April 30, 1997 and
July 31, 1997 approximated $84,000 and $111,000 (unaudited), respectively.

NOTE 3. CHANGE IN FISCAL YEAR

During fiscal 1997, the Company changed its financial reporting year end
from the Saturday closest to March 31, to the Saturday closest to April 30. As a
result of this change, the Company had a one month transition period. The
results of operations and statement of cash flows data for the one month ended
April 30, 1996 are summarized below.

<TABLE>
<CAPTION>
MONTH ENDED
APRIL 30,
1996
--------------
<S> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues from product sales............................................ $ 23,541
Cost of revenues from product sales.................................... 21,847
-------
Gross profit........................................................... 1,694
Selling, general and administrative.................................... 204
-------
Income from operations................................................. 1,490
Interest income, net of interest expense............................... (3)
-------
Income before income taxes............................................. 1,493
Provision for income taxes............................................. 150
-------
Net income............................................................. $ 1,343
=======
</TABLE>

F-12
<PAGE> 66

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
MONTH ENDED
APRIL 30,
1996
--------------
<S> <C>
(IN THOUSANDS)
STATEMENT OF CASH FLOWS:
Cash flows from operating activities:
Net income........................................................... $ 1,343
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization..................................... 742
Changes in assets and liabilities:
Accounts receivable............................................... (2,472)
Accounts receivable from Maxtor and affiliates.................... 2,363
Inventories....................................................... 21,981
Other current assets.............................................. (987)
Accounts payable.................................................. (19,729)
Accounts payable to Maxtor........................................ (3,613)
Accrued liabilities............................................... 637
Income taxes payable.............................................. (29)
-------
Net cash provided by operating activities.................... 236
-------
Cash flows from financing activities:
Principal payments on debt and capital lease obligations............. (199)
-------
Net cash used in financing activities........................ (199)
-------
Net change in cash and cash equivalents................................ 37
Cash and cash equivalents at beginning of period....................... 938
-------
Cash and cash equivalents at end of period............................. $ 975
=======
</TABLE>

NOTE 4. PENTAGON SYSTEMS ACQUISITION

In January 1997, the Company acquired the assets of Pentagon Systems
(Pentagon) for $4.4 million in cash, issuance of 450,000 shares of Class A
Common Stock and the assumption of certain liabilities. Pentagon provides
computer design related engineering services and assembly of computer components
to original equipment manufacturers from facilities located in San Jose.

The acquisition was accounted for as a purchase, and accordingly,
Pentagon's net assets and results of operations have been included in the
Consolidated Financial Statements from the acquisition date. The excess of the
purchase price over the fair value of the net assets acquired aggregated $3.4
million and has been included in other assets as goodwill. Goodwill amortization
totaled $163,000 at April 30, 1997.

F-13
<PAGE> 67

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table presents unaudited pro forma results of operations as
if the acquisition had occurred as of the beginning of the respective periods
after giving effect to the amortization of goodwill. The unaudited pro forma
information is provided for comparative purposes only and does not purport to be
indicative of the results which actually would have been obtained if the
acquisition had been effected for the periods indicated, or the results which
may be obtained in the future (in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED
---------------------
MARCH 31, APRIL 30,
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $ 412,978 $ 174,064
Net income (loss)...................................... 6,040 (266)
Net income (loss) per share............................ -- (0.02)
</TABLE>

NOTE 5. RESTRUCTURING CHARGE

In June 1996, the Company implemented a restructuring plan to significantly
reduce its manufacturing operations in Hong Kong. The costs of restructuring
actions totaled $3 million and involved the termination of approximately 900
employees with an associated cost of approximately $2.3 million and excess
facilities costs of approximately $700,000. As of July 31, 1997 the Company had
substantially completed all of its restructuring actions.

NOTE 6. DEBT AND BANKING ARRANGEMENTS

<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior subordinated notes due through 2002.............. $ -- $ 20,000
12% junior subordinated notes due through 2005.......... -- 12,500
Noninterest bearing notes due to Maxtor................. 4,300 --
8.4% term note.......................................... 708 --
Bank borrowings......................................... -- 9,000
Capital lease obligations............................... -- 239
------ -------
5,008 41,739
Current portion of capital lease obligations and bank
borrowings............................................ (708) (9,079)
------ -------
Long-term debt and capital lease obligations............ $ 4,300 $ 32,660
====== =======
</TABLE>

At the time of recapitalization of the Company in June 1996, the
outstanding interest free note due to Maxtor was consolidated into the senior
subordinated notes due 2002 (see Note 1). The notes had a fixed interest rate of
7% for the first twelve months. Effective June 1997, the interest rate changed
to a six-month Eurodollar rate (including the applicable bank spread) plus one
and a half percent (approximately 9.7% as of July 31, 1997).

The senior subordinated notes are repayable upon the closing of an
underwritten public offering. The amount of repayment varies depending upon the
net proceeds to the Company with total repayment required if the Company
receives at least $45.0 million from the Offering. The senior and junior
subordinated notes are repayable in full in the event of a sale or transfer of
all or substantially all of the assets of the Company on a consolidated basis or
a merger to which the Company is a party, unless to do so would violate the
terms of the bank credit facility.

At April 30, 1997, management believes the fair values of the Company's
debt approximated book values based on prevailing interest rates.

F-14
<PAGE> 68

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At April 30, 1997, future minimum principal payments on long term debt and
capitalized lease obligations were as follows (in thousands):

<TABLE>
<S> <C>
FISCAL YEAR ENDING APRIL 30,
1998..................................................... $ 79
1999..................................................... 82
2000..................................................... 6,744
2001..................................................... 6,667
2002..................................................... 6,667
Thereafter............................................... 12,500
-------
$32,739
=======
</TABLE>

In June 1996, the Company entered into a five year loan and security
agreement (the "Loan Agreement") with a U.S. bank which provides for borrowings
of up to $32.0 million. The Loan Agreement expires June 21, 2001, with
availability of borrowings declining on a quarterly basis beginning in July
1997. The availability of borrowings under the Loan Agreement will be reduced by
$10.0 million upon the completion of the Offering. Borrowings under the Loan
Agreement bear interest at either the prime rate plus 1.5% or LIBOR plus 2.25%
and are secured by all of the Company's assets. The effective interest rate for
borrowings under the line of credit was approximately 7.9% as of April 30, 1997.
At April 30, 1997, borrowings under the Loan Agreement totaled $9.0 million. The
Loan Agreement and senior subordinated notes require that the Company maintain
certain financial ratios and covenants. In addition, the Loan Agreement
restricts the Company's ability to declare dividends. The Company was in
compliance with such covenants as of April 30, 1997.

NOTE 7. LEASE COMMITMENTS

The Company leases certain property, facilities and equipment under
noncancelable capital and operating leases. Future minimum lease payments under
these leases as of April 30, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
FISCAL YEAR ENDING APRIL 30,
1998............................................ $ 105 $ 2,420
1999............................................ 92 1,760
2000............................................ 66 956
2001............................................ -- 889
2002............................................ -- 639
Thereafter...................................... -- 7,336
---- ------
Total minimum lease payments.................... 263 $14,000
======
Less amount representing interest............... 24
----
$ 239
====
</TABLE>

Rent expense for operating leases was $2,580,000, $2,732,000 and $3,158,000
during the years ended March 31, 1995 and March 31, 1996 and April 30, 1997,
respectively.

NOTE 8. CONVERTIBLE PREFERRED STOCK

The certificate of incorporation of the Company, as amended, authorizes
8,509,425 shares of convertible preferred stock of which 6,000,000 shares have
been designated as Series A and 2,509,425 shares as Series B. Pursuant to the
recapitalization of the Company (see Note 1), IMS issued 3,490,575 shares of its
Series A

F-15
<PAGE> 69

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and 2,509,425 shares of B convertible preferred stock (Series A and Series B
shares) at a purchase price of $1.67 per share.

The Series A and Series B shares have certain rights with respect to
voting, dividends, liquidation and conversion, as follows:

Voting

Series A and Series B shares have voting rights equal to the shares of
common stock into which they may be converted. Holders of Series A convertible
preferred stock are entitled to vote on all matters. However, holders of Series
B convertible preferred stock are entitled to vote only on certain matters
relating to the Company's capitalization, borrowings, liquidation sale, mergers
or acquisitions.

Dividends

Holders of Series A and Series B shares are entitled to receive a
cumulative dividend at the rate of 10% of the original issue price, per annum,
to be paid when and as declared by the Company's Board of Directors, prior to
and in preference to any declaration or payment of any dividend on the Company's
common stock.

Liquidation

In the event of liquidation and to the extent assets are available, the
holders of Series A and Series B shares are entitled to receive, prior and in
preference to any distribution to the holders of common stock, an amount equal
to the original issue price of such shares plus all accumulated but unpaid
dividends.

Conversion

Each Series A and Series B share is convertible into one share of Class A
and Class B common stock, respectively, subject to adjustments in the case of
certain dilutive events. Each Series A and Series B share will automatically
convert into one share of Class A and Class B common stock, respectively, in the
event of either (i) the affirmative vote of a majority of the holders of Series
A and Series B shares outstanding at the time of such vote; or (ii) the closing
of an underwritten public offering in which the aggregate offering price is not
less than $30,000,000 and the per share price is not less than $5.00 per share.

NOTE 9. COMMON STOCK

At April 30, 1997, the Company's Board of Directors had designated
18,000,000 shares of common stock as Class A voting common stock and 7,500,000
shares as Class B nonvoting common stock. To date, the Company has not issued
any shares of Class B nonvoting common stock.

In conjunction with the recapitalization, the Company issued to Maxtor
warrants to purchase 300,000 shares of its Class A common stock at approximately
$6.67 per share. The warrants have a term of ten years but are exercisable only
in the event the Company fails to repay the senior subordinated debt due to
Maxtor by June 13, 1998.

At April 30, 1997, the Company had reserved 6,000,000 shares of common
stock for issuance upon conversion of the Series A and Series B convertible
preferred stock.

F-16
<PAGE> 70

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. EMPLOYEE BENEFIT PLANS

1994 Stock Option Plan

The Company's Cayman subsidiary had a 1994 Stock Option Plan which provided
for grant of options and stock purchase rights to employees and directors or
consultants, advisors or other independent contractors. The Plan was approved by
the Company's stockholders in March 1995. Approximately two million options were
granted under this plan, and none were exercised. Following the recapitalization
of the Company (see Note 1), the 1994 Stock Option Plan was terminated and all
outstanding options were canceled.

1996 Stock Option Plan

Pursuant to the terms of the Company's 1996 Stock Option Plan (the "Option
Plan"), options to purchase 3,352,500 shares of common stock may be granted to
employees, directors and consultants with an exercise price of not less than the
fair value at the date of grant. The plan provides that the options shall be
exercisable over a period not to exceed ten years. Options generally vest in
annual increments of 25% per year. However, options to purchase 2,136,000 shares
granted in June and July 1996 provided for 25% immediate vesting upon grant.

The following table summarizes the Company's stock option activity for the
Option Plan described above and weighted average exercise price within each
transaction type.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARE EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at beginning of year......... -- --
Options granted.................................. 2,901,750 $ 0.95
Options exercised................................ (37,500) $ 0.73
Options returned to plan......................... (36,750) $ 1.09
---------
Options outstanding at April 30, 1997............ 2,827,500 $ 0.95
Options granted (unaudited)...................... 75,000 $ 4.00
Options returned to plan (unaudited)............. (7,500) $ 2.00
---------
Options outstanding at July 31, 1997
(unaudited).................................... 2,895,000 $ 1.02
=========
</TABLE>

At April 30, 1997 and July 31, 1997, the Company had 487,500 and 420,000
(unaudited) shares available under the Option Plan for future grants,
respectively. With respect to certain options granted at the end of fiscal 1997
and during the three months ended July 31, 1997, the Company is recognizing a
compensation charge of approximately $189,000 over the four year vesting periods
of such options.

In June 1996, Robert G. Behlman, the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, purchased 150,000 shares of
Class A Common Stock for an aggregate purchase price of approximately $111,000
paid by means of a full recourse note in favor of the Company. In July 1996, the
Board of Directors forgave the note in recognition of Mr. Behlman's contribution
to the successful completion of the Recapitalization. The forgiveness of the
note was recorded by the Company as additional compensation to Mr. Behlman.

Significant option groups outstanding at April 30, 1997 and related
weighted average exercise price and remaining life were as follows:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------- ----------------- REMAINING
EXERCISE PRICE RANGE SHARES PRICE SHARES PRICE LIFE (YEARS)
------------------------- --------- ----- ------- ----- ------------
<S> <C> <C> <C> <C> <C>
$0.73 - $1.33............ 2,349,000 $0.81 849,620 $0.75 9.17
$1.57 - $2.00............ 478,500 $1.65 23,438 $1.57 9.74
</TABLE>

F-17
<PAGE> 71

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

All options were granted with exercises prices equal to the estimated fair
market value of the Company's common stock at the date of grant. However, with
respect to certain options granted in April 1997 and the three months ended July
31, 1997, the Company subsequently determined that a compensation expense of
$189,000 should be recorded. The weighted average estimated minimum value, as
defined by SFAS 123, for options granted during 1997 was $0.26 per option.
Vesting of options to purchase approximately 530,000 shares of common stock will
accelerate upon the successful completion of an initial public offering prior to
June 13, 1998.

The following weighted average assumptions are included in the estimated
minimum value calculations for the Company's stock option awards:

<TABLE>
<S> <C>
Expected life (years)............................... 4 years
Risk free interest rate............................. 6.42%
Dividend yield...................................... 0%
</TABLE>

PRO FORMA NET LOSS AND NET LOSS PER SHARE

Had the Company recorded compensation costs based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its stock
option plan, the Company's net loss and net loss per share would have increased
to the following pro forma amounts shown for the year ended April 30, 1997 (in
thousands, except per share data):

<TABLE>
<S> <C>
Pro forma net loss.................................. $ (785)
Pro forma net loss per share........................ $(0.05)
</TABLE>

401(K) PLAN

Effective January 1, 1997, the Company adopted the 401(k) Plan (the "401(k)
Plan") for its U.S. employees that qualifies as a deferred salary arrangement
under Section 401 of the Internal Revenue Code. Under the 401(k) Plan,
participating employees may defer a portion of their pretax earnings not to
exceed 15% of their total compensation. The Company, at its discretion, may make
contributions for the benefit of eligible employees. The Company's contributions
to the 401(k) plan for fiscal 1997 were not material.

NOTE 11. INCOME TAXES

The income (loss) before income taxes included $2,895,000, $9,432,000 and
$5,710,000 of income relating to the non U.S. operations of the Company for
fiscal 1995, 1996 and 1997, respectively.

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Foreign.................................... $ 620 $ 1,493 $ 397
Deferred:
Foreign.................................... (66) 300 (144)
---- ------ -----
Total.............................. $ 554 $ 1,793 $ 253
==== ====== =====
</TABLE>

F-18
<PAGE> 72

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the tax provision to the amounts computed using the
statutory U.S. federal income tax rate of 35% is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax (benefit) at U.S. federal statutory
rate....................................... $ 893 $ 2,776 $ (121)
Tax savings from foreign operations.......... (480) (1,483) (1,746)
Nondeductible interest, goodwill and other... 41 -- 320
Valuation allowance.......................... 100 500 1,800
----- ------- -------
Total.............................. $ 554 $ 1,793 $ 253
===== ======= =======
</TABLE>

Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and (liabilities) are as follows
(in thousands):

<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................ $ 600 $ 2,400
Depreciation............................................ (300) (156)
----- -------
300 2,244
Valuation reserve....................................... (600) (2,400)
----- -------
$(300) $ (156)
===== =======
</TABLE>

The Company enjoys a tax holiday in Thailand which expires in the year
2003. The net impact of the tax holiday was an increase in net income of
$750,000 in fiscal 1996 and to decrease net loss by $1,800,000 ($0.11 per share)
in fiscal 1997.

At April 30, 1997, the Company has approximately $6,000,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future U.S. taxable income; such carryforwards expire at various dates beginning
in the year 2010. Under the U.S. tax laws, the amount of and benefits from net
operating losses that can be carried forward may be impaired or limited in
certain circumstances. Events which may cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of 50% over a three year period.
At April 30, 1997, approximately $4,400,000 of the Company's net operating
losses were subject to annual limitations.

Based on factors which include a history of losses generated by the U.S.
operations and the lack of carryback capacity, the weight of available evidence
indicates that it is more likely than not that the Company will not be able to
realize its U.S. deferred tax assets and thus a full valuation reserve has been
recorded. The Company has generated approximately $7,500,000 of earnings from
foreign operations for which no U.S. tax has been provided. These earnings are
considered to be permanently reinvested outside of the United States.

The Company's effective tax rate for the three months ended July 31, 1997
was approximately 14% and has been based primarily on the Company's estimation
of the expected geographical mix of its fiscal 1998 income (unaudited).

NOTE 12. TRANSACTIONS WITH AFFILIATES

Revenues from affiliates include sales to Maxtor and other entities related
to Maxtor through Maxtor's parent company, Hyundai Electronics America.

Prior to the Recapitalization and for a short period subsequent thereto,
Maxtor provided varying levels of corporate, general and administrative support
to the Company's U.S. operations. Charges for these services

F-19
<PAGE> 73

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

were estimated based upon actual costs incurred, to the extent practical, and
reasonable estimations made by Maxtor management, using primarily employee
headcounts, when actual identification was not possible. Charges from Maxtor for
fiscal 1995 were not billed on grounds of materiality. Charges to the Company
from Maxtor for fiscal 1996 and 1997 aggregated $37,000 and $49,000,
respectively.

Prior to the Recapitalization, the Company's principal sources of liquidity
were interest-free intercompany borrowings from Maxtor and favorable payment
terms on sales to Maxtor. Subsequent to the Recapitalization, the payment terms
for sales made to Maxtor were normalized.

The amount of receivables from Maxtor as of March 31, 1996 included in the
balance sheet represents a net balance as the result of various transactions
between the Company and Maxtor. Prior to Recapitalization, there were no terms
of settlement or interest charges associated with the account balance. The
balance was primarily the result of the Company's participation in Maxtor's
central cash management program, wherein all the Company's cash receipts were
remitted to Maxtor and all cash disbursements were funded by Maxtor.

The following is an analysis of transactions in the intercompany account
between the Company and Maxtor for fiscal 1995, 1996 and the two months ended
May 31, 1996:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWO
--------------------- MONTHS
MARCH 31, MARCH 31, ENDED MAY
1995 1996 31, 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................... $ 11,401 $ 10,496 $ 11,368
Sales to Maxtor...................................... 36,284 339,577 42,103
Net receipts from Maxtor............................. (34,853) (330,551) (54,498)
Cash disbursements made by Maxtor on behalf of the
Company............................................ (2,336) (3,985) (126)
Offset of loan from Maxtor against receivable from
Maxtor............................................. -- (4,169) --
-------- -------- --------
Ending balance....................................... $ 10,496 $ 11,368 $ (1,153)
======== ======== ========
Average balance during the period.................... $ 13,560 $ 7,999 $ 5,313
-------- -------- --------
</TABLE>

As of March 31, 1996, the intercompany account balance does not agree with
the total balance of accounts receivable from affiliates on the balance sheet as
another related party accounted for $547,000 of the balance. Additionally, total
sales to affiliates on the statement of operations for the fiscal year ended
March 31, 1996 is $910,000 higher than the reconciliation above due to sales
made to the other related party.

In addition, an analysis of transactions in the long-term debt due to
Maxtor, for which there were no terms of settlement or interest charges for each
of the two years in the period ended March 31, 1996, and the two months ended
May 31, 1996 follows.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWO MONTHS
----------------------- ENDED
MARCH 31, MARCH 31, MAY 31,
1995 1996 1996
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................. $ 8,469 $ 8,469 $4,300
Offset of loan from Maxtor against receivable from
Maxtor........................................... -- (4,169) --
------ ------- ------
Ending balance..................................... $ 8,469 $ 4,300 $4,300
====== ======= ======
Average balance during the period.................. $ 8,469 $ 6,385 $4,300
======
------ -------
</TABLE>

F-20
<PAGE> 74

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS

The Company provides its customers with printed circuit board assembly,
product sub-assembly and final assembly on both a turnkey and consignment basis.
The Company markets and sells its products through a direct sales force to OEM's
worldwide, with an emphasis on the U.S. market. The Company operates in a single
industry segment.

The following table summarizes the percentage of net sales to significant
customers:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Maxtor................................... 92% 83% 49%
Diamond Multimedia....................... -- 13% --
Bay Networks............................. -- 2% 31%
</TABLE>

No other customer accounted for 10% or more of the Company's total revenues
during fiscal 1995, 1996 and 1997.

The Company's operations by geographical region were as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 31, APRIL 30,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Sales to unaffiliated customers
United States.......................... $ -- $ -- $ 1,931
Asia................................... 3,089 68,361 78,615
------- -------- --------
3,089 68,361 80,546
Sales to affiliated customers
Asia................................... 36,284 340,487 89,149
------- -------- --------
Total revenues.................... $39,373 $ 408,848 $ 169,695
======= ======== ========
Income (loss) from operations:
United States............................. $ (345) $ (1,402) $ (3,332)
Asia...................................... 3,075 9,396 6,958
------- -------- --------
Total operating income............ $ 2,730 $ 7,994 $ 3,626
======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
1996 1997
--------- ---------
<S> <C> <C>
Identifiable assets at year end:
United States......................................... $ 66 $ 6,753
Far East.............................................. 83,621 53,718
------- -------
Total identifiable assets..................... $83,687 $ 60,471
======= =======
</TABLE>

Revenues are designated as to the country which records the sale. Asia is
comprised of the Company's subsidiaries in Hong Kong, Thailand (commenced
operations at the end of fiscal 1995) and China (commenced operations in fiscal
1997).

14. SUBSEQUENT EVENTS

On August 26, 1997 the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission covering the proposed sale of shares of

F-21
<PAGE> 75

INTERNATIONAL MANUFACTURING SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

its common stock to the public. On September 16, 1997 the stockholders of the
Company approved a three-for-two stock split of each of the Company's existing
issued and unissued shares of each class and series of the capital stock of the
Company (including all outstanding preferred shares). In addition, the
stockholders approved the 1997 Stock Plan with 1,750,000 shares authorized for
future option grants; the 1997 Director Option Plan with 225,000 shares
authorized for future option grants; and the 1997 Employee Stock Purchase Plan
and 1997 Non-U.S. Employee Stock Purchase Plan with an aggregate of 250,000
shares reserved for future issuance. All these plans become effective upon the
closing of the initial public offering. All share and per share amounts in the
accompanying consolidated financial statements have been adjusted for all
periods presented to reflect the stock split.

The Board of Directors also approved that effective upon the closing of the
initial public offering, the Company will be authorized to issue 100 million
shares of common stock and 10 million shares of undesignated preferred stock.

F-22
<PAGE> 76
APPENDIX - DESCRIPTION OF GRAPHICS

INSIDE FRONT COVER

On the left side of the page, in the middle, is a picture of the
Company's executive offices in San Jose, California, and immediately beneath
this picture is text which reads "IMS San Jose." On the right side of the page,
at the top, is a picture of the Company's manufacturing facility in China, and
immediately beneath this picture is text which reads "IMS China." Below this
text is a picture of the Company's manufacturing facility in Thailand, and
immediately beneath this picture is text which reads "IMS Thailand." Below this
text is a picture of the Company's design and prototype production center in San
Jose, California, and immediately beneath this picture is text which reads "IMS
Design Center." Below this text is a picture of the Company's materials
procurement facility in Hong Kong, and immediately beneath this picture is text
which reads "IMS Hong Kong."

At the bottom right side of the page is an IMS logo, immediately
beneath which is text that reads "International Manufacturing Services, Inc."

A globe appears behind the foregoing pictures, text and logo, and a
blue sky with clouds provides background for the inside front cover page.

INSIDE BACK COVER

On the left side of the page, at the top, is an IMS logo, immediately
beneath which is text that reads "International Manufacturing Services, Inc."
Below this logo, in descending order on the left side of the page are the words
"Design," "Prototypes," "Manufacturing," "Testing" and "Logistics," each
appearing in boldface type.

At the upper right hand corner of the page are two pictures of persons
performing certain quality control and process verification functions in
connection with the Company's manufacturing services. Below these pictures, in
the middle right side of the page, is a picture of a printed circuit board
assembly. Underneath this graphic is a picture of a person performing product
testing. And below this picture, at the lower right corner of the page, is a
picture of persons performing an engineering review of certain design
documentation.

A blue sky with clouds provides background for the back cover page.

<PAGE> 77

============================================================

No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Class A Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that information
contained herein is correct as of any time subsequent to the date hereof.

------------------------------

TABLE OF CONTENTS
------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 14
Dividend Policy............................ 14
Capitalization............................. 15
Dilution................................... 16
Selected Consolidated Financial Data....... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 28
Management................................. 34
Certain Transactions....................... 42
Principal Stockholders..................... 44
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 49
Underwriting............................... 51
Legal Matters.............................. 52
Experts.................................... 52
Change of Accountants...................... 53
Additional Information..................... 53
Index to Consolidated Financial
Statements............................... F-1
</TABLE>

------------------------

Until November 16, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
============================================================
============================================================

5,000,000 SHARES

LOGO

CLASS A COMMON STOCK
------------------------------

PROSPECTUS
------------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.

BT ALEX. BROWN

UBS SECURITIES
October 22, 1997
============================================================