SATURN ELECTRONICS & ENGINEERING INC, S-1/A, 2000-05-08

SATURN ELECTRONICS & ENGINEERING INC
S-1/A, 2000-05-08
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 2000

REGISTRATION NO. 333-33472
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------

AMENDMENT NO. 1 TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SATURN ELECTRONICS & ENGINEERING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
MICHIGAN 3672 38-2622745
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>

255 REX BOULEVARD
AUBURN HILLS, MICHIGAN 48326
(248) 853-5724
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

WALLACE K. TSUHA, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SATURN ELECTRONICS & ENGINEERING, INC.
255 REX BOULEVARD
AUBURN HILLS, MICHIGAN 48326
(248) 853-5724
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
DONALD J. KUNZ, ESQ. THOMAS J. MURPHY, ESQ.
HONIGMAN MILLER SCHWARTZ AND COHN MCDERMOTT, WILL & EMERY
2290 FIRST NATIONAL BUILDING 227 WEST MONROE STREET
DETROIT, MICHIGAN 48226 CHICAGO, ILLINOIS 60606-5096
(313) 465-7000 (312) 372-2000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE> 2

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.

SUBJECT TO COMPLETION, DATED MAY 8, 2000

[SATURN LOGO]

Common Stock

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

Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We have applied to have our common stock
traded on The Nasdaq Stock Market's National Market, under the symbol "SATR,"
which we have reserved.

We are selling shares of common stock and the selling shareholders are
selling shares of common stock. We will not receive any of the proceeds
from the shares of common stock sold by the selling shareholders.

The underwriters have an option to purchase a maximum of
additional shares from the selling shareholders to cover over-allotments of
shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO PROCEEDS TO
PRICE TO DISCOUNTS AND SATURN ELECTRONICS & SELLING
PUBLIC COMMISSIONS ENGINEERING, INC. SHAREHOLDERS
-------- ------------- -------------------- ------------
<S> <C> <C> <C> <C>
Per Share............................................ $ $ $ $
Total................................................ $ $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about
, 2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
NEEDHAM & COMPANY, INC.

The date of this prospectus is , 2000.
<PAGE> 3

[Artwork showing a graphic description of a collage of the Detroit skyline
and various types of products in which our services and products manufactured by
us are incorporated, as well as our logo.]

<PAGE> 4

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 5
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS.......... 15
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 28
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 42
RELATED PARTY TRANSACTIONS............ 48
PRINCIPAL AND SELLING SHAREHOLDERS.... 49
DESCRIPTION OF CAPITAL STOCK.......... 50
SHARES ELIGIBLE FOR FUTURE SALE....... 52
UNDERWRITING.......................... 54
NOTICE TO CANADIAN RESIDENTS.......... 57
EXPERTS............................... 58
WHERE YOU CAN FIND MORE INFORMATION... 58
LEGAL MATTERS......................... 58
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

DEALER PROSPECTUS DELIVERY OBLIGATIONS

UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that is important to you.
You should read the entire prospectus, including risk factors and our
consolidated financial statements and related notes, before making an investment
decision.

OUR COMPANY

We are a global provider of value-added electronics manufacturing services,
or EMS, to original equipment manufacturers and their suppliers. We offer our
customers integrated, cost-effective solutions that are responsive to their
outsourcing needs and provide a broad range of services, including design and
engineering; materials management; manufacturing and assembly; testing and
qualification; delivery and distribution of products; and after-sales support.
Through our 12 manufacturing facilities in the United States, Mexico and the
Philippines, we provide our customers a full range of manufacturing
capabilities, from the low quantity production of a variety of complex products,
or low-volume/high-mix manufacturing, to the high quantity production of less
complex products, or high-volume/low-mix manufacturing. Our facilities are
generally located in regions that offer proximity to our customers or lower our
manufacturing costs.

We provide our services to customers primarily in the automotive,
communications, computer and military end markets. Our customers include
industry leaders such as DaimlerChrysler, Ford, General Dynamics,
Hewlett-Packard, IBM and Motorola. We also seek to identify and nurture
strategic alliances with emerging companies that we believe have the potential
to develop products offering technological advances over existing products. We
provide our design, engineering and other value-added services to these emerging
companies in exchange for exclusive manufacturing rights.

The EMS industry has experienced rapid growth over the last several years
and is expected to continue growing rapidly. Technology Forecasters, Inc.
predicts that overall EMS industry revenue will grow 20% annually from 2000
through 2003, to approximately $149 billion. As the electronics content in
commercial and consumer goods has increased and grown more complex, original
equipment manufacturers have been increasingly outsourcing their internal
manufacturing capacity and related services to EMS providers, to focus on their
core competencies. Technology Forecasters predicts that original equipment
manufacturers will increasingly outsource more complex services and products,
with the communications and computer markets representing the largest growth
opportunities. These markets are characterized by rapidly evolving product
technologies and shortening product lifecycles. We believe that these trends
will favor large EMS providers that have a global presence, broad service
offerings and advanced technological capabilities.

In order to strengthen our competitive position in the midst of this
industry growth, we have pursued selective strategic acquisitions and alliances.
In August 1999, we acquired Smartflex Systems, or Smartflex, an EMS provider
that designed high technology products and offered high precision manufacturing
capabilities, based in Tustin, California. Through this acquisition, we gained
access to full-service electronics capabilities, significantly increased the
size of our operations, expanded our customer base to the communications and
computer end markets, and enhanced our geographic presence. Most recently, in
March 2000, we entered into an agreement with Motorola by which we became a
preferred EMS provider to its Integrated Electronics Systems Sector. As a
preferred EMS provider, we have the opportunity to participate in requests for
quotations, bids and other opportunities to provide manufacturing and related
services to Motorola's Integrated Electronics Systems Sector, subject to our
being competitive in price and quality. Based on our capabilities, we believe
that we are well positioned to obtain considerable additional business
opportunities over the next few years from this strategic outsourcing alliance.

To better target customers and serve the needs of different end markets, we
have strategically aligned our business into three segments: electronics,
electromechanical and electrical.

1
<PAGE> 6

- Our electronics segment provides services in connection with the assembly
of electronic components within precise parameters onto flexible printed
circuit boards, or flex circuit assembly, printed circuit board assembly
and the incorporation of electronic assemblies into subassemblies and the
assembly of final systems packages, or box-build. We obtained most of our
capabilities in this segment with our acquisition of Smartflex.

- Our electromechanical segment provides services in connection with power
distribution centers, electrical switches, devices which transform
electrical power into motion, and devices which perform complete
electronic transmission control.

- Our electrical segment provides services in connection with battery
cables, wire harnesses and power distribution systems. This segment is
comprised of a limited liability company, of which we own 53%.

We intend to continue to strengthen and expand our position in the rapidly
growing EMS industry by:

- building strategic relationships with both leading and emerging original
equipment manufacturers;

- targeting an increasingly diverse customer base in high-growth end
markets, such as communications;

- leveraging our design and engineering capabilities;

- expanding our global presence;

- pursuing selective acquisitions; and

- seeking additional minority business enterprise opportunities.

We were incorporated in Michigan on October 1, 1985. Our principal
executive offices are located at 255 Rex Boulevard, Auburn Hills, Michigan
48326, and our telephone number is (248) 853-5724. Our web site is located at
www.saturnee.com. Information contained on, or linked to, our web site does not
constitute part of this prospectus.

"Global Innovator of Smart Products" and the Saturn logo are our trademarks
and service marks.

2
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by:
Saturn Electronics & Engineering, Inc...... shares
The selling shareholders................... shares
Total................................. shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. We intend to use approximately
$ million of our net proceeds to reduce
indebtedness under our credit facility, and
the remainder for working capital and other
general corporate purposes. We will not
receive any proceeds from the sale of shares
of our common stock being offered by the
selling shareholders.
Proposed Nasdaq National Market symbol....... SATR
</TABLE>

The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of May 3, 2000 and
excludes:

- 2,777,400 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of $2.75 per share;

- 2,500,000 shares of common stock available for future grant under our
2000 Stock Option Plan; and

- 1,565,331 shares of common stock issuable upon the exercise of a warrant
held by Motorola with an exercise price equal to 90% of the initial
public offering price per share.

Unless otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option and reflects a
recapitalization of our capital stock, which we will effect immediately prior to
this offering, as follows:

- each outstanding share of our Class A Voting Common Stock will be
converted into 3.25 shares of our common stock, no par value;

- each outstanding share of our Class B Nonvoting Common Stock will be
converted into 2.75 shares of common stock, no par value;

- each option to purchase a share of our common stock will be converted
into an option to purchase 3.00 shares of common stock, no par value; and

- each warrant to purchase a share of Class B Nonvoting Common Stock will
be converted into a warrant to purchase 3.00 shares of common stock, no
par value.

3
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables set forth summary consolidated financial data and
certain pro forma financial data for our business during the periods and as of
the date indicated. The 1999 pro forma consolidated statement of operations data
give effect to our acquisition of Smartflex Systems, Inc. as if this acquisition
had been completed on January 1, 1999. This acquisition was accounted for under
the purchase method of accounting, and, accordingly, Smartflex has been included
in our financial results since August 26, 1999.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------- QUARTER ENDED MARCH 31,
PRO FORMA -----------------------
1997 1998 1999 1999 1999 2000
---------- ----------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............... $ 161,048 $ 188,464 $ 257,107 $ 325,579 $ 47,985 $ 122,280
Cost of revenue........... 133,568 147,661 205,341 268,975 36,037 100,925
---------- ----------- ---------- ---------- ---------- ----------
Gross profit.............. 27,480 40,803 51,766 56,604 11,948 21,355
Development expense....... 3,563 4,861 7,741 8,465 1,633 6,018
Selling, general and
administrative
expense................. 8,039 12,777 19,146 29,467 4,090 6,811
Amortization expense...... 1,650 1,649 2,582 4,772 412 1,056
Restructuring expense..... -- -- -- 3,833 -- --
Warrant expense........... -- -- -- -- -- 7,909
---------- ----------- ---------- ---------- ---------- ----------
Operating income (loss)... 14,228 21,516 22,297 10,067 5,813 (439)
Net income (loss)......... $ 8,059 $ 11,954 $ 9,905 $ (2,537) $ 3,332 $ (3,472)
========== =========== ========== ========== ========== ==========
Basic and diluted earnings
(loss) per share........ $ 0.22 $ 0.32 $ 0.31 $ (0.08) $ 0.09 $ (0.12)
Basic and diluted weighted
average number of common
shares outstanding...... 37,176,600 37,176,600 32,145,026 32,145,026 37,176,600 29,741,280
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 3,798 $
Working capital............................................. 59,450
Total assets................................................ 271,236
Long-term debt.............................................. 117,110
Total shareholders' equity.................................. 56,295
</TABLE>

The as adjusted balance sheet data reflect:

- our receipt of the estimated net proceeds from our sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us;
and

- the assumed repayment of $ million of long-term debt outstanding
under our credit facility using the estimated proceeds from this
offering.

4
<PAGE> 9

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information in
this prospectus before deciding to invest in shares of our common stock. If any
of the following risks or uncertainties actually occur, our business, financial
condition or results of operations would likely suffer. In that event, the
market price of our common stock could decline, and you could lose all or part
of the money you paid to buy our common stock.

RISKS RELATING TO OUR BUSINESS

THE LOSS OF ANY OF OUR TEN LARGEST CUSTOMERS WOULD ADVERSELY AFFECT OUR
BUSINESS.

DaimlerChrysler accounted for approximately 31% of our net revenue for the
year ended December 31, 1999 and 18% of our net revenue in the quarter ended
March 31, 2000. Ford accounted for approximately 19% of our net revenue for the
year ended December 31, 1999 and 33% of our net revenue in the quarter ended
March 31, 2000. Our five largest customers accounted for approximately 60% of
our net revenue during 1999 and 70% of our net revenue in the first quarter of
2000. In addition, our ten largest customers accounted for approximately 72% of
our net revenue during 1999 and 80% of our net revenue in the first quarter of
2000. We expect to continue to depend upon a core group of customers for a
material percentage of our net revenue in the future. We cannot assure you that
any of our customers will continue to purchase services and products from us in
the future or that they will not reduce or delay the amount of services and
products they purchase. For example, during the third quarter of 2000, an
automotive program that generated $31.5 million of net revenue during 1999 for
our electromechanical segment is scheduled to end. Any reduction or delay in
orders from any of our ten largest customers would result in a material
reduction in our net revenue.

THE INABILITY OF ANY OF OUR TEN LARGEST CUSTOMERS TO PAY US FOR SERVICES
RENDERED WOULD ADVERSELY AFFECT OUR BUSINESS.

Original equipment manufacturers compete in an increasingly competitive
environment, which may threaten the ability of some of our customers to pay us
from time to time. In addition, a majority of our accounts receivable
outstanding at any given time are owed by our ten largest customers. The
inability of one or more of our ten largest customers to pay for the services
and products we provide, due to insolvency or otherwise, would have a material
adverse effect on our business, financial condition or results of operations.

WE MAY EXPERIENCE VARIABILITY IN OUR QUARTERLY RESULTS OF OPERATIONS, WHICH
COULD REDUCE OUR REVENUES AND THE PRICE OF OUR COMMON STOCK.

Our quarterly results of operations may vary significantly depending on
various factors, many of which are beyond our control. These factors include:

- variations in the timing and volume of customer orders relative to our
production capacity;

- customer introduction of new services and products and market acceptance
of these services and products;

- the timing of our expenditures in anticipation of future net revenue;

- our effectiveness in managing our manufacturing processes;

- changes in competitive and economic conditions generally or in the
industries we serve; and

- the timing of, and the price we pay for, acquisitions and related
integration costs.

Because of these and other factors, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. Because most of our operating expenses are fixed, even a
small reduction in our net revenue could have a disproportionate effect on our
quarterly

5
<PAGE> 10

results of operations. Our results of operations may be below the expectations
of securities analysts or investors in one or more future quarters, which could
cause the trading price of our common stock to decline.

WE MAY LOSE OUR STATUS AS A CERTIFIED MINORITY BUSINESS ENTERPRISE IF CRITERIA
FOR CERTIFICATION OF PUBLICLY TRADED MINORITY BUSINESS ENTERPRISES ARE NOT
ESTABLISHED AS ANTICIPATED OR ARE CHANGED IN THE FUTURE.

We are certified as a minority business enterprise by the Michigan Minority
Business Development Council. Minority business enterprise status generally
offers us a significant competitive advantage for our business and is an
important element of many of our customer relationships. At times minority
business enterprise status has provided us with the ability to compete for
business opportunities that might have been otherwise unavailable. For example,
because of our status, in February 1998 we were able to establish a strategic
relationship with United Technologies Automotive, Inc., now Lear Corporation.
This strategic alliance took the form of a jointly owned limited liability
company, or the Saturn LLC, in which we own a 53% interest. The Saturn LLC
constitutes our electrical business segment, which accounted for 14% of our net
revenue in 1999 and 32% of our net revenue in the first quarter of 2000.

The criteria applicable to minority business enterprises which engage in
public offerings are pending final approval by the National Minority Supplier
Development Council, or the National Council. While most of our customers
currently require us to provide a certification from the Michigan Minority
Business Development Council, or the Michigan Council, to recognize our status
as a minority business enterprise, the Michigan Council follows the guidelines
approved by the National Council. We have been advised by the National Council
that the Executive Committee of the National Council has approved the
continuation of our status as a certified minority business enterprise after
this offering so long as we meet the following criteria, referred to as the
Proposed Criteria:

- minorities own at least 30% of our common stock;

- a majority of the members of our board of directors continue to be ethnic
minorities; and

- a minority person continues to be responsible for our day-to-day
management.

Following the completion of this offering, we believe we will meet these
criteria.

The National Council, however, expects to approve, within the next few
months, definitive criteria for certifying publicly traded companies as minority
business enterprises. While the National Council currently anticipates that
criteria would be approved which would be no more restrictive than the Proposed
Criteria, it also has indicated that our status will be reviewed once definitive
criteria are adopted. We cannot assure you that the Proposed Criteria will be
adopted.

Our loss of minority business enterprise status could negatively affect our
ability to retain some of our existing business, procure future business and
pursue certain strategic alliances or joint ventures. In particular, if we lose
our minority business enterprise status, Lear has the right under our agreement
to require us to sell our membership interest in the Saturn LLC to another
certified minority business enterprise partner. We cannot assure you that we
would be capable of replacing the net revenue we derived from the Saturn LLC
after such sale.

WE MAY LOSE OUR STATUS AS A CERTIFIED MINORITY BUSINESS ENTERPRISE DUE TO OUR
FAILURE TO COMPLY WITH CRITERIA GOVERNING THE CERTIFICATION OF PUBLICLY TRADED
MINORITY BUSINESS ENTERPRISES.

We cannot assure you that we will meet, or continue to meet, the Proposed
Criteria, or any other criteria approved by the National Council, in the future,
governing the certification of publicly traded minority business enterprises.
For example, if a majority of our board of directors ceases to be ethnic
minorities, or if a minority person ceases to be responsible for our day-to-day
management, we may no longer be certified as a minority business enterprise. In
addition, assuming the Proposed Criteria are adopted, if we issue additional
stock in the future, in connection with acquisitions or otherwise, or if Mr.
Tsuha's or his family's beneficial ownership is reduced voluntarily or
involuntarily through sale,

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<PAGE> 11

transfer, death, personal bankruptcy or otherwise, and other ethnic minorities
cease to hold at least 30% of our common stock, we may lose our status as a
certified minority business enterprise, which could negatively affect our
ability to retain some of our existing business, procure future business and
pursue certain strategic alliances or joint ventures.

OUR CUSTOMERS MAY NOT FOLLOW THE CRITERIA GOVERNING THE CERTIFICATION OF
PUBLICLY TRADED MINORITY BUSINESS ENTERPRISES ADOPTED BY THE NATIONAL COUNCIL OR
MAY REDUCE OR END THEIR COMMITMENTS TO PURCHASE FROM CERTIFIED MINORITY BUSINESS
ENTERPRISES.

Historically many of our customers have considered minority business
enterprise status when awarding business. Accordingly, minority business
enterprise status has offered us a competitive advantage and is an important
element of many of our relationships with customers. In addition, many
businesses, including current customers, have declared that they intend on
maintaining or expanding their commitments to provide business to minority
business enterprises. Nevertheless, we cannot assure you that our customers or
potential customers will continue to follow criteria adopted by the National
Council or that our customers will continue or expand any commitments to
purchase services and goods from minority business enterprises certified by the
National Council.

OUR INTENTION TO MAINTAIN OUR MINORITY BUSINESS ENTERPRISE STATUS MAY HINDER OUR
ABILITY TO RAISE ADDITIONAL CAPITAL.

Under the Proposed Criteria, at least 30% of our equity must be owned by
ethnic minorities for us to be certified as a minority business enterprise.
Assuming that the Proposed Criteria are adopted or a similar minimum minority
ownership requirement is adopted, our ability to issue equity securities or
convertible debt securities as financing for an acquisition, to meet capital
needs or for other purposes may be limited due to our intention to maintain our
minority business enterprise status.

OUR CUSTOMERS GENERALLY DO NOT ENTER INTO LONG-TERM PURCHASE ORDERS OR
COMMITMENTS, AND CANCELLATIONS, REDUCTIONS OR DELAYS IN CUSTOMER ORDERS COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS.

We generally do not obtain long-term, firm purchase orders from our
communications, computer, military or other non-automotive customers. Our
automotive customers typically place annual blanket purchase orders, but these
orders do not obligate them to purchase any specific services or products from
us until they issue a release. We often purchase components with lead times in
excess of 90 days based on customer forecasts, at times without a customer
commitment or order to pay for them. We also rely on our estimates of
anticipated future orders when making inventory procurement and production
scheduling decisions.

For a variety of reasons, customers may cancel, reduce or delay commitments
or orders that were either previously made or anticipated. Cancellations,
reductions or delays in our customers' commitments or orders could have a
material adverse effect on our business, financial condition or results of
operations.

UNEXPECTED INCREASES IN THE PRICE OF OUR RAW MATERIALS AND INACCURACIES IN
FORECASTING OUR RAW MATERIAL AND INVENTORY NEEDS COULD NEGATIVELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

Because most of our agreements with our customers contain fixed prices, we
bear the risk of unexpected fluctuations in the cost of many raw materials. In
addition, over half of our net revenue is derived from our ability to meet short
customer timelines and provide just-in-time services. Accordingly, we are often
required to forecast our future inventory needs based upon the anticipated
demands of our customers. As a result, inaccuracies in forecasting our needs
could result in a shortage or an excess of materials or inventory, either of
which could have a material adverse effect on our business, financial condition
or results of operations.

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<PAGE> 12

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF WE BECOME INVOLVED
IN INTELLECTUAL PROPERTY RELATED LITIGATION, OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS MAY SUFFER A MATERIAL ADVERSE EFFECT.

As an electronics manufacturing services, or EMS, provider of value-added,
high technology services, our success depends, in part, on our proprietary
designs, technologies, techniques, processes and other intellectual property,
most of which is not protected by patents. If we are unable to protect our
intellectual property from infringement, reverse engineering or replication, we
may lose a competitive advantage. Additionally, if we become involved in
litigation regarding our intellectual property or the intellectual property of
others, such litigation could negatively affect or end our ability to use the
intellectual property at issue or our sales of the challenged products.
Intellectual property litigation could also divert our management and design and
engineering personnel and result in material costs to us.

You should read the section titled "Intellectual Property" beginning on
page 38 for a more complete discussion of our intellectual property.

OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL
AND SKILLED EMPLOYEES.

We depend on the services of our senior executives, including Wallace K.
Tsuha, Jr., our chairman, chief executive officer and president. Specifically,
Mr. Tsuha's departure would result in the loss of our minority business
enterprise status, unless we appoint an ethnic minority as our new chief
executive officer. Our business also depends on our ability to continue to
recruit, train and retain skilled employees, particularly management,
engineering and sales personnel. Recruiting personnel in our industry is highly
competitive. We have no employment agreements with any of our executive officers
or skilled employees. In addition, our ability to successfully integrate
acquired companies or portions of businesses depends, in part, on our ability to
retain key management and skilled personnel of these companies. The loss of, or
inability to retain, Mr. Tsuha or one or more of our other senior executives or
other skilled personnel, including personnel of acquired companies, could have a
material adverse effect on our business, financial condition or results of
operations.

RISKS PARTICULAR TO OUR INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT OUR
OVERALL RESULTS.

In addition to operations in the United States, we have manufacturing
facilities in Mexico and the Philippines, and an engineering and sales operation
in Singapore. We also intend to expand our operations in existing and into new
markets worldwide. Expanding our operations in foreign markets may require
considerable management time as well as start-up expenses for market
development, hiring personnel and establishing office facilities before any
meaningful revenue is generated. As a result, operations in new or expanded
foreign markets may have lower margins or may be unprofitable.

Our international manufacturing and other operations are also subject to
certain risks inherent in carrying on business outside of the United States.
These risks include:

- exchange rate fluctuations or increases in the level of inflation;

- greater risk of political or economic instability;

- difficulties in staffing or management;

- possible longer payment cycles from customers or greater difficulty in
collecting accounts receivable;

- unexpected changes in and the burdens and costs of compliance with a
variety of foreign laws and labor practices;

- adherence to and unexpected changes in trade restrictions such as export
duties, import controls or trade barriers, including quotas and tariffs;

- inability to utilize net operating losses incurred by our foreign
operations to reduce our United States income taxes; and

8
<PAGE> 13

- difficulties in coordinating domestic and foreign operations.

We cannot assure you that we will realize the anticipated benefits of our
international expansion or that our current or future international operations
will contribute positively to our business, financial condition or results of
operations.

WE HAVE EXPOSURE TO PRODUCT LIABILITY CLAIMS AND RECALLS OF PRODUCTS THAT COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS.

As a service provider in the EMS industry, we have exposure to product
liability claims with respect to our operations in the event that the failure of
one or more of our services or products results in personal injury or death. In
addition, if any of the services we provide or the products we manufacture prove
to be defective, we may be required to participate in a government mandated or
original equipment manufacturer required recall involving those related
products. Our insurance against product liability claims may be insufficient to
cover liabilities ultimately incurred by us, or insurance may cease to be
available on terms acceptable to us.

WE MAY INCUR SIGNIFICANT LIABILITIES IF WE FAIL TO COMPLY WITH ENVIRONMENTAL AND
HEALTH AND SAFETY REGULATIONS.

You should read the section titled "Regulations" on page 39 for a more
complete discussion of environmental and health and safety regulations.

OUR BUSINESS MAY SUFFER IF GOVERNMENT REGULATION HINDERS OUR ABILITY TO SELL
CERTAIN COMMUNICATIONS OR MEDICAL SERVICES OR PRODUCTS.

Although our sales to the communications market currently constitute a
small portion of our net revenue, we intend to increase our sales to this end
market. Many of our communications customers are subject to regulation by the
Federal Communications Commission, or the FCC, the European Union, and other
federal, state and foreign governmental and non-governmental authorities. The
failure of our current or potential communications customers to meet FCC or
similar requirements could result in the non-approval, recall or discontinuation
of products which could substantially reduce or eliminate their demand for our
services. This could reduce or eliminate an area of anticipated growth in net
revenue, resulting in a material adverse effect on our business, financial
condition or results of operations.

In addition, although our sales of services to the medical market currently
constitute a small portion of our net revenue, we intend to increase our sales
to this market. The design, development, testing, manufacture, promotion and
sale of medical devices are subject to extensive regulation by the Food and Drug
Administration, or the FDA, and other federal, state and foreign authorities. If
the FDA determines that our medical customers or we fail to meet FDA and similar
regulatory requirements, the FDA could institute regulatory proceedings or
require product repairs, product replacements or purchase price refunds, assess
penalties or take other significant actions. The failure of our current or
potential medical end market customers or us to obtain or maintain FDA approvals
and maintain compliance with FDA production requirements, therefore, could
substantially reduce their demand for our services, reducing an area of

9
<PAGE> 14

anticipated revenue growth. This could have a material adverse effect on our
business, financial condition or results of operations.

You should read the section titled "Regulations" on page 39 for a more
complete discussion of governmental regulations regarding services to our
customers in the communications and medical end markets.

UNEXPECTED INTERRUPTIONS TO OUR SERVICES COULD NEGATIVELY AFFECT OUR RESULTS OF
OPERATIONS.

As a manufacturer of goods dependent on a skilled work force and
state-of-the-art manufacturing facilities, our services are subject to a number
of potential causes of interruption, including labor difficulties and strikes,
natural disasters, fire, vandalism, civil disturbances and mechanical failures,
any of which could impair or prevent our ability to provide one or more of our
services. For example, in 1999 a production facility in North Carolina was
closed for four days due to flooding caused by a hurricane. Any material
reduction or stoppage of production at one or more of our manufacturing
facilities or impairment or prevention of our ability to provide design and
engineering, materials management, testing and qualification, fulfillment or
after-sales support services could have a material adverse effect on our
business, financial condition or results of operations.

RISKS RELATING TO OUR INDUSTRY AND MARKETS

OUR INDUSTRY IS INTENSELY COMPETITIVE, AND WE MAY BE UNSUCCESSFUL IF WE CANNOT
COMPETE EFFECTIVELY.

The EMS industry is intensely competitive. We compete against many domestic
and foreign EMS providers, some of which possess greater global or domestic
operations and greater financial, manufacturing, sales, marketing, research,
engineering and acquisition resources and capabilities than we have. Also,
current and prospective customers may decide to internally perform some of the
services we offer. In addition, because the basic technology necessary to be an
EMS provider is generally not subject to proprietary protection, competitors may
replicate such basic technology and additional competitors may enter the market
in the future. We compete on the basis of, among other things, product quality,
responsiveness to customers, manufacturing and engineering technology and price.
To the extent our services and products do not provide quality, timing or
technological advantages over those offered by our competitors, or which can be
realized by our customers internally, we are likely to experience increased
price competition, reduced margins or loss of market share with respect to those
services and products, any of which could have a material adverse effect on our
business, financial condition or results of operations.

WE MAY BE UNABLE TO OBTAIN RAW MATERIALS OR COMPONENTS NEEDED FOR OUR
MANUFACTURING OPERATIONS ON A TIMELY BASIS OR AT ALL.

We rely on a limited number of suppliers for single source components used
in the manufacture and assembly of our products, and we generally do not have
long-term supply agreements. Shortages of materials and components have occurred
from time to time and will likely occur in the future. Raw materials or
component shortages and price fluctuations could result in shipping delays or
increased prices, which could adversely affect our ability to manufacture
products for our customers on a timely basis or at an acceptable cost. Moreover,
the current consolidation trend among suppliers to EMS providers could result in
changes in supply relationships and in the price, availability and quality of
components and raw materials. Due to our use of just-in-time inventory
techniques, the timely availability of many components is dependent on our
abilities to develop accurate forecasts of customer requirements and to manage
the materials supply chain. If we fail to do either, we may lose customers which
could have a material adverse effect on our business, financial condition or
results of operations.

IF WE ARE UNABLE TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY AND CONTINUOUS
PROCESS DEVELOPMENT, WE MAY BE UNABLE TO COMPETE EFFECTIVELY.

The EMS industry is characterized by rapidly changing technology and
continuous process development. The future success of our business will largely
depend on our ability to maintain and
10
<PAGE> 15

enhance our technological capabilities, develop and market services that meet
changing customer needs, and successfully anticipate or respond to technological
changes on a cost-effective and timely basis. In addition, in the future our
industry could encounter competition from new or revised technologies that
render our current technology less competitive or obsolete or that reduce the
demand for our services. We may not be able to effectively respond to the
technological requirements of changing markets. To the extent we determine that
we must develop or secure new technologies and equipment to remain competitive,
we may be required to make material capital or other investments. Financing on
acceptable terms may not be available for these purposes in the future and our
investments in new technologies may not result in commercially viable
technologies.

A DOWNTURN IN THE AUTOMOTIVE INDUSTRY WOULD LIKELY REDUCE OUR NET REVENUE.

We derived approximately 70% of our net revenue from customers in the
automotive industry for both the year ended December 31, 1999 and for the
quarter ended March 31, 2000. The automotive industry is subject to economic
cycles and has in the past experienced, and is likely in the future to
experience, recessionary periods. A recession or any other event leading to
either excess capacity or a downturn in the automotive industry may have a
material adverse effect on our business, financial condition or results of
operations.

OUR SALES MAY BE ADVERSELY AFFECTED BY LABOR INTERRUPTIONS AT OUR CUSTOMERS.

Substantially all of the hourly employees of North American automotive
original equipment manufacturers, and many of the employees of our other
customers who sell to automotive original equipment manufacturers, are
represented by the International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America under collective bargaining
agreements. Because we deliver products to our customers on a just-in-time
basis, a work stoppage caused by labor difficulties at DaimlerChrysler, Ford or
General Motors could prevent sales and deliveries of our services and products
to that customer, which could have a material adverse effect on our business,
financial condition or results of operations.

RISKS ASSOCIATED WITH INTERNAL GROWTH AND ACQUISITIONS

WE INTEND TO RAPIDLY GROW OUR BUSINESS AND MAY HAVE TROUBLE MANAGING THAT
GROWTH.

We intend to rapidly grow our business by seeking additional programs for
each of our segments and entering into strategic outsourcing alliances. Rapid
growth involves risks, including the following:

- inability to attract and retain the management personnel and skilled
employees necessary to support expanded operations;

- inability to efficiently integrate new operations, expand existing
operations and manage geographically dispersed operations;

- incurrence of cost overruns;

- construction delays, equipment delays or shortages, labor shortages and
disputes and production start-up costs;

- inability to obtain financing or capital on acceptable terms or at all;
and

- incurrence of new fixed operating expenses, including increases in
depreciation expense and rental expense.

For example, in March 2000, we entered into an agreement with Motorola
pursuant to which we became a preferred EMS supplier to their Integrated
Electronics Systems Sector. Based on our capabilities, we believe that we are
well positioned to obtain considerable additional business over the next few
years from this strategic outsourcing alliance. We expect to dedicate resources
and management time

11
<PAGE> 16

toward fostering and maintaining this relationship, which may divert personnel
from other matters. If we are unable to meet the requirements of this new
strategic outsourcing alliance, there could be a material adverse effect on our
business, financial condition or results of operations.

In addition, our rapid growth has placed, and will continue to place, a
strain on our management resources and information, operating and financial
systems. For example, we anticipate that within the next four years we may need
to replace or expand our current information system. If our information system
does not work effectively or if we experience any difficulties in our transition
to a new information system, we may experience delays or failures in our
accounting and other information processing. This could adversely affect the
promptness and accuracy of our transaction processes and our financial
accounting and reporting. Furthermore, to manage the expected growth of our
operations and personnel, we may need to improve our other operational and
financial systems, transaction processes, procedures and controls. Our current
and planned systems, transaction processes, procedures and controls may be
inadequate to support future operations. Our inability to manage our growth
effectively could have a material adverse effect on our business, financial
condition or results of operations.

WE HAVE GROWN THROUGH ACQUISITIONS, AND EXPECT TO CONTINUE TO GROW, IN PART,
THROUGH ACQUISITIONS, AND OUR INABILITY TO SUCCESSFULLY IMPLEMENT OUR
ACQUISITION STRATEGY MAY HINDER OUR FUTURE GROWTH.

As part of our business strategy, we have also grown, and expect to
continue growing, by acquiring other product lines, technologies or facilities
that complement or expand our existing business. For example, in 1994, we
acquired three affiliates of MascoTech, and in August 1999, we expanded our
business through the acquisition of Smartflex Systems, an EMS provider based in
Tustin, California. However, we may not realize any of the anticipated benefits
of Smartflex or any future acquisition.

In addition, there is keen competition for acquisition targets in the EMS
industry. As a result, we may not be able to identify suitable acquisition
candidates or negotiate attractive terms. In addition, we may have difficulty
obtaining the financing necessary to complete transactions we pursue. For
example, our current credit facility restricts the amount we can borrow to
undertake acquisitions. Moreover, our ability to issue equity securities or
convertible debt securities as financing for an acquisition may be limited due
to the extent we desire to maintain our minority business enterprise status. Our
failure to execute our acquisition strategy may have a material adverse effect
on our business, financial condition or results of operations.

OUR ACQUISITION STRATEGY MAY HAVE A DILUTIVE EFFECT ON YOUR INVESTMENT.

Future acquisitions may involve the issuance of our equity securities as
payment, in part or in full, for the acquired product line, technology or
facilities. Any future issuances of equity securities will dilute your ownership
interests. In addition, future acquisitions might never increase, and may even
decrease, our earnings or earnings per share and the benefits derived by us from
an acquisition may not outweigh or exceed the dilutive effect of the
acquisition. We may also incur additional debt burden in connection with any
future acquisitions or suffer costs of adverse tax and accounting consequences.

WE MAY HAVE TROUBLE INTEGRATING ACQUIRED PRODUCT LINES, TECHNOLOGIES AND
FACILITIES.

In accordance with our business strategy, we have historically engaged in,
and intend to continue to engage in, a number of acquisitions, the most recent
of which was our purchase of Smartflex. In addition to the risks that the
intended benefits of an acquisition may not materialize, or an acquisition might
prove costly or dilutive, acquisitions, including Smartflex, involve numerous
other risks, including the following:

- difficulty in integrating operations, technologies, systems, services and
products;

- diversion of management's attention and disruption of operations;

- increased expenses and working capital requirements;

- entering markets in which competitors have stronger market positions or
in which we have limited or no prior experience;

12
<PAGE> 17

- potential loss of key employees and customers of acquired businesses or
portions of businesses; and

- potential liabilities of acquired product lines, assets or companies.

We may not be able to meet performance expectations or successfully
integrate acquisitions on a timely basis without disrupting the quality and
reliability of services to our customers or diverting management resources,
either of which could have a material adverse effect on our business, financial
condition or results of operations.

RISKS RELATING TO OUR COMMON STOCK

WALLACE K. TSUHA, JR. AND HIS FAMILY WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR COMPANY AFTER THIS OFFERING AND THEY, ESPECIALLY IN COMBINATION WITH
MASCOTECH, COULD DELAY, DETER OR PREVENT A CHANGE OF CONTROL OR OTHER BUSINESS
COMBINATION EVEN THOUGH SOME OF OUR SHAREHOLDERS MIGHT CONSIDER SUCH A
DEVELOPMENT FAVORABLE.

Upon completion of this offering, Mr. Wallace K. Tsuha, Jr., our chairman,
chief executive officer and president, and his family, will beneficially own
approximately % of our common stock on a fully diluted basis, or %, on
a fully diluted basis, if the underwriters' over-allotment is exercised in full.
By virtue of this stock ownership, Mr. Tsuha and his family will continue to
have substantial control over all matters submitted to our shareholders,
including the election of our directors, and to exercise significant control
over our business, policies and affairs. Such concentration of voting power
could delay, deter or prevent a change of control or other business combination
that might otherwise be beneficial to our shareholders.

Upon completion of this offering, MascoTech will own approximately %
of our common stock on a fully diluted basis, or %, on a fully diluted
basis, if the underwriters' over-allotment is exercised in full. By virtue of
this stock ownership, MascoTech will continue to have significant influence over
us through its ability to influence the election of directors and all other
matters that require action by our shareholders. This concentration of voting
power, especially in combination with Mr. Tsuha's and his family's voting power,
could delay, deter or prevent a change of control or other business combination
that might otherwise be beneficial to our shareholders. In addition, one of the
executive officers of MascoTech is currently a member of our board of directors.
We sell services and products to affiliates of MascoTech. At times, it may be
possible that this director may be presented with a conflict of interest by
virtue of his positions at both MascoTech and our company, particularly given
MascoTech's share ownership and the fact that some of MascoTech's affiliates are
also our customers.

PROVISIONS IN STATE LAW AND OUR ARTICLES OF INCORPORATION AND BYLAWS MAY MAKE IT
MORE DIFFICULT FOR OTHERS TO OBTAIN CONTROL OF OUR COMPANY EVEN THOUGH SOME
SHAREHOLDERS MIGHT CONSIDER THIS DEVELOPMENT FAVORABLE BECAUSE THEY MAY RECEIVE
A PREMIUM FOR THEIR SHARES.

Provisions in state law and our amended and restated articles of
incorporation and amended and restated bylaws may deter, delay or prevent a
change of control or changes in our management even though some of our
shareholders may consider those changes favorable or beneficial because they may
receive a premium for their shares. For example, our bylaws provide for a
classified board of directors with staggered terms, so that it would take three
successive annual meetings of the shareholders to replace all of our directors.
Our articles also authorize the issuance of preferred stock, with rights senior
or superior to common shares, by our board of directors, without prior
shareholder approval. Our bylaws also require advance notice for submitting
nominations for election to the board of directors and for proposing matters
that can be acted upon by the shareholders at a meeting. In addition, Michigan
law has specific fair price and control share provisions that could delay,
deter, or prevent a change of control.

13
<PAGE> 18

RISKS RELATING TO THIS OFFERING

NON-CASH ACCOUNTING CHARGES RELATED TO EMPLOYEE OPTIONS AND A WARRANT HELD BY
MOTOROLA WILL RESULT IN A REDUCTION OF OUR EARNINGS, MAY RESULT IN US REPORTING
LOSSES AND MAY RESULT IN A REDUCTION OF OUR STOCK PRICE.

Upon completion of this offering, we will record non-cash deferred
compensation and related paid in capital to reflect the grant of stock options
to employees at prices below fair market value of our common stock on the date
of this offering. At an assumed initial public offering price of $ per
share, this deferred compensation will be $ million, and will be
amortized as stock-based compensation using an accelerated method over the
exercise period of the related options. This charge will result in a reduction
of our earnings, may result in us reporting a loss in the applicable
amortization period and may result in a reduction of our stock price.

In addition, in March 2000, we recognized a non-cash charge through our
results of operations in the amount of $7.9 million in relation to the issuance
of a warrant to purchase 1,565,331 shares of our common stock to reflect the
difference between the fair market value and the exercise price of the warrant.
This charge resulted in a reduction of our earnings for the quarter ended March
31, 2000, which may result in us reporting a loss for year 2000 and may result
in a reduction in our stock price.

OUR STOCK PRICE COULD BE VOLATILE AND COULD DROP UNEXPECTEDLY FOLLOWING THIS
OFFERING.

Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This market fluctuation
is particularly pronounced in the high technology sector. This type of market
volatility could decrease the price of our common stock without regard to our
operating performance. In addition, our results of operations may be below the
expectations of public market analysts or investors. If this occurs, the market
price of our common stock could decrease materially.

FUTURE SALES OF OUR COMMON STOCK, OR THE PERCEPTION THAT SUCH SALES COULD OCCUR,
COULD CAUSE OUR STOCK PRICE TO DECLINE.

The market price of our common stock could decline as a result of sales in
the public market of our common stock by our existing shareholders after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to issue additional equity securities in the future.

After this offering, we will have shares of common stock outstanding.
This includes the
shares we and the selling shareholders are selling in this offering, which may
be resold in the public market immediately. The remaining shares, or % of
our total outstanding shares, and our shares subject to outstanding options and
the Motorola warrant, are restricted from immediate resale by federal securities
laws and lock-up agreements between our current shareholders and the
underwriters, but may be sold into the public market in the near future. These
shares will become available for sale at various times following the expiration
of the lock-up agreements, which is 180 days after the date of this prospectus,
subject to volume limitations under Rule 144 of the Securities Act. In addition,
MascoTech, a holder of 36.3% of our shares prior to this offering, Mr. Tsuha and
trusts for the benefit of Mr. Tsuha and his family, which together hold 63.7% of
our shares prior to the offering, and Motorola, with respect to the shares it
may acquire pursuant to its warrant, each has the right to require us to
register their shares following this offering under the circumstances described
in "Registration Rights" beginning on page 53.

You should read the section titled "Shares Eligible For Future Sale"
beginning on page 52 for a more complete discussion of shares that may be sold
in the public market in the future.

INVESTORS WHO PURCHASE OUR COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE
AND SUBSTANTIAL DILUTION, AND YOU MAY SUFFER FURTHER DILUTION UPON THE EXERCISE
OF OUTSTANDING OPTIONS AND THE MOTOROLA WARRANT.

Our existing shareholders paid substantially less for their shares of our
common stock than the initial public offering price. As a result, you will
suffer immediate and substantial dilution in net tangible book value per share.
In addition, to the extent outstanding options and the Motorola warrant are
exercised in the future, you will experience further dilution.

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<PAGE> 19

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements within the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 throughout this prospectus. In
some cases you can identify these statements by forward-looking words such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will," and "would" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors," as
well as any cautionary language in this prospectus provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, financial condition or results
of operations.

You should read this prospectus completely and with the understanding that
our actual future results may be materially different from what we expect. We
may not update these forward-looking statements after the date of this
prospectus, even though our situation will change in the future. All
forward-looking statements attributable to us are expressly qualified by these
cautionary statements.

15
<PAGE> 20

USE OF PROCEEDS

We will receive net proceeds of approximately $ million from our
sale of shares of our common stock in this offering at the assumed
initial public offering price of $ per share after deducting underwriting
discounts and commissions paid by us. We will not receive any of the proceeds
from the sale of our shares being offered by the selling shareholders, including
shares they will sell if the underwriters exercise their over-allotment option.

We expect to use approximately $ million of our net proceeds from
this offering to reduce our indebtedness under our credit facility, and expect
to use the remainder for working capital and other general corporate purposes.
You should be aware, however, that we have broad discretion under our bank
credit facility as to the amount we choose to repay. We may actually repay more
or less of our long-term debt. Our bank credit facility matures in August, 2002.
At March 31, 2000, we had $117.1 million outstanding under our bank credit
facility, of which $71.3 million was used to finance our acquisition of
Smartflex in August 1999 and $27.0 million was used to finance a share
repurchase in April 1999. At March 31, 2000, the weighted average interest rate
on our credit facility was 8.75%. Our net proceeds from this offering not used
to reduce our indebtedness under the bank credit facility will be invested in
short-term, interest-bearing securities until allocated for a specific use.

DIVIDEND POLICY

We have not declared or paid a cash dividend on our common stock since our
formation, and we do not anticipate paying any cash dividends in the foreseeable
future. We presently intend to retain earnings to finance future operations and
expansion and to reduce indebtedness.

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<PAGE> 21

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

- on an actual basis; and

- on an as adjusted basis to reflect our sale of shares of common
stock in this offering at an assumed initial public offering price of
$ per share, and our receipt and use of the estimated net proceeds
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.

While we have assumed for purposes of the adjusted capitalization data
below that we will apply approximately $ million of our net proceeds to
reduce long-term debt, you should be aware that we have broad discretion under
our bank credit facility as to the amount we choose to repay.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS EXCEPT
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Cash........................................................ $ 3,798 $
======== ========
Long-term debt.............................................. $117,110 $
-------- --------
Shareholders' equity:
Common stock -- no par value; 200,000,000 shares
authorized, actual and as adjusted; 29,741,280 shares
outstanding, actual, shares outstanding as
adjusted............................................... --
Additional paid-in capital................................ 15,646
Retained earnings......................................... 40,649
-------- --------
Total shareholders' equity............................. 56,295
-------- --------
Total capitalization................................. $173,405 $
======== ========
</TABLE>

The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of May 3, 2000 and excludes:

- 2,777,400 shares issuable upon exercise of outstanding stock options with
a weighted average exercise price of $2.75 per share;

- 2,500,000 shares of common stock available for future grant under our
2000 Stock Option Plan; and

- 1,565,331 shares issuable upon the exercise of a warrant held by Motorola
with an exercise price equal to 90% of the initial public offering price
per share.

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<PAGE> 22

DILUTION

If you invest in shares of our common stock in this offering, your
ownership interest will be diluted to the extent of the difference between the
public offering price per share of our common stock and the net tangible book
value per share after this offering. As of March 31, 2000, we had a negative net
tangible book value of approximately $(9.5) million, or $(.32) per share of
common stock. Net tangible book value per share is determined by dividing the
amount of our total tangible assets less total liabilities by the number of
shares of common stock outstanding. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of common stock in this offering and the net tangible book value per share of
common stock immediately after the completion of this offering. Our pro forma
net tangible book value as of March 31, 2000 would have been approximately
$ million, or $ per share, after giving effect to our sale of
shares of common stock in this offering at an assumed public offering price of
$ and our receipt of the net proceeds, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us. This
represents an immediate increase in pro forma net tangible book value of $
per share to our existing shareholders and an immediate dilution of $ per
share to new investors purchasing shares at the initial public offering price.
If the initial public offering price is higher or lower, the dilution to the new
investors will be greater or less, as applicable. The following table
illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at March 31,
2000................................................... $
Increase per share attributable to new investors..........
-------
Pro forma tangible book value per share after this
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>

The following table sets forth, as of March 31, 2000, the number of shares
of common stock purchased from us, the total consideration paid, and the average
price per share paid by our existing shareholders and new investors assuming an
initial offering price of $ per share, before deducting the underwriting
discounts and commissions and our estimated offering expenses.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... % $ % $
New investors.................. % %
---------- -------- ---------- --------
Total..................... 100.0% $ 100.0%
========== ======== ========== ========
</TABLE>

The foregoing table and calculations assume no exercise of any options and
excludes:

- 2,777,400 shares issuable upon exercise of outstanding stock options with
a weighted average exercise price of $2.75 per share;

- 2,500,000 shares of common stock available for future grant under our
stock option plan; and

- 1,565,331 shares issuable upon the exercise of a warrant held by Motorola
with an exercise price equal to 90% of the initial public offering price
per share.

To the extent outstanding or newly acquired options or the Motorola warrant
are exercised in the future, there will be further dilution to new investors. If
the Motorola warrant and all of the outstanding options are fully exercised,
investors will suffer a further dilution of $ per share.

18
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data and selected pro forma
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
and our consolidated financial statements and related notes included elsewhere
in this prospectus. The 1999 pro forma consolidated statement of operations data
give effect to the acquisition of Smartflex Systems as if this acquisition had
been completed on January 1, 1999. This acquisition was accounted for under the
purchase method of accounting and accordingly Smartflex has been included in our
financial results since August 26, 1999, the date of the acquisition. The
consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 are derived from our audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statements of operations
data for the years ended December 31, 1995 and 1996 and the consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 are derived from our audited
consolidated financial statements, which are not included in this prospectus.

The financial information for the three months ended March 31, 2000 and
1999 and at March 31, 2000, has been derived from unaudited financial statements
which, in the opinion of management, include all adjustments necessary for a
fair presentation of financial position and results of operations for such
periods.

The pro forma data does not purport to represent what the Company's results
of operations actually would have been if the transactions had, in fact,
occurred at the beginning of the period, or at the date, indicated or to project
the Company's results of operations at any future date or for any future period.
Historical results are not necessarily indicative of the results of operations
to be expected for future periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
--------------------------------------------------------------------------- MARCH 31,
PRO FORMA -----------------------
1995 1996 1997 1998 1999 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue............... $ 122,550 $ 168,707 $ 161,048 $ 188,464 $ 257,107 $ 325,579 $ 47,985 $ 122,280
Cost of revenue........... 119,272 146,070 133,568 147,661 205,341 268,975 36,037 100,925
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.............. 3,278 22,637 27,480 40,803 51,766 56,604 11,948 21,355
Development expense....... 2,468 3,260 3,563 4,861 7,741 8,465 1,633 6,018
Selling, general and
administrative expense... 2,431 4,976 8,039 12,777 19,146 29,467 4,090 6,811
Amortization expense...... 1,650 1,650 1,650 1,649 2,582 4,772 412 1,056
Restructuring expense..... -- -- -- -- -- 3,833 -- --
Warrant expense........... -- -- -- -- -- -- -- 7,909
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)... (3,271) 12,751 14,228 21,516 22,297 10,067 5,813 (439)
Interest income........... -- -- 100 176 331 -- 24 48
Interest expense.......... (1,722) (1,981) (977) (142) (3,340) (8,736) (17) (2,538)
Other income (expense),
net...................... (158) 449 116 (131) (161) (710) 110 (278)
Write down of
investment............... -- -- -- (905) -- -- -- --
Minority interest......... -- -- -- (1,701) (2,788) (2,788) (713) (1,935)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes............. (5,151) 11,219 13,467 18,813 16,339 (2,167) 5,217 (5,142)
Income taxes.............. (1,773) 4,217 5,408 6,859 6,434 370 1,885 (1,670)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)......... $ (3,378) $ 7,002 $ 8,059 $ 11,954 $ 9,905 $ (2,537) $ 3,332 $ (3,472)
========== ========== ========== ========== ========== ========== ========== ==========
Basic and diluted earnings
(loss) per share of
common stock............. $ (0.09) $ 0.19 $ 0.22 $ 0.32 $ 0.31 $ (0.08) $ 0.09 $ (0.12)
Basic and diluted weighted
average number of common
shares outstanding....... 37,176,600 37,176,600 37,176,600 37,176,600 32,145,026 32,145,026 37,176,600 29,741,280
</TABLE>

19
<PAGE> 24

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................. $ 101 $ 2,331 $ 1,136 $ 1,020 $ 1,929 $ 3,798
Working capital...................................... 22,404 21,828 18,283 22,259 45,145 59,450
Total assets......................................... 87,026 84,616 83,425 98,604 231,474 271,236
Long-term debt, net of current portion............... 26,070 18,070 6,630 3,976 107,361 117,110
Total shareholders' equity........................... 41,938 48,940 56,999 68,953 51,858 56,295
</TABLE>

20
<PAGE> 25

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

You should read the following discussion in conjunction with the "Selected
Consolidated Financial Data" section of this prospectus and our consolidated
financial statements and related notes included elsewhere in this prospectus.
The following discussion contains trend analysis and other forward-looking
statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Our actual
results may differ from those indicated in such forward-looking statements as a
result of factors set forth elsewhere in this prospectus, including under "Risk
Factors" beginning on page 5.

OVERVIEW

We are a global provider of value-added electronics manufacturing services,
or EMS, to original equipment manufacturers and their suppliers. We provide
these services to customers primarily in the automotive, communications,
computer and military end markets. As the amount and complexity of electronics
content in commercial and consumer goods have grown, original equipment
manufacturers have been increasingly using EMS providers to outsource their
internal manufacturing capacity. We also offer original equipment manufacturers
integrated cost-effective solutions that are responsive to their outsourcing
needs and provide a broad range of services, including product design and
engineering; materials management; manufacturing and assembly; testing and
qualification; delivery and distribution of products, or fulfillment; and
after-sales support. Our customers include industry leaders such as
DaimlerChrysler, Ford, General Dynamics, Hewlett-Packard, IBM and Motorola.

To better target customers and serve the needs of different end markets, we
have strategically aligned our business into three segments: electronics,
electromechanical and electrical.

- Our electronics segment provides services in connection with assembly of
electronic components within precise parameters onto flexible circuit
boards, or flex assembly, printed circuit boards, flex circuit assembly
and incorporation of electronic assemblies into subassemblies and the
assembly of final systems packages, or box-build. We obtained most of our
capabilities in this segment with the acquisition of Smartflex in August
1999.

For the year ended December 31, 1999, our electronics segment accounted for
32% of our net revenue, our electromechanical segment accounted for 54% of our
net revenue and our electrical segment accounted for 14% of our net revenue. For
the quarter ended March 31, 2000, our electronics segment accounted for 31% of
our net revenue, our electromechanical segment accounted for 37% of our net
revenue and our electrical segment accounted for 32% of our net revenue. In
future periods, we expect that our electronics segment will account for a higher
portion of our net revenue as we focus our management efforts on this segment to
take advantage of opportunities in the communications and automotive end
markets. In addition, some of our manufacturing facilities in our electronics
segment currently have excess capacity for which we are seeking new programs.

We recognize revenue when products are shipped to our customers. We have
historically relied on a small number of customers for a majority of our net
revenue. For the year ended December 31, 1999, DaimlerChrysler accounted for 31%
of our net revenue and Ford accounted for 19% of our net revenue. For the
quarter ended March 31, 2000, DaimlerChrysler accounted for 18% of our net
revenue and Ford accounted for 33% of our net revenue. We expect to continue to
generate most of our net revenue from a small group of customers in the future.
The loss of any one of our major customers would have a material

21
<PAGE> 26

adverse effect on our business, financial condition or results of operations.
During the third quarter of 2000, a significant automotive program is scheduled
to end. This program generated $31.5 million of net revenue during 1999 for our
electromechanical segment.

We do not generally obtain long-term, firm purchase orders from our
communications, computer, military and other non-automotive customers. Rather,
these customers typically place orders for delivery within 30 to 90 days. Our
automotive customers typically place annual blanket purchase orders, but these
orders do not obligate them to purchase any specific or minimal amount of
services or products from us until a release is issued under the blanket
purchase order. Releases are typically placed within 30 to 90 days of required
delivery and may be canceled at any time, in which case the customer generally
would be liable only for finished goods and work in process. Therefore, we must
anticipate delivery dates and future volume of orders based upon our customer
forecasts. The level and timing of orders placed by our customers vary due to:

- customer attempts to manage inventory;

- changes in customer manufacturing strategy; and

- variation in demand for customer products resulting from, among other
things, introduction of new products, product life cycles, competitive
conditions or industry or economic conditions.

We rely on a single or limited number of suppliers for many proprietary and
other components used in the assembly of our products, and we do not typically
have any long-term supply agreements. Shortages of materials and components have
occurred from time to time and will likely occur in the future. Some key
electronics components have long procurement lead times in addition to being
available from only one source or a limited number of sources. Failure to
anticipate the volume or timing of customer orders or delivery problems relating
to components from limited source suppliers could have a material adverse effect
on our financial performance.

Most of our business is presently dependent upon the automotive industry.
The automotive industry is cyclical and dependent on consumer spending. In
addition, EMS providers to the automotive industry experience seasonal
variations in original equipment manufacturers' orders and revenue. Decreased
revenues and operating income are generally experienced during the months of
July and December of each year as a result of scheduled original equipment
manufacturers' plant shut downs for vacations and holidays as well as
changeovers in production lines for the next model year.

RECENT ACQUISITION

In August 1999, we acquired Smartflex Systems, Inc. for $71.3 million. This
acquisition was accounted for under the purchase method of accounting, and,
accordingly, Smartflex has been included in our financial results since August
26, 1999.

STOCK OPTIONS

Upon completion of this offering, we will record non-cash deferred
compensation related to paid in capital to reflect the grant of stock options to
employees at prices below fair market value of our common stock on the date of
this offering. At an assumed initial offering price of $ per share,
this deferred compensation will be $ million, which will be amortized
as stock-based compensation using an accelerated method over the vesting period
of the related options.

THE QUARTER ENDED MARCH 31, 2000 COMPARED WITH THE QUARTER ENDED MARCH 31, 1999

Net Revenue

Our net revenue increased $74.3 million, or 154.8%, to $122.3 million in
the first quarter of 2000 from $48.0 million in the first quarter of 1999. This
increase reflected higher business volume in all of our business segments. Net
revenue was higher in the electrical segment by $30.7 million, in the
electronics segment by $28.3 million and in the electromechanical segment by
$15.3 million. The increase in the

22
<PAGE> 27

electrical segment was attributable to the initiation of the automotive engine
harness business of this segment during the first quarter of 2000, which
accounted for $25.6 million of the increase, and the remainder of the increase
resulted primarily from higher volume associated with battery cables due to two
programs with a major automotive original equipment manufacturer. The increase
in the electronics segment reflected the August 1999 acquisition of Smartflex,
which added $31.6 million to our sales during the first quarter of 2000. This
increase was partially offset by a decline in net revenue of our electronics
business which existed prior to our acquisition of Smartflex, due to the
phase-out of some programs. The increase in the electromechanical segment was
primarily attributable to $10.5 million of net revenue associated with a major
junction block program, which was launched during the second quarter of 1999 and
$2.5 million of net revenue associated with increased sales of relay products,
with the remainder of the increase attributable to increased volumes associated
with solenoids and other electromechanical products.

Gross Profit

Our gross profit increased $9.5 million, or 79.8%, to $21.4 million in the
first quarter of 2000 from $11.9 million in the first quarter of 1999. However,
our gross profit as a percent of net revenue declined to 17.5% in the first
quarter of 2000 from 24.8% in the first quarter of 1999. This decline was
primarily attributable to a significantly higher proportion of net revenue from
our electronics segment, which generally has lower profit margins than our other
business segments, and the addition of the automotive engine harness business of
the electrical segment, which also has lower profit margins in comparison to
other product offerings of that segment. The electronics segment was also
negatively affected by excess capacity during the first quarter of 2000.

Development Expense

Our development expense increased $4.4 million to $6.0 million in the first
quarter of 2000 from $1.6 million in the first quarter of 1999. This increase
primarily reflected higher design and process engineering activities in the
electrical segment in the amount of $3.0 million, which were provided to the
Saturn LLC by our strategic alliance partner during the first quarter of 2000,
as well as development expense attributable to our electronics business segment
in the amount of $396,000.

Selling, General and Administrative Expense

Our selling, general and administrative expense increased $2.7 million, or
65.9%, to $6.8 million in the first quarter of 2000 from $4.1 million in the
first quarter of 1999. This increase reflected the addition of expenses
associated with our electronics business segment in the amount of $2.2 million,
higher expenses at the Saturn LLC in the amount of $803,000, which were
primarily related to its automotive engine harness business, and the relocation
of a facility in the electronics segment which accounted for approximately
$707,000 of this increase. These increases were partially offset by a decline in
the electromechanical segment.

Amortization Expense

Amortization expense increased $643,000 to $1.1 million in the first
quarter of 2000 from $412,000 in the first quarter of 1999. This increase
reflected the amortization expense associated with the $52.7 million of
intangible assets recorded in connection with the acquisition of Smartflex.

Warrant Issuance

During the first quarter of 2000, we recognized a non-cash charge through
our results of operations in the amount of $7.9 million in relation to the
issuance to Motorola of a warrant to purchase 1,565,331 shares of our common
stock.

23
<PAGE> 28

Net Income (Loss)

Our net loss was $3.5 million in the first quarter of 2000 compared with
net income of $3.3 million in the first quarter of 1999. The loss in the first
quarter of 2000 reflects a $7.9 million charge pertaining to the issuance of the
Motorola warrant and higher interest expense. Interest expense increased by $2.5
million due to a higher level of debt balances during the first quarter of 2000
resulting from the financing of the Smartflex acquisition and a stock repurchase
subsequent to March 31, 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

Net Revenue

Our net revenue increased $68.6 million, or 36.4%, to $257.1 million in
1999 from $188.5 million in 1998. This increase reflected higher business volume
in all of our business segments. Net revenues were higher in the electronics
segment by $36.1 million, in the electromechanical segment by $22.8 million and
in the electrical segment by $9.8 million. The increase in the electronics
segment was attributable to the acquisition of Smartflex, which added $52.2
million in net revenue for the period beginning August 26, 1999 and ending
December 31, 1999. This increase was offset by a $16.1 million decrease in net
revenue of our electronics business which existed prior to the Smartflex
acquisition, primarily due to the phase-out of certain programs. The increase in
the electromechanical segment was primarily attributable to $15.2 million of net
revenue associated with a major junction block program which was launched during
the second quarter of 1999, $3.9 million of net revenue associated with
increased sales of relay products, and the remainder of the increase was
attributable to solenoids and other electromechanical products. The increase in
the electrical segment was attributable to the operation of this segment for 12
months during 1999 compared to 10 months during 1998.

Gross Profit

Our gross profit increased $11.0 million, or 27.0%, to $51.8 million in
1999 from $40.8 million in 1998. However, our gross profit as a percent of net
revenue declined to 20.1% in 1999 from 21.6% in 1998. This decline was primarily
attributable to a higher proportion of net revenue from our electronics segment,
which generally has lower profit margins than our other business segments. Also
during 1999 our gross profit as a percent of net revenue was negatively affected
by excess capacity in our electronics segment.

Development Expense

Development expense includes payroll and related benefits for design and
process engineering and information services. Our development expense increased
$2.8 million, or 57.1%, to $7.7 million in 1999 from $4.9 million in 1998. This
increase reflected additional development activities, together with development
expense at Smartflex of approximately $600,000.

Selling, General and Administrative Expense

Selling, general and administrative expense includes payroll and benefit
expense, facilities expense, professional service fees, travel and related
costs. Our selling, general and administrative expense increased $6.3 million,
or 49.2%, to $19.1 million in 1999 from $12.8 million in 1998. Selling, general
and administrative expense as a percentage of net revenue increased to 7.4% in
1999 from 6.8% in 1998. These increases reflect $6.8 million attributable to
Smartflex, which was partially offset by lower expense in our other business
segments. These lower expenses resulted primarily from the absence of management
fees for administrative services which were provided to the Saturn LLC by our
strategic alliance partner in 1998.

Amortization Expense

Amortization expense increased $1.0 million, or 62.5%, to $2.6 million in
1999 from $1.6 million in 1998. This increase reflected the amortization of $1.1
million, for the period from August 26 through

24
<PAGE> 29

December 31 related to $52.7 million of intangible assets recorded in connection
with the acquisition of Smartflex.

Net Income

Our net income declined $2.1 million, or 17.5%, to $9.9 million in 1999
from $12.0 million in 1998. This decline was a result of the lower gross profit
margins and the higher expenses mentioned above as well as higher interest
expense and a higher effective tax rate. Interest expense increased by $3.2
million which reflected the incurrence of $71.3 million of debt to finance the
Smartflex acquisition and the incurrence of $27.0 million of debt to finance a
stock repurchase. Our effective tax rate increased to 39.4% in 1999 from 36.5%
in 1998 as a result of nondeductible amounts for tax purposes pertaining to
assets acquired in the Smartflex acquisition.

Our earnings per share of common stock declined by 3% to $0.31 per share in
1999 from $0.32 per share in 1998. The 1999 weighted average number of shares of
common stock declined by 5,031,574 as a result of a stock repurchase of
7,435,320 shares in April 1999.

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

Net Revenue

Our net revenue increased $27.5 million, or 17.1%, to $188.5 million in
1998 from $161.0 million in 1997. The increase was primarily attributable to the
initiation of operations of the Saturn LLC in February 1998 which contributed
$27.0 million.

Gross Profit

Our gross profit increased $13.3 million, or 48.4%, to $40.8 million in
1998 from $27.5 million in 1997. Our gross profit as a percent of net revenue
increased to 21.6% in 1998 from 17.1% during 1997. The dollar and percentage
increases primarily reflect improvements in materials management achieved during
1998.

Development Expense

Our development expense increased $1.3 million, or 36.1%, to $4.9 million
in 1998 from $3.6 million in 1997, reflecting increased development activities.

Selling, General and Administrative Expense

Our selling, general and administrative expense increased $4.8 million, or
60.0%, to $12.8 million in 1998 from $8.0 million in 1997. This increase was
primarily due to $3.4 million attributable to the Saturn LLC, which began
operations in February, 1998. The remainder of the increase resulted from higher
salary and benefit expenses in our existing businesses.

Net Income

Our net income increased $3.9 million, or 48.1%, to $12.0 million in 1998
from $8.1 million in 1997. This increase resulted principally from the higher
net revenue and gross profit mentioned above and lower interest expense. These
positive impacts were partially offset by the write-down of an investment in a
joint venture in the amount of $905,000 in 1998. The lower interest expense was
attributable to lower debt balances and lower interest rates during 1998. Our
effective tax rate decreased to 36.5% in 1998 from 40.2% in 1997 as a result of
adjustments of deferred tax assets in 1997.

25
<PAGE> 30

LIQUIDITY AND CAPITAL RESOURCES

During 1999 and the first quarter of 2000, our cash requirements were met
through operations and borrowings from our credit facility. On March 31, 2000,
we had cash on hand of $3.8 million compared to $1.9 million on December 31,
1999.

For the first quarter of 2000, net cash used in operating activities
amounted to $258,000 compared to net cash provided by operating activities of
$11.4 million during the first quarter of 1999. The utilization of net cash
during the first quarter of 2000 was primarily attributable to higher inventory
balances and higher accounts receivable balances. These increases primarily
resulted from increased business volume at the Saturn LLC and the preparation
for the start-up of new programs in the electronics segment.

For the year ended December 31, 1999, net cash provided by operating
activities amounted to $4.4 million compared to $17.6 million in 1998 and $16.7
million in 1997. The decrease in the net cash provided by operating activities
during 1999 was primarily attributable to higher inventory and accounts
receivable as well as an increase in payment activity associated with our
accounts payable and other liabilities toward the end of 1999. The inventory
increase primarily reflected additions to inventory at the end of 1999 for Y2K
contingency purposes and a build up of inventory to support a major automotive
program with Ford, which was launched during the first quarter of 2000 in our
electrical segment. The increase in accounts receivable was primarily
attributable to accounts receivable being carried at Smartflex and, to a lesser
extent, a general increase in our business volume.

For the first quarter of 2000, net cash used in investing activities
amounted to $4.0 million compared to $2.0 million during the corresponding
period of 1999. For the year ended December 31, 1999, net cash used in investing
activities amounted to $61.3 million compared to $16.9 million in 1998 and $6.5
million in 1997. The increase in the net cash used in investing activities
during 1999 resulted primarily from the acquisition of Smartflex for $52.7
million which is net of cash acquired in the amount of $18.6 million. Capital
expenditures were $8.6 million in 1999, $16.9 million in 1998 and $6.5 million
in 1997.

For the first quarter of 2000, net cash provided by financing activities
amounted to $6.1 million compared to the net cash used in financing amounting to
$3.8 million during the corresponding period of 1999. During the first quarter
of 2000, we borrowed a total of $57.8 million to finance our working capital
requirements. The proceeds from these borrowings were partially offset by $48.0
million of debt repayments.

For the year ended December 31, 1999, net cash provided by financing
activities amounted to $57.8 million. Net cash used by financing activities
amounted to $879,000 in 1998 and $11.4 million in 1997. During 1999, we borrowed
a total of $251.6 million to finance our acquisition of Smartflex, a repurchase
of our common stock, and working capital requirements in excess of the amount
which was financed by our operations. The proceeds from borrowings were
partially offset by $164.9 million of debt repayments.

In August 1999, we replaced our existing $60.0 million credit facility with
a $125.0 million credit facility. Our credit facility is a revolving line of
credit which expires in August 2002. On December 31, 1999, the unused amount of
this facility was $17.6 million. The Saturn LLC also has a credit facility in
the amount of $15.0 million which expires in January 2001. The Saturn LLC has
never incurred any borrowings under this facility.

We intend to use $ of the proceeds of this offering to reduce
indebtedness under our credit facility, and the remainder, if any, will be used
for working capital and general corporate purposes.

Our need for, and the cost of and access to funds are dependent, in the
long-term, on our future operating results as well as conditions external to us.
We may require additional financing in connection with our business. We may seek
additional funds from time to time through public or private debt or equity
offerings or obtaining further bank borrowings or off-balance sheet financing.
No assurance can be given that any additional financing will be available on
terms satisfactory to us, or at all. In addition, our credit facility imposes
restrictions on our ability to increase our financing. Moreover, our desire to
maintain our minority business enterprise status, which we believe requires 30%
of our common stock to be owned

26
<PAGE> 31

by ethnic minorities, may limit our ability to raise funds through additional
equity issuances. We believe that our current sources of liquidity and the net
proceeds from this offering will be adequate to support our anticipated
liquidity needs for, at least, the next 12 months.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates and foreign currency exchange
rates primarily in our cash, debt and foreign currency transactions. We do not
hold derivative financial instruments for trading or speculative purposes.

Our exposure related to adverse movements in interest rates is primarily
derived from the variable rates associated with our credit facility. We have a
$125.0 million credit facility which bears interest at a rate equal to either
the lender's prime rate plus applicable margin or Eurodollar rate, which varies
with the outstanding balance. At March 31, 2000, the interest rate on $90
million of the outstanding balance of $117.1 million under the credit facility
was 8.28%, and the interest rate of the remainder of the borrowings was 9.25%.
Based upon the outstanding balances relating to this facility, an increase of
10% in the interest rate would cause a corresponding increase in interest
expense of approximately $996,000 on an annual basis.

The foreign currencies to which we have exchange rate exposure are the
Mexican peso, the Philippine peso and the Singapore dollar. Foreign currency
transaction gains (losses) were not material during the three years ended
December 31, 1999 and the three months ended March 31, 2000.

Future changes in interest rates and foreign exchange rates could
potentially have a material adverse effect on our financial position.

27
<PAGE> 32

BUSINESS

OVERVIEW

The EMS industry is growing rapidly, primarily as a result of the
increasing reliance of original equipment manufacturers on outsourcing. As the
electronics content in commercial and consumer goods grows, original equipment
manufacturers are increasingly outsourcing their design and engineering,
materials management, manufacturing and assembly, testing and fulfillment
services to EMS providers in order to focus on their core competencies. We offer
original equipment manufacturers integrated, cost-effective solutions that are
responsive to their outsourcing needs. Our broad range of services includes:

- design and engineering;

- materials management;

- manufacturing and assembly;

- testing and qualification;

- delivery and distribution of products, or fulfillment; and

- after-sales support.

Our manufacturing facilities are generally located in regions that offer
proximity to our customers or lower our manufacturing costs. Presently, we have
12 manufacturing facilities in the United States, Mexico and the Philippines. We
offer a broad range of manufacturing services from the low quantity production
of a variety of complex products, or low-volume/high-mix manufacturing, to the
high quantity production of less complex products, or high-volume/low-mix
manufacturing, using advanced technologies such as surface mount technology. To
better target customers and serve the needs of different end markets, we have
strategically aligned our business into three segments: electronics,
electromechanical and electrical.

In recent years, we have grown by engaging in strategic alliances and
acquisitions. For example, in March 2000, we entered into an agreement with
Motorola by which we became a preferred EMS provider to its Integrated
Electronics Systems Sector. As a preferred EMS provider, we have the opportunity
to participate in requests for quotations, bids or other opportunities to
provide manufacturing and related services to Motorola's Integrated Electronics
System Sector, subject to our being competitive in price and quality. Based on
our capabilities, we believe that we are well positioned to obtain considerable
additional business opportunities over the next few years from this strategic
outsourcing alliance. In addition, our August 1999 acquisition of Smartflex
enabled us to broaden our service offerings, significantly increase the size of
our operations, expand our base of customers to the communications and computer
end markets and enhance our geographic presence. We intend to continue our
expansion in the rapidly growing EMS industry by:

- building strategic outsourcing alliances;

- targeting an increasingly diverse customer base in high-growth end
markets;

- leveraging our design and engineering capabilities;

- expanding our global presence;

- pursuing selective acquisitions; and

- seeking additional minority business enterprise opportunities.
28
<PAGE> 33

ELECTRONICS MANUFACTURING SERVICES INDUSTRY

The EMS industry is comprised of businesses that provide a range of
manufacturing services to original equipment manufacturers and their suppliers.
The industry has experienced rapid growth in the past several years and is
expected to continue growing rapidly. Technology Forecasters, Inc. predicts that
from 1994 to 1999 overall EMS industry revenue grew from approximately $25
billion to $73 billion. Technology Forecasters predicts that overall EMS
industry revenue will grow 20% annually from 2000 through 2003, to approximately
$149 billion.

The growth in the EMS industry is being fueled, in part, by the expansion
of the broader electronics industry. The electronics content of many of today's
commercial and consumer products has increased dramatically in recent years, and
the nature of electronics content has shifted toward complex, high-density
assemblies. As the amount of electronics content has grown, original equipment
manufacturers have been increasingly using EMS providers to outsource their
internal manufacturing capacity, as well as other services, such as design,
engineering, assembly, testing, qualification and fulfillment, primarily in
order to:

- accelerate time-to-market and time-to-volume production;

- benefit from EMS providers' materials management and logistics expertise;

- reduce capital investment in manufacturing;

- access advanced technologies in product design and manufacturing
processes; and

- focus resources on core competencies, such as research and development
and sales and marketing.

Technology Forecasters predicts that original equipment manufacturers will
increasingly outsource more complex services and products, with the
communications and computer end markets representing the largest growth
opportunities. These markets are characterized by rapidly changing technologies
and shortening product life cycles. We believe that these trends will favor
large EMS providers that have a global presence, broad service offerings and
advanced technological capabilities. We believe that we are well positioned to
benefit from these EMS industry trends.

OUR STRATEGY

Our objective is to continue to strengthen and expand our position as a
value-added EMS provider. Our strategy to achieve this objective is comprised of
the following key elements:

Build Strategic Outsourcing Alliances

We believe that our ability to provide an integrated range of services to
original equipment manufacturers, beginning at the product design stage and
continuing throughout the production process, enables us to develop close
customer relationships. We work closely with our customers at the earliest
stages of design to optimize product manufacturability and quality. We then
coordinate closely with them to anticipate product delivery timetables and
volume requirements. We believe that the relationships we develop throughout
this process position us to provide additional services or attract additional
programs from existing customers. Our ability to provide value-added services
through our extensive design, engineering and global manufacturing capabilities
make us an attractive strategic outsourcing alliance partner. For example, as a
result of our existing business performance with Motorola and our capability to
provide value-added services, we recently became a preferred EMS supplier to
Motorola's Integrated Electronics Systems Sector.

In addition, we identify and enter into strategic outsourcing alliances
with emerging companies that we believe have the potential to develop products
offering technological advances over existing products. We help bring these
products to market by providing extensive design, engineering and other
value-added services in exchange for exclusive manufacturing rights. Examples
include our strategic outsourcing alliance with an emerging company for the
design and production of digital x-ray detectors, and our

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strategic outsourcing alliance with an emerging communications company for the
design and production of high-efficiency power supplies for communications
original equipment manufacturers.

Target a Diversified Customer Base in High-Growth End Markets

We intend to further enhance our long-term growth prospects by continuing
to diversify our customer base, particularly in high-growth end markets such as
communications and medical. These markets are characterized by technology-driven
products that are subject to rapid technological advances and shortening product
life cycles, as well as accelerated time-to-market and time-to-volume
requirements. We believe that our value-added design and engineering services
and global manufacturing capabilities enable us to serve customers effectively
in these end markets. We also target high-growth opportunities in mature
markets. For example, we have targeted the automotive industry where we believe
that the electronic content per vehicle will almost double by 2009. We believe
that we are well positioned to benefit from this development because of our
electronics capabilities and our traditional strength in serving the largest
automobile manufacturers.

Leverage Our Design and Engineering Capabilities

We believe that EMS providers seeking to build long-term customer
relationships must be able to provide a broad range of capabilities. Proven
design and engineering expertise is often the first of these requirements. We
employ over 150 design engineers, manufacturing engineers and technicians, and
have developed patents as well as unpatented proprietary processes and design
capabilities. Our design and engineering work has yielded innovative products
and processes and is critical to customer retention and new business generation.
We intend to continue to focus our design and engineering capabilities on
developing new proprietary intellectual property, which enables us to improve
our margins and positions us to provide additional value-added services. We also
intend to continue leveraging Lear's design and engineering capabilities in
connection with our electrical business segment.

Our process engineering team begins to work closely with our design
engineers at the concept stage to deliver products that have been simultaneously
engineered for functionality and manufacturability. We believe that this
parallel and integrated approach gives us a competitive advantage, as some of
our competitors do not provide these services. We believe that these
capabilities reduce development costs for original equipment manufacturers and
accelerate the time-to-market of their products.

We plan to continue to provide our design and engineering expertise to
strengthen existing, and build additional, strategic outsourcing alliances. In
addition, we intend to obtain new business by capturing system integration
opportunities. As one of the few EMS providers that has capabilities in all
three of the electronics, electromechanical and electrical business segments, we
are able to provide complete system solutions, for which we typically attain
higher margins. For example, we are currently providing prototypes of a complex
exhaust emission reduction device which uses components from all three of our
business segments.

Expand Our Global Presence

Original equipment manufacturers increasingly seek EMS providers with a
global presence in order to accelerate time-to-market for their products and
obtain lower production costs. We currently have 12 manufacturing facilities in
the United States, Mexico and the Philippines, and an engineering and sales
operation in Singapore. We intend to establish new, or expand our existing,
facilities worldwide. We believe that having a global presence enables us to
reduce our production costs, procure components more efficiently, accelerate
time-to-market and meet local content requirements.

Pursue Selective Acquisitions

We intend to continue to expand through the acquisition of companies with
complementary product lines, advanced technologies and worldwide facilities. We
may acquire entire companies or selected assets,

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including captive manufacturing assets of OEMs. We intend to pursue acquisitions
that offer one or more of the following advantages:

- opportunity to increase our base of Fortune 100 customers and other large
international customers;

- expansion into existing or new high-growth end markets;

- advanced technology;

- additional manufacturing capacity; and

- additional global presence.

Seek Additional Minority Business Enterprise Opportunities

We believe that we are the largest minority business enterprise in the EMS
industry. Our minority business enterprise status generally offers us a
competitive advantage for our business. A number of current and potential
customers have announced their commitment to increase the amount of purchases
from minority business enterprises. For example, DaimlerChrysler, Ford and GM
have executed a Memorandum of Understanding with the Small Business
Administration by which they collectively committed to purchase up to nearly
$8.8 billion of automotive parts from minority business enterprise suppliers in
2000. In addition, a number of communications industry leaders are increasingly
encouraging communications OEMs to increase their minority business enterprise
supplier content. We are currently one of the few minority business enterprises
in the EMS industry that is capable of offering services and products in each of
the electronics, electromechanical and electrical business segments. As a
result, we believe that we are well positioned to benefit from these
commitments.

OUR STRATEGIC OUTSOURCING ALLIANCES AND ACQUISITIONS

We were founded in 1985, primarily as an engineering design company, by
Wallace K. Tsuha, Jr., our chairman, chief executive officer and president.
Since then, we have grown and have expanded our service offerings, in part, by
entering into strategic outsourcing alliances and engaging in business
acquisitions.

For example, in March 2000, we entered into an agreement with Motorola by
which we became a preferred EMS provider to Motorola's Integrated Electronics
Systems Sector. As a preferred EMS provider, we receive the opportunity to
participate in requests for quotations, bids and other opportunities to provide
manufacturing and related services to Motorola's Integrated Electronics Systems
Sector, subject to our being competitive in price and quality. As part of this
transaction, Motorola received a warrant to purchase 1,565,331 shares of our
common stock, representing approximately % of our outstanding common stock
after this offering, at an exercise price equal to 90% of our initial public
offering price. For every $100.0 million that we receive from Motorola for
services rendered, 10% of the shares subject to this warrant will become
exercisable immediately, otherwise the warrant is exercisable between March 2004
and March 2005. Based on our capabilities, we believe that we are well
positioned to obtain considerable additional business opportunities over the
next few years from this strategic outsourcing alliance.

In August 1999, we acquired Smartflex, an EMS provider that designed
high-technology products and offered high-precision manufacturing capabilities
based in Tustin, California. Through this acquisition, we gained full-service
electronics capabilities and we:

- increased our base of Fortune 100 customers to include companies such as
Hewlett-Packard, Motorola and IBM;

- expanded into new and high-growth end markets, such as the communications
and computer markets;

- gained access to advanced manufacturing technology;

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- increased our manufacturing capacity; and

- enhanced our geographic presence by adding facilities in Mexico, the
Philippines and Singapore.

In February 1998, we entered into a strategic alliance with United
Technologies Automotive, now Lear Corporation. This alliance took the form of a
jointly owned limited liability company, or the Saturn LLC, in which we own a
53% interest. The Saturn LLC, which constitutes our electrical business segment,
manufactures battery cables, wire harnesses, ground straps, trailer tow
harnesses, electrical distribution systems and complete vehicle wiring systems.
We provide our management and administrative services, in addition to
manufacturing and materials management expertise, to the Saturn LLC, while Lear
provides design and engineering services.

Effective October 1994, we acquired three affiliates of MascoTech. As a
result of this transaction, MascoTech became our second largest shareholder.
MascoTech holds approximately 36.3% of our outstanding common stock prior to
this offering and, after the offering, will hold approximately % of our
outstanding common stock. This acquisition substantially expanded our
electromechanical business.

OUR SERVICES

We offer our customers integrated, cost-effective EMS solutions that are
responsive to their outsourcing needs. Our broad service offerings include the
following:

- design and engineering;

- materials management;

- manufacturing and assembly;

- testing and qualification;

- fulfillment; and

- after-sales support.

At the core of our services is a multi-disciplinary team consisting of
designers, engineers, manufacturing managers, quality management personnel,
procurement representatives, and sales organization members coordinated by
program managers. By working closely with our customers, we are able to focus on
meeting their timelines and cost, quality and other requirements. By focusing on
customer needs and involving our diverse capabilities at all stages of a
product's cycle, we believe that we are able to reduce costs, accelerate
time-to-market, time-to-volume production and increase overall product quality.

Design and Engineering

We currently employ over 150 design engineers, manufacturing engineers and
technicians to provide design and engineering services to our customers. We
focus on concept development, product design and engineering and advanced
manufacturing engineering for our electronics and electromechanical business
segments. Our electrical business segment, through the Saturn LLC, leverages
Lear's engineering and design capabilities on an as-needed basis. We focus our
efforts on enhancing existing product lines as well as developing new products
for our customers.

We offer design and engineering services to develop a working product from
an initial concept. Our process engineering team works closely with our design
engineers from the concept stage to deliver products that have been
simultaneously engineered for functionality and manufacturability. These
services ensure that products meet their functional specifications and can be
manufactured efficiently and economically. Our engineers use sophisticated
computer-aided design tools to improve the efficiency of the design process and
enhance design quality. We also build and test working product samples, or
prototypes, to test and refine our design and engineering specifications. We
then validate prototypes under operating conditions.

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We believe that we have the design and engineering capabilities needed to
develop innovative products that, in many instances, offer advantages over our
competitors' products. For example, we believe that our patented variable force
solenoids are smaller, less expensive and possess better operating functionality
than our competitors' products. We believe that this enabling technology will
allow us to win subassembly programs.

Materials Management

We provide a wide array of materials management services for our customers
including materials planning, procurement, inventory management and handling
services. In cases where we have product design responsibility, our early
involvement in the design and engineering process allows us to assist in the
selection of components and suppliers to enhance manufacturability and
logistical support for product lines. We use an extensive supplier qualification
process to help ensure that our suppliers meet our quality and delivery
standards. We also leverage our position as a value-added EMS provider and work
with our customers to obtain better pricing from our suppliers.

Manufacturing and Assembly

We have a full range of advanced electronics, electromechanical and
electrical manufacturing and assembly capabilities. Our assembly and
manufacturing capabilities for electronics and electromechanical products
include automated high-volume/low-mix manufacturing, low-volume/high-mix
production and high-volume/low-mix labor intensive manufacturing processes. Our
electronics manufacturing and assembly services include the production of
printed circuit board assemblies and electronic subassemblies as well as the
assembly of final systems packages, or box-build. Our electromechanical
operations produce a wide range of products such as power distribution centers,
electrical switches, devices that transform electrical power into motion, and
devices which perform complete electronic transmission control. Our electrical
manufacturing services include wire cutting and stripping, die cast and
injection molding, and manual harness assembly. Our 12 manufacturing facilities
located in the United States, Mexico and the Philippines enable us to reduce our
costs and source our products globally.

Our manufacturing technologies in the electronics segment include advanced
surface mount technologies and direct chip attach technologies. Surface mount
technology is a method of affixing electronic components, including integrated
circuits, onto the surface of printed circuit boards without placing leads
through holes in the boards. This technology uses a more precise manufacturing
process than traditional manufacturing methods, and reduces the amount of space
between the leads of electronic components. Surface mount technology, therefore,
allows printed circuit boards to interconnect integrated circuits in density
greater than traditional processes. This greater density permits tighter
component spacing and, as a result, reduces the size of printed circuit boards.
Greater density also improves product functionality. Furthermore, we offer
precision surface mount technology, which enables an even more precise placement
of miniaturized components, further reducing size and increasing functionality.
In addition, we offer grid array and micro ball grid array surface mount
technologies, which use small balls of solder instead of the traditional leads,
to pre-package several electronics components into one package, which is then
assembled onto a printed circuit board. As a result, fewer individual components
need to be attached to the printed circuit board, providing improved electrical
performance, higher input/output capabilities, better assembly yields and lower
cost. We also offer direct chip attach technology, which creates enhanced
performance by attaching bare, unpackaged components onto printed circuit
boards. Our flexible circuit technology allows us to mount components within
precise parameters to flexible printed circuit boards, leading to higher density
packaging.

Our electromechanical manufacturing processes involve fully-automated
manufacturing lines. In our production processes, we use closed-loop feedback,
which is the immediate and continuous retrieval of data from the production line
and the automatic use of that data to make corrections and adjustments in the
production process. We also use semi-automated equipment and manual assembly for
some of our products.

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Our electronics and electromechanical advanced manufacturing technologies
and processes enable us to offer a broad range of services to our customers,
including:

- High-Volume Production. We generally perform the design and engineering
services and initial manufacturing of our products in the United States.
Once a product is ready for high-volume production, we typically
transition the manufacturing to our highly-automated, state-of-the-art
facilities in Mexico and the Philippines to minimize our production
costs. However, some high-volume electromechanical products are produced
at our facilities in the United States.

- Low-Volume/High-Mix Production. We offer precision manufacturing
capabilities for complex products involving highly complicated designs
and lower production volumes through some of our facilities in the United
States. We are able to manufacture a variety of products for a number of
customers on the same production line.

- Box-Build/Complete System Assembly. We assemble final products or
complete systems from various subassemblies, modules and components. We
manufacture a wide range of state-of-the-art final products for
applications in the automotive, communications, computer and military end
markets. This allows our customers to reduce their number of suppliers.

Our electrical manufacturing processes include automated wire cutting and
stripping, injection molding, die cast molding and manual harness assembly.

By using cost-effective manufacturing processes, we are able to provide our
customers with competitively priced products. We believe that we have achieved
productivity improvements by streamlining our manufacturing processes, reducing
floor space requirements, minimizing inventory and implementing automated
systems. We control costs and maintain quality by using quality operating system
goals to measure performance criteria such as customer returns, supplier
rejects, scrap, training and cost of quality in each manufacturing plant. We
also reduce costs by using electronic information and order exchange; a master
production scheduling system that incorporates the delivery of raw materials,
production and shipment of finished products; and manufacturing cycles that
produce products based on our internal forecasts rather than firm orders of
customers.

All of our manufacturing facilities are certified by independent
organizations. Our manufacturing facilities serving the communications,
computer, military and other non-automotive end markets are registered under ISO
9001 or ISO 9002, a set of standards published by the International
Standardization Organization and used to document, implement and demonstrate
quality management and assurance systems in design and manufacturing. As part of
the ISO 9001 and ISO 9002 registration process, we have developed quality
systems manuals and internal systems of quality controls and audits for each
facility. Although ISO 9002 registration is of particular importance to
companies in the European Community, we believe that domestic OEMs are
increasingly requiring ISO 9002 registration of suppliers.

All of our manufacturing facilities serving the automotive market are
registered under QS 9000, a set of standards published by our automotive
customers, which is used to document, implement and demonstrate quality
management and assurance systems in a manner similar to ISO 9001 and ISO 9002.

Testing and Qualification

We typically conduct product validation testing and production testing to
ensure that our products meet our customers' operating and quality requirements.
Product validation testing is conducted as part of our engineering development
activities. We perform this testing to ensure that the product under development
meets customer requirements. This testing includes heat, cold, humidity,
vibration, thermal shock, mechanical shock, salt spray and dust testing.
Durability testing is also conducted by submitting the product to many cycles of
typical operating conditions. Production testing consists of in-process testing
and end-of-line testing to verify that products are manufactured properly and
meet product specifications.

In the communications end market, we provide development test services that
help our customers develop their products to meet FCC requirements. We believe
that our expertise in this field shortens the

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time period for our customers to receive FCC approval. In the medical end
market, we provide services to help our customers comply with the FDA approval
and clearance processes and the Quality Systems Regulations.

Fulfillment

In order to respond more rapidly to the market demands of our customers, we
offer delivery programs designed with the flexibility to ship products directly
to an original equipment manufacturer's customer. Under these programs, we
package products to the customer's specifications with appropriate product
documentation and manage the logistics of delivery.

After-Sales Support

We offer a wide range of after-sales support services, which are tailored
to meet customer requirements, including field failure analysis, product
upgrades, repair and engineering modification. Our quality engineers provide
on-site after-sales support by helping customers use our products correctly.
They also collect customer feedback and work with our in-house engineers and
other staff to incorporate improvements and customer suggestions into the
products we manufacture. In addition, our plant-based teams are responsible for
addressing all customer manufacturing issues to ensure continuity through a
product's life cycle. Our continuous improvement support teams also offer our
customers support from our in-house engineers to improve product reliability. We
believe that these efforts have produced warranty reductions and cost savings
for our customers. The success of our continuous improvement support teams is
exemplified by DaimlerChrysler's awarding us its Role Model of the Year for
Continuous Improvement Award in 1999 in connection with our minivan junction
block product.

OUR BUSINESS SEGMENTS

To better serve the needs of different end markets, we have organized our
operations into three business segments: electronics, electromechanical and
electrical. We believe that this organization allows us to better target
customers due to differences in manufacturing processes, customer expectations,
technologies, bidding processes and product life cycles for each segment. While
all three of our business segments offer the same services, the time involved in
total product cycle, from the concept stage to the end of a product, differs
across the business segments. The electrical and electromechanical product
cycles usually involve three years in a development stage, and four to five
years of production following the development stage, for a total product life
cycle of seven to eight years. On the other hand, the entire electronics product
cycle, from the concept stage through the end of production, usually lasts only
one year.

Our electronics segment represented approximately 32% of our net revenue in
1999 and approximately 31% of our net revenue in the quarter ended March 31,
2000. Through this business segment, we provide services to our customers,
primarily in the automotive, communications and computer end markets, in
connection with the following products:

- Printed Circuit Assemblies -- Using our precision manufacturing
technology, we assemble printed circuit assemblies by placing various
components onto pre-manufactured printed circuit boards.

- Flexible Printed Circuit Assemblies -- Using our precision flexible
circuit capabilities we assemble various products including hard disk
drives, smart battery packs, flexible sensors and assemblies that require
limited space.

- Complete System Assembly -- We assemble a wide variety of final products
by building entire electronic systems from various subassemblies, modules
and components. Our products include complete systems, such as Internet
service provider switches for video, data and voice; complete industrial
control systems; and position locators for wireless communications
equipment.

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Our electromechanical segment represented approximately 54% of our net
revenue in 1999 and approximately 37% of our net revenue in the quarter ended
March 31, 2000. Through this business segment, we provide services to our
customers, primarily in the automotive end-market, in connection with the
following products:

- Junction Blocks -- Junction blocks are power distribution centers for
motor vehicles. Currently we manufacture these products for use in full
size trucks, sport utility vehicles and mini-vans.

- Relays -- Relays are electrical switches that turn power on and off using
low voltage electrical signals.

- Actuators -- Actuators transform electrical or vacuum power into linear
or rotational motion using a motor. We manufacture a number of actuators,
including innovative patented devices.

- Solenoids and Transmission Modules -- Solenoids transform electrical
power into magnetic flux and then into linear motion. We supply solenoids
for use in a number of vehicles and applications. We intend to expand our
solenoid business by expanding our production of transmission modules.
Transmission modules integrate solenoids, sensors and wiring or flex
circuit interconnects with other devices to perform complete electronic
transmission shifting control.

Our electrical segment represented approximately 14% of our net revenue in
1999 and approximately 32% of our net revenue in the quarter ended March 31,
2000. Through the Saturn LLC, we provide services to our customers, primarily in
the automotive end market, in connection with the following products:

- Battery Cables -- Battery cables are used to distribute electricity
between different components of a vehicle. We currently sell a wide range
of battery cables, including die cast and stamped cables.

- Niche Harnesses -- Niche harnesses include cable and harness assemblies,
such as trailer tow kits and ground straps.

- Electrical Distribution Systems -- Electrical distribution systems
consist of the wiring harness that is used to transmit signal and power
from a battery to functional components of a motor vehicle. We offer a
number of electrical distribution systems, including complete wiring
systems.

You should read note 13 of our consolidated financial statements included
elsewhere in this prospectus for financial information regarding our business
segments and geographic areas.

OUR CUSTOMERS

We serve a wide range of customers, from emerging-growth enterprises to
Fortune 100 companies, primarily in the automotive, communications, computer and
military end markets. Although historically most of our sales have been to
automotive original equipment manufacturers, our acquisition of Smartflex
provides us with a platform in the communications and computer end markets. We
expect that our customer base in those markets will represent an increasingly
large proportion of our net revenue in the near future. We currently provide
services to over 50 customers, including the following:

<TABLE>
<CAPTION>
Automotive Communications Computer Military
---------- -------------- -------- --------
<S> <C> <C> <C>
DaimlerChrysler FVC.com Hewlett-Packard General Dynamics
Exemplar Motorola IBM Hughes
Ford Sierracom Iomega
General Motors True Position Iris Graphics
</TABLE>

DaimlerChrysler accounted for 18% of our net revenue in the first quarter
of 2000, 31% of our net revenue in 1999, 40% of our net revenue in 1998, and 45%
of our net revenue in 1997. Ford accounted for 33% of our net revenue in the
first quarter of 2000, 19% of our net revenue in 1999, and 10% of our net
revenue in 1998. In addition, General Motors accounted for 14% of our net
revenue in 1997. Our five largest customers accounted for 60% of our net revenue
in 1999 and 70% of our net revenue in the first quarter of 2000. In addition,
our ten largest customers accounted for 72% of our net revenue in 1999 and 80%
of our net revenue in the first quarter of 2000.

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We expect to continue to depend on a core group of customers for most of
our net revenue in the future. We cannot assure you that any of our customers
will continue to purchase services and products from us in the future or that
they will not reduce or delay the amount of services and products they purchase
from us. Any reduction or delay in orders from our customers could have a
material adverse effect on our business, financial condition or results of
operations. In addition, a majority of our accounts receivable outstanding at
any given time are owed by our ten largest customers. The inability of one or
more of our ten largest customers to pay for the services and products we
provide, due to insolvency or otherwise, could have a material adverse affect on
our business, financial condition or results of operations.

SALES AND MARKETING

We seek to develop close, long-term relationships with our customers by
working with them throughout the design and engineering, materials management,
manufacturing and assembly, testing and qualification, fulfillment and
after-sales support processes. EMS providers generally must perform
satisfactorily on a trial basis prior to obtaining meaningful orders from an
original equipment manufacturer. As a result, we seek to develop these close
relationships with customers during the initial product design and development
stage. We then support our existing customer relationships through a
comprehensive staff of program managers dedicated to individual customer
accounts. Program managers are responsible for the development of our
manufacturing relationship with our customers, including the allocation of our
resources to meet customers' requirements.

Our electromechanical and electrical business segments market our services
primarily through a direct sales force, and to a lesser extent, through
independent sales representatives. Those business segments rely on our direct
sales team to respond to the needs of existing customers and targeted new
accounts, and rely on independent sales representatives to obtain additional new
business.

Our electronics business segment uses independent sales representatives for
sales and marketing purposes. These representatives are supervised by regionally
based sales directors, who are our direct employees. We are currently evaluating
whether the electronics business segment should parallel the sales and marketing
efforts of our business segments by relying more heavily on a direct sales
force.

In addition, we attend trade shows in which there is a focused customer and
industry presence. We also undertake media relations efforts to encourage the
publication of articles featuring our company and our services in trade journals
and other publications.

OUR SUPPLIERS

Our business segments typically negotiate purchase orders directly with
suppliers, and to a lesser extent, through independent distributors, that have
demonstrated timely delivery, quality products, responsiveness and competitive
prices. We use a standardized rating system to more effectively evaluate these
suppliers. Most of the components used by our business segments are available
from numerous sources. Even so, we rely on a limited number of suppliers for
some proprietary and other components. In addition, some of our electronics
products require one or more components for which there is a limited supply and,
in some instances, our supplier is also a competitor. Delivery problems relating
to components purchased from any of our key suppliers could have a material
adverse effect on our financial performance. From time to time, our electronics
suppliers allocate components among their customers in response to supply
shortages. For example, the recent upsurge of demand for cellular wireless
products has created an electronics industry-wide shortage of some surface mount
technology components such as tantalum capacitors. As a result, we are required
to make continual spot buys of these components in an attempt to have the
components on hand to meet customer requirements.

COMPETITION

While the competitive challenges we face differ across our business
segments, the EMS industry is highly competitive. A number of our current and
potential competitors have substantially greater manufacturing, financial,
technical, marketing and other resources, and offer a broader line of services,
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than we do. In addition, many of our competitors have a broader geographic
presence than we have. To the extent we do not provide timing or technological
advantages over our competitors, we are likely to experience increased price
competition or loss of market share. Increased competition could also result in
reduced prices, reduced margins or loss of market share, any of which could
materially adversely affect our business, financial condition or results of
operations. We also face competition from the manufacturing operations of our
current and potential original equipment manufacturers customers, which we
believe continue to evaluate the merits of manufacturing internally, and from
foreign EMS providers. Significant competitive factors in the EMS industry
include quality, price, ability to enhance time-to-market and time-to-volume
production, manufacturing capacity, test capabilities and design and engineering
expertise.

Our electronics business segment competes with a number of large EMS
companies including ACT Manufacturing, Benchmark Electronics, C-MAC Industries,
Celestica, Flextronics International, Jabil Circuit, Innovex, Parlex, Pemstar,
Plexus, SCI, Siemens and Solectron. We have also experienced competition from
head stack assemblers, which primarily assemble products that attach to flexible
circuit assemblies. We expect our electronics business segment to encounter
future competition from other large electronics manufacturers.

The markets served by our electrical and electromechanical business
segments are also served by large, well established companies including
Borg-Warner Automotive, Delphi Automotive, Eaton Corporation, Robert Bosch,
Siemens, TRW and Yazaki North America. We expect our electrical and
electromechanical business segments to encounter future competition from other
large electrical and electromechanical businesses.

INTELLECTUAL PROPERTY

We have been granted 39 domestic patents and have applications pending for
an additional 16 domestic patents. In addition, we have been granted 14 patents,
corresponding to our U.S. patents, in various foreign jurisdictions. Although we
believe that, taken together, our patents are material, the loss or expiration
of any particular patent would not, in our opinion, be material to us. We also
possess non-patented proprietary information related to our manufacturing
processes, engineering processes and other trade secrets and intellectual
capital that forms a substantial foundation for our business activities. All of
our patents and patent applications relate to our electromechanical business
segment.

Our success depends, in part, on our proprietary designs, technologies,
techniques, processes and other intellectual property, most of which is not
protected by patents. We rely primarily on trade secret protection to secure
this intellectual property. We may be unable to remain competitive if others
infringe on our intellectual property, are able to reverse engineer our products
or otherwise replicate our intellectual property. Protecting our intellectual
property in foreign jurisdictions may also be difficult or impossible. In
addition, competitors and others may claim that we are infringing on their
intellectual property. Litigation may be necessary to protect our intellectual
property or to determine the validity and scope of the proprietary rights of our
competitors and others. Our involvement in existing and future intellectual
property litigation could result in material expense to us or adversely affect
our use of the challenged technologies or our sales of the challenged products,
whether or not such litigation is resolved in our favor. Intellectual property
related litigation could also divert the efforts of our management and our
design, engineering and technical personnel. In the event of an adverse outcome
in any intellectual property litigation, we may be required to:

- pay substantial damages;

- cease the manufacture, use, sale or importation of infringing products or
technologies; or

- expend material resources to develop, acquire or license necessary
technologies.

We may not be successful in the development or acquisition of replacement
technology, and licenses may not be available under terms acceptable to us or at
all.

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<PAGE> 43

REGULATIONS

Environmental and Health and Safety Laws

Our operations are regulated under a number of federal, state, local and
foreign environmental and health and safety laws and regulations, which govern,
among other things, the use, storage, treatment, discharge and disposal of
hazardous chemicals and substances used in our manufacturing processes. In
addition, because we are a generator of hazardous wastes, we, along with any
other person who arranges for the disposal of our hazardous wastes, may be
subject to potential financial exposure for costs associated with investigation
and remediation of sites at which we have arranged for the disposal of hazardous
wastes, if such sites become contaminated, even if we fully comply with
applicable environmental laws. Moreover, such liabilities or sanctions may be
imposed without regard to the legality of our original conduct and without
regard to whether we knew of, or were responsible for, the presence of such
hazardous or toxic substances. Also, such liability may be joint and several
with other parties. If the liability is joint and several, we could be held
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. In the event of a violation of
environmental laws, we could be held liable for damages, penalties, sanctions
and the costs of remedial actions and also could be subject to revocation of our
permits. Any such revocations could require us to cease or limit production at
one or more of our facilities, thereby having a material adverse effect on our
operations. Environmental and health and safety laws could also become more
stringent over time, imposing greater compliance costs and increasing risks and
penalties associated with any violation, which could have a material adverse
effect on business, financial condition or our results of operations. In
addition, compliance with such laws and regulations could restrict our ability
to expand our facilities or require us to acquire costly equipment or to incur
other expenses. We believe that we are in compliance with all existing
applicable environmental and health and safety statutes and regulations.

Additional Laws

Many of our communications end market customers are subject to regulation
by the Federal Communications Commission, or the FCC, the European Union and
other federal, state and foreign governmental and non-governmental authorities.
The failure of our current or potential communication end market customers to
meet certain FCC or similar requirements could result in the non-approval,
recall or discontinuation of their products and could substantially reduce or
eliminate their demand for our services. The failure of our current or potential
communications end market customers to meet such requirements could reduce or
eliminate an area of anticipated revenue growth, resulting in a material adverse
effect on our business, financial condition or results of operations.

In addition, although our sales of services to the medical end market
currently constitute a small portion of our net revenue, we intend to increase
our sales to this end market. The design, development, testing, manufacture,
production and sale of medical devices are subject to extensive regulation by
the Food and Drug Administration, or the FDA, and other federal, state and
foreign authorities. Noncompliance with applicable requirements can result in a
device not being cleared or approved for sale, product recalls, fines and other
regulatory, civil or criminal actions. Medical device manufacturers are also
subject to strict federal regulations regarding the design, development,
manufacture, packaging and labeling of medical devices known as the Quality
System Regulations, formerly Good Manufacturing Practices. If the FDA determines
that we or our medical customers fail to meet such FDA and similar regulatory
requirements, the FDA could institute regulatory proceedings or require product
repairs, product replacements or purchase price refunds, assess penalties or
take other actions. The failure of our current or potential medical end market
customers or us to obtain or maintain FDA approvals and maintain compliance with
the Quality System Regulations, therefore, could substantially reduce their
demand for our services, reducing an area of anticipated revenue growth. This
could have a material adverse effect on our business, financial condition or
results of operations.

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<PAGE> 44

BACKLOG

We do not generally obtain long-term, firm purchase orders from our
communications, computer, military and other non-automotive customers. Rather,
these customers place orders for delivery within 30 to 90 days. Our automotive
customers typically place annual blanket purchase orders, but these orders do
not obligate them to purchase any specific or minimal amount of products from us
until a release is issued by the customer under the blanket purchase order.
Releases are typically placed within 30 to 90 days of required delivery and may
be canceled at any time, in which case the customer would be liable for work in
process and finished goods. We do not believe that our backlog of expected
product sales covered by firm purchase orders is a meaningful indicator of
future sales since orders may be rescheduled or canceled.

EMPLOYEES

As of February 29, 2000, we employed a total of 3,981 persons. We have no
collective bargaining contracts other than in Mexico where we have 2,272
employees, where collective bargaining agreements are required by law. Our
collective bargaining agreements covering our facilities in Juarez and
Monterrey, Mexico are subject to renegotiation in 2002, and the agreements
covering our employees in Guadalajara, Mexico are subject to renegotiation in
September of each year. We have never experienced a work stoppage and believe
that our relations with our employees are good.

LEGAL PROCEEDINGS

From time-to-time, we are subject to claims or litigation incidental to our
business. We are not currently involved in any legal proceedings that,
individually or in the aggregate, are expected to have a material effect on our
business, financial condition or results of operations.

FACILITIES

Our operations are conducted in a number of owned and leased facilities. We
believe that these facilities are sufficient for our activities as currently
conducted. Our facilities in which operations are currently conducted are as
follows:

<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SIZE (SQ./FT.) BUSINESS SEGMENT ACTIVITIES
-------- ------------ -------------- ---------------------------
<S> <C> <C> <C>
Auburn Hills, MI.................. Leased 68,000 Corporate headquarters; Design and
Engineering; Electronics
Manufacturing
Coopersville, MI.................. Owned 40,000 Electromechanical Manufacturing and
Electronics Manufacturing
Fremont, CA....................... Leased 42,000 Electronics Design and Engineering and
Electronics Manufacturing
Hudson, NH........................ Leased 33,200 Electronics Manufacturing
Marks, MS......................... Leased 45,000 Electromechanical Manufacturing
Oxford, MI........................ Owned 62,000 Electromechanical Manufacturing
Rocky Mount, NC................... Owned 88,000 Electromechanical Manufacturing and
Electronics Manufacturing
Tustin, CA........................ Leased 37,000 Administration/Electronics Design and
Engineering
Juarez, Mexico.................... Owned 140,000 Electrical Manufacturing
Juarez, Mexico.................... Leased 138,500 Electrical Manufacturing
Monterrey, Mexico................. Owned 70,000 Electromechanical Manufacturing
Monterrey, Mexico................. Leased 55,000 Electronics Manufacturing
</TABLE>

40
<PAGE> 45

<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SIZE (SQ./FT.) BUSINESS SEGMENT ACTIVITIES
-------- ------------ -------------- ---------------------------
<S> <C> <C> <C>
Cebu, Philippines................. Leased 40,000 Electronics Manufacturing
Singapore......................... Leased 11,000 Asia Business Development Center;
Electronics Engineering
</TABLE>

We also provide manufacturing services at an original equipment
manufacturer owned facility in Guadalajara, Mexico.

The terms of most of our leases expire between 2002 and 2004, and most of
our leases have options to renew for between one and five years.

41
<PAGE> 46

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth our executive officers and directors, their
ages and the positions they currently hold:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Wallace K. Tsuha, Jr.(1)................... 56 Chief executive officer, president and
chairman of the board
Donald J. Cowie............................ 53 Chief financial officer, executive vice
president, treasurer and assistant
secretary
Nick Najmolhoda............................ 42 Executive vice president and general
manager, electromechanical business segment
Gene R. Smith, Jr.......................... 50 Executive vice president and general
manager, electronics business segment
William T. Anderson(3)..................... 53 Director
David E. Cole(2)........................... 62 Director
Sherman L. Cruz............................ 47 Director
Forest J. Farmer(3)........................ 59 Director
Rick Inatome(2)............................ 46 Director
Gary E. Liebl(3)........................... 58 Director
</TABLE>

- ---------------
(1) Member of the Nominating Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee.

Wallace K. Tsuha, Jr., the founder of our company, has served as our chief
executive officer and chairman of the board since November 1985. Mr. Tsuha has
also served as our president from November 1985 to March 1995, and since
December 1995. Prior to founding our company, Mr. Tsuha had over 18 years of EMS
business experience in product development, engineering and manufacturing while
working at General Motors, Rockwell and TRW. Mr. Tsuha is the brother of Sherman
L. Cruz, one of our directors and a consultant to our electronics business
segment.

Donald J. Cowie has served as our executive vice president, chief financial
officer, treasurer and assistant secretary since 1996. Prior to joining us, he
was a group vice president -- OEM from 1993 through 1995, and vice
president -- finance & administration from 1988 through 1993, at International
Jensen, a manufacturer of automotive and consumer electronics products.

Nick Najmolhoda has served as our executive vice president and general
manager of our electromechanical business segment since September 1999. He also
served as our executive vice president -- operations from February 1996 to
September 1999. He joined us as group vice president -- electromechanical in
March 1995, following our acquisition of MascoTech Controls. While at MascoTech
Controls, Mr. Najmolhoda served as executive vice president of operations for
the Coopersville facility and vice president of sales & marketing for the Rocky
Mount and Coopersville facilities from May 1992 until our acquisition of
MascoTech.

Gene R. Smith, Jr. has served as our executive vice president and general
manager of our electronics business segment since November 1999. Mr. Smith
served as our executive vice president of business management from December 1996
through November 1999. From February 1996 through June 1996, Mr. Smith served as
the president and general manager of the Kenmar Business Group, an electronics
contract manufacturing company. Mr. Smith worked as an electronics industry
consultant for us and others from July 1996 through December 1996.

42
<PAGE> 47

William T. Anderson has served as our director since March 1995. Since July
1998, Mr. Anderson has served as a vice president and the controller at
MascoTech, an automotive supplier, and one of our significant shareholders. From
July 1994 through June 1998, Mr. Anderson served as the vice president of
operational accounting at MascoTech.

David E. Cole, Ph.D., has served as our director since January 1997. Since
1967, Dr. Cole has been the Director of the Office for the Study of Automotive
Transportation and professor of engineering at the University of Michigan. Dr.
Cole is also a director of Mechanical Dynamics, a virtual prototyping software
company, MSX International, an affiliate of MascoTech to which we sublease a
portion of our Auburn Hills headquarters, Thyssen/Krupp U.S., a metals
distributor and processor, and Plastech, a plastic automotive products company.
Dr. Cole frequently provides consulting services to the automotive industry.

Sherman L. Cruz has served as our director since March 1995. Since 1996,
Mr. Cruz has served as a financial consultant to various companies, including us
and our electronics business segment, providing consulting services and
assisting companies in acquisitions and financial and general management. From
1991 to 1996, Mr. Cruz served as our vice president and chief financial officer.
Mr. Cruz is the brother of Mr. Tsuha, our chairman, chief executive officer and
president.

Forest J. Farmer has served as our director since January 1997. Since 1995,
Mr. Farmer has served as chairman and chief executive officer of the Farmer
Group, a holding company, and Trillium Teamologies, an information systems and
software development company. In 1995, Mr. Farmer co-founded Bing Manufacturing,
a manufacturer of assemblies modules for automobile manufacturers and suppliers.
Mr. Farmer also served as president of Bing Manufacturing from 1995 to 1999. Mr.
Farmer is a director of Lubrizol Corporation, a chemicals company specializing
in lubricant additives. Mr. Farmer also serves on the board of directors of
American Axle and Manufacturing, a manufacturer of automotive and truck
drivetrains and axles.

Rick Inatome has served as our director since March 1995. Since September
1999, Mr. Inatome has been the chief executive officer, president and a director
of ZapMe!, a satellite-based computer network system providing internet access
and aggregated educational content to middle and high schools throughout the
U.S. Mr. Inatome served as the chairman of the board of directors of Inacom, a
computer leasing company, from January 1980 to September 1999. Mr. Inatome
currently serves on the board of directors of Sylvan Learning Systems, Inacom
and Atlantic Premium Brands, a food processing company.

Gary E. Liebl has served as our director since October 1999. He recently
retired from Qlogic, a semiconductor company, where he served as chairman of the
board from February 1993 to May 1999. Mr. Liebl was formerly a member of the
board of directors of Smartflex and currently serves on the board of directors
of Pressure Systems, a diversified aerospace industry company.

BOARD OF DIRECTORS COMPOSITION

Our amended and restated bylaws provide that our board of directors
consists of three to fifteen members. The size of our board is determined by the
board and currently consists of seven members. Our board is divided into three
classes, each serving three year terms. Each class is to consist, as nearly as
possible, of one-third of our directors. One class of our directors stands for
election each year as follows:

<TABLE>
<CAPTION>
EXPIRATION
CLASS OF TERMS MEMBERS
----- ---------- -------
<S> <C> <C>
Class I.............................. 2001 Sherman L. Cruz and David E. Cole
Class II............................. 2002 Rick Inatome and Forest J. Farmer
Class III............................ 2003 Wallace K. Tsuha, Jr., Gary E. Liebl and William
T. Anderson
</TABLE>

Mr. Anderson, an officer of MascoTech, one of our significant shareholders,
was appointed to our board pursuant to a stockholders agreement among us and our
shareholders. This stockholders agreement will terminate upon the effectiveness
of this offering. This, however, will not affect the length of his term on our
board of directors. Our amended and restated articles of incorporation provide
that our directors

43
<PAGE> 48

may be removed only with cause, by vote of the holders of a majority of the
shares of the common stock entitled to vote at an election of directors.
Approval by at least 80% of our outstanding shares of our common stock is
required to amend or repeal these provisions of our amended and restated
articles of incorporation.

To maintain our minority business status after this offering, we believe
that at least a majority of our board must consist of ethnic minorities. Messrs.
Cruz, Farmer, Inatome and Tsuha are ethnic minorities.

Our officers are elected annually by our board of directors and serve at
the pleasure of the board. To maintain our ethnic minority status after this
offering, we also believe that our chief executive officer must be an ethnic
minority.

BOARD COMMITTEES

Our board of directors has a compensation committee, an audit committee and
a nominating committee.

The compensation committee, currently composed of Messrs. Cole and Inatome,
reviews and approves the compensation of our executive officers, including
payment of salaries, bonuses and incentive compensation, determines our
compensation policies and programs and administers our stock option plan.

The audit committee, currently composed of Messrs. Anderson, Liebl and
Farmer, makes recommendations to the board concerning the appointment of
independent auditors, reviews our accounting principles, practices and reporting
standards, aids management in the establishment and supervision of our internal
audits and accounting control systems and reviews the scope and results of
audits.

The nominating committee consists solely of our chairman, and recommends
nominees for election to our board to our shareholders.

DIRECTOR COMPENSATION

Members of our board of directors who are not employees of our company are
paid an annual retainer of $11,500. Nonemployee directors also receive a fee of
$950 for each board meeting attended and $850 for each meeting of a committee of
the board attended. The chairman of each committee, if a nonemployee, receives
$1,200 per committee meeting attended. All directors are also eligible to
participate in our stock option plan. Directors who are employees of our company
receive no compensation for service on the board. All directors, including
employees, are also reimbursed for their travel and related expenses incurred in
connection with board meetings and related activities.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Michigan law allows the articles of incorporation of a Michigan corporation
to contain a provision eliminating or limiting directors' liability to a
corporation or its shareholders for money damages for any action taken or any
failure to take any action as a director, except for liability for specified
acts, and our amended and restated articles of incorporation contain such a
provision. In addition, our amended and restated bylaws obligate us to indemnify
our directors and officers, and our former directors and officers, to the
maximum extent permitted by Michigan law. Our obligation to indemnify such
individuals includes indemnification against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service as
an officer or director in advance of the final disposition of any covered
matter. To be indemnified, the officer or director must have acted, or failed to
act, in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, our or our shareholders' best interests and he or she must not
have derived an improper personal benefit from such actions or omission. To be
indemnified in connection with any criminal action or proceeding, a director or
officer must have had no reasonable cause to believe his or her conduct was
unlawful. Our indemnification obligations extend to claims made against our
officers or directors because they acted as an officer or director of another
company at our request. We maintain directors' and officers' liability insurance
that provides coverage in the amount of $20.0 million.

44
<PAGE> 49

These provisions may discourage shareholders from bringing lawsuits against
our directors for breach of their fiduciary duties. These provisions may also
reduce the likelihood of derivative litigation against our directors and
officers, even though such action, if successful, might otherwise benefit us and
our shareholders. Furthermore, a shareholder's investment may be adversely
affected to the extent we are liable for damages awarded against our directors
and officers pursuant to these indemnification provisions. We believe that these
provisions and the related insurance are necessary to attract and retain
talented, experienced directors and officers.

At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in
a claim for indemnification.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Neither of the two directors on our compensation committee has ever been an
officer or employee of our company. In addition, none of our executive officers
serves as a member of the board of directors or compensation committee of any
company that has one or more executive officers serving as a member of our board
of directors or our compensation committee.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation we
paid in the fiscal year ended December 31, 1999 to our chief executive officer
and to our other three executive officers. For ease of reference, we
collectively refer to these executive officers throughout this section as our
"named executive officers".

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION(1)
--------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Wallace K. Tsuha, Jr.,........ $423,600 $150,000 $90,571(2) -- $ 39,728(3)
Chairman, chief executive
officer and president
Gene R. Smith,................ $170,000 $ 60,000 -- 78,000 $ 1,200
Executive vice president and
general manager, electronics
business segment
Donald J. Cowie,.............. $163,000 $ 50,000 -- 48,000 $ 1,200
Chief financial officer and
executive vice president
Nick Najmolhoda,.............. $172,800 $ 40,000 -- 48,000 $ 1,200
Executive vice president and
general manager,
electromechanical business
segment
</TABLE>

- ---------------
(1) Includes matching contributions of $1,200 made by us under our 401(k) plan.

(2) Includes $77,500 paid by us for interest accrued on a promissory note made
by Mr. Tsuha in favor of us.

(3) Includes a bonus in the amount of $38,528 paid to Mr. Tsuha for constructive
income and income taxes pursuant to a split-dollar life insurance policy
insuring Mr. Tsuha's life in the face amount of $20.0 million.

45
<PAGE> 50

OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999

The following table contains information concerning the stock option grants
which were made to our named executive officers in the fiscal year ended
December 31, 1999 under our 1995 Management Stock Option Plan, or the 1995 Plan.
Only three of those officers were granted options.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
NUMBER % OF TOTAL STOCK PRICE APPRECIATION FOR
OF SHARES OPTIONS GRANTED OPTION TERM
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------------
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
---- --------------- --------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Cowie........ 48,000 5.5 $3.888 6/30/05 $65,061 $148,114
Nick Najmolhoda........ 48,000 5.5 $3.888 6/30/05 65,061 148,114
Gene R. Smith(1)....... 48,000 5.5 $3.888 6/30/05 65,061 148,114
30,000 3.5 $3.888 6/30/05 37,247 83,788
</TABLE>

- ---------------
(1) Mr. Smith received an option grant for 48,000 shares on May 14, 1999 and an
option grant for 30,000 shares on October 28, 1999.

Once the options become exercisable, these options terminate 90 days after
the termination of the optionee's employment for any reason other than cause,
retirement, death or disability, and one year after the termination of the
optionee's employment due to retirement, disability or death or immediately upon
termination of the optionee's employment for cause.

Options were granted at an exercise price equal to the fair market value
per share of common stock on the date of grant as determined by our board of
directors. The potential realizable value is calculated based on the option
expiration date of June 30, 2005, and with a stock price appreciation at 5% and
10% annual rates as assumed pursuant to rules promulgated by the SEC, and does
not represent our prediction of our stock price performance. The potential
realizable value at 5% and 10% appreciation is calculated by assuming that each
option's exercise price appreciates at the indicated rates for the entire term
of the option and that the option is exercised at the exercise price, and the
share sold, on the last day of its term at the appreciated prices.

FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning the year-end number
and value of unexercised options with respect to three of our named executive
officers. The other named executive officer did not hold any options to acquire
common stock from us as of the end of the fiscal year 1999. No options were
exercisable in fiscal year 1999 by any of our named executive officers. There
was no public trading market for our common stock as of December 31, 1999.
Accordingly, the values set forth below have been calculated on the basis of the
assumed initial public offering price of $ per share, less the applicable
exercise price per share, multiplied by the number of shares underlying the
options.

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SHARES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NAME DECEMBER 31, 1999 DECEMBER 31, 1999
---- ---------------------- -----------------
<S> <C> <C>
Donald J. Cowie......................................... 258,000 $
Nick Najmolhoda......................................... 264,000
Gene R. Smith........................................... 198,000
</TABLE>

Our compensation committee can make the options granted under the 1995 Plan
exercisable at any time at its discretion, and all options granted under the
1995 Plan will also become immediately exercisable in full upon a change of
control of our company. In addition, the options granted under the 1995 Plan may
become exercisable over time upon the earlier to occur of the following events:
we offer our shares to the public under a registration statement or we merge
with a publicly traded corporation but we do not experience a change of control.

46
<PAGE> 51

STOCK OPTION PLANS

2000 Stock Option Plan

Our 2000 Stock Option Plan is designed to enable us to attract and retain
qualified officers, directors, employees, consultants and advisors and to
provide these individuals with an increased incentive to make significant and
extraordinary contributions to our long-term performance and growth, by making
them eligible to receive awards of stock options. A total of 2,500,000 shares of
our common stock have been authorized to date for issuance under the plan. No
options have been issued under the plan as of the date of this prospectus.

The 2000 Stock Option Plan is administered by the compensation committee of
our board of directors. Subject to the provisions of the plan, the compensation
committee will determine:

- when and to whom options will be granted;

- the number of shares covered by each option;

- the terms of the options, including the exercise price, although the
exercise price for incentive stock options may not be less than the fair
market value of our common stock on the date of grant, or 110% of the
fair market value if granted to an employee who at the time of the grant
owns more than 10% of our outstanding common stock; and

- subject to applicable law, whether the options will be incentive stock
options or non-qualified stock options.

Options granted under the plan will become exercisable at those times and
under the conditions determined by the compensation committee. Under the plan,
unless the compensation committee otherwise provides, all options held by an
option holder will automatically terminate when that person ceases to be an
officer, employee, director, consultant or advisor for any reason.

The compensation committee may interpret the plan and may at any time adopt
rules and regulations for the plan as it deems advisable. In determining the
persons to whom options will be granted and the number of shares covered by each
option, the compensation committee may take into account any factors it deems
relevant.

Our board of directors may amend or terminate the 2000 Stock Option Plan.
However, no change to the maximum number of shares subject to the Plan will be
effective without the approval of our shareholders. In addition, no change may
adversely affect an option previously granted, except with the written consent
of the option holder.

The plan provides for adjustments to the number of shares and to the
exercise price of outstanding options in the event of stock dividends, stock
splits, recapitalizations, mergers, statutory share exchanges or reorganizations
of or by us, as the compensation committee, in its discretion, deems
appropriate.

1995 Management Stock Option Plan

As of May 3, 2000, we had outstanding under our 1995 Management Stock
Option Plan, or the 1995 Plan, options to purchase a total of 2,777,400 shares
of common stock. The 1995 Plan will be terminated upon the consummation of this
offering and no further options will be granted under the 1995 Plan. However,
the options which are now outstanding will continue to be exercisable according
to their terms.

47
<PAGE> 52

RELATED PARTY TRANSACTIONS

In 1995, we loaned to Mr. Tsuha, our chairman, president and chief
executive officer, the amount of $1.0 million, bearing interest at a rate of
7.75% per annum due on the earlier of March 31, 2002 or 90 days following the
effective date of a registration statement of a public offering of our common
stock. This loan is evidenced by an amended promissory note made by Mr. Tsuha in
our favor and has no principal amortization prior to maturity. Under the terms
of Mr. Tsuha's now expired employment agreement, we have paid the quarterly
interest payments on this promissory note. Interest on the promissory note
amounted to $77,500 each year from 1997 through 1999. Assuming Mr. Tsuha's
continued employment with us, we intend to continue to make interest payments on
his behalf in the future.

The Company incurred interest expense pertaining to a subordinated note
payable to MascoTech, one of our significant shareholders, in the approximate
amount of $548,000 for the year ended December 31, 1997. A payment in the amount
of $9,070,000 was made on July 8, 1997 to extinguish this note.

In 1999, we sold approximately $6.7 million in services and products to
affiliates of MascoTech. In 1998, we sold approximately $5.1 million and in 1997
we sold approximately $4.2 million of services and products to affiliates of
MascoTech. Mr. William T. Anderson, one of our directors, is also a vice
president and controller at MascoTech. We have continued to provide services and
products to MascoTech during 2000 and intend to continue to do so.

Until August 20 1999, we subleased our Auburn Hills, Michigan facility from
an affiliate of MascoTech for a total of $273,669. In 1998, we subleased the
facility for a total of $453,207 and in 1997 we subleased the facility for a
total of $439,774. Pursuant to a sublease agreement dated August 20, 1999, we
currently sublease a portion of our Auburn Hills, Michigan facility to the same
affiliate of MascoTech. Rental income for this sublease in 1999 was $101,154,
however, in March of 2000 the monthly rental was reduced to $4,700 because of a
reduction in the amount of leased space. We believe this constitutes fair market
rent.

We have entered into a consulting agreement with Sherman L. Cruz, one of
our directors and the brother of Mr. Tsuha, our chairman, chief executive
officer and president. The consulting agreement, which expires on August 31,
2000, provides for a monthly fee of $13,000 paid to Mr. Cruz for administrative
services. Expenses associated with director fees and various consulting
agreements related to Mr. Cruz amounted to $162,800 in 1999, $76,100 in 1998 and
$26,300 in 1997.

In 1999, we purchased $3.0 million of materials from Bitron, an affiliate
of World Wide Industrial Invest B.V., or Worldwide, one of our shareholders
until April 29, 1999. In 1998 we purchased $6.7 million of materials from Bitron
and in 1997 we purchased $5.1 million of materials from Bitron. On April 29,
1999, we purchased from Worldwide 7,435,320 shares of our common stock for $27.0
million.

48
<PAGE> 53

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information with respect to the beneficial
ownership of our outstanding shares of common stock as of May 3, 2000 by:

- each person who is the beneficial owner of more than 5% of our
outstanding common stock;

- each of our directors;

- each of our named executive officers; and

- all of our directors and executive officers as a group.

Unless otherwise indicated below, the shareholders in this table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Unless otherwise indicated, the address of each shareholder is
our principal executive office.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THIS OFFERING NUMBER OF AFTER THIS OFFERING (1)
--------------------- SHARES BEING -----------------------
NAME NUMBER PERCENT OFFERED (1) NUMBER PERCENT
---- ---------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Wallace K. Tsuha, Jr.(2)............ 12,403,895 41.7%
MascoTech, Inc...................... 10,781,280 36.3
21001 Van Born Rd
Taylor, Michigan 48180
Jennifer Tsuha Pelling(3)(5)........ 2,156,105 7.2
2285 Rutherford Road
Carlsbad, California 92008
Bank One Trust N.A. ................ 4,400,000 14.8
2155 West Big Beaver
Troy, Michigan 48084(4)
Sherman L. Cruz (4)(5).............. 4,400,000 14.8
Donald J. Cowie..................... -- --
Nick Najmolhoda..................... -- --
Gene R. Smith, Jr................... -- --
William T. Anderson................. -- --
David E. Cole....................... -- --
Forest J. Farmer.................... -- --
Rick Inatome........................ -- --
Gary E. Liebl....................... -- --
All directors and executive officers
as a group (10 persons)........... 16,803,895 56.5
</TABLE>

- ---------------
(1) These numbers assume that the underwriters' over-allotment option is not
exercised. Mr. Tsuha is offering shares of common stock and
MascoTech is offering shares of common stock in the over-allotment
option. Assuming full exercise of the over-allotment option, Mr. Tsuha will
own shares of common stock, constituting % of the shares
outstanding, and MascoTech will own shares of common stock,
constituting % of the shares outstanding.

(2) Includes 1,264,307 shares held by the Wallace K. Tsuha Grantor Retained
Annuity Trust U/A/D 5/18/98, for which Mr. Tsuha is the trustee and has sole
investment and voting power, and includes 11,139,588 shares held by The
Wallace K. Tsuha Trust dated 10/14/91. Mr. Tsuha is the brother of Sherman
L. Cruz and the father of Jennifer Tsuha Pelling.

(3) Includes 1,032,119 shares held by the Wallace K. Tsuha Grantor Retained
Annuity Trust U/A/D 9/23/93 and 1,123,986 shares held by the Wallace K.
Tsuha Grantor Retained Annuity Trust U/A/D 11/7/94, for which Ms. Pelling is
the trustee and has sole voting and investment power.

(4) Includes 4,400,000 shares owned by the Tsuha Family Dynasty Trust U/A/D
12/31/91, for which Mr. Cruz and Bank One Trust N.A. serve as co-trustees
and jointly share investment and voting power.

(5) Ms. Pelling is the daughter of Mr. Tsuha and Mr. Cruz is the brother of Mr.
Tsuha.

49
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the completion of the offering, the total amount of our authorized
capital stock will consist of 200,000,000 shares of common stock, no par value,
and 1,000,000 shares of preferred stock, no par value. The following is in all
respects, qualified by reference to the applicable provisions of the Michigan
Business Corporation Act and our amended and restated articles of incorporation
and bylaws. As of May 3, 2000, there were six holders of record of our common
stock.

COMMON STOCK

All of our issued and outstanding shares of common stock have been validly
issued and are fully paid and nonassessable. The shares of common stock we are
offering will be, when paid for, validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any preferred stock that we may
later issue, the holders of outstanding shares of common stock will be entitled
to receive dividends out of assets legally available at such time and in such
amounts as our board of directors may from time to time determine. The common
stock is neither redeemable nor convertible, and holders of common stock have no
preemptive or subscription rights to purchase any of our securities. There is no
sinking fund provision applicable to our common stock. Upon our liquidation,
dissolution or winding up, the holders of common stock will be entitled to
receive, on a pro rata basis, our assets that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of preferred stock then outstanding. Each
outstanding share of our common stock is entitled to one vote on all matters
submitted to a vote of shareholders. There is no cumulative voting in the
election of directors.

PREFERRED STOCK

Our board of directors may, without further action by our shareholders,
from time to time, issue shares of preferred stock in a series and may, at the
time of issuance, determine the rights, preferences and limitations of each
series with respect to, among other things, dividends, redemption and conversion
terms and voting rights. We may issue shares of preferred stock with voting,
dividend and liquidation rights superior to our common stock, any of which could
adversely affect the rights of holders of common stock. Our ability to issue
preferred stock, or our actual issuance of preferred stock, could have the
effect of discouraging, delaying, deterring or preventing a change of control.
Currently there are no shares of preferred stock outstanding, and we have no
present intention to issue any shares of preferred stock.

ANTI-TAKEOVER LEGISLATION AND PROVISIONS OF OUR ARTICLES AND BYLAWS

Chapters 7A and 7B of the Michigan Business Corporation Act may affect
attempts to acquire control of a Michigan corporation. Chapter 7A prohibits a
Michigan corporation from consummating a "business combination" with an
"interested shareholder" unless the proposed business combination is approved by
at least 90% of the votes of each class of the corporation's shares entitled to
vote and by at least two-thirds of such voting shares not held by the interested
shareholder, its affiliates and associates. These requirements do not apply,
however, when the interested shareholder satisfies certain price, form of
consideration and other requirements and at least five years have elapsed after
the person involved became an interested shareholder. In general, under Chapter
7A, business combinations are defined to include certain mergers, substantial
sales of assets or securities and recapitalizations between covered Michigan
business corporations or their subsidiaries and an interested shareholder.
Generally, an interested shareholder is defined as a direct or indirect
beneficial owner of 10% or more of the voting power of the corporation's
outstanding shares. Our restated articles of incorporation provide that we elect
not to be governed by Chapter 7A, but that our board of directors may terminate
this election at any time.

Generally, under Chapter 7B, an entity that acquires "control shares" of a
corporation exercises voting rights with respect to the control shares on any
matter only if a majority of all shares, and of all shares that are not
"interested shares," of each class of shares entitled to vote as a class,
approve those voting

50
<PAGE> 55

rights. In general, interested shares of a corporation are shares owned by
employee-directors or officers of the company, or by an entity making a "control
share acquisition." Control shares are shares that, when added to those already
owned by an entity, would give the entity voting power in the election of
directors over any of three thresholds: one-fifth, one-third and a majority of
such voting power. If control shares acquired in a control share acquisition are
accorded full voting rights and the acquirer of such control shares has acquired
a majority of all voting power of the company, Chapter 7B would afford special
dissenters' rights to the company's shareholders other than the acquirer, unless
otherwise provided in the articles of incorporation or bylaws before the control
share acquisition occurs. The effect of the statute is to condition the
acquisition of voting control of the company on the approval of a majority of
the pre-existing disinterested shareholders. While our amended and restated
bylaws currently provide that Chapter 7B does not apply to us, our board of
directors may amend the bylaws to make Chapter 7B apply to us.

In addition, provisions of our amended and restated articles of
incorporation and our amended and restated bylaws could have the effect of
discouraging, delaying, deterring or preventing a change of control. Such
provisions could also limit the price that certain investors might be willing to
pay in the future for shares of our common stock. These provisions include those
which:

- classify our board of directors into three classes, each class as nearly
equal in number as possible, with members serving staggered three year
terms;

- permit our board of directors to issue up to 1,000,000 shares of
preferred stock and to fix the rights and preferences of any series of
the preferred stock, without any further vote or action by our
shareholders;

- require the approval of at least 80% of the outstanding shares of our
voting stock to amend or repeal the provision establishing a classified
board of directors;

- provide that special meetings of shareholders may only be called by our
chief executive officer, our board of directors or a majority of our
shareholders entitled to vote at the meeting; and

- provide that directors may be removed only for cause, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is .

LISTING

We have applied to have our common stock traded on The Nasdaq Stock
Market's National Market, under the trading symbol "SATR," which we have
reserved.

51
<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock and
we cannot make any predictions as to the effect, if any, that market sales of
shares or the availability of shares of our common stock for future sale will
have in the market price of our common stock from time to time. Furthermore,
although many shares will be unavailable for sale shortly after this offering
due to contractual and legal restrictions on resale described below, the sale of
a substantial amount of shares of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price of our
common stock and our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding, an aggregate of
shares of our common stock. Of these shares, all of the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by our
affiliates as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including an exemption under Rule 144 of the Securities Act. The remaining
shares of common stock held by existing shareholders are restricted securities
as that term is defined in Rule 144 under the Securities Act. These restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration, including exemptions under Rule
144 or Rule 701 under the Securities Act. These rules are summarized below.

Upon the expiration of the lock-up agreements described below and subject
to the provisions of Rule 144 and Rule 701, restricted shares totaling
will be available for sale in the public market 180 days after
the date of this prospectus. The sale of these restricted securities is subject,
in the case of shares held by affiliates, to the timing, volume and manner of
sale restrictions contained in those rules.

RULE 144

In general, under Rule 144, beginning 90 days after the consummation of
this offering, a person who has beneficially owned shares of our common stock
for at least one year from the date those shares of common stock were acquired
from us or from an affiliate of ours would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately shares of common stock immediately after
this offering; or

- the average weekly trading volume of the common stock in the public
market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.

The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.

Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, without the restrictions
on our outstanding shares contained in the lock-up agreements, those shares
could have been sold immediately upon the completion of this offering.

RULE 701

In general, under Rule 701 of the Securities Act, each of our employees,
consultants or advisors who purchased shares from us under our stock option
plans or other written agreements, is eligible to resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with some of the restrictions, including the holding period
requirements, contained in Rule 144.

52
<PAGE> 57

LOCK-UP AGREEMENTS

Together with our directors and executive officers and all our existing
shareholders, we have entered into lock-up agreements with the underwriters.
Under those agreements, neither we nor any of our directors, executive officers
or current shareholders may dispose of or hedge any shares of our common stock
or securities convertible into or exchangeable or exercisable for shares of our
common stock. These restrictions will be in effect for a period of 180 days
after the date of this prospectus. At any time and without notice, Credit Suisse
First Boston Corporation may, in its sole discretion, release all or some of the
securities from these lock-up agreements. Transfers or dispositions can be made
sooner with the prior written consent of Credit Suisse First Boston Corporation,
provided the transferee becomes bound by the terms of a lockup agreement.

STOCK PLANS AND WARRANT

We intend to file a registration statement under the Securities Act
covering 2,500,000 shares of common stock reserved for issuance under our 2000
Stock Option Plan and covering 2,777,400 shares of common stock reserved for
issuance for options outstanding as of May 3, 2000 under our 1995 Management
Stock Option Plan. Currently, there are no options outstanding under our 2000
Stock Option Plan. Once we file this registration statement, all of the shares
issued upon exercise of the options granted under these plans will be eligible
for sale in the public market from time to time, subject to the expiration of
applicable lock-up agreements. This registration statement is expected to be
filed as soon as practicable after the effective date of this offering.

In addition to our outstanding options, we have granted to Motorola a
warrant to acquire 1,565,331 shares of our common stock, at a per share exercise
price equal to 90% of the price per share of our initial public offering. The
warrant is exercisable between March 2004 and March 2005. However, for every
$100.0 million that we receive from Motorola for services rendered, 10% of the
shares subject to this warrant will become exercisable immediately. The shares
issued upon exercise of this warrant may be sold in the public market only if
they are registered with the SEC or if the sale qualifies for an exemption from
registration, including exemption under Rule 144 under the Securities Act.

REGISTRATION RIGHTS

Following 180 days after the effectiveness of this offering, MascoTech will
have the right to require us to register a portion of their shares for future
sale upon demand and under other circumstances. MascoTech's right will expire if
it owns less than 15% of the outstanding shares of our common stock. In
addition, Mr. Tsuha and trusts for the benefit of Mr. Tsuha and his family,
referred to as the Tsuha shareholders, have registration rights identical to
MascoTech's, which similarly expire if the Tsuha shareholders collectively own
less than 15% of the outstanding shares of our common stock.

In addition, Motorola, a holder of a warrant to purchase 1,565,331 shares
of our common stock will, under some circumstances, have the right to require us
to register the shares it obtains through the exercise of the warrant. After our
common stock is publicly traded, Motorola will have the right to require us to
file a registration statement providing for the sale of Motorola's shares under
Rule 415 of the Securities Act, which permits registration of an offering to be
made on a continuous or delayed basis. However, we have the right to require
Motorola not to sell any securities registered under this registration statement
under specific circumstances. In addition, at Motorola's request, we have agreed
to use our best efforts to include common stock issuable under this warrant in
any future registration statement that we may file with respect to our common
stock, subject to some limitations. Moreover, each of MascoTech and the Tsuha
shareholders have registration rights identical to Motorola so long as the Tsuha
shareholders, collectively, or MascoTech, as applicable, owns less than 15% but
more than 5% of the outstanding shares of our common stock. The registration
rights which are identical to Motorola's registration rights shall terminate
with respect to MascoTech if it ceases to own at least 5% of the outstanding
shares of our common stock. The Tsuha shareholders have registration rights
identical to MascoTech's, which similarly expire if the Tsuha shareholders
collectively own less than 5% of the outstanding shares of our common stock.

53
<PAGE> 58

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we and the selling shareholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Needham &
Company, Inc. are acting as representatives, the following respective numbers of
shares of common stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Needham & Company, Inc......................................
--------
Total.............................................
========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

The selling shareholders have granted to the underwriters a 30-day option
to purchase on a pro rata basis up to additional shares at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.

The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay:

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us..... $ $ $ $
Expenses payable by us....... $ $ $ $
Underwriting Discounts and
Commissions paid by selling
shareholders............... $ $ $ $
Expenses payable by selling
shareholders............... $ $ $ $
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.

54
<PAGE> 59

All of our executive officers, directors and shareholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in this offering will be reduced to the extent such
persons purchase reserved shares. Any reserved shares not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.

We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.

We have applied to have our common stock traded on The Nasdaq Stock
Market's National Market, under the symbol "SATR," which we have reserved.

Prior to this offering, there was no established public trading market for
our common stock. The initial public offering price for the common stock will be
determined by negotiation among Credit Suisse First Boston Corporation, the
representatives and us and the selling shareholders. The primary factors to be
considered in determining the initial public offering price include:

- the history and prospects of the industry in which we compete;

- the ability of our management;

- our past and present operations;

- our prospects for future earnings;

- the general condition of the securities markets at the time of this
offering; and

- the recent market prices of securities of generally comparable companies.

We cannot be sure that the initial public offering price will correspond to
the price at which the shares of common stock will trade in the public market
following this offering or that an active trading market for the shares of
common stock will develop and continue after this offering.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

55
<PAGE> 60

These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.

56
<PAGE> 61

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling shareholders and the
dealer from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, such purchaser is purchasing as a principal and not
as agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All the issuer's directors and officers as well as the experts named herein
and the selling shareholders may be located outside of Canada and, as a result,
it may not be possible for Canadian purchasers to effect service of process
within Canada upon the issuer or such persons. All or a substantial portion of
the assets of the issuer and such persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against the issuer or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such person pursuant to this offering. Such report must
be in the form attached to the British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

57
<PAGE> 62

EXPERTS

Our consolidated balance sheets as of December 31, 1999 and 1998, and our
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.

The consolidated balance sheets for Smartflex Systems, Inc. as of December
31, 1998 and 1997, and the consolidated statements of operations, stockholders'
equity and cash flows of Smartflex Systems, Inc. for each of the three years in
the period ended December 31, 1998, included in this prospectus, have been
included in reliance on the report of Ernst & Young LLP, independent auditors,
given on the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock to be sold in this
offering. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information about us and our common stock, you should
refer to the registration statement as permitted by the SEC's rules. Any
statements made in this prospectus as to the contents of any contract, agreement
or other document are necessarily incomplete and we refer you to the exhibit for
a more complete description of the matter involved, and each statement in this
prospectus shall be deemed qualified in its entirety by this reference.

On completion of this offering we will be subject to the information
requirements of the Securities Exchange Act of 1934 and will file reports, proxy
statements and other information with the SEC. You may read and copy all or any
portion of the registration statement or any reports, statements or other
information in the files at the public reference facilities of the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549 and at
the regional offices of the SEC located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330
for further information on the operation of its public reference rooms. Our
filings, including the registration statement, will also be available to you on
the Internet site maintained by the SEC at www.sec.gov.

LEGAL MATTERS

The legality of the shares offered hereby by us and by Wallace K. Tsuha,
Jr., one of the selling shareholders, is being passed upon by Honigman Miller
Schwartz and Cohn, Detroit, Michigan, counsel for us. Certain legal matters will
be passed upon for the underwriters by McDermott, Will & Emery, Chicago,
Illinois.

58
<PAGE> 63

SATURN ELECTRONICS & ENGINEERING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998, and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000 and as of
December 31, 1999......................................... F-21
Consolidated Statements of Operations for the quarters ended
March 31, 2000 and 1999................................... F-22
Consolidated Statements of Cash Flows for the quarters ended
March 31, 2000 and 1999................................... F-23
Notes to Unaudited Consolidated Financial Statements........ F-24
SMARTFLEX SYSTEMS, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-28
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-29
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-30
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...... F-31
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-32
Notes to Consolidated Financial Statements.................. F-33
SMARTFLEX SYSTEMS, INC. UNAUDITED INTERIM FINANCIAL
STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................. F-48
Consolidated Statements of Operations for the six months
ended June 30, 1999 and 1998 and for the three months
ended June 30, 1999 and 1998.............................. F-49
Consolidated Statements of Cash Flows for six months ended
June 30, 1999 and 1998.................................... F-50
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-51
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1999................................... F-54
Notes to Pro Forma Consolidated Statement of Operations..... F-54
</TABLE>

F-1
<PAGE> 64

THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF SATURN ELECTRONICS &
ENGINEERING, INC. HAVE BEEN PREPARED GIVING EFFECT TO THE AUTHORIZATION OF
ADDITIONAL SHARES OF COMMON STOCK AND CERTAIN STOCK SPLITS AS MORE FULLY
DESCRIBED IN NOTE 15. WE HAVE BEEN INFORMED THAT AUTHORIZATION OF ADDITIONAL
SHARES AND THE STOCK SPLITS ARE CONTINGENT UPON THE EFFECTIVENESS OF THE
OFFERING. UPON THE CONSUMMATION OF THE AFOREMENTIONED EVENTS WE WILL BE IN A
POSITION TO ISSUE THE FOLLOWING REPORT:

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of Saturn Electronics & Engineering, Inc.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of Saturn
Electronics & Engineering, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 of these statements in accordance with auditing standards
generally accepted in the United States, 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 audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Detroit, Michigan

March 2, 2000, except as to
the authorization of
additional shares and the
stock splits described in
Note 15 which is as of
March 25, 2000.

F-2
<PAGE> 65

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,929 $ 1,020
Accounts receivable, trade (less allowances of $1,783 and
$455 in 1999 and 1998, respectively)................... 45,509 27,879
Accounts receivable, related parties...................... 503 386
Note receivable, shareholder.............................. 1,000 --
Inventories............................................... 32,271 9,474
Deferred income taxes..................................... 8,982 1,665
Prepaid expenses.......................................... 2,634 336
Other current assets...................................... 3,125 967
-------- -------
Total current assets................................... 95,953 41,727
Property, plant and equipment, net........................ 66,298 39,105
Process technology, net................................... 14,357 463
Customer lists and other intangible assets, net........... 17,137 --
Goodwill, net............................................. 35,382 16,270
Note receivable, shareholder.............................. -- 1,000
Other assets.............................................. 2,347 39
-------- -------
Total assets........................................... $231,474 $98,604
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................... $ 29,713 $13,471
Accounts payable, related parties......................... 367 488
Seller Payable............................................ 4,279 --
Income taxes payable...................................... -- 412
Product warranty.......................................... 3,307 2,779
Other accrued expenses.................................... 13,142 2,318
-------- -------
Total current liabilities.............................. 50,808 19,468
Long term debt.............................................. 107,361 3,976
Deferred income taxes....................................... 13,757 2,731
-------- -------
Total liabilities...................................... 171,926 26,175
-------- -------
Minority interest........................................... 7,690 3,476
-------- -------
Commitments and Contingencies............................... -- --
Shareholders' Equity:
Common stock, no par value -- 200,000,000 shares
authorized, 29,741,280 and 37,176,600 shares issued and
outstanding, respectively.............................. -- --
Additional paid-in-capital................................ 7,737 34,737
Retained earnings......................................... 44,121 34,216
-------- -------
Total shareholders' equity............................. 51,858 68,953
-------- -------
Total liabilities and shareholders' equity............. $231,474 $98,604
======== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 66

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net revenue including related party transactions of
$6,669, $5,075 and $4,173............................ $ 257,107 $ 188,464 $ 161,048
Cost of revenue including related party transactions of
$5,075, $3,705 and $2,958............................ 205,341 147,661 133,568
---------- ---------- ----------
Gross profit...................................... 51,766 40,803 27,480
Development expense.................................... 7,741 4,861 3,563
Selling, general and administrative expense............ 19,146 12,777 8,039
Amortization expense................................... 2,582 1,649 1,650
---------- ---------- ----------
Operating income.................................. 22,297 21,516 14,228
Interest income........................................ 331 176 100
Interest expense....................................... (3,340) (142) (977)
Other income (expense), net............................ (161) (131) 116
Write down of investment............................... -- (905) --
Minority interest...................................... (2,788) (1,701) --
---------- ---------- ----------
Income before income taxes........................ 16,339 18,813 13,467
Income taxes........................................... 6,434 6,859 5,408
---------- ---------- ----------
Net income........................................ $ 9,905 $ 11,954 $ 8,059
========== ========== ==========
Basic and diluted earnings per share of common stock... $ 0.31 $ 0.32 $ 0.22
========== ========== ==========
Basic and diluted weighted average number of common
shares outstanding................................... 32,145,026 37,176,600 37,176,600
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 67

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK, NO PAID-IN RETAINED SHAREHOLDERS'
PAR VALUE CAPITAL EARNINGS EQUITY
---------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997.................... 37,176,600 $ 34,737 $14,203 $ 48,940
Net income................................... -- -- 8,059 8,059
---------- -------- ------- --------
Balances, December 31, 1997.................. 37,176,600 34,737 22,262 56,999
Net income................................... -- -- 11,954 11,954
---------- -------- ------- --------
Balances, December 31, 1998.................. 37,176,600 34,737 34,216 68,953
Stock Repurchase............................. (7,435,320) (27,000) -- (27,000)
Net income................................... -- -- 9,905 9,905
---------- -------- ------- --------
Balances, December 31, 1999.................. 29,741,280 $ 7,737 $44,121 $ 51,858
========== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 68

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income.................................................. $ 9,905 $11,954 $ 8,059
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation.............................................. 6,614 4,524 3,125
Amortization.............................................. 2,582 1,649 1,650
Deferred income taxes..................................... 500 (884) 248
Write off of investment................................... -- 905 --
Loss on disposal of fixed assets.......................... -- 1,169 --
Minority interest in income............................... 2,788 1,701 --
Changes in operating assets and liabilities, net of
business acquisition:
Accounts receivable, trade................................ (2,206) (7,343) 527
Accounts receivable, related parties...................... (117) (136) --
Inventories............................................... (9,410) 641 2,384
Prepaid expenses.......................................... (563) 176 153
Accounts payable, trade................................... (4,269) 2,371 (171)
Accounts payable, related parties......................... (121) (32) --
Income taxes payable...................................... 857 (403) 382
Accrued expenses and other................................ (2,113) 1,348 366
--------- ------- --------
Net cash provided by operating activities.......... 4,447 17,640 16,723
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired............... (52,694) -- --
Capital expenditures........................................ (8,640) (16,877) (6,478)
--------- ------- --------
Net cash used in investing activities.............. (61,334) (16,877) (6,478)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings.................................... 251,646 44,939 20,360
Payment of borrowings....................................... (164,884) (47,593) (31,800)
Stock repurchase............................................ (27,000) -- --
Payment of finance fee...................................... (1,991) -- --
Minority interest investment................................ 25 1,775 --
--------- ------- --------
Net cash provided by (used in) financing
activities....................................... 57,796 (879) (11,440)
Net increase(decrease) in cash.............................. 909 (116) (1,195)
Cash, beginning of year..................................... 1,020 1,136 2,331
--------- ------- --------
Cash, end of year........................................... $ 1,929 $ 1,020 $ 1,136
========= ======= ========
Supplemental disclosures of cash flow information, Cash paid
during the period for:
Income taxes.............................................. $ 6,895 $ 8,567 $ 4,604
========= ======= ========
Interest.................................................. $ 2,748 $ 168 $ 1,011
========= ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 69

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

Except as the context otherwise indicates, the term "the Company" refers to
Saturn Electronics & Engineering, Inc. and its subsidiaries.

The Company is a global provider of value added electronics manufacturing
services to original equipment manufacturers in the automotive, communications,
computer and military markets. The Company provides a broad range of services
including design and engineering, material management, manufacturing and
assembly, testing and qualification, fulfillment and after-sales support.

In August 1999, the Company acquired Smartflex Systems, Inc., a high
technology product design and precision manufacturing firm based in Tustin,
California. Through this acquisition, the Company gained access to full-service
electronics capabilities and significantly increased its scale of operations.
This acquisition expanded the Company's customer base to the communications and
computer markets, and enhanced its geographic presence.

The Company has manufacturing facilities in the United States, Mexico and
the Philippines, and an engineering and sales facility in Singapore.

During the year ended December 31, 1999, the Company had sales to two
customers aggregating approximately 31% and 19%, respectively, of total net
revenue. During the year ended December 31, 1998, the Company had sales to two
customers aggregating approximately 40% and 10% respectively of total sales.
During the year ended December 31, 1997, the Company had sales to two customers
aggregating approximately 45% and 14%, respectively, of total net revenue.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

The Company participates in a strategic alliance with a major Tier 1
automotive supplier ("Tier 1") through a limited liability company ("LLC") for
the purpose of manufacturing battery cables, wire harnesses, ground straps,
trailer tow harnesses and non-automotive electrical distribution systems. On
December 31, 1999, the Company held an approximate 53% membership interest in
the LLC. All products of the LLC are sold and serviced through the Company. The
remaining 47% membership interest in the LLC is reflected as a minority
interest.

The LLC is operating as a subsidiary of the Company and, for financial
reporting purposes, the assets, liabilities, results of operations and cash
flows of the LLC are included in the Company's consolidated financial
statements.

Revenue recognition

Revenue is recognized when a product is shipped, and the Company provides
an applicable allowance for estimated sales returns based on historical
experience.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.

F-7
<PAGE> 70
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Property, plant and equipment

Property, plant and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the following estimated useful
lives: buildings and land improvements from 10 to 40 years and machinery and
equipment from 3 to 15 years.

Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals or betterments are capitalized. Upon sale or retirement of
property, plant and equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts, and the resulting gain or loss is
included in the statement of operations.

Intangible assets

Goodwill is amortized using the straight-line method over periods ranging
from 18 to 20 years. At December 31, 1999 and 1998, accumulated amortization
amounted to $8,783,000 and $7,362,000 respectively.

Process technology and customer lists and other intangible assets are
amortized under the straight line method over periods ranging from 13 to 18
years. At December 31, 1999, accumulated amortization pertaining to process
technology, and customer lists and other intangible assets amounted to
$3,081,000 and $705,600 respectively. At December 31, 1998, accumulated
amortization pertaining to process technology amounted to $2,618,850.

Intangible assets are reviewed for impairment whenever the facts and
circumstances indicate that the carrying amount may not be recoverable.

Financial instruments

Financial instruments which potentially subject the Company to
concentrations of credit risk represent primarily accounts receivable. At
December 31, 1999, two customers represented 19.4% and 12.3%, respectively, of
the Company's accounts receivable balance. The Company performs ongoing credit
evaluations of its customers' financial condition and currently requires no
collateral from its customers.

The carrying amounts of the Company's receivable and payable balances
approximate fair value because of the short maturity of these instruments. The
carrying amounts of the Company's bank borrowings under its revolving credit
facility approximate fair value because the applicable interest rates are based
on floating rates identified by reference to market rates.

Translation of foreign currency

The financial statements of the Company's operations outside the United
States are measured using the U.S. dollar as the functional currency. Monetary
assets and liabilities are translated at the rates of exchange at the balance
sheet date. Non-monetary assets and liabilities are translated at historical
rates of exchange. Income and expense items associated with monetary assets and
liabilities are translated at average rates of exchange for the period, while
the income and expense items associated with non-monetary assets and liabilities
are translated at historical rates. The resultant translation adjustments are
included in results of operations as transaction gains and losses. Transaction
gains/(losses) were not material during 1999, 1998 and 1997.

F-8
<PAGE> 71
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Earnings Per Share

Basic earnings per share is calculated by dividing consolidated net income
by the weighted average number of common shares outstanding. Diluted earnings
per share is computed by dividing consolidated net income by the sum of the
weighted average number of common shares outstanding and the weighted average
number of common stock equivalents outstanding. During 1999, 1998 and 1997, the
Company had no common stock equivalents outstanding.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions, and changes in such estimates and assumptions may affect amounts
reported in future periods.

3. BUSINESS ACQUISITION

Effective August 26, 1999, the Company acquired all of the outstanding
shares of common stock of Smartflex Systems, Inc. ("Smartflex") for $71,308,000.
In connection with this acquisition, the Company also incurred transaction costs
in the amount of approximately $385,000.

This acquisition was funded through the Company's revolving credit
facility. In addition, cash acquired in this acquisition in the amount of
$18,614,000 was utilized in the extinguishment of certain debt of Smartflex.

The acquisition was accounted for as a purchase, and accordingly, the
operating results of Smartflex have been included in the Company's financial
statements since August 26, 1999. The excess of the purchase price over the fair
value of net assets acquired is presently estimated at $20,525,000 and is being
amortized over 18 years.

The Company's allocation of the aggregate purchase price of Smartflex to
the tangible and intangible assets acquired in connection with this acquisition
were based on fair values as determined by an independent appraiser. The
allocation is summarized below (in thousands).

<TABLE>
<S> <C>
Current assets.............................................. $ 41,048
Property, plant & equipment................................. 23,100
Unpatented technology....................................... 14,700
Customer lists and other intangible assets.................. 17,500
Goodwill.................................................... 20,525
Other assets................................................ 5,604
--------
Total assets........................................... 122,477
--------
Current liabilities......................................... 30,256
Seller payable.............................................. 4,279
Long-term debt.............................................. 4,596
Deferred income taxes....................................... 11,946
Other non current liabilities............................... 92
--------
Total liabilities...................................... 51,169
--------
Total purchase price................................. 71,308
Less: cash acquired.................................. 18,614
--------
Purchase price, net of cash acquired................. $ 52,694
========
</TABLE>

F-9
<PAGE> 72
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. BUSINESS ACQUISITION -- (CONTINUED)
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1999 and 1998 assume that this acquisition occurred
on January 1, 1998:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net revenue................................................. $325,578 $296,065
Net income (loss)........................................... $ (2,537) $ 4,126
</TABLE>

The Company is in the process of implementing a rationalization plan
established shortly after the acquisition of Smartflex. The rationalization plan
takes into consideration duplicate capacity and opportunities for further
leveraging of cost and technology platforms. The Company's actions approved and
committed to in the fourth quarter of 1999 will result in the displacement of
approximately 81 current positions all of which are manufacturing positions. The
Company has decided to close one Smartflex facility and transition the
manufacturing of applicable product lines to other sites of the Company. The
Company estimates that the costs associated with closing the Smartflex facility
will be approximately $2,400,000 (which mostly represents contractual
commitments, severance and related costs). This amount has been capitalized as
part of the purchase price of Smartflex and is reflected in the other accrued
expenses classification of the Company's balance sheet at December 31, 1999.

A summarization of the charges associated with the rationalization plan
follows:

<TABLE>
<CAPTION>
TYPE OF CHARGE AMOUNT
-------------- ------
(IN THOUSANDS)
<S> <C>
Lease agreement............................................. $1,872
Utilities associated with lease............................. 128
Severance payments.......................................... 400
------
$2,400
======
</TABLE>

No charges were utilized in relation to this rationalization plan during
1999. Management expects that no additional accruals will be recognized in
relation to this plan. The rationalization plan will be completed during the
second quarter of 2000 except for the fact that the lease agreement will run for
72 months subsequent to March 31, 2000 unless a sublease is executed sooner or a
lease settlement is negotiated with the landlord.

In addition, $500,000 was recorded for asset impairments related to
leasehold improvements.

The above mentioned charges were determined based upon plans approved by
the Company's management utilizing the best information available at the time.
The amounts the Company may incur may differ from the total amount accrued as
the Company's initiative in relation to this rationalization plan is executed.
Management expects the execution of this plan will be completed in the second
quarter of 2000.

4. DETAILS TO CONSOLIDATED BALANCE SHEETS

Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $18,601 $4,453
Work-in-process............................................. 4,817 1,892
Finished goods.............................................. 8,853 3,129
------- ------
$32,271 $9,474
======= ======
</TABLE>

F-10
<PAGE> 73
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAILS TO CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
Inventories are net of allowances for slow-moving and obsolete inventory of
approximately $3,958,000 and $1,402,000 at December 31, 1999 and 1998,
respectively.

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements....................................... $ 1,438 $ 1,487
Buildings and improvements.................................. 18,783 9,785
Machinery and equipment..................................... 64,695 34,280
Construction in progress.................................... 4,430 12,501
-------- --------
89,346 58,053
Less -- accumulated depreciation............................ (23,048) (18,948)
-------- --------
$ 66,298 $ 39,105
======== ========
</TABLE>

5. INVESTMENT

During the fourth quarter of 1998, the Company determined that future cash
flows related to a joint venture investment in China, Beijing Saturn
Electronics, Inc., which was formed in 1994 would not recover the carrying value
of this investment. As a result of this determination, the Company recognized a
pretax write down of this investment in the amount of $905,000.

The Company participated in this alliance with a Chinese motor regulator
manufacturer and accounted for this investment under the equity method due to
the Company's inability to control this joint venture.

6. DEBT

On August 24, 1999, the Company entered into a $125,000,000 revolving line
of credit facility, which expires on August 9, 2002 with one year renewals based
upon the meeting of specific requirements at each anniversary date of the
facility. This arrangement involves a consortium of banks led by one major
financial institution. This line of credit replaced an existing $60,000,000 line
of credit facility.

A facility fee applicable to this arrangement amounts to 0.50% per annum of
the maximum commitment of the credit facility, payable quarterly, subject to
adjustment under specific circumstances. Letter of credit fees and facing fees
on each letter of credit also apply to this arrangement. This agreement contains
financial covenants relating to leverage, interest coverage and shareholder's
equity. Interest pertaining to borrowings associated with this facility are
based upon either a Eurodollar rate or the prime rate plus the applicable margin
of the financial institution.

During 1999, the maximum borrowings under the Company's credit arrangements
were $113,673,086; average borrowings were $29,739,715 at a weighted average
interest rate of 7.75%.

Borrowings pertaining to this arrangement are collateralized by all of the
Company's assets, except for the assets pertaining to the LLC. The unutilized
amount of this arrangement amounted to $17,639,000 on December 31, 1999.

At December 31, 1999 and 1998, no amount of the borrowings outstanding was
required to be repaid to the lender within one year.

F-11
<PAGE> 74
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT -- (CONTINUED)

The LLC has a revolving credit facility, as amended, with the above
mentioned financial institution. During the term of this facility, the financial
institution agrees to lend to the LLC sums not to exceed $15,000,000 in
aggregate principal amount outstanding at any one time. The term of this
facility expires on January 1, 2001. Interest on any unpaid principal balance
shall be payable monthly at a per annum rate equal to the financial
institution's prime rate. Borrowings pertaining to this facility shall be
collateralized by all of the LLC's assets. This facility contains covenants
which include restrictions pertaining to the issuance of debt, business
acquisitions, and transfers of assets. At December 31, 1999, there were no
borrowings outstanding, and no borrowings have been incurred in relation to this
arrangement.

7. EMPLOYEE INVESTMENT PLANS

Saturn Electronics & Engineering, Inc. sponsors a 401(k) savings plan
covering substantially all employees with the exception of Smartflex employees.
Employees are eligible to participate in this plan following one year of
service. The Company matches 100% of the first $500 and 50% of the next $1,400
of each participant's annual contributions. These contributions vest
immediately. The Company also pays certain administrative expenses associated
with this plan. Total expense pertaining to this plan amounted to $476,000,
$441,000 and $453,000 for 1999, 1998 and 1997, respectively.

Smartflex sponsors a 401(k) savings plan covering substantially all
full-time employees of Smartflex. Employees are eligible to participate in this
plan following six months of service. Smartflex may make discretionary matching
contributions, which vest over five years. Smartflex matches 100% of the first
3% of each employee's contribution. Total expense pertaining to this plan
amounted to $126,000 during the period of August 26, 1999 through December 31,
1999.

8. INCOME TAXES

Income before income taxes consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $15,113 $18,813 $13,467
Foreign............................................... 1,226 -- --
------- ------- -------
$16,339 $18,813 $13,467
======= ======= =======
</TABLE>

The components of income tax expense are:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision
Federal................................................ $5,394 $7,503 $5,010
State.................................................. 323 186 150
Foreign................................................ 248 -- --
------ ------ ------
Total.......................................... 5,965 7,689 5,160
Deferred................................................. 469 (830) 248
------ ------ ------
Total provision................................ $6,434 $6,859 $5,408
====== ====== ======
</TABLE>

F-12
<PAGE> 75
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts utilized for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at December 31,
1999 and 1998 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Inventory................................................. $ 1,705 $ 575
Product Warranty.......................................... 1,018 890
Allowance for Doubtful Accounts........................... 468 --
Accrued Liabilities....................................... 2,982 200
Net Operating Loss Carryforwards.......................... 2,809 --
------- -------
Deferred Tax Assets......................................... 8,982 1,665
------- -------
Deferred Tax Liabilities
State Deferred Taxes...................................... 11,653 --
Property, Plant and Equipment............................. 1,925 3,048
Other..................................................... 179 (317)
------- -------
Deferred Tax Liabilities.................................... 13,757 2,731
------- -------
Net Deferred Tax Liabilities................................ $(4,775) $(1,066)
======= =======
</TABLE>

The tax credit carryforwards relate to net operating losses generated by
Smartflex prior to August 26, 1999. On that date, Smartflex had available for
income tax purposes approximately $8,026,000 in federal net operating loss
carryforwards, which is subject to an annual limitation of approximately
$3,694,000 pursuant to Section 382 of the Internal Revenue Code, regarding the
offset of future taxable income. These loss carryforwards expire in 2014.

At December 31, 1999, Smartflex had state tax credit carryforwards in the
approximate amount of $2,999,000 of which $1,628,000 existed at August 26, 1999.
These credits expire in 2004.

The Company has not recognized a deferred tax liability of approximately
$275,000 for the undistributed earnings generated prior to August 26, 1999 of
certain foreign subsidiaries of Smartflex because the Company currently does not
expect those unremitted earnings to reverse and become taxable in the
foreseeable future. At December 31, 1999, the undistributed earnings of these
subsidiaries amounted to $726,000.

Smartflex has a tax holiday in the Philippines, which expires on October 1,
2000. There was no income tax relief resulting from this holiday during the
period of August 26, 1999 through December 31, 1999.

In addition to tax credit carryforwards, deferred tax assets and
liabilities in the respective amounts of $9,377,000 and $12,581,000 applied to
Smartflex at the date of its acquisition by the Company.

F-13
<PAGE> 76
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES -- (CONTINUED)

Major differences between income tax expense computed using the United
States statutory tax rate and actual income tax expense were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate................... $5,719 $6,584 $4,713
State income taxes (net of federal benefit).............. 209 121 98
Goodwill................................................. 317 176 184
Other.................................................... 189 (22) 413
------ ------ ------
Income taxes........................................... $6,434 $6,859 $5,408
====== ====== ======
</TABLE>

9. SHAREHOLDERS' EQUITY

Stock Repurchase

On April 29, 1999, the Company purchased 7,435,320 shares of Common Stock
for $27,000,000, pursuant to a Stock Purchase Agreement. The Company utilized
its line of credit to finance this transaction.

10. STOCK OPTION PLAN

The 1995 Management Stock Option Plan (the "Plan"), as amended, provides
for the grant of options to directors and key employees of the Company, for the
purchase of up to 3,720,000 shares of the Company's common stock. Options
granted under the Plan may be incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, or nonqualified stock options.

Options awarded three years or less before the effective date of an initial
public offering ("IPO") or merger with a public company will become exercisable
to the extent of 25% at each interval of 12, 18, 24, and 30 months after the
effective date of an IPO or merger with a public company. Options awarded more
than three years before the effective date of an IPO or merger with a public
company will become exercisable to the extent of 50% at each interval of 12 and
18 months after the effective date of an IPO or merger with a public company.
All options are exercisable, at the discretion of the Compensation Committee
(the "Committee") of the Board of Directors. Upon change of control of the
Company, all outstanding options shall become immediately exercisable. If no
IPO, merger with a public company or other change of control occurs, the options
would become exercisable at the discretion of the Compensation Committee of the
Company's Board of Directors. The Compensation Committee is not obligated to
declare the options exercisable, and the options may therefore lapse. The term
of the options granted pursuant to this plan shall not exceed 10 years.

F-14
<PAGE> 77
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. STOCK OPTION PLAN -- (CONTINUED)
The following table summarizes stock option activity:

<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996........... 843,000 $ 1.83
Granted.................................. 831,000 $1.75 - 2.23
Cancelled................................ (150,000) $1.85 - 2.23
---------
Outstanding at December 31, 1997........... 1,524,000 $ 2.01
Granted.................................. 709,500 $2.23 - 2.88
Cancelled................................ (90,000) $1.85 - 2.88
---------
Outstanding at December 31, 1998........... 2,143,500 $ 2.29
Granted.................................. 869,400 $3.89
Cancelled................................ (186,000) $1.88 - 3.89
---------
Outstanding at December 31, 1999........... 2,826,900 $ 2.75
=========
</TABLE>

The exercise prices of the options under grant were determined based upon
the fair value of the Company's common stock at the date of grant as determined
by the Company's Board of Directors. All options under grant are nonqualified
stock options. No options have been exercised through December 31, 1999 in
relation to the Plan, and no outstanding options were exercisable at December
31, 1999. All outstanding options expire on June 30, 2005.

Had compensation expense been determined based on the minimum value
methodology described in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," the pro forma effects of compensation
expense associated with options granted would have amounted to approximately
$281,289, $149,278 and $74,814, respectively. The value of options granted
during 1999, 1998 and 1997 was $1.13, $0.83 and $0.65, respectively. The value
was estimated using the minimum value option pricing model based on the
assumptions of a risk-free interest rate of 5% for expected lives of 7 years. No
dividend yield was assumed.

Had compensation expense been determined based on the fair value of the
options on the date of this offering, consistent with the methodology of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the pro forma effects of compensation expense associated with
these options would have amounted to approximately $ . The fair value is
based on the public offering price of the Company's common stock.

11. RELATED PARTY TRANSACTIONS

The Company has a note receivable from a shareholder, who is also the
President and Chief Executive Officer of the Company, in the amount of
$1,000,000. This note bears interest at the rate of 7.75% per annum and shall be
due and payable on the earlier to occur of (i) the 90th day following the
effective date of a registration statement of a public offering of the common
stock of the Company, or (ii) March 31, 2002.

On December 1, 1999, the Company entered into a consulting agreement with
one of its directors to provide administrative services to the Company. This
agreement covers the period of December 1, 1999 through February 28, 2000. A
monthly fee of $13,000 applies to this agreement. The director is a brother to
the Company's Chairman. Expenses associated with director fees and various
consulting agreements pertaining to this consultant amounted to $162,800,
$76,100 and $26,300 during 1999, 1998 and 1997, respectively. On February 28,
2000, the term of this agreement was extended until August 31, 2000.

F-15
<PAGE> 78
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Company subleased corporate office space from an affiliate of a
shareholder affiliate ("shareholder affiliate"). Rent expense pertaining to this
sublease amounted to $273,669, $453,207 and $439,774, respectively, during the
first seven months of 1999 and the years ended December 31, 1998 and 1997. This
sublease expired on July 31, 1999.

In August, 1999, the Company entered into a sublease agreement, as amended,
involving the lease of office space to the Shareholder Affiliate. The Company
recognized $101,154 during 1999 in relation to this sublease. This agreement
provides for a monthly rental payment which varies based upon space occupied and
expires on January 31, 2001.

During the period of January 1, 1999 through April 30, 1999 and during the
years ended December 31, 1998 and 1997, the Company purchased materials from a
stockholder of the Company in the approximate amounts of $2,997,000, $6,707,000
and $5,100,000, respectively. The shares of the Company's stock held by this
stockholder were purchased by the Company on April 29, 1999.

The Company had sales to affiliates of a shareholder in the amounts of
$6,668,500, $5,075,000, and $4,172,600 during the respective years of 1999, 1998
and 1997.

The Company incurred interest expense pertaining to a subordinated note
payable to a stockholder in the approximate amount of $548,000 for the year
ended December 31, 1997. A payment in the amount of $9,070,000 was made on July
8, 1997 to extinguish this note.

Management believes that transactions in the ordinary course of business
with shareholders and their affiliates are at arms length and are under terms no
less favorable to the Company than those with other customers or vendors.

At December 31, 1999 and 1998, accounts receivable balances pertaining to
shareholders and their affiliates amounted to $503,033 and $385,648,
respectively. At the same date, accounts payable balances pertaining to
shareholders and their affiliates amounted to $367,429 and $488,116,
respectively.

12. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain facilities and equipment pursuant to
noncancellable operating leases. Total rent expense pertaining to these leases
amounted to $2,042,000, $1,396,000 and $1,253,000, respectively, during 1999,
1998 and 1997. The following is a schedule by years of future minimum rental
payments required pursuant to the above mentioned leases:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------- (IN THOUSANDS)
<S> <C>
2000........................................................ $ 3,450
2001........................................................ 3,170
2002........................................................ 2,356
2003........................................................ 2,293
2004........................................................ 1,880
Thereafter.................................................. 3,491
-------
$16,640
=======
</TABLE>

Employment Agreement

On March 21, 1995, the Company entered into a five-year employment
agreement with its Chairman and Chief Executive Officer ("Chairman"). The
Company's potential minimum obligation in relation to

F-16
<PAGE> 79
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

this agreement was $154,286 at December 31, 1999. This agreement provides for
base salary, reimbursement for the cost of life insurance benefiting a trust of
the Chairman and the Company absorbing the interest costs associated with a
$1,000,000 promissory note of the Chairman in favor of the Company. This
agreement expires on March 21, 2000.

Insurance Agreement

On July 15, 1999, the Company entered into an agreement with a trust,
benefiting the Chairman's estate. Under this agreement, the Company shall pay
premiums associated with a $20,000,000 life insurance policy, which insures the
life of the Chairman. Upon collection of proceeds in relation to this policy,
the Company shall be reimbursed for all applicable premiums paid. During 1999,
the Company paid premiums amounting to $242,084 in relation to this policy.

Contingencies

The Company is subject to various legal actions and claims incidental to
its business and the business of Smartflex. Litigation is subject to many
uncertainties and the outcome of individual litigated matters is not predictable
with assurance. After discussions with counsel, it is the opinion of management
that the outcome of such matters will not have a material adverse impact on the
Company's consolidated financial statements.

13. SEGMENT INFORMATION

The Company is a supplier of products and solutions to the communications,
military, automotive and computer markets. The Company operates in three
segments, each of which are strategic businesses, which are managed separately.
Each of these businesses develops, manufactures and sells distinct products and
provides distinct services.

A description of the businesses of the Company's segments follows:

- The electronics segment provides services in connection with flex
assembly, printed circuit board assembly and the incorporation of
electronic assemblies into subassemblies and final systems box-build.

- The electromechanical segment provides services in connection with
junction blocks, relays, actuators, solenoids and transmission modules.

- The electrical segment provides services in connection with battery
cables, wire harnesses and power distribution systems. This segment is
comprised of the Saturn LLC, of which the Company owns 53%.

The dominant measurements that management utilizes to measure segment
performance and to allocate resources to the segments is consistent with the
information reported herein. Management evaluates the performance of its
segments and allocates resources to these segments primarily based upon pretax
income as well as cash flows and overall economic returns. Inter-segment sales
are insignificant. The accounting policies of the segments are substantially
equivalent to the policies described in Note 2, "Accounting Policies".

Certain items are maintained at the Company's corporate headquarters
(Corporate) and, therefore, not allocated to the segments. These items primarily
include certain debt and related interest expense, deferred income taxes and
certain non-trade receivables and investments.

F-17
<PAGE> 80
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
ELECTRO-
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ELECTRONICS MECHANICAL ELECTRICAL OTHER TOTAL
- ------------------------------------------ ----------- ---------- ---------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Net revenue............................. $ 82,605 $137,725 $36,777 $ -- $257,107
Depreciation and amortization........... 3,942 4,500 754 -- 9,196
Interest expense........................ -- -- -- 3,340 3,340
Income before income taxes.............. (2,778) 19,267 3,227 (3,377) 16,339
Assets.................................. 121,130 75,820 24,050 10,474 231,474
Expenditures for long-lived assets...... 1,856 6,053 731 -- 8,640
1998
Net revenue............................. $ 46,539 $114,964 $26,961 $ -- $188,464
Depreciation and amortization........... 1,944 4,059 170 -- 6,173
Interest expense........................ -- -- -- 142 142
Income before income taxes.............. 3,533 14,099 2,080 (899) 18,813
Assets.................................. 11,052 68,334 16,553 2,665 98,604
Expenditures for long-lived assets...... 958 8,998 6,921 -- 16,877
1997
Net revenue............................. $ 44,314 $116,734 $ -- $ -- $161,048
Depreciation and amortization........... 1,013 3,762 -- -- 4,775
Interest expense........................ -- -- -- 977 977
Income before income taxes.............. 2,123 12,664 -- (1,320) 13,467
Assets.................................. 13,040 67,852 -- 2,533 83,425
Expenditures for long-lived assets...... 963 5,515 -- -- 6,478
</TABLE>

Long lived assets consist of property, plant and equipment and all
intangible items.

Intersegment sales are immaterial.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes:
Income before income taxes from segments.................. $19,716 $19,712 $14,787
Unallocated amounts:
Interest expense.......................................... (3,340) (142) (977)
Other corporate items..................................... (37) (757) (343)
------- ------- -------
Consolidated income before income taxes..................... $16,339 $18,813 $13,467
======= ======= =======
</TABLE>

F-18
<PAGE> 81
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Total segment assets...................................... $221,000 $95,939 $80,892
Unallocated assets
Equity investment...................................... 250 -- 234
Deferred income taxes.................................. 8,982 1,665 1,299
Other corporate assets................................. 1,242 1,000 1,000
-------- ------- -------
Consolidated total assets................................... $231,474 $98,604 $83,425
======== ======= =======
</TABLE>

Geographic Information: The following geographic data includes sales and
long-lived assets based on product shipment destination and physical location,
respectively.

<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES
United States.............................................. $193,770 $157,559 $126,778
Canada..................................................... 27,631 23,010 23,584
Mexico..................................................... 10,410 2,068 5,899
Other...................................................... 25,296 5,827 4,787
-------- -------- --------
Consolidated totals........................................ $257,107 $188,464 $161,048
======== ======== ========
Long-lived assets
United States.............................................. $117,509 $ 47,971 $ 46,245
International.............................................. 15,665 7,867 58
-------- -------- --------
$133,174 $ 55,838 $ 46,303
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
LONG LIVED ASSETS 1999 1998 1997
----------------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, plant and equipment, net.......................... $ 66,298 $ 39,105 $27,921
Process technology, net..................................... 14,357 463 1,079
Customer lists and other intangibles, net................... 17,137 -- --
Goodwill, net............................................... 35,382 16,270 17,303
-------- -------- -------
Total....................................................... $133,174 $ 55,838 $46,303
======== ======== =======
</TABLE>

14. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133").

SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. The Company is currently evaluating SFAS 133 and has yet to
form an opinion on whether its adoption will have any significant

F-19
<PAGE> 82
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- (CONTINUED)

impact on the Company's consolidated financial statements. The Company will be
required to implement SFAS 133 for the year ended December 31, 2001.

15. SUBSEQUENT EVENTS

Warrant

On March 15, 2000, the Company issued a warrant to a major electronics OEM,
(the "Warrant Holder") for the purchase of 1,565,331 shares of the Company's
common stock at an exercise price of 90% of the Company's initial public
offering price. This warrant is exercisable in whole or in part between March
2004 and March 2005. However, for every $100,000,000 that the Company receives
from the Warrant Holder, 10% of the shares subject to the Warrant shall become
immediately exercisable.

Common Stock

On March 25, 2000 the Board of Directors approved an increase to the total
authorized number of shares of common stock, no par value, from 20,000,000 to
200,000,000 shares upon the effectiveness of this public offering.

On March 25, 2000 the Company's Board of Directors authorized the
equivalent of a 3 for 1 split of its common stock, including outstanding stock
options and the warrant, upon effectiveness of this public offering. All share
data in the accompanying consolidated financial statements have been restated to
give effect to the stock split. Prior to this stock split, the Company had
4,956,880 shares of each of its Class A Voting Stock and Class B Non-Voting
Stock. The Class A Voting Stock was split on a 3.25 to 1 basis and the Class B
Non-Voting Stock was split on a 2.75 to 1 basis resulting in an overall 3 for 1
stock split. The distinction between Class A and Class B Common Stock will cease
upon the effectiveness of this offering, and, therefore, the equivalent of the
Class B shares will have voting rights.

Preferred Stock

On March 25, 2000, the Company's Board of Directors approved the
authorization of 1,000,000 shares of preferred stock upon the effectiveness of
this offering. Shares of the preferred stock shall be issued from time to time
in one or more series. Each series shall bear a distinctive designation and have
such relative rights and preferences as shall be prescribed by resolution of the
Company's Board of Directors.

Public Offering of the Company's Common Stock

On March 25, 2000, the Board of Directors approved an underwritten public
offering of shares of the Company's common stock. The proposed aggregate
offering price associated with this offering amounts to $125,000,000. The
proceeds from the offering will be used to reduce indebtedness under the
Company's credit facility in the estimated amount of $ , with the
remainder to be used for working capital and general corporate purposes.

F-20
<PAGE> 83

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,798 $ 1,929
Accounts receivable, trade (less allowances of $1,386 &
$1,783 in 2000 and 1999, respectively)................. 76,070 45,509
Accounts receivable, related parties...................... 1,961 503
Note receivable, shareholder.............................. 1,000 1,000
Inventories............................................... 37,908 32,271
Deferred income taxes..................................... 8,982 8,982
Prepaid expenses.......................................... 4,373 2,634
Other current assets...................................... 2,387 3,125
-------- --------
Total current assets................................... 136,479 95,953
Property, plant and equipment, net........................ 67,010 66,298
Process technology, net................................... 14,083 14,357
Customer lists and other intangible assets, net........... 16,872 17,137
Goodwill, net............................................. 34,865 35,382
Other assets.............................................. 1,927 2,347
-------- --------
Total assets........................................... $271,236 $231,474
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................... $ 54,020 $ 29,713
Accounts payable, related parties......................... 1,335 367
Seller payable............................................ 1,779 4,279
Product warranty.......................................... 3,029 3,307
Other accrued expenses.................................... 16,866 13,142
-------- --------
Total current liabilities.............................. 77,029 50,808
Long term debt.............................................. 117,110 107,361
Deferred income taxes....................................... 12,329 13,757
-------- --------
Total liabilities...................................... 206,468 171,926
-------- --------
Minority interest........................................... 8,473 7,690
-------- --------
Commitments and Contingencies............................... -- --
Shareholders' Equity:
Common stock, no par value Common stock, no par
value -- 200,000,000 shares authorized, 29,741,280 shares
issued and outstanding.................................... -- --
Additional paid-in-capital.................................. 15,646 7,737
Retained earnings........................................... 40,649 44,121
-------- --------
Total shareholders' equity............................. 56,295 51,858
-------- --------
Total liabilities and shareholders' equity............. $271,236 $231,474
======== ========
</TABLE>

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

F-21
<PAGE> 84

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Net revenue, including related party transactions of $2,148
and $2,526................................................ $ 122,280 $ 47,985
Cost of revenue, including related party transactions of
$1,591 and $1,777......................................... 100,925 36,037
---------- ----------
Gross margin.............................................. 21,355 11,948
Development expense......................................... 6,018 1,633
Selling, general and administrative expense................. 6,811 4,090
Amortization expense........................................ 1,056 412
Warrant issuance............................................ 7,909 --
---------- ----------
Operating income (loss)................................... (439) 5,813
Interest income............................................. 48 24
Interest expense............................................ (2,538) (17)
Other income (expense), net................................. (278) 110
Minority interest........................................... (1,935) (713)
---------- ----------
Income (loss) before income taxes......................... (5,142) 5,217
Income taxes................................................ (1,670) 1,885
---------- ----------
Net income (loss)......................................... $ (3,472) $ 3,332
========== ==========
Basic and diluted earnings (loss) per share of common
stock..................................................... $ (0.12) $ 0.09
========== ==========
Basic and diluted weighted average number of common shares
outstanding............................................... 29,741,280 37,176,600
========== ==========
</TABLE>

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

F-22
<PAGE> 85

SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income................................................ $ (3,472) $ 3,332
Adjustments to reconcile net income to net cash provided
by (used in) operating activities......................
Depreciation.............................................. 3,081 945
Amortization.............................................. 1,056 412
Deferred income taxes..................................... (1,428) --
Warrant issuance.......................................... 7,909 --
Minority interest in income............................... 1,935 713
Changes in operating assets and liabilities, net of
business acquisition:
Accounts receivable, trade............................. (30,561) 4,455
Accounts receivable, related parties................... (1,458) (753)
Inventories............................................ (5,637) (635)
Prepaid expenses....................................... (1,739) (2,723)
Accounts payable, trade................................ 24,307 1,578
Accounts payable, related parties...................... 968 731
Accrued expenses and other............................. 4,781 3,367
-------- --------
Net cash provided by (used in) operating
activities.......................................... (258) 11,422
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures...................................... (3,970) (1,967)
-------- --------
Net cash used in investing activities................ (3,970) (1,967)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings.................................. 57,774 12,035
Payment of borrowings..................................... (48,025) (16,011)
Seller payable payment.................................... (2,500) --
Minority interest......................................... (1,152) 163
-------- --------
Net cash provided by (used in) financing
activities.......................................... 6,097 (3,813)
Net increase(decrease) in cash.............................. 1,869 5,642
Cash, beginning of year..................................... 1,929 1,020
-------- --------
Cash, end of period......................................... $ 3,798 $ 6,662
======== ========
Supplemental disclosures of cash flow information, Cash paid
during the period for:
Income taxes.............................................. $ 18 $ 130
======== ========
Interest.................................................. $ 1,794 $ 18
======== ========
</TABLE>

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

F-23
<PAGE> 86

SATURN ELECTRONICS & ENGINEERING, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. INTERIM FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting primarily of normal recurring
accruals) necessary for a fair presentation. Results of operations for the 2000
interim period are not necessarily indicative of results to be expected for the
entire year or any future period.

2. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials........................................... $25,021 $18,601
Work-in-Process......................................... 6,026 4,817
Finished Goods.......................................... 6,861 8,853
------- -------
$37,908 $32,271
======= =======
</TABLE>

3. BUSINESS ACQUISITION

Effective August 26, 1999, the Company acquired Smartflex Systems, Inc. The
acquisition was accounted for as a purchase, and accordingly, the operating
results of Smartflex have been included in the Company's financial statements
since August 26, 1999.

The following unaudited pro forma results of operations for the quarter
ended March 31, 1999 assumes that this acquisition occurred on January 1, 1999:

<TABLE>
<CAPTION>
AMOUNT
------
(IN THOUSANDS)
<S> <C>
Net Revenue................................................. $71,137
Net Loss.................................................... $(2,802)
</TABLE>

During the fourth quarter of 1999, the Company established a charge for the
implementation of a rationalization plan which involves the closing of one
Smartflex facility. The charge primarily pertains to contractual commitments and
severance and related costs.

The activity impacting the accrual for this rationalization plan during the
three months ended March 31, 2000 based on available information is summarized
below:

<TABLE>
<CAPTION>
CHARGES UTILIZED
DURING THE
THREE MONTHS
BALANCE AT ENDED BALANCE AT
DECEMBER 31, MARCH 31, MARCH 31,
TYPE OF CHARGE 1999 2000 2000
- -------------- ------------ ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease Agreement........................... $1,872 $(26) $1,846
Utilities associated with lease........... 128 (2) 126
Severance................................. 400 $(63) 337
------ ---- ------
$2,400 $(91) $2,309
====== ==== ======
</TABLE>

F-24
<PAGE> 87

SATURN ELECTRONICS & ENGINEERING, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

4. SHAREHOLDERS' EQUITY

Warrant

On March 15, 2000, the Company issued a warrant (the "Warrant") to a major
electronics OEM, (the "Warrant Holder") for the purchase of 1,565,331 shares of
the Company's common stock at an exercise price of 90% of the Company's initial
public offering price. The Warrant is exercisable in whole or in part between
March 2004 and March 2005. However, for every $100,000,000 that the Company
receives from the Warrant Holder, 10% of the shares subject to the Warrant shall
become immediately exercisable.

The Company recognized a charge of $7,909,000 on its Statement of
Operations during the three months ended March 31, 2000 in relation to this
warrant. The $7,909,000 fair value of the warrant was determined through the use
of a Black-Scholes option pricing model with the following assumptions: expected
stock price volatility 30.1%; expected dividend yield of 0.0%; risk-free
interest rate of 5.91%; a deemed fair value of common stock of $12.00; and an
expected 5 year life.

Common Stock

On March 25, 2000, the Board of Directors approved an increase to the total
authorized number of shares of common stock, no par value, from 20,000,000 to
200,000,000 shares upon the effectiveness of the Company's initial public
offering.

On March 25, 2000, the Company's Board of Directors authorized the
equivalent of a 3 for 1 split of its common stock, including outstanding stock
options and the Warrant, upon effectiveness of this public offering. All share
data in the accompanying consolidated financial statements have been restated to
give effect to the stock split. Prior to this stock split, the Company had
4,956,880 shares of each of its Class A Voting Stock and Class B Non-Voting
Stock. The Class A Voting Stock was split on a 3.25 to 1 basis and the Class B
Non-Voting Stock was split on a 2.75 to 1 basis resulting in an overall 3 for 1
stock split. The distinction between Class A and Class B Common Stock will cease
upon the effectiveness of the Company's initial public offering, and, therefore,
the equivalent of the Class B shares will have voting rights.

Preferred Stock

On March 25, 2000, the Company's Board of Directors approved the
authorization of 1,000,000 shares of preferred stock upon the effectiveness of
the Company's initial public offering. Shares of the preferred stock shall be
issued from time to time in one or more series. Each series shall bear a
distinctive designation and have such relative rights and preferences as shall
be prescribed by resolution of the Company's Board of Directors.

Public Offering of the Company's Common Stock

5. EARNINGS PER SHARE OF COMMON STOCK

The computations of earnings (loss) per share of common stock are based
upon the weighted average number of shares of common stock outstanding during
each period presented. The Warrant has been

F-25
<PAGE> 88

SATURN ELECTRONICS & ENGINEERING, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

5. EARNINGS PER SHARE OF COMMON STOCK -- (CONTINUED)

excluded from the computation for the three months ended March 31, 2000 because
the effect is anti-dilutive. During the three months ended March 31, 1999, the
Company had no common stock equivalents outstanding.

6. STOCK OPTIONS

During the three months ended March 31, 2000, options to purchase 6,000
shares of the Company's common stock were granted to employees of the Company at
an exercise price of $3.89 per share, pursuant to the 1995 Management Stock
Option Plan.

During the three months ended March 31, 2000, options to purchase a total
of 10,500 shares, at an exercise price of $3.89 per share, were forfeited.

7. SEGMENT INFORMATION

Data pertaining to the Company's business segments follows:

<TABLE>
<CAPTION>
ELECTRO
FOR THE THREE MONTHS ENDED MARCH 31, ELECTRONICS MECHANICAL ELECTRICAL OTHER TOTAL
------------------------------------ ----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2000
Net revenue................................ $38,102 $44,843 $39,335 $ -- $122,280
Depreciation and amortization.............. 2,659 1,272 206 -- 4,137
Interest expense........................... 154 -- -- 2,384 2,538
Income before income taxes................. (5,474) 8,433 2,192 (10,293) (5,142)
</TABLE>

<TABLE>
<CAPTION>
ELECTRO
ELECTRONICS MECHANICAL ELECTRICAL OTHER TOTAL
----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Net revenue................................ $9,768 $29,571 $8,646 $-- $47,985
Depreciation and amortization.............. 298 851 208 -- 1,357
Interest expense........................... -- -- -- 17 17
Income before income taxes................. 880 3,473 859 5 5,217
</TABLE>

<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31,
-----------------
2000 1999
------- ------
(IN THOUSANDS)
<S> <C> <C>
Income before income taxes:
Income before income taxes from segments.................. $ 5,151 $5,212
Unallocated amounts:
Interest expense.......................................... (2,384) (17)
Other corporate items..................................... (7,909) $ 22
------- ------
Consolidated income before income taxes..................... $(5,142) $5,217
======= ======
</TABLE>

F-26
<PAGE> 89

SATURN ELECTRONICS & ENGINEERING, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

8. SUBSEQUENT EVENT

2000 Stock Option Plan

On April 19, 2000 the Board of Directors approved the adoption of the 2000
Stock Option Plan ("2000 Plan") upon the effectiveness of the Company's initial
public offering. The 2000 Plan provides for the grant of options to officers,
directors, key employees and consultants of the Company for the purchase of up
to 2,500,000 shares of the Company's common stock.

The 2000 Plan shall be administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 2000 Plan, the Compensation
Committee will determine prior to issuance:

- When and to whom options will be granted;

- The number of shares covered by each option;

- The terms of the options, including the exercise price, although the
exercise price for incentive stock options may not be less than the fair
market value of the common stock on the date of grant, or 110% of the
fair market value if granted to an employee who at the time of grant owns
more than 10% of the outstanding common stock; and

- Subject to applicable law, whether the options will be incentive stock
options or non-qualified stock options.

Options granted under the 2000 Plan will become exercisable at those times
and under the conditions determined by the Compensation Committee. All options
held by an option holder will automatically terminate when that option holder
ceases to be an employee, director or consultant for any reason, unless
otherwise provided for by the Compensation Committee.

No options will be granted under the Company's 1995 Management Stock Option
Plan upon the effectiveness of the Company's initial public offering.

F-27
<PAGE> 90

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Smartflex Systems, Inc.

We have audited the accompanying consolidated balance sheets of Smartflex
Systems, Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Smartflex
Systems, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Orange County, California
February 4, 1999

F-28
<PAGE> 91

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,613 $ 2,069
Short-term investments.................................... 24,743 26,051
Accounts receivable, trade (less allowance of $957 in 1998
and $1,384 in 1997).................................... 11,209 19,252
Inventories............................................... 3,927 12,100
Deferred income taxes..................................... 3,613 3,541
Prepaid expenses and other current assets................. 2,360 1,755
------- -------
Total current assets.............................. 48,465 64,768
Property and equipment, net................................. 18,475 16,278
Deferred income taxes....................................... -- 350
Goodwill, net of accumulated amortization of $49............ 4,089 --
Other assets................................................ 1,262 510
------- -------
Total assets...................................... $72,291 $81,906
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to related parties....................... $ 1 $ 533
Accounts payable.......................................... 7,049 18,990
Other accrued liabilities................................. 7,546 10,542
Current portion of notes payable.......................... 1,150 1,063
------- -------
Total current liabilities......................... 15,746 31,128
Deferred income taxes....................................... 323 --
Long-term portion of notes payable and other liabilities.... 5,203 1,689
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
None issued and outstanding............................ -- --
Common stock, $.0025 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 6,452,841 in 1998 and
6,362,477 in 1997..................................... 16 16
Additional paid-in capital................................ 36,532 36,118
Retained earnings......................................... 14,471 12,955
------- -------
Total stockholders' equity........................ 51,019 49,089
------- -------
$72,291 $81,906
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-29
<PAGE> 92

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net revenues............................................... $107,601 $133,347 $146,100
Cost of revenues........................................... 95,543 123,963 127,309
-------- -------- --------
Gross margin............................................. 12,058 9,384 18,791
Costs and expenses:
Marketing and sales expense.............................. 3,689 3,537 2,755
General and administrative expense....................... 7,402 7,492 5,590
Restructuring expense.................................... -- 5,150 --
-------- -------- --------
Operating income (loss).................................... 967 (6,795) 10,446
Interest income............................................ 1,106 967 1,015
Interest expense........................................... (178) (486) (214)
Other income (expense)..................................... 402 25 (4)
-------- -------- --------
Income (loss) before income taxes.......................... 2,297 (6,289) 11,243
Income tax provision (benefit)............................. 781 (2,160) 4,086
-------- -------- --------
Net income (loss).......................................... $ 1,516 $ (4,129) $ 7,157
======== ======== ========
Net income (loss) per share (basic)........................ $ 0.24 $ (0.65) $ 1.14
======== ======== ========
Net income (loss) per share (diluted)...................... $ 0.24 $ (0.65) $ 1.12
======== ======== ========
Number of shares used in computing net income (loss) per
share (basic)............................................ 6,418 6,333 6,271
======== ======== ========
Number of shares used in computing net income (loss) per
share (diluted).......................................... 6,463 6,333 6,395
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-30
<PAGE> 93

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
------------ CAPITAL RETAINED
SHARES AMOUNT AMOUNT EARNINGS TOTAL
------ ------ ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995..................... 6,223 $16 $34,980 $ 9,927 $44,923
Exercise of stock options.................... 21 -- 61 -- 61
Employee stock purchase plan................. 57 -- 570 -- 570
Tax benefit associated with exercise of stock
options.................................... -- -- 38 -- 38
Net income................................... -- -- -- 7,157 7,157
----- --- ------- ------- -------
Balances at December 31, 1996..................... 6,301 16 35,649 17,084 52,749
Exercise of stock options.................... 22 -- 59 -- 59
Employee stock purchase plan................. 39 -- 343 -- 343
Tax benefit associated with exercise of stock
options.................................... -- -- 67 -- 67
Net loss..................................... -- -- -- (4,129) (4,129)
----- --- ------- ------- -------
Balances at December 31, 1997..................... 6,362 16 36,118 12,955 49,089
Exercise of stock options.................... 52 -- 137 -- 137
Employee stock purchase plan................. 39 -- 277 -- 277
Net income................................... -- -- -- 1,516 1,516
----- --- ------- ------- -------
Balances at December 31, 1998..................... 6,453 $16 $36,532 $14,471 $51,019
===== === ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-31
<PAGE> 94

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 1,516 $ (4,129) $ 7,157
Adjustments to reconcile net income to net cash (loss)
provided by (used in) operating activities, net of
effects of acquisitions in 1998:
Depreciation............................................. 4,699 5,776 2,905
Amortization of goodwill................................. 49 -- --
Provision for doubtful accounts.......................... 162 11 --
Provision for inventory obsolescence..................... 2,252 910 (115)
Deferred income taxes.................................... 601 (3,166) 686
Tax benefit from exercise of stock options............... -- 67 38
Changes in operating assets and liabilities:
Receivables.............................................. 8,271 (426) (1,441)
Inventories.............................................. 6,517 (1,920) 6,350
Prepaid expenses and other assets........................ (1,339) 218 (1,616)
Accounts payable to related parties...................... (532) (1,508) (1,376)
Accrued restructuring cost............................... (3,273) 6,500 --
Accounts payable and accrued liabilities................. (12,057) 7,908 (877)
-------- -------- --------
Net cash provided by operating activities............. 6,866 10,241 11,711
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (6,845) (9,918) (6,414)
Proceeds from sales of capital assets...................... -- -- 85
Acquisition of LSI and EA/Methuen.......................... (4,060) -- --
Purchases of short-term investments...................... (94,260) (20,868) (19,043)
Proceeds from the sale of short-term investments......... 95,568 19,604 16,056
-------- -------- --------
Net cash used in investing activities................. (9,597) (11,182) (9,316)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock..................... 414 402 631
Line of credit, net........................................ 1,146 -- (2,505)
Borrowings on term loan.................................. 3,000 2,200 --
Payments on term loan.................................... (1,285) (756) (755)
-------- -------- --------
Net cash provided by (used in) financing activities...... 3,275 1,846 (2,629)
-------- -------- --------
Net increase (decrease) in cash............................ 544 905 (234)
Cash at beginning of period.............................. 2,069 1,164 1,398
-------- -------- --------
Cash at end of period.................................... $ 2,613 $ 2,069 $ 1,164
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid............................................ $ 211 $ 428 $ 190
Taxes paid (refunded).................................... 1,655 (79) 3,530
Supplemental disclosure of non-cash activities:
Seller note payable for acquisition of LSI and
EA/Methuen............................................ $ 740 -- --
</TABLE>

See accompanying notes to consolidated financial statements.
F-32
<PAGE> 95

SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Smartflex Systems, Inc. is a technology leader in electronic manufacturing
services. The Company provides a diverse range of services for customers to
achieve their product realization needs. These services include product
Application Specific Integrated Circuits ("ASIC"), Software and Radio Frequency
("RF") design; modeling, and package/enclosure management; and the precision
assembly of comprehensive advanced interconnect solutions utilizing precision
surface mount and Direct Chip Attach technologies. Prototype through high volume
manufacturing of electronic circuit board and box build services are provided
through nine facilities worldwide for customers in the Americas, Europe and
Asia.

Basis of Presentation and Fiscal Year

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Smartflex Systems Singapore, Pte.
Ltd., Smartflex Systems Philippines, Inc., Smartflex Systems de Mexico, S.A. de
C.V., Smartflex Systems de Guadalajara S.A. de C.V., Logical Services,
Incorporated. and Smartflex New England, Inc. Results of operations for the
fourth quarter and 1998 fiscal year include a full three months of operations
from the Company's Guadalajara and Logical Services subsidiaries. The Company's
New England subsidiary is consolidated in the results of operations for the
month of December 1998 only. All significant inter-company accounts and
transactions have been eliminated in consolidation.

The Company operates and reports financial results on a 52- or 53-week
year, ending on the Saturday nearest December 31 each year, and follows a
four-four-five week quarterly cycle. Fiscal year 1998 had 53 weeks and fiscal
years 1997 and 1996 each included 52 weeks of operations. For clarity of
presentation, all periods are described as if the fiscal year ended December 31.

Short-Term Investments

The Company's short-term investments are composed primarily of municipal
bonds and money market instruments. The Company's short-term investments at
December 31, 1998 and 1997 are classified as available-for-sale and are carried
at fair value with the net unrealized gains or losses reported as a separate
component of stockholders' equity, net of their related tax effects. Fair values
are based on quoted market prices where available. Amortization of premiums or
discounts, if any, associated with marketable debt securities is included in
investment income. Realized gains and losses, and declines in value judged to be
other-than-temporary, as well as interest and dividends on available-for-sale
securities, are included in investment income.

Inventories

Inventories are stated at the lower of standard cost (which approximates
actual cost on a first-in, first-out basis) or market (estimated net realizable
value).

Revenue Recognition

The Company recognizes revenue from product sales at the time of shipment
and provides an appropriate allowance for estimated sales returns and warranties
based on historical experience and other known factors.

F-33
<PAGE> 96
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
computed using the straight-line method over the estimated useful lives of the
assets, which is usually three to five years.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (FAS 121), the Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.

Goodwill

Goodwill is recorded as the net of purchase price less amounts allocated to
tangible assets. Goodwill is amortized over various lives, usually ten to twenty
years.

Research and Development

Research and Development ("R&D") is reported as part of General and
Administration expense. R & D expenses were approximately $851,000, $864,000 and
$720,000 for 1998, 1997 and 1996, respectively.

Foreign Currency

The Company uses the United States dollar as the functional currency for
its wholly-owned subsidiaries in Singapore, the Philippines and Mexico.
Re-measurement gains and losses, resulting from the process of re-measuring the
financial statements of these foreign subsidiaries into U.S. dollars, are
included in operations. In 1998, the effect on income of re-measurement gains
was $255,000. In prior years the effect on net income of re-measurement gains
and losses had not been significant.

Income Taxes

The Company uses the liability method of accounting for income taxes,
whereby deferred taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Deferred tax assets are recognized and measured based on the likelihood of
realization of the related tax benefits in the future.

Stock-based Compensation

The Company accounts for employee stock options under Accounting Principles
Board opinion No. 25 and related interpretations ("APB 25") and has made certain
pro forma disclosures for options granted at fair market value in accordance
with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation".

Earnings Per Share

Net income (loss) per share has been computed in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share."
Earnings (loss) per common share ("Basic EPS") was computed by dividing net
income (loss) by the weighted-average number of common

F-34
<PAGE> 97
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares outstanding during the periods. Earnings (loss) per common
share -- assuming dilution ("Diluted EPS") was calculated by dividing net income
(loss) by the weighted-average number of common and common share equivalents
(when the effect is dilutive) outstanding during the periods presented. Common
share equivalents result from outstanding options to purchase common stock using
the treasury stock method.

The following table sets forth the computation of Basic and Diluted
earnings per share.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------- ------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss) -- numerator for basic and diluted
earnings
per share.............................................. $1,516 $(4,129) $7,157
------ ------- ------
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 6,418 6,333 6,271
Effect of dilutive securities:
Employee stock options.................................... 45 -- 124
------ ------- ------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions........... 6,463 6,333 6,395
====== ======= ======
Basic earnings (loss) per share............................. $ 0.24 $ (0.65) $ 1.14
====== ======= ======
Diluted earnings (loss) per share........................... $ 0.24 $ (0.65) $ 1.12
====== ======= ======
</TABLE>

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Significant estimates are made relative to
valuation of accounts receivable, inventories, deferred income taxes and certain
accrued liabilities, including among others, those for warranties and
restructuring obligations. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform to the 1998 presentation.

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Segment Information". Both
of these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. Comprehensive income was not materially different from net
income. SFAS No. 131 amends the requirements for a public enterprise to report
financial and descriptive information about its reportable

F-35
<PAGE> 98
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operating segments. Operating segments, as defined in SFAS No. 131, are
components of an enterprise for which separate financial information is
available and is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is required to
be reported on the basis that is used internally for evaluating the segment
performance. The Company believes that through 1998 it operated in one business
and operating segment and believes the adoption of this standard did not have a
material impact on the Company's financial statements.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative instruments and Hedging Activities." This statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes
accounting for several types of hedges, resulting in the recognition of
offsetting changes in value or cash flows of the hedge and hedged items in
earnings in the same period. The provisions of this statement are effective for
years beginning after June 15, 1999. The Company will adopt this statement for
fiscal year 2000. The Company does not expect SFAS No. 133 to materially impact
the Company's results of operations or financial position.

NOTE 2. ACQUISITIONS

On October 7, 1998 the Company acquired Logical Services Incorporated, a
California corporation ("LSI"), pursuant to the terms of a Stock Purchase
Agreement whereby the Company purchased all of the issued and outstanding shares
of stock of LSI for an aggregate purchase price of $2.3 million. LSI is an
electronics, engineering, design and development company with annual revenues of
$3 million. Upon the closing of the acquisition, LSI became a wholly-owned
subsidiary of the Company. The acquisition has been accounted for as a purchase
and the purchase price, including direct costs of the acquisition of $2.3
million, has been allocated to the fair value of the net assets acquired with
the excess approximating $2.1 million allocated to goodwill.

On December 2, 1998 the Company, through its wholly-owned subsidiary
Methuen Acquisition Corp., a Delaware corporation, acquired certain assets of
the Methuen, Massachusetts division of EA Industries, Inc., a New Jersey
corporation ("EA/Methuen"), pursuant to the terms of an Agreement of Purchase
and Sale for an aggregate purchase price of $2.5 million. EA/Methuen is a
provider of high-mix electronic contract manufacturing assembly and test
services with annual revenues of approximately $7 million. The acquisition has
been accounted for as a purchase and the purchase price, including direct costs
of the acquisition of $2.5 million, has been allocated to the fair value of the
net assets acquired with the excess approximating $2 million allocated to
goodwill.

NOTE 3. SHORT-TERM INVESTMENTS

Short-term investments, for which cost approximated fair value, were as
follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Municipal bonds............................................. $20,592 $13,283
Money market preferred stock................................ 1,000 5,000
Money market funds.......................................... 1,003 7,740
Commercial paper............................................ 2,000 --
Other....................................................... 148 28
------- -------
$24,743 $26,051
======= =======
</TABLE>

Certain of the Company's municipal bond investments include instruments
that have original maturities at various dates through 2021. As a result of the
Company's ability and intent to redeem these

F-36
<PAGE> 99
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

investments at their stated principal values at various dates throughout 1999,
the Company has classified these investments as maturing within one year.
Realized gains and losses from securities transactions are determined on a
specific identification basis. Realized and unrealized gains or losses for the
years ended December 31, 1998, 1997 and 1996 were not material.

NOTE 4. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $1,329 $ 6,943
Work in progress............................................ 1,352 2,725
Finished goods.............................................. 1,246 2,432
------ -------
$3,927 $12,100
====== =======
</TABLE>

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment..................................... $ 25,718 $ 20,930
Office furniture and equipment.............................. 4,242 3,148
Leasehold improvements...................................... 5,474 4,460
-------- --------
35,434 28,538
Less: Accumulated depreciation.............................. (16,959) (12,260)
-------- --------
$ 18,475 $ 16,278
======== ========
</TABLE>

NOTE 6. OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and related costs...................... $1,627 $ 1,569
Income tax payable.......................................... -- 1,248
Restructuring liabilities................................... 650 3,923
Other accrued expenses...................................... 5,269 3,802
------ -------
$7,546 $10,542
====== =======
</TABLE>

In order to address the imbalance between demand and capacity, the Company
restructured its worldwide operations in the third quarter of 1997. As part of
this restructuring, volume manufacturing was moved from Singapore to the
Company's lower-cost facility in Cebu, Philippines. The Singapore operations
became the focal point of the Company's customer support in Asia, as the
Company's Far East Regional Services and Technology Center. As part of this
restructuring, the Company provided for the following charges in the third
quarter of 1997: $1.4 million for the write-off of inventories, which is
included in cost of revenues, $3.5 million for the write-down of non-current
assets and other expenses, $1.1 million for severance and other employee-related
costs associated with the reduction in force, and approximately $500,000 toward
a potential Singapore tax liability.

F-37
<PAGE> 100
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's restructuring plan included a reduction of approximately 195
employees, primarily in manufacturing. Of the approximately 165 employees in the
Singapore operation, 140 employees had been terminated at December 31, 1997.
Additionally, 30 employees from the Tustin, California facility had also been
terminated at December 31, 1997 as part of the restructuring plan. During the
fourth quarter of 1997, the Company utilized $1.8 million for the write-down of
non-current assets and had paid approximately $530,000 in severance and other
employee related costs. By the end of 1998, the Company had completed the
restructuring plan and had utilized all of the restructuring liability, with the
exception of the $500,000 associated with the Singapore tax liability, and a
nominal portion associated with inventory. During 1999, the Company received
certain new information and now expects to have a favorable ruling regarding the
Singapore tax liability, which would result in this part of the restructuring
liability being reversed.

The increase in other accrued expenses was primarily due to billings to
customers in which revenue had not yet been recognized.

NOTE 7. CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit.................................... $ 1,146 $ --
Unsecured term loan (LIBOR 7.37%)........................... 1,467 2,108
Unsecured term loan (Interest rate 7.75%)................... 3,000 --
Note payable, secured by equipment, principal payments in
equal monthly installments through December 1998, interest
is payable monthly at variable interest rates averaging
7.5% in 1997.............................................. -- 416
Note payable to bank, secured by equipment, principal
payments in equal monthly installments through June 1998,
interest at 9.53%......................................... -- 228
Note payable to seller's of LSI, due April 2000,
non-interest bearing...................................... 230 --
Note payable to seller's of EA/Methuen, due April 2000
non-interest bearing...................................... 510 --
------- -------
6,353 2,752
Less: Current portion....................................... (1,150) (1,063)
------- -------
$ 5,203 $ 1,689
======= =======
</TABLE>

The Company amended its bank credit facility (the "facility") on October 1,
1998 to provide for aggregate unsecured borrowings of $25 million under a
revolving line of credit (the "credit line"). Borrowings under the credit line,
which expires in September 2000, include a sub-limit for the issuance of up to
$2 million in commercial or standby letters of credit for the importation or
purchase of inventory. No such letters of credit were outstanding at December
31, 1998. Outstanding balances on the credit line bear interest at the bank's
reference rate (7.75% at December 31, 1998) or, at the Company's option, LIBOR
plus 1.5%, and unused portions of the credit line bear interest at .125% per
annum. At December 31, 1998 there was $1.1 million outstanding under the credit
line. The facility additionally provides for an unsecured term loan totaling
$2.2 million for the purchase of equipment. This unsecured term loan bears
interest at the bank's reference rate plus .5% or, at the Company's option,
LIBOR plus 2%. Principal and interest are payable monthly, and this term loan
matures on March 30, 2001. At December 31, 1998, the outstanding balance on this
term loan was $1.5 million. The facility additionally provides for a second
unsecured term loan (the "second term loan") totaling $3.0 million to be used
for general corporate purposes. The second term loan bears interest at the
bank's reference rate, or at the Company's option, LIBOR plus 1.75%. At December
31, 1998, the outstanding balance on the second

F-38
<PAGE> 101
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

term loan was $3.0 million. The facility contains certain financing and
operating covenants relating to net worth, liquidity, leverage, profitability,
debt coverage and a prohibition on payment of cash dividends. At December 31,
1998, the Company was in compliance with all of the covenants, except those
related to net worth, for which the Company has obtained a waiver. Debt of the
Company will mature in fiscal years after December 31, 1998 as follows:

<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1999........................................................ $1,150
2000........................................................ 3,036
2001........................................................ 967
2002........................................................ 600
2003........................................................ 600
------
$6,353
======
</TABLE>

NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's cash, accounts receivable and accounts
payable approximated their carrying amounts due to the relatively short maturity
of these items. The fair value of the Company's short-term investments
approximates cost and was determined based on quoted market prices. The fair
value of long-term debt approximates its carrying amount at December 31, 1998
and 1997 based on rates currently available to the Company for debt with similar
terms and remaining maturities.

NOTE 9. COMMITMENTS AND CONTINGENCIES

The Company has entered into leases for its Tustin, California
headquarters, Monterrey, Singapore, Cebu and Logical Services facilities, that
expire at various dates through March 15, 2004 and provide for renewal options
at the then current market rate, thereafter adjusted for changes in the Consumer
Price Index. Future minimum lease payments under these non-cancelable
obligations at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1999........................................................ $1,143
2000........................................................ 979
2001........................................................ 851
2002........................................................ 338
2003........................................................ 322
Thereafter.................................................. 67
------
$3,700
======
</TABLE>

Total rent expense was $1,043,000, $792,000 and $437,000 in 1998, 1997 and
1996, respectively.

In the normal course of business, the Company is named in legal
proceedings. There are currently no material legal proceedings pending with
respect to the company.

F-39
<PAGE> 102
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. INCOME TAXES

Income tax provision (benefit) is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
---- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $106 $ 753 $2,688
State................................................... 74 131 622
Foreign................................................. -- 55 52
---- ------- ------
180 939 3,362
Deferred:
Federal................................................. 530 (2,911) 576
State................................................... 71 (255) 110
---- ------- ------
601 (3,166) 686
Charge in lieu of income taxes attributable to benefits of
stock option exercises.................................. -- 67 38
---- ------- ------
$781 $(2,160) $4,086
==== ======= ======
</TABLE>

Income tax provision (benefit) differed from the amounts computed by
applying the U.S. statutory federal income tax rate to pretax income (loss) as a
result of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates.............................. $ 781 $(2,138) $3,823
Permanent differences.................................... 157 -- --
State taxes, net of federal benefit...................... 96 (77) 487
Foreign earnings not subject to tax...................... (322) (45) (246)
Foreign losses not benefited............................. 54 205 --
Other.................................................... 15 (105) 22
----- ------- ------
$ 781 $(2,160) $4,086
===== ======= ======
</TABLE>

F-40
<PAGE> 103
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Restructuring reserve..................................... $ 132 $1,821
Inventory obsolescence reserve............................ 1,313 614
Reserve for returns and allowances........................ 660 645
Inventory capitalization.................................. 15 17
Vacation accrual.......................................... 149 152
Allowance for doubtful accounts........................... 363 353
Other reserves............................................ 1,117 864
AMT credits (no expiration)............................... 116 79
Other..................................................... 30 --
------ ------
Total deferred tax assets.............................. 3,895 4,545
Deferred tax liabilities:
Tax over book depreciation................................ 502 570
State taxes............................................... 103 84
------ ------
Total deferred tax liabilities......................... 605 654
------ ------
Net deferred tax assets.............................. $3,290 $3,891
====== ======
</TABLE>

The Company has not recorded a valuation allowance against the deferred tax
assets as management believes all of the temporary differences will be realized.

Effective March 1, 1994, the Company obtained a Pioneer Status tax holiday
in Singapore, which expires five years thereafter, assuming the Company
continues to maintain certain levels of capital expenditures and employment, and
implements certain technology development. Net income tax relief resulting from
the tax holiday was $100,000 in 1998 and $246,000 in 1996. There was no income
tax relief in 1997.

Effective October 1, 1996, the Company obtained a tax holiday in the
Philippines, which expires four years thereafter. Net income relief resulting
from the tax holiday was $45,000 in 1997 and $226,000 in 1998.

Residual income taxes of approximately $659,000 have not been provided on
approximately $1.9 million of undistributed earnings of certain foreign
subsidiaries at December 31, 1998 because the Company intends to keep those
earnings reinvested indefinitely.

NOTE 11. EQUITY INCENTIVE PLANS AND STOCK PURCHASE PLAN

Acquisition Stock Plan

The purpose of the Company's Acquisition Nonstatutory Stock Plan (the
"Acquisition Plan") is to attract and retain key employees of the companies
acquired by the Company and its wholly-owned subsidiaries. This plan is designed
to provide an incentive for these new employees to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company. Nonstatutory options in this plan may only be awarded to the
employees of the Company's acquisitions

F-41
<PAGE> 104
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and the exercise price per share may not be less than 100% of the fair market
value ("FMV") of a share of common stock on the grant date.

An aggregate of 200,000 shares of common stock has been reserved for
issuance under the Acquisition Plan.

As of December 31, 1998, non-qualified stock options to purchase 105,250
shares of common stock have been granted with prices ranging from $5.75 to $7.44
per share. All employee options vest at a rate of 25% on the first anniversary
of the grant date and 6.25% per quarter thereafter. At December 31, 1998, no
stock options to purchase shares of common stock under the Acquisition Plan were
exercisable.

1995 Equity Incentive Plan

The Company's 1995 Equity Incentive Plan (the "1995 Plan") provides for the
grant of stock options, performance shares, restricted stock, stock units and
other stock-based awards of the Company's common stock to employees, executive
officers, directors and consultants. Incentive stock options may be granted only
to employees and the exercise price per share may not be less than 100% of the
FMV of a share of common stock on the grant date. The exercise price per share
under non-qualified stock options shall not be less than 85% of the FMV of a
share of common stock on the grant date. The 1995 Plan provides for the
automatic grant of a non-qualified option to purchase 10,000 shares of common
stock to each non-employee director of the Company upon his or her initial
election to the Board of Directors, and an additional automatic grant of a
non-qualified option to purchase 3,000 shares of common stock each time such
director is reelected. Automatic grants shall be at the FMV of the common stock
on the date that such director is elected or reelected.

An aggregate of 600,000 shares of common stock was initially reserved for
issuance under the 1995 Plan. The number of shares of common stock authorized
under the 1995 Plan increases automatically on January 1 of each year, from and
after January 1, 1997, by an amount equal to 1% of the total number of issued
and outstanding shares of common stock of the Company as of the immediately
preceding December 31. The total shares reserved for issuance under the 1995
Plan after the automatic increase was 791,169 at December 31, 1998.

As of December 31, 1998, incentive stock options and non-qualified stock
options to purchase 645,094 shares of common stock have been granted with prices
ranging from $5.94 to $18.25 per share. All employee options vest at a rate of
25% on the first anniversary of the grant date and 6.25% per quarter thereafter.
At December 31, 1998, stock options to purchase 214,383 shares of common stock
under the 1995 Plan were exercisable.

1994 Equity Incentive Plan

The Company's 1994 Equity Incentive Plan (the "1994 Plan") provided for the
grant of stock options, and other stock-based awards of the Company's common
stock, to officers, key employees, directors and consultants. The 1994 Plan
allowed for the issuance of up to 100,000 shares of common stock. Effective with
the Company's IPO, the Board of Directors resolved to cease issuance of new
awards under the 1994 Plan. As of December 31, 1998, a total of 37,200
restricted shares of common stock at $3.13 per share and non-qualified stock
options to purchase 20,000 shares of common stock ranging in price from $3.13 to
$9.25 per share have been granted to non-employee directors of the Company. At
December 31, 1998, there were no shares subject to restriction and no
unexercised non-qualified stock options under the 1994 Plan.

F-42
<PAGE> 105
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1993 Equity Incentive Plan

The Company's 1993 Equity Incentive Plan (the "1993 Plan") provided for the
grant of stock options and other stock-based awards of the Company's common
stock to employees, consultants and affiliates. The 1993 Plan allowed for the
issuance of up to 280,000 shares of common stock. Effective with the Company's
IPO, the Company ceased issuance of new awards under the 1993 Plan. As of
December 31, 1998, options to purchase 144,825 shares of common stock have been
granted with prices ranging from $.96 to $10.40 per share. All options vest at a
rate of 25% on the first anniversary of the grant date and 6.25% per quarter
thereafter. At December 31, 1998, stock options to purchase 56,225 shares of
common stock under the 1993 Plan were exercisable.

The following is a summary of equity incentive plan activity for the
periods indicated:

<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- ---------------
<S> <C> <C>
Outstanding, December 31, 1995............................ 350,515 $ 0.96 - $17.00
Granted................................................. 42,000 $10.25 - $18.25
Exercised............................................... (20,540) $ 0.96 - $12.00
Cancelled............................................... (12,412) $ 0.96 - $14.63
------- ---------------
Outstanding, December 31, 1996............................ 359,563 $ 0.96 - $18.25
Granted................................................. 245,750 $ 9.00 - $16.75
Exercised............................................... (22,432) $ 0.96 - $12.00
Canceled................................................ (16,494) $ 0.96 - $16.50
------- ---------------
Outstanding, December 31, 1997............................ 566,387 $ 0.96 - $18.25
Granted................................................. 376,500 $ 5.75 - $11.00
Exercised............................................... (51,725) $ 0.96 - $3.13
Canceled................................................ (51,975) $ 8.07 - $17.00
------- ---------------
Outstanding, December 31, 1998............................ 839,187 $ 0.96 - $18.25
</TABLE>

The weighted average exercise price per share of options granted, exercised
and canceled during 1998 and outstanding at December 31, 1998 were $8.15, $2.63,
$13.03 and $10.32, respectively. The weighted average exercise price per share
of options granted, exercised and canceled during 1997 and outstanding at
December 31, 1997 were $14.01, $2.62, $12.41 and $11.38, respectively. The
weighted average exercise price per share of options granted, exercised and
canceled during 1996 and outstanding at December 31, 1996 were $15.11, $2.97,
$9.30 and $8.23, respectively. The weighted average remaining contractual life
of stock options outstanding at December 31, 1998, 1997 and 1996 was 8.3 years,
7.9 years and 8.1 years, respectively.

The range of exercise prices, shares, weighted average remaining
contractual life and exercise price for the options outstanding as of December
31, 1998, 1997 and 1996 are:

F-43
<PAGE> 106
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER
RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE
- ------------------------ ----------- ---------------- -------- -----------
<S> <C> <C> <C> <C>
1997:
$0.96-$0.96....................... 49,850 5.7 $ 0.96 49,850
$3.13-$3.13....................... 40,125 6.2 $ 3.13 37,625
$9.00-$13.25...................... 262,712 8.3 $11.29 99,330
$13.75-$18.25..................... 176,500 8.4 $16.34 16,363
1996:
$0.96-$0.96....................... 61,125 6.7 $ 0.96 46,200
$3.13-$3.13....................... 50,625 7.2 $ 3.13 37,925
$9.25-$13.25...................... 178,738 8.6 $11.81 55,372
$13.75-$18.25..................... 31,875 8.6 $16.19 1,268
</TABLE>

1995 Employee Stock Purchase Plan

Under the Company's 1995 Employee Stock Purchase Plan ("ESPP"), eligible
employees may elect to contribute from 1% to 15% of their base compensation
toward the purchase of the Company's common stock through weekly payroll
deductions. The purchase price per share is 85% of the lesser of the FMV of the
stock on the commencement date or on the last business day of each six-month
purchase period. The total number of shares of stock that may be issued under
the ESPP was 200,000 shares as of December 31, 1998. As of December 31, 1998, a
total of 134,538 shares have been issued under the ESPP.

Common Stock Reserved

At December 31, 1998, the Company had reserved 1,571,169 shares of common
stock for issuance pursuant to the 1993 Plan, the 1994 Plan, the 1995 Plan, the
ESPP and the Acquisition Plan.

Accounting for Stock-Based Compensation

The Company applies APB 25 and related Interpretations in accounting for
its employee stock options for the reasons discussed below. The alternative fair
value method of accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate 6.0% for 1998, 5.3% to 5.4% for 1997, and
5.3% to 6.5% for 1996; volatility factors of the expected market price of the
Company's common stock of .78 for 1998, .60 for 1997 and .65 for 1996; and a
weighted-average expected life of the option of 3.7 to 3.9 years for 1998, 3.9
to 5.2 years for 1997 and 6.0 years for 1996.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options,

F-44
<PAGE> 107
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows: (In thousands, except for earnings (loss) per
share information)

<TABLE>
<CAPTION>
YEARS ENDED:
-------------------------
1998 1997 1996
---- ------- ------
<S> <C> <C> <C>
Pro forma net income (loss)............................... $537 $(4,680) $6,744
Pro forma earnings (loss) per share:
Basic................................................... $.08 $ (.74) $ 1.07
Diluted................................................. $.08 $ (.74) $ 1.06
</TABLE>

The effects of applying SFAS 123 for providing pro forma disclosures are
not likely to be representative of such expenses for future years as the amounts
are based only on the grants subsequent to 1994.

NOTE 12. EMPLOYEE BENEFIT PLANS

Employee Investment Plan

The Company sponsors a 401(k) employee salary deferral plan that allows
voluntary contributions by substantially all full-time employees. Under the
plan, eligible employees may contribute up to 15% of their pre-tax earnings, not
to exceed the Internal Revenue Service annual contribution limit. The Company
may make discretionary matching contributions, which vest over five years.
During 1998, 1997 and 1996, the Company matched 100% of the first 3% of each
employee's contribution, which totaled $175,000, $236,000 and $226,000,
respectively.

Profit Sharing Bonus Plan

The Company also has a profit sharing bonus plan whereby all full-time
employees are eligible to participate in a pool of before-tax earnings of the
Company. The profit sharing pool is established annually by the Board of
Directors based on the operational performance expectations of the Company. In
1998, 1997, and 1996, the Company recognized compensation expense totaling
$72,000, $56,000, and $260,000, respectively, pursuant to the employees' profit
sharing portion of the plan.

NOTE 13. RELATED PARTY TRANSACTIONS

The Company had facility and service agreements in 1997 with Silicon
Systems, Inc. ("SSI") and Silicon Systems Singapore Pte. Ltd. ("SSS"), both
wholly-owned subsidiaries of Texas Instruments Incorporated. The agreements
state that SSI and SSS will provide certain administrative services and
facilities to the Company for agreed-upon fees, which were based upon actual
costs. One of the members of the Company's board of directors is a senior
executive with SSI.

In addition the Company sells services to Volterra Inc. One of the members
of the Company's Board of Directors is a senior executive with Volterra Inc.

F-45
<PAGE> 108
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of such purchases and expenses with related parties is as
follows:

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
SSI (current board member and former stockholder):
Purchases of raw materials................................ $1,415 $5,528
Administrative and facility expenses...................... 19 383
TDK (stockholder):
Purchases of raw materials................................ 54 193
Volterra (current board member)
Sales of services......................................... 99 --
</TABLE>

NOTE 14. BUSINESS SEGMENT INFORMATION

Historically the Company has operated in one business segment, which is the
development, production and distribution of flexible interconnect products for
use in computers and peripheral equipment. The Company's principal market is the
HDD industry. In fiscal 1998, 1997, and 1996 approximately 43.6%, 54.8% and
50.0% respectively, of the Company's net revenues were to HDD manufacturers.

The Company sells its products primarily to U.S.-based companies that are
manufacturers or distributors of computer and computer-related products. These
products are often shipped directly to the international headstack assemblers of
these companies, or to the offshore facilities of these U.S.-based companies.

The Company performs periodic credit evaluations on its customers'
financial condition and does not require collateral. Credit losses have
traditionally been minimal, and such losses have been within management's
expectation.

During fiscal years 1998, 1997 and 1996, net revenues attributed to
individual customers, each of which represented over 10% of total net revenues,
were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 16% 12% 32%
Customer B.................................................. 35 27 15
Customer C.................................................. 2 24 24
Customer D.................................................. 28 20 11
</TABLE>

Some of the assemblies manufactured by the Company require one or more
components that are ordered from, or which may be available from, a limited
number of suppliers. A change in suppliers could cause a delay in manufacturing
and a possible loss of sales, which would affect operating results adversely.

Total export revenues, primarily to the Far East, were $85.3 million,
$111.7 million, and $104.1 million, during 1998, 1997, and 1996, respectively.
Export revenues by country in excess of 10% of total net revenues were as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Singapore................................................... 18% 20% 33%
Thailand.................................................... 10 17 23
Hong Kong................................................... 21 24 7
Mexico...................................................... 14 11 --
</TABLE>

F-46
<PAGE> 109
SMARTFLEX SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company maintains manufacturing operations in Mexico, Singapore and the
Philippines. Pre-tax income (loss) from the Company's offshore operations
totaled, $863,000 $(308,000), and $723,000 for the years ended December 31,
1998, 1997 and 1996, respectively.

The Company's direct employees at the Monterrey, Mexico facility are
represented by a labor union and are covered by a collective bargaining
agreement ("agreement") that is subject to revision annually under Mexican law.
These employees represent 80% of the Company's Monterrey labor force. The
current agreement covers all direct employees in Monterrey and is subject to
revision in February 2000. While the Company believes that it has established
good relationships with its labor force in Monterrey, there can be no assurance
that such relationships will continue in the future.

NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized quarterly results:

<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1998
Net revenues............................. $37,005 $27,037 $20,504 $23,055
Gross margin............................. 4,145 2,983 2,419 2,511
Net income............................... 828 387 134 167
Net income per share -- basic............ $ .13 $ .06 $ .02 $ .03
Net income per share -- diluted.......... $ .13 $ .06 $ .02 $ .03
FISCAL 1997
Net revenues............................. $30,272 $37,003 $28,010 $38,062
Gross margin............................. 1,953 3,591 (10)(1) 3,850
Net income (loss)........................ 234 558 (5,436)(1)(2) 515
Net income (loss) per share -- basic..... $ .04 $ .09 $ (.85)(3) $ .08
Net income (loss) per share -- diluted... $ .04 $ .09 $ (.85)(3) $ .08
</TABLE>

- ---------------
(1) Includes non-recurring pre-tax inventory write-off of $1.4 million (related
to restructuring) included in cost of revenues

(2) Includes non-recurring pre-tax restructuring charge of $5.1 million

(3) Includes non-recurring charges totaling $(.70) per share on an after-tax
basis.

The summation of quarterly per share amounts for fiscal 1997 amounts do not
equal annual per share amounts due to the effects of stock issuances on the
weighted-average share calculation.

NOTE 16. SUBSEQUENT EVENT

On February 1, 1999, the Company, through its wholly-owned subsidiaries,
Smartflex Fremont, Inc. and Smartflex New Jersey, Inc., acquired certain assets
from Tanon Manufacturing, Inc., the principal operating subsidiary of EA
Industries, Inc. ("Tanon"). On December 3, 1998, Tanon had filed a voluntary
proceeding under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for Northern District of California. The acquisition of the
assets was subject to approval of the Bankruptcy Court, which was granted on
January 29, 1999. The assets acquired include certain specified contracts,
equipment and inventory used in connection with Tanon's contract manufacturing
electronic assembly business at facilities in Fremont, California and West Long
Branch, New Jersey. The aggregate purchase price paid was $14.9 million, $2.5
million of which is due in April of 2000 and the Company has delivered a
non-interest-bearing promissory note to guaranty this additional payment.

F-47
<PAGE> 110

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,052 $ 2,613
Short-term investments.................................... 18,662 24,743
Accounts receivable, trade (less allowance of $767 at June
30, 1999 and $957 at December 31, 1998)................ 14,969 11,209
Inventories............................................... 10,467 3,927
Deferred income taxes..................................... 3,613 3,613
Income tax receivable..................................... 1,735 --
Prepaid expenses and other current assets................. 2,821 2,360
----------- --------
Total current assets.............................. 55,319 48,465
Property and equipment, net................................. 20,801 18,475
Goodwill, net of accumulated amortization of $398 at June
30, 1999 and $49 at December 31, 1998..................... 14,327 4,089
Other assets................................................ 1,167 1,262
----------- --------
Total assets...................................... $ 91,614 $ 72,291
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to related parties....................... $ -- $ --
Accounts payable.......................................... 14,885 7,050
Other accrued liabilities................................. 7,044 7,546
Current portion of notes payable.......................... 5,673 1,150
----------- --------
Total current liabilities......................... 27,602 15,746
Deferred income taxes....................................... 324 323
Long-term portion of notes payable and other liabilities.... 18,066 5,203
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
None issued and outstanding............................ -- --
Common stock, $.0025 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 6,452,841 in 1998 and
6,362,477 in 1997..................................... 16 16
Additional paid-in capital................................ 36,534 36,532
Retained earnings......................................... 9,072 14,471
----------- --------
Total stockholders' equity........................ 45,622 51,019
----------- --------
Total liabilities and stockholder's equity...... $ 91,614 $ 72,291
=========== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-48
<PAGE> 111

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues........................................ $53,491 $64,042 $30,339 $27,037
Cost of revenues.................................... 48,143 56,914 27,082 24,054
------- ------- ------- -------
Gross margin...................................... 5,348 7,128 3,257 2,983
Costs and expenses:
Marketing and sales expense....................... 1,844 1,816 687 886
General and administrative expense................ 6,032 3,967 3,178 1,886
Goodwill expense.................................. 398 -- 202 --
Restructuring expense............................. 3,847 -- -- --
------- ------- ------- -------
Operating income (loss)............................. (6,773) 1,345 (810) 211
Interest income..................................... 489 484 174 221
Interest expense.................................... (652) (87) (342) (25)
Other income (expense).............................. 188 98 151 171
------- ------- ------- -------
Income (loss) before income taxes................... (6,748) 1,840 (827) 578
Income tax provision (benefit)...................... (1,348) 625 (281) 191
------- ------- ------- -------
Net income (loss)................................... $(5,400) $ 1,215 $ (546) $ 387
======= ======= ======= =======
Net income (loss) per share (basic)................. $ (0.84) $ 0.19 $ (0.08) $ 0.06
======= ======= ======= =======
Net income (loss) per share (diluted)............... $ (0.83) $ 0.19 $ (0.08) $ 0.06
======= ======= ======= =======
Number of shares used in computing net income (loss)
per share (basic)................................. 6,467 6,397 6,481 6,422
======= ======= ======= =======
Number of shares used in computing net income (loss)
per share (diluted)............................... 6,500 6,469 6,508 6,476
======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-49
<PAGE> 112

SMARTFLEX SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (5,400) $ 1,215
Adjustments to reconcile net income to net cash (loss)
provided by (used in) operating activities
Depreciation.............................................. 3,578 1,965
Amortization of goodwill.................................. 398 --
Provision for doubtful accounts........................... (105) 165
Provision for inventory obsolescence...................... (1,251) 1,941
Changes in operating assets and liabilities:
Receivables............................................... (3,655) 5,308
Inventories............................................... (1,789) 4,418
Prepaid expenses and other assets......................... (2,100) 97
Accounts payable to related parties....................... -- (396)
Accrued restructuring cost................................ 579 (1,406)
Accounts payable and accrued liabilities.................. 6,754 (7,125)
-------- -------
Net cash provided by operating activities.............. (2,991) 6,182
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (4,654) (3,358)
Acquisition................................................. (11,604) --
Purchases of short-term investments....................... 36 (2,590)
Proceeds from the sale of short-term investments.......... 6,045 --
-------- -------
Net cash used in investing activities.................. (10,177) (5,948)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 3 282
Line of credit, net......................................... 14,087 --
Payments on term loan..................................... (483) (888)
-------- -------
Net cash provided by (used in) financing activities....... 13,607 (606)
-------- -------
Net increase (decrease) in cash............................. 439 (372)
Cash at beginning of period............................... 2,613 2,069
-------- -------
Cash at end of period..................................... $ 3,052 $ 1,697
======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 652 $ 89
Taxes paid................................................ 53 960
</TABLE>

See accompanying notes to consolidated financial statements.
F-50
<PAGE> 113

SMARTFLEX SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999

NOTE (A) -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
include the accounts of Smartflex Systems, Inc. and its wholly owned
subsidiaries ("Smartflex" or the "Company"), and have been prepared in
accordance with generally accepted accounting principles for interim financial
information, and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.

NOTE (B) -- FISCAL YEAR

The Company's fiscal year is 52 or 53 weeks, ending on the Saturday nearest
December 31 each year, and follows a four-four-five week quarterly cycle. For
clarity of presentation, the Company has presented its fiscal years as ending
December 31, and its fiscal quarters as ending on March 31, June 30, September
30 and December 31.

NOTE (C) -- USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

NOTE (D) -- CREDIT FACILITY

The Company amended its bank credit facility (the "facility") on March 30,
1999 and April 20, 1999 to provide for aggregate unsecured borrowings of $25
million under a revolving line of credit (the "credit line"). Borrowings under
the credit line, which expires in September 2000, include a sub-limit for the
issuance of up to $2 million in commercial or standby letters of credit for the
importation or purchase of inventory. No such letters of credit were outstanding
at June 30, 1999. Outstanding balances on the credit line bear interest at the
bank's prime rate or, at the Company's option, a sliding rate of LIBOR plus
1.50% to 2.25%, and unused portions of the credit line bear interest at .125%
per annum. At June 30, 1999 there was $15.2 million outstanding under the credit
line. The facility additionally provides for an unsecured term loan totaling
$2.2 million for the purchase of equipment. This unsecured term loan will bear
interest at the bank's reference rate plus .5% or, at the Company's option, a
sliding rate of LIBOR plus 1.75% to 2.50%. Principal and interest are payable
monthly, and this term loan matures on March 30, 2001. At June 30, 1999, the
outstanding balance on this term loan was $1.3 million. The facility
additionally provides for a second unsecured term loan (the "second term loan")
totaling $3.0 million to be used for general corporate purposes. The second term
loan bears interest at the bank's reference rate, or at the Company's option, a
sliding rate of LIBOR plus 1.75% to 2.50%. At June 30, 1999, the outstanding
balance on the second term loan was $2.7 million. The facility contains certain
financing and operating covenants relating to net worth, liquidity, leverage,
profitability, fixed charge coverage and a prohibition on payment of cash
dividends. At June 30, 1999, the Company was in compliance with all of the
covenants, except those that relate to the quick ratio, for which the Company
has received a waiver.

NOTE (E) -- IMPACT OF NEWLY ISSUED PRONOUNCEMENT BY THE FINANCIAL ACCOUNTING
STANDARDS BOARD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

standard for the recognition and measurement of derivatives and hedging
activities. This statement requires all derivatives to be recorded on the
balance sheet at fair value and establishes accounting for several types of
hedges, resulting in the recognition of offsetting changes in value or cash
flows of the hedge and hedged items in earnings in the same period. The
provisions of this statement are effective for years beginning after June 15,
1999. The Company will adopt this statement for fiscal year 2000. The adoption
of SFAS No. 133 will not materially impact the Company's results of operations
or financial position.

NOTE (F) -- TANON ACQUISITION

NOTE (G) -- TENDER OFFER FROM SATURN

On July 7, 1999 the Company announced that it has entered into a definitive
agreement pursuant to which all outstanding shares of common stock will be
acquired by SSI Acquisition Corp. ("SSI") a subsidiary of Saturn Electronics and
Engineering, Inc. ("Saturn"). Under the agreement, Saturn commenced a tender
offer for all outstanding shares of common stock of Smartflex for $10.50 per
share in cash. A successful completion of the tender offer will be followed by a
merger in which any shares not acquired by Saturn in the tender offer will be
acquired for the same amount of cash in the merger. The tender offer commenced
on July 14, 1999, and is conditioned on a majority of the outstanding shares
being tendered as well as other customary conditions.

NOTE (H) -- RESTRUCTURING

During the quarter ended March 31, 1999, the Company addressed a need to
streamline its worldwide operations and transferred certain support services
from the Tustin and Singapore facilities to the Company's locations in
Monterrey, Mexico and Cebu, Philippines. Additionally, the Monterrey facility
was sized to match current production demand. The restructuring addressed
facilities rationalization, termination of employees and the write-down of
non-current assets no longer utilized. The Company provided the following
charges in the first quarter of 1999: $690,000 for severance and other employee-
related costs associated with the reduction in force, $1.6 million for the
write-down of non-current assets, and $1.6 million for facilities
rationalization.

Also, during the quarter ended March 31, 1999, the Company received a
favorable ruling regarding a Singapore tax liability, which had been provided
for in a restructuring completed in 1998. This reserve of $500,000 was reversed
in the first quarter of 1999.

F-52
<PAGE> 115
SMARTFLEX SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

During the quarter ended June 30, 1999 the Company continued to implement
the restructuring plan as reflected in the accrued restructuring costs as
follows:

<TABLE>
<CAPTION>
ORIGINAL BALANCE PLAN BALANCE
CHARGE MARCH 31, 1999 EXECUTION JUNE 30, 1999
---------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Severance and Related Costs................. $ 700,000 $ 556,000 $ 325,000 $ 231,000
Facilities Rationalization.................. 1,557,000 1,497,000 499,000 998,000
Write-down of Non-Current Assets............ 1,590,000 1,590,000 1,590,000 0
---------- ---------- ---------- ----------
$3,847,000 $3,643,000 $2,414,000 $1,229,000
========== ========== ========== ==========
</TABLE>

The severance and related costs were primarily from manufacturing related
operations in Tustin, California (22 employees), Monterrey, Mexico (183
employees), Singapore (33 employees) and Fremont/New Jersey (12 employees).

F-53
<PAGE> 116

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following sets forth pro forma data for Saturn Electronics &
Engineering, Inc. for the year ended December 31, 1999 and has been prepared to
illustrate the effects of the Smartflex acquisition as if it had occurred as of
January 1, 1999 with respect to the Statement of Operations information. The
Smartflex acquisition was accounted for under the purchase method of accounting.
The pro forma Consolidated Statement of Operations is provided for comparative
purposes only and does not purport to be indicative of the results that actually
would have been obtained if this transaction had occurred on the date indicated.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Result of Operations," "Selected Financial Data," and the
financial statements and notes thereto included elsewhere in this prospectus.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SATURN
ELECTRONICS SMARTFLEX
& ENGINEERING SYSTEMS PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue.............................. $ 257,107 $ 68,472 $ 325,579
Cost of revenue.......................... 205,341 63,377 $ 257(1) 268,975
---------- -------- ------- ----------
Gross profit........................... 51,766 5,095 (257) 56,604
Development expense...................... 7,741 724 8,465
Selling, general and administrative
expense................................ 19,146 10,321 29,467
Amortization expense..................... 2,582 531 (531)(2)
2,190(3) 4,772
Restructuring expense.................... 3,833 3,833
---------- -------- ------- ----------
Operating income (loss)................ 22,297 (10,314) (1,916) 10,067
Interest income.......................... 331 463 (463)(4)
(331)(5) 0
Interest expense......................... (3,340) (898) 898(6)
3,340(7)
(8,293)(8)
(443)(9) (8,736)
Other income (expense), net.............. (161) (549) (710)
Minority Interest........................ (2,788) (2,788)
---------- -------- ------- ----------
Income (loss) before income taxes...... 16,339 (11,298) (7,208) (2,167)
Income taxes............................. 6,434 (2,895) (3,169)(10) 370
---------- -------- ------- ----------
Net income (loss)...................... $ 9,905 $ (8,403) $(4,039) $ (2,537)
========== ======== ======= ==========
Basic and diluted earnings per share..... $ 0.31 $ (0.08)
Basic and diluted weighted average number
of common shares outstanding........... 32,145,026 32,145,026
</TABLE>

- ---------------
Notes:

(1) To record additional depreciation expense pertaining to appraised valuation
of Smartflex property, plant and equipment. The associated asset amount is
being depreciated over 5 years on a straight line basis.

(2) To record reversal of amortization expense pertaining to pre-acquisition
goodwill of Smartflex.

(3) To record amortization expense on acquired intangible assets. These
intangible assets are being amortized over periods ranging from 13 to 18
years.
F-54
<PAGE> 117

(4) To record reversal of interest income pertaining primarily to
pre-acquisition cash investments held by Smartflex.

(5) To record reversal of interest income pertaining to cash investments held
by Saturn.

(6) To record reversal of interest expense incurred by Smartflex.

(7) To record reversal of interest expense incurred Saturn.

(8) To record interest expense assuming average borrowings outstanding of
$107,000,000 at an interest rate of 7.75%.

(9) To record amortization expense pertaining to deferred financing costs of
$1,991,000. The deferred financing costs are being amortized on a straight
line basis over three years.

(10) To record the income tax impact of the pro forma adjustments.

F-55
<PAGE> 118

[Artwork showing graphic representations of the automotive, communications,
computer and military end markets served by us, and our design, engineering,
testing and manufacturing services, as well as our logo.]

<PAGE> 119

[SATURN LOGO]
<PAGE> 120

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses of the issuance and distribution, all of which are payable by
us, will be as follows (all amounts are estimated except the SEC registration
fee, the NASD fee and the Nasdaq Market listing fee):

<TABLE>
<S> <C>
SEC Registration Fee........................................ $33,000
NASD Fee.................................................... 13,000
Nasdaq National Market Listing Fee..........................
Printing and Engraving Expenses.............................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Transfer Agent's Fees and Expenses..........................
Miscellaneous Expenses......................................
-------
Total.................................................. $
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

II-1
<PAGE> 121

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information reflects our recent sales of unregistered
securities, none of which involved any underwriters:

On March 15, 2000, we granted a warrant for 1,565,331 shares of common
stock to Motorola. The exercise price per share is 90% of the initial public
offering price per share. We issued the warrant in reliance upon the exemption
from registration available under Section (4)2 of the Securities Act, including
Regulation D promulgated thereunder, as a transaction by an issuer not involving
any public offering. The warrant certificate has a legend imprinted on it
stating that it have not been registered under the Securities Act and cannot be
transferred until properly registered under the Securities Act or unless an
exemption applies.

In 1999, we granted options to purchase 869,400 unregistered shares of
common stock to 104 employees, including 3 executive officers, and 5 directors.
The exercise price per share was $3.888. These shares were issued by us in
reliance upon the exemption from registration contained in Rule 701 of the
Securities Act.

In 1998, we granted options to purchase 709,500 unregistered shares of
common stock to 34 employees, including 3 executive officers, and 4 directors.
The exercise price per share ranged from $2.233 to $2.875. These shares were
issued by us in reliance upon the exemption from registration contained in Rule
701 of the Securities Act.

In 1997, we granted options to purchase 831,000 unregistered shares of
common stock to 40 employees, including 3 executive officers, and 3 directors.
The exercise price per share ranged from $1.748 to $2.233. These shares were
issued by us in reliance upon the exemption from registration contained in Rule
701 of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S> <C>
1*** -- Form of Underwriting Agreement
3.1** -- Form of Amended and Restated Articles of Incorporation of
Saturn Electronics & Engineering, Inc.
3.2** -- Form of Amended and Restated Bylaws of Saturn Electronics &
Engineering, Inc.
4.1*** -- Form of Certificate for shares of Common Stock
5*** -- Opinion of Honigman Miller Schwartz and Cohn
10.1** -- Tanon Manufacturing, Inc. Amended and Restated Agreement of
Purchase and Sale between Tanon Manufacturing, Inc. and
Smartflex Systems, Inc., dated December 2, 1998
10.2* -- Stock Purchase Agreement by and among Logical Services
Incorporated, the Shareholders of Logical Services
Incorporated and Smartflex Systems, Inc., dated October 7,
1998
10.3* -- Methuen Division Agreement of Purchase and Sale by and
between EA Industries, Inc. and Methuen Acquisition Corp.,
dated December 2, 1998
10.4* -- Stock Purchase Agreement between World Wide Industrial
Invest, B.V. and Saturn Electronics & Engineering, Inc.,
dated April 16, 1999
10.5* -- Agreement and Plan of Merger among Saturn Electronics &
Engineering, Inc., SSI Acquisition Corp., and Smartflex
Systems, Inc., dated, July 6, 1999
10.6* -- Split-Dollar Agreement between Saturn Electronics &
Engineering, Inc., Wallace K. Tsuha, and Sherman Cruz,
Trustee of the Wallace K. Tsuha Irrevocable Life Insurance
Trust of December 13, 1991, dated July 15, 1999
10.7* -- Independent Contractor Agreement between Sherman L. Cruz and
Saturn Electronics & Engineering, Inc., dated December 1,
1999
</TABLE>

II-2
<PAGE> 122

<TABLE>
<C> <S> <C>
10.8* -- Amendment to Independent Contractor Agreement between
Sherman L. Cruz and Saturn Electronics & Engineering, Inc.,
dated February 28, 2000
10.9* -- Saturn Electronics & Engineering, Inc. 1995 Management Stock
Option Plan
10.10* -- Amendment No. 1 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated November 19, 1997
10.11* -- Amendment No. 2 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated July 29, 1999
10.12* -- Amendment No. 3 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated September 28, 1999
10.13* -- Loan Agreement by and between Saturn Electronics Texas, LLC
and Comerica Bank, dated April 16, 1998
10.14* -- Amendment No. 1 to Loan Agreement and Revolving Credit Note
by and between Saturn Electronics Texas, LLC and Comerica
Bank, dated June 10, 1999
10.15* -- Amendment No. 2 to Loan Agreement by and between Saturn
Electronics Texas, LLC and Comerica Bank, dated January 11,
2000
10.16* -- Credit Agreement between Comerica Bank and Saturn
Electronics & Engineering, Inc., dated August 24, 1999
10.17* -- Amendment No. 1 to Credit Agreement between Saturn
Electronics & Engineering, Inc. and Comerica Bank, dated
September 24, 1999
10.18* -- Amendment No. 2 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated November
10, 1999
10.19** -- Amendment No. 3 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated March 27,
2000
10.20* -- Saturn Electronics Texas, LLC Membership Regulations, dated
February 25, 1998
10.21* -- Amendment No. 1 to Saturn Electronics Texas, LLC Membership
Regulations, dated September 21, 1998
10.22* -- Amendment No. 2 to Saturn Electronics Texas, LLC Membership
Regulations, dated February 28, 1999
10.23* -- Amendment No. 3 to Saturn Electronics Texas, LLC Membership
Regulations, dated June 21, 1999
10.24* -- Amendment No. 4 to Saturn Electronics Texas, LLC Membership
Regulations, dated October 21, 1999
10.25* -- Sublease between Saturn Electronics & Engineering, Inc. and
MSX International Engineering Services, Inc., dated August
20, 1999
10.26* -- First Amendment to Sublease between Saturn Electronics &
Engineering, Inc. and MSX International Engineering
Services, Inc., dated March 27, 2000
10.27** -- Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 15, 2000
10.28** -- First Amendment to Saturn Electronics & Engineering, Inc. to
Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 27, 2000
10.29*** -- Registration Rights Agreement
10.30** -- Saturn Electronics & Engineering, Inc. 2000 Stock Option
Plan
21** -- List of subsidiaries
23.1* -- Consent of PricewaterhouseCoopers LLP
23.2* -- Consent of Ernst & Young LLP
23.3** -- Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5)
</TABLE>

II-3
<PAGE> 123

<TABLE>
<C> <S> <C>
24* -- Power of Attorney (included on the signature page to this Registration Statement)
27* -- Financial Data Schedule for the year ended December 31, 1999
27.1** -- Financial Data Schedule for the quarter ended March 31, 2000
</TABLE>

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

* Previously filed.

** Filed by Amendment No. 1.

*** To be filed by Amendment.

(b) Financial Statement Schedules.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, or the Act, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-4
<PAGE> 124

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Auburn Hills, Michigan on May 8,
2000.

SATURN ELECTRONICS & ENGINEERING, INC.

By: /s/ DONALD J. COWIE

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

Donald J. Cowie

Chief financial officer, executive
vice president,

treasurer and assistant secretary

(principal financial and accounting
officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers
and directors of Saturn Electronics & Engineering, Inc., a Michigan corporation
(the "Company"), hereby constitutes and appoints Wallace K. Tsuha, Jr. and
Donald J. Cowie, and each of them, the true and lawful attorneys-in-fact and
agents of the undersigned, each with the power and substitution for him in any
and all capacities, with full power and authority in said attorneys-in-fact and
agents and in any one or more of them, to sign, execute and affix his seal
thereto and file any and all amendments to this Registration Statement,
including any amendment thereto changing the amount of securities for which
registration is being sought, and any post-effective amendment and any and all
additional registration statements pursuant to Rule 462(b) of the Securities Act
of 1993, with all exhibits and any and all documents required to be filed with
respect thereto with the Securities and Exchange Commission, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as the
undersigned might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WALLACE K. TSUHA, JR.* President, chief executive officer, May 8, 2000
- --------------------------------------------------- chairman of the board and director
Wallace K. Tsuha, Jr. (principal executive officer)

/s/ DONALD J. COWIE Chief financial officer, executive May 8, 2000
- --------------------------------------------------- vice president, treasurer and
Donald J. Cowie assistant secretary (principal
financial and accounting officer)

/s/ WILLIAM T. ANDERSON* Director May 8, 2000
- ---------------------------------------------------
William T. Anderson
</TABLE>

II-5
<PAGE> 125

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID E. COLE* Director May 8, 2000
- ---------------------------------------------------
David E. Cole

/s/ SHERMAN L. CRUZ* Director May 8, 2000
- ---------------------------------------------------
Sherman L. Cruz

/s/ FOREST J. FARMER* Director May 8, 2000
- ---------------------------------------------------
Forest J. Farmer

/s/ RICK INATOME* Director May 8, 2000
- ---------------------------------------------------
Rick Inatome

/s/ GARY E. LIEBL* Director May 8, 2000
- ---------------------------------------------------
Gary E. Liebl

*By: /s/ DONALD J. COWIE May 8, 2000
---------------------------------------------
Donald J. Cowie
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 126

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S> <C>
1*** -- Form of Underwriting Agreement
3.1** -- Form of Amended and Restated Articles of Incorporation of
Saturn Electronics & Engineering, Inc.
3.2** -- Form of Amended and Restated Bylaws of Saturn Electronics &
Engineering, Inc.
4.1*** -- Form of Certificate for shares of Common Stock
5*** -- Opinion of Honigman Miller Schwartz and Cohn
10.1** -- Tanon Manufacturing, Inc. Amended and Restated Agreement of
Purchase and Sale between Tanon Manufacturing, Inc. and
Smartflex Systems, Inc., dated December 2, 1998
10.2* -- Stock Purchase Agreement by and among Logical Services
Incorporated, the Shareholders of Logical Services
Incorporated and Smartflex Systems, Inc., dated October 7,
1998
10.3* -- Methuen Division Agreement of Purchase and Sale by and
between EA Industries, Inc. and Methuen Acquisition Corp.,
dated December 2, 1998
10.4* -- Stock Purchase Agreement between World Wide Industrial
Invest, B.V. and Saturn Electronics & Engineering, Inc.,
dated April 16, 1999
10.5* -- Agreement and Plan of Merger among Saturn Electronics &
Engineering, Inc., SSI Acquisition Corp., and Smartflex
Systems, Inc., dated, July 6, 1999
10.6* -- Split-Dollar Agreement between Saturn Electronics &
Engineering, Inc., Wallace K. Tsuha, and Sherman Cruz,
Trustee of the Wallace K. Tsuha Irrevocable Life Insurance
Trust of December 13, 1991, dated July 15, 1999
10.7* -- Independent Contractor Agreement between Sherman L. Cruz and
Saturn Electronics & Engineering, Inc., dated December 1,
1999
10.8* -- Amendment to Independent Contractor Agreement between
Sherman L. Cruz and Saturn Electronics & Engineering, Inc.,
dated February 28, 2000
10.9* -- Saturn Electronics & Engineering, Inc. 1995 Management Stock
Option Plan
10.10* -- Amendment No. 1 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated November 19, 1997
10.11* -- Amendment No. 2 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated July 29, 1999
10.12* -- Amendment No. 3 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated September 28, 1999
10.13* -- Loan Agreement by and between Saturn Electronics Texas, LLC
and Comerica Bank, dated April 16, 1998
10.14* -- Amendment No. 1 to Loan Agreement and Revolving Credit Note
by and between Saturn Electronics Texas, LLC and Comerica
Bank, dated June 10, 1999
10.15* -- Amendment No. 2 to Loan Agreement by and between Saturn
Electronics Texas, LLC and Comerica Bank, dated January 11,
2000
10.16* -- Credit Agreement between Comerica Bank and Saturn
Electronics & Engineering, Inc., dated August 24, 1999
10.17* -- Amendment No. 1 to Credit Agreement between Saturn
Electronics & Engineering, Inc. and Comerica Bank, dated
September 24, 1999
10.18* -- Amendment No. 2 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated November
10, 1999
10.19** -- Amendment No. 3 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated March 27,
2000
</TABLE>

<PAGE> 127

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S> <C>
10.20* -- Saturn Electronics Texas, LLC Membership Regulations, dated
February 25, 1998
10.21* -- Amendment No. 1 to Saturn Electronics Texas, LLC Membership
Regulations, dated September 21, 1998
10.22* -- Amendment No. 2 to Saturn Electronics Texas, LLC Membership
Regulations, dated February 28, 1999
10.23* -- Amendment No. 3 to Saturn Electronics Texas, LLC Membership
Regulations, dated June 21, 1999
10.24* -- Amendment No. 4 to Saturn Electronics Texas, LLC Membership
Regulations, dated October 21, 1999
10.25* -- Sublease between Saturn Electronics & Engineering, Inc. and
MSX International Engineering Services, Inc., dated August
20, 1999
10.26* -- First Amendment to Sublease between Saturn Electronics &
Engineering, Inc. and MSX International Engineering
Services, Inc., dated March 27, 2000
10.27** -- Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 15, 2000
10.28** -- First Amendment to Saturn Electronics & Engineering, Inc. to
Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 27, 2000
10.29*** -- Registration Rights Agreement with MascoTech, Inc.
10.30** -- Saturn Electronics & Engineering, Inc. 2000 Stock Option
Plan
21** -- List of subsidiaries
23.1* -- Consent of PricewaterhouseCoopers LLP
23.2* -- Consent of Ernst & Young LLP
23.3** -- Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5)
24* -- Power of Attorney (included on the signature page to this
Registration Statement)
27* -- Financial Data Schedule for the year ended December 31, 1999
27.1** -- Financial Data Schedule for the quarter ended March 31, 2000
</TABLE>

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

* Previously filed.

** Filed by Amendment No. 1.

*** To be filed by Amendment.

<PAGE> 1
- --------------------------------------------------------------------------------
Date Received | | (FOR BUREAU USE ONLY)
| |
- ---------------------|---------------------| EXHIBIT 3.1
| |
| |
- ---------------------|---------------------|-------------
- --------------------------------------------------------|
Name JANIS K. KUJAN, LEGAL ASSISTANT ||
Honigman Miller Schwartz and Cohn ||
- --------------------------------------------------------|
Address ||
2290 First National Building 660 Woodward Avenue ||
- --------------------------------------------------------|
City State Zip Code ||
Detroit Michigan 48226-3583 ||Effective Date:
- --------------------------------------------------------|-----------------------
Document will be returned to the name and address you
enter above

RESTATED ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
(Please read information and instructions on the last page)

Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:

- --------------------------------------------------------------------------------
1. The present name of the corporation is:

SATURN ELECTRONICS & ENGINEERING, INC.
- --------------------------------------------------------------------------------

2. The identification number assigned by the Bureau is: |---------------|
|311819 |
|---------------|
3. All former names of the corporation are:

4. The date of filing the original Articles of Incorporation was: 10-1-85
--------------
- --------------------------------------------------------------------------------

The following Restated Articles of Incorporation supersede the
Articles of Incorporation as amended and shall be the Articles of
Incorporation for the corporation:

ARTICLE I

- --------------------------------------------------------------------------------
The name of the corporation is:
SATURN ELECTRONICS & ENGINEERING, INC.
- --------------------------------------------------------------------------------

ARTICLE II

- --------------------------------------------------------------------------------
The purpose or purposes for which the corporation is formed are:

To engage in any activity within the purposes for which corporations may be
formed under the Business Corporation Act of Michigan.

- --------------------------------------------------------------------------------
<PAGE> 2
The total authorized shares:

Common shares Preferred shares
--------------------- -------------------------

A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follow:

SEE EXHIBIT A

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

ARTICLE IV
- --------------------------------------------------------------------------------

1. The address of the current registered office is:

255 REX BOULEVARD, AUBURN HILLS , Michigan 48326
------------------------------------------------------- -----------

2. The mailing address of the current registered office, if different than
above:
, Michigan
------------------------------------------------------- -----------

3. The name of the current resident agent is: WALLACE K. TSUHA, JR.
----------------------------------

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

ARTICLE V (Optional. Delete if not applicable)

- --------------------------------------------------------------------------------
Any action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice,
and without a vote, if consents in writing, setting forth the action so taken,
are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all shares entitled to vote on the action were present
and voted. The written consents shall bear the date of signature of each
shareholder who signs the consent. No written consents shall be effective to
take the corporate action referred to unless, within 60 days after the record
date for determining shareholders entitled to express consent to or to dissent
from a proposal without a meeting, written consents dated not more than 10 days
before the record date and signed by a sufficient number of shareholders to
take the action are delivered to the corporation. Delivery shall be to the
corporation's registered office, its principal place of business, or an officer
or agent of the corporation having custody of the minutes of the proceedings of
its shareholders. Delivery made to a corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested.

Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who would have
been entitled to notice of the shareholder meeting if the action had been taken
at a meeting and who have not consented in writing.
<PAGE> 3

To the full extent permitted by the Michigan Business Corporation Act or any
other applicable laws presently or hereafter in effect, no director of this
Corporation shall be personally liable to this Corporation or its shareholders
for or with respect to any acts or omissions in the performance of his or her
duties as a director of this Corporation. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of
this Corporation existing immediately prior to such repeal or modification.

5. COMPLETE SECTION (a) IF THE RESTATED ARTICLES WERE ADOPTED BY THE
UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE
BOARD OF DIRECTORS; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE
BOTH.

a. [ ] These Restated Articles of incorporation were duly adopted on
the day of in accordance
---------------- -----------, ----------,
with the provisions of Section 642 of the Act by the unanimous
consent of the incorporator(s) before the first meeting of the
Board of Directors.

Signed this day of
------------- -------------, -------------

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

- -------------------------------------- --------------------------------------
(Signatures of Incorporators; Type or Print Name Under Each Signature)

b [X] These Restated Articles of incorporation were duly adopted on
the day of 2000 in accordance
-------------- ------------, -----------,
with the provisions of Section 642 of the Act and: (check one of
the following)

[ ] were duly adopted by the Board of Directors without a vote of the
shareholders. These Restated Articles of incorporation only
restate and integrate and do not further amend the provisions of
the Articles of incorporation as heretofore amended and there is
no material discrepancy between those provisions and the
provisions of these Restated Articles.

[ ] were duly adopted by the shareholders. The necessary number of
shares as required by statute were voted in favor of these
Restated Articles.

[ ] were duly adopted by the written consent of the shareholders
having not less than the minimum number of votes required by
statute in accordance with Section 407(1) of the Act. Written
notice to shareholders who have not consented in writing has
been given. (Note: Written consent by less than all of the
shareholders is permitted only if such provision appears in the
Articles of incorporation.)

[ ] were duly adopted by the written consent of all shareholders
entitled to vote in accordance with section 407(2) of the Act.

Signed this day of 2000
---------- ----------------, -------

By
---------------------------------------------------
(Only Signature of President, Vice-President,
Chairperson, or Vice-Chairperson)

---------------------------------------------------
(Type or Print Name) (Type or Print Title)
<PAGE> 4

NAME OF PERSON OR PREPARER'S NAME AND BUSINESS
ORGANIZATION REMITTING FEES: TELEPHONE NUMBER:

HONIGMAN MILLER SCHWARTZ AND COHN JANIS K. KUJAN, LEGAL ASSISTANT
- --------------------------------- -------------------------------

(313) 465-7250
- --------------------------------- -------------------------------

- -------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS

1. The articles of incorporation cannot be restated until this form, or a
comparable document, is submitted.

2. Submit one original of this document. Upon filing, the document will be
added to the records of the Corporation and Securities Bureau. The original
will be returned to the address appearing in the box on the front as
evidence of filing.

Since this document will be maintained on optical disk media, it is
important that the filing be legible. Documents with poor black and white
contrast, or otherwise illegible, will be rejected.

3. This document is to be used pursuant to sections 641 through 643 of the
Act for the purpose of restating the articles of incorporation of a
domestic profit corporation. Restated articles of incorporation are an
integration into a single instrument of the current provisions of the
corporation's articles of incorporation, along with any desired amendments
to those articles.

4. Restated articles of incorporation which do not amend the articles of
incorporation may be adopted by the board of directors without a vote of
the shareholders. Restated articles of incorporation which amend the
articles of incorporation require adoption by the shareholders. Restated
articles of incorporation submitted before the first meeting of the board
of directors require adoption by all of the incorporators.

5. Item 2 - Enter the identification number previously assigned by the
Bureau. If this number is unknown, leave it blank.

6. The duration of the corporation should be stated in the restated articles
of incorporation only if it is not perpetual.

7. This document is effective on the date endorsed "filed" by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may
be stated as an additional article.

8. If the restated articles are adopted before the first meeting of the board
of directors, item 5(a) must be completed and signed in ink by a majority
of the incorporators. Other restated articles must be signed by the
president, vice-president, chairperson, vice-chairperson.

9. FEES: Make remittance payable to the State of Michigan. Include
corporation name and identification number on check or money order.

<TABLE>
<S><C>
NONREFUNDABLE FEE............................................................ $10.00
TOTAL MINIMUM FEE............................................................ $10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES ARE:
each additional 20,000 authorized shares or portion thereof..........$30.00
maximum fee for first 10,000,000 authorized shares................$5,000.00
each additional 20,000 authorized shares or portion thereof in excess of
10,000,000 shares................................................... $30.00
maximum fee per filing for authorized shares in excess of 10,000
shares......................................................... $200,000.00
</TABLE>
10. Mail form and fee to The office is located at:

Michigan Department of Commerce 6546 Mercantile Way
Corporation and Securities Bureau Lansing, MI 48910
Corporation Division Telephone: (517) 334-6302
P.O. Box 30054
Lansing, MI 48909-7554

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

<PAGE> 5

EXHIBIT A TO
RESTATED ARTICLES OF INCORPORATION
OF
SATURN ELECTRONICS & ENGINEERING, INC.

1. The total authorized shares of the corporation shall be 201,000,000
shares, divided into 1,000,000 Preferred Shares and 200,000,000 Common
Shares.

2. The Preferred Shares shall be issued from time to time in one or more
series, each series to bear a distinctive designation and to have such
relative rights and preferences as shall be prescribed by resolution
of the Board of Directors pursuant to authority so to do which is
hereby expressly vested in the Board of Directors.

Each share of the Corporation's Class A Common Stock issued and outstanding
prior to the date of these Restated Articles of Incorporation is hereby
converted into 3.25 Common Shares. Each share of the Corporation's Class B
Common Stock issued and outstanding prior to the date of these Restated Articles
of Incorporation is hereby converted into 2.75 Common Shares. In connection
with such recapitalization, fractional shares shall not be issued by the
Corporation, but cash shall be paid in lieu thereof.

ARTICLE VII

Pursuant to Section 784(1)(b) of the Michigan Business Corporation
Act, the Corporation expressly elects not to be governed by Chapter 7A of the
Michigan Business Corporation Act, being Sections 775 through 784 of the
Michigan Business Corporation Act; provided that the Corporation's Board of
Directors may terminate this election in whole or in part by action of the
majority of directors then in office.

ARTICLE VIII

The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three or
more than fifteen directors, the exact number of directors to be determined from
time to time solely by a resolution adopted by an affirmative vote of a majority
of the directors then in office. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 2000 Annual Meeting of
Shareholders, Class I directors shall be elected for a one-year term, Class II
directors for a two year term and Class III directors for a three-year term. At
each succeeding annual meeting of shareholders, commencing in 2001, successors
to the class of directors whose term expires at that annual meeting shall be
elected for a three-year term.

<PAGE> 6

any incumbent director. When the number of directors is increased by the
Board of Directors and any newly-created directorships are filled by the Board,
the additional directors shall be classified as provided by the Board.

A director shall hold office until the meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Newly-created directorships resulting
from an increase in the number of directors and any vacancy on the Board of
Directors may be filled only by the Board by an affirmative vote of a majority
of the directors then in office. If the number of directors then in office is
less than a quorum, such newly-created directorships and vacancies may be
filled by a majority of the directors then in office, although less than a
quorum, or by the sole remaining director. A director elected by the Board of
Directors to fill a vacancy shall hold office until the next election of the
class for which the director shall have been chosen and until his or her
successor shall be elected and shall qualify. A director or the entire Board of
Directors may be removed, only for cause, by vote of the holders of a majority
of the shares entitled to vote at an election of directors.

Notwithstanding the foregoing, whenever the holders of any one or more
classes of Preferred Shares or series thereof issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorship shall be governed by the
terms of these Restated Articles of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article.

This Article VIII may not be amended by less than unanimous written
consent of shareholders, and may only be amended by the affirmative vote of
holders of 80% of the outstanding Common Shares of the Corporation, in addition
to the vote otherwise required by the Michigan Business Corporation Act.

ARTICLE IX

No action by written consent of holders of less than all of the
outstanding shares entitled to vote on such action shall be effective unless the
proposed action shall have been approved by the Board of Directors before the
consent of shareholders is executed.

<PAGE> 1
EXHIBIT 3.2

AMENDED AND RESTATED

BYLAWS

SATURN ELECTRONICS & ENGINEERING, INC.,
a Michigan corporation

(Effective as of May , 2000)
---

<PAGE> 2

BYLAWS

SATURN ELECTRONICS & ENGINEERING, INC.,
a Michigan corporation

TABLE OF CONTENTS

Page
----
<S> <C> <C>
ARTICLE I - OFFICES....................................................................................... 1
1.1 Registered Office............................................................................. 1
1.2 Other Offices................................................................................. 1

ARTICLE 2 - MEETINGS OF SHAREHOLDERS...................................................................... 1
2.1 Time and Place................................................................................ 1
2.2 Annual Meetings............................................................................... 1
2.3 Special Meetings.............................................................................. 1
2.4 Notice of Meetings............................................................................ 1
2.5 List of Shareholders.......................................................................... 1
2.6 Quorum; Adjournment........................................................................... 2
2.7 Votin......................................................................................... 2
2.8 Proxies....................................................................................... 2
2.9 Questions Concerning Elections................................................................ 2
2.10 Telephonic Attendance......................................................................... 2
2.11 Action bv Written Consent..................................................................... 2
2.12 Advanced Notice Provisions.................................................................... 3

ARTICLE 3 - DIRECTORS..................................................................................... 5
3.1 Number and Residence.......................................................................... 5
3.2 Classification, Election and Term............................................................. 5
3.3 Resignation................................................................................... 5
3.4 Removal....................................................................................... 6
3.5 Nominations for Director...................................................................... 6
3.6 Vacancies..................................................................................... 6
3.7 Place of Meetings............................................................................. 6
3.8 Annual Meetings............................................................................... 6
3.9 Regular Meetings.............................................................................. 6
3.10 Special Meetings.............................................................................. 6
3.11 Quorum........................................................................................ 6
3.12 Voting........................................................................................ 7
3.13 Telephonic Participation...................................................................... 7
3.14 Action by Written Consent..................................................................... 7
3.15 Committees.................................................................................... 7
3.16 Compensation.................................................................................. 8
</TABLE>

<PAGE> 3

<TABLE>

<S> <C> <C>
ARTICLE 4 - OFFICERS ..................................................................................... 8
4.1 Officers and Agents........................................................................... 8
4.2 Compensation.................................................................................. 8
4.3 Term.......................................................................................... 9
4.4 Removal....................................................................................... 9
4.5 Resignation................................................................................... 9
4.6 Vacancies..................................................................................... 9
4.7 Chairperson of the Board...................................................................... 9
4.8 Chief Executive Officer....................................................................... 9
4.9 President..................................................................................... 9
4.10 Executive Vice Presidents and Vice Presidents................................................. 9
4.11 Secretary..................................................................................... 9
4.12 Treasurer.................................................................................... 10
4.13 Assistant Vice Presidents, Secretaries and Treasurers........................................ 10
4.14 Execution of Contracts and Instruments....................................................... 10
4.15 Voting of Shares and Securities of Other Corporations and Entities.......................... 10

ARTICLE 5 - NOTICES AND WAIVERS OF NOTICE ............................................................... 11
5.1 Delivery of Notices.......................................................................... 11
5.2 Waiver of Notice..............................................................................11

ARTICLE 6 - SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD................................................ 12
6.1 Certificates for Shares...................................................................... 12
6.2 Lost or Destroyed Certificates............................................................... 12
6.3 Transfer of Shares ........................................................................ 12
6.4 Record Date.................................................................................. 12
6.5 Registered Shareholders...................................................................... 13

ARTICLE 7 - INDEMNIFICATION.............................................................................. 13

ARTICLE 8 - GENERAL PROVISIONS.......................................................................... 14
8.1 Checks and Funds............................................................................ 14
8.2 Fiscal Year................................................................................. 14
8.3 Corporate Seal.............................................................................. 14
8.4 Books and Records........................................................................... 14
8.5 Financial Statements........................................................................ 14

ARTICLE 9 - AMENDMENTS.................................................................................. 14

ARTICLE 10 -- CONTROL SHARE ACQUISITIONS................................................................ 14

ARTICLE 11 - SCOPE OF BYLAWS............................................................................ 15
</TABLE>

<PAGE> 4

SATURN ELECTRONICS & ENGINEERING, INC.,
a Michigan corporation

ARTICLE I - OFFICES

1.1 Registered Office. The registered office of the Corporation shall be
located at such place in Michigan as the Board of Directors from time to time
determines.

1.2 Other Offices. The Corporation may also have offices or branches at
such other places as the Board of Directors from time to time determines or the
business of the Corporation requires.

ARTICLE 2 - MEETINGS OF SHAREHOLDERS

2.1 Time and Place. All meetings of the shareholders shall be held at
such place and time as the Board of Directors determines.

2.2 Annual Meetings. An annual meeting of shareholders shall be held on
a date, not later than 180 days after the end of the immediately preceding
fiscal year, to be determined by the Board of Directors. At the annual meeting,
the shareholders shall elect directors and transact such other business as is
properly brought before the meeting and described in the notice of meeting. If
the annual meeting is not held on its designated date, the Board of Directors
shall cause it to be held as soon thereafter as convenient.

2.3 Special Meetings. Special meetings of the shareholders, for any
purpose, (a) may be called by the Corporation's chief executive officer or the
Board of Directors, and (b) shall be called by the President or Secretary upon
written request (stating the purpose for which the meeting is to be called) of
the holders of a majority of all the shares entitled to vote at the meeting.

2.4 Notice of Meetings. Written notice of each shareholders' meeting,
stating the place, date and time of the meeting and the purposes for which the
meeting is called, shall be (in the manner described in Section 5.1 below) not
less than 10 nor more than 60 days given 1 before the date of the meeting to
each shareholder of record entitled to vote at the meeting. Notice of adjourned
meetings is governed by Section 2.6 below.

2.5 List of Shareholders. The officer or agent who has charge of the
stock transfer books for shares of the Corporation shall make and certify a
complete list of the shareholders entitled to vote at a shareholders' meeting or
any adjournment of the meeting. The list shall be arranged alphabetically within
each class and series and shall show the address of and the number of shares
held by, each shareholder. The list shall be produced at the time and place of
the meeting and may be inspected by any shareholder at any time during the
meeting.

<PAGE> 5

2.6 Quorum; Adjournment. At all shareholders' meetings, the shareholders
present in person or represented by proxy who, as of the record date for the
meeting, were holders of shares entitled to cast a majority of the votes at the
meeting, shall constitute a quorum. Once a quorum is present at a meeting, all
shareholders present in person or represented by proxy at the meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Regardless of whether a quorum
is present, a shareholders' meeting may be adjourned to another time and place
by a vote of the shares present in person or by proxy without notice other than
announcement at the meeting; provided, that (a) only such business may be
transacted at the adjourned meeting as might have been transacted at the
original meeting and (b) if the adjournment is for more than 60 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting must be given to each shareholder of record entitled to
vote at the meeting.

2.7 Voting. Each shareholder shall at every meeting of the shareholders
be entitled to one vote in person or by proxy for each share having voting power
held by such shareholder and on each matter submitted to a vote. A vote may be
cast either orally or in writing. When an action, other than the election of
directors, is to be taken by vote of the shareholders, it shall be authorized by
a majority of the votes cast by the holders of shares entitled to vote on such
action. Directors shall be elected by a plurality of the votes cast at any
election.

2.8 Proxies. A shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting may authorize other persons
to act for him or her by proxy. Each proxy shall be in writing and signed by the
shareholder or the shareholder's authorized agent or representative. A proxy is
not valid after the expiration of three years after its date unless otherwise
provided in the proxy.

2.9 Questions Concerning Elections. The Board of Directors may, in
advance of the meeting, or the presiding officer may, at the meeting, appoint
one or more inspectors to act at a shareholders' meeting or any adjournment
thereof. If appointed, the inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the validity and effect of proxies. The inspectors
shall also receive votes, ballots or consents, hear and determine challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote.

2.10 Telephonic Attendance. Shareholders may participate in any
shareholders' meeting by means of conference telephone or similar communications
equipment through which all persons participating in the meeting may communicate
with the other participants. All participants shall be advised of the
communications equipment and the names of the participants in the conference
shall be divulged to all participants. Participation in a meeting pursuant to
this Section 2.10 constitutes presence in person at such meeting.

2.11 Action by Written Consent. To the extent permitted by the Articles
of Incorporation of the Corporation, any action required or permitted to be
taken at any

<PAGE> 6

shareholders' meeting may be taken without a meeting, prior notice and a vote,
by written consent of the shareholders.

2.12 Advance Notice Provisions.

(a) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors (or the Nominating Committee in
the case of election of Directors), or (iii) by any shareholder of the
Corporation who was a shareholder of record both at the time of giving
of notice provided for in this Section and at the time of the annual
meeting, who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section.

(b) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause
(iii) of paragraph (a) of this Section, the shareholder must have
given timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper matter
for action by shareholders. To be timely, a shareholder's notice shall
be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 60th day
nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from
such anniversary date or if the Corporation has not previously held an
annual meeting, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior
to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of a postponement or adjournment of an annual meeting to
a later date or time commence a new time period for the giving of a
shareholder's notice as described above. Such shareholder's notice
shall set forth (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a Corporation all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including
such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected); (ii) as to any
other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder
and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal
is made, (x) the name and address of such shareholder, as they appear
on the Corporation's books and of such beneficial owner and (y) the
number of each class of shares of the Corporation which are owned
beneficially and of record by such shareholder and such beneficial
owner.

<PAGE> 7

(c) Notwithstanding anything in the second sentence of
paragraph (b) of this Section to the contrary, in the event that the
number of directors to be elected to the Board of Directors is
increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the
increased Board of Directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public
announcement is first made by the Corporation.

(d) Only such business shall be conducted at a special
meeting of shareholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a
special meeting of shareholders at which directors are to be elected
(i) pursuant to the Corporation's notice of meeting (ii) by or at the
direction of the Nominating Committee of the Board of Directors or
(iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any shareholder
of the Corporation who was a shareholder of record both at the time of
giving of notice provided for in this Section and at the time of the
special meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section. In the
event the Corporation calls a special meeting of shareholders for the
purpose of electing one or more directors to the Board of Directors,
any such shareholder may nominate a person or persons (as the case may
be) for election to such position as specified in the Corporation's
notice of meeting, if the shareholder's notice containing the
information required by paragraph (b) of this Section shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day
prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the
tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the
directors to be elected at such meeting. In no event shall the public
announcement of a postponement or adjournment of a special meeting to
a later date or time commence a new time period for the giving of a
shareholder's notice as described above.

(e) Only such persons who are nominated in accordance with
the procedures set forth in this Section shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section. The
presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set
forth in this Section and, if any proposed nomination or business is
not in compliance with this Section, to declare that such defective
nomination or proposal be disregarded.

<PAGE> 8

(f) For purposes of this Section, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13. 14 or 15(d) of the
Exchange Act.

(g) Notwithstanding the foregoing provisions of this
Section, a shareholder shall also comply with all applicable
requirements of state law and of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this
Section. Nothing in this Section shall be deemed to affect any rights
of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.

ARTICLE 3 - DIRECTORS

3.1 Number and Residence. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors
consisting of not less than three nor more than fifteen directors, the exact
number of directors to be determined from time to time solely by a resolution
adopted by an affirmative vote of a majority of the directors then in office.
Directors need not be Michigan residents or shareholders of the Corporation.

3.2 Classification, Election and Term The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. At the 2000
Annual Meeting of Shareholders. Class I directors shall be elected for a
one-year term, Class II directors for a two-year term and Class III directors
for a three-year term. At each succeeding Annual Meeting of Shareholders,
commencing in 2001, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. Except as provided
in Section 3.6 below, directors shall be elected at the annual shareholders'
meeting. Each director elected shall hold office until the meeting for the year
in which his or her term expires and until his or her successor is elected and
qualified, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.

If the number of directors is changed, any increase or decrease shall
be apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
When the number of directors is increased by the Board of Directors and any
newly-created directorships are filled by the Board, the additional directors
shall be classified as provided by the Board.

3.3 Resignation. A director may resign by written notice to the
Corporation. A director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.

<PAGE> 9
3.4 Removal. A director or the entire Board of Directors may be removed,
only for cause, by vote of the holders of a majority of the shares entitled to
vote at an election of directors.

3.5 Nominations for Director. Except as provided in Section 3.6, only
persons who are nominated in accordance with the procedures set forth in Section
2.12 shall be eligible for election as directors.

3.6 Vacancies. Newly-created directorships resulting from an increase in
the number of directors and any vacancy on the Board of Directors may be filled
only by the Board by an affirmative vote of a majority of the directors then in
office. If the number of directors then in office is less than a quorum, such
newly-created directorships and vacancies may be filled by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director. A director elected by the Board of Directors to fill a vacancy shall
hold office until the next election of the class for which the director shall
have been chosen and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.

3.7 Place of Meetings. The Board of Directors may hold meetings at any
location. The location of annual and regular Board of Directors' meetings shall
be determined by the Board and the location of special meetings shall be
determined by the person calling the meeting.

3.8 Annual Meetings. Each Board of Directors, including the newly elected
directors, may meet promptly after the annual shareholders' meeting for the
purposes of electing officers and transacting such other business as may
properly come before the meeting. No notice of the annual directors' meeting
shall be necessary to the newly elected directors in order to legally constitute
the meeting, provided a quorum is present.

3.9 Regular Meetings. Regular meetings of the Board of Directors or Board
committees may be held without notice at such places and times as the Board or
committee determines at least 30 days before the date of the meeting.

3.10 Special Meetings Special meetings of the Board of Directors may be
called by the chief executive officer, and shall be called by the President or
Secretary upon the written request of two directors, on two days notice to each
director or committee member by mail or 24 hours notice by any other means
provided in Section 5.1. The notice must specify the place, date and time of
the special meeting, but need not specify the business to be transacted at, nor
the purpose of, the meeting. Special meetings of Board committees may be called
by the Chairperson of the committee or a majority of committee members pursuant
to this Section 3.10.

3.11 Quorum. At all meetings of the Board or a Board committee, a majority
of the directors then in office, or of members of such committee, constitutes a
quorum for transaction of business, unless a higher number is otherwise required
by the Articles of Incorporation, these Bylaws or the Board resolution
establishing such Board committee. If a quorum is not present at any Board or
Board committee meeting, a majority of the directors present at the meeting may
adjourn the meeting to another time and place without notice other than
announcement at the

<PAGE> 10

meeting. Any business may be transacted at the adjourned meeting which might
have been transacted at the original meeting, provided a quorum is present.

3.12 Voting. The vote of a majority of the members present at any Board or
Board committee meeting at which a quorum is present constitutes the action of
the Board of Directors or of the Board committee, unless a higher vote is
otherwise required by the Michigan Business Corporation Act, the Articles of
Incorporation, these Bylaws, or the Board resolution establishing the Board
committee.

3.13 Telephonic Participation. Members of the Board of Directors or any
Board committee may participate in a Board or Board committee meeting by means
of conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.13 constitutes presence
in person at such meeting.

3.14 Action by Written Consent. Any action required or permitted to be
taken under authorization voted at a Board or Board committee meeting may be
taken without a meeting if, before or after the action, all members of the Board
then in office or of the Board committee consent to the action in writing. Such
consents shall be filed with the minutes of the proceedings of the Board or
committee and shall have the same effect as a vote of the Board or committee for
all purposes.

3.15 Committees. There shall be a committee of the Board of Directors to be
known as the Nominating Committee. The Nominating Committee shall consist of one
member who shall be the Chairperson of the Board of Directors. The principal
function of the Nominating Committee shall be to recommend to the shareholders
nominees for election to the Board of Directors. The Nominating Committee shall
also have such other responsibilities, powers and authority as specified by the
Board of Directors by resolution. The Board of Directors may, by resolution
passed by a majority of the directors then in office, designate one or more
additional committees, each consisting of one or more directors. The Board may
designate one or more directors as alternate members of a committee, who may
replace an absent or disqualified member at a committee meeting. In the absence
or disqualification of a member of a committee, the committee members present
and not disqualified from voting, regardless of whether they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of such absent or disqualified member. Any committee, to
the extent provided in the resolution of the Board, may exercise all powers and
authority of the Board of Directors in management of the business and affairs of
the Corporation, except a committee does not have power or authority to:

(a) Amend the Articles of Incorporation.

(b) Adopt an agreement of merger or share exchange.

(c) Recommend to shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets.

<PAGE> 11

(d) Recommend to shareholders a dissolution of the Corporation or a
revocation of a dissolution.

(e) Amend the Bylaws of the Corporation.

(f) Fill vacancies in the Board.

(g) Unless the resolution designating the committee or a later Board
of Directors' resolution expressly so provides, declare a distribution or
dividend or authorize the issuance of shares.

Each committee and its members shall serve at the pleasure of the Board, which
may at any time change the members and powers of, or discharge, the committee.
Each committee shall keep regular minutes of its meetings and report them to the
Board of Directors when required.

3.16 Compensation. The Board, by affirmative vote of a majority of
directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of directors for services to the
Corporation as directors, officers or members of a Board committee. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation for such service.

ARTICLE 4 - OFFICERS

4.1 Officers and Agents. The Chairperson of the Board shall nominate for
consideration of the Board of Directors a Chairperson of the Board, a President,
a Secretary and a Treasurer, and may also nominate as officers a Vice
Chairperson of the Board and one or more Executive Vice Presidents, Vice
Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers. The Board of Directors, at its first meeting after each annual
meeting of shareholders, shall elect a Chairperson of the Board, a President, a
Secretary and a Treasurer, and may also elect and designate as officers a Vice
Chairperson of the Board and one or more Executive Vice Presidents, Vice
Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers. The Board of Directors may also from time to time appoint, or
delegate authority to the Corporation's chief executive officer to appoint, such
other officers and agents as it deems advisable. The Chairperson of the Board
and Vice Chairperson of the Board, if such offices are filled, may be officers
of the Corporation or may be Directors who are not officers of the Corporation,
as designated by the Board of Directors. In the absence of such designation, the
Chairperson of the Board and Vice Chairperson of the board, if such offices are
filled, shall be Directors who are not officers of the Corporation. Any number
of offices may be held by the same person, but an officer shall not execute,
acknowledge or verify an instrument in more than one capacity if the instrument
is required by law to be executed, acknowledged or verified by two or more
officers. An officer has such authority and shall perform such duties in the
management of the Corporation as provided in these Bylaws, or as may be
determined by resolution of the Board of Directors not inconsistent with these
Bylaws, and as generally pertain to their offices, subject to the control of the
Board of Directors.

<PAGE> 12

4.2 Compensation. The compensation of all officers of the Corporation shall
be fixed by, or pursuant to procedures established by, the Board of Directors.

4.3 Term. Each officer of the Corporation shall hold office for the term
for which he or she is elected or appointed and until his or her successor is
elected or appointed and qualified, or until his or her death, resignation or
removal. The election or appointment of an officer does not, by itself, create
contract rights.

4.4 Removal. An officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause. The removal of an
officer shall be without prejudice to his or her contract rights, if any.

4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation or
at a subsequent time specified in the notice of resignation.

4.6 Vacancies. Any vacancy occurring in any office of the Corporation shall
be filled by the Board of Directors.

4.7 Chairperson of the Board. The Chairperson of the Board, if such office
is filled, shall be a director and shall preside at all shareholders' and Board
of Directors' meetings.

4.8 Chief Executive Officer. The Chairperson of the Board, if any, or the
President, as designated by the Board, shall be the chief executive officer of
the Corporation and shall have the general powers of supervision and management
of the business and affairs of the Corporation usually vested in the chief
executive officer of a corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. If no designation of chief
executive officer is made, or if there is no Chairperson of the Board, the
President shall be the chief executive officer. The chief executive officer may
delegate to the other officers such of his or her authority and duties at such
time and in such manner as he or she deems advisable.

4.9 President. If the office of Chairperson of the Board is not filled, the
President shall perform the duties and execute the authority of the Chairperson
of the Board. If the Chairperson of the Board is designated by the Board as the
Corporation's chief executive officer, the President shall be the chief
operating officer of the Corporation, shall assist the Chairperson of the Board
in the supervision and management of the business and affairs of the Corporation
and, in the absence of the Chairperson of the Board, shall preside at all
shareholders' and Board of Directors' meetings. The President may delegate to
the officers other than the Chairperson of the Board, if any, such of his or her
authority and duties at such time and in such manner as he or she deems
appropriate.

4.10 Executive Vice Presidents and Vice Presidents. The Executive Vice
Presidents and Vice Presidents shall assist and act under the direction of the
Corporation's chief executive officer, unless otherwise determined by the Board
of Directors or the chief executive officer. The Board of Directors may
designate one or more Executive Vice Presidents and may grant

<PAGE> 13

other Vice Presidents titles which describe their functions or specify their
order of seniority. In the absence or disability of the President, the authority
of the President shall descend to the Executive Vice Presidents or, if there are
none, to the Vice Presidents in the order of seniority indicated by their titles
or otherwise specified by the Board. If not specified by their titles or the
Board, the authority of the President shall descend to the Executive Vice
Presidents or, if there are none, to the Vice Presidents, in the order of their
seniority in such office.

4.11 Secretary. The Secretary shall act under the direction of the
Corporation's chief executive officer and President. The Secretary shall attend
all shareholders' and Board of Directors' meetings, record minutes of the
proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the shareholders and Board of Directors in
the Corporation's minute books. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of shareholders' meetings and special Board of Directors' meetings are duly
given in accordance with applicable law, the Articles of Incorporation and these
Bylaws. The Secretary shall have custody of the Corporation's seal and, when
authorized by the Corporation's chief executive officer, President or the Board
of Directors, shall affix the seal to any instrument requiring it and attest
such instrument.

4.12 Treasurer. The Treasurer shall act under the direction of the
Corporation's chief executive officer and President. The Treasurer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of the Corporation's assets, liabilities, receipts and disbursements in
books belonging to the Corporation. The Treasurer shall deposit all moneys and
other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Corporation's
chief executive officer, the President or the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Corporation's chief
executive officer, the President and the Board of Directors (at its regular
meetings or whenever they request it) an account of all his or her transactions
as Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, the Treasurer shall give the Corporation a bond for the
faithful discharge of his or her duties in such amount and with such surety as
the Board prescribes.

4.13 Assistant Vice Presidents, Secretaries and Treasurers. The Assistant
Vice Presidents, Assistant Secretaries and Assistant Treasurers, if any, shall
act under the direction of the Corporation's chief executive officer, the
President and the officer they assist. In the order of their seniority, the
Assistant Secretaries shall, in the absence or disability of the Secretary,
perform the duties and exercise the authority of the Secretary. The Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the authority of the
Treasurer.

4.14 Execution of Contracts and Instruments. The Board of Directors may
designate an officer or agent with authority to execute any contract or other
instrument on the Corporation's behalf; the Board may also ratify or confirm any
such execution. If the Board authorizes, ratifies or confirms the execution of a
contract or instrument without specifying the authorized executing officer or
agent, the Corporation's chief executive officer, the President,

<PAGE> 14

any Executive Vice President or Vice President or the Treasurer may execute the
contract or instrument in the name and on behalf of the Corporation and may
affix the corporate seal to such document or instrument.

4.15 Voting of Shares and Securities of Other Corporations and Entities.
Unless the Board of Directors otherwise directs, the Corporation's chief
executive officer shall be entitled to vote or designate a proxy to vote all
shares and other securities which the Corporation owns in any other corporation
or entity.

ARTICLE 5 - NOTICES AND WAIVERS OF NOTICE

5.1 Delivery of Notices. All written notices to shareholders, directors and
Board committee members shall be given personally or by mail (registered,
certified or other first class mail, with postage pre-paid), addressed to such
person at the address designated by him or her for that purpose or, if none is
designated, at his or her last known address. Written notices to directors or
Board committee members may also be delivered at his or her office or by
overnight carrier, telegram, telex, telecopy, radiogram, cablegram, facsimile,
computer transmission or similar form of communication, addressed to the address
referred to in the preceding sentence. Notices given pursuant to this Section
5.1 shall be deemed to be given when dispatched, or, if mailed, when deposited
in a post office or official depository under the exclusive care and custody of
the United States postal service. Notices given by overnight carrier shall be
deemed "dispatched" at 10:00 a.m. on the day the overnight carrier is reasonably
requested to deliver the notice. The Corporation shall have no duty to change
the written address of any director, Board committee member or shareholder
unless the Secretary receives written notice of such address change.

5.2 Waiver of Notice. Action may be taken without a required notice and
without lapse of a prescribed period of time, if at any time before or after the
action is completed the person entitled to notice or to participate in the
action to be taken or, in the case of a shareholder, his or her
attorney-in-fact, submits a signed waiver of the requirements, or if such
requirements are waived in such other manner permitted by applicable law.
Neither the business to be transacted at, nor the purpose of, the meeting need
be specified in the written waiver of notice. Attendance at any shareholders'
meeting (in person or by proxy) will result in both of the following:

(a) Waiver of objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting.

(b) Waiver of objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter
when it is presented.

<PAGE> 15

A director's attendance at or participation in any Board or Board committee
meeting waives any required notice to him or her of the meeting unless he or
she, at the beginning of the meeting or upon his or her arrival, objects to the
meeting or the transacting of business at the meeting and does not thereafter
vote for or assent to any action taken at the meeting.

ARTICLE 6 - SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD

6.1 Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by the Chairperson of the Board,
Vice-chairperson of the Board, President or a Vice-president. The certificates
also may be signed by another officer of the Corporation. The officers'
signatures may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation or its employee.
If any officer who has signed or whose facsimile signature has been placed upon
a certificate ceases to be such officer before the certificate is issued, it may
be issued by the Corporation with the same effect as if the person were such
officer at the date of issue.

6.2 Lost or Destroyed Certificates. The President or Secretary may direct
or authorize an officer to direct that a new certificate for shares be issued in
place of any certificate alleged to have been lost or destroyed. When
authorizing such issue of a new certificate, the officer may, in his or her
discretion and as a condition precedent to the issuance thereof, require the
owner (or the owner's legal representative) of such lost or destroyed
certificate to give the Corporation an affidavit claiming that the certificate
is lost or destroyed or a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to such old or
new certificate.

6.3 Transfer of Shares. Shares of the Corporation are transferable only on
the Corporation's stock transfer books upon surrender to the Corporation or its
transfer agent of a certificate for the shares, duly endorsed for transfer, and
the presentation of such evidence of ownership and validity of the transfer as
the Corporation requires.

6.4 Record Date. The Board of Directors may fix, in advance, a date as the
record date for determining shareholders for any purpose, including determining
shareholders entitled to (a) notice of, and to vote at, any shareholders'
meeting or any adjournment of such meeting; (b) express consent to, or dissent
from, a proposal without a meeting; or (c) receive payment of a share dividend
or distribution or allotment of a right. The record date shall not be more than
60 nor less than 10 days before the date of the meeting, nor more than 10 days
after the Board resolution fixing a record date for determining shareholders
entitled to express consent to, or dissent from, a proposal without a meeting,
nor more than 60 days before any other action.

If a record date is not fixed:

(a) the record date for determining the shareholders entitled to
notice of, or to vote at, a shareholders' meeting shall be the close of
business on the day next preceding the day on which notice of the meeting
is given, or, if no notice is

<PAGE> 16

given, the close of business on the day next preceding the day on which the
meeting is held; and

(b) if prior action by the Board of Directors is not required with
respect to the corporate action to be taken without a meeting, the record
date for determining shareholders entitled to express consent to, or
dissent from, a proposal without a meeting, shall be the first date on
which a signed written consent is properly delivered to the Corporation;
and

(c) the record date for determining shareholders for any other
purpose shall be the close of business on the day on which the resolution
of the Board of Directors relating to the action is adopted.

A determination of shareholders of record entitled to notice of, or to vote
at, a shareholders' meeting shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date for the adjourned meeting.

Only shareholders of record on the record date shall be entitled to notice
of, or to participate in, the action to which the record date relates,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a shareholder and
the shareholder's transferor or transferee as between themselves.

6.5 Registered Shareholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of a share
for all purposes, including notices, voting, consents, dividends and
distributions, and shall not be bound to recognize any other person's equitable
or other claim to interest in such share, regardless of whether it has actual or
constructive notice of such claim or interest.

ARTICLE 7 - INDEMNIFICATION

The Corporation shall, to the fullest extent authorized or permitted by the
Michigan Business Corporation Act, (a) indemnify any person, and his or her
heirs, personal representatives, executors, administrators and legal
representatives, who was, is, or is threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, member or
agent of another corporation, partnership, limited liability company, joint
venture, trust or other enterprise (collectively, "Covered Matters"); and (b)
pay or reimburse the reasonable expenses incurred by such person and his or her
heirs, executors, administrators and legal representatives in connection with
any Covered Matter in advance of final disposition of such Covered Matter. The
Corporation may provide such other indemnification to directors, officers,
employees and agents by insurance, contract or otherwise as is permitted by law
and authorized by the Board of Directors.

<PAGE> 17

ARTICLE 8 - GENERAL PROVISIONS

8.1 Checks and Funds. All checks, drafts or demands for money and notes of
the Corporation must be signed by such officer or officers or such other person
or persons as the President or Treasurer from time to time designates. All funds
of the Corporation not otherwise employed shall be deposited or used as the
President or Treasurer from time to time designates.

8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
as the Board of Directors from time to time determines.

8.3 Corporate Seal. The Board of Directors may adopt a corporate seal for
the Corporation. The corporate seal, if adopted, shall be circular and contain
the name of the Corporation and the words "Corporate Seal Michigan". The seal
may be used by causing it or a facsimile of it to be impressed, affixed,
reproduced or otherwise.

8.4 Books and Records. The Corporation shall keep within or outside of
Michigan books and records of account and minutes of the proceedings of its
shareholders, Board of Directors and Board committees, if any. The Corporation
shall keep at its registered office or at the office of its transfer agent
within or outside of Michigan records containing the names and addresses of all
shareholders, the number, class and series of shares held by each and the dates
when they respectively became recordholders of shares. Any of such books,
records or minutes may be in written form or in any other form capable of being
converted into written form within a reasonable time.

8.5 Financial Statements. The Corporation shall cause to be made and
distributed to its shareholders, within four months after the end of each fiscal
year, a financial report (including a statement of income, year-end balance
sheet, and, if prepared by the Corporation, its statement of sources and
application of funds) covering the preceding fiscal year of the Corporation.

ARTICLE 9 - AMENDMENTS

These Bylaws may be amended or repealed, or new Bylaws may be adopted, by
action of either the shareholders or a majority of the Board of Directors then
in office. The Articles of Incorporation or these Bylaws may from time to time
specify particular provisions of the Bylaws which may not be altered or repealed
by the Board of Directors.

ARTICLE 10 -- CONTROL SHARE ACQUISITIONS

Pursuant to Section 794 of the Michigan Business Corporation Act, Chapter
7B of the Michigan Business Corporation Act (being Sections 790 through 799 of
the Michigan Business Corporation Act or any successor provisions) does not
apply to control share acquisitions of shares of the Corporation.

<PAGE> 18

ARTICLE 11 - SCOPE OF BYLAWS

These Bylaws govern the regulation and management of the affairs of the
Corporation to the extent that they are consistent with applicable law and the
Articles of Incorporation; to the extent they are not consistent, applicable
law and the Articles of Incorporation shall govern.

<PAGE> 1
EXHIBIT 10.1

TANON MANUFACTURING, INC.
AMENDED AND RESTATED
AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT (the "Agreement"), dated as of the 2nd day of December,
1998, is made by and between Tanon Manufacturing, Inc., a California
corporation (the "Company"), and Smartflex Systems, Inc., a Delaware
corporation or a nominee who shall be a wholly-owned subsidiary of Smartflex
Systems, Inc. (the "Purchaser").

WITNESSETH:
----------

WHEREAS, the Company is engaged, among other things, in the business of
providing contract manufacturing electronic assembly services, including the
quick-turn, prototype and volume assembly and testing of a wide range of
products at a facility in West Long Branch, New Jersey and at a facility in
Fremont, California (such activities being hereinafter referred to as the
"Business"). The term Business as used in this Purchase Agreement includes all
revenues from the business of providing contract manufacturing electronic
assembly services, including quick turn prototype and volume assembly from [1]
any customer of the Company on or before the Closing Date, provided at any
location in the continental United States and, [2] from any other customer
provided at any location in the continental United States excluding the facility
located in the Meutheun Mass.

WHEREAS, on December 3, 1998, the Company intends to file a voluntary
petition (the "Bankruptcy Case") under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the Northern District of California (the "Bankruptcy Court"); and

WHEREAS, effective on the date of the Closing (as hereinafter defined) and
subject to and conditioned upon the Bankruptcy Court's approval, the Purchaser
desires to acquire from the Company certain assets of the Company as described
in Section 1(c) hereof (the "Assets"), and the Company desires to sell or
assign the Assets, on the terms and subject to the conditions hereinafter set
forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and intending to be legally bound, the
parties hereto hereby agree as follows:

SECTION I
PURCHASE AND SALE OF THE ASSETS

(a) Purchase and Sale of the Assets. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained:

(i) The Company hereby sells, assigns and conveys to the Purchaser,
and the Purchaser hereby purchases, acquires and accepts from the Company, the
Assets, free and clear of any liens, charges, security interests, encumbrances
or liabilities, including successor liabilities pursuant to Section 363 of the
Bankruptcy Code (collectively, "Liens or Encumbrances"). The Assets shall
include the business, all other assets used in connection with the Business,
the Assigned Contracts (as defined in Section 1(a)(iv)), equipment (other than
the Designated Equipment, which shall be subject to the provisions of Section
1(a)(iii) below), the inventory (which shall be purchased pursuant to the terms
of Section 1(a)(v) below and which shall not include the Raw Inventory (as
<PAGE> 2
defined in Section 1(e) below)), financial books and records, of every kind and
nature, real, personal, and mixed, tangible and intangible, wherever located,
of the Company used in or in any way related to the Business and as further
described on Schedule 1(a)(i) to be delivered to the Purchaser and attached
hereto within twenty one (21) days from the date hereof, except for the assets
also included on Schedule 1(a)(i) to be delivered to the Purchaser and attached
hereto within ten (10) days from the date hereof (the "Excluded Assets"), which
Excluded Assets shall include, without limitation, all accounts receivable
(other than Purchaser Receivables (as defined in Section XI(j) below)), Raw
Inventory and the Leases (as defined in Section I(g) below) and all other
contract rights relating to the Business, other than the Assigned Contracts.

(ii) Except to the extent expressly set forth in this Agreement, in
the order or orders of the Bankruptcy Court, or in any document, instrument or
agreement executed or entered into pursuant hereto or contemporaneously
herewith, the Purchaser shall not assume and shall have no responsibility with
respect to, any and all liabilities or obligations of the Company, known or
unknown, absolute or contingent, accrued or unaccrued, whether due or to become
due (collectively, "Liabilities").

(iii) Set forth in Schedule I(a)(iii) to be delivered to the Purchaser
and attached hereto within ten (10) days from the date hereof is a list of all
equipment designated as "Designated Equipment." As soon as possible after the
execution of this Agreement, the Company shall file in the Bankruptcy Court its
motion for an order approving the terms and conditions of this Agreement (the
"Motion"). The date for which a hearing is set on the Motion is hereinafter
referred to as the "Motion Date." On a date which is not less than ten (10)
days prior to the Motion Date, the Purchaser shall notify the Company of any
Designated Equipment that it desires to purchase and the purchase price that
the Purchaser is willing to pay for such Designated Equipment. On a date which
is seven (7) days prior to the Motion Date, the Company shall notify the
Purchaser if it accepts the offer for the Designated Equipment, and upon such
acceptance, the Company shall give notice to the Bankruptcy Court by filing a
notice in the Bankruptcy Case setting forth the Designated Equipment to be
purchased and the proposed purchase price therefor. The purchase price for the
Designated Equipment (the "Designated Equipment Price") shall be paid at the
same time and in the same manner as the Initial Purchase Price. The purchase
price for the Designated Equipment is $1,250,000.

(iv) On a date which is not less than thirty (30) days prior to the
Motion Date (as defined above), the Purchaser shall notify the Company of any
contract rights relating to the Business that the Purchaser will want assigned
to it at the Closing. Any such contract rights shall be referred to herein as
the "Assigned Contracts." Upon receipt of such notice, the Company shall make a
timely motion to assume and assign the Assigned Contracts to the Purchaser on
the Motion Date.

(v) At the Closing, the Company shall purchase all Work-in-Process
Inventory (as defined below) used in connection with the Business at a purchase
price (the "Inventory Purchase Price") which shall be equal to one hundred
percent (100%) of the labor and material costs ("Labor and Material Costs")
allocable to the Work-in-Process Inventory, as reflected in the Company's books
and records and as calculated in accordance with generally accepted accounting
principles ("GAPP"). The Company and the Purchaser shall agree on what
constitutes the Work-in-Process Inventory to be purchased at the Closing and
what constitutes the Raw Inventory (which shall be subject to the provisions of
Section I(e) below, as well as the aggregate Inventory Purchase Price.

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<PAGE> 3
not less than seven (7) days prior to the Motion Date. For purposes hereof, the
term "Work-in-Process Inventory" shall mean all inventory used in the Business
which is to be sold to an identified customer of the Company following the
Closing, pursuant to an existing order which is binding on such customer as of
the Closing Date. The Inventory Purchase Price shall be paid at the same time
and in the same manner as the Initial Purchase Price.

(b) Initial Purchase Price. The purchase price (the "Initial Purchase
Price") for the Assets is Three Million Dollars ($7,650,000), plus the
Inventory Purchase Price and the Designated Equipment Price (if any). At the
Closing, Purchaser shall pay to the Company an amount (the "Closing Date
Payment"), equal to the Initial Purchase Price plus the Inventory Purchase Price
and the Designated Equipment Price (if any), less the Holdback Amount (as
defined in Section I(d)) and less the amount of any Loan Amount (as defined in
Section I(h) below). The Closing Date Payment shall be made by wire transfer of
immediately available funds to an account designated by the Company. At the
Closing, the Purchaser shall assign to the Company any note or participation
interest relating to any Loan Amount for which credit is so received.

(i) In addition to the amount to be paid to the Company pursuant to
Section I(b) hereof, the Purchaser shall pay the Company, or its successor in
interest, as the case may be, on and subject to the terms of this Agreement,
additional consideration (the "Additional Purchase Price") not exceeding Three
Million Dollars ($3,000,000), subject to reduction pursuant to the provisions
of Section I(c)(iv) below, at the noncumulative higher of one of the following
amounts, only if the indicated revenue level is achieved:

(A) Two million Five hundred thousand dollars, if the gross
revenues attributable to the Business are less than $90 million during
fiscal year 1999; or

(B) Three Million Dollars ($3,000,000), if the gross revenues
attributable to the Business equal or exceed $90,000,000 during fiscal year
1999.

"Fiscal Year" as used herein shall mean the year commencing April 1
1999 and ending March 30 2000.

(ii) The calculation of gross revenues for the Business during
calendar year 1999 shall be made net of returns and allowances. The
determination of the amount, if any, to be paid in the form of Additional
Purchase Price shall be made by the Purchaser together with its auditors
regularly employed to audit the books of account and financial statements of
Purchaser, and shall be made in accordance with GAAP. All determinations of
Purchaser made pursuant to this Section I(c)(ii) shall be deemed binding and
conclusive.

(iii) The Additional Purchase Price shall be paid on or before the
expiration of thirty (30) days following the date upon which the final and
binding determinations are made or arrived at pursuant to Section I(c)(ii)
above by delivery of a bank cashier's check or wire transfer of funds to the
Company.

(iv) On Closing, Purchaser shall execute an interest free negotiable
promissory note in the amount of $2,500,000 to confirm this minimum payment set
forth herein.

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<PAGE> 4
(e) Raw Inventory. At the Closing, the Company shall consign its rights to
the Raw Inventory (as defined below) of the Business to the Purchaser for a
period of at least ninety (90) days from the Closing Date. During such period,
such Raw Inventory shall remain on the Company's premises and the Purchaser
shall be entitled, but without obligation, and from time to time, to draw down
on the Raw Inventory for sale and use in connection with the Business as and
where conducted by Purchaser. During such ninety (90) day period, the purchase
price to be paid by the Purchaser for such Raw Inventory shall be sixty percent
(60%) of the lower of the Company's cost or the market price of such Raw
Inventory. On or prior to the expiration of such ninety (90) day period, the
Purchaser shall be entitled to purchase all or part of the remaining Raw
Inventory in bulk for a price and upon terms to be negotiated by the parties at
such time. Payments by Purchaser shall be within thirty (30) days of the draw
down of any such Raw Inventory. Following the expiration of such ninety (90) day
period, the Purchaser shall be entitled to purchase all or part of the remaining
Raw Inventory at a price and upon terms to be negotiated by the parties at such
time; provided that, if the parties are unable to negotiate a mutually
acceptable price at which such remaining Raw Inventory may be purchased by the
Purchaser, then the Company may sell any Raw Inventory after the expiration of
such ninety (90) day period to any third party other than the Purchaser. For
purposes hereof, the term "Raw Inventory" shall mean all inventory used in the
Business which is not Work-in-Process Inventory (as defined in Section 1(a)(v)
above).

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<PAGE> 5
(f) Allocation. The Purchase Price for the Assets shall be allocated to
the Assets at their fair market values. The portion of the Purchase Price not
allocated to specific Assets shall be allocated to goodwill. The Purchase Price
shall be allocated as set forth in Schedule 1(f)(i) to be delivered to the
Purchaser and attached hereto within twenty one (21) days from the date hereof
and the Purchaser agrees to file Internal Revenue Service Form 8594 which shall
be prepared in accordance with the Internal Revenue Code of 1986, as amended
and all rules and regulations promulgated thereunder.

(g) Removal of Assets by Purchaser. The Company shall allow Purchaser up
to ninety (90) days from the Closing Date (as defined in Section VII hereof) in
which to transition the business and remove the Assets from the Company's
facilities located at 185 Monmouth Parkway, West, Long Branch, New Jersey 07764
and 46360 Fremont Boulevard, Fremont, California 94538 (the "Facilities").
Purchaser shall have full access and all rights of the Company to the
Facilities; provided, however, that the Purchaser hereby agrees that it shall
reimburse the Company for that portion of the rent and expenses paid by the
Company with respect to the Facilities, which are allocable to the portions of
the Facilities used exclusively by the Purchaser to store the Assets. This
Section I(g) does not constitute a lease or sublease, and nothing contained in
this Section I(g) or elsewhere in this Agreement shall be construed as
subjecting Purchaser to or obligating Purchaser under any of the terms and
conditions of the leases relating to the Facilities and Purchaser shall incur
no liability in connection with such leases.

(h) Loan Amount. The Purchaser may, but shall not be obligated to, loan
money to the Company directly, or indirectly by participating in any loans made
to the Company by IBJ Schroeder Bank & Trust Company. Any such amount loaned
by the Purchaser to the Company, either directly or indirectly, shall be
referred to herein as the "Loan Amount."

SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY

There are no Representations and Warranties of the Company.

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<PAGE> 6
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER

The Purchaser represents and warrants to the Company that the statements
contained in this Section III are correct and complete as of the date of this
Agreement:

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<PAGE> 7

(a) Organization. The Purchaser is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Delaware.

(b) Authorization of Transaction. The Purchaser has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes a valid and legal binding
obligation of the Purchaser, enforceable against it in accordance with its
terms. The Purchaser is not required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.

(c) Non-Contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Purchaser is subject or any
provision of its charter or by-laws, or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Purchaser is bound or to which any of its assets is
subject.

SECTION IV
BANKRUPTCY MATTERS

(a) Filing of Bankruptcy. The Company represents and warrants that the
Bankruptcy will be duly and promptly filed with the Bankruptcy Court, and that
the Company has not sold and hereby covenant to not sell or otherwise dispose
of the Assets in a manner that is inconsistent with the provisions of this
Agreement.

(b) Bankruptcy Proceedings. The Company hereby covenants to cooperate
fully with the Bankruptcy Court and with the Purchasers to expedite the
Bankruptcy Case and to obtain an order or orders from the Bankruptcy Court
consistent with the intentions of the parties stated in this Agreement.

(c) Order for Overbid Procedures. Within a reasonable time after entering
into this Agreement and in advance of the Motion Date, the Company shall seek
from the Bankruptcy Court an order (the "Overbid Procedures Order") providing
for the procedure for the parties to follow in the event that the Company
receives, in writing, any offer or proposal relating to the sale of the Assets
other than the transactions contemplated by this Agreement (a "Competing
Proposal"). The Company agrees that the Overbid Procedures Order shall provide,
among other things, the following:

(i) The Bankruptcy Court will not consider any Competing Proposal
unless the Competing Proposal (a) provides for a purchase price consideration
for the Assets of at least One Hundred Percent (100%) of the aggregate
consideration being paid by the Purchaser hereunder, plus the topping fee of
Four Hundred Fifty Thousand Dollars ($450,000) described in Section IV(c)(vii)
below and the $25,000 overbid amount described in Section IV(c)(vi) below,
(b) is set forth in a written agreement containing other terms and conditions
that are at least as favorable to the Company as those set forth in this
Agreement, (c) is made by a person financially qualified to consummate the
Competing Proposal on a timely basis and to operate the Business or the Assets
on a

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<PAGE> 8
financially viable basis, (d) is made by a person who has completed its due
diligence review of the Company's books and records, and is satisfied with the
results thereof, (e) is made by a person who is obligated to pay an initial
deposit in the amount of the greater of $450,000 or 10% of the aggregate
purchase price payable to the Company, and (f) the Competing Proposal is
delivered to the Company and filed with the Bankruptcy Court as least two (2)
court days prior to the Motion Date. A Competing Proposal that satisfies the
foregoing criteria shall be referred to as "Qualifying Competing Proposal."

(ii) At the hearing on the Motion Date, only the Purchaser and any
party who has submitted a Qualifying Competing Proposal shall be entitled to
bid.

(iii) At the hearing on the Motion Date, the Bankruptcy Court shall
decide which of the bids are the highest and best bid, and such bid shall be
deemed to be the "High Bid." The bidder whose bid is definitively deemed by the
Bankruptcy Court to be the High Bid must pay all amounts reflected in the High
Bid in cash at the Closing.

(iv) If the Purchaser's bid is not the High Bid, then the Purchaser
shall be entitled to match the High Bid and the Purchaser's matching bid shall
be deemed to be the High Bid.

(v) Thereafter, bidding will be conducted as ordered by the
Bankruptcy Court with the Purchaser always entitled to meet and match the other
bids, and if the Purchaser matches another higher bid, its bid will be declared
the successful High Bid.

(vi) Any counterbid in the bidding process will be at least $25,000
higher than the prior bid or counterbid. For purposes hereof, the topping fee
payable to the Purchaser pursuant to Section IV(c)(vii) shall be credited to
the Purchaser as part of its bid.

(vii) If the Company terminates this Agreement because the
Purchaser's bid is not the High Bid, regardless of whether or not the Company
consummates a transaction with the successful bidder, then the Purchaser shall
be delivered a topping fee equal to Four Hundred Fifty Thousand Dollars
($450,000), which fee shall be paid within five (5) days of the date of such
termination and shall be paid solely from the deposit paid by the successful
bidder as part of such successful bidder's Qualifying Competing Proposal,
without any administrative liability therefor to the estate.

SECTION V
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY AND THE PURCHASER

(a) Post Closing Cooperation. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
may request, all at the sole cost and expense of the requesting party (unless
the requesting party is entitled to indemnification therefor under Section
VIII), so long as such documents do not increase the liability or risk of
liability of the party of whom action is requested.

(b) Discharge of Obligations. Consistent with and subject to an order of
the Bankruptcy Court, the Company covenants and agrees to pay promptly and
otherwise to fulfill and discharge all

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<PAGE> 9
of the Liabilities of the Company arising from and after the filing of the
Bankruptcy Case, when due and payable and otherwise prior to the time at which
any of such Liabilities could in any way result in or give rise to a claim
against the Assets, the Business or the Purchaser, result in the imposition of
any lien, charge or encumbrance on any of the Assets, or adversely affect the
Purchaser's title to or use of any of the Assets.

(c) Access. The Company shall give to the Purchaser and its
representatives, from and after the date of execution of this Agreement, on
prior reasonable request therefor from the Purchaser or such representatives,
such access to the premises, employees, agents and consultants of the Company,
and such copies of the Financial Statements, books and records, and contracts
and leases and other documentation, so as to enable the Purchaser to inspect
and evaluate all aspects of the Business and operations, assets, operating
results, financial condition, capitalization, ownership, and legal affairs
thereof. This shall include the right of the Purchaser to have Phase I
environmental evaluations conducted on the any real property owned or leased by
the Company in connection with the Business, at the Purchaser's sole expense.
The Purchaser agrees to conduct its review, and to cause its representatives to
conduct their review, in a manner designed to minimize any disruption of the
operations of the Company.

(d) Conduct of Business. From the date of this Agreement and until the
Closing or termination of this Agreement, whichever first occurs, the Company
shall use commercially reasonable best efforts, consistent with prior practice
(a) to preserve intact the business organization and employees and other
business relationships relating to the Business, (b) to continue to operate in
the ordinary course of its business and to maintain its books, records and
accounts in accordance with GAAP and (c) to preserve and maintain the Assets,
ordinary wear and tear excepted.

(e) "No Shop". The Company agrees that during the period commencing on
the date hereof and ending on the Closing Date, or ending one hundred eighty
(180) days after the date hereof, whichever first occurs, the Company will not,
directly or indirectly (a) offer to sell any of the Business and/or the Assets
(other than sales of inventory in the ordinary course of the Business), in
whole or in part, (b) make or assist anyone else to make any proposal to
purchase any of the Business and/or the Assets (other than sales of inventory
in the ordinary course of the Business), (c) encourage, solicit or initiate
discussions or negotiations with any corporation, partnership, person, entity
or group, other than the Purchaser, concerning any merger, consolidation, sale
of assets, sale of securities or acquisition of beneficial ownership with
respect to the Business, or (d) otherwise initiate any action (unless in
response to an unsolicited offer) which would prejudice the ability of the
Purchaser to complete the transactions described in this Agreement; provided,
however, that notwithstanding the foregoing, nothing set forth in this Section
V(e) shall prohibit or limit in any way, the Company's ability to notify
(including by means of advertisement) any corporation, partnership, person,
entity or group of (1) the contents of the Overbid Procedure Order, (2) their
ability to submit a Qualifying Competing Proposal, (3) the procedures to be
followed when submitting a Qualifying Competing Proposal and (4) information
relating to the Motion Date, including the time and location thereof.

(f) Purchaser's Covenants Relating to Additional Purchase Price. During
the period for which the Additional Purchase Price is to be determined pursuant
to Section I(f), the Purchaser shall (a) maintain books and records and
accounting system reflecting the status of the Business for the purpose of
determining gross revenue of the Business and making all other determination
necessary

-9-
<PAGE> 10

for determination of the amount of the Additional Purchase Price, if any; (b)
manage and operate the Business generally in accordance with the business
principles and practices employed in the management and operation of
Purchaser's own business, with a view to the achievement of reasonable growth
objectives in both sales and earnings; provided, however, that the Purchaser
shall only be obligated to operate the Business in a manner which is consistent
with its corporate policy considered on a consolidated basis, and in a manner
consistent with Purchaser's consolidated strategy, policies, practices and
resources.

(g) Notice Regarding Failure to Fulfill Condition Precedent. On the date
which is fourteen (14) days prior to the Motion Date, the Purchaser shall
deliver a notice to the Company setting forth either (i) that the Purchaser
currently has no actual knowledge of any condition precedent to the obligations
of the Purchaser to consummate the purchase of the Assets which has not been
fulfilled as of such date other than such conditions which are not to be
fulfilled until after such date or (ii) the conditions precedent to the
obligations of the Purchaser to consummate the purchase of the Assets which were
required to be fulfilled, but which have not been fulfilled, as of such date.
The delivery of such notice by the Purchaser shall in no way limit or otherwise
affect the Purchaser's ability to terminate this Agreement pursuant to the
provisions of Section X(a) in the event that there has been a failure of any
condition to which the obligations of the Purchaser are subject, other than a
failure which was actually known by the Purchaser on the date such notice was
delivered but which was not set forth in such notice.

SECTION VI
CONDITIONS PRECEDENT

(a) Conditions Precedent to the Obligations of the Purchaser. The
obligation of the Purchaser to consummate the purchase of the Assets from the
Company shall be subject to the fulfillment, or the waiver by the Purchaser, at
or prior to the Closing, of each of the following conditions precedent:

(ii) Bankruptcy Court Order. The Bankruptcy Court shall have
entered an order in form reasonably acceptable to Purchaser, approving the sale
or sales of the Assets on the terms specified in this Agreement.

(iii) Absence of Material Litigation. Except as set forth in
Section VI(a)(ii) above, there shall be (i) no pending or overtly threatened
litigation (other than litigation which is determined by the parties in good
faith, after consulting their respective attorneys, to be without legal or
factual substance or merit), whether brought against the Company or the
Purchaser, that seeks to enjoin the consummation of any of the transactions
contemplated by this Agreement, (ii) no order that has been issued by any court
or governmental agency having jurisdiction that restrains or prohibits the
consummation of the purchase and sale of the Assets hereunder and no
proceedings pending which are reasonably likely to result in the issuance of
such an order; and (iii) no pending or

-10-
<PAGE> 11
overtly threatened litigation, which has had or is expected to have a material
adverse affect on the Business or the Assets.

(iv) Performance of Obligations. The Company shall have performed
and complied with all of its covenants required by this Agreement to have been
performed on or prior to the Closing.

(v) No Material Adverse Change. Since October 31, 1998, there shall
not have been any change in or other event affecting the Business or the
condition (financial or other) or operating results of Company that has had or
is expected to have a material adverse effect on the Business or the Assets.

(vi) Certificates. Receipt of a certificate executed by the
Company's President or Chief Financial Officer, dated as of the Closing Date and
reasonably satisfactory in form and substance to the Purchaser, certifying that
(i) each of the representations and warranties of the Company contained herein
was true and correct when made and is true and correct on and as of the Closing
Date with the same force and effect as if such representations and warranties
had been made on the Closing Date, (ii) the Company has performed and complied
with all of its covenants required to have been performed or complied with by it
pursuant hereto on or prior to the Closing Date, and (iii) all of the conditions
precedent to the Purchaser's obligations the satisfaction of which was the
responsibility of the Company has been satisfied, except to the extent waived by
the Purchaser.

(vii) Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained by the Company and the
Purchaser for the authorization, execution and delivery of this Agreement and
the consummation by it by the transactions contemplated hereby shall have been
obtained by the Company or the Purchaser, as the case may be, including,
without limitation, all lease and equipment assignments and/or consents for the
assumption by, or assignment to, the Purchaser of the Assigned Contracts, in
form and substance acceptable to the Purchaser or the Purchaser's counsel in its
sole discretion.

(viii) Due Diligence; Phase I Evaluation. The results of the
Purchaser's business, legal and accounting due diligence with respect to the
Business shall be satisfactory to Purchaser in its sole discretion. Without
limiting the foregoing, the results of any Phase I environmental evaluation
conducted by the Purchaser on any of the real properties owned or leased by the
Company in connection with the Business shall be satisfactory to Purchaser in
its sole discretion. This condition shall be deemed waived if Purchaser does
not inform Company of the failure of its due diligence analysis on a date which
is fourteen (14) days prior to the Motion Date. If Purchaser does not exercise
its right to terminate this Agreement due to the failure of due diligence
fourteen (14) days prior to the Motion Date then it shall have no further right
to terminate based on its due diligence. Upon termination due to such due
diligence there shall be no further rights under this Agreement and Company
shall have absolutely no liability whatsoever to the Purchaser.

(ix) Compliance With Terms of Loan Amount. The Company shall have
complied with the terms under which the Loan Amount was made available to the
Company, including, without limitation, the mandated uses of the Loan Amount as
determined by the Purchaser.

-11-
<PAGE> 12
(x) Delivery of Additional Instruments. On the Closing Date, unless
waived in writing by Purchaser, the Company shall deliver, or cause to be
delivered to the Purchaser, the documents and instruments referenced in Section
VI(b)(ii), in form and substance satisfactory to Purchaser and its counsel.

(xi) Board Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the Board of Directors of the Purchaser at least fourteen (14) days prior to
the Motion Date.

(xii) Methuen Acquisition. EA Industries, Inc., a New Jersey
corporation ("EA") and the Purchaser shall have entered into an Agreement of
Purchase and Sale, dated December __, 1998, relating to the Purchaser's
proposed acquisition of certain assets used in connection with the business of
the "Methuen Division" of EA, or a definitive agreement relating to the subject
matter thereof, and each EA and the Purchaser shall have performed their
respective obligations thereunder to the extent such obligations have become
due on or prior to the Closing Date.

(xiii) Consignment of Inventories. The parties shall have established
procedures for the Purchaser to pay the prices established pursuant to Section
1(f) above for the inventory of the Company used by the Purchaser in the
continued operations of the Business, as contemplated by Section V(c) above.

(xiv) Disclosure Schedules. The disclosure schedules to this
Agreement which are required to be delivered by the Company to the Purchaser
and attached by the Company hereto, shall have been so delivered and attached
within the time periods prescribed in this Agreement, and the contents of such
disclosure schedules shall be satisfactory to Purchaser in its sole discretion.
This condition shall be deemed waived with respect to any such disclosure
schedule if Purchaser does not inform the Company of the failure of its
acceptance of such disclosure schedule on a date which is ten (10) days from the
date such disclosure schedule is received by the Purchaser. If Purchaser does
not exercise its right to terminate this Agreement due to the failure of its
acceptance of any disclosure schedule within ten (10) days from the date such
disclosure schedule is received by the Purchaser, then the Purchaser shall have
no further right to terminate based on its failure to accept such disclosure
schedule. Upon termination due to the failure to accept a disclosure schedule,
there shall be no further rights under this Agreement and Company shall have
absolutely no liability whatsoever to the Purchaser.

(b) Conditions Precedent to the Obligations of the Company. The
obligation of the Company to consummate the sale of the Assets to Purchaser
shall be subject to the fulfillment, or the waiver by the Company, at or prior
to the Closing, of each of the following conditions precedent:

(i) Representations and Warranties. The representations and
warranties made by the Purchaser in this Agreement hereto shall have been true
and correct on the date hereof, and also at and as of the Closing Date with the
same force and effect as if made again at and as of that time.

(ii) Absence of Material Litigation. There shall be (i) no pending
or overtly threatened litigation (other than litigation which is determined by
the parties in good faith, after consulting their respective attorneys, to be
without legal or factual substance or merit), whether brought against the
Company or the Purchaser that seeks to enjoin the consummation of any of the

-12-
<PAGE> 13
transaction contemplated by this Agreement, and (ii) no order that has been
issued by any court or governmental agency having jurisdiction that restrains or
prohibits the consummation of the purchase and sale of the Assets hereunder or
any proceedings pending which are reasonably likely to result in the issuance
of such an order.

(iii) Performance of Obligations. The Purchaser shall have
performed and complied with all of its covenants required by this Agreement to
have been performed by it at or prior to the Closing.

(iv) Certificates. Receipt from the Purchaser of a
certificate, dated as of the Closing Date and signed by the President or the
Chief Financial Officer of the Purchaser, certifying that (i) each of its
representations and warranties contained herein was true and correct when made
and is true and correct on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on the Closing
Date, and (ii) it has performed and complied with all agreements, obligations,
covenants and conditions required to be performed or complied with by it
pursuant hereto on or prior to the Closing Date, except as may be waived in
writing by the Company.

(v) Delivery of Additional Instruments. On the Closing
Date, unless waived in writing by Company, the Purchaser shall deliver, or cause
to be delivered to Company, the Purchase Price and the documents and instruments
referenced in Section VI(b)(i), in form and substance satisfactory to Company
and its counsel.

SECTION VII
CLOSING AND DELIVERIES

(a) Time and Place of Closing. The closing of the purchase and sale
of the Assets as set forth herein (the "Closing") shall be held at the offices
of Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Newport Beach,
California 92660. The Closing shall occur on a date which is one (1) business
day after entry of the Bankruptcy Court order referenced in Section VI(a)(ii)
is issued, or at such later date and time upon which the Purchaser and the
Company shall mutually agree (the "Closing Date").

(b) Deliveries.

(i) At the Closing, the Purchaser shall deliver to the company
the following:

(A) A wire transfer for the Closing Date Payment of the
Purchase Price, as described in Section I(b); and

(B) Such certificates, instruments and other documents, in
form and substance satisfactory to the Company and its counsel, as they
shall have reasonably requested in connection with the transactions
contemplated hereby.

(ii) At the Closing, the Company shall deliver to the Purchaser,
as a condition to Closing, the following:

-13-
<PAGE> 14
(A) A Bill of Sale in the form attached hereto as Schedule
VI(b)(ii)(a), such other instruments of conveyance and transfer, and such
powers of attorney, as shall be effective to vest in the Purchaser title to or
other interest in, and the right to full custody and control of, the Assets,
free and clear of all Liens or Encumbrances whatsoever;

(B) The Assigned Contracts and the books and records of the Company
constituting a part of the Assets;

(C) Evidence that any and all sales or use taxes assessed in
connection with this transaction have been paid by the Company;

(D) Such certificates, instruments and other documents, in form and
substance satisfactory to the Purchaser and its counsel, as they shall have
reasonably requested in connection with the transactions contemplated hereby;

(E) Either (i) all necessary consents of third parties under the
Assigned Contracts and other instruments of the Company to the consummation of
the transactions contemplated hereby, which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser or the
Company, or, in the alternative, (ii) an order or orders of the Bankruptcy Court
authorizing the assumption of such contracts by the Company and their
assignment to Purchaser.

SECTION VIII
INDEMNIFICATION

-14-

<PAGE> 15
SECTION IX
BROKERS AND FINDERS

(a) The Company's Obligation. Except as set forth in Schedule IX(a)
hereto, the Purchaser shall not have any obligation to pay any fee or other
compensation to any person, firm or

-15-
<PAGE> 16
corporation engaged by the Company in connection with this Agreement and the
transactions contemplated hereby, and the Company, hereby agrees to indemnify
and save the Purchaser harmless from any liability, damage, cost or expense
arising from any claim for any such fee or other compensation.

(b) The Purchaser's Obligation. Except as set forth in Schedule IX(b)
hereto, the Company shall not have any obligation to pay any fee or other
compensation to any person, firm or corporation engaged by the Purchaser in
connection with this Agreement and the transactions contemplated hereby, and
the Purchaser hereby agrees to indemnify and save the Company harmless from any
liability, damage, cost or expense arising from any claim for any such fee or
other compensation.

SECTION X
TERMINATION

(a) This Agreement may be terminated and the transactions herein
contemplated may be abandoned at any time prior to the Closing:

(i) By mutual written consent of the Purchaser and the Company;

(ii) By the Purchaser, if there has been a material breach by the
Company of any of its material representations, warranties, agreements or
covenants set forth herein, or a failure of any condition to which the
obligations of the Purchaser are subject; or

(iii) By the Company, if there has been a material breach by the
Purchaser of any of its representations, warranties, agreements or covenants
set forth herein, or a failure of any condition to which the obligations of the
Company is subject or if the Purchaser's bid is not the High Bid, as provided
in Section IV above.

(b) Procedure Upon Termination. In the event of termination of this
Agreement by the Purchaser or the Company or by both the Purchaser and the
Company pursuant to Section X(a) hereof, written notice thereof shall forthwith
be given to the other party or parties hereto and the transactions contemplated
herein shall be abandoned without further action by the Purchaser or the
Company. In addition, if this Agreement is terminated as provided herein:

(i) Each party will redeliver all documents, workpapers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same.

(ii) All information of a confidential nature received by any party
hereto with respect to the business of any other party (other than information
which is a matter of public knowledge or which has heretofore been or is
hereafter published in any publication for public distribution or filed as
public information with any governmental authority) shall continue to be kept
confidential for a period of two (2) years.

(iii) Upon any termination by the Purchaser upon the failure of any
condition to which the obligations of the Purchaser are subject, where such
failure is caused by the Company, the

-16-
<PAGE> 17
Company shall pay to the Purchaser, in addition to any amounts required to be
paid by the Company pursuant to Section IV(c)(vii) above, an amount equal to
the costs and expenses of the Purchaser actually incurred in the preparation
and negotiation of this Agreement (including attorneys' fees) and the
Purchaser's and its representatives' due diligence review, which amount shall
be paid within five (5) days of the date of such termination; provided,
however, that the provisions of this Section X(b)(iii) shall not apply to any
termination of this Agreement due to the fact that the Purchaser's bid is not
the High Bid, and the amounts specified herein shall not be paid to the
Purchaser in the event that the Purchaser is paid the topping fee referenced in
Section IV(c)(vii).

(iv) Upon any termination of this Agreement pursuant to Section X(a)
hereof the respective obligations of the parties hereto under this Agreement
shall terminate and no party shall have any liability whatsoever to any other
party hereto by reason of such termination, irrespective of the cause of such
termination, except as expressly provided to the contrary in this Section X and
in Section V(e) above.

SECTION XI
MISCELLANEOUS

(a) Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, as follows:

If to the Purchaser: Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William L. Healey,
President and Chief Executive Officer
Facsimile No. (714) 838-8787

with copies to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Facsimile No. (949) 725-4100

If to the Company: Tanon Manufacturing, Inc.
c/o EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
President: President
Telecopy No.: (732) 229-6162
Telephone No.: (732) 229-1100

-17-
<PAGE> 18
in each case,
with a copy to: Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046

and to: Sheppard, Mullin, Richter & Hampton LLP
Seventeenth Floor
Four Embarcadero Center
San Francisco, CA 94111
Attention: Michael Ahrens, Esq.
Telecopy No.: (415) 434-3947
Telephone No.: (415) 434-9100

Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.

(b) Survival of Representations. Each representation, warranty, covenant
and agreement of the parties hereto herein contained shall survive Closing, for
a period of eighteen (18) months, notwithstanding any investigation at any time
made by or on behalf of any party hereto.

(c) Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby, and no modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.

(d) Expenses. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby.

(e) Dispute Resolution. Each of the parties to this Agreement agrees to
submit themselves to the jurisdiction of the Bankruptcy Court supervising the
Bankruptcy Case to interpret and enforce the terms and conditions of this
Agreement.

(f) Invalidity. Should any provision of this Agreement be held by a court
or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforcable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent

-18-

<PAGE> 19
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this Agreement as modified by the
court or the arbitration panel shall be binding upon and enforceable against
each of them. In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions hereof, and if such provision or provisions are not modified as
provided above, this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been set forth herein.

(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and the
Purchaser.

(h) Governing Law. The validity of this Agreement and of any of its terms
or provisions, as well as the rights and duties of the parties under this
Agreement, shall be construed pursuant to and in accordance with the laws of the
State of California, without regard to conflict of laws principles.

(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

(j) Accounts Receivable and Business Records. From and after the Closing,
Purchaser shall cooperate with Company, at the Company's sole expense, in the
collection by Company of the Company's Accounts Receivable. Any and all books
and records which may be deemed part of the Assets shall be made available at no
cost to the Company, upon reasonable prior notice and during normal business
hours, in connection with the collection by Company of its Accounts Receivable
and for any other valid business purpose. None of the business records that
constitute part of the Assets shall be destroyed by Purchasers without the
written consent of Company. The obligations set forth in this subparagraph
shall survive Closing. Without limiting the foregoing, the Purchaser shall be
entitled to collect and retain all accounts receivable attributable to the sales
of inventory purchased by the Purchaser hereunder, or otherwise sold by the
Purchaser after the Closing Date (such receivables shall be deemed "Purchaser
Receivables").

-19-
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.

PURCHASER: SMARTFLEX SYSTEMS, INC.

By: /s/ William L. Healey
--------------------------
Name: William L. Healey
---------------------
Title: President
--------------------

COMPANY: TANON MANUFACTURING, INC.

By: /s/ Howard Kamius
--------------------------
Name: Howard P. Kamius
---------------------
Title: Vice President
--------------------

-20-
<PAGE> 21
SCHEDULE I(a)(i)-INCLUDED ASSETS

All assets owned by the Company and used in its manufacturing operations in
Fremont, CA or West Long Branch, NJ and not listed on Schedule I(a)(i) Excluded
Assets including those assets listed on Schedule I(a)(ii)-Designated Equipment.
<PAGE> 22
SCHEDULE I(a)(i)-EXCLUDED ASSETS

1. All assets owned by, or which the Company has agreed to convey to, EA
Industries, Inc.("EAT") or SupplyPoint Solutions, Inc.("SPS"), including
the following assets which are located on the premises of the Company in
Fremont, CA or West Long Branch, NJ:

(a) Office furniture and equipment, including all computers and peripheral
hardware and software, and filing cabinets and files located in the
executive/professional suite of offices, conference room and file room
adjacent to the financial personnel of the Company in West Long
Branch, NJ.

(b) Materials related to the operations of BarOn Technology located in
Fremont, CA

(c) Mitsuba 386 PC Laptop personal computer, 1 Sharp 6220 Laptop personal
computer, 3 Toshiba T2000SX-40 Laptop personal computers, S Soyo
486-50 Laptop personal computers, 2 Toshiba T480OCT Laptop personal
computers, 2 Toshiba T4500 Laptop personal computers

(d) Panasonic Color Television CTJ 2790R

(e) Panasonic videocasette recorder PV-4780

(f) 2 Video conferencing Units; one in each facility

2. All rights related to warrants granted to the Company by Gyration, Inc.
3. All rights related to warrants granted to the Company by First Virtual
Corporation
4. All files, books and records of the Company and the cabinets they are
stored in except those directly related to customers who are transferred to
Smartflex, the Assigned Contracts or the Designated Equipment
5. All rights and obligations pursuant to leases of real estate or equipment
and other contracts and agreements not listed on Schedule (I)(a)(iv)
Assigned Contracts

<PAGE> 23

SCHEDULE I(a)(ii)-DESIGNATED EQUIPMENT

2 Wester Triton IV Units
1 Wave Solder 445 Unit
1 Closed Loop Water System
Miscellaneous Office Supplies located in Fremont and/or West Long Branch

The foregoing includes all of the detailed equipment listed on the equipment
list delivered to Purchaser on January 28, 1999.

<PAGE> 24

SCHEDULE (I)(A)(IV) ASSIGNED CONTRACTS

As described in the Court's Order Approving Sale.

<PAGE> 25

SCHEDULE (II)(d) LIENS, CLAIMS AND ENCUMBRANCES

1. The Company's primary credit facility is an asset based credit facility
provided by IBJ Schroder Bank & Trust Company ("Schroder") ("Schroder
Line") to Tanon. The stock of the Company has been pledged to secure the
obligations of the Company under the Schroder Line and the related
guarantee by EAI. In addition, Schroder has a security interest in the
Company's inventory, accounts receivable and substantially all of its
other assets.
2. The lessors under the Company's equipment leases have each retained a
security interest in the equipment leased to the Company.
3. Other liens, claims and encumbrances which are reflected on the UCC Search
Certificate #98352-R-0417, dated December 17, 1998, copies of which have
been provided to Purchaser.

<PAGE> 26

SCHEDULE (II)(f)PERMITS

1. Application in process for commercial registration of X-ray machine in West
Long Branch
2. Local business license in Fremont facility
3. Environmental waste/hazardous material permit
4. Implied licenses, or explicit licenses in purchase orders or contracts, to
use intellectual property of customers in connection with assembly of their
products

<PAGE> 27

SCHEDULE I(f)(i)-ALLOCATION OF PURCHASE PRICE

The parties waive the requirement of this schedule and also waive any
representations and warranty with respect to this schedule.

<PAGE> 28

SCHEDULE (II)(g)ACCOUNTS RECEIVABLE

The parties waive the requirement of this schedule and also waive any
representations and warranty with respect to this schedule.

<PAGE> 29

SCHEDULE (II)(h)MATERIAL CONTRACTS

<TABLE>

<S><C>

Blue Cross Medical Benefits Sally Gallegos

CIGNA Dental Benefits Karen Vanderwerf

US Life Life Insurance Colleen Kelly

UNUM Long-Term Disability

Lincoln Life Executive Medical Reimbursement

Gates McDonald Unemployment Services Lyn Hooks

FVC.COM Continous Improvement Reviewed May- Mr. James 0. 3393 Octavius Santa
Program Quarterly 98 Mitchell Drive Clara, CA

Company Agreement Type

A. Item Management Sales Representative

Elrepco Sales Representative

Ranier Sales Representative

Doug Evans Sales Commissions

Dave Marchiorata Sales Commissions
</TABLE>

East Coast Operations

1. License Agreement dated October 27, 1997 between PolyDyne Development
Corporation as lessor and Tanon Manufacturing, Inc as lessee of
certain software known as "Quote Win".

2. Quote Win Service, Support and Upgrade Agreement dated November 4,
1997 between PolyDyne Development Corporation and Tanon Manufacturing,
Inc. for certain software known as "Quote Win".

3. Sales Representative Agreement dated September 10, 1998 between Tanon
Manufacturing, Inc. and Mesa Manufacturing Services

4. Sales Representative Agreement dated October 5, 1998 between TNT
Electronics, Co. and Tanon Manufacturing, Inc.

5. Sales Representative Agreement between SouthWest Technical Sales, Inc.
and Tanon Manufacturing, Inc.

6. Sales Representative Agreement between Delta Sales, Inc. and Tanon
Manufacturing, Inc.

7. Sales Representative Agreement between Brendan Kane and Tanon
Manufacturing, Inc.

8. Customer contract between Hughes Network Systems and Tanon
Manufacturing, Inc.

9. Customer contract between Corporate Computer and Tanon Manufacturing,
Inc.

10. See documents listed below taken from Debtor's Amended Schedule G.
(Bold print represents changes made to filed Schedule G originally
filed on 12/31/98):

<PAGE> 30

<TABLE>

<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NAME AND MAILING ADDRESS, INCLUDING ZIP DESCRIPTION OF CONTRACT OR LEASE AND NATURE OF
CODE, OF OTHER PARTIES TO LEASE OR DEBTOR'S INTEREST, STATE WHETHER LEASE IS FOR
CONTRACT NONRESIDENTIAL REAL PROPERTY. STATE CONTRACT NUMBER
OF ANY GOVERNMENT CONTRACT
- -----------------------------------------------------------------------------------------------------------------------------
185 Monmouth Pkwy Assoc. Commercial real property lease of premises located at 185
Attn: Carl Gross Monmouth
63 West Main Street, PO Box 5008 Parkway, West Long Branch, Monmouth County, NJ
Freehold, NJ 07728
- -----------------------------------------------------------------------------------------------------------------------------
AT&T AT&T UNIPLAN SERVICE WITH FLATRATE PRICING AGREEMENT, DATED
ATTN: ABID M. ALI, ACCOUNT EXEC. 11/22/96 , BETWEEN AT&T AND ELECTRONIC ASSOCIATES, INC.
517 ROUTE 1 SOUTH, 2NDFLOOR
ISLIN, NJ 08830
- -----------------------------------------------------------------------------------------------------------------------------
A Item Management SALES REPRESENTATIVE agreement dated 2/26/98; CANCELLED EFFECTIVE
Attn: John Hamill 12/31/98
349 Cobalt Way, Suite 308
Sunnyvale, CA 94086
- -----------------------------------------------------------------------------------------------------------------------------
Advanced Energy Ongoing Purchase Order
Attn: Kyle D. Pettine, Director of Operations
4424 Innovation Drive
Fort Collins, CO 80525
- -----------------------------------------------------------------------------------------------------------------------------
Alara, Inc. Agreement for Contract Manufacturing Services dated 7/l/98,
Attn: David Cook, Manufacturing Manager one-year term, to be renewed annually by agreement of the
2545 Barrington Court parties
Hayward, CA 94545-1134
- -----------------------------------------------------------------------------------------------------------------------------
Alteon Ongoing Purchase Order
Attn: Joe Booker, Vice President Operations
6351 San Ignacio Avenue
San Jose, CA 95119
- -----------------------------------------------------------------------------------------------------------------------------
AMERICAN & FOREIGN INSURANCE COMPANY COMMERCIAL AUTOMOBILE COVERAGE; POLICY #A ST-206810
9300 ARROWPOINT BLVD
CHARLOTTE, NC 28273-8135 COMMERCIAL PROPERTY COVERAGE; COMMERCIAL LIABILITY COVERAGE;
COMMERCIAL AUTOMOBILE COVERAGE; TECHNOLOGY COVERAGE EXTENSION
AMERICAN & FOREIGN INSURANCE COMPANY ENDORSEMENT; POLICY # A SV-038940
C/O CENTURY COVERAGE CORPORATION
ATTN: SALLY ROSS EMPLOYEE BENEFITS ERRORS AND OMISSIONS INSURANCE; POLICY
181 SOUTH FRANKLIN AVE., #504 A-SV-038940
VALLEY STREAM, NY 11581
- -----------------------------------------------------------------------------------------------------------------------------

AOE RICOH, INC. EQUIPMENT PURCHASE AGREEMENT DATED 4/23/96 FOR RICOH COPIER
ATTN: ROBERT SLAVITSKI
95 NEWFIELD AVENUE
EDISON, NJ 08834
- -----------------------------------------------------------------------------------------------------------------------------
Applied Signal Technology Ongoing Purchase Order
Attn: Anne Sherman, Senior Buyer
400 West California Avenue
Sunnyvale, CA 94086
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 31

<TABLE>

<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC. Contract Number 87831 effective 4/l/96 for health insurance for
ATTN: KEVIN O'SULLIVAN East Coast operations
PO BOX 799
NEWARK, NJ 07101

HM0 BLUE / BLUE CROSS AND BLUE SHIELD OF NEW CONTRACT NO. MG-87831, DATED 3/1/96, AND RELATED RIDERS
JERSEY, INC.
ATTN: DANIEL J. DRAGALIN
3 PENN PLAZA EAST
NEWARK, NJ 07105-2200
- -----------------------------------------------------------------------------------------------------------------------------
Blue Cross of California Group Benefit Agreement (for employee medical benefits) dated
Attn: Sally Galiegos 1/l/98, renewable monthly
2121 No. California, 7th
Walnut Creek CA 94596
- -----------------------------------------------------------------------------------------------------------------------------
Bruker Instruments Ongoing purchase order
Attn: Floy Smith, Purchasing Manager
47697 Westinghouse Drive
Fremont, CA 94539
- -----------------------------------------------------------------------------------------------------------------------------
CIGNA Contract for Employee Dental Benefits; SUMMARY OF BENEFITS AND
Attn: Karen Vanderwerf RATES (FOR WEST COAST OPERATIONS)
PO Box 93024
Chicago, IL 60673-3024
- -----------------------------------------------------------------------------------------------------------------------------
Cobblestone Corporation of Northern New England, Capital Lease (see Attachment to Schedule D)
Inc.
Attn: Joe Donovan
75 Second Avenue, Suite 310
Needham, MA 02195
- -----------------------------------------------------------------------------------------------------------------------------
COLIN REDDY EMPLOYMENT AGREEMENT, DATED MARCH 17, 1998, BETWEEN DEBTOR AND
21 GREEN VALLEY ROAD COLIN REDDY
MIDWAY, MA 02053
- -----------------------------------------------------------------------------------------------------------------------------
Colmar Sales / Brendan Kane Sales Representative Agreement, dated 12/1/97, AMENDED 2/4/98
19 Lorraine Road
Walpole, MA 02081
- -----------------------------------------------------------------------------------------------------------------------------
Colonial Pacific Leasing Capital Lease (see Attachment to Schedule D)
Attn: Steve Lines
PO Box 2090
Portland, OR 97208-2090
- -----------------------------------------------------------------------------------------------------------------------------
Copelco Capital, Inc. Capital Lease (see Attachment to Schedule D)
Attn: Jordan Metz, Esq.
Law 0fc of Goodman & Metz
16000 Ventura Blvd, Suite 905
Encino, CA 91436-2730
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE COMP. SYSTEMS, INC. Customer contract
670 N. BEERS ST, BLDG 4
HOLMDEL, NJ 07733
- -----------------------------------------------------------------------------------------------------------------------------
David Marchiorato, Sales Manager OFFER LETTER AGREEMENT DATED 9/14/98 re Business Development / Sales
263 Farmer Street Manager letter agreement
Felton, CA 95018
- -----------------------------------------------------------------------------------------------------------------------------
DDI Leasing, Inc./ Duncan Data EQUIPMENT LEASE AGREEMENT NO. TSM205Q, DATED 8/12/98 FOR AS 400
Attn: Michael P. Moran, VP SYSTEM AND PERIPHERALS
271 Route 46 West
Fairfield, NM 07004
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delta Dental Plan of New Jersey, Inc. Master Group Contract effective 1/l/95; Group #5822
ATTN WALTR VAN BRUNT
1639 ROUTE 10
PARSIPPANY, NJ 07054
- ------------------------------------------------------------------------------------------------------------------------------------
Delta Sales, Inc. Sales Representative Agreement, dated 7/26/95
Attn: Leo Creegan, President
282 Route 101
Amherst, NH 03031-1731
- ------------------------------------------------------------------------------------------------------------------------------------
DON R. DESANTIS EMPLOYMENT AGREEMENT, DATED MARCH 17, 1998, BETWEEN DEBTOR AND DON
30 BUD WAY R. DESANTI
TIVERTONM, RI 02878
- ------------------------------------------------------------------------------------------------------------------------------------
Doug Evens, Vice President Sales Employment Agreement / Compensation Package
Tanon Manufacturing, Inc. / West coast Division
46360 Fremont Blvd
Fremont, CA 945368-6046
- ------------------------------------------------------------------------------------------------------------------------------------
ECOSYS Manufacturing Agreement (blanket order)
Attn: Ms. Stephanie Chan, Senior Buyer
617 River Oaks Parkway
San Jose, CA 95134
- ------------------------------------------------------------------------------------------------------------------------------------
ELREPCO, Inc. Sales Representative Agreement, dated 12/5/97;
Attn: Cathy Smith, President CANCELLED EFFECTIVE 12/98.
777 Cuesta Drive
Mountain View, CA 94040
- ------------------------------------------------------------------------------------------------------------------------------------
F.S.R.T., LP Commercial real property lease of premises located at
c/o Continental Property Mgmt 46360 Fremont Blvd, Fremont, Alameda County, CA 945368-6046
Attn: Dan Stuber / Stephanie Dierolf
1800 Gateway Drive, 3rd Floor
San Mateo, CA 94403
- ------------------------------------------------------------------------------------------------------------------------------------
Financing for Science International, Inc. Capital Lease (see Attachment to Schedule D)
FINOVA TECHNOLOGY
10 Waterside Drive MASTER EQUIPMENT LEASE AGREEMENT DATED 2/20/96, BETWEEN TANON AND
Farmington, CT 05052-1814 FSI WITH RENTAL SCHEDULES NO. 1, 2, AND 3 (AND EAI GUARANTEE)

SALES AND LEASEBACK AGREEMENT, DATED 2/20/96, BETWEEN TANON AND FSI

MASTER EQUIPMENT LEASE AGREEMENT DATED 2/20/96, BETWEEN FSI AND EA
INDUSTRIES

SALE AND LEASEBACK AGREEMENT, DATED 2/20/96, BETWEEN FSI AND EA
INDUSTRIES, AND RELATED DOCUMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
First Virtual Corp. (FVC.COM) Manufacturing Agreement "Renewal", dated 5/8/97, one-year term, to be
Attn: James 0. Mitchell, COO renewed annually by agreement of the parties
3393 Octavius Corp, Suite 102
Santa Clara, CA 95054 AGREEMENT FOR CONTINUOUS IMPROVEMENT PROGRAM,DATED 5/18/98

PAYMENT AGREEMENT DATED 5/18/98

WARRANTY DATED 5/18/98
- ------------------------------------------------------------------------------------------------------------------------------------
Gates McDonald Contract for Unemployment Services for Employment Development
Attn: Lyn Hooks Department of State of California
PO Box 4121
Concord, CA 95424-4121
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Corp. Capital Lease (see Attachment to Schedule D)
ATTN: Dominic
PO Box 601
Moberly, MO 65270
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 33

- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
General Electric / GE Nuclear Energy Manufacturing Agreement for Sale of Numac Systems, as extended to 3/31/99
Attn: Marty Ross, Program Manager
175 Cutner Avenue Agreement for Sale of Hardware, DATED 3/18/96 AND 3/31/97, AS EXTENDED TO
San Jose, CA 95134 3/18/99
- ------------------------------------------------------------------------------------------------------------------------------------
GILLETT ENGHOLM ASSOCIATES, INC. SALES REPRESENTATIVE AGREEMENT DATED 2/6/98, AND AMENDMENT LETTERS
462 WINSTON WAY DATED 2/7/98 AND 6/2/98
BERWYN, PA 19312
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Network Systems, Inc. Manufacturing Agreement and Statement of Work dated 4/21/97
Attn: R. G. Clark
11717 Exploration Lane
Germantown, D 20876
- ------------------------------------------------------------------------------------------------------------------------------------
IBM Credit Corporation QUICKLEASE AGREEMENT DATED 3/10/98, NO. QL0451205
Attn: Candy Holt
2929 North Central Avenue
Phoenix, AZ 85012
- ------------------------------------------------------------------------------------------------------------------------------------
Jandy Industries Manufacturing Service Agreement, dated 7/23/97
Attn: Gene Pecci, VP
21 Pimentel Court
Novato, CA 94948
- ------------------------------------------------------------------------------------------------------------------------------------
L. D. Lowery, Inc. Sales Representative Agreement, dated 11/24/97
Attn: William R. Sylvester, President
2801 WESTCHESTER PIKE
BROOMALL, PA 19008
- ------------------------------------------------------------------------------------------------------------------------------------
Lincoln Life Executive Medical Reimbursement
1700 Magnavox Way
PO Box 23
Fort Wayne, IN 56801-2385
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING SOLUTIONS, INC. EXCLUSIVE DEALING AGREEMENT FOR SALE OF MANUFACTURED PRODUCTS, DATED
ATTN: ED BLASCO, PRESIDENT 3/23/98
128 EAST LIBERTY STREET
DANBURY, CT 06810
- ------------------------------------------------------------------------------------------------------------------------------------
MAPICS, INC. SCHEDULE TO MASTER LICENSE AGREEMENT NO. 1296375, DATED 8/14/98AND
ATTN: DEIRDRE ANDERSON RELATED ADDENDUM AND INVOICE
5775 GLENRIDGE DRIVE
BUILDING D
, SUITE 100
ATLANTA, GA 30328
- ------------------------------------------------------------------------------------------------------------------------------------
Mellon U.S. Leasing Capital Lease (see Attachment to Schedule D)
P.O. Box 1200001
Dallas, TX 75312
- ------------------------------------------------------------------------------------------------------------------------------------
Mesa Manufacturing Services Sales Representative Agreement dated 9/10/98
ATTN: BOB PAULISHAK
3 GREENVALE ROAD
MOORESTOWN, NJ 08057
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Imaging Systems Ongoing Purchase Order
Attn: Derrick Dell Production Manager
1005 Friesen Drive
Angwin, CA 94508
- ------------------------------------------------------------------------------------------------------------------------------------
NATWEST BANK, N.A., (ASSIGNEE, OF FINOVA) EQUIPMENT LEASE ASSIGNED TO NATWEST BY FINOVA; UCC FINANCING
ATTN: ROBERT B. VINCENT STATEMENT
175 WATER STREET
NEW YORK, NY 10038
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 34

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NEW JERSEY MANUFACTURERS INSURANCE COMPANY NOTICE OF COVERAGE OF WORKER'S COMPENSATION (1/21/98 - 1/21/99)
301 SULLIVAN WAY
WEST TRENTON, NEW JERSEY 08628-3496
- ------------------------------------------------------------------------------------------------------------------------------------
Northwestern National Life Insurance Company Group Annuity Contract # GA-51767-4 dated 9/6/96 between the Trustees of
C/O DELAWARE CHARTER GUARANTEE & TRUST CO EA Industries Inc. 401 (Ko Savings Plan and
ATTN HERB BRACY
PO BOX 8706
WILMINGTON, DE 19899-8706
- ------------------------------------------------------------------------------------------------------------------------------------
OCE-BRUNING, INC. TERM RENTAL AGREEMENT, DATED 10/26/93, BETWEEN OCE-BRUNING, INC.
1800 BRUNING DRIVE WEST AND ELECTRONICS ASSOCIATES, INC.
ITASCA, IL 80143
- ------------------------------------------------------------------------------------------------------------------------------------
Pitney Bowes, Inc. Equipment Maintenance Agreement
Attn: Customer Service
PO Box 85390
Louisville, KY 40285-5390
- ------------------------------------------------------------------------------------------------------------------------------------
Polydyne Development Corp. QUOTEWIN SOFTWARE LICENSE AGREEMENT, DATED 10/27/97
Attn: Dave Claflin
9390 Research Blvd, Suite 415 QUOTEWIN SUPPORT AND UPGRADE AGREEMENT, DATED 11/4/97, AND RELATED
Austin, TX 78759-6540 LETTERS
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier Marketing, Inc. Sales Representative Agreement, dated 6/15/98
Attn: Gregory Todd, President
3155 Porter Street, Suite A
Enumclaw, WA 98022
- ------------------------------------------------------------------------------------------------------------------------------------
ROYAL INSURANCE COMPANY OF AMERICA TECHNOLOGY ERRORS AND OMISSIONS LIABILITY COVERAGE; POLICY # P LQ-
9300 ARROWPOINT BLVD 219442
CHARLOTTE, NC 28273-8135
INTERNATIONAL COMMERCIAL PROPERTY, GENERAL LIABILITY, COMMERCIAL AUTO
ROYAL INSURANCE COMPANY OF AMERICA & WORKERS COMP; INTERNATIONAL GENERAL LIABILITY; INTERNATIONAL
C/O CENTURY COVERAGE CORPORATION PROPERTY/LOSS OF INCOME;
ATTN: SALLY ROSS POLICY # P IB-007226000
181 SOUTH FRANKLIN AVE., #504
VALLEY STREAM, NY 11581
- ------------------------------------------------------------------------------------------------------------------------------------
SE Laboratories Agreement for Calibration Services
Attn: Robert Peck
1065 Comstock Street
Santa Clara, CA 95054
- ------------------------------------------------------------------------------------------------------------------------------------
SouthWest Technical Sales Sales Representative Agreement DATED 2/21/98, AND AMENDMENT LETTERS
ATTN: CHARLES M. KANE DATED 2/24/98, 2/27/98, 3/4/98, 3/23/98
7931 TIMBERWOOD CIRCLE
SARASOTA, FLORIDA 34238-2948

SOUTHWEST TECHNICAL SALES
ATTN: CHARLES KANE
128 EAST LIBERTY STREET
DANBURY, CT 06810
- ------------------------------------------------------------------------------------------------------------------------------------
StarGuide Digital Networks, Inc. Agreement for Contract Manufacturing Services dated 6/l/97, one-year term,
Attn: Kathie J. Calvin, V.P. Operations to be renewed annually by agreement of the parties
Satellite & Wireless Division
5754 Pacific Center Blvd
San Diego, California 92121

STARGUIDE DIGITAL NETWORKS, INC.
5820 OBERLIN DRIVE, SUITE 203
SAN DIEGO, CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 35
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
State of California Employment Development Dept Work Sharing Plan, dated 9/10/98
Attn: Elliott Walter, Department Supervisor
Special Claims Office #850 / Employer # 296-2677
PO Box 269058
Sacramento, CA 95826
- ------------------------------------------------------------------------------------------------------------------------------------
TNT Electronics Co. Sales Representative Agreement dated 10/5/98
ATTN SHARON MILANO
24 WRIGHT AVENUE
AUBURN, NY 10321-0995
- ------------------------------------------------------------------------------------------------------------------------------------
TransAmerica Business Credit Capital Lease (see Attachment to Schedule D)
Technology Finance Division SECURITY AGREEMENT DATED 1/6/97
76 Batterson Park Road,2nd Flr
Farmington, CT 06032 PROMISSORY NOTE DATED 2/19/97 FROM TANON TO TRANSAMERICA

PROMISSORY NOTE DATED 2/5/98 FROM TANON TO TRANSAMERICA, SECURITY
AGREEMENT AND RELATED DOCUMENTS

PROMISSORY NOTE DATED 4/15/98 FROM TANON TO TRANSAMERICA, SECURITY
AGREEMENT AND RELATED DOCUMENTS

PROMISSORY NOTE DATED 6/29/98 FROM TANON TO TRANSAMERICA, SECURITY
AGREEMENT AND RELATED DOCUMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Truevision Manufacturing Agreement - in Process
Attn: Lloyd Fugate, VP Operations
2500 Walsh Avenue
Santa Clara, CA 95051
- ------------------------------------------------------------------------------------------------------------------------------------
United Maintenance & Janitorial Supply Agreement for Janitorial Services
Attn: Hector Vasquez
11450 Koll Circle, Suite 103
San Jose, CA 95112-4612
- ------------------------------------------------------------------------------------------------------------------------------------
United States Life Insurance Co. Contract for Life Insurance, application dated 12/30/97
Attn: Colleen Kelly
po Box 1590
Neptune, NJ 07754-1590
- ------------------------------------------------------------------------------------------------------------------------------------
Unum Life Ins. Co. of America Group Long-Term Disability Insurance Policy effective 4/l/83 with 15
Attn: Patricia Buck amendments thereto; policy #30867
2211 Congress Street
Portland, Maine 04122 New Jersey Temporary Disability Insurance Policy effective 1/1/97; policy
#512610

Life Insurance Policy effective 9/l/96, policy #292000

GROUP SHORT-TERM DISABILITY INSURANCE POLICY, EFFECTIVE 10/1/94,
BETWEEN UNUM AND ELECTRONIC ASSOCIATES, INC.; POLICY #390174
- ------------------------------------------------------------------------------------------------------------------------------------
Voice Pro Telephone Equipment Maintenance Agreement
4000 Executive Parkway, Suite 14
San Ramon, CA 94583
- ------------------------------------------------------------------------------------------------------------------------------------
Xerox Corp. / Princeton Operations Copier Lease & Maintenance Agreement
Attn: George Walton / Cust Business Unit Capital Lease (see Attachment to Schedule D)
100 Overlook Center, Suite 310
Princeton, NJ 08543 PARTIAL LEASE AND LEASE ADDENDUM AND RELATED AMORTIZATION SCHEDULES

Xerox Corp.
Attn: Maria Urbina
350 S. North West Highway
Park Ride, IL 60081
- ------------------------------------------------------------------------------------------------------------------------------------
Zydracron Manufacturing Agreement - in Process
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 36

- --------------------------------------------------------------------------------
Attn: Ray Hillsgrove, Production Manager
7 Perimeter Road
Manchester, NJ 03103
- --------------------------------------------------------------------------------

<PAGE> 37

SCHEDULE (II)(I) TANON FINANCIAL STATEMENTS
-------------------------------------------

The parties waive the requirement of this schedule and also waive any
representations and warranty with respect to this schedule.

<PAGE> 38

SCHEDULE (II)(I)-LITIGATION AND DISPUTES
----------------------------------------
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. 185 Monmouth Parkway Associates, L.P. Superior Court of Monmouth Landlord Tenant
versus EA Industries, Inc. and Tanon County, NJ. action. Pending.
Manufacturing, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
2. F.S.R.T., L.P., a California limited Superior Court of Alameda Landlord Tenant
partnership versus Tanon County, CA. action. Pending.
Manufacturing, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
3. James Brand versus Tanon Superior Court of Monmouth Pending.
Manufacturing County, NJ.
- ------------------------------------------------------------------------------------------------------------------------------------
4. Viktron Limited Partnership, an Illinois Circuit Court, Cook County Pending.
limited partnership versus Tanon
Manufacturing, Inc.
Case No. 98L12641
- ------------------------------------------------------------------------------------------------------------------------------------
5. Janel, Inc., versus EA Industries, Inc. Superior Court of Morris Pending.
and Tanon Manufacturing, Inc. County, NJ
Docket No. MRS-L-2973-98
- ------------------------------------------------------------------------------------------------------------------------------------
6. Concorde Industrial Suply Company, Superior Court of Monmouth Pending.
Inc. versus Tanon Manufacturing, Inc., County, NJ
Docket No. DC-11503-98
- ------------------------------------------------------------------------------------------------------------------------------------
7. Oneida Rostone Corporation versus Supreme Court of the State Pending.
Tanon Manufacturing, Inc. of New York, Madison
Index No. 98-2017 County
- ------------------------------------------------------------------------------------------------------------------------------------
8. Rapid Circuits, Inc. versus Tanon Court of Common Pleas, Pending.
Manufacturing, Inc. Bucks County, PA
- ------------------------------------------------------------------------------------------------------------------------------------
9. Watkins-Johnson Co. versus Tanon Superior Court of Monmouth Pending.
Manufacturing, Inc. County, NJ
Docket No. L5557-98
- ------------------------------------------------------------------------------------------------------------------------------------
10. Finova Capital Corporation versus EA Superior Court of Bergen Pending.
Industries, Inc. and Tanon County, NJ
Manufacturing, Inc.
Docket No. L10473-98
- ------------------------------------------------------------------------------------------------------------------------------------
11. Liberty Electronics, Inc. versus Tannon Superior Court of Monmouth Pending.
Manufacturing, Inc. and Trip Whitehouse County, NJ
Docket No. DC 11723-98
- ------------------------------------------------------------------------------------------------------------------------------------
12. Century Office Products versus Tanon Superior Court of Monmouth Pending.
Manufacturing, Inc. County, NJ
Docket No.SC 5775-98
- ------------------------------------------------------------------------------------------------------------------------------------
13. Pacific Business Company vs. Tanon Small Claims Court, Pending.
Manufacturing, Inc. Fremont-Newark, Union City
No. 1998-033680 Municipal Court
- ------------------------------------------------------------------------------------------------------------------------------------
14. Threatened suits by pre-petition creditors Threatened
of the Company for collection of
accounts payable.
- ------------------------------------------------------------------------------------------------------------------------------------
15. Tina Semiprevio Discrimination claim filed Pending
with the Department of Fair
Employment and Housing of
the state of California in
June 1998; E9798M1559-
00-se/0370988502.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 39

SCHEDULE (II)(K)COMPLIANCE WITH ENVIRONMENTAL LAWS
--------------------------------------------------

No exceptions.

<PAGE> 1
EXHIBIT 10.19

AMENDMENT NO. 3 TO CREDIT AGREEMENT

AMENDMENT NO. 3 TO CREDIT AGREEMENT, dated as of March 27, 2000 (this
"Amendment No. 3"), to the Credit Agreement dated as of August 24, 1999, as
amended by Amendment No. 1 dated as of September 24, 1999 and Amendment No. 2
dated as of November 10, 1999 (the "Credit Agreement"), among Comerica Bank and
the other financial institutions from time to time parties thereto
(individually, a "Bank", and collectively, "Banks"), Comerica Bank, as Agent for
the Banks (in such capacity, "Agent"), and Saturn Electronics & Engineering,
Inc., Saturn Manufacturing Co., and Saturn Electronics & Engineering (Tustin),
Inc., successor in interest to SSI Acquisition Corp. by reason of merger
("Borrowers").

W I T N E S S E T H:

WHEREAS, the Banks, the Agent and the Borrowers are parties to the Credit
Agreement; and

WHEREAS, the Borrowers, the Agent and the Banks wish to amend the
definition of Consolidated EBITDA in the Credit Agreement;

NOW, THEREFORE, in consideration of the mutual agreements contained herein,
it is hereby agreed as follows:

ARTICLE I -- DEFINITIONS AND AMENDMENTS

1.1 Defined Terms. Capitalized terms used herein which are defined in the
Credit Agreement are used herein with such defined meanings.

1.2 Amendment to Definition of Consolidated EBITDA. The definition of
Consolidated EBITDA is hereby amended to read in its entirety as follows:

"Consolidated EBITDA" shall mean, for any period, the sum of
Consolidated Net Income for such period, plus, to the extent deducted in
determining Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Taxes and Consolidated depreciation and amortization
for such period, Consolidated non-cash expenses incurred by Borrowers under
GAAP in connection with the applicability of the valuation date provisions
of the Company's stock option plan, and Consolidated non-cash expenses (not
to exceed $17,000,000 in the aggregate) incurred by the Borrowers under
GAAP as a result of the issuance by the Company to Motorola, Inc. of
warrants to purchase the Company's common stock."

<PAGE> 2
ARTICLE II -- REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT

2.1 Representations; No Default. On and as of the effective date
hereof and after giving effect to this Amendment No. 3 and to the transactions
contemplated hereby, each Borrower hereby (i) confirms, reaffirms and restates
the representations and warranties set forth in Section 7 of the Credit
Agreement, except to the extent that such representations and warranties relate
solely to an earlier date in which case each Borrower hereby confirms, reaffirms
and restates such representations and warranties on and as of such earlier date,
provided that the references to the Credit Agreement therein shall be deemed to
be references to the Credit Agreement as amended by this
Amendment No. 3, and (ii) represents and warrants that no Default or Event of
Default has occurred and is continuing.

2.2 Effective Date. This Amendment No. 3 shall become effective
when the Agent shall have received counterpart originals of this Amendment No.
3, in each case duly executed and delivered by Borrowers, the Majority Banks and
the Guarantors, in form satisfactory to Agent and the Banks.

ARTICLE III -- MISCELLANEOUS

3.1 Limited Effect. Except as expressly amended hereby, all of the
provisions, covenants, terms and conditions of the Credit Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms.

3.2 Expenses. The Company shall reimburse the Agent for all its
reasonable costs and expenses including, without limitation, legal expenses
incurred in connection with the preparation, execution and delivery of this
Amendment No. 3.

3.3 Governing Law. This Amendment No. 3 shall be governed by, and
construed and interpreted in accordance with, the law of the State of Michigan.

3.4 Counterparts. This Amendment No. 3 may be executed by one or
more parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

3.5 Guarantors. By its execution hereof, each Guarantor consents
to the foregoing amendments and reaffirms and ratifies all of its obligations
to the Agent and the Banks under the Guaranty.

2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be executed and delivered by their proper and duly authorized officers or
other representatives as of the date first above written.

BORROWERS:

SATURN ELECTRONICS &
ENGINEERING, INC.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

SATURN MANUFACTURING CO.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

SATURN ELECTRONICS & ENGINEERING
(TUSTIN), INC.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

AGENT AND BANKS:

COMERICA BANK, as Agent and as a Bank

By: /s/ Jason L. Stoecker
------------------------------

Its: Assistant Vice President
-----------------------------

3
<PAGE> 4
UNION BANK OF CALIFORNIA, N.A.

By: /s/
------------------------------

Its: Vice President
-----------------------------

DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES

By:
------------------------------

Its:
-----------------------------

SUMMIT BANK

By:
------------------------------

Its:
-----------------------------

U.S. BANK N.A.

By:
------------------------------

Its:
-----------------------------

GUARANTORS:

SATURN ELECTRONICS & ENGINEERING
(NEW JERSEY), INC.

By:
------------------------------

Its:
-----------------------------

4
<PAGE> 5
UNION BANK OF CALIFORNIA, N.A.

By:
-----------------------------------

Its:
----------------------------------

DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES

By: /s/ BEVERLY G. CASON
-----------------------------------
BEVERLY G. CASON
Its: VICE PRESIDENT
----------------------------------

By: /s/ IRENE BUTARICH
-----------------------------------
IRENE BUTARICH
Its: VICE PRESIDENT
----------------------------------

SUMMIT BANK

By:
-----------------------------------

Its:
----------------------------------

U.S. BANK N.A.

By:
-----------------------------------

Its:
----------------------------------

GUARANTORS:

SATURN ELECTRONICS & ENGINEERING
(NEW JERSEY), INC.

By:
-----------------------------------

Its:
----------------------------------

4
<PAGE> 6
UNION BANK OF CALIFORNIA, N.A.

By:
--------------------------------

Its:
-------------------------------

DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES

By:
--------------------------------

Its:
-------------------------------

SUMMIT BANK

By: /s/
--------------------------------

Its: Vice President
-------------------------------

U.S. BANK N.A.

By:
--------------------------------

Its:
-------------------------------

GUARANTORS:

SMARTFLEX NEW JERSEY, INC.

By: /s/ Donald J. Cowie
--------------------------------

Its: CFO
-------------------------------

4
<PAGE> 7
LOGICAL SYSTEMS, INC.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

SMARTFLEX FREMONT, INC.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

SMARTFLEX NEW ENGLAND, INC.

By: /s/ Donald J. Cowie
------------------------------

Its: CFO
-----------------------------

<PAGE> 1

EXHIBIT 10.27

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. THE EXERCISE OF THIS WARRANT IS SUBJECT TO COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.

SATURN ELECTRONICS & ENGINEERING, INC.

WARRANT TO PURCHASE 495,688 SHARES

OF CLASS B NONVOTING COMMON STOCK

THIS CERTIFIES THAT, for value received, Motorola, Inc. (the "Holder")
is entitled to subscribe for and purchase 495,688 shares of the fully paid and
nonassessable Class B Nonvoting Common Stock (as adjusted pursuant to Section 2
hereof, the "Shares") of Saturn Electronics & Engineering, Inc., a Michigan
corporation (the "Company"), at a price per share of Common Stock (the "Warrant
Price") equal to the price at which the Common Stock of the Company is offered
to the public in the Company's initial public offering multiplied by a factor
equal to 0.90; provided, however, that if the Company's initial public offering
fails to occur for any reason prior to December 31, 2000, then the Warrant Price
shall be equal to $50.43.

1. Term. Subject to Section 5 below, the purchase right represented
by this Warrant is exercisable, in whole or in part, at any time and from time
to time, from the date that is four (4) years after the date of this Warrant
through the date that is five (5) years after the date of this Warrant.

2. Adjustment of Number of Shares and Warrant Price. The number of
Shares issuable upon the exercise of this Warrant and the price at which such
Shares may be purchased shall be subject to adjustment from time to time as
described in this Section 2, and the Company agrees to provide notice upon the
happening of certain events as follows:

(a) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities, or any consolidation
of the Company with or merger of the Company with or into any other person, or
otherwise, change any of the securities to which purchase rights under this
Warrant exist into the same or a different number of securities of any class or
classes, this Warrant shall thereafter be to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification, or any
consolidation of the Company with or merger of the Company with or into any
other person, or other change. If shares of the class of the Company's stock for
which this Warrant is being exercised are subdivided or combined into a greater
or smaller number of shares of stock, the Warrant Price shall be proportionately
reduced in case of subdivision of shares or proportionately increased in the
case of combination of shares, in both cases by the ratio which the total number
of shares of such class of stock to be outstanding immediately after such event
bears to the total number of shares of such class of stock outstanding
immediately prior to such event.

<PAGE> 2

(b) Adjustment for Dividends in Stock. In case at any time or
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor, other or additional stock
of the Company by way of dividend, then and in each case, the Holder shall, upon
the exercise hereof, be entitled to receive, in addition to the number of Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
Holder would hold on the date of such exercise had it been the holder of record
of such Shares on the date hereof and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and/or all other additional stock receivable by it as aforesaid during such
period, giving effect to all adjustments called for during such period by
paragraphs (a) and (b) of this Section 2.

(c) Certificate of Adjustment. Whenever the Warrant Price or
number or type of securities issuable upon exercise of this Warrant is adjusted,
as herein provided, the Company shall promptly deliver to the record holder of
this Warrant a certificate of an officer of the Company setting forth the nature
of such adjustment and a brief statement of the facts requiring such adjustment.

3. No Shareholder Rights. This Warrant, by itself as distinguished
from the Shares purchasable hereunder, shall not entitle the Holder to any of
the rights of a shareholder of the Company.

4. Authorization and Reservation of Stock. The Company will reserve
from its authorized and unissued Nonvoting Common Stock a sufficient number of
shares to provide for the issuance of the Shares upon the exercise of this
Warrant. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for the Shares upon the exercise
of this Warrant and all such Shares that are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable,
and free from all taxes, liens, security interests, charges, and other
encumbrances imposed by or through the Company with respect to the issuance
thereof.

5. Exercise of Warrant; Net Exercise.

(a) Exercise of Warrant. Subject to compliance with applicable
federal and state securities laws and subject to sections 5(e) and 5(f) below,
this Warrant may be exercised in whole or in part (but in no event with respect
to less than 10,000 of the Shares) by the Holder beginning on the date that is
four (4) years after the date of this Warrant and ending on the date that is
five (5) years after the date of this Warrant. Any exercise shall be made by the
surrender of this Warrant, together with the Notice of Exercise and Investment
Suitability and Representation Statement attached hereto as Exhibits A and B,
respectively, accompanied by payment in full (if required) of the Warrant Price
in cash or by check with respect to the Shares being purchased. This Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the

<PAGE> 3

date of its surrender for exercise as provided above, and the person entitled to
receive the Shares issuable upon such exercise shall be treated for all purposes
as the holder of such Shares of record as of the close of business on such date.
As promptly as practicable after such date, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or
certificates for the number of full shares of Common Stock issuable upon such
exercise. Upon any partial exercise of this Warrant, the Company will issue to
the Holder a new warrant for the number of the Shares as to which this Warrant
was not exercised.

(b) Net Exercise. In lieu of exercising this Warrant or any
portion thereof and paying the exercise price by cash or check, the Holder shall
have the right to convert this Warrant or any portion thereof into the number of
Shares to be computed using the following formula:

X = (P) (Y) (A-B)
-----------
A

where X = the number of Shares to be issued to the Holder for the portion of
this Warrant being converted,

P = the portion of this Warrant being converted (expressed as
a decimal),

Y = the total number of Shares issuable upon exercise of this
Warrant in full,

A = the closing price of one share of Common Stock on the Nasdaq
Stock Market (or the then-principal market on which the Company's
Common Stock is traded) on the business day immediately preceding
the date of receipt by the Company of the notice of conversion,
or, if there has been no public offering of the Company's Common
Stock, then a price determined in good faith by the Company's
Board of Directors, and

B = the exercise price of the Shares on the date of receipt by the
Company of the notice of conversion.

Upon such conversion, the portion of this Warrant represented by the variable
"P" above shall be cancelled.

(c) Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
closing price of the Common Stock on the Nasdaq Stock Market (or the
then-principal market on which the Company's Common Stock is traded) on the day
immediately preceding the date of exercise or, if there has been no public
offering of the Company's Common Stock, a cash payment based on the good faith
determination made by the Company's Board of Directors.

(d) Preferred Supplier Relationship. During the term of this
Warrant, the Holder shall treat the Company as a preferred supplier to its
Integrated Electronics Systems Sector ("IESS") by providing it an opportunity to
participate in all bona fide requests for

<PAGE> 4

quotations, bids or other opportunities to provide manufacturing and related
services to IESS, subject to the Company being competitive as to prices and
quality; provided, however, that the Company shall retain the sole discretion to
determine whether it wishes to bid on such manufacturing or related services on
a project by project basis. In connection with the manufacturing services
provided by the Company to the Holder, if IESS decides to divest any electronics
or electromechanical assembly assets related to the type of business being
sourced to the Company ("Eligible Assets") by sale to a third party, IESS shall
give due and fair consideration to including the Company as a potential bidder
for such Eligible Assets.

(e) Acceleration of Exerciseability in Certain Events.
Notwithstanding anything to the contrary set forth herein, the Holder, at its
option, can exercise this Warrant prior to the fourth anniversary hereof in the
following circumstances: for each $100 million of business (up to an aggregate
of $1 billion) concluded between the Company and the Holder after the date of
this Warrant (by itself or through one or more of the Holder's affiliates), the
Holder shall be entitled to exercise this Warrant in part to purchase the
greater of (x) 10% of the Shares initially covered by this Warrant or (y) if at
the time of such exercise less than 10% of the Shares initially covered by this
Warrant remain unexercised, the remaining unexercised Shares covered hereby. It
is the intent of the parties, however, that the supplier relationship between
the Holder and the Company will continue after this Warrant is fully
exercisable.

(f) Documentation of Concluded Business. For purposes of
documenting the amount of business concluded between the Holder and the Company,
the Holder shall prepare a summary of paid Company invoices and deliver such
summary to the Company with supporting documentation (which such evidence shall
be recognized by the Company as promptly as possible after presentment and in
any event deemed accepted by the Company on the 30th day after submission to the
Company by the Holder). In preparing such summary, the Holder shall: (x) not
include any business concluded with Saturn Electronics Texas, LLC, (y) not
include the business of any company acquired by the Company after the date of
this Warrant which business is attributable, in whole or in part, to a period
prior to the date of acquisition, and (z) with respect to projects conducted
jointly by the Holder and the Company with third parties, only the amount
attributable to the Company's value added business shall be taken into
consideration.

6. No Transfer of Warrant. This Warrant may not be transferred
or assigned by the Company or the Holder hereof in whole or in part, except that
the Holder may transfer this Warrant in whole or in part to one or more
affiliates of the Holder; provided that Holder shall remain responsible for all
of its obligations hereunder notwithstanding such transfer or assignment;
provided further that the Holder can assign its obligations hereunder with the
consent of the Company, which consent will not be unreasonably withheld.

7. Registration Rights. The rights and obligations described on
the attached Exhibit C respecting the registration rights granted by the Company
to the Holder are incorporated into this Warrant and are agreed to and accepted
by the parties hereto; provided, however, that if the Common Stock of the
Company is not publicly traded in the United States of America, then the Holder
shall have no such registration rights; provided further that the manner of
distribution described in Schedule 1 to Exhibit C notwithstanding, upon the
mutual agreement of the parties hereto, the Holder may sell the Shares in an
underwritten offering.

<PAGE> 5

8. Loss or Destruction of Warrant. Subject to the terms and
conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of such bond or indemnification
as the Company may reasonably require, and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor.

9. Certain Representations and Warranties. The Company represents
and warrants to the Holder that:

(a) Organization and Standing. The Company (x) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan and is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the failure to be so qualified or
licensed and in good standing (individually or in the aggregate) would have a
material adverse effect on the Company, and (y) has all requisite corporate
power and authority necessary to enable it to carry on its business as now
conducted, to issue the Warrant and to carry out the transactions contemplated
hereby.

(b) Capitalization. The authorized capital stock of the
Company consists of 10,000,000 shares of Class A Voting Common Stock and
10,000,000 shares of Class B Nonvoting Common Stock. The rights, privileges and
preferences of the Class A Voting Common Stock and the Class B Nonvoting Common
Stock are as stated in the Company's Articles of Incorporation. As of the date
hereof, there are issued and outstanding 4,956,880 shares of Class A Voting
Common Stock, 4,956,880 shares of Class B Nonvoting Common Stock and no other
shares of capital stock. All such issued and outstanding shares of Class A and
Class B Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and were issued in compliance with all applicable state
and federal securities laws. As of the date hereof, there are no outstanding
options, warrants or other rights to purchase or otherwise acquire equity
securities of the Company, securities convertible into or exchangeable for
equity securities of the Company, options, warrants or other rights to purchase
or otherwise acquire any such convertible or exchangeable securities, or
agreements to issue or grant any of the foregoing, other than pursuant to
employee benefit plans of the Company (including employee option plans) or
pursuant to agreements entered into in connection or simultaneously with this
Warrant.

(c) Authorization. All corporate action on the part of the
Company and its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, the Warrant, and for the authorization, issuance and
delivery of the Shares issuable upon exercise of the Warrant has been taken.
This Warrant has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to: (x) judicial principles
respecting election of remedies or limiting the availability of specific
performance, injunctive relief and other equitable remedies; and (y) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors' rights.

<PAGE> 6

(d) No Conflicts. The execution and delivery by the Company of
the Warrant and the performance by the Company of its obligations hereunder and
the consummation of the transactions contemplated hereby do not and will not
conflict with, result in any violation of or default (with or without notice or
lapse of time or both) under, give rise to a right of termination, cancellation
or acceleration or any material obligation or to the loss of any material
benefit under or result in or require the creation, imposition or extension of
any lien, security interest, restriction or other encumbrance upon any of the
Company's properties or assets (other than those imposed under the Warrant)
under (i) any oral or written contract, indenture, mortgage, lease, deed,
commitment, agreement, arrangement or legally binding understanding or
instrument, (ii) any provision of its constitutive or governing documents or
(iii) any law, statute, ordinance, rule, regulation, judgment, order, decree or
arbitral award, except for any such conflicts, violations, defaults, rights,
obligations or losses that, individually or in the aggregate, would not have a
material adverse effect on the Company or its ability to consummate the
transactions contemplated under this Warrant.

10. Successors. The provisions of this Warrant shall be binding upon
and inure to the benefit of the Company, the Holder and their respective
successors and assigns.

11. Miscellaneous. This Warrant (references in this Section 11 to the
"Warrant" shall be deemed to include the Exhibits attached hereto) shall be
governed by the internal laws of the State of Michigan. The headings in this
Warrant are for purposes of convenience and reference only, and shall not be
deemed to constitute a part hereof. Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the Company and the Holder. All notices and other
communications from the Company to the Holder shall be delivered personally or
mailed by first class mail, postage prepaid, to the address furnished to the
Company in writing by the Holder who shall have furnished an address to the
Company in writing, and if mailed shall be deemed given three days after deposit
in the United States mail.

[Remainder of page intentionally left blank.]

<PAGE> 7

ISSUED this 15th day of March, 2000.
---- -----
SATURN ELECTRONICS & ENGINEERING, INC.,

By: /s/ W. Tsuha
------------------------------------
Its: President
-----------------------------

ACCEPTED AND AGREED TO:

MOTOROLA, INC.,

By: /s/
-----------------------------
Its: Senior Vice President
----------------------
Group General Manager
Energy Systems Group

SIGNATURE PAGE
OF
WARRANT TO PURCHASE
CLASS B NONVOTING COMMON STOCK

<PAGE> 8

Exhibit A

NOTICE OF EXERCISE

TO: SATURN ELECTRONICS & ENGINEERING, INC.

1. The undersigned hereby:

|_| elects to purchase shares of Common
Stock, of Saturn Electronics & Engineering, Inc.
pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in
full, together with all applicable transfer taxes, if
any, or

|_| elects to exercise its net issuance rights pursuant
to Section 5(b) of the attached Warrant with respect
to shares of Common Stock.

2. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:

--------------------------------
(Name)

--------------------------------
(Address)

- ------------------- Motorola, Inc.
(Date)

By:
-----------------------------

Title:
-----------------------------

<PAGE> 9

Exhibit B

INVESTMENT SUITABILITY AND REPRESENTATION STATEMENT

__________ Shares of Common Stock of Saturn
Electronics & Engineering, Inc.

In connection with the purchase of the above-listed securities, the
undersigned hereby represents to Saturn Electronics & Engineering, Inc. (the
"Company") as follows:

Receipt of Information. The undersigned has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Common Stock issuable upon exercise of the Warrant dated
______________, 2000 (the "Warrant") issued by the Company to the undersigned,
and it has examined the information furnished to it by the Company.

Investment Representation.

(a) The shares of stock to be received upon the exercise of the
Warrant (the "Securities") will be acquired for investment for its own account,
not as a nominee or agent, and not with a view to the sale or distribution of
any part thereof, and the undersigned has no present intention of selling,
granting participation in or otherwise distributing the same, but subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Statement, the
undersigned further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participations to such person or to any third person, with respect to any
Securities issuable upon exercise of the Warrant.

(b) The undersigned understands that the Securities issuable upon
exercise of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, on the ground that the issuance of such securities is exempt pursuant to
Section 4(2) of the Act and state law exemptions relating to offers and sales
not by means of a public offering, and that the Company's reliance on such
exemptions is predicated on the undersigned's representations set forth herein.

(c) The undersigned agrees that in no event will it make a
disposition of any Securities acquired upon the exercise of the Warrant unless
and until (i) it shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii) it shall have furnished the
Company with an opinion of counsel satisfactory to the company and the Company's
counsel to the effect that (A) appropriate action necessary for compliance with
the Act and any applicable state securities laws has been taken or an exemption
from the registration requirements of the Act and such laws is available, and
(B) that the proposed transfer will not violate any of said laws.

<PAGE> 10

(d) The undersigned represents that it is able to fend for itself in
the transactions contemplated by this Statement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investments, and has the ability to bear the economic
risks (including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the accuracy of or to
amplify the Company's disclosures, and has had all questions which have been
asked by it satisfactorily answered by the Company.

(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless the Securities are
registered under the Act or an exemption from such registration is available.
The undersigned is aware of the provisions of Rule 144 promulgated under the Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in transactions directly with a
"market maker" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations. The
undersigned is aware that the conditions for resale set forth in Rule 144 have
not been satisfied as of the date hereof.

Dated: Motorola, Inc.
---------------------
By:
-------------------------------
Title:
----------------------------

<PAGE> 11

EXHIBIT C

REGISTRATION RIGHTS

1. Definitions. For purposes of this Exhibit C, the following
terms shall have the following meanings:

"Common Stock" means the Company's common stock, par value $____ per
share.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

"Holder" means collectively, the Holder of the Warrant as set forth in
the Warrant Certificate(s) and any transferee of the Warrant (or any
part thereof) permitted pursuant to the terms of the Warrant.

"Person" means an individual, partnership, corporation, limited
liability company, trust or other entity, or a government or agency or political
subdivision thereof.

"Prospectus" means the prospectus included in any Registration
Statement at the time the same becomes effective, as amended or supplemented by
any prospectus supplement, including post-effective amendments and all material
incorporated by reference in the prospectus.

"Registrable Securities" means the Shares; provided, however, that a
Share shall be a Registrable Security only for so long as the Share continues to
be a Restricted Security. For purposes of this Exhibit C, each Share shall be a
Restricted Security at the date of this Exhibit C. A Share shall cease to be a
Restricted Security on the earliest of the following dates: (i) the date the
Company has effectively registered the Share under the Securities Act and the
Holder has disposed of the Share in accordance with the Registration Statement
covering the Share, or (ii) the date the Holder shall be eligible to sell (in
one transaction) all of the Registrable Securities held by the Holder to the
public pursuant to Rule 144 (or any similar provisions then in force) under the
Securities Act, or (iii) the date the Holder has otherwise transferred the
Share.

"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Exhibit C, including all pre-effective amendments and
post-effective amendments thereto, the Prospectus and supplements thereto, all
exhibits and all material incorporated by reference in the registration
statement.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

<PAGE> 12

2A. Shelf Registration. Within 60 days after the Holder requests
the Company to file a Registration Statement with respect to the Registrable
Securities (provided that the Holder shall not be entitled to make such a
request prior to the date the Company becomes eligible to file a Registration
Statement (with respect to the sale of the Shares by the Holder) on Form S-3
under the Securities Act), the Company shall prepare and file a Registration
Statement providing for the sale of the Registrable Securities by the Holder
pursuant to Rule 415 of the Securities Act and/or any similar rule that may be
adopted by the SEC; provided, however, that the Holder shall not sell, transfer,
pledge or otherwise dispose of any Registrable Securities while such
Registration Statement remains effective, except during the ten (10) business
days immediately following the second business day following the release by the
Company to the public of quarterly or annual earnings. Notwithstanding the
foregoing, if the Company shall furnish to the Holder a certificate signed by
the President of the Company stating that, in the good faith judgment of the
President of the Company, the Company is in receipt of material, undisclosed
information, the disclosure of which would be detrimental to the Company, then
the Holder shall not sell, transfer, pledge or otherwise dispose of any
Registrable Securities for the period or periods specified in such certificate;
provided, however, that the Holder shall not be so restricted with respect to
such sales, transfers, pledges or other dispositions pursuant to this sentence
or the next succeeding sentence for more than an aggregate of ninety (90) days
in any fiscal year of the Company. If at any time after the Company files a
Registration Statement hereunder the Company decides to make a public offering
of securities through one or more underwriters, and an underwriter selected by
the Company to manage such proposed underwriting advises the Company that it
believes that such underwritten offering could be adversely affected by the
concurrent registered offering of Registrable Securities pursuant hereto, then
the Holder shall not sell, transfer, pledge or otherwise dispose of any
Registrable Securities at the request of the Company during such public offering
of securities; provided further, that the aggregate period of any such
restriction, when taken together with the restriction imposed by the Company
pursuant to a certificate signed by the President of the Company pursuant to the
previous sentence, shall not exceed ninety (90) days in any fiscal year of the
Company.

2B. Incidental Registration. If the Company at any time (other than
pursuant to Section 2A hereof) proposes to register its Capital Stock under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4 or S-8 or another form not available for registering
Common Stock for sale to the public) each such time it will give at least 20
days' prior written notice to the Holder of its intention to do so ("Notice of
Incidental Registration"). If at the time of such notice there does not exist an
effective registration statement pursuant to Section 2A with respect to
Registrable Securities held by Holder (or if pursuant to Section 2A the Company
is not permitted to sell its Registrable Securities for any reason pursuant to
the Shelf Registration), upon the written request of the Holder given within 10
days after receipt of any Notice of Incidental Registration (which request shall
state the intended method of disposition thereof), the Company will use its best
efforts to cause the Registrable Securities as to which registration shall have
been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the Holder (in accordance
with its written request) of such Registrable Securities so registered. The
amount of Registrable Securities to be included in such an underwriting may be
reduced if and only to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely

<PAGE> 13
affect the price of the Registrable Securities to be sold therein; provided,
further, however, that, in an initial public offering, the Company shall have
the first priority to sell shares of Common Stock in such offering and the
number of shares requested to be included in such public offering by the Holder
shall be reduced pro rata based on the number of shares owned by the Holder on
the date notice is given by the Company pursuant to this Section 2B.

3. Registration Procedures. In connection with the Company's
registration obligations pursuant to Sections 2A and 2B of this Exhibit C, the
Company shall use its best efforts to effect the registration of the Registrable
Securities in accordance with the method of distribution described on the
attached Schedule 1 and, pursuant thereto, the Company shall as reasonably
expeditiously as possible:

(a) prepare and file with the SEC a Registration Statement
within 60 days after the initial request from the Holder to register
such Registrable Securities and use its best efforts to cause such
Registration Statement to become effective within 90 days after the
initial request from the Holder to register such Registrable
Securities;

(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement continuously effective for a period expiring on the earlier
of (i) the date on which all of the Registrable Securities covered by
the Registration Statement have been sold pursuant thereto or (ii) the
date on which all Registrable Securities are eligible for sale pursuant
to Rule 144 under the Securities Act;

(c) furnish to the Holder, without charge, at least one
signed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, all
documents incorporated by reference therein and all exhibits (including
those incorporated by reference);

(d) deliver to the Holder, without charge, as many copies
of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as it may reasonably request, but only
while the Company is required to cause the Registration Statement to
remain effective;

(e) use its best efforts to register or qualify such
Registrable Securities for offer and sale under the securities or blue
sky laws of such U. S. States or possessions as the Holder may
reasonably request (the "Blue Sky Laws") and do any and all other acts
or things necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of Registrable Securities owned by
the Holder; provided, however, that in no event shall the Company be
obligated to qualify generally to do business in any jurisdiction where
it is not now qualified or to take any action which would subject it to
the service of process in suits other than those arising out of the
offer or sale of the securities covered by such Registration Statement
in any jurisdictions where it is not now so subject or subject itself
to taxation in any jurisdiction where it would not otherwise be
subject;

<PAGE> 14

(f) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, free of any and all restrictive legends, which
certificates shall be in such denominations and registered in such
names as the Holder may request;

(g) use its best efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on the
Nasdaq Stock Market ("Nasdaq") (or any other market on which the Common
Stock is then listed);

(h) promptly notify the Holder at any time when a
Prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
Prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of the Holder,
except as provided in Section 2(a), the Company shall prepare a
supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
Prospectus shall not contain any untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading.

(i) advise the Holder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such Registration Statement
or the initiation of any proceeding for such purpose and promptly use
all reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued;

(j) furnish to the Holder at the time of the disposition of
such Registrable Securities by the Holder a signed copy of an opinion
of counsel for the Company as to such matters as such Holder may
reasonably request and substantially to the effect that, a registration
statement covering such Registrable Securities has been filed with the
Commission under the Securities Act and has been made effective by
order of the Commission; said registration statement and the prospectus
contained therein comply as to form in all material respects with the
requirements of the Securities Act and, based upon such investigation
and inquiry as said counsel deems necessary or appropriate, nothing has
come to said counsel's attention that would cause it to believe that
either said registration statement or said prospectus contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein (in the case of said prospectus, in the light of the
circumstances under which they were made) not misleading; said counsel
knows of no legal or governmental proceedings required to be described
in said prospectus that are not described as required, or of any
contract or documents of a character required to be described in said
registration statement or said prospectus or to be filed as an exhibit
to said registration statement or to be incorporated by reference
therein that is not described and filed as required; no stop order has
been issued by the Commission suspending the effectiveness of such
registration statement and that, to the best of such counsel's
knowledge, no proceedings for the issuance of such a stop order are
threatened or contemplated; and the applicable provisions of the
securities or blue sky laws of

<PAGE> 15
each state in which the Company shall be required, pursuant to clause
(e) of this Section 3, to register or qualify such Registrable
Securities, have been complied with, assuming the accuracy and
completeness of the information furnished to such counsel with respect
to each filing relating to such laws; it being understood that said
counsel may rely, as to all factual matters and financial data treated
therein, on certificates of the Company (copies of which shall be
delivered to such Holders), and as to all questions of the laws of each
state in which the Company shall be so required to register or qualify
such Registrable Securities, on the opinion of counsel from such state
reasonably acceptable to such Holder, copies of which shall be
delivered to such Holder; and

(k) upon reasonable notice to and consultation with the
Company, make available for inspection by the Holder and any attorney
or accountant retained by the Holder all financial and other records,
pertinent corporate documents and properties of the Company reasonably
necessary in order for the Holder to sell its Shares pursuant to the
Registration Statement; provided that such Persons shall agree in a
writing satisfactory in form and substance to the Company to keep
confidential any records, information or documents of the Company
unless a court or administrative agency requires the disclosure of the
records, information or documents or such records, information or
documents (A) become generally available to the public other than as
result of a disclosure by any such Persons, (B) were available to such
Persons on a non-confidential basis prior to the disclosure of such
records, information or documents pursuant to this Exhibit C, or (C)
become available to such Persons on a non-confidential basis from a
source other than the Company or its agents, advisors or
representatives.

The Company may require the Holder to furnish to the Company
information regarding the Holder and the distribution of the Registrable
Securities as the Company may from time to time reasonably request in writing
and as necessary for the registration of the Shares.

Upon receipt of any notice from the Company of the happening of any of
the following: (i) the SEC's issuance of any stop order denying or suspending
the effectiveness of the Registration Statement or the initiation of any
proceeding for that purpose, (ii) the Company's receipt of any stop order
denying registration or suspending the qualification of the Registrable
Securities for sale or the initiation of any proceeding for such purpose, (iii)
the happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated by reference therein
untrue or which requires any change in the Registration Statement, the
Prospectus or any document incorporated by reference therein to make the
statements not include an untrue statement of material fact or not omit any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, the Holder
shall discontinue the disposition of Registrable Securities until the Holder
receives a supplemented or amended Prospectus from the Company or until the
Company advises the Holder in writing that the Holder may resume the use of the
Prospectus, and have received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus. If the Company so
directs, the Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in the Holder's possession, of the
Prospectus covering the Registrable Securities at the time the Holder received
the notice.

<PAGE> 16

4. Registration Expenses. Regardless of when the Registration
Statement becomes effective, the Company shall bear all costs and expenses
incident to the Company's performance of, or compliance with, this Exhibit C,
including without limitation all registration and filing fees, fees and expenses
of compliance with the Blue Sky Laws, printing expenses, messenger, telephone
and delivery expenses, Nasdaq qualification and listing fees, and fees and
disbursements of counsel for the Company, all independent certified public
accountants of the Company and fees and expenses of other Persons retained by
the Company relating to the distribution of the Registrable Securities (all such
expenses being herein called "Registration Expenses"). The Holder shall pay all
discounts and commissions attributable to the Registrable Securities, all
transfer taxes relating to the sale or disposition of the Registrable Securities
and any fees of any attorney or accountant retained by the Holder.

5. Disclosure. With a view to making available registration on
Form S-3 and the benefits of Rule 144 under the Securities Act, the Company
agrees, for a period two years following the earlier of (x) five (5) years after
the date of this Exhibit C and (y) the date upon which the Holder has purchased
from the Company all of the Shares available under the Warrant, to:

(a) make and keep current public information available
within the meaning of Rule 144(c) of the Securities Act;

(b) file with the SEC in a timely manner all reports and
other documents and information required of the Company under the
Exchange Act, and take such other actions as may be necessary to assure
the availability of Form S-3 for use in connection with the
registration rights provided in this Exhibit C; and

(c) furnish to the Holder forthwith upon request a written
statement as to the Company's compliance with the reporting
requirements of Rule 144 and the Exchange Act, a copy of the Company's
most recent annual and quarterly reports, and such other reports,
documents and other information in the possession of or reasonably
obtainable by the Company as the Holder may reasonably request in
availing itself of Rule 144.

6. Indemnification.

(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, the
Holder against all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and
expenses) to which the Holder may become subject under federal or state
securities laws or otherwise which arise out of, or are caused by, the
Company's violation of any federal or state securities laws, including,
but not limited to, any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or
preliminary prospectus or in any application or other request that the
Company files in connection with the registration contemplated by such
Registration Statement, including any application or request filed
under the Blue Sky Laws or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as the same
are caused by or contained in any written information furnished to the
Company by the Holder expressly for use therein; provided, however, the

<PAGE> 17

Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense results from the fact that
the Holder sold Registrable Securities to a Person to whom there was
not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus or of the final prospectus as then
amended or supplemented, whichever is most recent, if the Company had
previously made available to the Holder a sufficient number of copies
thereof and such final prospectus, as then amended or supplemented,
corrected such misstatement or omission.

(b) Indemnification by the Holder. In connection with any
Registration Statement in which the Holder's Registrable Securities are
registered and sold, the Holder shall furnish to the Company such
information and affidavits as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law,
the Company, its officers, directors and each Person who controls the
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and expenses) resulting from any
untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the
Registration Statement, Prospectus, preliminary Prospectus or any
application filed under the Blue Sky Laws or necessary to make the
statements therein not misleading, but only to the extent that the
untrue statement or omission is contained in any written information or
affidavit so furnished by the Holder to the Company expressly for
inclusion in the Registration Statement, Prospectus or application
filed under the Blue Sky Laws or results from the fact that the Holder
sold Registrable Securities to a Person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of
the final prospectus or of the final prospectus as then amended or
supplemented, whichever is most recent, if the Company had previously
made available a sufficient number of copies thereof to the Holder and
such final prospectus, as then amended or supplemented, corrected such
misstatements or omission.

(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (i) promptly notify the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in
the defense of the claim, but the fees and expenses of the counsel
shall be at the expense of the Person unless (A) the indemnifying party
has agreed to pay the fees or expenses, (B) the indemnifying party
shall have failed to assume the defense of the claim and employ counsel
reasonably satisfactory to the Person, or (C) in the reasonable
judgment of the Person, based upon advice of its counsel, a conflict of
interest may exist between the Person and the indemnifying party with
respect to the claims (in which case, if the Person notifies the
indemnifying party in writing that the Person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of the claim on
behalf of the Person), and in no event (except as set forth in the last
sentence of this Section 6(c)), shall the Holder have the right to
employ more than one separate counsel at the Company's expense for all
of them for any matter. If the

<PAGE> 18

indemnifying party assumes the defense, the indemnifying party will not
be subject to any liability for any settlement made without its
consent. The indemnifying party, however, may not unreasonably withhold
its consent. No indemnifying party will be required to consent to the
entry of any judgment or to enter into any settlement which does not
include as an unconditional term the claimant's or plaintiff's release
of the indemnified party from all liability in respect to the claim or
litigation. An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim shall not be obligated to pay the
fees and expenses of more than one counsel in any jurisdiction for all
parties indemnified by the indemnifying party with respect to the
claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to the claim, in which
event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.

(d) Survival. The indemnities provided in this Section 6
shall survive the Holder's transfer of any Registrable Securities.

<PAGE> 19

SCHEDULE 1 TO
EXHIBIT C: REGISTRATION RIGHTS

The shares offered hereby may be sold from time to time by the Selling
Shareholder, or by pledgees, donees, transferees or other successors in interest
of the Selling Shareholder. Such sales may be made on the Nasdaq Stock Market,
or otherwise, at prices and on terms then prevailing or at prices related to the
then-current market prices, or in negotiated transactions at negotiated prices.
The shares may be sold by one or in a combination of the following: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the shares
as agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; and
(c) ordinary brokerage transaction and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate.

<PAGE> 1
EXHIBIT 10.28

FIRST AMENDMENT TO
SATURN ELECTRONICS & ENGINEERING, INC.
WARRANT TO PURCHASE 495,688 SHARES
OF CLASS B NONVOTING COMMON STOCK

THIS FIRST AMENDMENT TO SATURN ELECTRONICS & ENGINEERING, INC. WARRANT TO
PURCHASE 495,688 SHARES OF CLASS B NONVOTING COMMON STOCK (hereinafter
"Amendment"), is made as of this 24th day of March, 2000 by and between
Motorola, Inc. (the "Holder"), and Saturn Electronics & Engineering, Inc., a
Michigan corporation (the "Company").

WHEREAS, on March 15, 2000, Holder acquired from the Company a Warrant to
Purchase 495,688 Shares of Class B Nonvoting Common Stock (the "Warrant"); and

WHEREAS, Holder and Company desire to amend the Warrant as set forth in
this Amendment.

NOW, THEREFORE, in consideration of the Warrant and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
Holder and Company amend the Warrant as follows:

The Title ad Preamble on the first page of the Warrant are amended to
change the number of Class B Nonvoting Common Shares available for subscription
and purchase from 495,688 to 521,777.

All other terms and provisions of the Warrant remain in full force and
effect and are hereby affirmed.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
written above.

Holder: Company:

MOTOROLA, INC. SATURN ELECTRONICS &
ENGINEERING, INC.

By: /s/ Carl F. Koenamann By: /s/ W. Tsuha
------------------------------------ ---------------------

Title: Executive Vice President and CEO Title: President
-------------------------------- -----------------

<PAGE> 1
EXHIBIT 10.30

SATURN ELECTRONICS & ENGINEERING, INC.
2000 STOCK OPTION PLAN

1. Definitions: As used herein, the following terms shall have the
following meanings:

(a) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the applicable rules and regulations thereunder.

(b) "Committee" shall mean, (i) with respect to administration of the
Plan regarding Participants who are subject to Section 16(a) and (b) of the
Exchange Act, a committee meeting the standards of Rule 16b-3 of the Rules
and Regulations under the Exchange Act, or any similar successor rule,
appointed by the Board of Directors of the Company to perform any of the
functions and duties of the Committee under the Plan, or the Board of
Directors as a whole, and (ii) with respect to administration of the Plan
regarding all other Participants, such committee or the Board of Directors
of the Company, as described in clause (i), or such other committee or
entity appointed by the Board of Directors of the Company to perform any of
the functions and duties of the Committee under the Plan.

(d) "Company" shall mean Saturn Electronics & Engineering, Inc., a
Michigan corporation, or any successor thereof.

(e) "Discretion" shall mean the sole discretion of the Committee, with
no requirement whatsoever that the Committee follow past practices, act in
a manner consistent with past practices, or treat any key employee,
director, consultant or advisor in a manner consistent with the treatment
afforded other key employees, directors, consultants or advisors with
respect to the Plan or otherwise.

(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.

(g) "Incentive Option" shall mean an option to purchase Common Shares
which meets the requirements set forth in the Plan and also is intended to
be, and qualifies as, an incentive stock option within the meaning of
Section 422 of the Code.

(h) "Nonqualified Option" shall mean an option to purchase Common
Shares which meets the requirements set forth in the Plan but is not
intended to be, or does not qualify as, an incentive stock option within
the meaning of the Code.

(i) "Participant" shall mean any individual designated by the
Committee under Paragraph 6 for participation in the Plan.

<PAGE> 2

(j) "Plan" shall mean this Saturn Electronics & Engineering, Inc. 2000
Stock Option Plan.

(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.

(1) "Subsidiary" shall mean any corporation or other entity in which
the Company has a direct or indirect ownership interest of 50% or more of
the total combined voting power of all classes of outstanding voting equity
interests.

2. Purpose of Plan: The purpose of the Plan is to provide key employees
(including officers), directors, consultants and advisors of the Company and its
Subsidiaries (collectively, "key employees") with an increased incentive to make
significant and extraordinary contributions to the long-term performance and
growth of the Company and its Subsidiaries, to join the interests of key
employees, directors, consultants and advisors with the interests of the
shareholders of the Company, and to facilitate attracting and retaining key
employees, directors, consultants and advisors of exceptional ability.

3. Administration: The Plan shall be administered by the Committee. Subject
to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, the amount of stock to be optioned to each such person, the time such
options shall be granted and the terms and conditions of any stock options. Such
terms and conditions may, in the Committee's Discretion, include, without
limitation, provisions providing for termination of the option, forfeiture of
the gain on any option exercises or both if the Participant competes with the
Company or otherwise acts contrary to the Company's interests, and provisions
imposing restrictions, potential forfeiture or both on shares acquired upon
exercise of options granted pursuant to this Plan. The Committee may condition
any grant on the potential Participant's agreement to such terms and conditions.

Subject to the provisions of the Plan, the Committee is authorized to
interpret the Plan, to promulgate, amend and rescind rules and regulations
relating to the Plan and to make all other determinations necessary or advisable
for its administration. Interpretation and construction of any provision of the
Plan by the Committee shall, unless otherwise determined by the Board of
Directors of the Company, be final and conclusive. A majority of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by a
majority of the Committee, shall be the acts of the Committee.

4. Indemnification: In addition to such other rights of indemnification as
they may have, the members of the Committee shall be indemnified by the Company
in connection with any claim, action, suit or proceeding relating to any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder to the full extent provided for under the Company's articles
of incorporation or bylaws with respect to indemnification of directors of the
Company.

2
<PAGE> 3

5. Maximum Number of Shares Subject to Plan: The maximum number of shares
with respect to which stock options may be granted under the Plan shall be an
aggregate of 2,500,000 Common Shares, which may consist in whole or in part of
authorized and unissued or reacquired Common Shares. Unless the Plan shall have
been terminated, shares covered by the unexercised portion of canceled, expired
or otherwise terminated options under the Plan shall again be available for
option and sale.

Subject to Paragraph 16, the number and type of shares subject to each
outstanding stock option, the option price with respect to outstanding stock
options, the aggregate number and type of shares remaining available under the
Plan, and the maximum number and type of shares that may be granted to any
Participant in any fiscal year of the Company pursuant to Paragraph 6, shall be
subject to such adjustment as the Committee, in its Discretion, deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, statutory share exchanges or reorganizations of or
by the Company; provided that no fractional shares shall be issued pursuant to
the Plan, no rights may be granted under the Plan with respect to fractional
shares, and any fractional shares resulting from such adjustments shall be
eliminated from any outstanding option.

6. Participants: The Committee shall determine and designate from time to
time, in its Discretion, those key employees (including officers), directors,
consultants and advisors of or to the Company or any Subsidiary to whom options
are to be granted and who thereby become Participants under the Plan; provided,
however, that (a) Incentive Options shall be granted only to employees (as
defined in the Code) of the Company or a corporate Subsidiary, to the extent
required by Section 422 of the Code, or any successor provision, and (b) no
Participant may be granted stock options to purchase more than 100,00 Common
Shares in the aggregate in any fiscal year of the Company, subject to any
adjustments provided in the final paragraph of Paragraph 5 and in Paragraph 16.

7. Allotment of Shares: The Committee shall determine and fix the number of
Common Shares to be offered to each Participant; provided that no Incentive
Option may be granted under the Plan to any one Participant which would result
in the aggregate fair market value, determined as of the date the option is
granted, of the underlying stock with respect to which Incentive Options are
exercisable for the first time by such individual during any calendar year
(under all of such plans of the Company and its parent and Subsidiary
corporations) exceeding $100,000.

8. Option Price: Subject to the rules set forth in this Paragraph 8, the
Committee, in its Discretion, shall establish the option price at the time any
option is granted. With respect to an Incentive Option, such option price shall
not be less than 100% of the fair market value of the stock on the date on which
such option is granted; provided that with respect to an Incentive Option
granted to an employee who at the time of the grant owns (after applying the
attribution rules of Section 425(d) of the Code) more than 10% of the total
combined voting stock of the Company or of any parent or Subsidiary, the option
price shall not be less than 110% of the fair market value of the stock subject
to the Incentive Option on the date such option is granted. Fair market value of
a share shall be determined by the Committee using any method it deems
reasonable, including, without limitation, an appraisal of the Company by an
investment banking

<PAGE> 4

firm or other appraiser, or by using the closing sale price of the Company's
stock on any exchange or other market on which the Common Shares shall be traded
on such date, or if there is no sale on such date, on the next following date on
which there is a sale, or the average of the closing bid and asked prices in any
market or quotation system in which the Common Shares shall be listed or traded
on such date. The option price will be subject to adjustment in accordance with
the provisions of Paragraphs 5 and 16 of the Plan.

9. Granting and Exercise of Options: The granting of options under the Plan
shall be effected in accordance with determinations made by the Committee
pursuant to the provisions of the Plan, by execution of instruments in writing
in form approved by the Committee. Such instruments shall constitute binding
contracts between the Company and the Participant.

Subject to the terms of the Plan, the Committee, in its Discretion, may
grant to Participants Incentive Options, Nonqualified Options or any combination
thereof. Each option granted under the Plan shall designate the number of shares
covered thereby, if any, with respect to which the option is an Incentive Option
and the number of shares covered thereby, if any, with respect to which the
option is a Nonqualified Option.

Subject to the terms of the Plan, each option granted under the Plan shall
be exercisable at any such time or times or in any such installments as may be
determined by the Committee in its Discretion; provided that the aggregate fair
market value (determined as of the date the option is granted) of the underlying
stock with respect to which Incentive Options are exercisable for the first time
by such individual during any calendar year (under all of such plans of the
Company and its parent and Subsidiary corporations) shall not exceed $ 100,000.
Except as provided in Paragraph 9, options may be exercised only while the
Participant is an employee, director, consultant or advisor of the Company or a
Subsidiary.

Notwithstanding any other term or provision of this Plan, but subject to
the requirements of the Code with respect to Incentive Options that are intended
to remain Incentive Options, in connection with a Participant ceasing to be an
employee of the Company or a Subsidiary for any reason, the stock option
agreement may provide for the acceleration of, or the Committee may accelerate,
in its Discretion (exercised at the date of the grant of the stock option or
after the date of grant), in whole or in part, the time or times or installments
with respect to which any option granted under this Plan shall be exercisable in
connection with termination of a Participant's employment with the Company or a
Subsidiary, subject to any restrictions, terms and conditions fixed by the
Committee either at the date of the award or at the date it exercises such
Discretion.

Successive stock options may be granted to the same Participant, whether or
not the option or options previously granted to such Participant remain
unexercised. A Participant may exercise any option granted under the Plan, if
then exercisable, notwithstanding that options granted to such Participant prior
to the option then being exercised remain unexercised.

10. Payment of Option Price: At the time of the exercise in whole or in
part any option granted under this Plan, payment in fall in cash, or with the
consent of the Committee, in its Discretion, in Common Shares or by a promissory
note payable to the order of the Company which is acceptable to the Committee,
shall be made by the Participant for all shares so

<PAGE> 5

purchased. Such payment may, with the consent of the Committee, in its
Discretion, also consist of a cash down payment and delivery of such a
promissory note in the amount of the unpaid exercise price. In the Discretion
of, and subject to such conditions as may be established by, the Committee,
payment of the option price may also be made by the Company retaining from the
shares to be delivered upon exercise of the stock option that number of shares
having a fair market value on the date of exercise equal to the option price of
the number of shares with respect to which the Participant exercises the option.
In the Discretion of the Committee, a Participant may exercise an option, if
then exercisable, in whole or in part, by delivery to the Company of written
notice of the exercise in such form as the Committee may prescribe, accompanied
by irrevocable instructions to a stock broker to promptly deliver to the Company
full payment for the shares with respect to which the option is exercised from
the proceeds of the stock broker's sale of or loan against some or all of the
shares. Such payment may also be made in such other manner as the Committee
determines is appropriate, in its Discretion. No Participant shall have any of
the rights of a shareholder of the Company under any option until the actual
issuance of shares to such Participant, and prior to such issuance no adjustment
shall be made for dividends, distributions or other rights in respect of such
shares, except as provided in Paragraphs 5 and 14.

11. Transferability of Option: Except as otherwise provided in this
Paragraph 11, to the extent required by Section 422 of the Code, or any
successor section, but only with respect to Incentive Options, or to the extent
determined by the Committee in its Discretion (either by resolution or by a
provision in, or amendment to, the option), (i) no option granted under the Plan
to a Participant shall be transferable by such Participant otherwise than by
will, or by the laws of descent and distribution or, with respect to
Nonqualified Options only (unless permitted by Section 422 of the Code or any
successor section), pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, and (ii) such option shall be exercisable, during the lifetime
of the Participant, only by the Participant.

The Committee may, in its Discretion, authorize all or a portion of the
options to be granted to an optionee to be on terms which permit transfer by
such optionee to, and the exercise of such option by, (i) the spouse, children
or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership in which such Immediate Family Members are the only partners, or
(iv) such other persons or entities as determined by the Committee, in its
Discretion, on such terms and conditions as the Committee, in its Discretion,
may determine; provided that (y) the stock option agreement pursuant to which
such options are granted must be approved by the Committee and must expressly
provide for transferability in a manner consistent with this paragraph 11, and
(z) subsequent transfers of transferred options shall be prohibited except for
transfers the original optionee would be permitted to make (if he or she were
still the owner of the option) in accordance with this Paragraph 11.

Following transfer, any such options shall continue to be subject to the
same terms and conditions as were applicable immediately before transfer,
provided that for purposes of Paragraphs 9, 10, 14, 16 and 18 the term
"Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Paragraph 13 shall continue to be applied with

<PAGE> 6

respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods, specified
in Paragraph 13. The original optionee shall remain subject to withholding taxes
and related requirements upon exercise provided in Paragraph 15. The Company
shall have no obligation to provide any notice to any transferee, including,
without limitation, notice of any termination of the option as a result of
termination of the original optionee's employment with, or other service to, the
Company.

12. Continuance of Employment; No Right to Continued Employment: The
Committee may require, in its Discretion, that any Participant under the Plan to
whom an option shall be granted shall agree in writing as a condition of the
granting of such option to remain in his or her position as an employee,
director, consultant or advisor of the Company or a Subsidiary for a designated
minimum period from the date of the granting of such option as shall be fixed by
the Committee.

Nothing contained in the Plan or in any option granted pursuant to the
Plan, nor any action taken by the Committee hereunder, shall confer upon any
Participant any right with respect to continuation of employment, consultation
or other service by or to the Company or a Subsidiary nor interfere in any way
with the right of the Company or a Subsidiary to terminate such person's
employment, consultation or other service at any time.

13. Termination of Employment; Expiration of Options: Subject to the other
provisions of the Plan, including, without limitation, Paragraphs 9 and 13 and
this Paragraph 13, all rights to exercise options shall terminate when a
Participant ceases to be an employee, director, consultant or advisor of or to
the Company or a Subsidiary for any cause, except that the Committee may, in its
Discretion, permit the exercise of all or any portion of the options granted to
such Participant

(i) for a period not to exceed three months following such termination
with respect to Incentive Options that are intended to remain Incentive
Options if such termination is not due to death or permanent disability of
the Participant,

(ii) for a period not to exceed one year following termination of
employment with respect to Incentive Options that are Intended to remain
Incentive Options if termination of employment is due to the death or
permanent disability of the Participant, and

(iii) for a period not to extend beyond the expiration date with
respect to Nonqualified Options or Incentive Options that are not intended
to remain Incentive Options,

all subject to any restrictions, terms and conditions fixed by the Committee
either at the date of the award or at the date it exercises such Discretion. In
no event, however, shall an option be exercisable after its expiration date,
and, unless the Committee in its Discretion determines otherwise (pursuant to
Paragraph 9 or Paragraph 16), an option may only be exercised after termination
of a Participant's employment, consultation or other service by or to the
Company to the extent exercisable on the date of such termination or to the
extent exercisable as a result of the reason for such termination. The Committee
may evidence the exercise of its Discretion

<PAGE> 7

under this Paragraph 13 in any manner it deems appropriate, including by
resolution or by a provision in, or amendment to, the option.

If not sooner terminated, each stock option granted under the Plan shall
expire not more than 10 years from the date of the granting thereof; provided
that with respect to an Incentive Option granted to a Participant who, at the
time of the grant, owns (after applying the attribution rules of Section 425(d)
of the Code) more than 10% of the total combined voting stock of all classes of
stock of the Company or of any parent or Subsidiary, such option shall expire
not more than 5 years after the date of granting thereof.

14. Investment Purpose: If the Committee in its Discretion determines that
as a matter of law such procedure is or may be desirable, it may require a
Participant, upon any exercise of any option granted under the Plan or any
portion thereof and as a condition to the Company's obligation to deliver
certificates representing the shares subject to exercise, to execute and deliver
to the Company a written statement, in form satisfactory to the Committee,
representing and warranting that the Participant's purchase of Common Shares
upon exercise thereof shall be for such person's own account, for investment and
not with a view to the resale or distribution thereof and that any subsequent
sale or offer for sale of any such shares shall be made either pursuant to (a) a
Registration Statement on an appropriate form under the Securities Act, which
Registration Statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the
Participant shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
availability of such exemption. The Company may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant upon exercise
of any option granted under the Plan.

15. Withholding Payments: If upon the exercise of any Nonqualified Option
or a disqualifying disposition (within the meaning of Section 422 of the Code)
of shares acquired upon exercise of an Incentive Option, there shall be payable
by the Company or a Subsidiary any amount for income tax withholding, in the
Committee's Discretion, either the Participant shall pay such amount to the
Company, or the amount of Common Shares delivered by the Company to the
Participant shall be appropriately reduced, to reimburse the Company or such
Subsidiary for such payment. The Company or any of its Subsidiaries shall have
the right to withhold the amount of such taxes from any other sums or property
due or to become due from the Company or any of its Subsidiaries to the
Participant upon such terms and conditions as the Committee shall prescribe. The
Company may also defer issuance of the stock upon exercise of such option until
payment by the Participant to the Company of the amount of any such tax. The
Committee may, in its Discretion, permit Participants to satisfy such
withholding obligations, in whole or in part, by electing to have the amount of
Common Shares delivered or deliverable by the Company upon exercise of a stock
option appropriately reduced, or by electing to tender Common Shares back to the
Company subsequent to exercise of a stock option to reimburse the Company for
such income tax withholding, subject to such rules and regulations, if any, as
the Committee may adopt. The Committee may make such other arrangements with
respect to income tax withholding as it shall determine.

<PAGE> 8

16. Extraordinary Transactions: In case the Company (i) consolidates with
or merges into any other corporation or other entity and is not the continuing
or surviving entity of such consolidation or merger, or (ii) permits any other
corporation or other entity to consolidate with or merge into the Company and
the Company is the continuing or surviving entity but, in connection with such
consolidation or merger, the Common Shares are changed into or exchanged for
stock or other securities of any other corporation or other entity or cash or
any other assets, or (iii) transfers all or substantially all of its properties
and assets to any other corporation or other person or entity, or (iv) dissolves
or liquidates, or (v) effects a capital reorganization or reclassification in
such a way that holders of Common Shares shall be entitled to receive stock,
securities, cash or other assets with respect to or in exchange for the Common
Shares, then, and in each such case, proper provision shall be made so that,
each Participant holding a stock option upon the exercise of such option at any
time after the consummation of such consolidation, merger, transfer,
dissolution, liquidation, reorganization or reclassification (each transaction,
for purposes of this Paragraph 16, being herein called a "Transaction"), shall
be entitled to receive (at the aggregate option price in effect for all Common
Shares issuable upon such exercise immediately prior to such consummation and as
adjusted to the time of such Transaction), in lieu of Common Shares issuable
upon such exercise prior to such consummation, the stock and other securities,
cash and assets to which such Participant would have been entitled upon such
consummation if such Participant had so exercised such stock option in full
immediately prior thereto (subject to adjustments subsequent to such Transaction
provided for in Paragraph 5).

Notwithstanding anything in the Plan to the contrary, in connection with
any Transaction and effective as of a date selected by the Committee, which date
shall, in the Committee's judgment, be far enough in advance of the Transaction
to permit Participants holding stock options to exercise their options and
participate in the Transaction as a holder of Common Shares, the Committee,
acting in its Discretion without the consent of any Participant, may effect one
or more of the following alternatives with respect to all of the outstanding
stock options (which alternatives may be made conditional on the occurrence of
the applicable Transaction and which may, if permitted by law, vary among
individual Participants): (a) accelerate the time at which stock options then
outstanding may be exercised so that such stock options may be exercised in full
for a limited period of time on or before a specified date fixed by the
Committee after which specified date all unexercised stock options and all
rights of Participants thereunder shall terminate; (b) accelerate the time at
which stock options then outstanding may be exercised so that such stock options
may be exercised in full for their then remaining term; or (c) require the
mandatory surrender to the Company of outstanding stock options held by such
Participants (irrespective of whether such stock options are then exercisable)
as of a date, before or not later than sixty days after such Transaction,
specified by the Committee, and in such event the Company shall thereupon cancel
such stock options and shall pay to each Participant an amount of cash equal to
the excess of the fair market value of the aggregate Common Shares subject to
such stock option, determined as of the date such Transaction is effective, over
the aggregate option price of such shares; provided, however, the Committee
shall not select an alternative (unless consented to by the Participant) such
that, if a Participant exercised his or her accelerated stock option pursuant to
alternative (a) or (b) and participated in the Transaction or received cash
pursuant to alternative (c), the alternative would result in the Participant's
owing any money by virtue of the operation of Section 16(b) of the Exchange Act.
If all such alternatives have such a

<PAGE> 9

result, the Committee shall, in its Discretion, take such action to put such
Participants in as close to the same position as such Participant would have
been in had alternative (a), (b) or (c) been selected but without resulting in
any payment by such Participant pursuant to Section 16(b) of the Exchange Act.
Notwithstanding the foregoing, with the consent of affected Participants, each
with respect to such Participant's option only, the Committee may in lieu of the
foregoing make such provision with respect to any Transaction as it deems
appropriate.

17. Effectiveness of Plan: This Plan shall be effective on the date the
Board of Directors of the Company adopts this Plan, provided that the
shareholders of the Company approve the Plan within 12 months before or after
its adoption by the Board of Directors. Options may be granted before
shareholder approval of this Plan, but each such option shall be subject to
shareholder approval of this Plan. No option granted under this Plan shall be
exercisable unless and until this Plan shall have been approved by the Company's
shareholders.

18. Termination, Duration and Amendments to the Plan: The Plan may be
abandoned or terminated at any time by the Board of Directors of the Company.
Unless sooner terminated, the Plan shall terminate on the date ten years after
the earlier of its adoption by the Board of Directors or its approval by the
shareholders of the Company, and no stock options may be granted under the Plan
thereafter. The termination of the Plan shall not affect the validity of any
option which is outstanding on the date of termination.

For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Company, to amend or revise the terms of this Plan or any option agreement
under this Plan at any time; provided, however, that (i) to the extent required
by Section 162(m) of the Code and related regulations, or any successor rule,
but only with respect to amendments or revisions affecting Participants whose
compensation is subject to Section 162(m) of the Code, and to the extent
required by Section 422 of the Code, or any successor section, but only with
respect to Incentive Options, no such amendment or revision shall increase the
maximum number of shares in the aggregate which are subject to this Plan
(subject, however, to the provisions of Paragraphs 5 and 16) without the
approval or ratification of the shareholders of the Company, and (ii) no such
amendment or revision shall change the option price (except as contemplated by
Paragraphs 5 and 16) or alter or impair any option which shall have been
previously granted under this Plan, in a manner adverse to a Participant,
without the consent of such Participant.

As adopted by the Board of Directors on April 19, 2000.

<PAGE> 1
EXHIBIT 21

List of Subsidiaries

Subsidiaries State/Country of Incorporation/Organization
- ------------ -------------------------------------------
<S> <C>
Saturn Electronics Texas, LLC Texas

Saturn Manufacturing Co. Ohio

Saturn de Monterrey S.A. de C.V. Mexico

Saturn Electronics Texas, LLC Texas

Saturn Electronics de Juarez, Mexico
S.A. de C.V.

Saturn Electronics & Engineering Delaware
(Tustin), Inc.

Saturn Electronics & Engineering Delaware
(Fremont), Inc.

Saturn Electronics & Engineering Delaware
(Hudson), Inc.

Saturn Electronics & Engineering Delaware
(New Jersey), Inc.

Saturn Electronics & Engineering California
(Santa Clara), Inc.

Saturn Electronics de Monterrey Mexico
S.A. de C.V.

Saturn Electronics de Guadalajara Mexico
S.A. de C.V.

Saturn Electronics Philippines, Inc. Philippines

Saturn Electronics Singapore PTE Ltd. Singapore

All domestic entities conduct business under the name "Saturn Electronics &
Engineering" and all foreign entities conduct business under the name "Saturn
Electronics".
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
2000 UNAUDITED INTERIM BALANCE SHEET & INCOME STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,798
<SECURITIES> 0
<RECEIVABLES> 80,813
<ALLOWANCES> 1,386
<INVENTORY> 37,908
<CURRENT-ASSETS> 136,479
<PP&E> 92,204
<DEPRECIATION> 25,194
<TOTAL-ASSETS> 271,236
<CURRENT-LIABILITIES> 77,029
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 56,295
<TOTAL-LIABILITY-AND-EQUITY> 271,236
<SALES> 122,280
<TOTAL-REVENUES> 122,280
<CGS> 100,925
<TOTAL-COSTS> 100,925
<OTHER-EXPENSES> 278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,538
<INCOME-PRETAX> (5,142)
<INCOME-TAX> (1,670)
<INCOME-CONTINUING> (3,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,472)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)

</TABLE>