<PAGE>   1
                                                                  EXHIBIT 10.42


                            UNION BANK OF CALIFORNIA


                                 PROMISSORY NOTE
                                   (BASE RATE)


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

Borrower Name   SMARTFLEX SYSTEMS, INC.
--------------------------------------------------------------------------------

Borrower Address         Office  45061   Loan Number 8439907413 0080-00-0-001
14312 FRANKLIN AVENUE    -------------------------------------------------------
TUSTIN, CA 92680-7028    Maturity Date  OCTOBER 2, 2000  Amount   $25,000,000.00
================================================================================



$25,000,000.00                                             Date OCTOBER 1, 1998
 -------------                                                  ---------------


FOR VALUE RECEIVED, on OCTOBER 2, 2000, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of TWENTY FIVE MILLION AND NO/100 Dollars ($25,000,000.00), or
so much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.

1. INTEREST PAYMENTS. Debtor shall pay interest an the 2ND day of each MONTH
(commencing DECEMBER 2, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.

        a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
        in minimum amounts of at least $100,000.00 shall bear interest at a
        rate, based on an index selected by Debtor, which is 1.50% per annum in
        excess of Bank's LIBOR Rate for the Interest Period selected by Debtor,
        acceptable to Bank.

        No Base Interest Rate may be changed, altered or otherwise modified
        until the expiration of the Interest Period selected by Debtor. The
        exercise of interest rate options by Debtor shall be as recorded in
        Bank's records, which records shall be prime facie evidence of the
        amount borrowed under either interest option and the interest rate;
        provided, however, that failure of Bank to make any such notation in its
        records shall not discharge Debtor from its obligations to repay in full
        with interest all amounts borrowed. In no event shall any Interest
        Period extend beyond the maturity date of this note.

        To exercise this option, Debtor may, from time to time with respect to
        principal outstanding on which a Base Interest Rate is not accruing, and
        on the expiration of any Interest Period with respect to principal
        outstanding on which a Base Interest Rate has been accruing, select 





<PAGE>   2

        an index offered by Bank for a Base Interest Rate Loan and an Interest
        Period by telephoning an authorized lending officer of Bank located at
        the banking office identified below prior to 10:00 a.m., Pacific time,
        on any Business Day and advising that officer of the selected index, the
        Interest Period and the Origination Date selected (which Origination
        Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall
        follow the date of such selection by no more than two (2) Business
        Days).

        Bank will mail a written confirmation of the terms of the selection to
        Debtor promptly after the selection is made. Failure to send such
        confirmation shall not affect Bank's rights to collect interest at the
        rate selected. If, on the date of the selection, the index selected is
        unavailable for any reason, the selection shall be void. Bank reserves
        the right to fund the principal from any source of funds notwithstanding
        any Base Interest Rate selected by Debtor.

        b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
        not bearing interest at a Base Interest Rate shall bear interest at a
        rate per annum equal to the Reference Rate, which rate shall vary as and
        when the Reference Rate changes.

        At any time prior to the maturity of this note, subject to the
        provisions of paragraph 4, below, of this note, Debtor may borrow, repay
        and reborrow hereon so long as the total outstanding at any one time
        does not exceed the principal amount of this note. Debtor shall pay all
        amounts due under this note in lawful money of the United States at
        Bank's ORANGE COUNTY COMMERCIAL BANKING Office, or such other office as
        may be designated by Bank, from time to time.

2. LATE PAYMENTS. If any payment required by the terms of this note shall remain
unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee
of $100 to Bank.

3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b. above,
calculated from the date of default until all amounts payable under this note
are paid in full.

4.      PREPAYMENT.

        a. Amounts outstanding under this note bearing interest at a rate based
        on the Reference Rate may be prepaid in whole or in part at any time,
        without penalty or premium. Debtor may prepay amounts outstanding under
        this note bearing interest at a Base Interest Rate in whole or in part
        provided Debtor has given Bank not less than five (5) Business Days
        prior written notice of Debtor's intention to make such prepayment and
        pays to Bank the liquidated damages due as a result. Liquidated Damages
        shall also be paid, if Bank, for any other reason, including
        acceleration or foreclosure, receives all or any portion of principal
        bearing interest at a Base Interest Rate prior to its scheduled payment
        date. Liquidated Damages shall be an amount equal to the present value
        of the product of: (i) the difference (but not less then zero) between
        (a) the Base Interest Rate applicable to the principal amount which is
        being prepaid, and (b) the return which Bank could obtain if it used the
        amount of 


                                      -2-
<PAGE>   3

        such prepayment of principal to purchase at bid price regularly 
        quoted securities issued by the United States having a
        maturity date most closely coinciding with the relevant Base Rate
        Maturity Date and such securities were held by Bank until the relevant
        Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
        of which is the number of days in the period between the date of
        prepayment and the relevant Base Rate Maturity Date and the denominator
        of which is 360; and (iii) the amount of the principal so prepaid
        (except in the event that principal payments are required and have been
        made as scheduled under the terms of the Base Interest Rate Loan being
        prepaid, then an amount equal to the lesser of (A) the amount prepaid or
        (B) 50% of the sum of (1) the amount prepaid and (2) the amount of
        principal scheduled under the terms of the Base Interest Rate Loan being
        prepaid to be outstanding at the relevant Base Rate Maturity Date).
        Present value under this note is determined by discounting the above
        product to present value using the Yield Rate as the annual discount
        factor.

        b. In no event shall Bank be obligated to make any payment or refund to
        Debtor, nor shall Debtor be entitled to any setoff or other claim
        against Bank, should the return which Bank could obtain under this
        prepayment formula exceed the interest that Bank would have received if
        no prepayment had occurred. All prepayments shall include payment of
        accrued interest on the principal amount so prepaid and shall be applied
        to payment of interest before application to principal. A determination
        by Bank as to the prepayment fee amount, if any, shall be conclusive.

        c. Bank shall provide Debtor a statement of the amount payable on
        account of prepayment. Debtor acknowledges that (i) Bank establishes a
        Base Interest Rate upon the understanding that it apply to the Base
        Interest Rate Loan for the entire Interest Period, and (ii) any
        prepayment may result in Bank incurring additional costs, expenses or
        liabilities; and Debtor agrees to pay these liquidated damages as a
        reasonable estimate of the costs, expenses and liabilities of Bank
        associated with such prepayment.

5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor 


                                      -3-



<PAGE>   4

personally liable for amounts owed hereunder on any obligation concerning the
borrowing of money; (m) the issuance against any Obligor, or the property of any
Obligor, of any writ of attachment, execution, or other judicial lien; or (n)
the deterioration of the financial condition of any Obligor which results in
Bank deeming itself, in good faith, insecure. Upon the occurrence of any such
default, Bank, in its discretion, may cease to advance funds hereunder and may
declare all obligations under this note immediately due and payable; however,
upon the occurrence of an event of default under d, e, f, or g, all principal
and interest shall automatically become immediately due and payable.

6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank.

7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Base Interest Rate" means a rate of interest
based on the LIBOR-Rate. "Base Interest Rate Loan" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "Base Rate Maturity
Date" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "Business Day" means a day on which
Bank is open for business for the funding of corporate loans, and, with respect
to the rate of interest based on the LIBOR Rate, on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR 


                                      -4-



<PAGE>   5

Rate" means a per annum rate of interest (rounded upward, if necessary, to the
nearest 1/100 of 1%) at which dollar deposits, in immediately available funds
and in lawful money of the United States would be offered to Bank, outside of
the United States, for a term coinciding with the Interest Period selected by
Debtor and for an amount equal to the amount of principal covered by Debtor's
interest rate selection, plus Bank's costs, including the costs, if any, of
reserve requirements. "Origination Date" means the first day of the Interest
Period. "Reference Rate" means the rate announced by Bank from time to time at
its corporate headquarters as its Reference Rate. The Reference Rate is an index
rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index nor necessarily the lowest rate of interest charged by Bank at
any given time.

SMARTFLEX SYSTEMS, INC.


By   //s//  William L. Healey
     ----------------------------------
     WILLIAM L. HEALEY, PRESIDENT












                                      -5-