SATURN ELECTRONICS & ENGINEERING INC, S-1/A, 2000-07-24

SATURN ELECTRONICS & ENGINEERING INC
S-1/A, 2000-07-24
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 2000

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

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

AMENDMENT NO. 4 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. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Common Stock, without par
value.......................... 12,000,000 $12.00 $144,000,000 $38,016.00
-----------------------------------------------------------------------------------------------------------
Common Stock, without par value,
issuable upon exercise of
underwriters' over-allotment
option......................... 1,800,000 $12.00 $ 21,600,000 $ 5,702.40
-----------------------------------------------------------------------------------------------------------
Total Registration Fee........... $43,718.40(2)
===========================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) of the Securities Act of 1933, as amended.

(2) $33,000 of the registration fee was paid upon the initial filing of this
Registration Statement.

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

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 JULY 24, 2000

12,000,000 Shares

[SATURN ELECTRONICS & ENGINEERING, INC. 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 $10.00 and $12.00 per share. We have applied to have our common stock
traded on the New York Stock Exchange, under the symbol "SN."

We are selling 7,200,000 shares of common stock and the selling
shareholders are selling 4,800,000 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 1,800,000
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.]
Saturn Electronics & Engineering, Inc. is a global supplier of electronic
manufacturing services to original equipment manufacturers and their suppliers.
These services are provided to customers primarily in the automotive,
communications, computer and military end markets.

[SATURN 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. More 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.

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<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...... 7,200,000 shares
The selling shareholders................... 4,800,000 shares
Total................................. 12,000,000 shares
Common stock to be outstanding after the
offering................................... 36,941,280 shares
Use of proceeds.............................. We intend to use our entire net proceeds of
approximately $72.5 million to reduce
indebtedness under our credit facility. We
will not receive any proceeds from the sale
of shares of our common stock being offered
by the selling shareholders.
Proposed New York Stock Exchange symbol...... SN
</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 March 31, 2000 and
excludes:

- 2,822,400 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 29,998 4,090 6,811
Amortization expense...... 1,650 1,649 2,582 4,772 412 1,056
Restructuring expense..... -- -- -- 3,833 -- --
Charge for warrant issued
below fair value........ -- -- -- -- -- 7,909
---------- ----------- ---------- ---------- ---------- ----------
Operating income (loss)... 14,228 21,516 22,297 9,536 5,813 (439)
Net income (loss)......... $ 8,059 $ 11,954 $ 9,905 $ (2,682) $ 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 $ 3,798
Working capital............................................. 59,450 59,450
Total assets................................................ 271,236 271,236
Long-term debt.............................................. 117,110 44,654
Total shareholders' equity.................................. 56,295 128,751
</TABLE>

The as adjusted balance sheet data reflect:

- our receipt of the estimated net proceeds from our sale of 7,200,000
shares of our common stock in this offering at an assumed initial public
offering price of $11.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us; and

- the assumed repayment of $72.5 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
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<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 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 were recently approved 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 it 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 Current Public Company Criteria:

- minorities continue to 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.

While the Current Public Company Criteria have recently been adopted, we
cannot assure you that the Current Public Company Criteria will not be changed
in the future in a manner that could disqualify us from continuing our status as
a minority business enterprise.

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, resulting in the loss of the minority
business enterprise status of the Saturn LLC's products, either we or Lear can
cause the dissolution of the Saturn LLC, but only after we and Lear each use our
best efforts to re-qualify those products 180 days prior to the dissolution. We
cannot assure you that we would be capable of replacing the net revenue we
derived from the Saturn LLC after such dissolution.

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 Current
Public Company 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, if we issue additional stock in the future, in
connection with acquisitions or otherwise, or if the beneficial ownership of Mr.
Wallace K. Tsuha, Jr. or his family is reduced voluntarily or involuntarily
through sale, transfer, death, personal bankruptcy or otherwise, and other
ethnic minorities cease to hold at least 30% of our common stock, we

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<PAGE> 11

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 to
maintain or expand their commitments to provide business to certified 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 Current Public Company Criteria, at least 30% of our equity must
be owned by ethnic minorities for us to be certified as a minority business
enterprise. As a result, 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.

7
<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 end 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 may 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 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 44.6% of our common stock on a fully diluted basis, or 42.8%, 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.

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.

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 $11.00 per
share, this deferred compensation will be approximately $23.3 million, and will
be amortized as stock-based compensation using an accelerated method over the
vesting 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.

13
<PAGE> 18

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 36,941,280 shares of common stock
outstanding. This includes the 12,000,000 shares we and the selling shareholders
are selling in this offering, which may be resold in the public market
immediately. The remaining 24,941,280 shares, or 67.5% 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,
which will hold 17.6% of our shares following this offering, Mr. Tsuha and
trusts for the benefit of Mr. Tsuha and his family, which together will hold
49.9% of our shares following the offering, and Motorola, with respect to the
shares it may acquire pursuant to its warrant, have the right to require us to
register their shares following this offering under the circumstances described
in "Registration Rights" beginning on page 53. All holders of registration
rights have agreed not to exercise their registration rights until 180 days, or,
in the case of MascoTech, 365 days following the date of this prospectus without
the consent of Credit Suisse First Boston Corporation.

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 may 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.

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<PAGE> 20

USE OF PROCEEDS

We will receive net proceeds of approximately $72.5 million from our sale
of 7,200,000 shares of our common stock in this offering at the assumed initial
public offering price of $11.00 per share after deducting underwriting discounts
and commissions and estimated offering expenses payable 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 our entire net proceeds from this offering to reduce our
indebtedness under our credit facility. 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 immediately used to reduce our indebtedness
under the bank credit facility will be invested in short-term, interest-bearing
securities until used to reduce such indebtedness.

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 7,200,000 shares of common
stock in this offering at an assumed initial public offering price of
$11.00 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 $72.5 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 $ 3,798
======== ========
Long-term debt.............................................. $117,110 $ 44,654
-------- --------
Shareholders' equity:
Common stock -- no par value; 200,000,000 shares
authorized, actual and as adjusted; 29,741,280 shares
outstanding, actual, 36,941,280 shares outstanding as
adjusted............................................... -- --
Additional paid-in capital................................ 15,646 88,102
Retained earnings......................................... 40,649 40,649
-------- --------
Total shareholders' equity............................. 56,295 128,751
-------- --------
Total capitalization................................. $173,405 $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 March 31, 2000 and excludes:

- 2,822,400 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 and minority interest
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 $62.9 million, or $1.70 per share, after giving effect to our sale
of shares of common stock in this offering at an assumed public offering price
of $11.00 per share 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 $2.02 per share to our existing shareholders and an immediate dilution
of $9.30 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............. $11.00
Pro forma net tangible book value per share at March 31,
2000................................................... $(0.32)
Increase per share attributable to new investors.......... 2.02
------
Pro forma tangible book value per share after this
offering.................................................. 1.70
------
Dilution per share to new investors......................... $ 9.30
======
</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 $11.00 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
---------- ------- -------------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 29,741,280 80.5% $ 7,737 8.9% $ 0.26
New investors.............. 7,200,000 19.5% 79,200 91.1% 11.00
---------- ----- ------- -----
Total................. 36,941,280 100.0% $86,937 100.0%
========== ===== ======= =====
</TABLE>

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

- 2,822,400 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 options or the Motorola warrant are exercised in
the future, there may be further dilution to new investors. Assuming the pro
forma net tangible book value as of March 31, 2000 as set forth above and a
$11.00 per share market price, if the Motorola warrant and all of the
outstanding options (which warrant and options are not currently exercisable)
were fully exercised on a cashless basis, investors would suffer further
dilution of $.10 per share, of which less than $0.01 per share relates to the
Motorola warrant.

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 21
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 29,998 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 -- --
Charge for warrant issued
below fair value......... -- -- -- -- -- -- -- 7,909
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)... (3,271) 12,751 14,228 21,516 22,297 9,536 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) (179) 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 6,434 515 1,885 (1,670)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)......... $ (3,378) $ 7,002 $ 8,059 $ 11,954 $ 9,905 $ (2,682) $ 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 $11.00 per share, this
deferred compensation will be $23.3 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. In addition, because of unutilized
capacity at our electronics manufacturing facilities, the revenues of the
electronics segment during the first quarter of 2000 were insufficient to cover
the fixed costs incurred during the period.

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.

Charge for Warrant Issued Below Fair Value

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 the entire net proceeds of this offering to reduce
indebtedness under our credit facility.

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 currently 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.
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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
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, 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 17.6% of our
outstanding common stock, or 15.7% of our outstanding common stock on a fully
diluted basis. 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 be awarded 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 end 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 June 30, 2000, we employed a total of 4,322 persons. We currently
have no collective bargaining contracts other than in Mexico where we have 2,657
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)........................... 63 Director
Sherman L. Cruz............................ 48 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 Controls.

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. Our amended and restated articles of incorporation provide
that our directors may be removed only with cause, by vote of the holders of a
majority of the

43
<PAGE> 48

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, 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, 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.

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<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 $11.00 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 $2,187,310
Nick Najmolhoda......................................... 264,000 2,223,516
Gene R. Smith........................................... 198,000 1,610,670
</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 March 31, 2000, we had outstanding under our 1995 Management Stock
Option Plan, or the 1995 Plan, options to purchase a total of 2,822,400 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.

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<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% 510,000 11,893,895 32.2%
MascoTech, Inc...................... 10,781,280 36.3 4,290,000 6,491,280 17.6%
21001 Van Born Rd
Taylor, Michigan 48180
Jennifer Tsuha Pelling(3)(5)........ 2,156,105 7.2 -- 2,156,105 5.8%
2285 Rutherford Road
Carlsbad, California 92008
Bank One Trust N.A. ................ 4,400,000 14.8 -- 4,400,000 11.9%
2155 West Big Beaver
Troy, Michigan 48084(4)
Sherman L. Cruz (4)(5).............. 4,400,000 14.8 -- 4,400,000 11.9%
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 56.5 510,000 16,293,895 44.1%
</TABLE>

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

(1) These numbers assume that the underwriters' over-allotment option is not
exercised. Mr. Tsuha is offering 765,000 shares of common stock and
MascoTech is offering 1,035,000 shares of common stock in the over-allotment
option. Assuming full exercise of the over-allotment option, Mr. Tsuha will
own 11,128,895 shares of common stock, constituting 30.1% of the shares
outstanding, and MascoTech will own 5,456,280 shares of common stock,
constituting 14.8% 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.

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<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 June 30, 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 American Stock
Transfer & Trust Company.

LISTING

We have applied to have our common stock traded on the New York Stock
Exchange, under the trading symbol "SN," 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
36,941,280 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
24,941,280 will be available for sale in the public market 180 days, or 365 days
in the case of MascoTech, 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 369,413 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.

LOCK-UP AGREEMENTS AND BLACKOUT PERIOD

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
52
<PAGE> 57

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, or 365 days in the case of MascoTech, 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. For further
details on the lock-ups and our black-out period, see "Underwriting."

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 2,822,400 shares of common stock reserved for
issuance for options outstanding as of March 31, 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 365 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
those possessed by MascoTech, and those rights expire if the Tsuha shareholders
collectively own less than 15% of the outstanding shares of our common stock.
The registration rights of the Tsuha shareholders, however, can be exercised
following 180 days after the effectiveness of this offering.

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. All
holders of registration rights have agreed not to exercise their registration
rights until 180 days, or 365 days in the case of MascoTech, following the date
of this prospectus without the consent of Credit Suisse First Boston
Corporation.

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<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............................................. 12,000,000
==========
</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 up to 1,800,000 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......................... $ $ $ $
</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.

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

54
<PAGE> 59

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, or 365 days in the case of MascoTech, 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 New York Stock
Exchange, under the symbol "SN."

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.

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

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

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.

55
<PAGE> 60

- 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. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option -- a naked short position -- that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.

- 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.

These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange 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.

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<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 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)........................................... $ (2,682) $ 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.

Consistent with the methodology of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," the pro forma
effects of deferred compensation associated with these options at the offering
date would have amounted to $23,304,002 which will be amortized as stock-based
compensation using an accelerated method over the vesting period of the related
options. 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
shareholder 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
shareholder 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 shareholder 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 $79,200,000. The net
proceeds from the offering will be used to reduce indebtedness under the
Company's credit facility in the estimated amount of $72,456,000.

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:
Preferred stock -- 1,000,000 shares authorized, none issued
or outstanding............................................ -- --
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 $2,526
and $2,148................................................ $ 122,280 $ 47,985
Cost of revenue, including related party transactions of
$1,777 and $1,591......................................... 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
Charge for warrant issued below fair value.................. 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) --
Charge for warrant issued below fair value................ 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 excluded from the computation for
the three months ended March 31, 2000 because the effect is

F-25
<PAGE> 88
SATURN ELECTRONICS & ENGINEERING, INC.

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

5. EARNINGS PER SHARE OF COMMON STOCK -- (CONTINUED)
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.(11) 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 10,852 29,998
Amortization expense.................... 2,582 531 (531)(2)
2,190(3) 4,772
Restructuring expense................... 3,833 3,833
---------- -------- ----------- ----------
Operating income (loss)............... 22,297 (10,845) (1,916) 9,536
Interest income......................... 331 463 (463)(4)
(331)(5) --
Interest expense........................ (3,340) (898) 898(6)
3,340(7)
(8,293)(8)
(443)(9) (8,736)
Other income (expense), net............. (161) (18) (179)
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) (3,024)(10) 515
---------- -------- ----------- ----------
Net income (loss)..................... $ 9,905 $ (8,403) $ (4,184) $ (2,682)
========== ======== =========== ==========
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.

(11) Represents the Consolidated Statement of Operations of Smartflex Systems,
Inc. for the period of January 1, 1999 through August 25, 1999. The
reconciliation of the results of operations for the period of January 1,
1999 through June 30, 1999 to the period of January 1, 1999 through August
25, 1999 follows:

<TABLE>
<CAPTION>
RECLASSIFICATION OF
JANUARY 1, 1999 ENGINEERING EXPENSES JULY 1, 1999 JANUARY 1, 1999
THROUGH RECORDED JANUARY 1, THROUGH THROUGH
JUNE 30, 1999 THROUGH JUNE 30, 1999(A) AUGUST 25, 1999 AUGUST 25, 1999
--------------- ------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Net revenue.................... $53,491 $14,981 $ 68,472
Cost of revenue................ 48,143 $ 634 14,600 63,377
------- ------- ------- --------
Gross profit................. 5,348 (634) 381 5,095
Development Expense............ -- 570 154 724
Selling, general and
administrative expense....... 7,876 (1,204) 4,180 10,852
Amortization expense........... 398 133 531
Restructuring expense.......... 3,847 (14) 3,833
------- ------- ------- --------
Operating income (loss)...... (6,773) -- (4,072) (10,845)
Interest income................ 489 (26) 463
Interest expense............... (652) (246) (898)
Other income (expense), net.... 188 (206) (18)
------- ------- ------- --------
Income loss before taxes..... (6,748) -- (4,550) (11,298)
Income taxes................... (1,348) (1,547) (2,895)
------- ------- ------- --------
Net income (loss)............ $(5,400) -- $(3,003) $ (8,403)
======= ======= ======= ========
</TABLE>

---------------
(A) To reclassify engineering expense of Smartflex to conform to the Saturn
presentation.

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.]

PRIMARY END MARKETS SERVED
PRINCIPAL SERVICES OFFERED TO
PRIMARY END MARKETS SERVED
[SATURN 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........................................ $ 34,848
NASD Fee.................................................... 13,000
Nasdaq National Market Listing Fee.......................... 70,000
Printing and Engraving Expenses............................. 250,000
Accounting Fees and Expenses................................ 175,000
Legal Fees and Expenses..................................... 225,000
Transfer Agent's Fees and Expenses.......................... 4,000
Miscellaneous Expenses...................................... 428,152
----------
Total.................................................. $1,200,000
==========
</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. 4.

*** 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 Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Auburn Hills,
Michigan on July 24, 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)

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to 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, July 24, 2000
--------------------------------------------------- chairman of the board and director
Wallace K. Tsuha, Jr. (principal executive officer)

/s/ DONALD J. COWIE Chief financial officer, executive July 24, 2000
--------------------------------------------------- vice president, treasurer and
Donald J. Cowie assistant secretary (principal
financial and accounting officer)

/s/ WILLIAM T. ANDERSON* Director July 24, 2000
---------------------------------------------------
William T. Anderson

/s/ DAVID E. COLE* Director July 24, 2000
---------------------------------------------------
David E. Cole

/s/ SHERMAN L. CRUZ* Director July 24, 2000
---------------------------------------------------
Sherman L. Cruz

/s/ FOREST J. FARMER* Director July 24, 2000
---------------------------------------------------
Forest J. Farmer
</TABLE>

II-5
<PAGE> 125

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICK INATOME* Director July 24, 2000
---------------------------------------------------
Rick Inatome

/s/ GARY E. LIEBL* Director July 24, 2000
---------------------------------------------------
Gary E. Liebl

*By: /s/ DONALD J. COWIE July 24, 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. 4.

*** To be filed by Amendment.