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<SEC-DOCUMENT>0000719733-01-500004.txt : 20010213
<SEC-HEADER>0000719733-01-500004.hdr.sgml : 20010213
ACCESSION NUMBER:		0000719733-01-500004
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20001230
FILED AS OF DATE:		20010212

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KEY TRONIC CORP
		CENTRAL INDEX KEY:			0000719733
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER PERIPHERAL EQUIPMENT, NEC [3577]
		IRS NUMBER:				910849125
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		
		SEC FILE NUMBER:	000-11559
		FILM NUMBER:		1532737

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 14687
		CITY:			SPOKANE
		STATE:			WA
		ZIP:			99216
		BUSINESS PHONE:		5099288000

	MAIL ADDRESS:	
		STREET 1:		P O BOX 14687
		CITY:			SPOKANE
		STATE:			WA
		ZIP:			99214
</SEC-HEADER>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>1
<FILENAME>purchase.htm
<DESCRIPTION>R&A BUILDING SALE
<TEXT>

<HTML>

<P ALIGN="CENTER"><FONT SIZE=3><B>PURCHASE AND SALE AGREEMENT</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into by and between Key Tronic Corporation, a Washington corporation ("Seller"), and Royal Hills Associates, L.L.C. and/or
assigns ("Purchaser").  The Agreement is effective upon the date the last party to sign, executes and delivers this document to the other party ("Effective Date").</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>RECITALS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller is the owner of the real property and improvements legally described in Exhibit A, which is attached to and incorporated in this Agreement by this reference.  In the event Exhibit A is
incomplete or inaccurate, the parties authorize the Title Company to correct this exhibit to include all contiguous real property owned by Seller.  The real property and improvements described in Exhibit A consists of an approximately 100,351 square foot
two-story office/manufacturing building on an approximately 25 acre parcel of land.  Seller desires to sell to Purchaser, and Purchaser desires to acquire from Seller, the real property and improvements and certain associated assets described in this
Agreement on the terms
and conditions hereinafter set forth.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the foregoing premises and the respective representations, warranties agreements and conditions herein contained, and the deposit by Purchaser of Ten Thousand
Dollars ($10,000) and Purchaser's promissory note in the face amount of Ninety Thousand Dollars ($90,000), which note shall be due and payable in full into the Escrow on or before expiration of the Inspection Period, on the Effective Date into the Escrow
which, together with all interest thereon, are collectively referred to as "Earnest Money" or "Earnest Money Deposit" and shall be applied to the purchase price or refunded to Purchaser or paid to Seller as described herein, the parties hereto agree as
follows:</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE I</B><BR></FONT>
<FONT SIZE=3><B>DEFINITIONS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of this Agreement, the following terms (in addition to
terms given defined
meanings elsewhere in this Agreement) shall have the meanings set forth below in
this Article I.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Alterations and Upgrades"</B> - shall have the meaning defined in Section 7.2.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Closing" and "Closing Date"</B> - shall have the meaning defined in Section 9.1.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Cut-Off Time"</B> - shall have the meaning defined in Section 9.2.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Due Diligence Materials"</B> - shall have the meaning defined in Section 5.1.3.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Office Building"</B> - shall mean the approximately 100,351 square foot two story office building located at 4424 North Sullivan Road, Spokane, Washington 99216, on the Land described in Exhibit A which is attached to and
incorporated in this Agreement by this reference.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Contracts"</B> - shall mean all service, maintenance, and other contracts respecting the maintenance or operation of the Office Building listed on Exhibit C, attached hereto and incorporated herein by this reference.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Equipment"</B> - shall mean the fixtures, fittings, equipment, machinery, apparatus, appliances and articles of personal property used in connection with the normal operation of all or any part of the Office Building,
including but not limited to, those items listed on Exhibit D, attached hereto and incorporated herein by this reference.  Purchaser is not acquiring any interest in the trade fixtures and equipment owned by Seller and not used in the normal operation of
all or any part of the
Office Building.  For clarification purposes, some of the items which Purchaser is not acquiring are listed on the attached Exhibit E.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Exterior Improvements"</B> - shall mean the portion of the Alterations and Upgrades more particularly described on Exhibit B attached hereto and incorporated herein by this reference.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Improvements"</B> - shall mean all buildings and improvements (including the Equipment but excluding the test lab outbuilding) on the Land.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Inspection Documents"</B> and <B>"Inspection Period"</B> - shall mean the documents described in Sections 5.1.3 and the longest time period for Purchaser's review and inspection described in Section 5.3.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Land"</B> - shall mean the area described in Exhibit A to this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Permits"</B> - shall mean, to the extent transferable, the licenses and permits used in the operation of the Office Building listed on Exhibit C.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Permitted Exceptions"</B> - shall have the meaning defined in Section 3.1.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>"Property"</B> - shall mean all of the real, personal and intangible property referred to in Article II.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE II</B><BR></FONT>
<FONT SIZE=3><B>PURCHASE AND SALE</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the terms, conditions, representations and warranties herein set forth, Seller hereby agrees to sell the following properties, rights and interests (sometimes
hereinafter referred to collectively as "Property") to Purchaser, and Purchaser agrees to purchase the Property from Seller:</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>2.1</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Land and the Improvements;</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>2.2</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of Seller's right, title and interest in and to the Contracts and
Permits.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE III</B><BR></FONT><FONT SIZE=3><B>TITLE AND EXCEPTIONS TO TITLE</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall sell and convey good and marketable title to the Property (and good record title by full warranty deed to so much thereof as shall
constitute real property under the laws of the State of Washington to Purchaser subject only to the following matters ("Permitted Exceptions").</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens, etc. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All liens for real estate taxes, water and sewer charges,
provided they are not delinquent and are prorated as of Closing. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Laws, Etc.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All present laws, ordinances, codes, restrictions and
regulations of all governmental authorities relating to building and/or zoning.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approved Contracts.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All terms and conditions of the Contracts approved
by Purchaser for assumption by Purchaser during the Inspection Period.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Easements. </B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utility and other easements of record approved by
Purchaser during the
Inspection Period.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title Commitment Exceptions.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All defects in title contained in
the Title Commitment described in section 3.2 below accepted by Purchaser utilizing the procedure described in section 3.2 below.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title Commitment Exceptions.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As soon as practical after execution of this Agreement, Seller shall furnish Purchaser with commitment for an ALTA Standard
Form Owner's Policy of Title Insurance insuring title in Purchaser to the Property in the amount of the Purchase Price, together with legible copies of all documents referred to therein ("Title Commitment") issued by First American Title Insurance
Company, 40 E. Trent Avenue, Spokane, Washington 99202, ("Title Company").  Purchaser
shall give Seller written notice within 10 days following delivery to Purchaser of the Title Commitment and legible copies of all documents referred to therein or the Effective Date, whichever is later, of Purchaser's objection to any title exception.
Seller shall, within 5 days following receipt of any such objection, notify Purchaser whether Seller shall remove such exception at or prior to Closing.  Purchaser shall, within 5 days of Seller's responsive notice, provide Seller with written notice of
whether Purchaser will accept Seller's position or terminate the transaction.  Failure to provide notice within the preceding time frames shall be treated as rejection of the Title Commitment exceptions or rejection of the position stated in the notice
from Purchaser or Seller.  The preceding procedure shall not apply to monetary encumbrances totaling less than the total Purchase Price, which shall be paid in full at Closing by Seller.  At the sole discretion of Purchaser, if the Property shall, at the
time of Closing, be subject to any title exceptions which would be grounds for Purchaser to reject title hereunder, Purchaser may, instead of exercising its other rights under this Agreement, elect to waive such defect in title and close and, in the case
of any monetary encumbrance or charge, offset the amount of the monetary encumbrance or charge against any amounts payable to Seller.  Once the parties have agreed upon the Permitted Exceptions as provided in this Section, if any exception which Seller
has agreed to remove remains at Closing, then Purchaser shall have the right to bring an action for specific performance to require Seller to remove the exception and may also bring suit for any damages which Purchaser may suffer as a result of Seller's
failure to remove the exception.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE IV</B><BR></FONT><FONT SIZE=3><B>PURCHASE PRICE AND LEASEBACK</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Price and Tenant Improvement Allowance.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price payable by Purchaser to Seller for the Property shall be Five Million Five Hundred Thousand
Dollars ($5,500,000) ("Purchase Price").  The tenant improvement allowance payable by Purchaser to Seller shall be Five Hundred Thousand Dollars ($500,000) ("Tenant Improvement Allowance"). Purchaser may apportion the purchase price between the real and
personal property, with Purchaser's apportionment subject to Seller's approval, which approval shall not be unreasonably withheld. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Method Of Payment.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall pay the Purchase Price and Tenant Improvement Allowance all cash at the Closing as follows:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Six Million Dollars ($6,000,000) in cash on the Closing Date (against which shall be credited the Earnest Money deposited with Escrow by Purchaser in part
consideration for this Agreement).</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leaseback and Rental Guaranty.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties shall, as of the Closing Date enter into a lease
agreement in a form mutually acceptable to both parties by which Seller shall lease the entire ground floor of the Office Building which ground floor consists of approximately 49,400 square feet, for a term of ten (10) years commencing the day after the
Closing Date, at a starting annual rental rate of $7.50 per square foot per year, increasing to $8.18 per square foot per year at the beginning of the fourth year of the term, increasing to $8.91 per square foot per year at the beginning of the seventh
year of the term and increasing to $9.71 per square foot per year at the beginning of the tenth year of the term.  Within thirty (30) days after execution of the lease, Purchaser shall have the right to recalculate the square footage of the ground floor
and if such calculation shows a deviation from the 49,400 square feet, the rental as set forth herein shall be adjusted to reflect the actual square footage located on the entire ground floor.  The leased premises shall not include the test lab
outbuilding which is not included in the Property to be conveyed to Purchaser hereunder.  Seller shall have the right during the term of the lease to retain and use the test lab outbuilding at no charge to Seller.  Seller may remove the test lab
outbuilding, at Seller's expense, at anytime prior to or during the lease term.  If Seller fails to remove the test lab outbuilding prior to the end of the lease term, the test lab outbuilding shall, at Purchaser's option, become the sole property of
Purchaser.  Purchaser may also elect to require Seller to remove the test lab outbuilding at Seller's expense within thirty days after receipt of Purchaser's request to remove the building made on or before thirty days after the expiration of the lease term
 .</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is the intention of the parties, and the lease is to be so construed, that during the term of the lease the Purchaser shall not be obligated to pay any charges,
expenses, taxes or costs of any sort whatsoever arising out of or in connection with the leased premises, the maintenance thereof, the use and occupation thereof by the Seller or the payment of rent by the Seller to the Purchaser, all of which are to be
borne by the Seller alone.  Seller shall not be responsible for any income taxes levied on the rental income of Purchaser.  Seller shall be responsible for paying the pro rata portion (based upon the percentage which the square footage of the leased
premises is of the total square footage of the Office Building) of all taxes, assessments, insurance, utility including water, heat and air conditioning, electricity, and maintenance expenses allocated to the leased premises and the common areas including
but not limited to the parking lots and landscaped areas of the real property described in Exhibit A during the lease term ("Allocated Expenses").  For any metered utilities or expenses (including any measured by meters installed by Seller as set forth on
Exhibit B), Seller shall pay the charges based upon actual use, increased to include Seller's portion of charges attributable to common areas.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental Guaranty.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties shall simultaneously with the execution
of the lease agreement pursuant to Section 4.3.1 enter into a written agreement whereby Seller agrees to guarantee rent for the vacant portion of the second floor of the office building for a period of up to one year from the Closing Date.  The guaranteed
one year rent shall be the t otal of $375,000, payable in twelve (12) equal monthly installments of $31,250 plus Allocated Expenses for the vacant portion of the second floor.</B>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Seller has not vacated the second floor and relocated Seller's operations to the ground floor of the Office Building within one hundred five (105) days after
the Closing Date, then the period of the rent guarantee shall be extended by the number of additional months it takes Seller to vacate the second floor premises, in its entirety, with any partial months to be rounded up to full months.  After the Seller
vacates the second floor premises, Seller may continue to use the entry on the second floor for ingress to and egress from the first floor until the first floor is accessible through the new main entry to be constructed on the first floor.  Seller's
continued use of the second floor entry until the first floor is accessible via the new first floor entry will not extend the period of the rent guarantee.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE V</B><BR></FONT><FONT SIZE=3><B>REPRESENTATIONS AND WARRANTIES OF SELLER;</B><BR></FONT><FONT SIZE=3><B>INSPECTION PERIOD</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Representations and Warranties.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject only to the exceptions and qualifications set forth in this Agreement, Seller represents and warrants to Purchaser
that the following statements are true:</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Organization And Standing.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller has all requisite power and
authority to own, lease and/or operate the Property and to carry on the business as now being conducted, is in compliance in all respects with all laws, regulations and requirements applicable to the ownership and operation of the Property, and has no
knowledge of any claim of violation of any such laws, regulations and requirements, including, but not limited to, any fire, zoning or other land use, health or building code violations.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authority.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon obtaining the agreement of GE Capital Corporation as
described in Section 12.1.1, and the approval of Seller's Board of Directors, this Agreement will constitute a valid and legally binding obligation of Seller.  Seller shall obtain the approval of Seller's Board of Directors within fifteen (15) calendar
days after the Effective Date, or this Agreement shall be null and void and Purchaser's Earnest Money Deposit shall be returned to Purchaser upon request.  Neither the  execution and delivery of this Agreement nor the consummation by Seller of the
transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof will, as of Closing, conflict with or result in a breach of or default under any of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, or other instrument or obligation to which Seller or any entity controlled by Seller is a party or by which they or any of their properties or assets may be bound or violate any order, injunction, decree, statute, rule or regulation
applicable to them or any of their assets or properties.  Seller has the capacity, and the person or persons signing on behalf of Seller, have the capacity to enter into and carry out this Agreement and the transactions contemplated by this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accurate Information.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately upon execution of this Agreement,
Seller will furnish Purchaser with true and correct copies (including all amendments thereto and modifications thereof) of the following documents, if any, which are within the possession or control of Seller ("Due Diligence Materials"): (a) all Phase I
and Phase II environmental reports, either performed on behalf of Seller or held in the possession of Seller related to the property; (b) all licenses, permits and other government approvals (including Certificates of Occupancy) and/or authorizations
relating to the property; (c) all leases, agreements including maintenance and service agreements, contracts, documents, instruments, reports (including soils and seismic reports), surveys, as-built plans and specifications, books and records (including
operating statements for the past 24 months and the most recent property tax bills) related to the property; (d) any tenant financial statements and estoppel certificates that are available from the tenants of the property, if any; and (e) such other
reports or information as may be requested by Purchaser.  Seller warrants, to the best of its knowledge, that the information provided to Purchaser is accurate and complete.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Absence of Litigation And Liens. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Property to be transferred to
Purchaser hereunder will be free of all liens and encumbrances, except the Permitted Exceptions, on the Closing Date.  There is and shall at Closing be no pending litigation against the Seller which involve a claim against the Property.  To the best of
Seller's knowledge and belief there are no assessments pending which would constitute a lien or charge against the Property on the Closing Date, other than non-delinquent real or personal property taxes.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Leases.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller has not entered into any lease or other agreement
for possession with any person or entity (except Purchaser) pursuant to which such person or entity has any current or future right or interest to occupy, possess or use all or any portion of the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Foreign Person. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Conveyances.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Without the prior written consent of Purchaser, which
will not be unreasonably delayed, Seller will not convey any interest in the Property, and Seller will not subject the Property to any additional liens, encumbrances, covenants, conditions, easements, rights of way or similar matters after the date of
this Agreement, except as may be otherwise provided for in this Agreement, which will not be eliminated prior to the Close of Escrow.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Alterations. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as required by existing law, Seller will not
make any material alterations to the Property without Purchaser's consent, which will not be unreasonably withheld or
delayed. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Affirmative Covenants.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;So long as this Agreement remains in full force
and effect, Seller will:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintain the Property in
substantially the same condition as of the Effective Date, ordinary wear and tear excepted, and manage the Property in accordance with Seller's established practices including ordinary repairs and replacements and will not unreasonably defer any
maintenance to the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Keep and perform all of the obligations to be
performed by Seller under any leases or contracts.  Seller shall not enter into any contract or agreement providing for the provision of goods or services to or with respect to the Property or the operation thereof (except contracts with respect to the
alterations and upgrades to the Property described in Exhibit B) unless such contracts or agreements can be terminated  without penalty by the Closing Date, without prior written consent of Purchaser, which shall not be unreasonably delayed.  Seller shall
not terminate any contract or agreement approved by Purchaser, without prior written consent of Purchaser, which will not be unreasonably delayed.  During the period from the expiration of the Inspection Period to the Closing Date, Seller will not enter
into any new leases for any portion of the Property or extend the terms of any existing leases, if any, without Purchaser's written consent which will not be unreasonably withheld or delayed.  Purchaser's consents described in this Section may be withheld
for any reason in Purchaser's sole discretion so long as Purchaser is acting in good faith.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything in this Agreement to
the contrary, Seller agrees not to enter into any other agreement to sell all or any portion of the Property until this Agreement terminates according to its terms.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Violations.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement and of the Closing,
to the actual knowledge of Seller's current officers and current managers directly responsible for management of the Building, Seller has not been served by any governmental authority with written notice that the Property is in material violation of any
applicable law, and Seller's current officers and current managers directly responsible for management of the Building have no actual knowledge of nor any reason to believe there exists, any such material violation except as disclosed to Purchaser. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Demand.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement and of the Closing,
Seller has not signed a letter of intent or any agreement (if any) with respect to the purchase and sale of the Property, except as disclosed to Purchaser.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Condemnation And Change of Zoning.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller has not received any notice
of any proposed condemnation or change in zoning, or other land use laws, rules or regulations, which would affect the Property.</B>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contracts.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no maintenance, advertising, management,
leasing, employment, service, or other contracts affecting the Property (other than contracts with respect to the alterations and upgrades to the Property described in Exhibit B) which will be in effect at and after Closing other than those which have
been submitted to Purchaser within Purchaser's Inspection Period and approved by Purchaser.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Documents.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All documents provided to Purchaser or placed into escrow
are true and correct copies of what they purport to be and have not been amended or modified, except to the extent disclosed to Purchaser during the Inspection Period.

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Underlying Encumbrances.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All requirements of underlying encumbrances
against the Property are current and not in default.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Underwriting Notices.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No insurance company or board of fire
underwriters has requested the performance of any work on or alterations of any part of the property.</B>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Encroachments.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the improvements or landscaping or fencing on
this property encroach upon any adjoining property and no improvements or landscaping or fencing of any adjoining property encroaches on the property which is the subject of this sale.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pending Taxes and assessments.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no pending changes in real
estate taxes or assessments, no pending local improvement district assessments, or other assessments or taxes which may take effect after the Effective Date, including, but not limited to, after the Closing, of which Seller is aware and which have not
been disclosed to the Purchaser during the Inspection Period.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Problem Notices.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No notices of any kind from any source have been
received relating to the items set forth in this Section 5.1 Representations and Warranties.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major Defects.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the actual knowledge of Seller's current officers
and current managers directly responsible for management of the Building, there are no major defects in the Improvements on the Property, including without limitation all equipment, including the electrical wiring, roofing and systems for heating,
ventilating, air conditioning and plumbing. </B>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Liens.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At Closing (which term includes any extended Closing Date
under Section 9.1.2), there will be no liens on the Property, including, but not limited to, for work performed or started prior to Closing, which will not be paid in full at Closing, except as disclosed in writing to Purchaser and approved by Purchaser
in writing at or prior to Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitation On Seller's Representations and Warranties.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser acknowledges that, except as expressly set forth in this Agreement, neither Seller nor any
agent or representative of Seller has made, and Seller is not liable for or bound in any manner by, any express or implied warranties, guaranties, promises, statements, inducements, representations or information pertaining to the Property or any part
thereof the physical condition, expenses or operation thereof, the uses which can be made of the same or any other matter or thing with respect thereto.  Without limiting the foregoing, Purchaser acknowledges and agrees that, except as expressly set forth
in this Agreement, Seller is not liable for or bound by (and Purchaser has not relied upon) any verbal or written statements, representations or any other information respecting the Property furnished by Seller or any employee, agent, consultant or other
person representing or purportedly representing Seller; and that the Property is being purchased "AS IS WHERE IS" with the exception of those representations and warranties expressly set forth in this Agreement and the transfer documents delivered at
closings.  All representations and warranties of Seller contained in this Agreement shall survive closing and the delivery of the transfer documents at closings.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inspection Period.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser's Inspection and  waiver.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall have 45 days after
the Effective Date ("Inspection Period") within which to inspect the Property and review the Due Diligence Materials to determine whether the Property in its current status is suitable, in the sole discretion of Purchaser, for the purposes of Purchaser,
which inspection may, at Purchaser's discretion and cost, include
environmental assessments and surveys.  Purchaser shall only use the Due Diligence Materials for the
purpose of evaluating the Property, as opposed to any competitive use, and shall restrict access to the Due Diligence Materials to those persons required to evaluate the Property.  This Agreement shall
terminate, the Earnest Money shall be refunded to Purchaser, and all responsibilities of the parties to one another shall terminate unless, prior to the end of the Inspection Period, Purchaser notifies Seller that Purchaser has determined to its
satisfaction the Property can be used for these purposes to Purchaser's satisfaction ("Waiver Notice").  If a survey promptly requested by Purchaser following the Effective Date is not received more than five business days prior to the end of the
Inspection Period, then the Inspection Period shall be extended to five business days after the Purchaser receives the survey.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the Inspection Period, Purchaser and Purchaser's representatives, agents and designees will have the right, at reasonable times and upon reasonable advance notice to Seller (which notice
must describe the scope of the planned testing and investigations) to enter upon the Property, in connection with its purchase of the Property.  However, Purchaser agrees that:

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all tests will be at Purchaser's sole cost and expense and at Purchaser's sole risk;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the persons or entities performing such tests will be properly licensed and qualified and will have obtained all appropriate permits for performing such tests and
will be reasonably acceptable to Seller;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller will have the right, in its reasonable discretion, to approve Purchaser's work plan for any proposed physical testing or drilling on or beneath the
Property ("Phase II Testing Plan"). For purposes of this Section 5.3.1(c) the term "reasonable discretion" shall include, but not be limited to, Seller's right to withhold approval due to the potential liability of Seller or the cost or inconvenience to
Seller as a result of the proposed work performed under Phase II Testing Plan.  If Seller disapproves of Purchaser's Phase II Testing Plan, Seller shall advise Purchaser in writing, within four business days after the Plan is submitted to Seller, of the
specific reasons why Seller disapproves of the Phase II Testing Plan.  Purchaser shall have the right to revise its Phase II Testing Plan once and submit such a revised plan to Seller for Seller's approval thereof in accordance with this Section 5.3.1(c)
Seller's disapproval of the Phase II Testing Plan or the revised version of such plan, if
any, shall not be deemed a default of Seller under this Agreement.  If Seller disapproves of the Phase II Testing Plan or the revised version of such plan, if any, Purchaser will have the option to cancel
the Escrow by providing written notice to Seller, in which case Seller shall pay any cancellation costs incurred as a result of the cancellation of this Agreement.  Seller shall be deemed to have approved Purchaser's Phase II Testing Plan if Seller does
not respond or approve such plan within four (4) business days after submission thereof to Seller;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchaser will advise Seller in advance of the dates of all tests and other work and will schedule all tests and other work during normal business hours whenever
feasible unless otherwise requested by Seller;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller will have the right to have a representative of Seller accompany Purchaser and Purchaser's representatives, agents or designees while they are on the
Property;

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any entry by Purchaser, its representative, agents or designees will not materially interfere with Seller's use of the Property;

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser will indemnify, defend and hold Seller harmless for, from and against any and all claims, damages, costs, liabilities and losses (including mechanics'
liens) arising out of any entry by Purchaser or its agents, designees or representatives.  Without limiting the foregoing, Purchaser shall remove any mechanic's liens or other liens which may be filed against the Property by a party providing labor or
materials or other services at the request of Purchaser.  This indemnity shall survive the Closing, or if the sale is not consummated, shall survive the termination of this Agreement; and</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;     Purchaser will restore the Property at Purchaser's sole cost and expense if this transaction does not close.  Until restoration is complete, Purchaser will
take all steps necessary to ensure that any conditions on the Property created by Purchaser's testing will not materially interfere with the normal operation of the Property or create any dangerous, unhealthy, unsightly or noise conditions on the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, prior to any entry involving physical testing, drilling or other physical disturbance, Purchaser shall provide Seller with proof of commercial general liability insurance maintained
by Purchaser, with a combined single limit of at least One Million Dollars ($1,000,000), covering Purchaser and its consultants or contractors performing the work, which insurance shall include, but not be limited to, completed operations and broad form
property damage coverage and which shall name Seller and its lender as additional insureds.  Seller may require Purchaser and its consultants or contractors performing the work to obtain pollution liability insurance which shall include, but not be
limited to, specific coverage for removal, remediation, cleanup and disposal of hazardous or nonhazardous materials (i) which have been brought onto the Property by Purchaser or its consultants or contractors or (ii) the removal, remediation cleanup or
disposal of which is required as a result of the acts or omissions of Purchaser or its consultants or contractors.  Purchaser shall provide Seller with certificates and endorsements evidencing the foregoing coverages prior to the first entry by Purchaser
or its consultants and contractors onto the Property.  The insurers and the amounts and coverages of such policies shall be satisfactory to Seller.  This provision will survive the Closing or any earlier termination of this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Material New Matters.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Purchaser discovers any new matter between the
expiration of the Inspection Period and the original closing date described in Section 9.1.1 which was:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  within the actual knowledge of Seller's current officers or current managers directly responsible for management of the Building or which Seller's current
officers or current managers directly responsible for management of the Building should reasonably have known, and not disclosed to Purchaser; and</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;was not reasonably discoverable during the Inspection Period; and that matter is one which:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; would appear as an exception in the Title Policy; or</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; is materially inconsistent with a document delivered by Seller or with any representations or
warranties contained in Section 5.1 or 6.1; and</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; is of such a nature that, in Purchaser's reasonable judgment, it will materially and adversely affect
the use of the Property as an office building by tenants
thereof and the development potential of the developable land, then Purchaser is entitled to treat such new matter as a failure of condition to the Close of Escrow.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Purchaser elects to treat such new matter as a failure of condition to the Close of Escrow, Purchaser must give notice to Seller of Purchaser's election to terminate this Agreement
within five (5) business days of Purchaser's obtaining knowledge of such new matter.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, if Purchaser gives Seller such notice of its election to terminate this Agreement, Seller may elect, by written notice to Purchaser and to Escrow Holder within ten (10) business
days following Seller's receipt of Purchaser's notice, to correct the new matter prior to the Close of Escrow.  If Seller elects to correct the new matter, Seller will be entitled to extend the Close of Escrow for not more than thirty (30) days in order
to correct the new matter and, in such event, this Agreement will not terminate. If Seller fails to correct the new matter by the Closing Date, as extended, Purchaser, as Purchaser's sole remedy, may terminate this Agreement and obtain a refund of the
Earnest Money Deposit.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything in this Section to the contrary, if the matter is one which is known to Seller's current officers and current managers directly responsible for management of the
Building but not disclosed to Purchaser, then Purchaser may require Seller to correct the matter.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease and Rental Guaranty.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser's obligations under this
Agreement are also contingent upon Purchaser and Seller agreeing, within the Inspection Period
defined in Section 5.3.1, upon the form of the written Lease described in Section 4.3.1 and the form of
the written Rental Guaranty described in Section 4.3.2.  If the parties are unable to agree upon
the forms of the Lease and Rental Guaranty, then this Agreement shall terminate and the Purchaser's Earnest Money Deposit shall be returned to Purchaser upon demand.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE VI</B><BR></FONT><FONT SIZE=3><B>HAZARDOUS SUBSTANCES</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>6.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hazardous Substances.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Definitions.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of this Agreement, the following terms have the
following meanings:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>"Environmental Law"</B> means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment including, without limitation, CERCLA (Comprehensive Environmental Response, Compensation and Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of 1976).</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>"Hazardous Substance"</B> means any substance, material or waste
which is designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is similarly designated, classified or regulated, under any Environmental Law, including asbestos, petroleum and petroleum products.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>"Environmental Assessment"</B> means an environmental assessment,
review or testing of the Property performed by Purchaser or any third party or consultant engaged by Purchaser to conduct such study.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller's Representations and Warranties.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement, to the actual knowledge of the current officers
and current managers directly responsible for management of the Building, and based on, and except as disclosed in the Phase I and II Report delivered to Purchaser pursuant to Section 5.1.3, Seller represents and warrants as follows:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Hazardous Substances are now or have been used or stored on any
portion of the Property except those substances, if any, which are or have been used or stored on the Property in the normal course of use and operation of the Property as an office building and a keyboard assembly and manufacturing facility and Seller
has no actual knowledge of any noncompliance with or violation of any applicable Environmental Law in connection with such use, storage, or presence of Hazardous Substances on the Property.  Any Hazardous Substances used in any business or operations of
Seller on the Property have been disposed of in accordance with applicable laws, rules and regulations and have not been disposed of on the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are and have been no federal, state, or local enforcement,
cleanup, removal, remedial or other governmental or, regulatory actions instituted or completed affecting the Property; and </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller's current officers and current managers directly responsible for
management of the Building have no actual knowledge of any non-compliance with or violation of any applicable Environmental Law in connection with the use or presence of the septic system on the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;no claims have been made by any third party against Seller relating to
any Hazardous Substances on or within the Property.  Each of the representations and warranties contained in this Section 6.1 shall survive the Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notices Regarding Hazardous Substances. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the term of this Agreement, Seller will promptly notify Purchaser if it
obtains actual knowledge or reasonable cause to believe that any release on or about the property of a Hazardous Substance was, has come to be, or will be located on, beneath, or over  the Property other than any Hazardous Substance releases already
disclosed in the Phase I and II Report, or that Seller or the Property may be subject to any threatened or pending investigation by any governmental agency under any law, regulation or ordinance pertaining to any Hazardous Substance.  Any new disclosure
by Seller made after the end of the Inspection Period will be governed by the provisions of Section 6.1.7.</P>


<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indemnity and Release.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If there are any third party claims against Seller which arise out of
any release of any Hazardous Substances which became located in, on or under the Property after the Closing, Purchaser will indemnify, defend (by counsel reasonably acceptable to Seller), protect and hold Seller harmless for, from and against any and all
claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) arising therefrom,  unless the presence of the Hazardous Substance results from the actions after the Closing of Seller or Seller's employees, agents, guests or
invitees, or other persons on the Property through Seller, in which event Seller shall pay, defend and hold Purchaser harmless from any and all liability of any kind arising out of the Hazardous Substances, including, but not limited to,  costs of
remediation, attorneys fees, fines and penalties.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall pay, defend (by counsel reasonably acceptable to
Purchaser), indemnify and hold Purchaser harmless from any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys fees) of any kind, including, but not limited to, third party claims, arising out the presence or
release of any Hazardous Substances on, under or over the Property during the period of Seller's ownership of the Property, except to the extent that the Hazardous Substances were specifically described in the Phase I and II Report or in any Environmental
Assessment obtained by Purchaser or otherwise disclosed to Purchaser by Seller, or discovered by Purchaser, prior to Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used in this Section 6.1 "third party claims" are defined as any
claims or rights of recovery by any person or entity (including governmental agencies):</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;which result from
injury, damage or loss to or of any person or property; or</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for cost recovery,
removal or remedial action.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third party claims
will also include any costs paid or payable by either party for damage, loss, injury, investigation, removal, remediation or other liability in response to any third party claim or in anticipation of any enforcement or remedial action undertaken or
threatened by any government agency or private party.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller will not be liable to Purchaser under this Agreement, and
Purchaser hereby releases Seller from any and all liability under any federal, state or local law pertaining to or concerning Hazardous Substances, which is attributable to any environmental condition which:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;was specifically
described in the Phase I and II Report or in any Environmental Assessment obtained by Purchaser;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;was otherwise
disclosed by Seller to Purchaser or discovered by Purchaser at any time prior to the Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provisions of this Section 6.1 will survive the Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Environmental Assessment.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If, during the Inspection Period, Purchaser elects to
perform an Environmental Assessment: </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Environmental Assessment shall be conducted pursuant to standard
quality control/quality assurance procedures and in accordance with Section 5.3. Purchaser shall give Seller at least two (2) business days' prior notice of any on-site testing of soil or subsurface conditions.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any report is prepared as the result of the Environmental Assessment,
such report shall be conspicuously labeled as a draft, and Purchaser shall promptly give Seller a copy of the draft report for Seller's review and comments before the report is finalized.  Prior to the Closing, Purchaser shall keep the draft or final
report and the information contained therein confidential and shall not disclose it to any person or entity without Seller's prior written consent; provided, however, that Purchaser may furnish a copy of said draft or final report to any proposed lender
in connection with prosecution of an application for a mortgage loan and to any person or entity contemplating an investment in the Property as a partner or permitted assignee of Purchaser, or to any consultant engaged in, or commenting upon the results
of, said draft or final report. </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any ground water, soil or other samples taken from the Property by or on
behalf of Purchaser will be properly disposed of by Purchaser, as the generator of the material, at Purchaser's sole cost and in accordance with all applicable laws including Environmental Laws.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual Knowledge.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used in this Section 6.1, the term "actual
knowledge" includes knowledge which would give Seller's current officers or current managers
directly responsible for management of the Building a reasonable cause for belief.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Discovery of Hazardous Substances.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything in this Agreement to the contrary, if Purchaser prior to Closing
(which term includes, if applicable, the Closing Date as extended under Section 9.1.2) discovers the past or present existence of any Hazardous Substance on, under or over the Property which was not specifically described in the Phase I or Phase II Report
or
any Environmental Assessment obtained by Purchaser during the Inspection Period, Purchaser may
terminate this transaction and receive back Purchaser's Earnest Money Deposit upon demand.  Nothing
in this section 6.1.7 shall be construed to give Purchaser the right to conduct any inspections or testing after the end of the Inspection period. </P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE VII</B><BR></FONT><FONT SIZE=3><B>SELLER'S ACTIONS PRIOR TO AND AFTER CLOSING
</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller's Relocation.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall vacate the second floor of the Office
Building and relocate Seller's operations to the ground floor of the Office Building within 105 days
following the Closing Date.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller's Alterations and Upgrades.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance of Work by Seller.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall perform the alterations
and upgrades to the property described in Exhibit B which is attached to and incorporated in this Agreement by this reference. Seller shall complete said alterations and upgrades within five (5) months following the Closing Date, except that Seller's time
to complete any alterations or upgrades to the extent completion is delayed by weather conditions or circumstances related to weather conditions or weather forecasts shall be extended beyond five (5) months by the period(s) of time work is delayed by
weather conditions or circumstances related to weather conditions or weather forecasts.  All work must be done in compliance with applicable codes and regulations, in a good and workmanlike manner consistent with good construction practices, and in
accordance with plans and specifications agreed to in writing by Purch aser and Seller not later than the end of the Inspection Period, and in advance of the beginning of construction. If the plans and specifications have not been agreed to in writing by
Seller and Purchaser on or before the end of the Inspection period then this Agreement shall terminate and Purchaser's Earnest Money Deposit shall be returned to Purchaser upon demand.  Purchaser shall have no liability to Seller nor to anyone else
arising out of Purchaser's approval, or failure to approve, the plans and specifications.  All such work shall be the sole property of Purchaser free and clear of any claims of Seller.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall keep the property free
of all liens arising out of any work to be performed by Seller under Section 7.2.1(a).  Seller may contest the amount of any lien which Seller believes in good faith is not appropriate provided that Seller posts a bond or other security acceptable to the
Purchaser in the amount of 1/ times the amount of the lien, conditioned upon release of the lien. Notwithstanding anything in this section to the contrary, Seller shall not permit the foreclosure of any lien as against Purchaser's interest in the property
acquired under this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.2.2.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Seller fails to complete the Alterations and Repairs as required by Section 7.2.1, Purchaser may, but shall
not be obligated to, complete the Alterations and Repairs and may use the funds held by Escrow Agent under Section 7.3 to complete the work.  Seller shall reimburse Purchaser for reasonable costs to complete the work which are in excess of any funds held
by Escrow Agent. Seller shall reimburse Purchaser for the amounts due under this Section 7.2.2 within thirty (30) days after receipt of Purchaser's written request for payment together with documentation of Purchaser's expenditures.  Undisputed amounts
and disputed amounts determined to be owing not paid within the thirty (30) day period shall earn interest at the rate of twelve percent (12%) per annum from the end of the thirty (30) day period until paid. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maximum Cost.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost to Seller of all alterations and upgrades set forth in Exhibit B plus all relocation costs incurred pursuant to Section 5.2 shall not
exceed $500,000 ("Maximum Cost").  The Tenant Improvement Allowance in the amount of $500,000 shall be retained in escrow on the Closing Date until such time as Seller submits the bills or documentation of internal costs for the work set forth in Exhibit
B.  Seller shall submit to Escrow Agent proof of payment to third parties and documentation of internal costs for relocation and said alterations and upgrades as paid and incurred for reimbursement to Seller.  Upon completion of the alterations and
upgrades set forth in Exhibit B, Seller shall submit a Notice of Completion to Escrow Agent, and Escrow Agent shall deliver the balance of the Tenant Improvement Allowance funds in Escrow, if any, to Seller.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall keep in full force and effect through the Closing
all the existing fire and extended coverage and other insurance policies.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance and Repair.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall make, at its sole cost and expense, whatever repairs and replacements may be necessary to maintain and keep the
Property in its present state of repair (ordinary wear and tear and casualty excepted).</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE VIII</B><BR></FONT><FONT SIZE=3><B>ADDITIONAL AGREEMENTS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease Agreement.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller and Purchaser shall execute a lease agreement
pursuant to Section 4.3.1 to be effective the day following the Closing Date.  The lease agreement shall be in the form approved by Purchaser and Seller under Section 5.3.3 during the Inspection Period.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental Guaranty.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller and Purchaser shall execute a rental guaranty
agreement pursuant to Section 4.3.2 to be effective the day following the Closing Date.  The rental
guaranty agreement shall be in the form approved by Purchaser and Seller under Section 5.3.3 during the
Inspection Period.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title Insurance.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title exceptions will be handled as described herein.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignments of Contracts and Permits. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;eller shall execute all applications and instruments required in connection with the transfer to Purchaser of all
Contracts and transferable Permits in order to effect such transfer on the Closing Date under this Agreement.  All government charges incurred in connection with said transfers shall be paid by Purchaser and Seller, one-half each.  Seller will use its
best efforts to keep all existing Permits in force, and to renew any of the same which expire prior to the Closing.  In the event that any Permit is suspended or revoked, Seller shall promptly notify Purchaser of that fact, and Seller, at its sole cost
and expense, shall use its best efforts to have the Permit reinstated without limitation or conditions.  Seller shall execute any agreements or assignments after Closing as are necessary to complete this transaction. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Applications For Permits.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller agrees to cooperate with Purchaser in any
way reasonably requested, in Purchaser's efforts to have issued to it, on the Closing Date, all nonassignable Permits required for the Office Building.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Records.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title to and possession of all records, documents and papers of every kind and nature pertaining to the Property and the operation of the Office
Building relating to the period of time prior to the Closing shall be transferred to Purchaser and included in the Bill of Sale described below. Purchaser shall either deliver copies to Seller or make access available to Seller to the records which Seller
may reasonably require for use in connection with tax records or other reports following Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>8.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cooperation.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller and Purchaser will cooperate with each other in every way and will exercise their best efforts in carrying out the transactions
contemplated herein, in obtaining all required approvals, authorizations, and clearances, and in delivering all documents, instruments, or copies thereof or other information deemed necessary or useful by the other party.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE IX</B><BR></FONT><FONT SIZE=3><B>CLOSING
</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>9.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closing.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.1.1&nbsp;&nbsp;&nbsp;&nbsp;Original Closing Date.</B>&nbsp;&nbsp;&nbsp;&nbsp;Except as provided in Section 9.2.1, the Closing for the sale and purchase of
the Property, shall, unless another date and/or place is agreed
to in writing by the parties hereto, take place at the Title Company ("Escrow"), on the date ("Closing Date" or "Close of Escrow" or "Closing") which is not later than 30 days after the end of the Inspection Period, or earlier at Purchaser's election.
All proceedings to take place at the Closing shall take place simultaneously, and no delivery shall be considered to have been made until all such proceedings have been completed. Upon completion of the Closing, Purchaser shall immediately be entitled to
actual and be charged with constructive possession of the Property, and all risk of loss with regard thereto shall pass to Purchaser. If the Closing does not take place on or before 30 days after the end of the Inspection Period or the extended Closing
Date under Section 9.1.2, then this Agreement shall become null and void, at the election of the Seller, and the Earnest Money Deposit together with interest thereon shall be delivered to Seller.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closing Extension.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser may extend the closing date for one additional thirty (30)
day period for a payment of $25,000.  The payment must be deposited in cash into the Closing Escrow on or before the original closing date described in Section 9.1.1.  This $25,000 together with the Earnest Money Deposit shall be applicable to the
purchase price if this
transaction closes, but shall be nonrefundable if this transaction does not close unless the failure to close is due to the fault of Seller. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>9.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cut-Off Time.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Cut-off Time shall be as of 11:59 p.m. on the day
preceding the Closing Date.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>9.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closing Statements.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Closing, Escrow shall deliver a preliminary
closing statement setting forth in reasonable detail prorations required under Article IX based upon such preliminary audits and inventories as they have made up to the Closing Date.  Within thirty (30)
days following the Closing Date, Escrow shall deliver a final closing statement setting forth the final determination of the adjustments and prorations..  A payment to cover any changes as a result of such final closing statement will be made by Seller
or Purchaser, as the case may be, within five (5) days after the receipt of such final closing statement.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that, at any time within ninety (90) days after the Closing, either party discovers any item which should have been included in the Final Closing Statement but was not included for
any reason, then such item shall be adjusted in accordance with this Agreement as if its existence had been known at the time of the preparation of the Final Closing Statement.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE X</B><BR></FONT><FONT SIZE=3><B>CLOSING ADJUSTMENTS; OTHER CLOSING MATTERS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>10.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closing Adjustments.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the Closing Date the following items shall be
apportioned betweenPurchaser and Seller as of the Cut-Off Time:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxes, Levies, Etc.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Real estate taxes and personal property taxes, if any, levied or
imposed upon the Property on the basis of the calendar year for which the taxes are payable;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Water Charges.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unmetered water charges on the basis of the calendar year;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilities.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Charges and fees due under contracts for the supply of heat, water,
steam, electric power, gas and lighting or sewer; it being further agreed that all assignable deposits (including interest actually accrued) made by Seller as security under any such public service contracts (or any other contracts being assumed by
Purchaser hereunder) shall be assigned to Purchaser and credited to Seller;</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contracts.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Charges under all Contracts.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Permit Charges And Fees.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall pay one-half of all transfer or application
fees for transferable Permits.  Seller shall pay the other one-half of such fees.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>10.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Excise Taxes.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller agrees to pay at the Closing any applicable real
estate excise tax. Purchaser shall pay any personal property transfer/sales taxes imposed by law on
Purchaser. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>10.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Closing Costs and Title Insurance.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchaser and Seller shall each pay one-half of the applicable escrow fees and recording costs.  Seller shall pay the
costs of title insurance attributable to an owner's standard ALTA coverage.  Purchaser may, at Purchaser's sole option, require extended form title insurance and pay for the additional cost of such coverage beyond that of standard form coverage and for
any required survey.  Each party shall bear its own attorney's fees in connection with this transaction.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE XI</B><BR></FONT><FONT SIZE=3><B>DELIVERIES ON CLOSING</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>11.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deliveries By Seller.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Seller shall make the following deliveries to Purchaser at the Closing if applicable:</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deed.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall execute, acknowledge and deliver to Purchaser a
warranty deed sufficient to convey to Purchaser the fee simple title to the Land together with the Improvements thereon, subject to and in accordance with the provisions of this Agreement subject to Permitted Exceptions.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bill of Sale And Registrations.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall execute, acknowledge and
deliver to Purchaser a bill of sale and title registration transfer documents (if any) sufficient to transfer clear title and interest in and to the Equipment subject to and in accordance with the provisions of this Agreement. Purchaser and Seller shall
agree upon the form of the bill of sale during the Inspection Period or either party may terminate this Agreement by written notice received by the other party on or before the end of the Inspection Period.  The parties shall work together in good faith
to agree upon the form of the bill of sale. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignment of Contracts and Transferable Permits. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall
execute, acknowledge and deliver to Purchaser an assignment of all of Seller's right, title and interest under the Contracts accepted by Purchaser, all warranties, if any, relating to the Improvements, and transferable Permits to be transferred pursuant
to this Agreement and shall deliver Seller's original counterparts of all documents which are in writing together with such correspondence and other records, if any, pertaining thereto which Seller has.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Documentation Regarding Non-Transferable Permits.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As to any
non-transferable Permits, Seller will, at Purchaser's cost and expense, execute and deliver to Purchaser any documents reasonably required to be signed by Seller to effect the issuance of the permit in the name of Purchaser.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consents.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall, during the Inspection Period, obtain and
deliver to Purchaser certificates from parties to each of the Contracts stating that said contracts are in full force and effect in accordance with their terms, that to the best of their knowledge there are no defaults thereunder, to the best of their
knowledge there are no facts which might give rise to an event of default thereunder, and  that, to the extent that the consent of such party is required for the assignment thereof, such consent has been given.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title Insurance and Additional Items.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall deliver to
Purchaser all other
instruments and documents to which Purchaser may be entitled at the Closing under any of the other
provisions of this Agreement, including the policy of Title Insurance. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>11.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deliveries By Purchaser.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall make the following deliveries to
Seller at the Closing.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase Price and Tenant Improvement Allowance. </B>Purchaser will pay the sums set forth in Article
IV, and execute and deliver such documents as are necessary to reflect that the Property is taken subject to the items described in Article IV, and shall make
any other payments required by it hereunder. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption of Seller's Obligations.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall execute,
acknowledge and
return to Seller counterparts of the assignments delivered pursuant to Section 11.1.3 to evidence its
agreement to assume and perform all of the Seller's obligations under the Contracts and transferable
Permits from and after the Closing Date and to indemnify Seller with regard thereto.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional Items.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall deliver to Seller all instruments
and documents to which Seller may be entitled at the Closing under any of the other provisions of this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>11.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notices</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.3.1</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon request of either party, Seller and Purchaser will execute and mail a notice addressed to the
other party under any Contract, or to the governmental or other
authority issuing any Permit assigned to Purchaser, notifying such person or authority of such assignment, and of the assumption by Purchaser of Seller's obligations thereunder, for periods after Closing.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE XII</B><BR></FONT><FONT SIZE=3><B>CONDITIONS TO CLOSING OBLIGATIONS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>12.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conditions To Seller's Obligation To Close.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The obligation of Seller to
consummate the transactions contemplated by this Agreement, including the sale of the Property,
is expressly conditioned upon the fulfillment by and as of the time of Closing of each of the conditions listed below in this Section 12.1; provided, however, that Seller, at its election, may waive all or any of such conditions: </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consent of G.E. Capital Corporation.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall have obtained, on
or before
fifteen (15) days after the Effective Date, the written agreement of General Electric Capital Corporation (GEC) which holds a security interest in the Property pursuant to the Credit Agreement, dated as of December 31, 1996 between Seller and GEC to
permit the sale and conveyance of the Property to Purchaser in accordance with the terms of this Agreement.  If such written agreement is not obtained on or before fifteen (15) days after the Effective Date, then this Agreement shall be deemed void and of
no effect and neither party shall have any liability to the other, except that Seller shall cause the Escrow Agent to refund the Earnest Money Deposit to Purchaser.  The conveyance of the Property to Purchaser must be free of any interest of G.E. Capital
Corporation in the Property.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance of Agreements.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser shall have performed all of its
agreements contained in this Agreement required to be performed by it prior to the Closing Date (including but without limitation the adjustments and other closing matters provided for in Articles X and XI). </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Representations and Warranties.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties of
Purchaser contained in this Agreement shall, except as contemplated or permitted by this Agreement, be true (regardless of the knowledge, or lack thereof, of Purchaser) on and as of the Closing Date, as if made on and as of the Closing Date, in all
respects except for instances which are, in the aggregate, not material.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tender.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchaser shall have tendered to Seller the delivery of the
items contemplated in Section 11.2.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>12.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conditions To Purchaser's Obligation To Close. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The obligation of Purchaser to consummate the transactions contemplated by this Agreement, including the
sale and purchase of the Property, is expressly conditioned upon the fulfillment by and as of the time of the Closing of each of the conditions listed below in this Section 12.2; provided, however, that Purchaser, at its election evidenced by written
notice delivered to Seller prior to or at the Closing, may waive any or all of such conditions:</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance of Agreements.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall have performed all of its
agreements contained in this Agreement required to be performed by it prior to the Closing Date (including but without limitation the adjustments and other closing matters provided for in Articles X and XI). </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Representations and Warranties.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties of
Seller contained in this agreement shall, except as contemplated or permitted by this Agreement to be limited to the best of Seller's knowledge, or as required or consented to by Purchaser, be true on and as of the Closing Date, as if made on and as of
the Closing Date, in all respects except for instances which are, in the aggregate, not material.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tender.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall have tendered to Purchaser the delivery of the
items contemplated in Section 11.1.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE XIII</B><BR></FONT><FONT SIZE=3><B>GENERAL PROVISIONS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk of Loss.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Material Destruction/Damage. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If prior to the Closing Date,
improvements on the Property shall be destroyed or materially damaged by fire or other casualty, this Agreement, at the option of either party, shall become null and void. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Material Damage or Destruction.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If between the end of the
Inspection Period and the Closing Date, the Property is destroyed or damaged, but not materially, the Seller shall repair all such damage or destruction prior to the Closing Date.  At Purchaser's sole option, the Seller may deliver to Purchaser all
insurance proceeds, together with the amount of Seller's deductible, if any, plus such other funds as may be required to repair the destruction or damage, and Purchaser will close prior to completion of the repairs.  For purposes of this Section 13.1.
"materially" shall mean destruction or damage the repair cost of which is in excess of $2,500,000.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>If prior to the end of the Inspection Period, the Property is destroyed or damaged, but not
materially, the Seller may repair all such damage or destruction prior to the Closing Date or terminate this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Termination.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By Seller.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller may terminate this Agreement by providing five (5)
days notice and a five (5) day opportunity to cure by Purchaser at any time prior to the Closing Date if a material default under or a material breach of this Agreement or any representation or warranty set forth in this Agreement or in any instrument
delivered by Purchaser pursuant hereto shall be made by Purchaser.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By Purchaser.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser may terminate this Agreement by five (5) days
notice and a five (5) day opportunity to cure by Seller at any time prior to the Closing Date if: </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A condition to the performance of
Purchaser hereunder shall not be satisfied on or
before the date specified for the satisfaction thereof; or</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A material default under or a
material breach of this Agreement or of any representation or warranty set forth in this Agreement or in any instrument delivered by Seller pursuant hereto shall be made by Seller.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect of Termination.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of termination of this Agreement
under this Section 13.2, then:</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Earnest Money deposit of
Purchaser shall be returned unless Purchaser is the party in default; and</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event the Agreement is
terminated and the Closing is not consummated by reason of default of a party hereunder, if Purchaser is the defaulting party, Seller shall retain the Earnest Money as its sole and exclusive remedy; and if Seller is the defaulting party, notwithstanding
such termination the Purchaser may bring an action for specific performance, sue for damages, or pursue any other remedy it may have at law.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption of Liabilities.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitation On Assumed Liabilities.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchaser is not assuming any
liabilities of Seller
except liabilities that the terms of this Agreement expressly require Purchaser to assume.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective Date of Assumption.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wherever it is provided in this
Agreement that Purchaser shall assume all obligations of Seller, such assumption shall be effective only from and after the Closing Date and no such assumption shall require Purchaser to assume, nor shall it assume, any liabilities or obligations of
Seller relating to or arising from Seller's performance of, or failure to perform, any of the terms of the assumed obligation prior to the Closing Date (except as otherwise expressly provided in this Agreement.)</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Survival of Representations, Etc.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the limitations described in
Section 5.2, the respective representations, warranties, obligations, covenants and agreements of
Seller and Purchaser contained herein shall survive the closings and the delivery of transfer
documents. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indemnification.</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indemnification Regarding Assumed Obligations.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whenever it is
provided in this Agreement that an obligation of one party will be assumed by the other party from and after the Closing Date, the party so assuming such liability shall be deemed to have also agreed to indemnify and hold harmless the other party, its
successors and assigns, from all claims, losses, liabilities and expenses (including reasonable attorneys' and accountants' fees) arising from any failure of the assuming party to perform the obligation so assumed from and after the Closing Date. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indemnification by Seller.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller shall pay, defend, indemnify and
hold Purchaser harmless from all claims, losses, liabilities and expenses (including reasonable attorneys' and accountants' fees) of any kind relating to, or arising out of, the Property or the Contracts, including, but not limited to the operation of any
business or other activity on the Property, to the extent the same arises out of any act or failure to act of Seller, Seller's agents, representatives, invitees or anyone else on the Property through Seller (excluding Purchaser, Purchaser's agents,
representatives, invitees or anyone else on the Property through Purchaser), or any circumstances existing or which allegedly should have existed, prior to Closing, except as provided in Section 6.1.4(d).</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignments.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Without the prior written consent of the other party, neither party may assign its rights hereunder except that Purchaser may assign its
rights hereunder so long as Purchaser remains liable for and responsible for performance of all obligations hereunder and payment of the Purchase Price.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brokers.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller and Purchaser each warrants and represents to the other that it has not retained or dealt with any broker, salesperson or finder in
connection with the sales transaction contemplated hereby (other than a commission payable by Seller to Brad Baldwin of Baldwin Corporate Real Estate and John O'Neil of Westlake Associates, Inc.), and each agrees to indemnify and hold harmless from any
claims for brokerage fees or commissions which may be incurred as the result of the failure of the foregoing warranty and representation of the indemnifying party to be true. The provisions of this paragraph shall be binding on the parties and shall
survive the expiration or sooner termination of this letter.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses, Fees and Disbursements Of Counsel.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in this Agreement, each of the parties hereto shall bear and pay their respective
expenses, including without limitation the fees and disbursements of their own counsel, accountants and other advisors, in connection with the negotiation and preparation of this Agreement and the Closing. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notices.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in this Agreement, notices, demands, requests, consents, approvals or other communications (for the purpose of this
Section 13.9 collectively called "Notices") required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be considered given (i) when received if personally delivered, or (ii) on the third day
after placing in the United States Mail, postage prepaid, certified or return receipt requested, or (iii) on the date received, if sent by courier, or (iv) on the date received if sent by facsimile transfer; provided that, a notice received by courier or
fax which is received on a U.S. federal holiday or weekend shall be deemed received on the next day which is not a holiday or weekend.  A notice sent by mail shall be deemed received on the third day after placing in the mail as provided above even if the
other party does not sign the return receipt or pick up the mail pursuant to any notices from the postal service.  Notices shall be sent to the following addresses unless the party sending the Notice has received a written change of address from the party
receiving the Notice.</P>

<P ALIGN="CENTER"><FONT SIZE=2><B>To Seller:</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Key Tronic Corporation<BR></FONT>
<FONT SIZE=2>North 4424 Sullivan Road<BR></FONT><FONT SIZE=2>Spokane, WA 99216</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fax: 509-9274259</FONT></FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With a copy to:</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>To Purchaser:</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>John O'Neil, Manager
<BR></FONT>
<FONT SIZE=2>Royal Hills Associates L.L.C.
<BR></FONT><FONT SIZE=2>2810 Eastlake Avenue East</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seattle, WA 98102
</FONT></FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fax: 206-505-9439
</FONT></FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With a copy to:</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Robert G. Sieh<BR></FONT><FONT SIZE=2>Edwards, Sieh, Smith & Goodfriend, P.S.<BR></FONT><FONT SIZE=2>701 Fifth Avenue, Suite 7170</FONT><BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seattle, WA 98104</FONT></FONT><BR><FONT
SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fax 206-624-0809</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Counterparts, Facsimiles, Captions, Etc. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument. The facsimile transmittal of an executed document, to be followed as soon as practical by delivery of the
original signed document, shall be considered delivery of an original when transmitted to Seller at (509)
927-4259 or to Purchaser at (206) 505-9439.  The captions are for convenience of reference only, and
shall not affect the meaning or construction to be given any of the provisions hereof.  All pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the parties may require.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Governing Law.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of Washington.
 In addition to any other remedy, the substantially prevailing party in any dispute arising out of this Agreement shall be entitled to recover their reasonable attorney fees and costs of litigation.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Entire Agreement; No Recording.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Agreement between Seller and
Purchaser contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto.  This Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument
signed by the party to be charged by its agent duly authorized in writing or as otherwise expressly
permitted herein.  Subject to Section 13.6, this Agreement shall be binding upon and inure to the benefit
of their successors and assigns.  The parties do not intend to confer any benefit hereunder on any
person, firm or corporation other than the parties hereto.  The parties each agree that neither this
Agreement nor any memorandum thereof shall be recorded. </P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Waivers.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No waiver of any breach of any agreement or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach thereof or of any other
agreement or provision herein contained.  No extension of time for performance of any obligations or
acts shall be deemed an extension of the time for performance of any other obligations or acts.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>13.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Confidentiality.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither party will make any disclosure of this Agreement or of the Due Diligence Materials except to the extent required to comply with
the obligations of the parties under this Agreement, or to comply with the obligations of that party under applicable laws and regulations, or as necessary for Purchaser to complete its investigations and evaluations under Section 5.3.1 or otherwise for
purposes of this transaction, for example, to the parties' attorneys and accountants.  In the event Purchaser does not waive its contingencies to its obligations to purchase, Purchaser shall return to Seller all Due Diligence Materials which it obtains
from Seller, and Seller may acquire from Purchaser any third party reports on the Property ordered by Purchaser during the Inspection Period by reimbursing Purchaser for the cost of such report.</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ARTICLE XIV</B><BR></FONT><FONT SIZE=3><B>PURCHASER'S EXCHANGE</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>14.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchange:</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A material part of the consideration to Purchaser for purchasing is that the Purchaser has the option to qualify this transaction as part of a
tax-deferred exchange under Section 1031 of the Internal Revenue Code of 1986.  Seller agrees that Purchaser may assign this Agreement to an exchange intermediary of Purchaser's choice.  Seller agrees to reasonably cooperate with the Purchaser in
structuring and effecting said exchange, provided the following conditions are met:</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.1.1. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Purchaser pays the same purchase price on the same terms and conditions as it would upon a
purchase of the Property pursuant to this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.1.2. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller incurs no additional costs, liabilities or taxes other than those for which it would be
responsible on a sale of the Property pursuant to this Agreement.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.1.3. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that this is a delayed exchange, Purchaser agrees to receive title from a third
party acting as a facilitator in this transaction.</P>

<P ALIGN="LEFT"><FONT SIZE=2>THE OFFER REPRESENTED BY THE FIRST PARTY EXECUTING AND DELIVERING THIS AGREEMENT IS WITHDRAWN UNLESS THE OTHER PARTY EXECUTES THIS AGREEMENT WITHOUT MODIFICATION AND DELIVERS IT TO THE ORIGINAL SIGNING PARTY ON OR BEFORE 5:00
P.M. ON 10/2/00.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed on its behalf .</P>

<TABLE BORDER=0 CELLPADDING=5 CELLSPACING=7 WIDTH=100% ALIGN="CENTER">
<TR>
	<TD><B>SELLER:</B><BR><B>KEY TRONIC CORPORATION</B></TD>
	<TD><B>PURCHASER:</B><BR><B>ROYAL HILLS ASSOCIATES, L.L.C.</B></TD>
</TR>
</TABLE>

<TABLE BORDER=0 CELLPADDING=5 CELLSPACING=7 WIDTH=100% ALIGN="CENTER">
<TR>
	<TD>By: /s/ Ronald F. Klawitter<BR>Name:     Ronald F. Klawitter<BR>Executive Vice President<BR>Date:    9/29/00</TD>
	<TD>By: /s/ John W. O'Neil <BR>Name:  John W. O'Neil<BR>Title: Managing Member<BR>Date:    9/28/00</TD>
</TR>
</TABLE>

<TABLE BORDER=0 CELLPADDING=0 CELLSPACING=0>
<TR>
	<TD>State of Washington</TD>
	<TD COLSPAN=4 ALIGN="LEFT">)</TD>
</TR>
<TR>
	<TD></TD>
	<TD>)&nbsp;ss.</TD>
</TR>
<TR>
	<TD>County of Spokane</TD>
	<TD COLSPAN=4 ALIGN="LEFT">)</TD>
</TR>
</TABLE>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I certify that I know or have satisfactory evidence that Ronald F. Klawitter personally appeared before me, and on oath stated that he was authorized to execute the instrument as Executive
Vice President of KEY TRONIC CORPORATION and acknowledged it to be the free and voluntary act of such corporation, for the uses and purposes mentioned in the instrument.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DATED:  9/29/2000.<BR><BR>
<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  /s/ Mariann Davis<BR></FONT>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name: Mariann Davis<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTARY PUBLIC in and for the State<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of Washington, residing at Spokane <BR></FONT>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;My appointment expires: 3/31/03</P>

<TABLE BORDER=0 CELLPADDING=0 CELLSPACING=0>
<TR>
	<TD>State of Washington</TD>
	<TD>)</TD>
</TR>
<TR>
	<TD></TD>
	<TD>)&nbsp;ss.</TD>
</TR>
<TR>
	<TD>County of King</TD>
	<TD>)</TD>
</TR>
</TABLE>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I certify that I know or have satisfactory evidence that John W. O'Neil personally appeared before me, and on oath stated that he was authorized to execute the instrument as Managing
Member of ROYAL HILLS ASSOCIATES, L.L.C. and acknowledged it to be the free and voluntary act of such corporation for the uses and purposes
mentioned in the instrument.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DATED:  9/28, 2000.<BR><BR>
<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Debbie C. Ebrecht<BR></FONT>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name:  Debbie C. Ebrecht<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTARY PUBLIC in and for the State<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of Washington, residing at Seattle <BR></FONT>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;My appointment expires: 12/17/01</P>

<P ALIGN="CENTER"><FONT SIZE=3><B>EXHIBIT A</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>LEGAL DESCRIPTION</FONT></P>
<P ALIGN="LEFT"><FONT SIZE=2>Parcel 1-A:</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>That portion of the N.W. one fourth of Section 1, T.25N., R.44E., W.M., Spokane County, Washington, described as follows:</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>Beginning at the Southwest corner of the Plat of Wellesley Manor 2nd Addition
per plat recorded in Book 11 of plats, page 12, in Spokane County, Washington; thence N.87 27'26"E.,
along the South line of said plat, 1324.54 feet to the East line of the N.W. one fourth of said Section 1, thence S.03 10'12"E., along said East line, 199.83 feet to the Northerly right of way line of S.R. 290; thence S.82 56'32"W., along said right of
way line, 1640.64 feet; thence N.07 03'28"W., along said right of way line, 30.00 feet; thence S.82 54'42"W., along said right of way line, 142.53 feet; thence N.02 30'00"W., 362.41 feet; thence N.03 49'54"W., 294.47 feet, to the South line of Wellesley
Manor Addition per plat recorded in Book 4 of plats, page 25, in Spokane County, Washington; thence S.89 41'04"E., along said South line, 234.88 feet; thence N.83 41'12"E., along said South line, 221.29 feet to the extended West line of said plat of
Wellesley Manor 2nd Addition; thence S.03 14'03"E., along said extended West line and the West line of said plat, 349.30 feet to the Point of Beginning. </P>

<P ALIGN="LEFT"><FONT SIZE=2>Area = 14.49 Acres</P>

<P ALIGN="LEFT"><FONT SIZE=2>Parcel 1-B:</P>

<P ALIGN="LEFT"><FONT SIZE=2>That portion of the South 400 feet of Government Lot 4 in Section 1, Township 25 North, Range 44 East, W.M., in Spokane County Washington, lying Southerly and Westerly of the Northerly and Easterly lines of the 40' wide canal
as located through, over and across said Government Lot 4.</P>

<P ALIGN="LEFT"><FONT SIZE=2>EXCEPT the South 200 feet of the West 280 feet thereof AND EXCEPT that portion conveyed to Spokane County by instrument recorded June 12, 1984, under Recording No. 8406120233. AND EXCEPT Sullivan Road, AND EXCEPT that portion
conveyed to Spokane County by instrument recorded August 19, 1997 under Recording No. 4132324,</P>

<P ALIGN="LEFT"><FONT SIZE=2>TOGETHER WITH the South half of the Northwest quarter of said Section 1,
Township 25 North, Range 44 East, W.M., lying North of Trent Highway and Easterly of Sullivan Road,</P>

<P ALIGN="LEFT"><FONT SIZE=2>EXCEPT that portion conveyed to the State of Washington by instrument recorded December 2, 1942, in volume 501 of Deeds, Page 411,</P>

<P ALIGN="LEFT"><FONT SIZE=2>AND EXCEPT the West 230.02 feet of the North 56 feet of said South half of the Northwest quarter lying North of Trent Highway and Easterly of Sullivan Road</P>

<P ALIGN="LEFT"><FONT SIZE=2>AND EXCEPT Parcel 1-A described below.</P>

<P ALIGN="LEFT"><FONT SIZE=2>That portion of the N.W. one fourth of Section 1, T.25N., R.44E., W.M., Spokane County, Washington, described as follows:</P>

<p align="left">Beginning at the Southwest corner of the Plat of Wellesley Manor 2nd Addition per plat recorded in Book 11 of plats, page 12, in Spokane County, Washington; thence N.87 27'26"E., along the South line of said plat, 1324.54 feet to the East
line of the N.W. one fourth of said Section 1, thence S.03 10'12"E., along said East line, 199.83 feet to the Northerly right of way line of S.R. 290; thence S.82 56'32"W., along said right of way line, 1640.64 feet; thence N.07 03'28"W., along said right
of way line, 30.00 feet; thence S.82 54'42"W., along said right of way line, 142.53 feet; thence N.02 30'00"W., 362.41 feet; thence N.03 49'54"W., 294.47 feet, to the South line of Wellesley Manor Addition per plat recorded in Book 4 of plats, page 25, in
Spokane County, Washington; thence S.89 41'04"E., along said South line, 234.88 feet; thence N.83 41'12"E., along said South line, 221.29 feet to the extended West line of said plat of Wellesley Manor 2nd Addition; thence S.03 14'03"E., along said
extended West line and the West line of said plat, 349.30 feet to the Point of Beginning.</P>

<p align="left">Area = 10.76 Acres</P>

<p align="CENTER"><B>EXHIBIT B</B></p>
<p align="CENTER"><B>ALTERATIONS AND UPGRADES</B></p>

<p align="left">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Separate the first floor from the ground floor of the Office Building (including HVAC, electrical and security systems, and fire exits). </p>

<p align="left">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and construct a new main entry to south side of the ground floor of the Office Building. </p>

<p align="left">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Design and construct new parking lots, driveways, sidewalks and landscaping to the south and west sides of the Office Building for the use of the Seller's employees. </p>

<p align="left">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Perform the following alterations and upgrades to the ground floor space: </p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;upgrade restrooms </p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;install T-Bar ceilings and tiles where required</p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;install ceiling lights where required </p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;install floor covering</p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;paint perimeter interior walls </p>

<p align="left">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Install separate meters for water, power, and other utilities so that the upper and lower floors of the building on the Property are separately metered. </p>

<p align="CENTER"><B>EXHIBIT C</B></p>
<p align="CENTER"><B>CONTRACTS AND PERMITS</B></p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;Sewer:&nbsp;&nbsp;&nbsp;&nbsp;Large on-site sewage system (septic tank)</p>

<p align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Permit # SPO035 issued by:</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Department of Health County of Spokane</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1500 W. Fourth Ave., Suite 411</FONT><BR>
<FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Spokane WA 99204</FONT>
<BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(509) 456-2754</FONT> </p>

<p align="CENTER"><B>SERVICE PROVIDERS WITHOUT WRITTEN CONTRACTS</B></p>

<TABLE BORDER=0 CELLPADDING=5 CELLSPACING=7 FONT SIZE=2>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>Electricity & natural gas:</TD>
	<TD><FONT SIZE=2>Avista Utilities<BR>P.O. Box 3727
                <BR><FONT SIZE=2>Spokane WA 99218
                <BR><FONT SIZE=2>(509) 489-0500</FONT></TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>Water:</TD>
	<TD><FONT SIZE=2>Trentwood lrrigation Dist #3
                <BR><FONT SIZE=2>4402 N Sullivan Rd.
                <BR><FONT SIZE=2>Spokane, WA 99216
                <BR><FONT SIZE=2>(509) 922-7532</FONT></TD
</TR>
<TR>
                <TD VALIGN="TOP"><FONT SIZE=2>Refuse:</TD>
	<TD><FONT SIZE=2>Waste Management
                <BR><FONT SIZE=2>12122 E. 1st. Ave.
                <BR><FONT SIZE=2>Spokane, WA 99206
                <BR><FONT SIZE=2>(509) 924-9400</FONT></TD
</TR>
<TR>
                <TD VALIGN="TOP"><FONT SIZE=2>Phone & network:</TD>
                <TD><FONT SIZE=2>Local:         US West 1 800 603-6000
                <BR><FONT SIZE=2>Long distance: AT&T (206) 505-0054</FONT></TD
</TR>
<TR>
                <TD VALIGN="TOP"><FONT SIZE=2>Janitorial:</TD>
	<TD><FONT SIZE=2>Argus Janitorial
                <BR><FONT SIZE=2>2610 E. Riverside Ave.
                <BR><FONT SIZE=2>Spokane, WA 99202
                <BR><FONT SIZE=2>(509) 538-8854</FONT></TD
</TR>
<TR>
                <TD VALIGN="TOP"><FONT SIZE=2>Lawn care:</TD>
	<TD><FONT SIZE=2>Gardening Services
                <BR><FONT SIZE=2>5112 E. Fairview Ave.
                <BR><FONT SIZE=2>Spokane, WA 99207
                <BR><FONT SIZE=2>(509) 482-7884</FONT></TD
</TR>
<TR>
                <TD VALIGN="TOP"><FONT SIZE=2>Roof covering:</TD>
	<TD><FONT SIZE=2>Krueger Sheet Metal Co.
                <BR><FONT SIZE=2>731 N. Superior St.
                <BR><FONT SIZE=2>Spokane, WA 99202
                <BR><FONT SIZE=2>(509) 489-0221</TD
</TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE=3><B>EXHIBIT D</B></FONT></P>
<P ALIGN="CENTER"><FONT SIZE=3><B>EQUIPMENT</B></FONT></P>

<TABLE BORDER=0 CELLPADDING=5 CELLSPACING=7>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>1. </TD>
	<TD><FONT SIZE=2>Boiler
                <BR><FONT SIZE=2>HB Smith, model C2-G-20B (one each)
                <BR><FONT SIZE=2>Pump, model 2.5 AB 6-1/8 BFW
                <BR><FONT SIZE=2>Heat exchanger, model EC!-0 76-2, ser 84-T143M</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>2. </TD>
	<TD><FONT SIZE=2>HVAC:
                <BR><FONT SIZE=2>5 ton Carrier heat pump, water cool.  Model 50HQ060500
                <BR><FONT SIZE=2>Mechanical room 1 unit
                <BR><FONT SIZE=2>Basement  29 units
                <BR><FONT SIZE=2>Top floor 25 units
                <BR><FONT SIZE=2>House pump 15HP, model 4E-9 7/8-BFW, ser 1235785 and 1235786
                <BR><FONT SIZE=2>Computer room:      Liebert 1, model FH315W-C02, ser 74407A
                <BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liebert 2, model FH315W-C02, ser 74404B</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>3. </TD>
	<TD><FONT SIZE=2>Cooling tower:
                <BR><FONT SIZE=2>Baltimore tower, model J1209B34R, ser 84-7727M
                <BR><FONT SIZE=2>Small tower (2 ea.) model FXT-34C, ser 82-4645M and 82-4646M
                <BR><FONT SIZE=2>Pump 20HP, model 5BC - 8 3/4 - BFW, ser 1236378
                <BR><FONT SIZE=2>Pump 60HP, model D1011, ser A750863A
                <BR><FONT SIZE=2>Heat exchanger, Baltimore model EC7-142-2, ser 84-T142M</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>4. </TD>
	<TD><FONT SIZE=2>Lift station (sewer holding tank)
                <BR><FONT SIZE=2>Pump 10 HP (2 each), Model N/A (in the mechanical room)
                <BR><FONT SIZE=2>Septic tank system (outside of the facility)</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>5. </TD>
	<TD><FONT SIZE=2>Electrical:
                <BR><FONT SIZE=2>750KVA (208 volts) model G77877ECS9, ser 80JK335179
                <BR><FONT SIZE=2>1500KVA (480 volts) ser 906006324</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>6. </TD>
	<TD><FONT SIZE=2>Storage tank:
                <BR><FONT SIZE=2>Pump 10 HP, model 86B3-B, ser 799717
                <BR><FONT SIZE=2>Heat exchanger, model EC7-142-2, ser 84-T143M</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>7. </TD>
	<TD><FONT SIZE=2>Hot water tank:
                <BR><FONT SIZE=2>Model BTC 365A960, ser LD96-0517251-960</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>8. </TD>
	<TD><FONT SIZE=2>Air make-up system
                <BR><FONT SIZE=2>2 each Arctic Circle evaporative cooler model ES/ED143
                <BR><FONT SIZE=2>2 each Sterling has fire roof top model RT800 (800, 000 BTU/Hr</TD>
</TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE=3><B>EXHIBIT E</B></FONT></P>
<P ALIGN="CENTER"><FONT SIZE=3><B>SELLER'S EQUIPMENT BEING RETAINED BY SELLER (PARTIAL LIST)</B></FONT></P>

<TABLE BORDER=0 CELLPADDING=5 CELLSPACING=7>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>1. </TD>
	<TD><FONT SIZE=2>Air compressors:
                <BR><FONT SIZE=2>Quincy 60HP, model 60-B, ser. 780294
                <BR><FONT SIZE=2>Gardner Denver, model BESEB1755RPM, ser. 694653
                <BR><FONT SIZE=2>Air tank and dryer, model R110W, ser. R19015</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>2. </TD>
	<TD><FONT SIZE=2>Electrical:
                <BR><FONT SIZE=2>2 ea. 75KVA Liebert UPS, model FC675 UICUL
                <BR><FONT SIZE=2>2 ea. HVAC Liebert, model FH315W-C02, ser. 74407B, 74407A
                <BR><FONT SIZE=2>120 units batteries (back-up)</TD>
</TR>
<TR>
	<TD VALIGN="TOP"><FONT SIZE=2>3.</TD>
	<TD><FONT SIZE=2>Cafeteria equipment (including but not limited to stove, cooler, salad
bar).</TD>
</TR>
</TABLE>

</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>2
<FILENAME>a10q.htm
<TEXT>

<HTML>
<HEAD>
<TITLE>Key Tronic Corporation - 10Q-Q3-2001</TITLE>
</HEAD>
<BODY BGCOLOR="FFFFFF" LINK=BLUE VLINK=PURPLE>
<A NAME="TOP">
<HR NOSHAD>
<HR NOSHAD>
<br>
<BR>
<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=5 COLOR=#000080><B>SECURITIES AND EXCHANGE COMMISSION<BR></B></FONT><FONT SIZE=2>Washington, D.C. 20549</FONT></P>
<BR>
<BR>

<HR NOSHAD WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=3 COLOR=#000080><B>FORM 10-Q</B></FONT></P>
<HR NOSHAD WIDTH="120">
<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=3><B>QUARTERLY REPORT UNDER SECTION 13 or 15(d)</B></FONT><BR><FONT SIZE=3><B>OF THE SECURITIES AND EXCHANGE ACT OF 1934</B></FONT></P>
<BR><BR>
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TD WIDTH="35%"ALIGN="left"><FONT SIZE=2>Quarter Ended December 30, 2000<BR></FONT><FONT SIZE=2>&nbsp;</TD>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="22%"ALIGN="Right"><FONT SIZE=2>Commission File Number
</FONT><FONT SIZE=2><BR>Number 0-11559</FONT></TD>
</TR>
</TABLE>
<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=3><B>KEY TRONIC CORPORATION</B></FONT></P>
<BR>
<BR>
<table width="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TD WIDTH="35%" ALIGN="left"><FONT SIZE=2>Washington<BR></FONT><FONT SIZE=2>(State of Incorporation)</TD>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="22%" ALIGN="right"><FONT SIZE=2>91-089125
</FONT><FONT SIZE=2><BR>(I.R.S. Employer</FONT><BR><FONT SIZE=2>Identification No.</FONT></TD>
</TR>
</TABLE>
<BR>
<BR>

<HR NOSHAD WIDTH="120">

<P ALIGN="CENTER"><FONT SIZE=2>North 4424 Sullivan Road<BR></FONT><FONT SIZE=2>Spokane, Washington 99216</FONT><BR><FONT SIZE=2>(509) 928-8000</FONT></P>
<BR>
<BR>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /&nbsp; X &nbsp;/  No /&nbsp;&nbsp;&nbsp;/.</P>
<BR><BR>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At February 12, 2001, 9,672,580 shares of Common Stock, no par value (the only class of common stock), were outstanding.</P>

<P ALIGN="CENTER"><FONT SIZE=1>Page 1</FONT></P>
<BR><BR>
<BR><BR><BR>

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Index</FONT></P>
<A NAME="Index">

<div align="center"><TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="bottom">
	<TD WIDTH="11%"ALIGN="LEFT"><FONT SIZE=2></FONT><BR><font size=2><B>Part I.</B></font></Td>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=2><BR></FONT><BR><font size=2><B>FINANCIAL INFORMATION</b></TH>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=2><B>Page No.</B></FONT></TH>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 1.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Consolidated Balance Sheets">Consolidated Balance Sheets - December 30, 2000 (Unaudited) and July 1, 2000</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;3-4</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Consolidated Statements of Income">Consolidated Statements of Income (Unaudited) Second Quarters Ended December 30, 2000 and January 1, 2000</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;5</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Consolidated Statements of Income (Unaudited)">Consolidated Statements of Income (Unaudited) Two Quarters Ended December 30, 2000 and January 1, 2000</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;6</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="BOTTOM">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Consolidated Statements of Cash Flows">Consolidated Statements of Cash Flows (Unaudited) Second Quarters Ended December 30, 2000 and January 1, 2000</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;7</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Notes To Consolidated Financial Statements">Notes to Consolidated Financial Statements</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;8-10</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 2.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Management's Discussion and Analysis of Financial Condition and Results of Operations">Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;11-15</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"ALIGN="LEFT"><FONT SIZE=2><B>Part II.<BR></B></FONT></TD>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=2><B><A HREF="#OTHER INFORMATION">OTHER INFORMATION</A><BR></B></FONT></B></TH>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=2><B><BR></B></FONT></TH>
<TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 1.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Legal Proceedings">Legal Proceedings</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;16</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 4.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Submission of Matters to a Vote of Security Holders">Submission of Matters to a Vote of Security Holders</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;16</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 5.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Other Events">Other Events</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;16</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 6.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><A HREF="#Exhibits and Reports on Form 8-K">Exhibits and Reports on Form 8-K</A></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR>&nbsp;&nbsp;&nbsp;&nbsp;16</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
</TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE=1>Page 2</FONT></P>

<A NAME="Consolidated Balance Sheets">

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B><BR></FONT><FONT SIZE=2><B>CONSOLIDATED BALANCE SHEETS</B></FONT><BR><FONT SIZE=2>(in thousands, except share data)</FONT></P>

<TABLE width="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TH WIDTH="65%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%" <FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="25%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December 30,<BR>2000</B></FONT><HR NOSHAD><font size=2>(Unaudited)</TH>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="25%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;July 1, <BR>2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2><B>Assets</B></FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Current assets:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,176</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,013</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Trade receivables, less allowance for doubtful accounts of $329 and $855</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>38,926</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>34,008</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Inventories</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>22,792</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>22,720</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Real estate held for sale</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,770</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,843</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Deferred income tax asset, net</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>721</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>889</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Customer tooling</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,281</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,748</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10,445</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>6,565</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>81,111</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>68,786</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Property, plant and equipment - at cost</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>102,369</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>103,175</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;less accumulated depreciation</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>83,774</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>81,825</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total property, plant and equipment</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>18,595</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21,350</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other assets:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Deferred income tax asset, net</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,795</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,627</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other (net of accumulated amortization of $1,376 and $964)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>616</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,031</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Goodwill (net of accumulated amortization of $957 and $767)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>957</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,021</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>105,074</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>95,815</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>See accompanying notes to consolidated financial statements.</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>

<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 3</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B></B><BR></FONT><FONT size=2><B></B></FONT><BR><FONT size=1></B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B></FONT><BR><FONT SIZE=2><B>CONSOLIDATED BALANCE SHEETS</B></FONT><BR><FONT SIZE=2>(in thousands, except share data)</FONT></P>

<TABLE width="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
	<TH WIDTH="15" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December 30,<BR>2000</B></FONT><HR NOSHAD><font size=2>(Unaudited)</TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;July 1, <BR>2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2><B>LIABILITIES AND SHAREHOLDERS' EQUITIES</B></FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Current liabilities:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Current portion of long-term obligations</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>150</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,105</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Accounts payable</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>26,597</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>24,315</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Accrued compensation and vacation</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,914</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,303</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Accrued taxes other than income taxes</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>986</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,146</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Interest payable</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>72</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>54</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Deferred gain on sale</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,329</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,601</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,735</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>36,649</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>31,658</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Long-term obligations, less current portion</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>21,525</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,555</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Commitments and contingencies (Notes 2 and 3)
</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Shareholders' equity:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Common stock, no par value, authorized 25,000 shares; issued and outstanding 9,672,580 and 9,641,330 shares</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>38,393</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>38,304</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Retained earnings</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>8,262</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,053</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Accumulated other comprehensive income</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>245</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>245</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total shareholders' equity</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>46,900</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>46,602</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>105,074</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>95,815</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>See accompanying notes to consolidated financial statements.</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>

<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 4</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B></B><BR></FONT><FONT SIZE=2><B></B></FONT><BR><FONT SIZE=2></B></FONT></P>
<A NAME="Consolidated Statements of Income">
<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B><BR></FONT><FONT SIZE=2><B>CONSOLIDATED STATEMENTS OF INCOME</B><BR></FONT><FONT SIZE=2>(Unaudited)</FONT></P>

<TABLE width="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>Second Quarters Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR>
	<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%" <FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2>December 30,<BR> 2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2>January 1,<BR> 2000</FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>(in thousands, except per share amounts)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2>Net sales</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>52,586</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>41,285</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65"><FONT SIZE=2>Cost of sales</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>48,100</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>37,946</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Gross profit</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,486</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,339</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Operating expenses:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Research, development and engineering</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>566</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>867</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Selling</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,208</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,595</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>General and administrative</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,514</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,244</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Operating income (loss) </FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>198</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,367)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Interest expense</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>674</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>492</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other income, net</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(657)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(39)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Income (loss) before income tax provision</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>181</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,820)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Income tax provision</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>178</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Net Income (loss)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,833)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE FONT SIZE=4></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE FONT SIZE=4></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Earnings (loss) per share:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2>Earnings per common share - basic and diluted</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>.00</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(.19)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>See accompanying notes to consolidated financial statements.</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 5</FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B></B><BR></FONT><FONT SIZE=2><B></B></FONT><BR><FONT SIZE=2></B></FONT></P>

<A NAME="Consolidated Statements of Income (Unaudited)">

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B><BR></FONT><FONT SIZE=2><B>CONSOLIDATED STATEMENTS OF INCOME</B><BR></FONT><FONT SIZE=2>(Unaudited)</FONT></P>

<TABLE width="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>Two Quarters Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR>
	<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%" <FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2>December 30,<BR> 2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2>January 1,<BR> 2000</FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>(in thousands, except per share amounts)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2>Net sales</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>103,800</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>83,060</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65"><FONT SIZE=2>Cost of sales</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>94,010</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>73,753</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Gross profit</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,790</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,307</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Operating expenses:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Research, development and engineering</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,380</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,747</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Selling</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,742</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,778</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>General and administrative</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,649</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,488</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Operating income (loss)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,019</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(706)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Interest expense</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,232</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>987</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Other income, net</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(706)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(158)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Income (loss) before income tax provision</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>493</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,535)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Income tax provision</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>284</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>88</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Net Income (loss)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>209</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,623)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE FONT SIZE=4></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE FONT SIZE=4></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Earnings (loss) per share:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2>Earnings per common share - basic and diluted</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>.02</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(.17)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>See accompanying notes to consolidated financial statements.</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>

<P ALIGN="CENTER"><FONT SIZE=1>Page 6</FONT></P>

<A HREF="#Index"> Return to Index.</A>

<A NAME="Consolidated Statements of Cash Flows">

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B></BR></FONT><FONT SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></BR></FONT><FONT SIZE=2>(Unaudited)</FONT></P>

<TABLE width="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>Two Quarters Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%" <FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December  30,<BR>2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>January 1,<BR>2000</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="RIGHT"><FONT SIZE=2>(in thousands)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>Increase (decrease) in cash and cash equivalents:</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>Cash flows from operating activities:</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="64%"><FONT SIZE=2>&nbsp;&nbsp;Net income (loss)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>209</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,623)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65"><FONT SIZE=2>&nbsp;&nbsp;Depreciation and amortization</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,111</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,341</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Provision for obsolete inventory</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>250</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(249)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Provision for doubtful receivables</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>433</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Provision for warranty</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>170</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>172</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Gain on disposal of assets</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(661)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(27)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Deferred income taxes</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>121</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Trade receivables</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(5,351)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,612</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Inventories</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(322)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(826)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Customer tooling</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1,783)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,060</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Other assets</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(3,624)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,675)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Accounts payable</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,282</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(604)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Accrued compensation and vacation</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>611</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,147)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Other liabilities</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>657</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(351)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash used in operating activities</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(4,018)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(141)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash flows from investing activities:</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Proceeds from sale of property and equipment</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,095</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>76</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Proceeds from sale leaseback of real estate</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,030</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;&nbsp;Purchase of property and equipment</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(245)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(983)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash provided (used) in investing activities</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,880</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(907)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash flows from financing activities:
</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Proceeds from issuance of common stock</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>89</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Proceeds from long-term obligations</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,919</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,644</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Payments on long-term obligations</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(5,707)</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,126)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash provided by financing activities</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,301</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>531</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,163</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(517)</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash and cash equivalents, beginning of period</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,013</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,866</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>Cash and cash equivalents, end of period</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,176</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,349</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="14%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=7 ALIGN="LEFT"><FONT SIZE=2>See accompanying notes to consolidated financial statements.</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<P ALIGN="CENTER"><FONT SIZE=1>Page 7</FONT></P>

<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 6</FONT></P>

<A NAME="Notes To Consolidated Financial Statements">
<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION AND SUBSIDIARIES</B></FONT><BR><FONT SIZE=2><B>NOTES TO FINANCIAL STATEMENTS</B></FONT><BR><FONT SIZE=2>(Unaudited)</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments of a normal and recurring nature necessary for a fair presentation of results of operations for such periods. The
results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report for
the year ended July 1, 2000.</P>

<HR NOSHAD>

<P ALIGN="LEFT"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;INVENTORIES</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TH WIDTH="66%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December 30, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;July 1, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=8 ALIGN="RIGHT"><FONT SIZE=2>(in thousands)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;Finished Goods</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,180</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,378</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;Work-in-process</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,417</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,512</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;Raw materials and supplies</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>13,846</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>14,179</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;Reserve for obsolescence</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,651)</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,349)</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>22,792</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>22,720</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>

<P ALIGN="LEFT"><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;PROPERTY AND EQUIPMENT</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December 27, 2000, the Company sold two contiguous parcels of land and its corporate headquarters building in Spokane to Royal Hills Associates L.L.C. (RHA) for approximately $6 million
in cash. In connection with the sale, the Company entered into a 10-year lease agreement with RHA for one floor of the two-story building, which the Company will continue to occupy as its headquarters. The initial monthly rent is $30,875 plus allocated
expenses. Proceeds from the sale of these properties was used to pay off the balance of the Company's term loan with General Electric Capital Corporation (GECC) in the amount of $2,702,000, and to pay down the Company's revolving line of credit (also with
GECC) by $2.4 million. The sale resulted in a gain on one parcel of land of approximately $650,000, which is included in other income.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the sale agreement, the Company has guaranteed rent on the second floor of the building for a period of one-year following the closing date of December 27, 2000. The
guaranteed rent is $31,250 per month plus allocated expenses. If RHA is successful in securing a tenant for the second floor prior to the end of the one-year rental guarantee period, the Company's obligation to make monthly rental guarantee payments will
cease when RHA begins receiving rental payments from the second-floor tenant.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the guidance of FASB Statement No. 66 <i>Accounting for Sale of Real Estate</i>, a seller-lessee cannot recognize any profit on the sale of an asset if it retains substantially all of
the benefits and risks incident to the property sold. As the Company's guaranteed rent provision for the second floor of the building constitutes continuing involvement, no profit was recognized on the building or the land upon which it is built. A gain
was recognized on the separate contiguous parcel of land. This gain is included in other income.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will recognize the deferred gain on sale over the 10 year lease agreement.</p>

<P ALIGN="CENTER"><FONT SIZE=1>Page 8</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of firm commitments to contractors and suppliers for capital expenditures was approximately $488,000 at December 30, 2000.</P>

<BR>

<P ALIGN="LEFT"><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;LONG-TERM LIABILITIES</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term liabilities consist of:</P>

<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TH WIDTH="66%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December 30, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;July 1, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=8 ALIGN="RIGHT"><FONT SIZE=2>(in thousands)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Note payable</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,307</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Revolving line</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,253</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>15,735</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Deferred compensation obligation</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>721</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>618</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Deferred gain on sales</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>701</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21,675</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>19,660</FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;Less current portion</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(150)</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,150)</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHAD></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21,525</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,555</FONT></TD>
</TR>
<TR VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>

<BR>

<P ALIGN="LEFT"><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;SUPPLEMENTAL CASH FLOW INFORMATION</B></FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2>Two Quarters Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TH WIDTH="66%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>December  30, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="15%" COLSPAN=2 ALIGN="RIGHT"><FONT SIZE=2><B>January 1, 2000</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="99%" COLSPAN=8 ALIGN="RIGHT"><FONT SIZE=2>(in thousands)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
	<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Interest Payments</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,233</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="3%"<FONT SIZE=2>$</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>963</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2>Income tax payments</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>310</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>205</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="66%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
</TABLE>
<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 9</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;INCOME TAXES</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The income tax provision for the second quarter of fiscal year 2001 was $178,000 versus a provision of $13,000 for the second fiscal quarter of the prior year. The $178,000 provision for
the second quarter of fiscal year 2001 is the result of provisions on the earnings of foreign subsidiaries. The $13,000 provision for the second quarter of fiscal year 2000 was net of $176,000 in tax benefits on losses of both domestic and foreign
operations. The Company has tax loss carryforwards of approximately $34.4 million that expire in varying amounts in the years 2006 through 2020.</P>

<P ALIGN="LEFT"><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 128</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share (EPS) is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator)
during the period. Diluted EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares and common share equivalents outstanding during the period. The Company uses the Treasury Stock Method in
calculating the dilutive effect of common stock equivalents. </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of the dilutive nature of outstanding options and warrants, the loss for the quarter and two quarters ended January 1, 2000 creates an antidilutive effect. Therefore, the weighted
average diluted shares equals the basic weighted average shares. </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no adjustments to the income available to common shareholders for the second quarters ended December 30, 2000 and January 1, 2000. The following table presents the Company's
calculations of weighted average shares outstanding (number of shares):</P>

<TABLE width="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
	<TH WIDTH="30%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
 	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2><B>Weighted Avg. Shares</B><BR></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2><B>Adjustment for Potential</B><BR></FONT><FONT SIZE=2>Common Shares</FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2><B>Total</B></FONT><HR NOSHAD></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
	<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR>
	<TD WIDTH="50%" ALIGN="LEFT"><FONT SIZE=2><U>For the Quarters Ended</U></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="BOTTOM">
	<TD WIDTH="33%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>December 30, 2000</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,670,808</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>246,074</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,916,882</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="33%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>January 1, 2000</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,634,830</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>172,992</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,807,822</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR>
	<TD WIDTH="50%" ALIGN="LEFT"><FONT SIZE=2><U>For Two Quarters Ended</U></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">

	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="white" VALIGN="BOTTOM">
	<TD WIDTH="33%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>December 30, 2000</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,662,989</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>265,601</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,928,590</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="33%" COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>January 1, 2000</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,634,034</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>226,779</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="13%" COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2>9,860,833</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="BOTTOM">
	<TD WIDTH="30%" COLSPAN=2><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="2%"<FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2></FONT></TD>
</TR>
</TABLE>

<P ALIGN="LEFT"><FONT SIZE=2><B>FORWARD-LOOKING STATEMENTS</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Quarterly Report contains forward-looking statements in addition to historical information. Forward-looking statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking statements. Risks and uncertainties that might cause such differences include, but are not limited to those outlined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risks and Uncertainties That May Affect Future Results." Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's opinions only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements.  Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and
Exchange Commission, including Quarterly Reports on Form 10-Q.</P>

<A NAME="Management's Discussion and Analysis of Financial Condition and Results of Operations">

<P ALIGN="CENTER"><FONT SIZE=1>Page 10</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><B>Item 2.&nbsp;&nbsp;&nbsp;Management's Discussion and Analysis of Financial Condition and Results of Operations</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><U>CAPITAL RESOURCES AND LIQUIDITY</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating activities used $4.0 million of cash during the first two quarters of fiscal year 2001 versus $0.1 million used by operating activities during the same period of the prior year.
This change in cash in operating activities is due primarily to the Company's increase in accounts receivable. The increase was due to increased sales on electronics manufacturing services (EMS) projects in the two quarters ended December 30, 2000. In
previous filings, EMS was designated as contract design and manufacturing (CDM).</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first two quarters of fiscal year 2001, $0.2 million was expended in capital additions versus $1 million spent in capital additions in the same period in the previous fiscal
year. The Company anticipates capital expenditures of approximately $2.3 million through the remainder of the current fiscal year ending June 30, 2001. Actual capital expenditures may vary from anticipated expenditures depending upon future results of
operations. See risks and uncertainties that may affect future results, pages 11-12. Capital expenditures are expected to be financed with internally generated funds. </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a financing agreement, which contains a revolving loan for up to $30 million and a term note for up to $11 million. During the second quarter of fiscal year 1998, the
company entered into an operating lease arrangement with GECC which reduced the borrowing limit by $4.2 million. The revolving loan agreement is secured by the assets of the corporation. The agreement contains financial covenants that relate to maximum
capital expenditures, minimum debt service coverage, minimum earnings before interest expense, income tax, depreciation, amortization, and maximum leverage percentages. In addition to these financial covenants, the financing agreement restricts
investments, disposition of assets, and payment of dividends. At December 30, 2000 and July 1, 2000, the Company was in compliance with all debt covenants.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A term note was payable in quarterly installments of principal, each in the amount of $500,000, which commenced in March 1998 and ended on December 27, 2000 due to the pay-off of the term
note with proceeds from the sale of the Spokane headquarters facility. In addition to these scheduled payments, the Company was paying $21,000 per month against the term note, which is a special agreement with GECC resulting from the Company's lease of
its Cheney facility. If debt service coverage is greater than 1.4, this note bears interest at two and three-quarters percent (2.75%) in excess of the applicable London Interbank Offered Rate (LIBOR). If debt service coverage is less than or equal to 1.4,
this note bears interest at three percent (3.00%) in excess of the applicable LIBOR rate. At December 30, 2000, the applicable LIBOR rate was 6.62%, and the applicable interest rate was 9.62%.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revolving loan with GECC is renewable and covers an initial period of five years expiring on December 31, 2001. If debt service coverage is greater than 1.4, the applicable interest
rate is two and one-half percent (2.5%) in excess of the applicable LIBOR rate. If debt service coverage is less than or equal to 1.4, the applicable interest rate is two and three-quarters percent (2.75%) in excess of the applicable LIBOR rate. At
December 30, 2000, the Company had two LIBOR contracts outstanding, one for $5 million and one for $10 million. The LIBOR rate on the $5 million and $10 million LIBOR contract was 6.62%, and the applicable interest rate was 9.37%. LIBOR rates fluctuate on
a daily basis. Interest on additional borrowing under the revolving loan is charged at an index rate at 10%. At December 30, 2000, there was $20.3 million borrowed on the revolving loan and approximately $5.5 million available for use under the revolving
loan. The Company is required to pay fees of .0375% on the unused revolving loan balance. </P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revolving loan balance has increased $4.6 million since the Company's fiscal year end at July 1, 2000. This increase can be attributed to cash needs resulting from increased trade
receivables and slower than expected payments from customers.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December 27, 2000, the Company sold two contiguous parcels of land and its corporate headquarters building in Spokane to Royal Hills Associates L.L.C. (RHA) for approximately $6 million
in cash. In connection with the sale, the Company entered into a 10-year lease agreement with RHA for one floor of the two-story building, which the Company will continue to occupy as its headquarters. The initial monthly rent is $30,875 plus allocated
expenses. Proceeds from the sale of these properties was used to pay off the Company's term loan with General Electric Capital Corporation (GECC) in the amount of $2,702,000, and to pay down the Company's revolving line of credit (also with GECC) by $2.4
million. The sale resulted in a gain on one parcel of land of approximately $650,000, which is included in other income.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the sale agreement, the Company has guaranteed rent on the second floor of the building for a period of one-year following the closing date of December 27, 2000. The
guaranteed rent is $31,250 per month plus allocated expenses.  If RHA is successful in securing a tenant for the second floor prior to the end of the one-year rental guarantee period, the Company's obligation to make monthly rental guarantee payments will
cease when RHA begins receiving rental payments from the second-floor tenant.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the guidance of FASB Statement No. 66 <i>Accounting for Sale of Real Estate</i>, a seller-lessee cannot recognize any profit on the sale of an asset if it retains substantially all of
the benefits and risks incident to the property sold. As the Company's guaranteed rent provision for the second floor of the building, constitutes continuing involvement, no profit was recognized on the building or the land upon which it is built. A gain
was recognized on a separate parcel of land. This gain is included in other income.</p>

<P ALIGN="CENTER"><FONT SIZE=1>Page 11</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will recognize the deferred gain on sale over the 10 year lease agreement.</p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Real estate held for sale located in Cheney, Washington is carried at the lower of cost or net realizable value. In September of 1997, the Company signed a five year operating lease with a
local company for this property. The lease terms include an option to buy the property upon notice at any time during the course of the lease.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that cash, cash equivalents, funds available under the line of credit, and internally generated funds can satisfy cash requirements for a period in excess of 12 months.
</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's major market risk relates to its secured debt. A portion of the Company's
accounts receivable and inventories are used as collateral for its term and revolving debt. The interest rates applicable to the Company's debt fluctuate with the LIBOR. Over the past fiscal quarter the highest LIBOR rate was 6.65%.  LIBOR rates fluctuate
on a daily basis.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not enter into derivative transactions or leveraged swap agreements.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the Company has international operations, the functional currency for all active subsidiaries, is the U.S. dollar.  The Company imports for its own use raw materials that are used
in its manufacturing operations.  Such purchases are denominated in U.S. dollars and are paid under normal trade terms.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>NET SALES</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales for the fiscal 2001 second quarters which ended December 30, 2000 were $52.6 million compared to $41.3 million for the second quarter of the previous year. For the six months
ended December 30, 2000, sales were $103.8 million compared to $83.1 million for the same period of the previous year. The increase is due to increased business in the Company's EMS projects.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EMS revenue accounted for 78.1% of total revenue in the second quarter of fiscal year 2001 versus 47.5% of total revenue in the second quarter of fiscal year 2000. For the six months ended
December 30, 2000, EMS revenue accounted for 76.6% of total revenue versus 49.0% of total revenue for the same time period of the prior fiscal year. The increase in EMS revenue as a percentage of sales is a direct result of the company's strategy to grow
this part of it's business.</P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While the pipeline of EMS business from new customers continues to grow, Key Tronic's largest customer has recently decided to terminate a major project and delay shipments for two other
significant programs due to market conditions. This will adversely affect revenues for the third quarter. </p>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Keyboard unit shipments decreased 53% for the second quarter of fiscal year 2001 compared to the second quarter of fiscal year 2000, while the average selling price increased 23% for six
months ended December 30, 2000, unit shipments decreased 49% over the same period of the prior year while the average selling price increased 3%. The decrease in units shipped is due primarily to decreased customer orders for keyboards. The decrease in
keyboard revenues was offset in part by the increase in EMS revenue.</P>

<P ALIGN="CENTER"><FONT SIZE=1>Page 12</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><U>COST OF SALES</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales were 91.5% of revenue in the second quarter of fiscal year 2001, compared to 91.9% for the second quarter of  fiscal year 2000. Cost of sales were 90.6% of revenue for the six
months ended December 30, 2000 compared to 88.8% for the same period of the prior year. The cost of sales percentage increased as a result of keeping up with higher sales volume. During the second quarter of fiscal year 2001, management placed additional
emphasis on material cost reductions through negotiations with major suppliers, as well as changed  product designs.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>RESEARCH, DEVELOPMENT AND ENGINEERING</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research, development and engineering (RD&E) expenses were $0.6 million in the second quarter of fiscal year 2001 and $0.9 million for the same period of fiscal year 2000. As a percentage
of sales, RD&E expenditures were 1.1% in the second quarter of  fiscal year 2001, compared to 2.1% for the same period of the prior year. RD&E expenses were $1.4 million for the six months ended December 30, 2000, compared to $1.7 million for the same
period of the prior year.  As a percentage of sales, RD&E expenditures were 1.3% of the current six month period versus 2.1% for the same period of the prior fiscal year.  These decreases were primarily due to recovering the majority of engineering costs
from customers.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>SELLING EXPENSES</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling expenses were $1.2 million in the second quarter of fiscal year 2001 compared to $1.6 million in the second quarter of fiscal year 2000. Selling expenses as a percentage of revenue
were 2.3% for the quarter compared to 3.9% in the same quarter of fiscal year 2000. For the six months ended December 30, 2000, selling expenses were $2.7 million compared to $3.8 million for the same period of the prior year. As a percentage of revenue
for the current six month period, selling expenses were 2.6% compared to 4.5% for the same period of the prior year. These decreases can be attributed to reduced distribution keyboard sales, which resulted in lower costs for volume incentive rebates and
cooperative advertising.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>GENERAL AND ADMINISTRATIVE</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative (G&A) expenses remained fairly constant. They were $2.5 million in the first quarter of fiscal 2001 and  $2.2 million for the first quarter of fiscal 2000. As a
percentage of revenue, G&A expenses were 4.8% in the second quarter of fiscal year 2001 versus 5.4% in the same quarter of the prior year. For the six months ended December 30, 2000, G&A expenses were $4.7 million compared to $4.5 million for the same
period of the prior year.  As a percentage of revenue G&A expenses for the first six months of fiscal 2001 were 4.5% versus 5.4% for the same period of the prior year.  The percentage decrease is due primarily to increased revenues.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>INTEREST</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $674,000 in the second quarter of fiscal 2001 compared to $493,000 for the second quarter of fiscal year 2000.  This increase resulted from higher interest rates
associated with additional borrowing required to cover operating expenses.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>INCOME TAXES</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The income tax provision for the second quarter of fiscal year 2001 was $178,000 versus a provision of $13,000 for the second fiscal quarter of the prior year. The $178,000 provision for
the second quarter of fiscal year 2001 is the result of provisions on the earnings of foreign subsidiaries. The $13,000 provision for the second quarter of fiscal year 2000 was net of $176,000 in tax benefits on losses of both domestic and foreign
operations. The Company has tax loss carryforwards of approximately $34.4 million that expire in varying amounts in the years 2006 through 2020.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>ESOP</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No contributions to the Employee Stock Ownership Plan (ESOP) were made during the second quarter of fiscal years 2001 and 2000.</P>

<P ALIGN="CENTER"><FONT SIZE=1>Page 13</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><U>BACKLOG</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's backlog at the end of second quarter of fiscal year 2001 was $7.6 million compared to $35 million at the end of  fiscal year 2000 and $12 million at the end of the second
quarter of fiscal year 2000. The decrease in the backlog from fiscal year end is attributable in part to orders shipped in the first six months of fiscal 2001. The Company was unable to ship in the fourth quarter of fiscal 2000 due to component part
shortages.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS</U></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following risks and uncertainties could affect the Company's actual results and could cause results to differ materially from past results or those contemplated by the Company's forward-looking
statements.  When used herein, the words "expects", "believes", "anticipates" and similar expressions are intended to identify forward-looking statements.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Potential Fluctuations in Quarterly Results.</U>&nbsp;&nbsp;&nbsp;&nbsp;The Company's quarterly operating results have varied in the past and may vary in the future due to a variety of factors, including changes in overall
demand for computer products, success of customers' programs, timing of new programs, new product introductions or technological advances by the Company, its customers and its competitors and changes in pricing policies by the Company, its customers and
its competitors. For example, the Company relies on customers' forecasts to plan its business. If those forecasts are overly optimistic, the Company's revenues and profits may fall short of expectations. Conversely, if those forecasts are too
conservative, the Company could have an unexpected increase in revenues and profits.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Competition.</U>&nbsp;&nbsp;&nbsp;&nbsp;The EMS and keyboard industries are intensely competitive. Most of the Company's principal competitors are headquartered in Asian countries that have a low cost labor force. Those
competitors may offer customers lower prices on certain high volume programs. This could result in price reductions, reduced margins and loss of market share, all of which would materially and adversely affect the Company's business, operating results and
financial condition. In addition, competitors can copy the Company's non-proprietary designs after the Company has invested in development of products for customers, thereby enabling such competitors to offer lower prices on such products due to savings
in development costs.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Concentration of Major Customers.</U>&nbsp;&nbsp;&nbsp;&nbsp;At present, the Company's customer base is highly concentrated, and there can be no assurance that its customer base will not become more concentrated. Three of
the Company's EMS customers accounted for 38%, 9%, and 8% of  net sales during fiscal 2000. In 1999, these same customers accounted for 24%, 11% and 13% of the Company's net sales. There can be no assurance that the Company's principal customers will
continue to purchase products from the Company at current levels. Moreover, the Company typically does not enter into long-term volume purchase contracts with its customers, and the Company's customers have certain rights to extend or delay the shipment
of their orders. The loss of one or more of the Company's major customers or the reduction, delay or cancellation of orders from such customers could materially and adversely affect the Company's business, operating results and financial condition.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Dependence on Key Personnel.</U>&nbsp;&nbsp;&nbsp;&nbsp;The Company's future success depends in large part on the continued service of its key technical, marketing and management personnel and on its ability to continue to
attract and retain qualified employees. The competition for such personnel is intense and there can be no assurance that the Company will be successful in attracting and retaining such personnel. The loss of key employees could have a material adverse
effect on the Company's business, operating results and financial condition.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Litigation.</U>&nbsp;&nbsp;&nbsp;&nbsp;The Company currently has fifteen lawsuits by computer keyboard users which are in state or federal courts in New York. These suits allege that specific keyboard products manufactured
by the Company were sold with manufacturing, design and warning defects which caused or contributed to injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or cumulative trauma disorders
(CTD). These suits seek compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages, if awarded, will be covered by
insurance is remote. A total of 123 lawsuits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas.</P>

<P ALIGN="CENTER"><FONT SIZE=1>Page 14</FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Technological Change and New Product Risk.</U>&nbsp;&nbsp;&nbsp;&nbsp;The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards, frequent new product
introductions and relatively short product life cycles. The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable. The Company's success will depend upon its
ability to enhance its existing products and services and to develop and introduce, on a timely and cost-effective basis, new products and services that keep pace with technological developments and emerging industry standards and address evolving and
increasingly sophisticated customer requirements. Failure to do so could substantially harm the Company's competitive position. There can be no assurance that the Company will be successful in identifying, developing, manufacturing and marketing products
that respond to technological change, emerging industry standards or evolving customer requirements.</P>

<P ALIGN="LEFT"><FONT SIZE=2><U>Dilution and Stock Price volatility.</U>&nbsp;&nbsp;&nbsp;&nbsp;As of December 30, 2000, there were outstanding options and warrants for the purchase of approximately 2,000,000 shares of common stock of the Company (Common
Stock), of which options and warrants for approximately 1,400,000 shares were vested and exercisable. Holders of the Common Stock will suffer immediate and substantial dilution to the extent outstanding options and warrants to purchase the Common Stock
are exercised. The price of the Company's Common Stock may be subject to wide fluctuations and possible rapid increases or declines over a short time period. These fluctuations may be due to factors specific to the Company such as variations in quarterly
operating results or changes in analysts' earnings estimates, or to factors relating to the computer industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations. These fluctuations often have
been unrelated to the operating performance of the specific companies whose stocks are traded.</P>

<A HREF="#Index"> Return to Index.</A>

<P ALIGN="CENTER"><FONT SIZE=1>Page 15</FONT></P>

<A NAME="OTHER INFORMATION">
<HR NOSHAD WIDTH="120">
<BR>
<TABLE WIDTH="78%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TD WIDTH="11%"ALIGN="LEFT"><FONT SIZE=2><B>Part II.</B> <BR></TH>
	<TH WIDTH="2%"><FONT SIZE=2></FONT></TH>
	<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=2>OTHER INFORMATION<BR></FONT></TH>
	<TH WIDTH="2%"><FONT SIZE=2></FONT></TH>
	<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=2><BR></FONT></TH>
</TR>
<A NAME="Legal Proceedings">
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 1.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR>Legal Proceedings</FONT><BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
</TR>
<A NAME="Submission of Matters to a Vote of Security Holders">
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 4.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR>Submission of Matters to a Vote of Security Holders</FONT><BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
</TR>
<A NAME="Other Events">
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 5.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR>Other Events</FONT><BR><FONT SIZE=2></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
</TR>
<A NAME="Exhibits and Reports on Form 8-K">
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR>Item 6.</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR>Exhibits and Reports on Form 8-K</FONT><BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Exhibits<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase and
Sale Agreement</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2>&nbsp;<BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Reports on Form 8-K<BR></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2>&nbsp;<BR></FONT></TD>
</TR>
</TABLE>
<BR>
<BR>
<HR NOSHAD WIDTH="120">
<BR>
<BR>
<P ALIGN="CENTER"><FONT SIZE=2><B>SIGNATURES</B></FONT></P>

<P ALIGN="LEFT"><FONT SIZE=2>Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.</P>
<BR>
<BR>

<P ALIGN="CENTER"><FONT SIZE=2><B>KEY TRONIC CORPORATION</B></FONT></P>
<BR>
<BR>

<div align="center"><TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
	<TD WIDTH="49%"ALIGN="left"><FONT SIZE=2>/s/ Jack W. Oehlke</FONT><BR><FONT SIZE=2>Jack W. Oehlke</FONT><BR><FONT SIZE=2>Director, President and</FONT><BR><FONT SIZE=2>Chief Executive Officer</FONT></TD>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="22%"ALIGN="CENTER"><FONT SIZE=2><U>February 12, 2001</FONT><FONT SIZE=2><BR>Date</FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="11%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="77%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="2%"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
	<TD WIDTH="8%" VALIGN="TOP"><FONT SIZE=2><B>&nbsp;<BR>&nbsp;</B></FONT></TD>
</TR>
<TR BGCOLOR="WHITE" VALIGN="TOP">
	<TD WIDTH="49%"ALIGN="left"><FONT SIZE=2>/s/ Ronald F. Klawitter</FONT><BR><FONT SIZE=2>Ronald F. Klawitter</FONT><BR><FONT SIZE=2>Principal Financial Officer</FONT><BR><FONT SIZE=2>(Principal Accounting Officer)</FONT></TD>
	<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
	<TD WIDTH="22%"ALIGN="CENTER"><FONT SIZE=2><U>February 12, 2001</FONT><FONT SIZE=2><BR>Date</FONT></TD>
</TR>
</TABLE>
<A HREF="#TOP"> Return to Top.</A>
<P ALIGN="CENTER"><FONT SIZE=1>Page 16</FONT></P>

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