Decrane Aircraft Holdings Inc – IPO: ‘424B4’ on 4/17/97

As of:  Thursday, 4/17/97   ·   Accession #:  912057-97-13338   ·   File #:  333-19939

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Initial Public Offering (IPO):  Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                           122    711K 

Document Table of Contents

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[LOGO]                                                        
2,797,423 SHARES

DECRANE AIRCRAFT HOLDINGS, INC. 

COMMON STOCK
($.01 PAR VALUE)

  Of the 2,797,423 shares of Common Stock of DeCrane Aircraft Holdings, Inc.
offered hereby, 2,700,000 shares are being sold by the Company and 97,423 shares
are being sold by a Selling Stockholder. The Company will not receive any       
proceeds from the sale of shares by the Selling Stockholder. Prior to this      
offering, there has been no public market for the Common Stock of the Company.  
See "Underwriting" for information relating to the factors considered in        
determining the initial public offering price. Approximately $10 million of the 
proceeds of this offering will be used to repay indebtedness owed to certain    
affiliates and principal stockholders of the Company. Following this offering,  
affiliates and certain principal stockholders of the Company will beneficially  
own approximately 46.5% of the Common Stock.                                    

The Common Stock has been approved for quotation on the Nasdaq National 
Market under the symbol "DAHX."                                                 

 THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.                                                   

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

                                                        [Enlarge/Download Table]

                                              UNDERWRITING                PROCEEDS TO
                                 PRICE TO    DISCOUNTS AND   PROCEEDS TO  THE SELLING
                                  PUBLIC    COMMISSIONS (1)  COMPANY (2)  STOCKHOLDER
                                                                                     
Per Share.....................    $12.00         $0.84          $11.16       $11.16  
Total (3)..................... $33,569,076     $2,349,835    $30,132,000   $1,087,241

(1) See "Underwriting" for indemnification arrangements.                        

(2) Before deducting estimated expenses of $1,387,500 payable by the Company.   

(3) The Company and certain Selling Stockholders have granted the Underwriters a
    30-day option to purchase up to an additional 419,613 shares of Common Stock
 at the Price to Public, less Underwriting Discounts and Commissions shown
    above, solely to cover over-allotments, if any. If the Underwriters exercise
    only a portion of the over-allotment option, the first 84,535 shares will be
 purchased from such Selling Stockholders and any remaining shares will be
  purchased from the Company. If this option is exercised in full, the total
    Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
 and Proceeds to the Selling Stockholders will be $38,604,432, $2,702,310,
$33,871,470 and $2,030,651, respectively. See "Underwriting."           

  The shares of Common Stock offered hereby are being offered by the several
Underwriters named herein, subject to prior sale and acceptance by the          
Underwriters and subject to their right to reject any order in whole or in part.
It is expected that the Common Stock will be available for delivery on or about 
April 21, 1997 at the offices of Schroder Wertheim & Co. Incorporated, New York,
New York.                                                                       

SCHRODER WERTHEIM & CO.                                  DILLON, READ & CO. INC.

ING BARINGS 

April 16, 1997

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[PHOTOGRAPH OF SILHOUETTE OF AN AIRPLANE FLYING]

[PHOTOGRAPH OF AN AIRPLANE FLIGHT DECK] 

[COMPANY LOGO]

The Company is a            
manufacturer of products and
a provider of services for  
certain niche markets of the
commercial aircraft         
industry. The Company's     
products and services       
typically are utilized to   
provide an interface between
an aircraft and its avionics
systems, such as those      
pictured here.              

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT  
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.         
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,   
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.   
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."                      

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                                                        [Enlarge/Download Table]
                                                                                                  
          [PHOTOGRAPH OF CONTACTS]                         [PHOTOGRAPH OF CONNECTORS]             
      [PHOTOGRAPH OF BINS OF CONTACTS]                                                            

The variety of contacts manufactured by the  The Company manufactures specialty connectors which  
Company conduct electronic signals or        are used within an aircraft to provide an electronic 
electricity within an aircraft and conform   or electrical link between discrete wires or devices.
to strict design tolerances. The Company     Many of the connectors manufactured by the Company   
manufactures millions of contacts each       utilize the Company's contacts.                      
month.                                                                                            

                                                                [Download Table]
                                                                                 
     [PHOTOGRAPH OF HARNESS ASSEMBLIES]        [PHOTOGRAPH OF INSTALLATION KITS] 

The Company manufactures harness assemblies   The Company manufactures avionics  
for use with aircraft avionics systems. The   support structures used to secure  
harness assemblies depicted utilize contacts  avionics systems within an         
and connectors manufactured by the Company.   aircraft. These support structures,
                                              together with the connectors and   
                                              harness assemblies manufactured by 
                                              the Company, form the foundation of
                                              the installation kits shown above, 
                                              which are used in the Company's    
                                              systems integration projects.      

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                                                        [Enlarge/Download Table]
                                                                                               
       [PHOTOGRAPH OF MAN AT A CAD STATION]          [PHOTOGRAPH OF WOMAN SITTING IN AIRPLANE  
                                                          SEAT WATCHING A VIDEO MONITOR]       

The Company employs more than 90 engineers, many    Many of the Company's products and services
of whom design, engineer and certify modifications  involve in-flight entertainment and        
to existing aircraft as part of the Company's       passenger telecommunication systems.       
systems integration efforts.                                                                   

[PHOTOGRAPH OF MEN INSTALLING A SYSTEM ONTO AN AIRCRAFT]

The Company-employed, FAA-certified mechanics shown above are installing an     
installation kit for a flight deck avionics system.                             

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PROSPECTUS SUMMARY

 THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,       
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCES 
IN THIS PROSPECTUS TO THE "COMPANY" MEAN DECRANE AIRCRAFT HOLDINGS, INC., A     
DELAWARE CORPORATION, AND ITS PREDECESSORS AND SUBSIDIARIES, AND WITH RESPECT TO
AVIATION REGULATORY ISSUES, ONE OR MORE, BUT NOT NECESSARILY ALL, OF THESE      
ENTITIES. EXCEPT AS OTHERWISE INDICATED, ALL OF THE INFORMATION IN THIS         
PROSPECTUS WITH REGARD TO SHARES AND PER SHARE AMOUNTS PERTAINING TO THE        
COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), HAS BEEN 
ADJUSTED TO GIVE EFFECT TO A REVERSE STOCK SPLIT WHICH IS PART OF THE           
RECAPITALIZATION OF THE COMPANY (THE "RECAPITALIZATION") DESCRIBED UNDER        
"DESCRIPTION OF CAPITAL STOCK--THE RECAPITALIZATION." UNLESS OTHERWISE          
INDICATED, THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS HAVE NOT EXERCISED     
THEIR OVER-ALLOTMENT OPTION.                                                    

THE COMPANY 

The Company is a manufacturer of avionics components and a provider of  
avionics systems integration services in certain niche markets of the commercial
aircraft industry. The products and services offered by the Company are utilized
primarily in commercial aircraft to connect, support and/or integrate various   
avionics systems, including cabin management, in-flight entertainment and       
passenger telecommunications systems ("cabin avionics systems") and navigation  
and safety systems ("flight deck avionics systems"). The Company's targeted     
markets consist of commercial aircraft and avionics original equipment          
manufacturers ("OEMs"), the commercial aircraft retrofit market and the         
commercial aircraft aftermarket. The Company also sells products and services to
the military aircraft market.                                                   

The Company seeks to maximize its sales by emphasizing the complementary
nature of its products and services. Components manufactured by the Company     
include: (i) contacts (of which the Company believes it is the largest supplier 
of bulk contacts to the commercial aircraft OEMs); (ii) connectors (which often 
utilize the contacts manufactured by the Company); (iii) harness assemblies     
(which often utilize the connectors manufactured by the Company); and (iv)      
avionics support structures (which often are packaged with the Company's        
connectors and harness assemblies in installation kits). In addition, the       
Company manufactures dichroic liquid crystal display ("LCD") devices, which are 
used with flight deck avionics, and believes it is the largest supplier of such 
devices to the commercial aircraft OEMs. The systems integration services       
provided by the Company include design and engineering, Federal Aviation        
Administration ("FAA") certification, manufacture of installation kits and      
systems installation. The Company manufactures many of the components required  
to complete a systems integration project, which it believes provides it a      
critical competitive advantage.                                                 

 The Company believes that every commercial aircraft currently produced by
the Boeing Company ("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas
Corporation ("McDonnell Douglas") contains components manufactured by the       
Company. In addition, the Company has entered into supply agreements with       
Boeing, pursuant to which the Company believes that it is the supplier of a     
substantial majority of the bulk contacts for all aircraft currently            
manufactured by Boeing and is the sole-source supplier of certain connectors for
in-flight entertainment systems installed by Boeing on its 777 aircraft. As a   
result, the Company expects to benefit from the continuing recovery of the      
commercial aircraft industry, although there can be no assurances in this       
regard. According to the 1996 AND 1997 CURRENT MARKET OUTLOOK (collectively, the
"Boeing Report") published by the Boeing Commercial Airplane Group, expenditures
for new aircraft production are expected to total approximately $230 billion for
the period from 1996 through 2000. This compares to expenditures for new        
aircraft of approximately $170 billion for the period from 1991 through 1995.   
The Boeing Report also estimates that annual deliveries of commercial aircraft  
will increase from approximately 400 in 1996 to more than 600 in 1997 and will  
be between 700 and 800 in 1998. In addition, for the period from 1996 through   
2000, revenue passenger miles will increase from 1.6 trillion to 2.1 trillion   
and the worldwide fleet of aircraft will increase from 11,500 at the end of 1996
to approximately 14,000 at the end of 2001 (net of approximately 1,375          
retirements). The                                                               

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Company believes that the increase in new aircraft production is being driven by
numerous factors, including: (i) a general increase in demand for air travel;   
(ii) an increase in the capacity utilization (load factor) of aircraft currently
in service; (iii) an increase in the average age of the worldwide aircraft      
fleet; (iv) the cost-effectiveness of using new aircraft versus old aircraft;   
and (v) a general improvement in the financial condition of the airline         
industry.                                                                       

    The Company believes that its position as a primary supplier of products and
services to manufacturers of cabin avionics systems and flight deck avionics    
systems provides the Company with opportunities for growth independent of the   
aircraft OEM market upturn because such systems typically are installed on a    
retrofit basis by purchasers of aircraft and not by aircraft OEMs. The Company's
customers in these markets include AT&T Wireless Services, Inc. ("AT&T") for    
passenger telecommunications systems, Interactive Flight Technologies, Inc.     
("IFT") for in-flight casino-style gaming and video-on-demand systems,          
Matsushita Avionics Systems ("Matsushita") for in-flight entertainment systems  
and the Rockwell Collins Division ("Rockwell Collins") of Rockwell International
Corp. for flight deck avionics systems. The Company believes that demand for    
cabin avionics systems and flight deck avionics systems is increasing, primarily
as a result of: (i) a desire by airlines for additional revenue-producing       
services; (ii) longer flights combined with a demand by airline passengers for  
more sophisticated forms of in-flight services; and (iii) the advent of new     
technologies and FAA mandates related to aircraft safety and navigation.        

The Company's principal strategy is to establish and expand leading     
positions in high-margin, niche markets within the commercial aircraft industry,
with a focus on the manufacture of avionics components and the integration of   
avionics systems. Historically, the Company has demonstrated an ability to      
increase revenues during times of industry decline which it attributes to       
several actions, including: (i) the establishment of a balanced offering of     
products and services for the OEM market, the retrofit market and the           
aftermarket; (ii) the initiation of private labeling programs pursuant to which 
the Company manufactures contacts for other connector manufacturers, including  
certain of the Company's competitors; (iii) the development of new products such
as specialty connectors for Boeing's 777 aircraft; and (iv) the diversification 
into new services such as the integration of in-flight entertainment systems. In
the future, the Company will seek to grow by: (i) capitalizing on growth in     
commercial aircraft production; (ii) exploiting increased demand for cabin      
avionics systems; (iii) expanding and diversifying the Company's systems        
integration services; (iv) completing additional strategic acquisitions; and (v)
capitalizing on the Company's complementary products and services.              

RECENT ACQUISITION ACTIVITY                                                     

The Company was formed in 1989 to capitalize on emerging trends in the  
aircraft market through acquisitions. Since its formation, the Company has      
completed eight acquisitions of businesses or assets, three of which were       
completed in 1996.                                                              

- In December 1996, the Company expanded its contact manufacturing      
capability and capacity by purchasing certain manufacturing assets  
(collectively, the "AMP Facility") from AMP, Inc. ("AMP"). The AMP  
Facility enables the Company to produce contact blanks (unfinished  
     contacts) using a cold-heading manufacturing process which, when used for
      high volume production, is more cost-effective than the Company's existing
   screw machine operations. Therefore, the Company is seeking to optimize
      its contact production by converting a portion of its existing high volume
     manufacturing runs to the cold-heading process. The plating and finishing
   of contact blanks produced at the AMP Facility will be conducted at the
existing facilities of the Company.                                 

  - In December 1996, the Company acquired Elsinore Aerospace Services, Inc.
     and the Elsinore Engineering Services division (collectively, "Elsinore")
   of Elsinore, L.P. The acquisition of Elsinore provided the Company with
 the ability to issue certain FAA design approvals for modification to
   designated aircraft through Elsinore's FAA-issued Designated Alteration
Station                                                             

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  ("DAS") approval. As a systems integrator, the Company regularly seeks
     such FAA approvals on behalf of its customers when it integrates a system
 onto an aircraft. The ability to issue FAA approvals through Elsinore
   eliminates the need, in most instances, for the Company to apply to the
FAA for such approvals, thereby expediting the approval process. In 
    addition, the acquisition of Elsinore increased by approximately 50% the
  number of the Company's engineering professionals dedicated to systems
integration functions.                                              

- In September 1996, the Company acquired the Aerospace Display Systems 
division ("ADS") of Allard Industries, Inc. ADS is a manufacturer of
dichroic LCD devices for use with flight deck avionics systems. The 
    Company believes that ADS is the largest supplier of such devices to the
commercial aircraft industry. The acquisition of ADS expanded the   
     Company's offering of components used in flight deck avionics systems and
strengthened its position as a leading supplier of niche avionics   
components.                                                         

In addition, in February 1996, the Company acquired the remaining 25%   
interest in Cory Components, Inc. ("Cory Components") which it did not already  
own (the "Minority Interest Acquisition").                                      

  The Company believes that the fragmented nature of the market for aircraft
components and systems integration services will provide it with additional     
opportunities to exploit industry consolidation trends.                         

* * * * 

    The Company's corporate office is located at 155 Montrose West Avenue, Suite
210, Copley, OH 44321. The Company's telephone number is (330) 668-3061. All    
inquiries or notices should be directed to the attention of R. Jack DeCrane,    
Chairman of the Board and Chief Executive Officer of the Company.               

THE OFFERING

                                                                [Download Table]
                                                                                  
Common Stock Offered by:                                                          

  The Company.......................... 2,700,000 shares                          

  The Selling Stockholder.............. 97,423 shares (1)                         

    Total.............................. 2,797,423 shares                          

Common Stock to be Outstanding after                                              
  the Offering......................... 5,251,690 shares (2)                      

Use of Proceeds........................ To repay certain indebtedness. See "Use of
                                        Proceeds."(3)                             

Nasdaq National Market Symbol.......... DAHX                                      

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

(1) Does not include up to 84,535 shares which may be sold by certain Selling   
Stockholders pursuant to the Underwriters' over-allotment option. See   
"Principal and Selling Stockholders" and "Underwriting."                

(2) Does not include: (i) 527,156 shares of Common Stock reserved for issuance  
pursuant to the Company's Amended and Restated 1993 Share Incentive Plan
 (the "Share Incentive Plan"), of which options to purchase 355,001 shares
   have been granted (see "Management--Executive Compensation--Share Incentive
Plan"); and (ii) 70,893 shares reserved for issuance upon exercise of   
certain warrants (the "Lender Warrants") (see "Description of Capital   
Stock--Warrants").                                                      

(3) Approximately $10 million of the net proceeds will be used to repay         
    indebtedness held by Electra Investment Trust P.L.C. and Electra Associates,
Inc. (collectively, "Electra") and Nassau Capital Partners L.P. and NAS 
Partners I L.L.C. (collectively, "Nassau"), which are affiliates and    
principal stockholders of the Company. See "Certain Transactions."      

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SUMMARY CONSOLIDATED FINANCIAL DATA 

                                                        [Enlarge/Download Table]

                                                                                        PRO FORMA  
                                                                                           AS      
                                                                                        ADJUSTED(2)
                                                                                        ---------  
                                                                                          YEAR     
                                                                                          ENDED    
                                                                                        DECEMBER   
                                                         YEAR ENDED DECEMBER 31,           31,     
                                                    ---------------------------------   ---------  
                                                      1994        1995       1996(1)      1996     
                                                    ---------   ---------   ---------   ---------  
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)      
                                                                                                   
STATEMENT OF OPERATIONS DATA:                                                                      
Revenues..........................................  $  47,092   $  55,839   $ 65,099    $ 72,805   
Gross Profit......................................     10,685      12,376     15,707      18,274   
Operating income..................................      1,760       1,835      4,251       5,321   
Income (loss) before provision for income taxes                                                    
  and extraordinary item..........................     (1,816)     (2,368)      (105)      4,516   
Net income (loss).................................     (2,693)     (3,446)      (817)      3,448   
Net income (loss) applicable to common                                                             
  stockholders....................................     (2,891)     (3,307)    (6,357)      3,448   

Income (loss) per common share:                                                                    
  Pro forma for the Recapitalization.....................................                          
                                                                            $   (.31)              
  Pro forma as adjusted (3)..............................................                          
                                                                                        $    .62   

Weighted average number of common shares                                                           
  outstanding:                                                                                     
  Pro forma for the Recapitalization.....................................                          
                                                                               2,659               
  Pro forma as adjusted (4)..............................................                          
                                                                                           5,563   

OTHER FINANCIAL DATA:                                                                              
Depreciation and amortization (5).................  $   3,868   $   4,244   $  4,012               
Bookings (6)......................................     47,896      50,785     81,914               
Backlog at end of period (7)......................     24,493      19,761     44,433               



                                                                              DECEMBER 31, 1996    
                                                                            ---------------------  
                                                                                        PRO FORMA  
                                                                                           AS      
                                                                             ACTUAL     ADJUSTED(8)
                                                                            ---------   ---------  
                                                                                                   

BALANCE SHEET DATA:                                                                                
Working capital..........................................................   $ 10,486    $ 15,673   
Total assets.............................................................     69,266      66,707   
Total debt...............................................................     42,250      15,324   
Mandatorily redeemable common stock warrants.............................      6,879       --      
Stockholders' equity.....................................................      1,236      32,945   

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

(1) Includes the effect of the Minority Interest Acquisition beginning February 
    20, 1996, the date on which the transaction occurred, and the results of ADS
and Elsinore beginning September 18, 1996 and December 5, 1996,         
respectively, the dates on which they were acquired.                    

(2) Pro forma for the Minority Interest Acquisition and the acquisition of ADS  
   as if they had occurred on January 1, 1996. Adjusted to reflect the sale by
the Company of 2,700,000 shares of Common Stock in this offering (the   
  "Offering") and the application of the net proceeds therefrom as set forth
    under "Use of Proceeds." Excludes an extraordinary charge of $3.9 million to
   be incurred as a result of the repayment of debt with the net proceeds from
the Offering.                                                           

(3) Reflects the Recapitalization as well as the acquisitions and the Offering, 
as described in Note (2) above.                                         

(4) Pro forma for the Recapitalization and adjusted for the 2,700,000 shares of 
   Common Stock offered hereby by the Company. Includes shares of Common Stock
related to outstanding management options issued pursuant to the Share  
    Incentive Plan. Does not include 70,893 shares of Common Stock issuable upon
exercise of the Lender Warrants.                                        

(5) Includes deferred financing cost amortization included in interest expense  
of $432,000, $608,000 and $661,000 in 1994, 1995 and 1996, respectively.

(6) Bookings represent the total invoice value of purchase orders received      
during the period. See "Business--Backlog."                             

(7) Orders are generally subject to cancellation by the customer prior to       
shipment. The level of unfilled orders at any given date during the year
    will be materially affected by the timing of the Company's receipt of orders
  and the speed with which those orders are filled. See "Business--Backlog."

(8) Reflects: (i) the Recapitalization; and (ii) the sale by the Company of     
   2,700,000 shares of Common Stock in the Offering and the application of the
net proceeds therefrom as set forth under "Use of Proceeds."            

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RISK FACTORS

POTENTIAL PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE  
FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS      
PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF COMMON STOCK OFFERED HEREBY.  

COMMERCIAL AIRCRAFT INDUSTRY RISKS                                              

   Among the Company's principal customers are the world's commercial aircraft
and avionics OEMs. The principal market for such OEMs is the commercial airline 
industry, which is cyclical and has been adversely affected by a number of      
factors, including, but not limited to, increased fuel and labor costs and      
intense price competition. The commercial airline industry may be adversely     
affected by increased regulatory scrutiny in the wake of several major airline  
disasters and threats of terrorism. Several domestic and foreign commercial     
airlines have encountered significant financial difficulties, resulting in      
certain of such airlines ceasing to conduct business or seeking protection from 
creditors. These financial difficulties, as well as certain other factors,      
caused new commercial aircraft deliveries to decline from a peak of             
approximately 770 aircraft in 1991 to approximately 370 aircraft in 1995        
according to AEROSPACE AND AIRTRANSPORT CURRENT ANALYSIS published by Standard  
and Poor's Industry Surveys (the "S&P Report"). Another industry downturn could 
adversely affect the Company's business. See "Business--Industry Overview and   
Trends."                                                                        

SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES AND DEFAULTS                        

The Company has operated with substantial leverage and debt service     
requirements since its first acquisition in 1990. As a result, since 1990, the  
Company has experienced net losses in each year through 1996, despite positive  
operating income. In addition, the Company was not in compliance with certain   
financial covenants contained in its debt agreements at various times since its 
inception. In each case such non-compliance was waived by the lenders. Since    
March 1996, the Company has been in compliance with all financial covenants     
contained in its existing debt agreements. Although the Company intends to use  
the net proceeds of this Offering to repay a significant portion of its         
outstanding indebtedness, there can be no assurance as to the future            
profitability of the Company nor can there be assurance that the Company will   
remain in compliance with the covenants contained in its debt agreements. The   
Company's New Credit Facility (as defined in "Use of Proceeds") is guaranteed by
each of the Company's subsidiaries and is secured by substantially all the      
assets of the Company and its subsidiaries. In the event that the Company is    
unable to remain in compliance with the covenants contained in its debt         
agreements, the lenders could declare all amounts owed under such debt          
agreements to be immediately due and payable, which could have a material       
adverse effect on the Company. See "Use of Proceeds," "Selected Consolidated    
Financial Data," "Management's Discussion and Analysis of Financial Condition   
and Results of Operations" and "Notes to Consolidated Financial Statements."    

FLUCTUATIONS IN QUARTERLY AND YEARLY RESULTS                                    

The Company's business is subject to quarterly and yearly fluctuations. 
Specifically, the magnitude of certain systems integration programs relative to 
the Company's overall business has the potential to expose the Company's results
of operations to fluctuations in quarterly and yearly results. In addition,     
irregular timing of awards or cancellations of systems integration contracts, as
well as development and technology delays by OEMs or their suppliers, could     
further exacerbate such fluctuations in quarterly and yearly operations. If such
events occur, the results of operations of the Company may be adversely         
affected. See "Management's Discussion and Analysis of Financial Condition and  
Results of Operations."                                                         

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DEPENDENCE ON KEY CUSTOMERS                                                     

    The Company's three largest customers are Boeing, Matsushita and AT&T, which
accounted for approximately 14.8%, 9.6% and 6.9%, respectively, of the Company's
consolidated revenues (pro forma for the acquisition of ADS) for the fiscal year
ended December 31, 1996. In addition, a significant portion of the Company's    
sales of components are sold to Boeing indirectly through sales to suppliers of 
Boeing. Most of the Company's sales to Boeing are pursuant to contracts which   
may be terminated by Boeing at any time. In addition, under certain             
circumstances, Boeing may enforce alternative economic terms pursuant to such   
contracts in which case the contracts could become less commercially favorable  
to the Company or the Company may elect to terminate the applicable portion of  
such contracts. There can be no assurance that Boeing will not terminate any of 
its contracts with the Company. The Company generally sells components and      
services to Matsushita and AT&T pursuant to purchase orders, but does not have  
any supply contracts with either company.                                       

The Company has entered into a contract to provide systems integration  
services for IFT's new in-flight entertainment system (the "IFT System") on 21  
wide-body aircraft for Swiss Air Transport Co. Ltd. ("Swissair"). The Company's 
contract with IFT provides for monthly progress payments and the Company will   
account for revenues generated under the IFT contract using the percentage of   
completion method of accounting. As of April 15, 1997, the Company had          
integrated the IFT System onto three of Swissair's aircraft; the IFT System     
operates in all classes of service (first, business and economy) on two aircraft
and in first and business class on one aircraft. The Company continues to       
integrate the IFT System onto additional Swissair aircraft. Under IFT's contract
with Swissair, IFT agreed to finance the purchase price of the IFT System in    
exchange for a substantial share of potential future gaming revenues. However,  
based on IFT's limited experience with the IFT System on Swissair's aircraft, in
March IFT indicated that revenues from gaming are significantly below its       
expectations. IFT has since announced a change in corporate strategy whereby it 
will no longer finance the substantial majority of the purchase price of the IFT
System. Consistent with this new strategy, IFT also announced that it was       
exercising its contractual right to renegotiate its contract with Swissair in   
order to shift a greater portion of the purchase price of the IFT System to     
Swissair. On April 14, 1997 IFT announced that it had entered into a memorandum 
of understanding with Swissair regarding the purchase by Swissair of the IFT    
System, which announcement states that Swissair expects to purchase the IFT     
System for installation in the first and business class sections of up to 18    
aircraft. IFT currently is in an evaluation period provided for under its       
contract with Swissair, during which IFT and Swissair are working together to   
optimize the operations and functionality of the IFT System. IFT has indicated  
that it is working to improve the reliability of the IFT System through software
revisions and through design improvements to the tray tables used in the economy
section of the aircraft. While the Company expects that it will continue to     
provide systems integration services to IFT for Swissair's 21 wide-body         
aircraft, there can be no assurance that: (i) IFT and Swissair will successfully
renegotiate their contract or that such renegotiation will not result in a      
materially reduced scope of work for the Company; or (ii) that any existing or  
future technical or design issues will be resolved. Termination of the contract 
between Swissair and IFT, a material change in the scope of work for the        
Company, or any general delays or problems with implementation of the IFT System
could have a material adverse effect on the Company.                            

The loss of any one or more of the Company's key customers could have a 
material adverse effect on the Company. See "Business--Customers" and           
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations."                                                                    

REGULATION                                                                      

The FAA prescribes standards and licensing requirements for aircraft    
components, licenses private repair stations and issues DAS approvals giving the
holder the right to certify aircraft design modifications on behalf of the FAA. 
The ability of the Company to arrange for rapid government certification of its 
systems integration services is essential to the Company's business and depends 
on its continuing                                                               

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access to or use of private repair stations, DASs, and FAA-designated and       
FAA-certified engineering professionals. There can be no assurance that: (i) the
Company will continue to have adequate access to such stations and              
professionals; or (ii) the current public and congressional scrutiny of the     
FAA's inspection philosophy and mechanisms will not result in the restriction or
elimination of the use of such private repair stations or DASs, either of which 
could have a material adverse effect on the Company. In addition, although the  
Company believes that it possesses all required domestic and foreign            
governmental licenses and certificates, including without limitation Parts      
Manufacturer Approvals ("PMAs") and Supplemental Type Certificates ("STCs"), any
delay in obtaining or failure to obtain a required license or certificate, or   
the revocation or limitation of such licenses or certificates, could have a     
material adverse effect on the Company's operations. See "Business--Industry    
Regulation and Approvals."                                                      

RISKS ASSOCIATED WITH ACQUISITIONS                                              

  The Company's ability to grow by acquisition is dependent upon, and may be
limited by, the availability of suitable acquisition candidates and capital, and
by restrictions contained in the Company's debt agreements. In addition, growth 
by acquisition involves risks that could adversely affect the Company's results 
of operations, including difficulties in integrating the operations and         
personnel of acquired companies, the amortization of acquired intangible assets 
and the potential loss of key employees of acquired companies. In the past,     
acquisitions by the Company have resulted in increased indebtedness and interest
expense which has caused the Company to incur net losses in each year since its 
inception despite positive operating income. There can be no assurance that the 
Company will be able to identify suitable acquisition candidates, obtain the    
capital necessary to pursue its acquisition strategy, consummate acquisitions on
satisfactory terms or, if any acquisitions are consummated, satisfactorily      
integrate such acquired businesses into the Company. See "Management's          
Discussion and Analysis of Financial Condition and Results of Operations,"      
"Business--General" and "Business-- Growth Strategy."                           

COMPETITION                                                                     

    The Company operates in a highly competitive industry and competes against a
number of companies, some of which have significantly greater financial,        
technological and marketing resources than the Company. The Company believes    
that its ability to compete depends on high product performance, short lead-time
and timely delivery, competitive price, and superior customer service and       
support. There can be no assurance that the Company will be able to compete     
successfully with respect to these or other factors. See                        
"Business--Competition."                                                        

GOLD AND COPPER                                                                 

A significant portion of the cost of the materials used in the contacts 
manufactured by the Company is comprised of the cost of gold, and to a lesser   
extent, the cost of copper. Accordingly, a significant increase in the price of 
gold or copper could have a material adverse effect on the Company's results of 
operations. The Company has not purchased commodities contracts for gold or     
copper and does not anticipate doing so in the future. See "Management's        
Discussion and Analysis of Financial Condition and Results of Operations."      

FOREIGN CURRENCY                                                                

   The Company has a manufacturing facility in Switzerland and incurs in Swiss
Francs a significant percentage of the cost of the contacts it manufactures in  
Switzerland. Therefore the Company's financial results are subject to           
fluctuations of the Swiss Franc in relation to the U.S. Dollar. In 1996, solely 
in an effort to mitigate the effects of currency fluctuations, the Company began
to enter into forward exchange contracts to purchase Swiss Francs and it expects
to engage in such hedging transactions in the future. However, there can be no  
assurance that such transactions will prevent currency fluctuations from        

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adversely affecting the Company's results of operations. See "Management's      
Discussion and Analysis of Financial Condition and Results of Operations" and   
"Notes to Consolidated Financial Statements."                                   

SUPPLY OF QUALIFIED ENGINEERING PERSONNEL                                       

    The Company's ability to attract and retain a high-quality engineering staff
is important to its business. Competition for qualified avionics engineers is   
intense. There can be no assurance that the Company will be able to retain its  
existing engineering staff or fill new positions or vacancies created by        
expansion or turnover. See "Business--Products and Services" and                
"Business--Employees."                                                          

CONTROL OF COMPANY BY PRINCIPAL STOCKHOLDERS                                    

Following the completion of the Offering and giving effect to the       
Recapitalization, (i) Nassau, (ii) DSV Partners, IV ("DSV"), (iii) Electra and  
(iv) Brantley Venture Partners, II, L.P. ("Brantley") will beneficially own     
16.0%, 9.4%, 8.7% and 9.3%, respectively, of the issued and outstanding Common  
Stock. By virtue of their stockholdings, such beneficial owners, if they act    
together, will be able to elect the entire Board of Directors and exercise      
significant control over the Company's business, policies and affairs and,      
together, could cause the Company to take actions that may be adverse to the    
Company's other stockholders. See "Principal and Selling Stockholders." Also,   
Nassau, DSV, Brantley and the Company are parties to a shareholders agreement   
which requires the Company for so long as the applicable stockholder owns at    
least 5% of the Common Stock (including shares which may be acquired upon       
exercise of warrants) to include on the Company's slate of nominees for director
a person designated by the applicable stockholder. See "Certain                 
Transactions--Shareholders Agreement."                                          

EXCESS LOSS RISKS                                                               

    The Company currently has in force aviation products insurance. To date, the
Company has not experienced any significant uninsured or insured                
aviation-related claims or any material product liability claims. However, there
can be no assurance that the Company's existing insurance coverage will be      
adequate to cover future claims that may arise or that such coverage can be     
renewed at commercially reasonable rates.                                       

ENVIRONMENTAL RISKS; ENVIRONMENTAL REGULATION                                   

   The Company's business operations and facilities are subject to a number of
federal, state, local and foreign environmental laws and regulations. In        
addition, certain environmental laws such as the Comprehensive Environmental    
Response, Compensation and Liability Act, as amended ("CERCLA"), and similar    
state laws impose strict, retroactive and joint and several liability upon      
persons responsible for releases or potential releases of hazardous substances. 
The Company has sent waste to treatment, storage or disposal facilities that    
have been designated as National Priority List sites under CERCLA or equivalent 
listings under state laws. The Company has received CERCLA requests for         
information or allegations of potential responsibility from the Environmental   
Protection Agency ("EPA") as to the Company's use of certain such sites. It is  
possible, given the retroactive nature of CERCLA liability, that the Company    
will, from time to time, receive additional notices of potential liability      
relating to current or former activities. There can be no assurance that the    
Company will not incur significant costs for prior waste disposal by the Company
or its predecessors. In addition, some of the Company's operations are located  
on properties which are contaminated to varying degrees. Although the Company   
has not incurred, nor does it expect to incur, significant costs to address such
contamination, there can be no assurance that the Company will not incur        
significant costs in the future to address contamination.                       

Although the Company believes that its operations and facilities are in 
material compliance with all federal, state, local and foreign environmental    
laws and regulations, there can be no assurance that the Company will not incur 
significant costs in the future due to current or former operations and waste   

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disposal practices or changing environmental compliance requirements. See       
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations--Environmental Matters," "Business--Environmental Matters" and       
"Business--Legal Proceedings."                                                  

DISRUPTIONS AT THE COMPANY'S FACILITIES                                         

A significant portion of the Company's manufacturing and administrative 
operations are currently located in the greater Los Angeles, California area, an
area that may be subject to earthquakes or other natural disasters. Although the
Company maintains standard property and business interruption insurance, as well
as earthquake insurance on its primary manufacturing facility, an earthquake or 
other natural disaster could have a material adverse effect on its business and 
operating results. See "Business--Facilities."                                  

ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE                       

   Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market will develop or, if  
developed, will be sustained after the completion of the Offering. The initial  
public offering price of the Common Stock offered hereby has been determined    
through negotiations between the Company and the representatives of the         
Underwriters and may not be indicative of future market prices. See             
"Underwriting" for information relating to the factors considered in determining
the initial public offering price of the Common Stock. Factors such as          
announcements concerning the Company or its competitors, investor perception of 
the Company, fluctuations in the Company's operating results and general market 
conditions may cause the market price of the Common Stock to fluctuate          
significantly.                                                                  

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS                            

    Sales of a substantial number of shares of Common Stock in the public market
after the Offering, or the expectation that such sales could occur, could       
adversely affect the market price of the Common Stock and the Company's ability 
to raise capital through a subsequent offering of securities. Of the 5,251,690  
shares of Common Stock to be outstanding after the Offering and the             
Recapitalization, 3,338,948 shares will be available for resale in the public   
market without restriction immediately following the Offering if held by holders
who are not "affiliates" of the Company (as defined in the Securities Act of    
1933, as amended (the "Securities Act")). All of the remaining shares are       
"restricted securities" within the meaning of Rule 144 adopted under the        
Securities Act. These restricted securities were issued and sold by the Company 
in private transactions in reliance upon exemptions from registration under the 
Securities Act. After expiration of the 180-day lock-up period following the    
Offering, pursuant to agreements with the Underwriters: (i) all restricted      
securities will be available for resale pursuant to the limitations of Rule 144;
and (ii) the Company, pursuant to its certificate of incorporation (the         
"Certificate"), may authorize the issuance of additional shares of Common Stock 
and shares of one or more series of voting preferred stock. The issuance of     
additional shares of capital stock could result in the dilution of the voting   
power of the shares of Common Stock purchased in the Offering. In addition,     
following the expiration of the 180-day lock-up period, certain stockholders    
have the right, pursuant to the terms and conditions of a registration rights   
agreement (the "Registration Rights Agreement"), to require the Company to: (i) 
effect (in the aggregate) up to four registrations under the Securities Act     
covering all or any portion of the shares of Common Stock held by such          
stockholders, provided that if the Company effects a registration at the request
of a stockholder, no further demand may be made for a period of at least nine   
months; and (ii) include all or any portion of such stockholders' shares of     
Common Stock in any proposed registration by the Company of shares of Common    
Stock (subject to reduction to the extent that the managing underwriter, if any,
is of the opinion that such inclusion would adversely affect the marketing of   
the securities to be sold therein). See "Description of Capital Stock," "Shares 
Eligible for Future Sale" and "Underwriting."                                   

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ANTI-TAKEOVER PROVISIONS                                                        

The Board of Directors has the authority to issue up to 10,000,000      
additional shares of Preferred Stock (the "Undesignated Preferred Stock") and to
determine the terms and number of shares constituting any wholly unissued series
of Undesignated Preferred Stock. The Board, without further approval of the     
holders of Common Stock, may issue shares of Undesignated Preferred Stock with  
rights that could adversely affect the rights of the holders of Common Stock.   
The issuance of shares of Undesignated Preferred Stock under certain            
circumstances could have the effect of delaying or preventing a change of       
control of the Company or other corporate actions. In addition, certain         
provisions of the Certificate and the Company's bylaws (the "Bylaws") and of    
Delaware law could have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from attempting to acquire, control of
the Company. These provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Common Stock. See "Description
of Capital Stock--Preferred Stock" and "Description of Capital Stock--Certain   
Certificate and Bylaw Provisions and Delaware General Corporation Law Section   
203."                                                                           

DILUTION                                                                        

   Purchasers in the Offering will incur an immediate and substantial dilution
of approximately $9.54 in the net tangible book value per share and existing    
stockholders will receive the benefit of an immediate increase in the net       
tangible book value per share of approximately $7.69. Purchasers in the Offering
will pay approximately 63.5% of the total consideration paid by all stockholders
of the Company. The shares of Common Stock sold by the Company in the Offering  
represent approximately 51.4% of the Common Stock which will be outstanding     
following the Offering. See "Dilution."                                         

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RECENT DEVELOPMENTS 

PURCHASE OF AMP FACILITY                                                        

On December 12, 1996, the Company expanded its contact manufacturing    
capability and capacity by purchasing the AMP Facility. The AMP Facility enables
the Company to produce contact blanks using a cold-heading manufacturing process
which, when used for high volume production, is more cost-effective than the    
Company's existing screw machine operations. Therefore, the Company is seeking  
to optimize its contact production by converting a portion of its existing high 
volume manufacturing runs to the cold-heading process. The plating and finishing
of contact blanks produced at the AMP Facility will be conducted at the existing
facilities of the Company.                                                      

   The purchase price of the AMP Facility (including related fees and expenses
and post-closing adjustments) was $6.8 million, $5.4 million of which was paid  
at the closing. The Company financed the portion of the purchase price paid at  
closing through the issuance of $5.0 million principal amount of the Senior Term
Notes (as defined in "Use of Proceeds") and a $.4 million drawdown under the    
Senior Revolver (as defined in "Use of Proceeds"). The balance of the purchase  
price was paid in early 1997 through a drawdown of the Senior Revolver. The     
Company has entered into agreements to supply AMP with a portion of its contact 
requirements for up to two years. In addition, as a result of the purchase of   
the AMP Facility, the Company will have the opportunity to make increased sales 
to certain distributors that formerly purchased contacts from other entities    
within AMP. The AMP Facility was not purchased as                               
a separate, stand-alone business and no meaningful historical financial data is 
available.                                                                      

ACQUISITION OF ELSINORE                                                         

On December 5, 1996, the Company expanded its systems integration       
capabilities with the acquisition of Elsinore. Elsinore provides the Company    
with the ability to issue certain FAA design approvals for modifications to     
designated aircraft, which the Company believes is a key competitive advantage  
for winning systems integration contracts. By acquiring Elsinore, the Company is
seeking to capitalize on increased outsourcing trends by aircraft OEMs, avionics
OEMs and airlines. By integrating the employees of Elsinore into its existing   
operations, the Company increased by approximately 50% the number of the        
Company's engineering professionals dedicated to its systems integration        
functions. The acquisition of Elsinore also provided the Company with an        
important new customer in the aircraft industry, Daimler Benz Aerospace Airbus  
GmbH ("Daimler Benz Aerospace"), and the opportunity to obtain additional new   
customers.                                                                      

The purchase price of Elsinore (including related fees and expenses) was
$2.6 million, which the Company financed through (i) a drawdown under the Senior
Revolver of $1.3 million and (ii) the issuance to the seller of a note (the     
"Seller Note") in a maximum principal amount of $1.3 million and bearing        
interest at a rate of 15% per annum. The Seller Note was subject to reduction   
based on certain working capital adjustments. In February 1997 the Company paid 
$956,000 with respect to the Seller Note through a drawdown under the Senior    
Revolver. The Company and the seller disagree as to the amount of the working   
capital adjustments. See "Notes to Consolidated Financial Statements." In 1996, 
Elsinore generated revenues of approximately $3.2 million.                      

ACQUISITION OF ADS                                                              

On September 18, 1996, the Company expanded its presence in flight deck 
avionics components with the acquisition of ADS, a manufacturer of dichroic LCD 
devices for use with flight deck avionics systems. The acquisition of ADS, which
the Company believes is the largest supplier of dichroic LCD devices to the     
commercial aircraft OEMs, is consistent with the Company's strategy to achieve  
growth in operations and market share through strategic acquisitions. The       
Company believes that the acquisition of ADS will allow it to capitalize on the 
upturn in aircraft OEM production by increasing its revenue content per aircraft
as well as by enhancing the Company's position with its major customers.        

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The purchase price of ADS (including related fees and expenses and      
post-closing adjustments) was $13.4 million, including $2.0 million which the   
Company is obligated to pay over the next three years. The Company financed the 
cash portion of the purchase price through: (i) the issuance of $3.0 million of 
Series E Preferred Stock and warrants to purchase 49,079 shares of Common Stock;
(ii) the issuance of $3.0 million of Convertible Notes (as defined in "Use of   
Proceeds"), together with warrants to purchase 49,079 shares of Common Stock;   
and (iii) an increase in and subsequent drawdown under the Company's Senior     
Revolver of $5.4 million. In 1996, ADS generated revenues of $10.5 million (or  
approximately 14.4% of the Company's pro forma revenues for 1996). See          
"Unaudited Pro Forma Consolidated Financial Data."                              

IFT CONTRACT                                                                    

On July 30, 1996, the Company entered into an agreement with IFT to     
integrate the IFT System into 21 wide-body Swissair aircraft. The first         
installation of the IFT System onto a Swissair aircraft was certified in January
1997. As of April 15, 1997, the Company had integrated the IFT System onto three
of the 21 aircraft. The Swissair project represents the first broad-based       
installation of an interactive in-flight casino-style gaming and video-on-demand
system in a commercial aircraft fleet. The Company will account for revenues    
generated under the IFT contract using the percentage of completion method of   
accounting. For a discussion of certain issues relating to the IFT System see   
"Risk Factors--Dependence on Key Customers."                                    

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USE OF PROCEEDS 

The net proceeds to be received by the Company from the sale of the     
2,700,000 shares of Common Stock being offered hereby by the Company are        
estimated to be $28.7 million after deducting underwriting discounts and        
commissions and estimated expenses of the Offering. The Company estimates that  
it will use such net proceeds, together with approximately $12.6 million of the 
proceeds from its new credit facility (the "New Credit Facility") which the     
Company has entered into in conjunction with this Offering (see "Management's   
Discussion and Analysis of Financial Condition and Results of Operations--      
Description of New Credit Facility"), to repay amounts due under the Company's  
revolving line of credit (the "Senior Revolver"), the Company's senior term     
notes (the "Senior Term Notes"), the Company's 15% Convertible Notes due 1997   
(the "Convertible Notes") and the Company's 12% Senior Subordinated Notes due   
2001 (the "Senior Subordinated Notes"), as described below. The Company will not
receive any of the proceeds from shares sold by the Selling Stockholders.       

 The Company will use approximately $14.6 million to repay in full amounts
due under the Senior Revolver, including accrued interest. Of the amounts       
outstanding under the Senior Revolver, $8.0 million bears interest at the       
Eurodollar Rate plus 4.5% per annum (10.0% as of December 31, 1996), with the   
remainder bearing interest at the lender's prime rate plus 3.25% per annum      
(11.5% as of December 31, 1996). Amounts outstanding under the Senior Revolver  
become due on September 18, 1999. In September 1996, the Company borrowed $5.4  
million under the Senior Revolver to fund a portion of the ADS purchase price.  
In December 1996, the Company borrowed $1.3 million and $.4 million under the   
Senior Revolver to fund a portion of the purchase prices of Elsinore and the AMP
Facility, respectively. Of amounts used to repay the Senior Revolver, $10.9     
million will be paid to ING (U.S.) Capital Corporation ("ING") and $3.7 million 
will be paid to The Provident Bank ("Provident"). In addition, pursuant to the  
terms of an agreement entered into among the Company, ING and Provident, the    
Company will pay ING and Provident $188,000 and $62,000, respectively, upon     
consummation of the Offering (the "Success Fee"). ING Baring (U.S.) Securities, 
Inc. is an affiliate of ING.                                                    

 The Company will use approximately $16.5 million to repay in full amounts
outstanding under the Senior Term Notes, including accrued interest. Of the     
amounts outstanding under the Senior Term Notes, $12.0 million bears interest at
the Eurodollar Rate plus 5.0% (10.5% as of December 31, 1996) and the remaining 
portion bears interest at a rate equal to 3.5% above the greater of (i) the     
lender's prime rate or (ii) the federal funds rate plus 1.5% (11.8% as of       
December 31, 1996). The Senior Term Notes mature on September 30, 2001 and      
require quarterly payments of principal in varying amounts. The Company issued  
$5.0 million of Senior Term Notes in December 1996 to fund a portion of the     
purchase price of the AMP Facility. Of amounts used to repay the Senior Term    
Notes, $12.4 million will be paid to ING and $4.1 million will be paid to       
Provident.                                                                      

The Company will use approximately $3.0 million to repay in full amounts
outstanding under the Convertible Notes, including accrued interest. The        
Convertible Notes bear interest at a rate of 15.0% per annum, which is payable  
quarterly. The Company has certain rights to defer cash interest payments. The  
Convertible Notes mature on the earlier of June 30, 1997 or the consummation of 
the Offering. The Company issued the Convertible Notes in September 1996 to fund
a portion of the purchase price of ADS. The Convertible Notes are held by Nassau
and Electra. See "Certain Transactions."                                        

   The Company will use approximately $7.0 million to repay in full the Senior
Subordinated Notes, including accrued interest. The Senior Subordinated Notes   
bear interest at a rate of 12.0% per annum and mature on December 31, 2001. The 
Senior Subordinated Notes are held by Electra. See "Certain Transactions."      

 Pending the use of the net proceeds for the purposes described above, the
Company will invest such net proceeds in short-term, investment-grade,          
interest-bearing securities.                                                    

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DIVIDEND POLICY 

  The Company has never paid cash dividends on the Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company     
currently intends to retain future earnings to finance operations and the       
expansion of its business. Any future determination to pay cash dividends will  
be made at the discretion of the Company's board of directors (the "Board") and 
will be dependent upon the Company's financial condition, operating results,    
capital requirements and such other factors as the Board deems relevant.        
Further, the Company's debt agreements prohibit payment of dividends, and the   
Company expects that any future debt agreements also will include such          
prohibitions.                                                                   

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CAPITALIZATION

    The following table sets forth as of December 31, 1996: (i) the consolidated
capitalization of the Company; (ii) the consolidated capitalization of the      
Company pro forma for the Recapitalization; and (iii) the consolidated          
capitalization of the Company pro forma for the Recapitalization as adjusted for
the sale by the Company of 2,700,000 shares of Common Stock offered hereby and  
the application of the net proceeds therefrom as described in "Use of Proceeds,"
as if these transactions had occurred on December 31, 1996. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial     
Condition and Results of Operations," "Description of Capital Stock--The        
Recapitalization" and the Consolidated Financial Statements and related notes   
thereto included elsewhere in this Prospectus.                                  

                                                        [Enlarge/Download Table]

                                                                                    DECEMBER 31, 1996              
                                                                      ---------------------------------------------
                                                                                   PRO FORMA FOR       PRO FORMA   
                                                                       ACTUAL    RECAPITALIZATION     AS ADJUSTED  
                                                                      ---------  -----------------  ---------------
                                                                                     (IN THOUSANDS)                
                                                                                                                   
Short-term debt:                                                                                                   
  Short-term borrowings (1).......................................... $   1,974      $   1,974         $   1,974   
  Current portion of long-term debt                                                                                
    Senior Term Notes................................................     1,849          1,849            --       
    Other (2)........................................................     1,155          1,155             1,155   
  Convertible Notes..................................................     2,922          2,922            --       
                                                                      ---------       --------      ---------------
    Total short-term debt............................................ $   7,900      $   7,900         $   3,129   
                                                                      ---------       --------      ---------------
                                                                      ---------       --------      ---------------
Long-term debt:                                                                                                    
  Senior Revolver.................................................... $  11,982      $  11,982         $  --       
  Senior Term Notes..................................................    14,920         14,920            --       
  New Credit Facility (3)............................................    --             --                10,774   
  Senior Subordinated Notes..........................................     6,027          6,027            --       
  Other (2)..........................................................     1,421          1,421             1,421   
                                                                      ---------       --------      ---------------
    Total long-term debt.............................................    34,350         34,350            12,195   
                                                                      ---------       --------      ---------------
Mandatorily redeemable common stock warrants.........................     6,879          1,426            --       
                                                                      ---------       --------      ---------------
Stockholders' equity:                                                                                              
  Cumulative convertible preferred stock, $.01 par value.............    13,850         --                --       
  Common stock, no par value, 4,253,550 shares authorized;                                                         
    85,593 shares issued and outstanding.............................       216         --                --       
  Common Stock, $.01 par value, 9,924,950 shares authorized;                                                       
    2,551,690 shares issued and outstanding Pro Forma for                                                          
    Recapitalization and 5,251,690 shares Pro Forma as Adjusted                                                    
    (4)..............................................................    --                 26                53   
  Additional paid-in capital (5).....................................    --             18,632            48,775   
  Accumulated deficit (6)............................................   (12,951)       (12,090)          (16,004)  
  Foreign currency translation adjustment............................       121            121               121   
                                                                      ---------       --------      ---------------
    Total stockholders' equity.......................................     1,236          6,689            32,945   
                                                                      ---------       --------      ---------------
Total capitalization (7)............................................. $  42,465      $  42,465         $  45,140   
                                                                      ---------       --------      ---------------
                                                                      ---------       --------      ---------------

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

(1) Includes a $1.3 million promissory note payable to sellers in conjunction   
with the acquisition of Elsinore. In February 1997, $1.0 million of this
note was repaid with Senior Revolver borrowings.                        

(2) Includes capital lease obligations and acquisition financing payable to the 
sellers in conjunction with the Minority Interest Acquisition and the   
acquisition of ADS.                                                     

(3) Reflects New Credit Facility borrowings which, together with the net        
 proceeds to the Company from the Offering, will be used to repay the debt
outstanding as presented in the table above as of December 31, 1996. See
   "Use of Proceeds." Does not reflect borrowings of: (i) $1.0 million used to
fund partial payment of the Elsinore promissory note which occurred     
    subsequent to December 31, 1996, as discussed in Note (1) above (see "Recent
 Developments"); and (ii) $1.4 million to fund the balance of the purchase
price of the AMP Facility and related expenses.                         

(4) Pro forma as adjusted includes 2,700,000 shares of Common Stock offered by  
the Company hereby. Does not include: (i) 527,156 shares of Common Stock
   reserved for issuance pursuant to the Share Incentive Plan; and (ii) 70,893
shares of Common Stock issuable upon exercise of the Lender Warrants.   

(5) Pro forma as adjusted includes $179,000 attributable to the Lender Warrants 
exercisable into 70,893 shares of Common Stock.                         

(6) Pro forma as adjusted reflects an extraordinary charge of $3.9 million to be
incurred as a result of the debt repayment with the net proceeds to the 
Company from the Offering. The extraordinary charge is comprised of: (i)
    $2.3 million for unamortized deferred financing costs; (ii) $1.4 million for
   unamortized original issue discounts; and (iii) $.2 million for the Success
Fee.                                                                    

(7) Total capitalization consists of long-term debt, mandatorily redeemable     
common stock warrants and stockholders' equity.                         

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DILUTION

As of December 31, 1996, giving effect to the Recapitalization, the     
Company's net tangible book value (deficit) was $(13.3) million, or $(5.23) per 
share of Common Stock. Net tangible book value per share represents the amount  
of the Company's total tangible assets reduced by the amount of its total       
liabilities, divided by the number of shares of Common Stock outstanding. After 
giving effect to the sale by the Company of 2,700,000 shares of Common Stock in 
the Offering and the application of the net proceeds therefrom as described in  
"Use of Proceeds," the Company's net tangible book value as of December 31, 1996
would have been $12.9 million, or $2.46 per share. This represents an immediate 
increase in net tangible book value of $7.69 per share to existing shareholders 
and an immediate dilution of $9.54 per share to purchasers of shares of Common  
Stock in the Offering. The following table illustrates this per share dilution: 

                                                        [Enlarge/Download Table]
                                                                                        
Initial public offering price per share............................            $   12.00
  Net tangible book value per share before the Offering (1)........ $   (5.23)          
  Increase per share attributable to new investors.................      7.69           
                                                                    ---------           
Net tangible book value per share after the Offering...............                 2.46
                                                                               ---------
Dilution per share to new investors................................            $    9.54
                                                                               ---------
                                                                               ---------

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

(1) Does not include: (i) 527,156 shares of Common Stock reserved for issuance  
    pursuant to the Share Incentive Plan; and (ii) 70,893 shares of Common Stock
reserved for issuance upon exercise of the Lender Warrants.             

    The following table sets forth the total consideration and the average price
per share to be paid by the purchasers of the Common Stock offered hereby and   
the total consideration paid and average price per share paid by existing       
stockholders (at the initial public offering price before deducting underwriting
discounts and expenses of the Offering).                                        

                                                        [Enlarge/Download Table]

                                            SHARES PURCHASED          TOTAL CONSIDERATION        AVERAGE  
                                        ------------------------  ---------------------------     PRICE   
                                          NUMBER       PERCENT        AMOUNT        PERCENT     PER SHARE 
                                        -----------  -----------  --------------  -----------  -----------
                                                                                                          
Existing stockholders..................   2,551,690       48.6%   $   18,658,000       36.5%    $    7.31 
New investors..........................   2,700,000       51.4        32,400,000       63.5         12.00 
                                        -----------      -----    --------------      -----               
  Total................................   5,251,690      100.0%   $   51,058,000      100.0%              
                                        -----------      -----    --------------      -----               
                                        -----------      -----    --------------      -----               

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations and balance 
sheet data for the Company as of and for the years ended December 31, 1992,     
1993, 1994, 1995 and 1996 have been derived from the Company's audited          
consolidated financial statements. All of the information should be read in     
conjunction with the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."                              

                                                        [Enlarge/Download Table]

                                                                YEAR ENDED DECEMBER 31,                       
                                          ------------------------------------------------------------------- 
                                             1992          1993          1994          1995         1996(1)   
                                          -----------   -----------   -----------   -----------   ----------- 
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)                
                                                                                                              
STATEMENT OF OPERATIONS DATA:                                                                                 
Revenues................................  $    42,620   $    48,197   $    47,092   $    55,839   $    65,099 
Cost of sales...........................       32,470        36,258        36,407        43,463        49,392 
                                          -----------   -----------   -----------   -----------   ----------- 
Gross profit............................       10,150        11,939        10,685        12,376        15,707 
Selling, general and administrative                                                                           
  expenses..............................        6,851         7,953         7,716         9,426        10,747 
Amortization of intangible assets.......        1,209         1,210         1,209         1,115           709 
                                          -----------   -----------   -----------   -----------   ----------- 
Operating income........................        2,090         2,776         1,760         1,835         4,251 
Interest expense........................        2,779         2,940         3,244         3,821         4,248 
Other (income) expense, net.............         (213)         (148)          332           382           108 
                                          -----------   -----------   -----------   -----------   ----------- 
Loss before provision for income taxes,                                                                       
  cumulative effect of accounting change                                                                      
  and extraordinary item................         (476)          (16)       (1,816)       (2,368)         (105)
Provision for income taxes (2)..........         (299)         (620)         (613)       (1,078)         (712)
                                          -----------   -----------   -----------   -----------   ----------- 
Loss before cumulative effect of                                                                              
  accounting change and extraordinary                                                                         
  item..................................         (775)         (636)       (2,429)       (3,446)         (817)
Cumulative effect of accounting change                                                                        
  (3)...................................      --               (121)      --            --            --      
Extraordinary loss from debt refinancing                                                                      
  (4)...................................      --            --               (264)      --            --      
                                          -----------   -----------   -----------   -----------   ----------- 
Net loss................................  $      (775)  $      (757)  $    (2,693)  $    (3,446)  $      (817)
                                          -----------   -----------   -----------   -----------   ----------- 
                                          -----------   -----------   -----------   -----------   ----------- 
Net loss applicable to common                                                                                 
  stockholders..........................  $      (938)  $      (972)  $    (2,891)  $    (3,307)  $    (6,357)
                                          -----------   -----------   -----------   -----------   ----------- 
                                          -----------   -----------   -----------   -----------   ----------- 
Income (loss) per common share:                                                                               
  Pro forma for the Recapitalization...........................................................   $      (.31)
  Pro forma as adjusted (5)....................................................................               
                                                                                                  $       .62 

Weighted average number of common shares                                                                      
  outstanding:                                                                                                
  Pro forma for the Recapitalization...........................................................         2,659 
  Pro forma as adjusted (6)....................................................................         5,563 

OTHER FINANCIAL DATA:                                                                                         
Depreciation and amortization (7).......  $     3,146   $     3,553   $     3,868   $     4,244   $     4,012 
Bookings (8)............................       50,325        46,830        47,896        50,785        81,914 
Backlog at end of period (9)............       25,330        23,933        24,493        19,761        44,433 

                                                        [Enlarge/Download Table]

                                                                    DECEMBER 31,                            
                                         -------------------------------------------------------------------
                                            1992          1993          1994          1995          1996    
                                         -----------   -----------   -----------   -----------   -----------
                                                                   (IN THOUSANDS)                           

                                                                                                            
BALANCE SHEET DATA:                                                                                         
Working capital......................... $     5,091   $      (637)  $    11,459   $    12,583   $    10,486
Total assets............................      33,911        34,653        37,685        36,329        69,266
Total debt..............................      20,604        19,653        23,874        24,672        42,250
Mandatorily redeemable preferred stock                                                                      
  and common stock warrants.............       5,711         5,818         2,329         1,633         6,879
Stockholders' equity (deficit)..........      (1,679)       (2,618)          766        (1,697)        1,236

See accompanying notes to the Selected Consolidated Financial Data. 

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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA 

 (1) Includes the effect of the Minority Interest Acquisition beginning February
    20, 1996, the date on which the transaction occurred, and the results of ADS
and Elsinore beginning September 18, 1996 and December 5, 1996,         
respectively, the dates on which they were acquired.                    

(2) Prior to the Minority Interest Acquisition in 1996, the Company did not   
    consolidate the earnings of its Cory Components subsidiary for tax purposes.
As such, despite a consolidated pre-tax loss in each of the years, the  
 Company recorded a provision for income taxes from 1992 up to the date of
 the Minority Interest Acquisition in 1996 which primarily relates to Cory
Components.                                                             

(3) Represents the adoption, as of January 1, 1993, of SFAS 109, "Accounting  
for Income Taxes."                                                      

(4) Represents the write-off of unamortized deferred financing costs, a charge
  for unamortized debt discounts and a prepayment penalty incurred as result
 of the refinancing by the Company of a substantial portion of its debt in
November 1994 (the "1994 Refinancing").                                 

(5) Pro forma for the Minority Interest Acquisition and the acquisition of ADS
   as if they had occurred on January 1, 1996. Adjusted to reflect the sale by
the Company of 2,700,000 shares of Common Stock in the Offering and the 
application of the net proceeds therefrom as set forth under "Use of    
   Proceeds." Excludes a $3.9 million extraordinary charge to be incurred as a
  result of the debt repayment with the net proceeds to the Company from the
Offering.                                                               

 (6) Pro forma for the Recapitalization and adjusted for the 2,700,000 shares of
   Common Stock offered hereby by the Company. Includes shares of Common Stock
related to outstanding management options issued pursuant to the Share  
    Incentive Plan. Does not include 70,893 shares of Common Stock issuable upon
exercise of the Lender Warrants.                                        

(7) Includes deferred financing cost amortization included in interest expense
   of $272,000, $295,000, $432,000, $608,000 and $661,000 in 1992, 1993, 1994,
1995 and 1996, respectively.                                            

(8) Bookings represent the total invoice value of purchase orders received    
during the period. See "The Company--Backlog."                          

(9) Orders are generally subject to cancellation by the customer prior to     
shipment. The level of unfilled orders at any given date during the year
    will be materially affected by the timing of the Company's receipt of orders
and the speed with which those orders are filled. See "The              
Company--Backlog."                                                      

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA 

  The following Unaudited Pro Forma Consolidated Financial Data presents the
results of operations of the Company as if the following transactions had       
occurred on January 1, 1996: (i) the Minority Interest Acquisition; (ii) the    
acquisition of ADS; (iii) the Recapitalization; and (iv) the sale by the Company
of 2,700,000 shares of Common Stock in the Offering and the application of the  
net proceeds therefrom as set forth under "Use of Proceeds." The Unaudited Pro  
Forma Consolidated Financial Data does not include the acquisition of Elsinore  
because such inclusion would not have had a material effect on such data.       

The Unaudited Pro Forma Consolidated Financial Data for the year ended  
December 31, 1996 reflects the combination, with appropriate adjustments, of the
consolidated financial statements of the Company for the year ended December 31,
1996 and the unaudited financial statements of ADS for the period from January 1
through September 18, 1996, the date on which it was acquired.                  

The Unaudited Pro Forma Consolidated Financial Data is not necessarily  
indicative of the results of operations that actually would have occurred had   
the transactions referenced above been consummated on the dates indicated, or   
that may be obtained in the future. The Unaudited Pro Forma Consolidated        
Financial Data should be read in conjunction with the Consolidated Financial    
Statements and related notes thereto included elsewhere in this Prospectus.     

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UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS 
YEAR ENDED DECEMBER 31, 1996

                                                        [Enlarge/Download Table]

                                             DECRANE                                              
                                            AIRCRAFT       AEROSPACE                              
                                            HOLDINGS,       DISPLAY     ACQUISITION       PRO     
                                              INC.          SYSTEMS     ADJUSTMENTS      FORMA    
                                          -------------   -----------   -----------   ----------- 
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)          

                                                                                                  
Revenues................................  $   65,099      $    7,706    $   --        $    72,805 
Cost of sales...........................      49,392           4,855           284(1)      54,531 
                                          -------------   -----------   -----------   ----------- 
Gross profit............................      15,707           2,851          (284)        18,274 

Selling, general and administrative                                                               
  expenses..............................      10,904           1,286          (203)(2)      11,987
Amortization of intangible assets.......         709          --               214(3)         923 
Gain on litigation settlement...........        (157)         --            --               (157)
                                          -------------   -----------   -----------   ----------- 
Operating income........................       4,251           1,565          (295)         5,521 
Interest expense........................       4,248              52         1,125(4)       5,425 
Other expenses..........................         108          --               (89)(5)          19
                                          -------------   -----------   -----------   ----------- 
Income (loss) before (provision) benefit                                                          
  for income taxes......................        (105)          1,513        (1,331)            77 
(Provision) benefit for income taxes....        (712)           (615)          777(6)        (550)
                                          -------------   -----------   -----------   ----------- 
Income (loss)...........................  $     (817)     $      898    $     (554)   $      (473)
                                          -------------   -----------   -----------   ----------- 
                                          -------------   -----------   -----------   ----------- 
Income (loss) applicable to common                                                                
  stockholders..........................  $   (6,357)     $      898    $     (554)   $    (6,013)
                                          -------------   -----------   -----------   ----------- 
                                          -------------   -----------   -----------   ----------- 

Income (loss) per common share:                                                                   
  Pro forma for the Recapitalization....  $     (.31)(11)                                         
  Pro forma as adjusted.................                                                          
Weighted average number of common shares                                                          
  outstanding:                                                                                    
  Pro forma for the Recapitalization....       2,659(11)                                          
  Pro forma as adjusted.................                                                          



                                           OFFERING       PRO FORMA                               
                                          ADJUSTMENTS    AS ADJUSTED                              
                                          -----------   -------------                             

                                                                                                  
Revenues................................  $   --        $   72,805                                
Cost of sales...........................      --            54,531                                
                                          -----------   -------------                             
Gross profit............................      --            18,274                                
Selling, general and administrative                                                               
  expenses..............................         200(7)     12,187                                
Amortization of intangible assets.......      --               923                                
Gain on litigation settlement...........      --              (157)                               
                                          -----------   -------------                             
Operating income........................        (200)        5,321                                
Interest expense........................      (4,639)(8)        786                               
Other expenses..........................      --                19                                
                                          -----------   -------------                             
Income (loss) before (provision) benefit                                                          
  for income taxes......................       4,439         4,516                                
(Provision) benefit for income taxes....        (518)(9)     (1,068)                              
                                          -----------   -------------                             
Income (loss)...........................  $    3,921    $    3,448                                
                                          -----------   -------------                             
                                          -----------   -------------                             
Income (loss) applicable to common                                                                
  stockholders..........................  $    9,461(10) $    3,448                               
                                          -----------   -------------                             
                                          -----------   -------------                             
Income (loss) per common share:                                                                   
  Pro forma for the Recapitalization....                                                          
  Pro forma as adjusted.................                $      .62(12)                            
Weighted average number of common shares                                                          
  outstanding:                                                                                    
  Pro forma for the Recapitalization....                                                          
  Pro forma as adjusted.................                     5,563(13)                            

See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

(1) Represents an increase in depreciation expense to reflect a $1.7 million  
    increase in the fair value of assets acquired in the acquisition of ADS. The
 acquired assets are being depreciated using the straight-line method over
their remaining estimated useful lives, ranging from two to five years. 

(2) Represents: (i) an increase in depreciation expense of $54,000 to reflect 
an increase in the fair value and useful lives of assets acquired in the
acquisition of ADS; and (ii) a decrease in selling, general and         
administrative expenses of $257,000 reflecting a reversal of corporate  
   expenses allocated to ADS by its former owner, net of estimated incremental
corporate expenses of ADS to the Company.                               

(3) Represents an increase in amortization expense of: (i) $26,000 pertaining 
  to the amortization on a straight-line basis over 26 years of $5.5 million
   of goodwill related to the Minority Interest Acquisition; and (ii) $188,000
pertaining to the amortization on a straight-line basis over 30 years of
$7.7 million of goodwill related to the ADS acquisition.                

(4) Represents: (i) additional interest expense for indebtedness incurred to  
    finance the acquisition of ADS and the Minority Interest Acquisition of $1.1
million; and (ii) a reversal of interest expense allocated to ADS by its
former owner of $52,000 for debt obligations not assumed by the Company.

(5) Represents the reversal of the minority stockholder's 25% equity in the   
earnings of a consolidated subsidiary prior to the Minority Interest    
Acquisition.                                                            

(6) Represents a reduction in the provision for income taxes assuming the     
 taxable income of ADS and the Company's Cory Components subsidiary, which
  was formerly 75% owned, was included in the Company's consolidated federal
and state income tax returns and offset against the net operating losses
incurred by the Company's other operations.                             

(7) Represents incremental general and administrative expenses associated with
    regulatory compliance requirements including listing, registrar and transfer
   agent fees, quarterly and annual report and proxy statement preparation and
distribution expenses, legal and accounting fees and directors' and     
officers' liability insurance premiums.                                 

(8) Represents a decrease in interest expense to reflect the sale by the      
Company of 2,700,000 shares of Common Stock in the Offering and the     
application of the net proceeds therefrom as set forth under "Use of    
Proceeds."                                                              

(9) Represents an increase in the provision for income taxes as a result of   
  increases in pro forma taxable income, net of utilization of net operating
loss carryforwards.                                                     

(10) Reflects the elimination of preferred stock dividends and adjustment of    
 redemption value of the mandatorily redeemable common stock warrants as a
    result of the Recapitalization. All of the preferred stock will be converted
into Common Stock and substantially all warrants will be exchanged for  
    Common Stock in the Recapitalization. See "Description of Capital Stock--The
Recapitalization."                                                      

(11) Reflects the Recapitalization. See the Consolidated Financial Statements   
and related notes thereto included elsewhere in this Prospectus.        

(12) Reflects the Recapitalization, the acquisition of ADS, the Minority        
Interest Acquisition and the Offering.                                  

(13) Reflects the shares resulting from the Recapitalization and the Offering.  

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

GENERAL                                                                         

The Company's results of operations have been affected by its history of
acquisitions. The Company commenced operations in October 1990 with the         
acquisition of Hollingsead International, Inc. ("Hollingsead"), a manufacturer  
of avionics support structures at the time of the acquisition. In October 1991, 
the Company acquired Tri-Star Electronics International, Inc. ("Tri-Star"),     
Tri-Star Electronics Europe, S.A. ("Tri-Star Europe"), 75% of Cory Components,  
and 74.5% of Tri-Star Technologies ("TST") (collectively, the "Tri-Star         
Companies") which primarily manufacture contacts, connectors and harness        
assemblies for the commercial aircraft industry. In February 1996, the Company  
completed the Minority Interest Acquisition. In September 1996, the Company     
acquired ADS, a manufacturer of dichroic LCD devices, and in December 1996, the 
Company acquired Elsinore and purchased the AMP Facility.                       

From 1991 to 1995, a period of declining demand for new aircraft, the   
Company's management refocused and expanded the businesses the Company acquired 
in the Hollingsead and Tri-Star Companies transactions. The Company has         
established Hollingsead, which was solely a manufacturing company when acquired,
as a full-service systems integrator concentrated in the retrofit market.       
Concurrently, the Company has enhanced the market positions of the Tri-Star     
Companies as a leading supplier of certain avionics components in the OEM       
market. The Company's ability to improve the performance of its acquired        
businesses is reflected in the revenue growth of Hollingsead and the Tri-Star   
Companies, which increased 31% on a consolidated basis between 1992 and 1995 and
another 11% from 1995 to 1996. This growth occurred despite a steep decline in  
new aircraft deliveries from a peak of approximately 770 in 1991 to a low of    
approximately 370 in 1995, according to the S&P Report. Specific contributors to
the Company's growth during this period of decline included: (i) the            
establishment of a balanced offering of products and services for the OEM       
market, the retrofit market and the aftermarket; (ii) the initiation of private 
labeling programs pursuant to which the Company manufactures contacts for other 
connector manufacturers, including certain of the Company's competitors; (iii)  
the development of new products such as speciality connectors for Boeing's 777  
aircraft; and (iv) the diversification into new services such as the integration
of in-flight entertainment systems.                                             

Historically, the Company's systems integration operations have been    
affected by the timing and magnitude of program awards, at times resulting in   
quarterly and yearly fluctuations in revenue and earnings. Specifically, the    
Company's systems integration operations have been dominated in recent years by 
sales to AT&T relating to the integration of AT&T's in-flight passenger         
telecommunications systems. The Company believes it has lessened its exposure to
these fluctuations by developing capabilities in three additional major systems 
integration areas: in-flight entertainment systems, satellite communication and 
navigation systems, and safety systems. The Company has secured orders for      
integration services in each of these targeted areas: in-flight entertainment   
systems for Swissair (through IFT), satellite communication systems for American
Airlines, Inc. ("American Airlines") (through Rockwell Collins and Triad        
International Maintenance Corporation ("TIMCO")), and safety systems for United 
Parcel Service, Inc. ("UPS"). In addition, the Company continues to provide     
systems integration services to AT&T.                                           

  Certain of the contact blanks used by the Company in the production of its
contacts are manufactured at the Company's Swiss facility and shipped to its El 
Segundo, California facility for plating and assembly. Accordingly, the Company 
has been, and will continue to be, exposed to fluctuations in the currency      
exchange rate between the U.S. Dollar and the Swiss Franc. Due to the weakening 
of the U.S. Dollar against the Swiss Franc in 1995, the cost of contact blanks  
in U.S. Dollars increased by $.9 million over 1994 levels. In 1996 and 1997,    
solely in an effort to mitigate the effects of currency fluctuations, the       
Company entered into forward exchange contracts at fixed rates and plans to     
continue this forward exchange program in the future. In 1996, the Company did  
not experience any material changes in the cost of contact blanks resulting from
currency fluctuations.                                                          

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 Materials constitute approximately 45% of the cost of a finished contact.
The most significant portion of the material cost is gold, although the use of  
copper is also substantial. The Company is and will continue to be exposed to   
fluctuations in gold and copper prices. The Company has undertaken programs to  
reduce the use of gold in the Company's plating operations. These programs, on a
comparable basis, have saved the Company an estimated $1.3 million in 1996      
compared to 1995. In addition to providing cost savings, the Company believes   
that these programs reduced its exposure to gold price fluctuations.            

Prior to the Minority Interest Acquisition in 1996, the Company did not 
consolidate the earnings of its Cory Components subsidiary for tax purposes. As 
such, despite a consolidated pre-tax loss in each of the years, the Company     
recorded a provision for income taxes from 1992 to 1996 which primarily relates 
to Cory Components. Separately, as of December 31, 1996, the Company had net    
operating loss carry-forwards ("NOLs") of approximately $3.4 million and $1.4   
million for federal and state income tax purposes, respectively. These NOLs     
expire in varying amounts through 2011. The amount of NOLs that may be utilized 
in the future may be subject to limitations due to a change in control of the   
Company.                                                                        

RESULTS OF OPERATIONS                                                           

The following table sets forth the items in the Company's consolidated  
statements of operations as percentages of its revenues for the periods         
indicated:                                                                      

                                                        [Enlarge/Download Table]

                                                                                         YEAR ENDED DECEMBER 31,       
                                                                                  -------------------------------------
                                                                                     1994         1995         1996    
                                                                                  -----------  -----------  -----------
                                                                                                                       
Revenues.........................................................................     100.0%       100.0%       100.0% 
Cost of sales....................................................................      77.3         77.8         75.9  
                                                                                      -----        -----        -----  
Gross profit.....................................................................      22.7         22.2         24.1  
Selling, general and administrative expenses.....................................      16.4         16.9         16.7  
Amortization of intangible assets................................................       2.6          2.0          1.1  
Gain on litigation settlement, net...............................................     --           --             (.2) 
                                                                                      -----        -----        -----  
Operating income.................................................................       3.7          3.3          6.5  
Interest expense.................................................................       6.9          6.8          6.5  
Other expense, net...............................................................        .7           .7           .2  
                                                                                      -----        -----        -----  
Loss before provision for income taxes, and extraordinary item...................      (3.9)        (4.2)         (.2) 
Provision for income taxes.......................................................      (1.3)        (2.0)        (1.1) 
                                                                                      -----        -----        -----  
Loss before extraordinary item...................................................      (5.2)        (6.2)        (1.3) 
Extraordinary loss from debt refinancing.........................................       (.5)       --           --     
                                                                                      -----        -----        -----  
Net loss.........................................................................      (5.7)        (6.2)        (1.3) 
                                                                                      -----        -----        -----  
                                                                                      -----        -----        -----  
Net loss applicable to common stockholders.......................................      (6.1)        (5.9)        (9.8) 
                                                                                      -----        -----        -----  
                                                                                      -----        -----        -----  

FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,  
1995                                                                        

  REVENUES.  Revenues increased $9.3 million, or 16.6%, to $65.1 million for
1996 from $55.8 million for 1995. Revenues increased primarily due to the       
following: (i) growth in contact sales driven by new aircraft production rate   
increases and growth in the Company's private labeling programs of $6.4 million;
(ii) an increase of sales to IFT of $3.0 million in 1996 relating to a major    
systems integration program for Swissair; (iii) the inclusion of $2.8 million of
revenues from ADS which was acquired on September 18, 1996; (iv) an increase in 
sales of specialty connectors for cabin management and in-flight entertainment  
systems on Boeing's 777 aircraft of $2.4 million; and (v) an increase in sales  
of harness assemblies for in-flight entertainment systems of $2.4 million.      
Partially offsetting this increase was a decline in sales to AT&T of $9.2       
million, reflecting the completion in 1995 of a major systems integration       
program primarily for American Airlines.                                        

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GROSS PROFIT.  Gross profit increased $3.3 million, or 26.9%, to $15.7  
million for 1996 from $12.4 million for 1995. Gross profit as a percent of      
revenues increased to 24.1% for 1996 from 22.2% for 1995. This increase was     
attributable to an improvement in gross profit as a percent of revenues from the
sale of contacts for 1996, partially offset by a decline in higher margin sales 
to AT&T. This improvement resulted from sustained price increases, increased    
sales volume, lower wage-related expenses and lower material costs.             

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and     
administrative ("SG&A") expenses increased $1.5 million, or 15.7%, to $10.9     
million for 1996 from $9.4 million for 1995. SG&A expenses as a percent of      
revenues decreased to 16.7% for 1996 from 16.9% for 1995. SG&A expenses         
increased primarily due to the following: (i) the Company added staff to pursue 
higher sales to OEMs and to develop capabilities for in-flight entertainment,   
navigation and satellite communication and safety systems integration services; 
and (ii) the inclusion of SG&A expenses from ADS and Elsinore which were        
acquired in 1996. This increase in SG&A expenses was offset partially by the    
elimination of $.7 million of expenses of the Minority Interest Acquisition.    

 OPERATING INCOME.  Operating income increased $2.4 million, or 131.7%, to
$4.3 million for 1996 from $1.8 million for 1995. The increase in operating     
income resulted from the factors described above and a decline of $.4 million in
amortization of intangible assets as a result of the termination of certain     
non-compete agreements.                                                         

    INTEREST EXPENSE.  Interest expense increased $.4 million, or 11.2%, to $4.2
million for 1996 from $3.8 million for 1995. This increase resulted from higher 
outstanding indebtedness attributed to the funding of the acquisitions of ADS   
and Elsinore and the purchase of the AMP Facility.                              

NET LOSS.  Net loss decreased $2.6 million, or 76.3%, to $.8 million for
1996 from a net loss of $3.4 million for 1995. The decrease in net loss resulted
from the factors described above and a lower tax provision resulting from the   
Minority Interest Acquisition in February 1996.                                 

  NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.  Net loss applicable to common
stockholders increased $3.1 million, or 92.2%, to $6.4 million for 1996 from a  
net loss applicable to common stockholders of $3.3 million for 1995. The        
increase resulted from the change in redemption value of mandatorily redeemable 
common stock warrants of $5.0 million (resulting from an increase in the value  
of the warrants due to the Company's improved results from operations and the   
anticipated price of the Common Stock as a result of the Offering) and the      
increase in cumulative convertible preferred stock dividends of $.7 million     
(resulting from new issuances of preferred stock), which were offset in part by 
the decrease in net loss of $2.6 million. As a result of the Recapitalization,  
substantially all warrants will be exchanged for Common Stock and all preferred 
stock will be converted into Common Stock. See "Description of Common Stock--The
Recapitalization."                                                              

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,  
1994                                                                        

  REVENUES.  Revenues increased $8.7 million, or 18.6%, to $55.8 million for
1995 from $47.1 million for 1994. This increase was attributable to an          
additional $6.8 million in sales to AT&T in 1995 relating to a major systems    
integration program primarily for American Airlines, as well as increased sales 
of: (i) products and services for in-flight entertainment systems of $1.5       
million; and (ii) contacts through the Company's private labeling program of    
$1.2 million. Partially offsetting this increase was a decline in sales of      
contacts to aircraft OEMs of $.5 million in 1995 due to lower production rates  
for new aircraft and a decline in systems integration revenues of $.9 million   
reflecting the completion of two systems integration programs in early 1995.    

GROSS PROFIT.  Gross profit increased $1.7 million, or 15.8%, to $12.4  
million for 1995 from $10.7 million for 1994. Gross profit as a percent of      
revenues decreased marginally to 22.2% for 1995 from 22.7% for 1994. The        
decrease in gross profit as a percent of revenues primarily resulted from       
increased material cost of approximately $.9 million caused by the weakness of  
the U.S. Dollar relative to the Swiss Franc.                                    

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   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  SG&A expenses increased $1.7
million, or 22.2%, to $9.4 million for 1995 from $7.7 million for 1994. SG&A    
expenses as a percent of revenues increased marginally to 16.9% for 1995 from   
16.4% for 1994. This increase resulted from an effort to develop further the    
sales, accounting and senior management functions of the Company's operating    
subsidiaries in anticipation of continued revenue growth.                       

    OPERATING INCOME.  Operating income remained essentially unchanged from 1994
at $1.8 million for 1995 as a result of the factors discussed above and a       
marginal decrease in amortization of intangible assets.                         

    INTEREST EXPENSE.  Interest expense increased $.6 million, or 17.8%, to $3.8
million for 1995 from $3.2 million for 1994 due to higher outstanding           
indebtedness. The 1994 Refinancing resulted in lower effective interest rates   
and higher outstanding indebtedness.                                            

NET LOSS.  Net loss increased $.8 million, or 28.0%, to $3.4 million for
1995 from a net loss of $2.7 million for 1994 as a result of the factors        
described above and a higher tax provision for Cory Components, which was not   
consolidated for income tax purposes.                                           

  NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.  Net loss applicable to common
stockholders increased $.4 million, or 14.4%, to $3.3 million for 1995 from a   
net loss applicable to common stockholders of $2.9 million for 1994. The        
increase resulted from the increase in net loss of $.8 million and the increase 
in the cumulative convertible preferred stock dividends of $.2 million resulting
from new issuances of preferred stock, which was offset in part by a $.5 million
adjustment to the redemption value of mandatory redeemable common stock warrants
(resulting from an increase in the value of the warrants due to the Company's   
improved results from operations). As a result of the Recapitalization,         
substantially all of the warrants will be exchanged for Common Stock and all    
preferred stock will be converted into Common Stock. See "Description of Common 
Stock--The Recapitalization."                                                   

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company has required cash primarily to fund acquisitions and, to a  
lesser extent, to fund capital expenditures and for working capital.            

 In 1996 and 1995, the Company generated cash from operating activities of
$3.0 million and $1.5 million, respectively. Cash from operating activities is  
net of interest payments of $3.0 million and $3.3 million for 1996 and 1995,    
respectively. With the net proceeds of the Offering to be received by the       
Company, the Company estimates that it will repay a significant portion of its  
debt. As a result, the related interest payments will decrease substantially.   
See "Use of Proceeds."                                                          

In 1996 and 1995, the Company used $1.5 million and $1.0 million,       
respectively, in cash for working capital. The Company's accounts receivable    
consist of trade receivables and unbilled receivables which are recognized      
pursuant to the percentage of completion method of accounting. Trade receivables
increased $2.7 million and $1.6 million in 1996 and 1995, respectively, due to  
higher sales. Unbilled receivables increased $.4 million in 1996 as a result of 
the systems integration program for Swissair (through IFT) that began in        
mid-1996. Unbilled receivables decreased by $3.9 million in 1995 as a result of 
the completion of a systems integration program for AT&T in 1995. See "Notes to 
Consolidated Financial Statements." Inventories increased by $2.7 million and   
$3.0 million in 1996 and 1995, respectively, in support of sales growth.        
Accounts payable increased by $1.9 million in 1996 primarily as a result of the 
increase of inventory in 1996. Accounts payable decreased by $1.0 million in    
1995 due to the application of cash made available by the 1994 Refinancing. The 
foregoing amounts for accounts receivable and accounts payable are consistent   
with the amounts set forth in the Consolidated Statements of Cash Flow contained
herein. However, due to foreign currency translations, such amounts differ from 
the amounts set forth in the Consolidated Balance Sheet.                        

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 Net cash used in investing activities was $24.0 million for 1996 and $1.5
million for 1995. Of the $24.0 million used in 1996, $22.6 million related to   
the Minority Interest Acquisition in February 1996, the acquisition of ADS in   
September 1996 and the acquisition of Elsinore and the purchase of the AMP      
Facility in December 1996. Capital expenditures of $1.5 million and $1.2 million
were made in 1996 and in 1995, respectively. Capital expenditures were incurred 
to: (i) purchase tooling in support of proprietary products; (ii) upgrade       
machinery and equipment; and (iii) increase manufacturing capacity in support of
sales growth. The Company anticipates capital expenditures of approximately $3.2
million in 1997, including $1.0 million for a new management information system,
$.6 million for improved plating controls, and $.4 million for new selective    
plating machines. The Company intends to finance such capital expenditures from 
working capital and the New Credit Facility.                                    

Net cash provided by financing activities in 1996, was $21.1 million.   
Specifically, the Company financed the Minority Interest Acquisition (including 
the related fees and expenses) in February 1996 through the sale of its Series D
Convertible Preferred Stock and warrants to Nassau for $6.5 million. In         
September 1996 the Company financed the acquisition of ADS (including the       
related fees and expenses) through the sale of its Series E Convertible         
Preferred Stock and warrants for $3.0 million, the issuance of the Convertible  
Notes and warrants for $3.0 million, the issuance of an additional $5.0 million 
of Senior Term Notes and an increase and a drawdown under the Senior Revolver of
$.4 million. The Series E Convertible Preferred Stock, Convertible Notes and    
related warrants were issued to Nassau and Electra. At the time of the ADS      
acquisition, availability under the Senior Revolver was increased by an         
additional $1.5 million to fund potential future working capital and capital    
expenditure requirements. In December 1996, the Company acquired Elsinore and   
purchased the AMP Facility. The acquisition of Elsinore was financed by the     
Seller Note and $1.3 million borrowed under the Senior Revolver. The initial    
cash portion of the purchase price of the AMP Facility was financed through an  
increase of $5.0 million in the Senior Term Notes and the balance of $.4 million
through a drawdown under the Senior Revolver. In 1995, repayments of senior debt
and capital lease obligations were offset by increased borrowings under the     
Senior Revolver, resulting in DE MINIMIS net cash provided by financing         
activities.                                                                     

    Cash remained unchanged in 1996 and increased $.1 million in 1995 due to the
factors described above. Availability under the Senior Revolver as of December  
31, 1996 was $3.8 million versus $.7 million as of December 31, 1995. Such      
increase in availability was a result of a $3.1 million increase in the maximum 
borrowings permitted under the Senior Revolver, net of the financing for the    
acquisitions of ADS and Elsinore and the purchase of the AMP Facility, as       
discussed above.                                                                

  As of December 31, 1996, the maximum amount which the Company could borrow
under the Senior Revolver was $15.8 million and the principal amount outstanding
was $12.0 million. Of the amounts outstanding under the Senior Revolver, $8.0   
million bear interest at the Eurodollar Rate plus 4.5% per annum (10.0% as of   
December 31, 1996) with the remainder bearing interest at the lender's prime    
rate plus 3.25% per annum (11.5% as of December 31, 1996). The Senior Revolver  
becomes due on September 18, 1999. The Company has entered into the New Credit  
Facility, as described below.                                                   

   The Company believes that the current levels of working capital and amounts
available under the New Credit Facility will enable it to meet its liquidity    
requirements for 1997.                                                          

DESCRIPTION OF NEW CREDIT FACILITY                                              

 The Company has entered into the New Credit Facility which provides for a
$40.0 million senior revolving credit facility and matures in 2002. The interest
rate under the New Credit Facility initially is, at the option of the Company,  
either the prime rate or 1% above the LIBOR rate. The interest rate will be     
reset quarterly based upon a ratio of debt to the Company's earnings before     
interest, taxes, depreciation and amortization ("EBITDA"), pro forma (for       
acquisitions) for the 12 month period ending on such date. The maximum interest 
rate under the New Credit Facility is either .75% above the prime rate or 2.0%  
above the LIBOR rate. Following the Offering the Company anticipates it will    
have availability under the                                                     

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New Credit Facility of approximately $27.4 million. The New Credit Facility     
contains restrictive and financial covenants, including a restriction on        
acquisitions having a purchase price in excess of $10 million. The financial    
covenants include: (i) a minimum interest coverage ratio of 3.0 to 1.0 in the   
first and second years, 4.0 to 1.0 in the third and fourth years, and 5.0 to 1.0
in the fifth year of the New Credit Facility; (ii) a maximum senior debt to     
EBITDA ratio of 3.0 to 1.0 in the first and second years, 2.75 to 1.0 in the    
third and fourth years, and 2.50 to 1.0 in the fifth year of the New Credit     
Facility; (iii) a minimum net worth; and (iv) a minimum working capital ratio of
0.33 (defined as current assets (less inventory) divided by the sum of current  
liabilities plus amounts outstanding under the New Credit Facility). The New    
Credit Facility is guaranteed by each of the Company's subsidiaries and is      
secured by substantially all the assets of the Company and its subsidiaries.    

    At various times since its inception, the Company was not in compliance with
certain financial covenants contained in its debt agreements. In each instance  
such non-compliance was waived by the lenders. Since March 1996, the Company has
been in compliance with all financial covenants contained in its existing debt  
agreements. In the event that the Company is unable to remain in compliance with
the covenants contained in the New Credit Facility, the lender could declare all
amounts owed under such facility to be immediately due and payable, which could 
have a material adverse effect on the Company.                                  

ENVIRONMENTAL MATTERS                                                           

The Company is subject to various federal, state, local, and foreign    
environmental requirements, including those relating to discharges to air,      
water, and land, the handling and disposal of solid and hazardous waste, and the
cleanup or properties affected by hazardous substances. In addition, certain    
environmental laws, such as CERCLA, and similar state laws impose strict,       
retroactive, and joint and several liability upon persons responsible for       
releases or potential releases of hazardous substances. Some risk of            
environmental liability is inherent in the nature of the Company's business, and
the Company might in the future incur material costs to meet current or more    
stringent compliance, cleanup, or other obligations pursuant to environmental   
requirements. See "Risk Factors--Environmental Regulation,"                     
"Business--Environmental Regulation" and "Business--Legal Proceedings."         

FORWARD-LOOKING STATEMENTS                                                      

 This Prospectus, particularly the sections entitled "Prospectus Summary,"
"Use of Proceeds," "Risk Factors," "Management's Discussion and Analysis of     
Financial Condition and Results of Operations" and "Business," contains certain 
forward-looking statements and other statements that are not historical facts   
concerning, among other things, market conditions of the aircraft industry, the 
demand for avionics components and systems and future strategic acquisitions.   
There can be no assurance that the Company has accurately identified and        
properly weighed all of the factors which affect market conditions and demand   
for the Company's products and services, that the public information upon which 
the Company has relied is accurate or complete or that the Company's analysis of
the market and demand for its products and services is correct and, as a result,
the strategy based on such analysis will be successful. See "Risk Factors" for a
more detailed summary of factors which could affect future results.             

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BUSINESS

GENERAL                                                                         

The Company is a manufacturer of avionics components and a provider of  
avionics systems integration services in certain niche markets of the commercial
aircraft industry. The products and services offered by the Company are utilized
primarily in commercial aircraft to connect, support and/or integrate various   
avionics systems, including cabin avionics systems and flight deck avionics     
systems. The Company's targeted markets consist of commercial aircraft and      
avionics OEMs, the commercial aircraft retrofit market and the commercial       
aircraft aftermarket. The Company also sells products and services to the       
military aircraft market.                                                       

The Company seeks to maximize its sales by emphasizing the complementary
nature of its products and services. Components manufactured by the Company     
include: (i) contacts (of which the Company believes it is the largest supplier 
of bulk contacts to the commercial aircraft OEMs); (ii) connectors (which often 
utilize the contacts manufactured by the Company); (iii) harness assemblies     
(which often utilize the connectors manufactured by the Company); and (iv)      
avionics support structures (which often are packaged with the Company's        
connectors and harness assemblies in installation kits). In addition, the       
Company manufactures dichroic LCD devices, which are used with flight deck      
avionics, and believes it is the largest supplier of such devices to the        
commercial aircraft OEMs. The systems integration services provided by the      
Company include design and engineering, FAA certification, manufacture of       
installation kits and systems installation. The Company manufactures many of the
components required to complete a systems integration project, which it believes
provides it a critical competitive advantage.                                   

The Company was formed in 1989 to capitalize on emerging trends in the  
aircraft market through acquisitions. Since its formation, the Company has      
completed eight acquisitions of businesses or assets. A summary of these        
transactions follows:                                                           

                                                        [Enlarge/Download Table]

   YEAR OF                                                                  APPROXIMATE   
 TRANSACTION          TARGET         PRINCIPAL PRODUCTS AND SERVICES(1)  PURCHASE PRICE(2)
-------------  --------------------  ----------------------------------  -----------------
                                                                           (IN MILLIONS)  
                                                                                          

       1990    Hollingsead           Avionics support structures             $     9.1    

       1991    Tri-Star              Contacts and connectors                         *(3) 

       1991    Tri-Star Europe       Contact blanks                                  *(3) 

       1991    TST                   Wire marking equipment                          *(3) 

       1991    Cory Components       Connectors and harness assemblies             7.7(4) 

       1996    ADS                   Dichroic LCD devices                         13.4    

       1996    Elsinore              Engineering services                          2.6    

       1996    AMP Facility          Contact blanks                                6.8    

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

(1) At the time of the transaction.                                             

(2) Includes, where applicable, related fees and expenses and post closing      
adjustments.                                                            

(3) Although each of Tri-Star, Tri-Star Europe and TST was acquired pursuant to 
 a separate agreement, the purchase price, which was $10.4 million for all
three entities, was determined in the aggregate.                        

(4) The Company acquired 75% of Cory Components in 1991 for approximately $2.0  
million. In February 1996, the Company acquired the 25% which it did not
already own for approximately $5.7 million.                             

    The Company commenced its operations in October 1990 with the acquisition of
Hollingsead, which, at the time of the acquisition, was solely a manufacturer of
avionics support structures. The Company expanded its manufacturing operations  
with the 1991 acquisition of the Tri-Star Companies.                            

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The Company's management has refocused and expanded the businesses which were   
acquired in the Hollingsead and Tri-Star Companies transactions. By capitalizing
on Hollingsead's manufacturing strength in avionics support structures, which   
are used extensively in the systems integration process, the Company has        
expanded Hollingsead into a full-service systems integrator concentrated in the 
retrofit market. Concurrently, the Company has enhanced the market positions of 
the Tri-Star Companies as a leading supplier of certain low-cost, high-quality  
avionics components. Management has focused on reducing costs, improving quality
and increasing the market penetration of the components manufactured by the     
Tri-Star Companies.                                                             

 In 1996, the Company completed: (i) the acquisitions of ADS and Elsinore;
(ii) the purchase of the AMP Facility; and (iii) the Minority Interest          
Acquisition. The acquisition of ADS, a manufacturer of dichroic LCD devices,    
which the Company believes is the largest supplier of such products to the      
commercial aircraft OEMs, expanded the Company's offering of components used in 
flight deck avionics systems. The Company believes that the acquisition of ADS  
will allow it to capitalize on the upturn in aircraft OEM production by         
increasing its revenue content per aircraft as well as enhancing the Company's  
position with its major customers. The acquisition of Elsinore, with its DAS    
approval, permits the Company to issue, through Elsinore, on behalf of the FAA, 
certification that the designs of aircraft modifications performed in connection
with systems integration work conform to all pertinent FAA requirements. Such   
certifications are issued as FAA-approved STCs, which constitute, in effect,    
specific FAA design approval for each modification. In addition, the acquisition
of Elsinore enhanced the Company's systems integration capabilities and         
increased the number of engineering professionals dedicated to the Company's    
systems integration effort by approximately 50%. The acquisition of Elsinore    
also provided the Company with an important new customer in the aircraft        
industry, Daimler Benz Aerospace, and the opportunity to obtain additional      
customers. The Company's purchase of the AMP Facility added contact capability  
and capacity which will enable the Company to optimize and expand its contact   
manufacturing operations. The AMP Facility enables the Company to produce       
contact blanks using a cold-heading manufacturing process which, when used for  
high volume production, is more cost effective than the Company's existing screw
machine operations. As a result of the purchase of the AMP Facility the Company 
will have the opportunity to make increased sales to certain distributors that  
formerly purchased contacts from other entities within AMP.                     

INDUSTRY OVERVIEW AND TRENDS                                                    

The Company participates in the commercial and military segments of the 
aircraft industry. Within these segments, the Company sells to commercial and   
military aircraft OEMs and major avionics equipment OEMs as well as to the      
aircraft retrofit market and aircraft aftermarket.                              

  On December 15, 1996, Boeing and McDonnell Douglas announced that they had
agreed to merge. The merger is subject to certain conditions, including the     
receipt of regulatory approvals. Neither Boeing nor McDonnell Douglas has made  
any announcements of any changes to their respective businesses following the   
merger. The Company is unable to determine at this time the effect, positive or 
negative, of the merger should it be consummated.                               

   Prior to the announcement of the merger, the market for commercial aircraft
designed to carry 100 or more passengers was served principally by Boeing,      
Airbus and McDonnell Douglas. The market for commercial aircraft designed to    
carry fewer than 100 passengers is served by more than a half dozen other       
manufacturers. The major systems installed on new commercial and military       
aircraft, such as flight deck avionics systems, are produced by a limited number
of OEMs, including AlliedSignal Inc., Rockwell Collins, General Electric        
Company, Honeywell, Inc. ("Honeywell"), Raytheon Co. and Sextant Avionique, Inc.
Components and sub-systems for new aircraft are provided by a much more         
fragmented group of companies, consisting of numerous smaller, specialized      
companies, such as the Company.                                                 

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  The aircraft retrofit market (the integration of new systems into existing
aircraft) and the aircraft aftermarket (the manufacture and sale of replacement 
products for existing aircraft) are served by a highly fragmented group of      
companies. Many of these companies were formed primarily in response to         
increased outsourcing by airlines of internal engineering capabilities. Products
and services provided within the aircraft aftermarket and aircraft retrofit     
market include aircraft replacement components and systems and aircraft repair, 
maintenance, overhaul and systems integration services.                         

  The Company believes that there are numerous barriers to entry which limit
access to the aircraft industry. These barriers include: (i) general FAA        
certification requirements, including those necessary to perform aircraft       
modifications or maintenance; (ii) required compliance with military            
specifications for certain products sold to commercial and military markets;    
(iii) required compliance with qualification and approval standards imposed by  
aircraft and avionics systems OEMs in addition to FAA aircraft manufacturing and
aircraft modification design and installation standards; (iv) reluctance of OEMs
to list new companies as approved vendors on the engineering drawings of the    
OEMs (referred to as "print position"); and (v) significant initial capital     
investment and tooling requirements necessary for the manufacture of certain    
aircraft components and systems.                                                

The Company believes the following trends are affecting the commercial  
aircraft industry:                                                              

INCREASED DEMAND FOR NEW AIRCRAFT.  According to the Boeing Report,     
expenditures on new aircraft production are expected to increase from an average
of approximately $34 billion per year for the period 1991 through 1995 to       
approximately $46 billion per year for the period 1996 through 2000. There can  
be no assurances that the Company will benefit from such increase in aircraft   
expenditures. The Boeing Report also estimates that annual deliveries of        
commercial aircraft will increase from approximately 400 in 1996 to more than   
600 in 1997 and will be between 700 and 800 in 1998. In addition, for the period
1996 through 2000, revenue passenger miles will increase from 1.6 trillion to   
2.1 trillion and the worldwide fleet of aircraft will increase from 11,500 at   
the end of 1996 to approximately 14,000 at the end of 2001 (net of approximately
1,375 retirements). The Company believes that the following factors, among      
others, are causing this increase in new aircraft orders: (i) projected         
worldwide airline traffic growth of 5.5% per year over the next decade          
(including growth of 6.7% per year in the Southeast Asia region and 11.8% per   
year in China); (ii) projected cargo traffic growth of 6.6% per year; (iii)     
projected increase in the load factor of aircraft currently in service; (iv)    
increases in the average age of commercial aircraft; (v) the cost effectiveness 
of using new aircraft versus old aircraft; and (vi) a turnaround in worldwide   
airline operating performance (from substantial operating losses in 1992 to     
approximately $12 billion in operating profit in 1995).                         

    DOWNSIZING AND OUTSOURCING.  Airlines have come under increasing pressure to
reduce operating and capital costs associated with providing services. In       
response, airlines have increased purchases of certain components from third    
parties and have outsourced certain repair, overhaul and retrofit functions.    
Similarly, aircraft and avionics OEMs increasingly are reducing their level of  
vertical integration by outsourcing more manufacturing, repair and retrofit     
functions to third parties. The Company believes that these trends are creating 
increased demand for low-cost, high-quality component manufacturers and systems 
integrators, such as the Company.                                               

INDUSTRY CONSOLIDATION IN CERTAIN SEGMENTS.  Certain segments of the    
commercial aircraft industry, such as those that include manufacturers of       
components and providers of aircraft retrofit, overhaul and repair services,    
have been undergoing consolidation. The Company believes that several factors   
are contributing to this consolidation, including: (i) the high level of        
fragmentation within these segments; (ii) the continuing efforts by OEMs to     
minimize purchasing costs, streamline operations and achieve greater control of 
quality through a rationalization of their supplier bases; and (iii) the        
increased demands placed on suppliers due to the just-in-time requirements of   
their customers.                                                                

INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS.  In recent years, there has
been an increase in demand for cabin avionics systems, which include in-flight  
passenger telecommunications systems as                                         

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well as in-flight entertainment systems, such as video, video-on-demand and     
casino-style electronic gaming. In-flight passenger telecommunications systems  
primarily are produced by major providers of terrestrial and satellite-based    
communication services and in-flight entertainment systems primarily are        
produced by a diverse group of companies, ranging from small entrepreneurial    
start-ups to large electronics and media companies. In-flight entertainment and 
passenger telecommunications systems generally are integrated onto aircraft by  
third parties, such as the Company, as well as by airlines and avionics OEMs.   
The Company believes that the increased demand primarily has resulted from: (i) 
a desire by airlines for additional revenue-producing services; and (ii) longer 
flights combined with a demand by airline passengers for more sophisticated     
forms of in-flight services.                                                    

    PROLIFERATION OF NEW AVIONICS TECHNOLOGIES FOR FLIGHT DECKS.  The prevalence
of older generation avionics equipment is a primary limiting factor in          
establishing a more efficient air traffic management system. The commercial     
aircraft industry, including the world's airlines, aircraft and avionics OEMs   
and regulatory agencies, have organized to develop the necessary industry       
standards, regulations and system requirements for future air navigation systems
("FANS"). Through the implementation of FANS, a complete modernization of both  
airborne and ground-based air traffic management systems is expected to be      
introduced and to result in significant improvements over existing systems.     
Anticipated benefits of FANS include cost savings and enhanced safety. As       
overall navigation system accuracy is improved, new navigation systems, such as 
satellite communication ("SATCOM") systems and global positioning systems       
("GPS"), will be required which the Company believes will present numerous      
aircraft avionics retrofit opportunities.                                       

  There also has been a proliferation of new safety systems for flight decks
driven by the advent of new technologies and FAA mandates. For example, traffic 
collision avoidance systems ("TCAS") and windshear detection systems are now    
required for passenger aircraft operating in the U.S. The Company believes that 
these safety systems may be mandated for all cargo carriers and flights outside 
the U.S. In addition, the Company believes that the FAA will recommend or       
mandate additional safety systems such as an enhanced ground proximity warning  
system, a predictive (forward-looking) windshear detection system and an        
enhanced digital flight data recorder.                                          

COMPETITIVE STRENGTHS                                                           

The Company believes that it is well-positioned to take advantage of the
current trends and expected growth in the commercial aircraft industry as a     
result of the following competitive strengths:                                  

LEADING POSITIONS IN NICHE MARKETS.  The Company successfully has       
established strong positions in several specialized niches within the commercial
aircraft industry. The Company believes that it is the largest supplier of bulk 
contacts to the commercial aircraft OEMs. The Company also believes it is the   
largest supplier of dichroic LCD devices for use by commercial aircraft OEMs and
a major supplier of harness assemblies for use in in-flight entertainment       
systems. The Company seeks to utilize its strong market positions to compete    
more effectively as well as to capitalize on industry consolidation trends.     

    RECORD OF SUCCESSFUL ACQUISITIONS.  Since its formation in 1989, the Company
has completed eight acquisitions of businesses or assets, including, in 1996,   
acquisitions of ADS and Elsinore and the purchase of the AMP Facility. The      
Company has demonstrated its ability to: (i) identify strategic acquisition     
targets; (ii) complete the acquisition of identified targets; and (iii) increase
revenues of an acquired company, often while refocusing that company's business 
strategy. The Company believes that its acquisition success has resulted from   
its ability to identify and screen acquisition candidates, implement an         
effective cost reduction program and expand and diversify the products and      
services provided by an acquired company. In the past, acquisitions by the      
Company have resulted in increased indebtedness and interest expense which has  
caused the Company to incur net losses in each year since its inception despite 
positive operating income. See "Risk Factors--Risks Associated with             
Acquisitions."                                                                  

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ALIGNMENT WITH LEADING AVIONICS AND AIRCRAFT OEMS AND SUPPLIERS.  The   
Company seeks to maximize its growth by establishing long-term relationships    
with leaders in the Company's primary markets. For example, the Company has     
entered into supply agreements with Boeing. The Company believes that through   
these agreements it is the supplier of a substantial majority of the bulk       
contacts for all aircraft currently manufactured by Boeing and the sole source  
supplier of certain connectors for in-flight entertainment systems installed by 
Boeing on its 777 aircraft. The Company is also: (i) a primary supplier of      
harness assemblies to Matsushita for its in-flight entertainment systems; (ii)  
the preferred integrator for the in-flight casino-style electronic gaming and   
video-on-demand systems of IFT; and (iii) a preferred systems integrator for the
passenger telecommunications systems of AT&T.                                   

    NUMEROUS INDUSTRY AND REGULATORY APPROVALS.  The Company's subsidiaries hold
four PMAs from the FAA and 64 supplements to its PMA's authorizing such         
subsidiaries to manufacture and install numerous parts in many different        
aircraft (as of December 31, 1996). The Company's subsidiaries also have three  
FAA domestic repair station certificates which authorize them to perform certain
aircraft modifications. The Company employs FAA-certified airframe and          
power-plant mechanics who are authorized to perform certain aircraft            
modification functions. In addition, through its acquisition of Elsinore, the   
Company is one of only 26 DASs worldwide (as of January 22, 1997) which are     
authorized by the FAA to provide FAA approval of aircraft modifications. The DAS
approval enables the Company, through Elsinore, to act as a designee of the FAA 
in issuing certain STCs. The FAA approvals obtained by the Company's            
subsidiaries are owned, and may only be used by, the subsidiary obtaining such  
approval.                                                                       

LOW-COST, HIGH-QUALITY OPERATIONS.  The Company believes that it has    
established low-cost operations through well-defined cost reduction programs,   
technological development and the use of vertical integration, where            
appropriate. The Company's low-cost operations are demonstrated, for example, by
the growth of the Company's contact private labeling programs under which the   
Company supplies contacts to many of its competitors.                           

The Company uses sophisticated procedures and processes to ensure its   
products meet or exceed industry and customer quality requirements. Many        
customers formally have recognized the effectiveness of the Company's quality   
programs by issuing quality approval letters, awarding quality compliance       
certificates and authorizing the Company's inspection personnel to act as the   
authorized quality representative of the customer. For example, in February     
1996, the Company became the 13th Boeing supplier to receive its D1-9000        
Advanced Quality System award.                                                  

ENGINEERING AND RELATED TECHNICAL CAPACITY.  Approximately 10% of the   
Company's employees are engineering professionals, providing the Company with   
significant in-house engineering capability and key technical expertise. For    
example, the Company believes that it is one of a few companies with the        
capability to perform full-service systems integration functions (design and    
engineering, FAA certification, installation kit manufacturing and installation 
of cabin avionics and flight deck avionics systems on aircraft). This level of  
expertise enables the Company to respond rapidly and effectively to the         
technical requirements of its customers as well as to capitalize on the         
outsourcing trends in the commercial aircraft industry.                         

MANAGEMENT DEPTH AND EXPERIENCE.  The Company has assembled a team of   
executives, program managers and engineers from many of the major manufacturers 
and suppliers to the aircraft industry. Key management and professional         
employees of the Company bring experience with them from such companies as The  
B.F. Goodrich Co. ("B.F. Goodrich"), B/E Aerospace, Inc., COMSAT Corp.,         
Honeywell, Hughes-Avicom International, Inc., Litton Industries, Inc.,          
Matsushita and McDonnell Douglas, providing the Company with a diversity of     
commercial aircraft industry expertise. On average, the Company's executive     
management has approximately 17 years of related industry experience.           

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GROWTH STRATEGY                                                                 

The Company's principal strategy is to establish and expand leading     
positions in high-margin, niche markets within the commercial aircraft industry,
with a focus on the manufacture of avionics components and the integration of   
avionics systems. The Company seeks to achieve these leading positions while    
maintaining a balance of revenues among the OEM market, the retrofit market and 
the aftermarket. The Company believes that such a strategy will position it for 
growth over an entire commercial aircraft industry economic cycle. Specifically,
the Company seeks to:                                                           

CAPITALIZE ON GROWTH IN COMMERCIAL AIRCRAFT PRODUCTION.  The Company    
believes its strong market positions and alignment with many of the leading     
commercial aircraft industry participants will enable it to capitalize on the   
projected increase in commercial aircraft production. The Company believes that 
every aircraft currently produced by Boeing, Airbus and McDonnell Douglas       
includes components manufactured by the Company. As orders for the Company's    
aircraft components have increased, the Company has worked closely with OEMs to 
meet their delivery and scheduling requirements. In addition, the Company seeks 
to increase its revenue content per plane by introducing new products, expanding
the use of existing products and through strategic acquisitions of companies    
which supply components to the OEMs.                                            

  EXPLOIT INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS.  The Company believes
that the demand for cabin avionics systems is increasing, primarily as a result 
of: (i) a desire by airlines for additional revenue-producing services; and (ii)
longer flights combined with a demand by airline passengers for more            
sophisticated forms of in-flights services. The Company manufactures components 
(contacts, connectors, harness assemblies and avionics support structures) which
are used with cabin avionics systems, as well as provides the systems           
integration services necessary to install such systems on aircraft. The Company 
believes that it competes effectively in the cabin avionics market by offering  
to its customers a full-service organization, capable of providing interconnect 
hardware and support structures for cabin avionics systems combined with the    
design and engineering, FAA certification and installation services required to 
integrate such systems.                                                         

EXPAND AND DIVERSIFY SYSTEMS INTEGRATION SERVICES.  Historically, the   
Company's systems integration services have been concentrated in the in-flight  
passenger telecommunications market. In 1995, the Company commenced an effort to
diversify the types of systems which it retrofits onto aircraft by expanding its
expertise and sales efforts to include navigation and satellite communication,  
safety, and in-flight entertainment systems. As of December 31, 1996, the       
Company had contracted to provide systems integration services for SATCOM       
systems (American Airlines through Rockwell Collins and TIMCO), safety systems  
(UPS), and in-flight entertainment systems (Swissair through IFT). In addition, 
as of December 31, 1996, the Company had drafted proposals in response to more  
than 35 active requests for proposals for these and other types of systems.     

  COMPLETE ADDITIONAL STRATEGIC ACQUISITIONS.  The Company seeks to identify
and pursue complementary acquisitions at attractive prices in the aircraft      
industry that offer strategic value, such as cost savings, product line         
extensions, increased manufacturing capacity or new customer relationships. The 
Company initiated discussions with all three of the sellers in its recent       
transactions (ADS, Elsinore and the AMP Facility), each of which is of          
significant strategic value to the Company. ADS expands the Company's presence  
on the flight deck with a product that has a leading niche market position.     
Elsinore provides the Company with a DAS approval, increases its engineering    
expertise and expands its customer base. The AMP Facility expands the Company's 
manufacturing capacity and provides it with new low-cost manufacturing          
techniques. While there can be no assurance that the Company will complete      
additional acquisitions, the Company believes that the fragmented nature of the 
market for aircraft components and systems integration services will provide the
Company with additional opportunities to exploit industry consolidation trends. 
See "Risk Factors--Risks Associated with Acquisitions."                         

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CAPITALIZE ON COMPLEMENTARY PRODUCTS AND SERVICES.  The majority of the 
Company's products and services are utilized to provide an interface between an 
aircraft and its avionics systems. Over the past several years, the Company     
increasingly has combined certain of the components which it manufactures to    
create higher value-added products. For example, the contacts manufactured by   
the Company often are utilized as an integral component of the Company's        
connectors. In turn, the connectors manufactured by the Company often are       
utilized as primary components of the Company's harness assemblies.             
Additionally, in support of the systems integration services provided by the    
Company, the Company's harness assemblies often are packaged with its avionics  
support structures to form the foundation for the installation kits which are   
then sold to the Company's systems integration customers. By emphasizing the    
complementary nature of its products and services, the Company seeks to maximize
penetration with existing customers and compete more effectively for new        
customers.                                                                      

PRODUCTS AND SERVICES                                                           

The Company's principal products and services are: contacts; connectors;
harness assemblies; avionics support structures; dichroic LCD devices and the   
integration of certain cabin and flight deck avionics systems into different    
aircraft models. The Company believes that its products are used in each of the 
commercial aircraft models currently produced by Boeing, Airbus and McDonnell   
Douglas, the three largest commercial aircraft OEMs. In 1996, sales of contacts,
connectors, dichroic LCD devices and systems integration accounted for          
approximately 33%, 25%, 14% and 12%, respectively, of the                       
Company's revenues (pro forma for the acquisition of ADS). No other product or  
service accounted for more than 10% of the Company's pro forma revenues in 1996.

CONTACTS.  The Company produces precision-machined contacts for use in  
commercial aircraft. Contacts conduct electronic signals or electricity and are 
installed at the terminus of a wire or an electronic or electrical device. The  
Company supplies contacts for use in connectors found in virtually every        
electronic and electrical system on the aircraft. Over the last three years the 
Company has successfully initiated private labeling programs whereby the Company
manufactures contacts for several of the major connector manufacturers. The     
Company sells contacts directly to aircraft and avionics OEMs and, through its  
private labeling programs, to connector manufacturers who sell connectors to the
aircraft and avionics OEMs under their brand name. The Company believes that it 
is able to sell contacts on a private label basis because of its reputation for 
high-quality, its levels of service and its low-cost manufacturing operations.  
The Company believes that it is the supplier of a substantial majority of the   
bulk contact requirements for all aircraft currently manufactured by Boeing.    

  CONNECTORS.  The Company manufactures and sells to the commercial aircraft
industry electronic and electrical connectors, which provide the electronic or  
electrical link between discrete wires and devices. Connectors also serve as a  
separable interface that facilitates assembly, installation, repair and removal 
of wires or equipment. The Company manufactures a narrow range of electrical and
electronic connectors that are designed and manufactured specifically to operate
in the harsh airborne environment of an aircraft and to meet the critical       
performance requirements demanded by the commercial aircraft market. The Company
produces connectors that are used in aircraft galleys, flight decks and control 
panels in the passenger cabin. The Company is the sole-source supplier of       
certain connectors for in-flight entertainment systems installed by Boeing on   
its 777 aircraft.                                                               

The Company characterizes its connectors as follows: (i) application    
specific--designed and developed by the Company for a specific application,     
usually for a single customer; (ii) proprietary--Company-designed connectors    
which are sold to the broad market for a variety of applications, often evolving
over time from an application specific product; and (iii) industry              
standard--produced in accordance with an industry or military controlled design 
or specification and sold to the broad market to                                

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which the design or specification relates. Examples of the Company's application
specific, proprietary and industry standard connectors are as follows:          

APPLICATION SPECIFIC.  The Company manufactures a connector used as an  
electrical distribution block for Boeing's 777 aircraft. Currently, this
product is used solely for this application; however, in the future, it 
could be used in similar applications on other aircraft.                

    PROPRIETARY.  The CQ connector family was originally an application specific
product designed by the Company for use with in-flight entertainment and
  cabin management systems on Boeing's 777 aircraft. The CQ connector is now
sold to other customers for other applications.                         

 INDUSTRY STANDARD.  The Company sells standard connectors, built to ARINC
specifications, which can be used in many applications without further  
testing or certification.                                               

HARNESS ASSEMBLIES.  The Company produces harness assemblies for use in 
cabin avionics systems, primarily in-flight entertainment systems. A harness    
assembly is made from wire, which the Company buys from its vendors, and        
connectors, contacts and hardware, which the Company manufactures. The Company  
sells its harness assemblies to avionics OEMs. In addition, the Company uses    
harness assemblies in its systems integration activities. The Company is        
currently a primary supplier of harness assemblies to Matsushita, one of the    
largest manufacturers of in-flight entertainment systems.                       

AVIONICS SUPPORT STRUCTURES.  The Company has designed, patented and    
produced a wide range of avionics support structures for use on commercial      
aircraft. Avionics support structures are typically comprised of trays,         
shelving, racks, mounts, and insertion and extraction devices which are combined
with other components to form the installation kit that securely holds and      
connects avionics equipment to the aircraft and other systems or devices such as
antennae, flight instruments and power supplies. Avionics support structures are
used to support and environmentally cool (using fans and air chambers) the      
avionics equipment, including navigation, communication and flight control      
equipment. Avionics support structures are generally located in the avionics bay
of an aircraft and are secured to the frame of the aircraft. The Company's      
avionics support structures are recognized by its customers under the Box-      
Mount-TM- name which the Company believes is highly respected in the            
marketplace. The Company sells its avionics support structures to aircraft and  
avionics OEMs, airlines, and major modification centers. In addition, these     
products are essential components included in the installation kits which are   
used in the Company's systems integration operations.                           

 DICHROIC LCD DEVICES.  Through its recent acquisition of ADS, the Company
became a leading manufacturer of dichroic LCDs and modules (which are LCDs      
packaged with a backlight source and direct drive electronics) used in          
commercial and military aircraft. The Company also manufactures avionics        
electronic clocks which utilize its dichroic LCD devices. The Company believes  
it is the leading (and often sole-source) supplier of dichroic LCD devices to   
aircraft and avionics OEMs and the U.S. military.                               

    The Company's dichroic LCD products, which provide output information to the
flight crew, are used in a variety of flight deck applications, including flight
control systems, fuel quantity indicators, airborne communications and safety   
systems. Dichroic LCD products are widely used in the aerospace industry because
of their high performance characteristics and custom design. Key performance    
characteristics of dichroic LCD devices include high readability in sunlight and
darkness, ability to withstand wide temperature fluctuations and readability    
from extreme viewing angles. During the development phase of flight deck        
avionics, the Company works closely with its customers to develop products that 
meet the customer's requirements which are subsequently incorporated into new or
modified flight decks.                                                          

 The Company's clocks utilize its dichroic LCD technology and are suitable
for use in general aviation, business, commercial and military aircraft. The    
Company believes that it is the only clock manufacturer which has designed a    
line of clocks capable of serving all types of aircraft.                        

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    SYSTEMS INTEGRATION.  The Company performs all of the functions necessary to
retrofit an existing aircraft with an avionics system that previously did not   
exist on the aircraft. As a full-service systems integrator, the Company        
provides design and engineering, FAA certification, installation kit            
manufacturing and systems installation services required to retrofit an aircraft
with a new system. A summary of these functions follows:                        

DESIGN AND ENGINEERING.  The Company provides a full range of systems,  
   electrical and mechanical engineering services to its customers through its
staff of qualified and experienced engineers and program management     
 personnel. The Company's engineers work proactively with its customers in
all phases of the systems integration effort to achieve an engineering  
design data package. This engineering design data package provides      
   information to: (i) certify product compliance with applicable industry and
 FAA standards and regulations; (ii) define the manufacturing requirements
    for kit implementation; and (iii) provide installation definition for actual
installation of the system onto aircraft.                               

 FAA CERTIFICATION.  The Company employs on a full-time basis or contracts
for FAA-certified designated engineering representatives ("DERs") to    
   evaluate the engineering design data package, coordinate compliance testing
to applicable FAA regulations and obtain formal FAA approval of the     
  engineering design data package. These DERs facilitate FAA approval of the
   Company's products and services. In general, DERs evaluate the design of an
    aircraft modification, part or system, ensure compliance with the applicable
Federal Aviation Regulations and oversee product testing to ensure the  
    airworthiness of the aircraft as modified. DERs also either issue, on behalf
of the FAA, certain approvals, or work with the FAA to obtain certain   
approvals directly from the FAA. Significant aircraft modifications by  
   anyone other than the aircraft manufacturer require the issuance of an STC,
  which constitutes an FAA determination that the design of the modification
    meets all pertinent FAA requirements. STCs may be issued directly by the FAA
   or on behalf of the FAA by an approved DAS. The acquisition of Elsinore and
    its DAS approval enables the Company to issue STCs for certain modifications
without applying directly to the FAA for such certifications.           

INSTALLATION KIT MANUFACTURE.  The Company ordinarily applies for and   
receives multi-aircraft STCs which constitute design approval for a     
   modification which may be applied to any aircraft of a particular type. The
    approved modifications commonly are referred to as "installation kits." Such
installation kits generally include: (i) parts, components, and         
    sub-assemblies; and (ii) detailed instructions on approved installation. The
   installation kit and all of its elements are defined in the STC in a Master
    Data List. Once the Company has an STC, issued directly by the FAA or by the
   Company's DAS through Elsinore, the Company applies to the FAA for a PMA or
    a supplement to an existing PMA, which allows the Company to manufacture the
 installation kit in accordance with the approved design and data package.

    SYSTEMS INSTALLATION.  The Company employs a dedicated team of FAA-certified
 mechanics and repairmen to ensure proper installation of the installation
kits and associated avionics systems. These mechanics and repairmen, who
have extensive installation experience over a broad range of commercial 
 aircraft models, operate within the provisions and limitations of the FAA
    repair station certificates which cover the Company's three repair stations.
The Company believes that its staff of kit installation personnel is    
  sufficiently large and diverse in talent to complete multiple installation
projects simultaneously at different locations.                         

The Company has focused its systems integration efforts on the following
four general categories of systems: (i) in-flight passenger telecommunications  
systems; (ii) in-flight entertainment systems; (iii) SATCOM and navigation      
systems; and (iv) safety systems. The Company has targeted these four areas     
because it believes significant retrofit opportunities exist due to the advent  
of new technologies and the need for the airlines to: (i) capture incremental   
revenues without increased capital investment (in-flight passenger              
telecommunications and in-flight entertainment); (ii) satisfy increased safety  
and                                                                             

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regulatory requirements; and (iii) reduce operating expenses (SATCOM). A summary
of recent Company activity in each of these categories follows:                 

 IN-FLIGHT PASSENGER TELECOMMUNICATIONS SYSTEMS.  The Company is a systems
  integrator of in-flight passenger telecommunications systems for AT&T. The
   Company has provided installation kits to AT&T for telephones on over 1,000
  aircraft, as well as design and engineering and certification services for
    certain of these aircraft. The Company is currently involved in proposals to
other in-flight passenger telecommunications systems providers.         

IN-FLIGHT ENTERTAINMENT SYSTEMS.  The Company is the preferred systems  
 integrator for IFT. IFT is a publicly traded company which has designed a
digital interactive passenger entertainment system which provides for   
 video-on-demand, video games, and casino-style electronic gaming in which
the aircraft passenger can gamble using a credit card. In July 1996, the
    Company entered into an agreement with IFT to fully integrate the IFT System
   into 21 wide-body aircraft for Swissair. The Swissair contract is the first
    large-scale commercial application of the IFT System. Delays in installation
  or problems in implementation of the IFT System may result in the deferral
  or loss of potential revenues from IFT. For a discussion of certain issues
    relating to the IFT System, see "Risk Factors--Dependence on Key Customers."

  SATCOM AND NAVIGATION SYSTEMS.  The Company presently is providing systems
integration services in support of SATCOM systems. The Company recently 
    completed efforts as a systems integrator for SATCOM systems on certain U.S.
Government aircraft and has subsequently been awarded another contract. 
Presently, the Company is providing the systems integration services for
SATCOM systems on 10 Airbus A300 for American Airlines (through Rockwell
   Collins and TIMCO). The Company has also entered into agreements to provide
systems integration services for GPS on 13 747-200/300 aircraft and one 
    MD-82 aircraft. The Company believes that GPS and SATCOM systems (consistent
 with the FANS initiative) will be retrofitted into numerous aircraft over
the next few years. In many cases, the airlines are electing to replace 
older navigation systems with newer GPS technology due to avionics      
obsolescence and significantly increased maintenance costs.             

 SAFETY SYSTEMS.  The Company is an integrator of safety systems which are
required by the FAA, or voluntarily adopted by airlines. The Company    
recently was selected to integrate TCAS and heads-up guidance systems   
    ("HGS") on aircraft for UPS. Currently, several major carriers in Europe and
   Asia actively are evaluating TCAS. In addition, the Company believes that a
 new "forward-looking" windshear detection system will be available by the
end of 1997. The Company believes significant opportunity exists for the
integration of these types of safety systems onto aircraft worldwide.   

  OTHER.  The Company has designed, developed and applied for a patent on an
electrical retract mechanism to support in-flight video systems on McDonnell    
Douglas narrow-body aircraft. Due to space constraints, in-flight video systems 
generally are not available on McDonnell Douglas narrow-body aircraft. The      
Company's retract mechanism is configured to fit in the available space. The    
Company actively is marketing the system which management believes is the only  
video system available for these narrow-body aircraft. The Company believes that
there are over 500 aircraft in the market which potentially could use such a    
system.                                                                         

INDUSTRY REGULATION AND APPROVALS                                               

The aviation industry is highly regulated in the U.S. by the FAA and is 
regulated in other countries by similar agencies to ensure that aviation        
products and services meet stringent safety and performance standards. The      
Company and its customers are subject to these regulations. In addition, many of
these customers impose their own compliance and quality requirements on the     
Company.                                                                        

The FAA prescribes standards and licensing requirements for aircraft    
components, licenses private repair stations and issues DAS approvals giving the
holder the right to certify the design of aircraft                              

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modifications on behalf of the FAA. As a result of the FAA's oversight of the   
Company, the FAA can authorize or deny authorization of many of the services and
products provided by the Company. Any FAA denial of such required authorizations
would preclude the ability of the Company to provide the pertinent service or   
product. Should the Company fail to comply with the applicable FAA standards or 
regulations, the FAA would have available to it a wide-range of enforcement     
options. Such enforcement options include: (i) issuance of a warning letter or a
letter of correction to the Company; (ii) initiation of a civil penalty action  
against the Company; (iii) suspension or emergency suspension of a Company      
certificate or approval; or (iv) the revocation or emergency revocation of a    
Company certificate or approval. The FAA also has the power to issue cease and  
desist orders and orders of compliance and to initiate court action for         
injunctive relief in support of its enforcement powers. In the event the FAA    
were to suspend or revoke a Company certificate or approval on an emergency     
basis, the Company would be obliged to cease immediately the manufacture of     
products and the delivery of services which require such certificate or         
approval. In the event the FAA were to suspend or revoke a Company certificate  
or approval on other than an emergency basis, the Company would be permitted to 
continue the manufacture of products and the delivery of services which require 
such certificate or approval pending any available appeals. However, if the FAA 
were to prevail in any such appeal, upon the completion of the appeal process   
the Company would be obliged to cease the manufacture of such products and the  
delivery of such services. In addition, in the event the FAA were to determine  
that the Company's noncompliance with the applicable FAA standards or           
regulations created a safety hazard, the FAA could order that the pertinent     
component or aircraft immediately cease to be operated until appropriate        
corrective action is taken. This could require the grounding of aircraft and/or 
the removal of affected components from aircraft already returned to service.   
The Company's FAA approvals are owned, and may only be used by, the subsidiary  
obtaining such approval.                                                        

All aircraft operated by airlines in the United States must be of a type
which has received an FAA type certificate ("TC"). A TC is issued by the FAA    
after the FAA determines that the aircraft type design meets the applicable FAA 
airworthiness standards. After a type design has been approved through the      
issuance of a TC by the FAA, a manufacturer with rights to the TC can apply for 
FAA approval to produce the aircraft. This approval is a "production            
certificate." Any major change in design of a type certificated aircraft which  
is not significant enough to require a new application for a TC under the FAA's 
rules must still be approved by the FAA. FAA approval of such a design change   
developed by an entity other than the TC holder is issued under an STC. There   
are two types of STCs: a "single-aircraft" STC, which may be applied to a single
aircraft, and a "multi-aircraft" STC, which may be applied to all aircraft of a 
particular type design, for example, all Boeing 747-400s.                       

As of December 31, 1996, the Company had obtained 83 STCs, most of which
were obtained on behalf of its customers in connection with the Company's       
systems integration services, and substantially all of which are multi-aircraft 
STCs. The Company foresees the need to obtain additional STCs so that it can    
expand the services it provides and the customers it serves.                    

  Proposed aircraft modifications can be tested and approved and STCs issued
directly by the FAA or on behalf of the FAA by holders of DAS approvals. DAS    
approvals are granted to domestic repair stations, air carriers, commercial     
operators of large aircraft, and manufacturers which demonstrate their ability  
to provide the personnel and follow specific procedures to ensure the issuance  
of STCs only for appropriate design modifications. Each DAS approval holder is  
specifically limited by the FAA as to the type of STCs which it can issue. The  
Company, which holds a DAS approval through Elsinore, can now issue many of the 
STCs (both single and multi-aircraft) it requires in connection with its systems
integration operations. This has eliminated the need for the Company, in most   
instances, to apply to the FAA for STC approvals, enabling the Company to obtain
STCs more quickly than in the past.                                             

    After obtaining an STC, the Company must apply for a PMA or a PMA supplement
to produce the modification installation kit covered by the STC. The Company has
four PMAs and 64 supplements to its PMAs (as of December 31, 1996). Each initial
PMA is, in general, an approval of the manufacturing or                         

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modification facility's production quality control system. Each supplement      
authorizes the manufacture of a particular part in accordance with the          
requirements of the corresponding STC. The Company routinely applies for and    
receives PMA supplements. The Company also is required to have FAA authority to 
perform the installation of a modification kit. This authority is provided      
either by the Company's PMAs and supplements or its repair station certificates.
In order for a company to perform certain repair, engineering, installation or  
other services on aircraft, its facility must be designated as an FAA-authorized
repair station. The Company has three such repair stations.                     

  In addition to FAA approval of the design, production, and installation of
modifications, the FAA certifies personnel. Selected Company personnel have been
certified by the FAA to perform certain tasks related to the design, production,
and performance of aircraft modifications. Such certified personnel include     
mechanics and repairmen. In addition, the FAA delegates some of its oversight   
responsibilities, such as testing and inspection responsibilities, to           
FAA-certified designees. The Company employs FAA designees on a full-time basis 
to facilitate FAA approval and oversight of the Company's activities. In        
addition, the Company contracts with additional FAA designees as they are       
needed.                                                                         

  Mil-specs are frequently used by both military and commercial customers in
the aerospace industry to define and control characteristics of a product.      
Through the use of a government Qualified Parts List ("QPL") and Qualified      
Vendor's List ("QVL"), the customer is assured that a product or service has met
all of the requirements set forth in the mil-specs. Parts listed with a QPL     
allow others to reliably design parts to interface with such parts as a result  
of the mil-spec standards used. The Company believes that it holds more QPLs for
its contact product line than any other manufacturer.                           

SALES AND MARKETING                                                             

  The Company's products are sold through a group of geographically assigned
direct sales personnel and agents. Technical product sales support for these    
sales personnel is provided through product line managers and the Company's     
product engineering personnel. Customer service communication is provided by    
geographically assigned sales correspondents located in the Company's           
manufacturing facilities. The Company may also assign responsibility for        
marketing, sales and/or services for certain key customers to one of the        
Company's executives. The Company has five authorized distributors who purchase,
stock and resell certain of the Company's product lines.                        

The Company's systems integration services are sold by sales managers   
employed by the Company who are assigned to geographic territories. Because of  
the significant amount of technical engineering work required in the sales      
process, these sales managers are generally assisted by a support team which    
includes program management, installation and engineering personnel. The support
team specializes in one of: (i) in-flight passenger telecommunications; (ii)    
in-flight entertainment; (iii) SATCOM and navigation; or (iv) safety systems. At
such time as the Company obtains a contract for the system proposed by the sales
manager, the support teams continue to manage the project throughout the entire 
integration process.                                                            

CUSTOMERS                                                                       

In 1996, the Company sold its products and services to more than 500    
customers. The Company's primary customers include aircraft and avionics OEMs,  
airlines, aircraft component manufacturers and distributors, and aircraft repair
and modification companies. The Company's three largest customers are Boeing,   
Matsushita and AT&T, which accounted for approximately 14.8%, 9.6% and 6.9%,    
respectively, of the Company's consolidated revenues (pro forma for the ADS     
acquisition) for the fiscal year ended December 31, 1996. In addition, a        
significant portion of the Company's sales of components are sold to Boeing     
indirectly through sales to suppliers of Boeing.                                

The Company has entered into a contract to provide systems integration  
services for the IFT System on 21 wide-body aircraft for Swissair. The Company's
contract with IFT provides for monthly progress                                 

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payments and the Company will account for revenues generated under the IFT      
contract using the percentage of completion method of accounting. As of April   
15, 1997, the Company had integrated the IFT System onto three of Swissair's    
aircraft; the IFT System operates in all classes of service (first, business and
economy) on two aircraft and in first and business class on one aircraft. The   
Company continues to integrate the IFT System onto additional Swissair aircraft.
Under IFT's contract with Swissair, IFT agreed to finance the purchase price of 
the IFT System in exchange for a substantial share of potential future gaming   
revenues. However, based on IFT's limited experience with the IFT System on     
Swissair's aircraft, in March IFT indicated that revenues from gaming are       
significantly below its expectations. IFT has since announced a change in       
corporate strategy whereby it will no longer finance the substantial majority of
the purchase price of the IFT System. Consistent with this new strategy, IFT    
also announced that it was exercising its contractual right to renegotiate its  
contract with Swissair in order to shift a greater portion of the purchase price
of the IFT System to Swissair. On April 14, 1997 IFT announced that it had      
entered into a memorandum of understanding with Swissair regarding the purchase 
by Swissair of the IFT System, which announcement states that Swissair expects  
to purchase the IFT System for installation in the first and business class     
sections of up to 18 aircraft. IFT currently is in an evaluation period provided
for under its contract with Swissair, during which IFT and Swissair are working 
together to optimize the operations and functionality of the IFT System. IFT has
indicated that it is working to improve the reliability of the IFT System       
through software revisions and through design improvements to the tray tables   
used in the economy section of the aircraft. While the Company expects that it  
will continue to provide system integration services to IFT for Swissair's 21   
wide-body aircraft, there can be no assurance that: (i) IFT and Swissair will   
successfully renegotiate their contract or that such renegotiation will not     
result in a materially reduced scope of work for the Company; or (ii) that any  
existing or future technical or design issues will be resolved. Termination of  
the contract between Swissair and IFT, a material change in the scope of work   
for the Company, or any general delays or problems with implementation of the   
IFT System could have a material adverse effect on the Company.                 

    Most of the Company's sales to Boeing are pursuant to contracts which may be
terminated by Boeing at any time. One contract provides that: (i) if the Company
reduces its prices or leadtimes of like quantity of comparable items to         
customers other than Boeing, then the Company must sell on the same terms to    
Boeing; and (ii) if other Boeing suppliers offer to sell to Boeing products     
comparable to those of the Company at prices more than 5% lower than the prices 
specified in such contract, the Company must either similarly reduce its prices 
or permit Boeing to delete the affected products from the contract. Another     
contract provides that Boeing is not obligated to order any products covered by 
the agreement if: (i) Boeing's customers specify an alternate product; (ii) the 
product in Boeing's judgement is not technologically competitive at the time;   
(iii) Boeing changes the design of an aircraft such that the Company's products 
are no longer required for such aircraft; or (iv) Boeing reasonably determines  
that the Company cannot support Boeing's requirements for products in the       
amounts and within the delivery schedules Boeing requires. The Company's        
contracts with Boeing grant Boeing an irrevocable non-exclusive worldwide       
license to use the Company's patents, designs, trade secrets, semiconductor mask
works and tooling related to the development, production and maintenance or     
repair of products sold to Boeing upon the occurrence of certain events,        
including: (i) the acquisition by or transfer to a third party of any of the    
Company's rights to manufacture products for Boeing; (ii) upon various defaults 
by the Company; and (iii) the bankruptcy of the Company. The Company generally  
sells components and services to Matsushita and AT&T pursuant to purchase       
orders, but does not have any supply contracts with either company.             

MANUFACTURING AND QUALITY CONTROL                                               

   The Company manufactures contacts, connectors, harness assemblies, dichroic
LCD devices and avionics support structures. Many of these products involve     
similar manufacturing processes which have become core competencies of the      
Company. The Company manufactures these products using process-specific         
equipment and procedures that have been custom-designed or fabricated to provide

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high-quality products at the lowest possible cost to the Company. The Company is
vertically integrated from concept and design through final assembly, testing   
and certification for these production processes. The Company believes this     
vertical integration is critical to assuring product performance, customer      
service and competitive pricing.                                                

The Company has implemented programs to reduce costs, including overhead
expenses, and maximize return on capital. In some cases these programs have     
involved the use of proprietary equipment or processes which have enabled the   
Company to reduce costs while maintaining high quality levels. For example, the 
Company uses a proprietary selective plating process which allows the Company to
minimize the usage of gold when plating contacts. The Company has enhanced and  
expanded the use of this process, as well as other plating processes, which has 
enabled it to realize estimated cost savings, on a comparable basis, of         
approximately $1.3 million in 1996.                                             

   Certain of the Company's customers have developed their own design, product
performance, manufacturing process and quality system standards and require     
their suppliers, including the Company, to comply with such standards. As a     
result, the Company has developed and implemented comprehensive quality system  
policies and procedures which meet or exceed the requirements of its customers. 
Many of the Company's customers have recognized formally the effectiveness of   
the Company's quality programs by issuing quality approval letters and awarding 
quality compliance certificates. In addition, certain customers have authorized 
the Company's inspection personnel to act as the authorized quality             
representative of the customer. This authorization enables the Company to ship  
directly into the inventory stockrooms of these customers, eliminating the need 
for receiving inspection activities by these customers.                         

The Company uses sophisticated equipment and procedures to ensure the   
quality of its products and to comply with mil-specs and FAA certification      
requirements. The Company performs a variety of testing procedures, including   
environmental testing under different temperature, humidity and altitude levels,
shock and vibration testing and X-ray fluorescent measurement. These procedures,
together with other customer approved techniques for document, process and      
quality control, are used throughout the Company's manufacturing facilities.    

RAW MATERIALS AND COMPONENT PARTS                                               

    The components which the Company manufactures require the use of various raw
materials including gold, aluminum, copper, rhodium, plating chemicals and      
plastics, the availability and prices of which may fluctuate. The price of raw  
materials represents a significant portion of the sales price of many of the    
Company's products. Although some of the Company's contracts have prices tied to
the price of raw materials, increases in raw materials prices cannot always be  
recovered in product sale prices. The Company also purchases a variety of       
manufactured component parts from various suppliers. Raw materials and component
parts are generally available from multiple suppliers at competitive prices.    
However, any delay in the Company's ability to obtain necessary raw materials   
and component parts may affect its ability to meet customer production needs.   

PATENTS AND PROPRIETARY INFORMATION                                             

   The Company has various trade secrets, proprietary information, trademarks,
trade names, patents, copyrights and other intellectual property rights which   
the Company believes, in the aggregate (but not individually), are important to 
its business.                                                                   

COMPETITION                                                                     

The Company competes with a number of established companies that have   
significantly greater financial, technological and marketing resources than the 
Company. The Company believes that its ability to compete depends on high       
product performance, short lead-time and timely delivery, competitive price, and
superior customer service and support.                                          

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The niche markets within the aircraft industry served by the Company are
relatively fragmented with several competitors for each of the products and     
services provided by the Company. Due to the global nature of the commercial    
airline industry, competition in these categories comes from both U.S. and      
foreign companies. However, the Company knows of no single competitor that      
provides the same range of products and services as those provided by the       
Company.                                                                        

    The Company's principal competitors in contacts and connectors are large and
diversified corporations which produce a broad range of products. The Company's 
principal competitor in the contact market is Deutch Engineered Connecting      
Devices, a division of the Deutch Co. In the connector market, the Company's    
principal competitors include ITT Canon (a division of ITT Corporation), AMP and
Radiall S.A. Several of these companies are also customers of the Company. The  
Company's principal competitors for avionics support structures include smaller 
companies such as Barry Controls, Inc., Electronic Cable Specialists ("ECS") and
Vibrachoc, a subsidiary of Compagnie Generale d'Electricite. The main competitor
for dichroic LCD devices is Cristalloid, Inc. Competitors which provide systems 
integration services include ECS, the engineering departments of certain        
airlines and numerous independent airframe maintenance and modification         
companies.                                                                      

BACKLOG                                                                         

As of December 31, 1996, the Company had outstanding purchase orders    
representing an aggregate invoice price of approximately $44.5 million,         
including $7.5 million for ADS, which was acquired on September 18, 1996.       
Approximately $6.8 million of such outstanding purchase orders were attributable
to IFT. See "Risk Factors--Dependence on Key Customers." As of December 31,     
1995, the Company had outstanding purchase orders representing an aggregate     
invoice price of approximately $19.8 million. The Company expects that          
approximately 12% of the outstanding purchase orders will not be filled in 1997.

Orders are generally subject to cancellation by the customer prior to   
shipment. The level of unfilled orders at any given date during the year will be
materially affected by the timing of the Company's receipt of orders and the    
speed with which those orders are filled. Accordingly, the Company's backlog at 
December 31, 1996 is not necessarily indicative of actual shipments or sales for
any future period, and period-to-period comparisons from 1995 to 1996 may not be
meaningful.                                                                     

EMPLOYEES                                                                       

As of December 31, 1996, the Company had 927 employees (including 128   
temporary employees), of whom 94 were engineers (including 1 temporary          
employee), 24 were in sales, 716 were in manufacturing operations (including 124
temporary employees) and 93 were in finance and administration (including 3     
temporary employees). None of the Company's employees is subject to a collective
bargaining agreement, and the Company has not experienced any material business 
interruption as a result of labor disputes since it was formed. The Company     
believes that it has a good relationship with its employees.                    

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FACILITIES                                                                      

    The Company leases all of its facilities with terms ranging from one to nine
years as reflected in the following table.                                      

                                                        [Enlarge/Download Table]

                                                                               APPROXIMATE             
                                                                                 SQUARE        LEASE   
           LOCATION                             DESCRIPTION                      FOOTAGE     EXPIRATION
------------------------------  --------------------------------------------  -------------  ----------
                                                                                                       
El Segundo, CA                  Manufacturing and engineering facility             81,300       2005   
Santa Fe Springs, CA            Manufacturing and engineering facility             52,000       2000   
Hatfield, PA                    Manufacturing and engineering facility             27,500       1999   
Lugano, Switzerland             Manufacturing facility                             21,000       2001   
Irvine, CA                      Manufacturing facility                             16,400       1999   
Wiltshire, United Kingdom       Manufacturing facility                              5,700       1998   
El Segundo, CA                  Executive offices                                   5,000       2007   
Santa Barbara, CA               Engineering facility                                3,500       1997   
Seattle, WA                     Engineering facility                                3,200       1999   
Phoenix, AZ                     Engineering facility                                3,000       1997   
Copley, OH                      Executive offices                                   2,200       1997   
Santa Ana, CA                   Engineering facility                                1,000       1999   

  The Company believes its properties are in good condition and are adequate
to support its operations for the foreseeable future.                           

ENVIRONMENTAL MATTERS                                                           

The Company is subject to various federal, state, local, and foreign    
environmental requirements, including those relating to discharges to air,      
water, and land, the handling and disposal of solid and hazardous waste, and the
cleanup of properties affected by hazardous substances. In addition, certain    
environmental laws, such as CERCLA and similar state laws, impose strict,       
retroactive, and joint and several liability upon persons responsible for       
releases or potential releases of hazardous substances. The Company has sent    
waste to treatment, storage, or disposal facilities that have been designated as
National Priority List sites under CERCLA or equivalent listings under state    
laws. The Company has received CERCLA requests for information or allegations of
potential responsibility from the Environmental Protection Agency as to the     
Company's use of certain such sites. In addition, some of the Company's         
operations are located on properties which are contaminated to varying degrees. 
However, the Company has not incurred, nor does it expect to incur, significant 
costs to address such contamination because entities other than the Company have
been held primarily responsible for such contamination, the levels of           
contamination are sufficiently low so as not to require remediation or the      
Company is indemnified against such costs. In most cases the Company does not   
believe that its liability for past waste disposal is material. However, in a   
limited number of cases the Company does not have sufficient information to     
assess its potential liability, if any. It is possible, given the retroactive   
nature of CERCLA liability, that the Company will from time to time receive     
additional notices of potential liability, relating to current or former        
activities.                                                                     

The Company has been and is in substantial compliance with environmental
requirements and believes it has no liabilities under environmental             
requirements, except those which would not be expected to have a material       
adverse effect on the Company's business, results of operations, or financial   
condition. However, some risk of environmental liability is inherent in the     
nature of the Company's business and the Company might in the future incur      
material costs to meet current or more stringent compliance, cleanup, or other  
obligations pursuant to environmental requirements. See "Risk Factors--         
Environmental Regulation," "Management's Discussion and Analysis of Financial   
Condition and Results of Operations--Environmental Matters" and "Business--Legal
Proceedings."                                                                   

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LEGAL PROCEEDINGS                                                               

    The Company's manufacturing facility in El Segundo, California, has received
several notices of violation ("NOV") related to its wastewater discharge permit.
The Company has taken various corrective measures. However, the Company         
continues to experience difficulty in meeting the wastewater flow limitations   
contained in its discharge permit and is evaluating additional measures,        
including seeking modification to its permit. If the Company is not able to     
resolve these issues, it may be required to install new treatment equipment.    
However, the cost for such installation is not expected to be material, and the 
Company does not believe that the NOVs will result in any material sanctions.   
See "Risk Factors-- Environmental Regulation," "Management's Discussion and     
Analysis of Financial Condition and Results of Operations--Environmental        
Matters" and "Business--Environmental Matters."                                 

The Company is a party to a license agreement with McDonnell Douglas    
pursuant to which the Company may request certain data in order to design and   
market modifications to aircraft manufactured by McDonnell Douglas. The         
agreement provides that the Company will pay McDonnell Douglas a royalty of five
percent of the net sales price of all modifications sold by the Company for     
which the Company has requested data from McDonnell Douglas. The Company has    
requested data for a single modification, which modification the Company        
believes is exempt from the obligation to pay royalties under the agreement.    
McDonnell Douglas has made a demand for $650,000 for royalties. The Company does
not believe that it is obligated to McDonnell Douglas in any amount. However,   
there can be no assurance that the Company will not be required to pay royalties
to McDonnell Douglas.                                                           

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

The following table sets forth information regarding the directors and  
executive officers of the Company as of December 31, 1996:                      

                                                        [Enlarge/Download Table]

              NAME                 AGE                              POSITION                         
---------------------------------  ---     ----------------------------------------------------------
                                                                                                     
R. Jack DeCrane                        50  Chairman of the Board and Chief Executive Officer         

R. G. MacDonald                        66  Vice Chairman of the Board                                

Robert A. Rankin                       44  Chief Financial Officer and Secretary                     

Roger L. Keller                        52  Group Vice President of Systems                           

Charles H. Becker                      50  Group Vice President of Components                        

James R. Bergman (a)                   54  Director                                                  

Paul H. Cascio (b)                     35  Director                                                  

Jonathan A. Sweemer (a)(b)             41  Director                                                  

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

(a) Member of the Compensation Committee.                                       

(b) Member of the Audit Committee.                                              

The Company is currently evaluating other director candidates and       
anticipates that two additional independent, non-management directors will be   
added to the Board upon the closing of the Offering or as soon thereafter as    
practicable. Upon completion of the Offering, the Company's independent, non-   
management directors will continue to represent a majority on each of the       
Company's Audit Committee and Compensation Committee.                           

  The Company's Board is divided into three classes. Directors of each class
will be elected at the annual meeting of stockholders of the Company (the       
"Annual Meeting") held in the year in which the term of such class expires and  
will serve thereafter for three years. Mr. MacDonald serves as a class I        
director for a term expiring as of the Annual Meeting in 1998. Messrs. Cascio   
and Bergman serve as class II directors for a term expiring as of the Annual    
Meeting in 1999. Messrs. DeCrane and Sweemer serve as class III directors for a 
term expiring as of the Annual Meeting in 2000.                                 

  R. Jack DeCrane is the founder of the Company and has been Chairman of the
Board of Directors of the Company since it was founded in December 1989. Mr.    
DeCrane served as President of the Company, which office then included the      
duties of chief executive officer, until April 1993 when he was elected to the  
newly-created office of Chief Executive Officer. Prior to founding the Company, 
Mr. DeCrane held various positions at the aerospace division of B.F. Goodrich.  
Mr. DeCrane was a Group Vice President at the aerospace division of B.F.        
Goodrich with management responsibility for three business units from 1986 to   
1989. Mr. DeCrane is his own appointee to the Board under the terms of an       
agreement between the Company and certain of its shareholders and lenders. See  
"Certain Transactions--Shareholders Agreement."                                 

  R. G. MacDonald has been Vice Chairman of the Company since December 1996.
Mr. MacDonald has been a member of the Board since December 1994, and was       
President of the Company from April 1993 until December 1996. The office of     
President of the Company included the duties of chief operating officer. Mr.    
MacDonald was a consultant to the Company from February 1993 to April 1993.     
Prior to joining the Company, he served as President and Chief Executive Officer
of MDB Systems, Inc., a manufacturer of ruggedized computer disk systems, from  
1990 to 1993.                                                                   

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Robert A. Rankin has been Chief Financial Officer and Secretary of the  
Company since November 1993. Mr. Rankin joined the Company in 1992 as Senior    
Vice President of Tri-Star, which office then included the duties of chief      
financial officer of the Company. Prior to joining the Company, he was Vice     
President of Finance for the Chandler Evans Control Systems subsidiary of Coltec
Industries, Inc., an aerospace company, from 1990 to 1992. He was employed by   
the aerospace division of B.F. Goodrich from 1977 to 1989 in various capacities,
the most recent of which was as Controller of the aircraft wheel and brake      
business unit of B.F. Goodrich.                                                 

Roger L. Keller has been Group Vice President of Systems of the Company 
since December 1996. Mr. Keller was President of Hollingsead from December 1995 
until December 1996, and was employed by the Company as Vice President of       
Engineering, Sales and Program Management from May 1994 through November 1995.  
Prior to joining the Company, he was Vice President of Engineering for Active   
Noise and Vibration Technologies, Inc. from 1992 to 1994, and Vice President of 
Sales, Marketing and Program Management for the Airtransport Services division  
of Honeywell from 1986 to 1992.                                                 

    Charles H. Becker has been Group Vice President of Components of the Company
since December 1996. Mr. Becker was President of Tri-Star, from December 1994 to
December 1996. Prior to joining the Company, he was President of the            
Interconnect Systems Division of Microdot, Inc. from 1984 to 1994.              

   James R. Bergman has been a member of the Board since October 1991. He is a
founder and, since 1974, has been a general partner of DSV Associates, DSV      
Partners III and DSV Partners IV. Mr. Bergman is DSV's appointee to the Board   
under the terms of an agreement between the Company and certain of its          
shareholders and lenders. See "Certain Transactions--Shareholders Agreement." In
August 1996, Mr. Bergman became a general partner of Brantley Venture Partners  
III, L.P. He is also a director of Maxim Integrated Products, Inc. and Quad     
Systems Corporation.                                                            

   Paul H. Cascio has been a member of the Board since September 1996. He is a
general partner of Brantley Venture Partners. Mr. Cascio also serves as Vice    
President and Secretary of Brantley Capital Corporation. Mr. Cascio is          
Brantley's appointee to the Board under the terms of an agreement between the   
Company and certain of its shareholders and lenders. See "Certain               
Transactions--Shareholders Agreement." From December 1987 through May 1996, when
he became a general partner of Brantley Venture Partners, Mr. Cascio was a      
managing director and head of the Industrial Manufacturing and Services Group in
the corporate finance department at Dean Witter Reynolds Inc.                   

  Jonathan A. Sweemer has been a member of the Board since February 1996. He
has been a member of Nassau Capital Partners, L.P. since January 1995. From May 
1992 to December 1994, Mr. Sweemer was a Vice President for Princeton University
Investment Co. Mr. Sweemer is Nassau's appointee to the Board under the terms of
an agreement between the Company and certain of its shareholders and lenders.   
See "Certain Transactions--Shareholders Agreement."                             

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EXECUTIVE COMPENSATION                                                          

SUMMARY COMPENSATION TABLE                                              

   The following table describes all annual compensation awarded to, earned by
or paid to the Company's Chief Executive Officer and the four-most highly       
compensated executive officers other than the Chief Executive Officer           
(collectively the "Named Executive Officers") for the fiscal year ended December
31, 1996.                                                                       

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                           ANNUAL COMPENSATION                 LONG-TERM                   
                               --------------------------------------------   COMPENSATION                 
                                                            OTHER ANNUAL     --------------    ALL OTHER   
 NAME AND PRINCIPAL POSITION     SALARY        BONUS      COMPENSATION (1)    OPTIONS (2)     COMPENSATION 
-----------------------------  -----------  -----------  ------------------  --------------  --------------
                                                                                                           
R. Jack DeCrane                $   206,600  $   146,000      $    7,813            34,028     $    --      
  Chief Executive Officer                                                                                  

R. G. MacDonald                    177,437       82,000          13,200            --              --      
  President and Vice Chairman                                                                              
  of the Board (3)                                                                                         

Robert A. Rankin                   139,375       65,000          12,838            19,850          --      
  Chief Financial Officer and                                                                              
  Secretary                                                                                                

Roger L. Keller                    150,000      --                2,083            19,850          --      
  President of Hollingsead                                                                                 
  and                                                                                                      
  Group Vice President                                                                                     
  of Systems (4)                                                                                           

Charles H. Becker                  148,750       65,000           9,103            19,850         30,586(6)
  President of Tri-Star and                                                                                
  Group Vice President of                                                                                  
  Components (5)                                                                                           

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

(1) Amounts paid by the Company for premiums on health, life and long-term      
  disability insurance and automobile leases provided by the Company for the
benefit of the Named Executive Officer.                                 

(2) Number of shares of Common Stock issuable upon exercise of options granted  
during the last fiscal year.                                            

(3) Mr. MacDonald served as President of the Company through December 1996. Mr. 
MacDonald became Vice Chairman of the Board in December 1996.           

(4) Mr. Keller served as President of Hollingsead through December 1996. Mr.    
Keller became Group Vice President of Systems in December 1996.         

(5) Mr. Becker served as President of Tri-Star through December 1996. Mr. Becker
became Group Vice President of Components in December 1996.             

(6) Relocation costs.                                                           

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STOCK OPTIONS GRANTED IN LAST FISCAL YEAR                               

    The following table sets forth individual grants of stock options granted to
the Named Executive Officers during the fiscal year ended December 31, 1996.    

OPTION/SAR GRANTS IN LAST FISCAL YEAR 

                                                        [Enlarge/Download Table]

                                                                                             POTENTIAL REALIZABLE VALUE      
                            NUMBER OF        % OF TOTAL                                      AT ASSUMED ANNUAL RATES OF      
                            SECURITIES      OPTIONS/SARS                                    STOCK PRICE APPRECIATION FOR     
                            UNDERLYING       GRANTED TO       EXERCISE OR                          OPTION TERM(1)            
                           OPTIONS/SARS     EMPLOYEES IN      BASE PRICE    EXPIRATION  -------------------------------------
NAME                         GRANTED         FISCAL YEAR       PER SHARE       DATE         0%           5%           10%    
------------------------  --------------  -----------------  -------------  ----------  -----------  -----------  -----------
                                                                                                                             
R. Jack DeCrane.........        34,028            23.1%        $    3.66       2006     $   120,300  $   274,253  $   510,448
Robert A. Rankin........        19,850            13.5%             2.89       2006          85,300      175,106      312,886
Roger L. Keller.........        19,850            13.5%             2.89       2006          85,300      175,106      312,886
Charles H. Becker.......        19,850            13.5%             2.89       2006          85,300      175,106      312,886

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

(1)  The potential realizable value assumes a rate of annual compound stock     
   price appreciation of 0%, 5% and 10% from the date the option was granted
 over the full option term. These assumed annual compound rates of stock
     price appreciation are mandated by the rules of the Securities and Exchange
 Commission and do not represent the Company's estimate or projection of
future prices of the Common Stock                                     

STOCK OPTIONS EXERCISED DURING FISCAL YEAR AND YEAR END VALUES OF       
UNEXERCISED OPTIONS                                                   

    The following table sets forth information about the stock options exercised
by the Named Executive Officers of the Company during the fiscal year ended     
December 31, 1996.                                                              

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

                                                        [Enlarge/Download Table]

                                                              NUMBER OF SECURITIES        VALUE OF UNEXERCISED   
                                      SHARES                 UNDERLYING UNEXERCISED    IN-THE-MONEY OPTIONS/ SARS
                                     ACQUIRED                OPTIONS/SARS AT FY-END           AT FY-END(1)       
                                        ON        VALUE    --------------------------  --------------------------
NAME                                 EXERCISE   REALIZED   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE 
----------------------------------  ----------  ---------  --------------------------  --------------------------
                                                                                                                 
R. Jack DeCrane...................      --         --               65,221/60,968        $      434,091/301,220  
R. G. MacDonald...................      --         --               34,028/22,686               227,002/151,339  
Robert A. Rankin..................      --         --               12,832/21,197                84,803/ 95,206  
Roger L. Keller...................      --         --                5,671/28,357                35,831/144,170  
Charles H. Becker.................      --         --                8,507/25,521                54,750/125,251  

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

(1) Based on an initial public offering price of $12.00 per share as of December
31, 1996, the measuring date, less a liquidity discount of 40%.         

EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS                     

 R. Jack DeCrane and the Company have entered into an employment agreement
pursuant to which Mr. DeCrane is to serve as Chief Executive Officer for a term 
of four years, effective September 1, 1994. The agreement requires Mr. DeCrane  
to devote his full business time to the Company and contains a covenant not to  
compete with the Company for a period of 12 months following termination of the 
agreement. The agreement provides for various benefits including (i) an annual  
salary of $180,000, which is subject to annual review and increase, but not     
decrease; (ii) an annual bonus ranging from 30% to 70% of Mr. DeCrane's annual  
base salary depending on the level of the Company's achievement of certain      
performance goals; and (iii) vested stock options to purchase 77,982 shares of  
Common Stock at an exercise price of $.53 per share. Additionally, Mr. DeCrane  
is also entitled to life insurance (in an amount at least equal to $1,000,000), 
and health care benefits generally provided by the Company to other senior      
executives. The agreement also provides for various payments to Mr. DeCrane or  
his                                                                             

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beneficiaries in the event of his death, disability, or termination without     
cause. In the event of his death, Mr. DeCrane's beneficiaries would be entitled 
to: (i) a payment equal to Mr. DeCrane's then current salary for one year plus  
his remaining bonus through year-end; and (ii) continuation of certain insurance
benefits for one year. Upon termination due to disability, Mr. DeCrane would be 
entitled to: (i) receive the sum of his then current base salary for one year   
plus his bonus through year end; and (ii) continuation of certain health        
benefits for one year. In the event of a termination without cause by the       
Company or Mr. DeCrane's resignation due to a material breach of the agreement  
by the Company or the Company's request that he resign or retire, Mr. DeCrane   
would be entitled to: (i) his then current base salary for one year and his     
remaining bonus through the end of the year of termination plus an amount equal 
to the amount earned in the immediately preceding year; (ii) continuation of    
certain health benefits for a one year period; and (iii) reimbursement of       
certain relocation and outplacement expenses.                                   

   R. G. MacDonald and the Company entered into a letter agreement, dated June
28, 1993, pursuant to which Mr. MacDonald is to receive for an unspecified term:
(i) an annual base salary of $150,000; (ii) an annual bonus ranging from 20% to 
50% of his annual base salary depending on the Company's level of achievement of
certain performance goals; and (iii) the Company's standard benefit package with
the addition of an executive term life insurance policy in the amount of        
$200,000. Under the agreement, Mr. MacDonald received options to purchase 56,714
shares of the Company's Common Stock at an exercise price of $.53 per share.    

Charles H. Becker and Tri-Star entered into a letter agreement, dated   
November 28, 1994, pursuant to which Mr. Becker is to receive for an unspecified
term: (i) an annual base salary of $140,000; (ii) an annual bonus ranging from  
10% to 40% of his annual base salary depending on Tri-Star's level of           
achievement of certain performance goals; and (iii) other benefits available    
under the Company's executive benefits program. Under the agreement, Mr. Becker 
received options to purchase 14,179 shares of the Company's Common Stock at an  
exercise price of $.53 per share.                                               

SHARE INCENTIVE PLAN                                                    

Under the Share Incentive Plan, the Company may grant to its eligible   
employees: (i) options ("Options") to purchase shares of Common Stock; (ii)     
shares of Common Stock that vest upon the achievement of specified service or   
performance conditions within a specified period of time (the "Restricted       
Shares"); and (iii) options to receive payments based on the appreciation of    
Common Stock ("SARs"). Options, Restricted Shares and SARs are collectively     
referred to as "Grants."                                                        

  Under the Share Incentive Plan, the Company may grant Options that qualify
as "incentive stock options" within the meaning of Section 422 of the Internal  
Revenue Code of 1986, as amended (the "Code"), or Options that do not so        
qualify. The Share Incentive Plan is to be administered by a committee selected 
by the Company's Board and composed of at least two members of the Board (the   
"Administrator"). The current members of the Administrator are Messrs. Bergman  
and Sweemer. Restricted Shares may be granted to key employees of the Company at
the sole discretion of the Administrator. SARs may be specifically granted upon 
the terms and conditions specified by the Administrator.                        

Grants are to be made to key employees of the Company designated by the 
Administrator at its sole discretion. The Company has reserved 527,156 shares of
Common Stock for issuance under the Share Incentive Plan. The Share Incentive   
Plan terminates on February 1, 2003, and thereafter no Grants may be made.      

  The exercise price of any Option may not be less than 100% (or 110% in the
case of an Option granted to a person owning (within the meaning of Section     
424(d) of the Code) more than 10% of the total combined voting power of all     
classes of stock of the Company) of the fair market value of the Common Stock at
the time of the grant of the Option. No Option may be exercised after the       
expiration of ten years from the date of grant of such Option. No Option may be 
sold, pledged, assigned or                                                      

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transferred in any manner otherwise than by will or the laws of descent or      
distribution. The purchase price of any shares of Common Stock purchased under  
an Option must be paid in full at the time of the exercise of an Option in cash,
by check or, if permitted by the Administrator, by shares of Common Stock having
a fair market value on the date of the exercise equal to the purchase price or a
combination thereof.                                                            

    In the event that a holder of a Grant (a "Grantee") ceases to be employed by
the Company for any reason other than death, retirement or disability or such   
employee is terminated without cause, such Grants shall terminate upon the      
termination of his employment, unless extended by the Administrator. In the     
event of termination of employment due to death, retirement or disability of a  
Grantee or in the event such termination is without cause, the Administrator may
allow the Grantee (or his estate) to exercise Options and SARs (to the extent   
exercisable on the date of termination of employment) at any time within one    
year after the date of such termination of employment. Restricted Shares held by
a Grantee will vest upon the Grantee's death and all restrictions will thereupon
lapse.                                                                          

1996 INCENTIVE PLAN                                                     

    In 1996 the Company introduced an incentive plan (the "1996 Incentive Plan")
for its management personnel tied to the Company's and each operating unit's    
annual budget as approved each year by the Compensation Committee of the Board. 
The 1996 Incentive Plan matrix provides for an annual bonus of up to 70% of the 
employee's base salary if the Company or its relevant operating unit achieves   
110% of budget. Fifty percent of the bonus is payable solely based on           
performance of the Company or the relevant operating unit and the remainder is  
payable upon the achievement by the employee of his or her individual objectives
in the discretion of the Chief Executive Officer of the Company or the President
of the relevant operating unit.                                                 

401(k) RETIREMENT PLAN                                                  

Effective April 1992, the Company adopted the Lincoln National Life     
Insurance Company Non-Standardized 401(k) Salary Reduction Plan and Trust       
Prototype Plan (the "401(k)"). The 401(k) allows employees as participants to   
defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred
earnings, plus interest, as a retirement fund. There may be employer matching   
contributions made under this 401(k) which vest according to a specified        
schedule, within six years of service. The full amount vested in a participant's
account will be distributed to a participant following termination of           
employment, normal retirement or in the event of disability or death.           

DIRECTORS' COMPENSATION                                                         

The directors of the Company do not receive annual fees or fees for     
attending meetings of the Board of Directors or committees thereof. However,    
they are reimbursed for out-of-pocket expenses.                                 

LIMITATION ON DIRECTOR LIABILITY AND INDEMNIFICATION                            

   Pursuant to the Certificate, and as permitted by Delaware law, directors of
the Company are not liable to the Company or its stockholders for monetary      
damages for breach of fiduciary duty, except for liability in connection with a 
breach of duty of loyalty, for acts or omissions not in good faith or which     
involve intentional misconduct or a knowing violation of law, for dividend      
payments or stock repurchases unlawful under Delaware law or any transaction in 
which a director has derived an improper personal benefit. Such limitation of   
liability has no effect on the availability of equitable remedies, such as      
injunctive relief or rescission.                                                

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PRINCIPAL AND SELLING STOCKHOLDERS

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT                     

  The following chart provides information as to the beneficial ownership of
Common Stock as of March 31, 1997, as adjusted to give effect to the            
Recapitalization (see "Description of Capital Stock--The Recapitalization") and 
the application of the proceeds of the Offering, by: (i) each director and Named
Executive Officer; (ii) directors and executive officers of the Company as a    
group; and (iii) each person known to the Company to be the beneficial owner of 
5% or more of Common Stock.                                                     

                                                        [Enlarge/Download Table]

                                                                                         PERCENTAGE OF CLASS  
NAME AND ADDRESS OF BENEFICIAL OWNER                                     AMOUNT            BEFORE OFFERING    
-----------------------------------------------------------------  ------------------  -----------------------
                                                                                                              
Nassau Capital Partners L.P......................................         840,808(1)               33.0%      
  22 Chambers Street                                                                                          
  Princeton, NJ 08542                                                                                         
Jonathan A. Sweemer..............................................         840,808(2)               33.0%      
  22 Chambers Street                                                                                          
  Princeton, NJ 08542                                                                                         
DSV Partners, IV.................................................         493,440                  19.3%      
  1920 Main St., Suite 820                                                                                    
  Irvine, CA 92614                                                                                            
James R. Bergman.................................................         493,440(3)               19.3%      
  1920 Main St., Suite 820                                                                                    
  Irvine, CA 92614                                                                                            
Brantley Venture Partners II, L.P................................         490,926                  19.2%      
  20600 Chagrin Blvd., Suite 1150                                                                             
  Cleveland, Ohio 44122                                                                                       
Paul H. Cascio...................................................         490,926(4)               19.2%      
  20600 Chagrin Blvd., Suite 1150                                                                             
  Cleveland, OH 44122                                                                                         
Electra Investment Trust P.L.C...................................         454,721(5)               17.8%      
  65 Kings Way                                                                                                
  London, England WC2B6QT                                                                                     
R. Jack DeCrane..................................................         131,521(6)                5.0%      
  155 Montrose West Avenue, Suite 210                                                                         
  Copley, Ohio 44321                                                                                          
R. G. MacDonald..................................................          53,878(7)                2.1%      
  2361 Rosecrans Avenue, Suite 180                                                                            
  El Segundo, California 90245                                                                                
Robert A. Rankin.................................................          18,220(8)              *           
  2361 Rosecrans Avenue, Suite 180                                                                            
  El Segundo, California 90245                                                                                
Charles H. Becker................................................          14,178(9)              *           
  2201 Rosecrans Avenue                                                                                       
  El Segundo, California 90245                                                                                
Roger L. Keller..................................................           8,507(10)             *           
  13701 Excelsior Drive                                                                                       
  Santa Fe Springs, California 90670-5176                                                                     
All directors and executive officers as a group (eight                                                        
  persons).......................................................       2,051,478(11)              76.2%      


                                                                     PERCENTAGE OF CLASS                      
NAME AND ADDRESS OF BENEFICIAL OWNER                                   AFTER OFFERING                         
-----------------------------------------------------------------  -----------------------                    
                                                                                                              
Nassau Capital Partners L.P......................................              16.0%                          
  22 Chambers Street                                                                                          
  Princeton, NJ 08542                                                                                         
Jonathan A. Sweemer..............................................              16.0%                          
  22 Chambers Street                                                                                          
  Princeton, NJ 08542                                                                                         
DSV Partners, IV.................................................               9.4%                          
  1920 Main St., Suite 820                                                                                    
  Irvine, CA 92614                                                                                            
James R. Bergman.................................................               9.4%                          
  1920 Main St., Suite 820                                                                                    
  Irvine, CA 92614                                                                                            
Brantley Venture Partners II, L.P................................               9.3%                          
  20600 Chagrin Blvd., Suite 1150                                                                             
  Cleveland, Ohio 44122                                                                                       
Paul H. Cascio...................................................               9.3%                          
  20600 Chagrin Blvd., Suite 1150                                                                             
  Cleveland, OH 44122                                                                                         
Electra Investment Trust P.L.C...................................               8.7%                          
  65 Kings Way                                                                                                
  London, England WC2B6QT                                                                                     
R. Jack DeCrane..................................................               2.5%                          
  155 Montrose West Avenue, Suite 210                                                                         
  Copley, Ohio 44321                                                                                          
R. G. MacDonald..................................................               1.0%                          
  2361 Rosecrans Avenue, Suite 180                                                                            
  El Segundo, California 90245                                                                                
Robert A. Rankin.................................................             *                               
  2361 Rosecrans Avenue, Suite 180                                                                            
  El Segundo, California 90245                                                                                
Charles H. Becker................................................             *                               
  2201 Rosecrans Avenue                                                                                       
  El Segundo, California 90245                                                                                
Roger L. Keller..................................................             *                               
  13701 Excelsior Drive                                                                                       
  Santa Fe Springs, California 90670-5176                                                                     
All directors and executive officers as a group (eight                                                        
  persons).......................................................              38.0%                          

------------------------                                                        
* Less than 1%                                                                

 (1) Includes 5,174 shares held by NAS Partners I L.L.C., an affiliate of Nassau
Capital Partners, L.P.                                                  

(2) Represents 835,634 shares held by Nassau Capital Partners, L.P. and 5,174 
shares held by NAS Partners I L.L.C., affiliates of Mr. Sweemer.        

(3) Represents shares held by DSV of which Mr. Bergman is a general partner.  

 (4) Represents shares held by Brantley of which Mr. Cascio is a general partner
of the general partner.                                                 

(5) Includes 46,412 shares held by Electra Associates, Inc., an affiliate of  
Electra Investment Trust P.L.C.                                         

(6) Includes 65,221 shares which may be acquired upon the exercise of stock   
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

(7) Includes 45,371 shares which may be acquired upon the exercise of stock   
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

(8) Includes 13,966 shares which may be acquired upon the exercise of stock   
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

(9) Includes 8,507 shares which may be acquired upon the exercise of stock    
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

(10) Includes 8,507 shares which may be acquired upon the exercise of stock     
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

(11) Includes 141,572 shares which may be acquired upon the exercise of stock   
  options which are exercisable or will be exercisable prior to 60 days from
March 31, 1997.                                                         

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SELLING STOCKHOLDERS                                                            

    The following table sets forth information regarding the stockholder selling
shares of Common Stock as part of the Offering (the "Selling Stockholder").     
These shares will be acquired by the exercise of outstanding warrants to        
purchase Common Stock prior to the consummation of the Offering as part of the  
Recapitalization. See "Description of Capital Stock--The Recapitalization."     

                                                        [Enlarge/Download Table]

                                                                                                       OWNERSHIP OF  
                                                                                                       COMMON STOCK  
                                                     OWNERSHIP OF COMMON STOCK PRIOR TO                  AFTER THE   
                                                                THE OFFERING              NUMBER OF      OFFERING    
                                                     ----------------------------------    SHARES     ---------------
                                                        NUMBER OF       PERCENTAGE OF      OFFERED       NUMBER OF   
NAME                                                     SHARES           OWNERSHIP        HEREBY         SHARES     
---------------------------------------------------  ---------------  -----------------  -----------  ---------------
                                                                                                                     
Banc One Capital Partners, L.P.....................        97,423               3.8%         97,423         --       



                                                       PERCENTAGE OF                                                 
NAME                                                     OWNERSHIP                                                   
---------------------------------------------------  -----------------                                               
                                                                                                                     
Banc One Capital Partners, L.P.....................         --                                                       

   ING and Provident have granted the underwriters a 30-day option to purchase
up to 84,535 shares solely to cover over-allotments. Prior to the consummation  
of the Offering, ING and Provident beneficially owned 116,571 shares (4.4%) and 
38,857 shares (1.5%), respectively, of the Common Stock (including shares which 
may be acquired upon exercise of the Lender Warrants). If the over-allotment    
option is exercised in full, ING and Provident will sell 63,401 and 21,134      
shares, respectively, and will beneficially own 53,170 (1.0%) and 17,723 (.3%), 
respectively, of the Common Stock (including shares which may be acquired upon  
exercise of the Lender Warrants).                                               

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CERTAIN TRANSACTIONS

SHAREHOLDERS AGREEMENT                                                          

Pursuant to the Fourth Amended and Restated Shareholders Agreement dated
September 18, 1996, as amended on January 10, 1997 (as amended, the             
"Shareholders Agreement") among the Company, Nassau, Electra, Brantley, DSV and 
certain other parties and subject to election by the Company's stockholders,    
Nassau, Brantley and DSV each have the right to nominate a representative to    
serve as a director so long as the relevant stockholder owns at least 5% of the 
Common Stock (including Common Stock which may be acquired upon exercise of     
warrants). Following completion of the Offering, Nassau, Brantley and DSV will  
beneficially own 16.0%, 9.3% and 9.4%, respectively, of the issued and          
outstanding Common Stock. The Shareholders Agreement also provides that Mr.     
DeCrane may nominate a director for election by the Company's stockholders for  
so long as he is the Chief Executive Officer of the Company.                    

ELECTRA SECURITIES PURCHASE AGREEMENT                                           

Pursuant to a Securities Purchase Agreement dated November 2, 1994 (the 
"Electra Securities Purchase Agreement") between the Company and Electra, the   
Company issued the Senior Subordinated Notes in the principal amount of $7.0    
million and warrants to purchase 266,990 shares of Common Stock for $.035 per   
share. Such warrants expire on December 31, 2004 and contain certain rights to  
require the Company to repurchase them. Such warrants will be exercised in      
connection with the Recapitalization. See "Description of Capital Stock--The    
Recapitalization." In addition, the Electra Securities Purchase Agreement       
provided that Electra was to receive an advisory fee of $72,000 per annum.      
Electra was not a stockholder of the Company at the time it entered into the    
Electra Securities Purchase Agreement. In February 1996 the Electra Securities  
Purchase Agreement was amended to, among other things, waive certain covenants  
relating to the Senior Subordinated Notes, amend certain of Electra's rights to 
require the Company to repurchase the warrants held by it and increase Electra's
advisory fee to $25,000 each calendar quarter.                                  

SALES OF SECURITIES                                                             

 Pursuant to a Securities Purchase Agreement and related Warrant Agreement
dated September 18, 1996 among the Company, Nassau and Electra, the Company     
issued to Nassau and Electra the Convertible Notes and warrants to purchase an  
aggregate of 49,079 shares of Common Stock (the "Note Warrants") for an         
aggregate purchase price of $3.0 million. The Company also sold to Nassau and   
Electra an aggregate of 750,000 shares of Series E Preferred Stock and issued   
warrants (the "Preferred Stock Warrants") to purchase an additional 49,079      
shares of Common Stock for a purchase price of $3.0 million. Each share of      
Series E Preferred Stock has a liquidation preference of $4.00, provides for    
annual dividends of $.40 and is convertible into approximately .28357 shares of 
Common Stock. The Note Warrants and Preferred Stock Warrants are exercisable at 
$.035 per share and contain certain rights to require the Company to repurchase 
such warrants. All accrued but unpaid dividends will be cancelled and eliminated
if the Offering is consummated by May 5, 1997. The Note Warrants and Preferred  
Stock Warrants expire on December 31, 2006. The Series E Preferred Stock will be
exchanged for 212,678 shares of Common Stock in the Recapitalization. The       
Preferred Stock Warrants will be exercised in connection with the               
Recapitalization and the Note Warrants will be terminated in accordance with    
their terms. Prior to entering into the agreements to sell the Convertible      
Notes, the Note Warrants, the Series E Preferred Stock and the Preferred Stock  
Warrants to Nassau and Electra, the Company sought to obtain investments from   
unaffiliated third parties. The Company believes the transaction proposed by    
Nassau and Electra contained the most favorable terms available to it at the    
time. See "Description of Capital Stock--The Recapitalization."                 

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  Pursuant to a Securities Purchase Agreement and related Warrant Agreements
dated February 20, 1996 between the Company and Nassau, the Company issued to   
Nassau an aggregate of 2,000,000 shares of Series D Preferred Stock and certain 
warrants (the "Nassau Warrants") for an aggregate purchase price of $6.5        
million. Each share of Series D Preferred Stock has a liquidation preference of 
$3.25, provides for annual dividends of $.325 and is convertible into           
approximately .28357 shares of Common Stock. All accrued but unpaid dividends   
will be cancelled and eliminated if the Offering is consummated by May 5, 1997. 
The Series D Preferred Stock will be exchanged for 567,140 shares of Common     
Stock in the Recapitalization. Nassau was not a stockholder of the Company at   
the time it purchased the Series D Preferred Stock and Nassau Warrants. See     
"Description of Capital Stock--The Recapitalization." The Company has agreed to 
exchange the Nassau Warrants for 99,250 shares of Common Stock in the           
Recapitalization. The Nassau Warrants entitle the holders to purchase until     
December 31, 2003 for $.035 per share (i) up to 55,605 shares of Common Stock   
commencing December 31, 1997, (ii) an additional 55,605 shares of Common Stock  
commencing December 31, 1998, and (iii) an additional 83,408 shares of Common   
Stock commencing December 31, 1999; provided, however, that if the Company      
consummates a registered underwritten public offering pursuant to which the     
fully diluted common equity of the Company has a value in excess of certain     
specified amounts, the Nassau Warrants which become exercisable after the       
consummation of such public offering terminate. The Nassau Warrants further     
provide that commencing on December 31, 2000 the holders can require the Company
to repurchase the Nassau Warrants for a price based upon a formula.             

    Pursuant to a Securities Purchase Agreement dated February 9, 1996 among the
Company, R.G. MacDonald, Charles H. Becker, Robert A. Rankin and John Hinson, an
officer of the Company, the Company sold an aggregate of 75,000 shares of Series
C Preferred Stock for a purchase price of $1.50 per share. Each share of Series 
C Preferred Stock has a liquidation preference of $1.50, provides for annual    
dividends of $.15 and is convertible into approximately .28357 shares of Common 
Stock. All accrued but unpaid dividends will be cancelled and eliminated if the 
Offering is consummated by May 5, 1997. Such Series C Preferred Stock will be   
exchanged for 21,268 shares of Common Stock in the Recapitalization. See        
"Description of Capital Stock--The Recapitalization."                           

Pursuant to a Share Purchase Agreement dated November 2, 1994 among the 
Company and Electra, DSV, Brantley and certain other parties the Company issued 
an aggregate of 271,471 shares of Series C Preferred Stock for $1.50 per share. 
All accrued but unpaid dividends will be cancelled and eliminated if the        
Offering is consummated by May 5, 1997. The Series C Preferred Stock will be    
exchanged for 76,981 shares of Common Stock in the Recapitalization. See        
"Description of Capital Stock--The Recapitalization."                           

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DESCRIPTION OF CAPITAL STOCK

    The authorized capital stock of the Company consists of 35,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of preferred      
stock, par value $.01 per share.                                                

THE RECAPITALIZATION                                                            

On February 19, 1997, the Company, formerly an Ohio corporation, was    
incorporated in the State of Delaware. Each outstanding share of common stock   
and preferred stock, as well as all warrants and options, were exchanged for    
substantially similar securities of the Delaware corporation.                   

   All of the Company's existing stockholders have approved a Recapitalization
of the Company, effective concurrently with the consummation of the Offering,   
which includes: (i) the conversion of all outstanding shares of Series A, B, C, 
D and E Convertible Preferred Stock (the "Existing Preferred Stock") into Common
Stock; and (ii) the exercise or exchange of all warrants, other than the Lender 
Warrants and those which are cancelled pursuant to their terms by the Offering. 
In addition, as part of the Recapitalization the Company has effected a 3.53 for
one reverse stock split.                                                        

The following table sets forth each of the securities of the Company    
outstanding prior to the Recapitalization and the securities into which they    
will be converted in the Recapitalization.                                      

                                                        [Enlarge/Download Table]

             PRE-RECAPITALIZATION (1)                             POST-RECAPITALIZATION (2)             
---------------------------------------------------  ---------------------------------------------------
                                         NUMBER OF                                            NUMBER OF 
                                         SHARES OR                                            SHARES OR 
SECURITY                                 WARRANTS    SECURITY                                 WARRANTS  
--------------------------------------  -----------  --------------------------------------  -----------
                                                                                                        
Common Stock..........................      301,840  Common Stock..........................       85,593
Series A-E Preferred Stock............    6,847,705  Common Stock..........................    1,941,804
Warrants to Purchase Preferred                                                                          
  Stock...............................       52,784  Common Stock..........................       10,206
Warrants to Purchase                                                                                    
    Common Stock(3)...................    2,649,419  Common Stock..........................      514,087
Lender Warrants.......................      250,000  Lender Warrants.......................       70,893

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

(1) Prior to a 3.53 to 1 reverse stock split which was effective March 25, 1997.

(2) Reflects the cancellation of certain warrants which will be cancelled upon  
   consumation of the Offering, but does not give effect to the sale of Common
Stock by the Company in the Offering.                                   

(3) Excludes the Lender Warrants.                                               

Following the Recapitalization, and giving effect to the cancellation of
warrants which will be cancelled upon consummation of the Offering but not      
giving effect to the sale of Common Stock by the Company, there will be         
2,551,690 shares of Common Stock, warrants to purchase 70,893 shares of Common  
Stock and no shares of preferred stock outstanding. In connection with the      
Recapitalization, certain of the Company's existing shareholders and the holders
of the warrants have agreed, effective immediately prior to the effectiveness of
the Offering, to waive a number of rights under the agreements by which such    
shareholders and holders of the warrants acquired such rights from the Company. 
The effect of such waivers would be to release the Company from certain dividend
payment requirements, voting requirements and certain other rights granted to   
such shareholders and such holders of the warrants pursuant to their respective 
agreements with the Company, as well as eliminating certain negative and        
affirmative covenants contained therein. In connection with the                 
Recapitalization, the Company entered into the Registration Rights Agreement    
with such shareholders and warrant holders providing such shareholders and      
warrant holders with certain demand and piggyback registration rights with      
respect to the Common Stock. See "Description of Capital Stock--Registration    
Rights."                                                                        

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COMMON STOCK                                                                    

    As of March 31, 1997, after giving effect to the Recapitalization and giving
effect to the cancellation of warrants which will be cancelled upon consummation
of the Offering but not giving effect to the sale of Common Stock by the Company
in the Offering, there were 2,551,690 shares of Common Stock outstanding and    
held of record by 15 stockholders. An additional 425,894 shares were reserved   
for issuance upon exercise of all outstanding options and warrants. Each holder 
of Common Stock is entitled to one vote for each share held and does not have   
cumulative voting rights. See "Description of Capital Stock--Warrants."         

   The holders of the Common Stock are entitled to elect all of the directors,
subject to the rights of certain stockholders and lenders under the Shareholders
Agreement to nominate candidates and subject to relevant rights (if any) of the 
holders of any outstanding Undesignated Preferred Stock. The Common Stock is not
convertible into any other security. See "Certain Transactions--Shareholders    
Agreement."                                                                     

Subject to preferences that may be applicable to any then outstanding   
Preferred Stock and to the restrictions on payments of dividends imposed by the 
Company's debt agreements, holders of Common Stock are entitled to receive      
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or       
winding up of the Company, holders of Common Stock would be entitled to share in
the Company's assets remaining after the payment of liabilities and the         
satisfaction of any liquidation preference granted the holders of any then      
outstanding shares of preferred stock. The Common Stock has no preemptive or    
other subscription rights. The outstanding shares of Common Stock are fully paid
and nonassessable.                                                              

PREFERRED STOCK                                                                 

  The Company is authorized to issue up to 10,000,000 shares of Undesignated
Preferred Stock, none of which was issued as of March 31, 1997. The Board,      
without further action by the holders of Common Stock, may issue shares of      
Undesignated Preferred Stock in one or more series and may fix or alter the     
rights, preferences, privileges and restrictions, including the voting rights,  
redemption provisions (including sinking fund provisions), dividend rights,     
dividend rates, liquidation rates, liquidation preferences, conversion rights   
and the description and number of shares constituting any wholly unissued series
of Undesignated Preferred Stock. The Board, without further approval of the     
holders of Common Stock, may issue shares of Undesignated Preferred Stock with  
rights that could adversely affect the rights of the holders of Common Stock.   
The issuance of shares of Undesignated Preferred Stock under certain            
circumstances could have the effect of delaying or preventing a change of       
control of the Company or other corporate action.                               

WARRANTS                                                                        

  Pursuant to Warrant Agreements dated September 18, 1996 the Company issued
the Lender Warrants. The Lender Warrants entitle the holders to purchase 70,893 
shares of Common Stock for $14.11 per share and expire on September 18, 2006. In
the event the Company pays a dividend or makes a distribution on the Common     
Stock, the holders of the Lender Warrants will be entitled to participate in    
such dividend or distribution as if they had exercised the Lender Warrants      
immediately prior thereto. The holders of the Lender Warrants have certain      
rights to require the Company to redeem the Lender Warrants or repurchase the   
Common Stock issued upon exercise thereof and the Company has certain rights to 
redeem the Lender Warrants or repurchase the Common Stock issued upon exercise  
thereof. The holder's rights to require the Company to redeem such warrants and 
the Company's rights to redeem such warrants will expire upon the consummation  
of this Offering (although such rights may revive under certain limited         
circumstances).                                                                 

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REGISTRATION RIGHTS                                                             

Pursuant to the Registration Rights Agreement certain stockholders may, 
following the expiration of a 180-day lock-up period, require the Company to use
its best efforts to register such holders' Company securities (including the    
Common Stock) under the Securities Act, in each case pursuant to the procedures 
and subject to restrictions specified in the Registration Rights Agreement.     

  Each party to the Registration Rights Agreement may require the Company to
file one registration statement to register securities owned by it for a        
four-year period (subject to extension under certain limited circumstances). In 
general, the Company is not required to effect the registrations described above
more than once in any 12 month period or, if the Company intends in good faith  
to file a registration statement pertaining to an underwritten public offering  
by the Company, within 90 days. Also, the Company is not obligated to file more 
than four registration statements, provided that if the Company effects a       
registration at the request of a stockholder, no further demand by any other    
party to such agreement may be made for a period of at least nine months.       

In addition to the registration rights described above, following the   
expiration of the 180-day lock-up period, each holder which is a party to the   
Registration Rights Agreement may cause the Company to use its best efforts to  
include such holder's Common Stock in any of the Company's registered offerings 
("piggyback offerings") of its Common Stock (other than under Forms S-4 and S-8 
of the Securities Act, or under other forms not available for registering sales 
to the public) (subject to reduction to the extent that the managing            
underwriter, if any, is of the opinion that such inclusion would adversely      
affect the marketing of the securities to be sold therein). The Registration    
Rights Agreement provides that the Company is to bear the expenses of           
registrations described above, other than expenses consisting of underwriting   
discounts and commissions applicable to securities sold by holders.             

The Registration Rights Agreement also restricts the transfer of certain
shares of Common Stock held by the stockholders party to such agreement prior to
the registration and sale (or other registered disposition) of such Common Stock
under the Securities Act.                                                       

TRANSFER AGENT AND REGISTRAR                                                    

   The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.                                                                 

CERTAIN CERTIFICATE AND BYLAW PROVISIONS AND DELAWARE GENERAL CORPORATION LAW   
SECTION 203                                                                 

The provisions of the Company's Certificate and the Bylaws and the      
provisions of Delaware law summarized in the succeeding paragraphs may be deemed
to have anti-takeover effects and may delay, defer or prevent a tender offer or 
takeover attempt that a stockholder might consider to be in such stockholder's  
best interest, including those attempts that might result in a premium over the 
market price for the shares held by stockholders.                               

  CLASSIFIED BOARD.  The Certificate provides that the Board will be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board will be elected each year. Currently, the  
size of the Board is fixed at five members, who are divided into three classes  
serving staggered three-year terms. However, the Company is presently evaluating
other director candidates and anticipates that two additional independent,      
non-management directors will be added to the Board upon the closing of the     
Offering or as soon thereafter as practicable. The classified board provisions  
could have the effect of discouraging a third party from making a tender offer  
or otherwise attempting to obtain control of the Company, even though such an   
attempt might be beneficial to the Company and the stockholders. The Certificate
also provides that a director may not be removed from office unless for cause   
and the affirmative vote of the holders of at least 66 2/3% of the outstanding  
shares of capital stock (including any warrants with voting rights) entitled to 
vote.                                                                           

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MERGERS AND SALES OF ASSETS.  The Certificate provides that except as   
provided in Section 203 of the General Corporation Law of the State of Delaware 
(the "GCLSD") any merger or sale of substantially all of the assets of the      
Company which has not been approved by at least two-thirds of the Board must be 
approved by the affirmative vote of the holders of at least 66 2/3% of the      
outstanding shares of capital stock (including any warrants with voting rights) 
entitled to vote. Such provision may have the effect of preventing a merger or  
sale of substantially all the Company's assets that a stockholder might consider
to be in such stockholder's best interest, including those which might result in
a premium over the market price for the shares held by stockholders.            

LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT.  Effective upon   
consummation of the Offering the Certificate will prohibit stockholder action by
written consent in lieu of a meeting, and will provide that stockholder action  
can be taken only at an annual or special meeting of stockholders. Such         
provision may have the effect of delaying consideration of a stockholder        
proposal until the next annual meeting, unless a special meeting is called by   
the Board, the Chairman of the Board, the Chief Executive Officer or President  
of the Company.                                                                 

ADVANCED NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR     
NOMINATIONS.  Subject to the rules and regulations of the Securities and        
Exchange Commission regarding the solicitation of proxies, the Bylaws establish 
certain advance notice procedures with regard to stockholder proposals and the  
nomination, other than by the direction of the Board or a committee thereof, of 
candidates for election as directors. The Company may reject a stockholder      
proposal or nomination that is not made in accordance with such procedures.     

AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS.  The     
Certificate provides that the affirmative vote of the holders of at least       
66 2/3% of the outstanding shares of capital stock of the Company (including any
warrants with voting rights) then entitled to vote on the matter is required to 
amend certain provisions of the Certificate, including those provisions relating
to the classification of the Board of Directors; the filling of vacancies on the
Board; removal of directors; the calling of special meetings of stockholders;   
the prohibition of stockholder action without a meeting; indemnification of     
directors, officers and others; the limitation on liability of directors; the   
approval of any merger or sale of substantially all of the assets of the Company
which has not been approved by at least two-thirds of the Board; the Amendment  
of the Bylaws; and the supermajority voting requirements in the Certificate. The
Certificate further provides that the Bylaws may be amended by the Board, except
with respect to the authorized number of directors, or by an affirmative vote of
the holders of not less than 66 2/3% of the total voting power of all           
outstanding shares of capital stock of the Company (including any warrants with 
voting rights) then entitled to vote on the matter. These voting requirements   
will have the effect of making more difficult any amendment by stockholders,    
even if a majority of the Company's stockholders believe that such amendment    
would be in its best interests.                                                 

DELAWARE GENERAL CORPORATION LAW SECTION 203.  The Company is subject to
Section 203 of the GCLSD, which imposes restrictions on "business combinations" 
(as defined therein) with interested stockholders (being any person who acquired
15% or more of the Company's outstanding voting stock). In general, the Company 
is prohibited from engaging in business combinations with an interested         
stockholder, unless: (i) before such person became an interested stockholder,   
the Board approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon          
consummation of the transaction that resulted in the stockholder becoming an    
interested stockholder, the interested stockholder owned at least 85% of the    
voting stock of the Company outstanding at the time the transaction commenced   
(excluding for purposes of determining the number of shares outstanding stock   
held by directors who are also officers of the Company and by employee stock    
plans that do not provide employees with the rights to determine confidentially 
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) on or subsequent to the date on which such person became an    
interested stockholder, the business combination is approved by the Board and   
authorized at a meeting of stockholders by the affirmative vote of the holders  
of two-thirds of the outstanding voting stock of the Company not owned by the   
interested                                                                      

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stockholder. Under Section 203, the restrictions described above also do not    
apply to certain business combinations proposed by an interested stockholder    
following the earlier of the announcement of certain extraordinary transactions 
involving the Company and a person who had not been an interested stockholder   
during the previous three years or who became an interested stockholder with the
approval of the Company's directors, if such extraordinary transaction is       
approved or not opposed by a majority of the directors who were directors prior 
to any person becoming an interested stockholder during the previous three years
or who were recommended for election or elected to succeed such directors by a  
majority of such directors. By restricting the ability of the Company to engage 
in business combinations with an interested person, the application of Section  
203 to the Company may provide a barrier to hostile or unwanted takeovers.      

   VESTING OF MANAGEMENT RIGHTS UPON CERTAIN ACQUISITIONS.  The terms of stock
option agreements between the Company and certain members of management provide 
that all unvested options granted thereunder will vest upon either: (i) the     
acquisition by any one purchaser or group of more than 50% of the voting power  
of the stock of the Company; (ii) a replacement during any 12 month period of a 
majority of the Board (whose appointment is not endorsed by a majority of the   
Board prior to the date of such appointment); or (iii) the acquisition of assets
having more than one-third of the total fair market value of the assets of the  
Company by any person or group of persons (a "Change of Control"). As of March  
31, 1997, options to purchase an aggregate of 220,529 shares of Common Stock    
were unvested and subject to vesting upon a Change of Control, including options
to purchase 60,968, 22,686, 21,197, 26,656 and 25,521 shares of Common Stock, by
Messrs. DeCrane, MacDonald, Rankin, Keller and Becker, respectively.            

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SHARES ELIGIBLE FOR FUTURE SALE 

Of the 5,251,690 shares of Common Stock to be outstanding after the     
Offering, 3,338,948 shares will be available for resale in the public market    
without restriction immediately following the Offering if held by holders who   
are not "affiliates" of the Company (as defined in the Securities Act). All of  
the remaining shares are "restricted securities" within the meaning of Rule 144 
adopted under the Securities Act. These restricted securities were issued and   
sold by the Company in private transactions in reliance upon exemptions from    
registration under the Securities Act. After expiration of the 180-day lock-up  
period following the Offering pursuant to agreements with the Underwriters: (i) 
all restricted securities will be available for resale pursuant to limitations  
of Rule 144; and (ii) the Company, pursuant to its Certificate, may authorize   
the issuance of additional shares of Common Stock and shares of one or more     
series of voting preferred stock. The issuance of additional shares of capital  
stock could result in the dilution of the voting power of the shares of Common  
Stock purchased in the Offering. In addition, following the expiration of the   
180-day lock-up period, pursuant to the Registration Rights Agreement, certain  
stockholders have the right, subject to the terms and conditions of the         
Registration Rights Agreement, to require the Company to: (i) effect (in the    
aggregate) up to four registrations under the Securities Act covering all or any
portion of the shares of Common Stock held by such stockholders, provided that  
if the Company effects a registration at the request of a stockholder, no       
further demand may be made by any stockholder for a period of at least nine     
months; and (ii) include all or any portion of such stockholders' shares of     
Common Stock in any proposed registration by the Company of shares of Common    
Stock (subject to reduction to the extent that the managing underwriter, if any,
is of the opinion that such inclusion would adversely affect the marketing of   
the securities to be sold therein).                                             

    Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market will develop, or if  
developed, will be sustained after the completion of the Offering. Factors such 
as announcements concerning the Company or its competitors, investor perception 
of the Company, fluctuations in the Company's operating results and general     
market conditions may cause the market price of the Common Stock to fluctuate   
significantly. Sales of a substantial number of shares of Common Stock in the   
public market after the Offering, or the expectation that such sales could      
occur, could adversely affect the market price of the Common Stock and the      
Company's ability to raise capital through a subsequent offering of securities. 

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UNDERWRITING

  Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have severally agreed to purchase and the      
Company has agreed to sell to them, severally, the aggregate number of shares of
Common Stock set forth opposite their respective names.                         

                                                                [Download Table]

                                                               NUMBER OF 
UNDERWRITER                                                     SHARES   
------------------------------------------------------------  -----------
                                                                         
Schroder Wertheim & Co. Incorporated........................      858,712
Dillon, Read & Co. Inc......................................      858,711
Bear, Stearns & Co. Inc.....................................       60,000
Alex. Brown & Sons Incorporated.............................       60,000
BT Securities Corporation...................................       60,000
Donaldson, Lufkin & Jenrette Securities Corporation.........       60,000
A. G. Edwards & Sons, Inc...................................       60,000
Goldman, Sachs & Co.........................................       60,000
Lazard Freres & Co. LLC.....................................       60,000
Lehman Brothers Inc.........................................       60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........       60,000
Oppenheimer & Co. Inc.......................................       60,000
Prudential Securities Incorporated..........................       60,000
Smith Barney Inc............................................       60,000
Arnhold and S. Bleichroeder, Inc............................       30,000
Cowen & Company.............................................       30,000
Gabelli & Company, Inc......................................       30,000
Gruntal & Co., Incorporated.................................       30,000
Janney Montgomery Scott Inc.................................       30,000
C.L. King & Associates, Inc.................................       30,000
The Ohio Company............................................       30,000
Ragen Mackenzie Incorporated................................       30,000
The Robinson-Humphrey Company, Inc..........................       30,000
Sanders Morris Mundy Inc....................................       30,000
Scott & Stringfellow, Inc...................................       30,000
Wheat, First Securities, Inc................................       30,000
                                                              -----------
    Total...................................................    2,797,423
                                                              -----------
                                                              -----------

The Underwriting Agreement provides that the several Underwriters are   
obligated, subject to the approval of certain legal matters by their counsel and
certain other conditions, to purchase all the shares of Common Stock offered    
hereby (other than those covered by the Underwriters' over-allotment option     
described below), if any are purchased. Schroder Wertheim & Co. Incorporated and
Dillon, Read & Co. Inc., as representatives of the several Underwriters (the    
"Representatives"), have advised the Company that the Underwriters propose to   
offer the shares to the public at the initial public offering price set forth on
the cover page of this Prospectus; that the Underwriters propose initially to   
allow a concession not in excess of $0.47 per share to certain dealers,         
including the Underwriters; that the Underwriters and such dealers may initially
allow a discount of not in excess of $0.10 per share to other dealers; and that 
the initial public offering price and the concession and discount to dealers may
be changed by the Representatives after the initial public offering.            

    The Company and certain Selling Stockholders, including ING, have granted to
the Underwriters an option, expiring at the close of business on the 30th day   
after the date of the Underwriting Agreement, to purchase up to an additional   
419,613 shares of Common Stock, at the initial public offering price set        

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forth on the cover page of this Prospectus, less underwriting discounts and     
commissions. The Underwriters may exercise the option only to cover             
over-allotments, if any, in the sale of shares of Common Stock in the Offering. 
To the extent that the Underwriters exercise this option, each Underwriter shall
be committed, subject to certain conditions, to purchase a number of additional 
shares proportionate to such Underwriter's initial commitment. If the option is 
exercised, the first 84,535 shares will be purchased from certain Selling       
Stockholders and the remaining shares will be purchased from the Company. The   
Representatives have also agreed to pay a fee of $23,498 to ING Baring (U.S.)   
Securities, Inc., an affiliate of ING.                                          

    The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.                    

 The Company, certain management stockholders, directors and certain other
stockholders (including ING and Provident in the event the over-allotment option
is not exercised with respect to their shares) have agreed not to offer to sell,
sell, grant any option to purchase or otherwise dispose of any shares of Common 
Stock, subject to certain exceptions, for a period of 180 days after the date of
this Prospectus without the prior written consent of Schroder Wertheim & Co.    
Incorporated.                                                                   

    Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the Common Stock has been    
determined by negotiations between the Company and the Representatives. Among   
the factors considered in such negotiations were the Company's results of       
operations and financial condition, the prospects for the Company and for the   
industry in which the Company operates, the Company's capital structure and     
prevailing conditions in the securities market.                                 

  The Representatives have informed the Company that the Underwriters do not
intend to confirm shares to accounts over which they exercise discretionary     
authority in excess of 5% of the total number of shares offered hereby.         

 In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the     
price of the Common Stock. Specifically, the Underwriters may overallot in      
connection with the Offering, creating a short position in the Common Stock for 
their own account. In addition, to cover overallotments or to stabilize the     
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the  
Common Stock in the Offering, if the syndicate repurchases previously           
distributed Common Stock in transactions to cover syndicate short positions, in 
stabilization transactions or otherwise. Any of these activities may stabilize  
or maintain the market price of the Common Stock above independent market       
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.                                        

The shares of Common Stock are being offered in accordance with the     
provisions of the National Association of Securities Dealers, Inc. Conduct      
Rules, Rule 2710, paragraph (c)(8). Certain proceeds of the Offering will be    
used to repay amounts owing under the Senior Revolver and the Senior Notes, for 
which ING acts as managing agent and as a lender. ING, which is an affiliate of 
ING Baring (U.S.) Securities, Inc. (and also may be deemed to be an affiliate of
Dillon, Read & Co. Inc.), will receive approximately $24.3 million of the net   
proceeds of the Offering (giving effect to the Underwriters' overallotment      
option) as a result of: (i) being a lender under the Senior Revolver; (ii) being
a holder of Senior Notes; (iii) being a Selling Stockholder; and (iv) the       
Success Fee. Schroder Wertheim & Co. Incorporated has agreed to act as a        
qualified independent underwriter (as defined in the National Association of    
Securities Dealers, Inc. Conduct Rules) for the Offering and has agreed to      
assume the responsibilities of acting as a qualified independent underwriter in 
pricing the Offering and in conducting due diligence.                           

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LEGAL MATTERS 

The validity of the Common Stock offered by this Prospectus and certain 
other legal matters is being passed on for the Company by Spolin & Silverman,   
Santa Monica, California. Certain legal matters will be passed upon for the     
Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.       

EXPERTS 

    The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996  
and the financial statements of Aerospace Display Systems as of December 31,    
1995 and 1994 and for each of the three years in the period ended December 31,  
1995 included in this Prospectus have been so included in reliance on the       
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.                             

ADDITIONAL INFORMATION

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

The Company has filed with the Securities and Exchange Commission a     
Registration Statement on Form S-1 under the Act for registration of the shares 
of Common Stock offered hereby. This Prospectus does not contain all the        
information set forth in the Registration Statement and the exhibits and        
schedules thereto, to which reference is hereby made. Statements made in this   
Prospectus as to the contents of any contract, agreement or other document      
referred to do not purport to be complete; with respect to each such contract,  
agreement or other document filed as an exhibit to the Registration Statement,  
reference is made to the exhibit for a more complete description of the matter  
involved and each statement shall be deemed qualified by this reference. The    
Registration Statement and the exhibits and schedules thereto may be inspected  
and copied at the public reference facilities maintained by the Commission at   
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and 
at the public reference facilities of the Commission's Regional Offices: New    
York Regional Office, Seven World Trade Center, Suite 1300, New York, New York  
10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street,   
Chicago, Illinois 60661. Copies of such material may also be obtained from the  
Public Reference Section of the Securities and Exchange Commission at 450 Fifth 
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also   
maintains a site on the World Wide Web (http://www.sec.gov) that contains       
reports, proxy and information statements and other information regarding       
registrants that file electronically with the Commission.                       

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INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                                            PAGE
                                                                            ----
                                                                                
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES                                

  Report of Independent Accountants.......................................   F-2

  Consolidated Balance Sheets as of December 31, 1995 and 1996............   F-3

  Consolidated Statements of Operations for the years ended December 31,        
    1994, 1995 and 1996...................................................   F-4

  Consolidated Statements of Stockholders' Equity (Deficit) for the years       
    ended December 31, 1994, 1995 and 1996................................   F-5

  Consolidated Statements of Cash Flows for the years ended December 31,        
    1994, 1995 and 1996...................................................   F-6

  Notes to Consolidated Financial Statements..............................   F-7

AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.)               

  Report of Independent Accountants.......................................  F-43

  Balance Sheets as of December 31, 1994 and 1995 and September 18, 1996        
    (Unaudited)...........................................................  F-44

  Statements of Income for the years ended December 31, 1993, 1994 and          
    1995, the nine months ended September 30, 1995 (Unaudited) and the          
    period from January 1 to September 18, 1996 (Unaudited)...............  F-45

  Statements of Changes in Owner's Net Investment for the years ended           
    December 31, 1993, 1994 and 1995 and the period from January 1 to           
    September 18, 1996 (Unaudited)........................................  F-46

  Statements of Cash Flows for the years ended December 31, 1993, 1994 and      
    1995, the nine months ended September 30, 1995 (Unaudited), and the         
    period from January 1 to September 18, 1996 (Unaudited)...............  F-47

  Notes to Financial Statements...........................................  F-48

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors                                                       
and Stockholders of                                                             
DeCrane Aircraft Holdings, Inc.                                                 

    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of 
cash flows present fairly, in all material respects, the financial position of  
DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1995 and   
1996 and the results of their operations and their cash flows for each of the   
three years in the period ended December 31, 1996, in conformity with generally 
accepted accounting principles. These financial statements are the              
responsibility of the Company's management; our responsibility is to express an 
opinion on these financial statements based on our audits. We conducted our     
audits of these statements in accordance with generally accepted auditing       
standards which require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material           
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements, assessing the          
accounting principles used and significant estimates made by management, and    
evaluating the overall financial statement presentation. We believe that our    
audits provide a reasonable basis for the opinion expressed above.              

PRICE WATERHOUSE LLP                                                            

Cleveland, Ohio                                                                 
March 7, 1997, except for the                                                   
reverse stock split described                                               
in Note 1, which is as of                                                   
March 25, 1997                                                              

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,       DECEMBER 31, 1996 
                                                              --------------------     PRO FORMA FOR   
                                                                1995       1996      RECAPITALIZATION  
                                                              ---------  ---------  -------------------
                                                                                        (UNAUDITED)    
                                                                                                       
ASSETS                                                                                                 
Current assets                                                                                         
  Cash and cash equivalents.................................  $     305  $     320       $     320     
  Accounts receivable, net..................................      8,792     13,185          13,185     
  Inventories...............................................     14,116     19,573          19,573     
  Prepaid expenses and other current assets.................        362        812             812     
                                                              ---------  ---------        --------     
    Total current assets....................................     23,575     33,890          33,890     
Property and equipment, net.................................      7,387     12,187          12,187     
Other assets, principally intangibles, net..................      5,367     23,189          23,189     
                                                              ---------  ---------        --------     
    Total assets............................................  $  36,329  $  69,266       $  69,266     
                                                              ---------  ---------        --------     
                                                              ---------  ---------        --------     
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                         
Current liabilities                                                                                    
  Short-term borrowings.....................................  $     911  $   1,974       $   1,974     
  Current portion of long-term obligations to unaffiliated                                             
    lenders.................................................      1,612      3,004           3,004     
  Convertible subordinated notes payable to related                                                    
    parties.................................................         --      2,922           2,922     
  Accounts payable..........................................      5,079      7,420           7,420     
  Accrued expenses..........................................      3,046      7,241           7,241     
  Income taxes payable......................................        344        843             843     
                                                              ---------  ---------        --------     
    Total current liabilities...............................     10,992     23,404          23,404     
                                                              ---------  ---------        --------     
Long-term liabilities                                                                                  
  Long-term obligations                                                                                
    Unaffiliated lenders....................................     16,316     28,323          28,323     
    Related parties.........................................      5,833      6,027           6,027     
  Deferred income taxes.....................................      3,110      3,312           3,312     
  Minority interests........................................        142         85              85     
                                                              ---------  ---------        --------     
    Total long-term liabilities.............................     25,401     37,747          37,747     
                                                              ---------  ---------        --------     
Commitments and contingencies (Note 17)                                                                
Mandatorily redeemable common stock warrants................      1,633      6,879           1,426     
                                                              ---------  ---------        --------     
Stockholders' equity (deficit)                                                                         
  Cumulative convertible preferred stock, no par value ($.01                                           
    par value as of February 19, 1997); 4,804,018 shares                                               
    authorized as of December 31, 1995, 8,304,018 shares as                                            
    of December 31, 1996; 4,022,705 shares issued and                                                  
    outstanding as of December 31, 1995 and 6,847,705 shares                                           
    as of December 31, 1996 (none on a pro forma basis).....      5,549     13,850          --         
  Undesignated preferred stock, $.01 par value, 10,000,000                                             
    shares initially authorized as of February 19, 1997;                                               
    none issued and outstanding.............................     --         --              --         
  Common stock, no par value; 2,268,560 shares authorized as                                           
    of December 31, 1995 and 4,253,550 shares as of December                                           
    31, 1996; 85,593 shares issued and outstanding as of                                               
    December 31, 1995 and December 31, 1996 (none on a pro                                             
    forma basis)............................................         58        216          --         
  Common stock, $.01 par value; 9,924,950 shares authorized                                            
    as of February 19, 1997; 2,551,690 shares issued and                                               
    outstanding.............................................     --         --                  26     
  Additional paid-in capital................................     --         --              18,632     
  Accumulated deficit.......................................     (7,807)   (12,951)        (12,090)    
  Foreign currency translation adjustment...................        503        121             121     
                                                              ---------  ---------        --------     
    Total stockholders' equity (deficit)....................     (1,697)     1,236           6,689     
                                                              ---------  ---------        --------     
      Total liabilities and stockholders' equity                                                       
        (deficit)...........................................  $  36,329  $  69,266       $  69,266     
                                                              ---------  ---------        --------     
                                                              ---------  ---------        --------     

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

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                    YEAR ENDED DECEMBER 31,     
                                                                                ------------------------------- 
                                                                                  1994       1995       1996    
                                                                                ---------  ---------  --------- 
                                                                                                                
Revenues....................................................................... $  47,092  $  55,839  $  65,099 
Cost of sales..................................................................    36,407     43,463     49,392 
                                                                                ---------  ---------  --------- 
    Gross profit...............................................................    10,685     12,376     15,707 
                                                                                ---------  ---------  --------- 

Operating expenses                                                                                              
  Selling, general and administrative expenses.................................     7,716      9,426     10,904 
  Amortization of intangible assets............................................     1,209      1,115        709 
  Gain on litigation settlement, net...........................................    --         --           (157)
                                                                                ---------  ---------  --------- 
    Total operating expenses...................................................     8,925     10,541     11,456 
                                                                                ---------  ---------  --------- 
Income from operations.........................................................     1,760      1,835      4,251 

Other expenses (income)                                                                                         
  Interest expense                                                                                              
    Unaffiliated lenders.......................................................     2,947      2,628      2,807 
    Related parties............................................................       297      1,193      1,441 
  Other expenses (income)......................................................       324        297        (85)
  Minority interests...........................................................         8         85        193 
                                                                                ---------  ---------  --------- 
Loss before provision for income taxes and extraordinary item..................    (1,816)    (2,368)      (105)
Provision for income taxes.....................................................      (613)    (1,078)      (712)
                                                                                ---------  ---------  --------- 
Loss before extraordinary item.................................................    (2,429)    (3,446)      (817)
Extraordinary loss from debt refinancing.......................................      (264)    --         --     
                                                                                ---------  ---------  --------- 
Net loss.......................................................................    (2,693)    (3,446)      (817)
Adjustment to redemption value of mandatorily redeemable common stock                                           
  warrants.....................................................................       189        696     (4,320)
Cumulative convertible preferred stock dividends...............................      (387)      (557)    (1,220)
                                                                                ---------  ---------  --------- 
Net loss applicable to common stockholders..................................... $  (2,891) $  (3,307) $  (6,357)
                                                                                ---------  ---------  --------- 
                                                                                ---------  ---------  --------- 

Pro forma net loss per common share (Unaudited)................................                       $    (.31)
                                                                                                      --------- 
                                                                                                      --------- 

Pro forma weighted average number of common shares outstanding (Unaudited).....                           2,659 
                                                                                                      --------- 
                                                                                                      --------- 

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

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 

(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                   CUMULATIVE         COMMON STOCK                          FOREIGN               
                                                   CONVERTIBLE  ------------------------                   CURRENCY               
                                                    PREFERRED    NUMBER OF                 ACCUMULATED    TRANSLATION             
                                                      STOCK       SHARES       AMOUNT        DEFICIT      ADJUSTMENT      TOTAL   
                                                   -----------  -----------  -----------  -------------  -------------  --------- 
                                                                                                                                  
Balance, December 31, 1993........................  $  --           83,324    $      57    $    (2,520)    $    (155)   $  (2,618)
Reclassification of mandatorily redeemable                                                                                        
  cumulative convertible preferred stock..........      5,168       --           --            --             --            5,168 
Net loss..........................................     --           --           --             (2,693)       --           (2,693)
Adjustment to redemption value of mandatorily                                                                                     
  redeemable common stock warrants................     --           --           --                189        --              189 
Issuance of cumulative convertible preferred                                                                                      
  stock, net......................................        381       --           --            --             --              381 
Mandatorily redeemable common stock warrants                                                                                      
  issued pursuant to anti-dilution provisions.....     --           --           --                (33)       --              (33)
Stock option exercised............................     --            2,269            1        --             --                1 
Translation adjustment............................     --           --           --            --                371          371 
                                                   -----------  -----------       -----   -------------       ------    --------- 
Balance, December 31, 1994........................      5,549       85,593           58         (5,057)          216          766 
Net loss..........................................     --           --           --             (3,446)       --           (3,446)
Adjustment to redemption value of mandatorily                                                                                     
  redeemable common stock warrants................     --           --           --                696        --              696 
Translation adjustment............................     --           --           --            --                287          287 
                                                   -----------  -----------       -----   -------------       ------    --------- 
Balance, December 31, 1995........................      5,549       85,593           58         (7,807)          503       (1,697)
Net loss..........................................     --           --           --               (817)       --             (817)
Adjustment to redemption value of mandatorily                                                                                     
  redeemable common stock warrants................     --           --           --             (4,320)       --           (4,320)
Issuance of cumulative convertible preferred                                                                                      
  stock, net......................................      8,301       --           --            --             --            8,301 
Mandatorily redeemable common stock warrants                                                                                      
  issued pursuant to anti-dilution provisions.....     --           --           --                 (7)       --               (7)
Stock option compensation expense.................     --           --              158        --             --              158 
Translation adjustment............................     --           --           --            --               (382)        (382)
                                                   -----------  -----------       -----   -------------       ------    --------- 
Balance, December 31, 1996........................  $  13,850       85,593    $     216    $   (12,951)    $     121    $   1,236 
                                                   -----------  -----------       -----   -------------       ------    --------- 
                                                   -----------  -----------       -----   -------------       ------    --------- 

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

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                     YEAR ENDED DECEMBER 31,     
                                                                                                 ------------------------------- 
                                                                                                   1994       1995       1996    
                                                                                                 ---------  ---------  --------- 
                                                                                                                                 
Cash flows from operating activities                                                                                             
  Net loss.....................................................................................  $  (2,693) $  (3,446) $    (817)
  Adjustments to reconcile net loss to net cash provided by (used for) operating activities                                      
    Depreciation and amortization..............................................................      3,868      4,244      4,012 
    Amortization of debt discount..............................................................        121        298        331 
    Deferred income taxes......................................................................        521        867         88 
    Minority interests in earnings of subsidiaries.............................................          8         85        193 
    Extraordinary loss from debt refinancing...................................................        264     --         --     
    Gain on sale of equipment..................................................................        (37)       (15)        (5)
    Changes in assets and liabilities                                                                                            
      Accounts receivable......................................................................     (1,549)     2,256     (3,069)
      Inventories..............................................................................     (1,381)    (2,962)    (2,665)
      Prepaid expenses and other assets........................................................        390        274         (3)
      Accounts payable.........................................................................       (973)    (1,004)     1,891 
      Accrued expenses.........................................................................       (920)       682      2,477 
      Income taxes payable.....................................................................         59        178        525 
                                                                                                 ---------  ---------  --------- 
          Net cash provided by (used for) operating activities.................................     (2,322)     1,457      2,958 
                                                                                                 ---------  ---------  --------- 

Cash flows from investing activities                                                                                             
  Purchase of net assets of Aerospace Display Systems..........................................     --         --        (11,693)
  Purchase of minority stockholder's interest..................................................     --         --         (5,207)
  Purchase of manufacturing facility...........................................................     --         --         (4,369)
  Purchase of net assets and stock of Elsinore Engineering Services and Elsinore Aerospace                                       
    Services, Inc..............................................................................     --         --         (1,300)
  Capital expenditures.........................................................................     (1,016)    (1,203)    (1,452)
  Other, net...................................................................................         23       (259)         5 
                                                                                                 ---------  ---------  --------- 
          Net cash used for investing activities...............................................       (993)    (1,462)   (24,016)
                                                                                                 ---------  ---------  --------- 

Cash flows from financing activities                                                                                             
  Financing of acquisitions                                                                                                      
    Proceeds from issuance of cumulative convertible preferred stock and mandatorily redeemable                                  
     common stock warrants, net................................................................     --         --          8,805 
    Revolving line of credit borrowings........................................................     --         --          6,399 
    Senior term loan borrowings................................................................     --         --          5,000 
    Convertible subordinated note borrowings from related parties..............................     --         --          3,000 
  Senior and senior subordinated term loan borrowings (including amounts allocated to                                            
    mandatorily redeemable common stock warrants)..............................................     23,000     --         --     
  Senior, senior subordinated and related party debt repaid....................................    (19,769)    --         --     
  Net borrowings under revolving line of credit agreements.....................................      3,167      1,972      1,191 
  Principal payments on capitalized lease and other long-term obligations......................     (1,024)    (1,665)    (2,001)
  Proceeds from issuance of cumulative convertible preferred stock, net........................        381     --            112 
  Payment of deferred financing costs..........................................................     (2,670)    --           (851)
  Other, net...................................................................................        (57)      (266)      (604)
                                                                                                 ---------  ---------  --------- 
          Net cash provided by financing activities............................................      3,028         41     21,051 
                                                                                                 ---------  ---------  --------- 
Effect of foreign currency translation on cash.................................................         82         33         22 
                                                                                                 ---------  ---------  --------- 
Net increase (decrease) in cash and cash equivalents...........................................       (205)        69         15 
Cash and cash equivalents at beginning of period...............................................        441        236        305 
                                                                                                 ---------  ---------  --------- 
Cash and cash equivalents at end of period.....................................................  $     236  $     305  $     320 
                                                                                                 ---------  ---------  --------- 
                                                                                                 ---------  ---------  --------- 

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

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                              

DESCRIPTION OF THE BUSINESS                                                     

DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company") is a   
manufacturer of avionics components and a provider of avionics systems          
integration services in certain niche markets of the commercial aircraft        
industry.                                                                       

BASIS OF PRESENTATION                                                           

 The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and  
transactions have been eliminated.                                              

 Preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates 
and assumptions that affect the reported amounts on the consolidated balance    
sheets, disclosure of contingent assets and liabilities at the date of the      
consolidated financial statements and the reported amounts of revenues and      
expenses during the reporting periods. Actual results could differ from those   
estimates.                                                                      

RECAPITALIZATION                                                                

In January and March 1997, the holders of certain securities agreed to a
plan for the recapitalization of the Company (the "Recapitalization").          
Completion of the Recapitalization is a condition to the consummation of the    
anticipated initial public offering (the "Offering") and, except for the reverse
stock split described below, would be effective concurrent therewith.           

The Recapitalization provides for: (i) the conversion of all 6,847,705  
shares of issued and outstanding cumulative convertible preferred stock into    
1,941,804 shares of common stock; (ii) the cashless exercise and conversion of  
all 52,784 and 9,355 issued and outstanding Series B preferred stock warrants   
and common stock warrants, respectively, into a total of 16,585 shares of common
stock; (iii) the cashless exercise of 508,497 mandatorily redeemable common     
stock warrants (the "Redeemable Warrants") into a total of 507,708 shares of    
common stock; (iv) the cancellation of 95,368 Redeemable Warrants; and (v) a    
3.53-for-1 reverse stock split (effective March 25, 1997). All common share     
information set forth in the consolidated financial statements and notes thereto
has been restated to reflect the reverse stock split.                           

Redeemable Warrants exercisable into 208,968 common shares would remain 
after the Recapitalization. Of this amount, 138,075 Redeemable Warrants would be
cancelled upon the consummation of the Offering and repayment of the Company's  
senior subordinated debt and convertible notes in accordance with the terms of  
the respective warrant agreements.                                              

   On February 19, 1997, the Company reorganized as a Delaware corporation. In
conjunction with the reorganization, the Company established a $.01 par value   
for its cumulative convertible preferred stock and common stock and increased   
the number of Common Shares and preferred shares authorized to 9,924,950 and    
18,314,018 shares (which includes 10,000,000 shares of a newly designated series
of preferred stock), respectively.                                              

INVENTORIES                                                                     

  Inventories are stated at the lower of cost or market, as determined under
the first-in, first-out ("FIFO") method. Costs include materials, labor and     
manufacturing overhead.                                                         

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                  
PROPERTY AND EQUIPMENT                                                          

Property and equipment are stated at cost and are depreciated using the 
straight-line method over their estimated useful lives, ranging from two to     
twenty years. Leasehold improvements are amortized using the straight-line      
method over their estimated useful lives or remaining lease term, whichever is  
less. Expenditures for maintenance and repairs are expensed as incurred. The    
cost of improvements are capitalized. Upon retirement or disposal, the cost and 
accumulated depreciation of property and equipment are reduced and any gain or  
loss is recorded in income or expense.                                          

OTHER ASSETS                                                                    

   Goodwill is amortized on a straight-line basis over periods ranging from 15
to 30 years. The covenants not to compete are amortized on a straight-line basis
over five years. Other intangibles are amortized on a straight-line basis over  
their estimated useful lives, ranging from ten to twenty years. Revolving credit
agreement deferred financing costs are amortized on a straight-line basis over  
the term of the agreement. Term debt deferred financing costs are amortized     
using the interest method over the terms of their respective agreements.        

  The Company periodically evaluates goodwill to assess recoverability based
upon expectations of future non-discounted operating cash flows related to the  
acquired businesses. Based upon the most recent analysis, the Company believes  
that no impairment of goodwill existed at December 31, 1995 or December 31,     
1996.                                                                           

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS                              

   In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of        
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires the Company to review long-lived assets and certain intangible     
assets for impairment when events or changes in circumstances indicate the      
carrying amount of an asset may not be recoverable. In the event the sum of the 
expected undiscounted future cash flows resulting from the use of the asset is  
less than the carrying amount of the asset, an impairment loss equal to the     
excess of the asset's carrying value over its fair value is recorded. SFAS 121  
also requires that long-lived assets and certain intangible assets to be        
disposed of be recorded at the lower of carrying value or fair value less       
disposal costs.                                                                 

SFAS 121 is effective for financial statements issued for fiscal years  
beginning after December 15, 1995, and must be adopted on a prospective basis.  
The Company adopted SFAS 121 prospectively in the first quarter of 1996, the    
adoption of which had no impact on the consolidated financial statements.       

DERIVATIVES                                                                     

    The premium paid for an interest rate cap agreement is amortized to interest
expense using the interest method of amortization over the term of the cap      
assurance period. The unamortized premium is classified as other current and    
long-term assets in the consolidated financial statements. Amounts receivable   
under the cap agreement are accrued as a reduction of interest expense.         

Market value gains and losses on forward foreign exchange contracts are 
recognized in the consolidated statements of operations.                        

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                  
INCOME TAXES                                                                    

   Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the        
financial statement and tax basis of assets and liabilities as measured by the  
enacted tax rates which will be in effect when these differences reverse.       
Deferred tax expense is the result of changes in the asset and/or liability for 
deferred taxes.                                                                 

FOREIGN CURRENCY TRANSLATION                                                    

  The financial statements of the Company's U.K. and Swiss subsidiaries have
been translated into U.S. dollars from their functional currencies, pounds      
sterling and Swiss francs, respectively, in the consolidated financial          
statements. Assets and liabilities have been translated at the exchange rate on 
the balance sheet date and income statement amounts have been translated at     
average exchange rates in effect during the period. The net translation         
adjustment is reflected as a component of stockholders' equity (deficit).       

    Realized foreign currency exchange gains (losses) included in other expenses
(income) in the consolidated statements of operations were $(361,000),          
$(314,000) and $71,000 for the years ended December 31, 1994, 1995 and 1996,    
respectively.                                                                   

STOCK OPTION PLAN                                                               

  In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based           
Compensation ("SFAS 123"). SFAS 123 establishes a "fair value" method of        
accounting for the value of grants under stock based compensation plans. As     
permitted under SFAS 123, the Company will elect to continue to measure         
compensation expense related to the employee stock option plan utilizing the    
intrinsic value method as prescribed by Accounting Principles Board Opinion No. 
25, Accounting for Stock Issued to Employees ("APB Opinion No. 25"). However,   
beginning in 1996, the Company has included in the notes to its consolidated    
financial statements the pro forma effect on its results of operations as if the
fair value method of measuring compensation expense related to the employee     
stock option plan was utilized as described in SFAS 123.                        

REVENUE RECOGNITION                                                             

Revenues from the sale of manufactured products, except for products    
manufactured under long-term contracts, are recorded when products are shipped. 
Revenues on long-term contracts are recognized using the                        
percentage-of-completion method based on costs incurred to date compared with   
total estimated costs at completion. Unbilled accounts receivable were $81,000  
and $465,000 at December 31, 1995 and 1996, respectively. Unbilled accounts     
receivable are expected to be billed during the succeeding twelve month period. 

PRO FORMA LOSS PER COMMON SHARE (UNAUDITED)                                     

The Company's historical capital structure is not indicative of its     
prospective structure due to the Recapitalization that will occur concurrent    
with the closing of the Offering. Accordingly, historical loss per common share 
is not considered meaningful and has not been presented herein.                 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                  
Pro forma loss per common share reflects the Recapitalization and is    
computed using the weighted average number of common shares assumed to have been
outstanding during the periods. The dilutive effect of common equivalent shares,
other than for certain stock options granted in 1996 and Redeemable Warrants and
preferred stock sold in 1996, has not been included because their inclusion     
would have decreased the loss per share. Shares issuable for options granted in 
1996 and Redeemable Warrants and preferred stock sold in 1996 at prices less    
than the anticipated initial public offering price have been included for all   
periods presented using the treasury stock method.                              

  The weighted average number of shares assumes that Redeemable Warrants and
preferred stock which will be converted into common stock pursuant to the       
Recapitalization had been converted and thus outstanding since the dates of     
issuance. As a result, pro forma loss per common share is computed using the    
reported net loss of the Company before deductions for the adjustment in        
redemption value of Redeemable Warrants and preferred stock dividends.          

STATEMENTS OF CASH FLOWS                                                        

For purposes of the statements of cash flows, cash equivalents include  
short-term, highly liquid investments with original maturities of three months  
or less.                                                                        

RECENT ACCOUNTING PRONOUNCEMENTS                                                

  In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing  
of Financial Assets and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied             
prospectively. The new standard provides accounting and reporting standards for 
transfers and servicing of financial assets and extinguishments of liabilities. 
The Company does not expect that the adoption of SFAS 125 will have a material  
effect on the consolidated financial statements.                                

NOTE 2--ACQUISITIONS                                                            

MINORITY STOCKHOLDER'S 25% INTEREST                                             

On February 20, 1996, the Company purchased the remaining 25% of a      
subsidiary's stock it did not already own from the subsidiary's minority        
stockholder (the "Minority Stockholder") for a total purchase price of          
$5,748,000, including $334,000 of acquisition related costs and expenses (the   
"Minority Interest Acquisition"). The purchase price consisted of $4,873,000    
paid in cash at closing and a $600,000 non-interest bearing obligation payable  
to the Minority Stockholder (Note 10). The cash portion of the purchase price   
was funded with the proceeds from the sale of Series D preferred stock and      
Redeemable Warrants (Notes 14 and 15).                                          

The acquisition was accounted for as a purchase and the $5,498,000      
difference between the purchase price and 25% of the fair value of the net      
assets acquired was recorded as goodwill and is being amortized over 26 years,  
representing the remaining useful life of the goodwill recorded upon the initial
75% acquisition in October 1991 (Note 6).                                       

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACQUISITIONS (CONTINUED)                                                
   The consolidated results of operations for the year ended December 31, 1996
include 100% of the operating results of the subsidiary subsequent to February  
20, 1996. For the periods prior to February 20, 1996, the consolidated results  
of operations include a charge for the Minority Stockholder's 25% ownership     
interest.                                                                       

    For the periods prior to February 20, 1996, the Minority Stockholder, who is
also President of the subsidiary, was compensated pursuant to an employment     
agreement. Compensation was the greater of $130,000 per year or 25% of the      
subsidiary's earnings before interest, taxes and certain expenses. Compensation 
was payable on or before April 15th of each year, although the Minority         
Stockholder received a bi-monthly draw amounting to $185,000 per year, plus     
additional periodic payments, which were offset against the compensation        
payable. The employment agreement was cancelled as of February 20, 1996. For the
years ended December 31, 1994, 1995 and 1996, the Minority Stockholder earned   
compensation of $619,000, $851,000 and $22,000, respectively. Accrued           
compensation payable of $652,000 as of December 31, 1995 was paid to the        
Minority Stockholder on February 20, 1996.                                      

AEROSPACE DISPLAY SYSTEMS                                                       

On September 18, 1996, the Company purchased substantially all of the   
assets, subject to certain liabilities assumed, of the Aerospace Display Systems
division ("ADS") of Allard Industries, Inc. ("Allard"). The total purchase price
was $13,395,000, including $402,000 in acquisition related costs. ADS develops  
and manufactures dichroic liquid crystal displays and modules for commercial and
military avionics systems.                                                      

The acquisition was funded with the proceeds from the sale of Series E  
preferred stock, convertible subordinated notes and Redeemable Warrants (Notes  
8, 14 and 15), borrowings under the Company's revolving line of credit and a    
$2,000,000 non-interest bearing obligation payable to certain Allard            
stockholders (Note 10).                                                         

The acquisition was accounted for as a purchase and the $7,691,000      
difference between the purchase price and the fair value of the net assets      
acquired was recorded as goodwill and is being amortized over 30 years (Note 6).

   The consolidated results of operations for the year ended December 31, 1996
include the operating results of ADS subsequent to September 18, 1996.          

ELSINORE                                                                        

   On December 5, 1996, the Company acquired Elsinore Aerospace Services, Inc.
and the Elsinore Engineering Services Division (collectively, "Elsinore") of    
Elsinore, L.P. Elsinore provides engineering services to the commercial aircraft
industry. The total purchase price was $2,550,000, including $300,000 of        
acquisition related costs. The purchase price consisted of $1,000,000 paid in   
cash at closing and a $1,250,000 15% promissory note payable to the sellers. The
purchase agreement provides for an adjustment of the purchase price should the  
amount of working capital decline as of the closing date. The purchase price was
allocated to the assets acquired and liabilities assumed using estimated fair   
values and $2,585,000 was assigned to goodwill, subject to final determination  
of the purchase price (Note 7).                                                 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACQUISITIONS (CONTINUED)                                                
PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS                                

Unaudited pro forma consolidated results of operations, assuming the    
Minority Interest and ADS acquisitions had been consummated on January 1 of each
of the respective years, are as follows (amounts in thousands):                 

                                                        [Enlarge/Download Table]

                                                                             YEAR ENDED      
                                                                            DECEMBER 31,     
                                                                        -------------------- 
                                                                          1995       1996    
                                                                        ---------  --------- 
                                                                                             
Revenues............................................................... $  65,791  $  72,805 
Net loss...............................................................    (3,225)      (473)
Net loss applicable to common stockholders.............................    (3,086)    (6,013)

  The above information reflects adjustments for depreciation, amortization,
minority interest and interest expense based on the new cost basis and debt     
structure of the Company. The pro forma effect of the Elsinore acquisition is   
not material and, accordingly, is not reflected in the above information. In    
addition, pro forma per share information is not considered meaningful and has  
not been presented above due to the Recapitalization that will occur concurrent 
with the closing of the Offering.                                               

NOTE 3--ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS                           

ACCOUNTS RECEIVABLE                                                             

    Accounts receivable is net of an allowance for doubtful accounts of $259,000
and $379,000 at December 31, 1995 and 1996, respectively.                       

  The Company is potentially subject to concentrations of credit risk as the
Company relies heavily on customers operating in the domestic and foreign       
commercial aircraft industry. Generally, the Company does not require collateral
or other security to support accounts receivable subject to credit risk. Under  
certain circumstances, deposits or cash on delivery terms are required. The     
Company maintains reserves for potential credit losses and generally, such      
losses have been within management's expectations.                              

SIGNIFICANT CUSTOMERS                                                           

    Two customers each accounted for more than 10% of the Company's consolidated
revenues, as follows:                                                           

                                                        [Enlarge/Download Table]

                                                                                  YEAR ENDED            
                                                                                 DECEMBER 31,           
                                                                        ------------------------------- 
                                                                          1994       1995       1996    
                                                                        ---------  ---------  --------- 
                                                                                                        
Customer A.............................................................      11.9%       8.9%      15.8%
Customer B.............................................................      13.7%      25.4%       7.7%
                                                                              ---        ---        --- 
  Total................................................................      25.6%      34.3%      23.5%
                                                                              ---        ---        --- 
                                                                              ---        ---        --- 

   Complete loss of either customer could have a significant adverse impact on
the results of operations expected in future periods. The Company anticipates   
that sales to Customer B may further decrease subsequent to December 31, 1996.  
However, the Company believes the decrease may be offset by sales to other      
customers.                                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--INVENTORIES                                                             

Inventories are comprised of the following (amounts in thousands):      

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,    
                                                                        --------------------
                                                                          1995       1996   
                                                                        ---------  ---------
                                                                                            
Raw material........................................................... $   7,857  $  12,350
Work-in process........................................................     1,732      2,717
Finished goods.........................................................     4,527      4,506
                                                                        ---------  ---------
  Total inventories.................................................... $  14,116  $  19,573
                                                                        ---------  ---------
                                                                        ---------  ---------

  Included above are costs relating to long-term contracts recognized on the
percentage of completion method of $1,927,000 and $1,378,000 at December 31,    
1995 and 1996, respectively. At December 31, 1995, costs incurred included      
$1,457,000 pertaining to a contract which was partially terminated and settled. 
The settlement was received in March 1996 with no resulting loss.               

NOTE 5--PROPERTY AND EQUIPMENT                                                  

Property and equipment includes the following (amounts in thousands):   

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,     
                                                                        -------------------- 
                                                                          1995       1996    
                                                                        ---------  --------- 
                                                                                             
Machinery and equipment................................................ $  11,634  $  16,637 
Tooling................................................................     2,557      2,944 
Computer equipment, furniture and fixtures.............................     1,639      2,462 
Leasehold improvements.................................................     1,057      1,676 
                                                                        ---------  --------- 
  Total cost...........................................................    16,887     23,719 
  Accumulated depreciation and amortization............................    (9,500)   (11,532)
                                                                        ---------  --------- 
    Net property and equipment......................................... $   7,387  $  12,187 
                                                                        ---------  --------- 
                                                                        ---------  --------- 

   On December 12, 1996, the Company purchased all of the manufacturing assets
and inventory relating to the cold-heading manufacturing facility of the        
Qualitronix Division of AMP, Inc. (the "AMP Facility"). The purchase price of   
$6,802,000 (including $2,433,000 of inventory purchased) consisted of $5,399,000
paid in cash at closing with the balance paid in January 1997. The $2,205,000   
difference between the purchase price and the fair value of the individual      
assets acquired was recorded as an intangible asset and is being amortized over 
15 years (Note 6).                                                              

  Property and equipment under capital leases included above consists of the
following (amounts in thousands):                                               

                                                        [Enlarge/Download Table]

                                                                                DECEMBER 31,     
                                                                            -------------------- 
                                                                              1995       1996    
                                                                            ---------  --------- 
                                                                                                 
Machinery and equipment.................................................... $     864  $     920 
Computer equipment, furniture and fixtures.................................    --            306 
                                                                            ---------  --------- 
  Total cost...............................................................       864      1,226 
  Accumulated depreciation.................................................      (237)      (347)
                                                                            ---------  --------- 
    Net property and equipment............................................. $     627  $     879 
                                                                            ---------  --------- 
                                                                            ---------  --------- 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--PROPERTY AND EQUIPMENT (CONTINUED)                                      
   Depreciation of machinery and equipment under capital leases is included in
cost of sales in the consolidated financial statements.                         

NOTE 6--OTHER ASSETS                                                            

  Other assets includes the following and is net of accumulated amortization
for the respective periods as parenthetically noted (amounts in thousands):     

                                                        [Enlarge/Download Table]

                                                                             DECEMBER 31,    
                                                                         --------------------
                                                                           1995       1996   
                                                                         ---------  ---------
                                                                                             
Goodwill (net of $445 and $808)......................................... $   2,140  $  19,756
Deferred financing costs (net of $708 and $1,368) (Notes 10 and 21).....     1,926      2,296
Covenants not to compete (net of $2,350 in 1995)........................       442     --    
Other intangibles (net of $173 and $164)................................       322        274
Other assets............................................................       537        863
                                                                         ---------  ---------
  Other assets, net..................................................... $   5,367  $  23,189
                                                                         ---------  ---------
                                                                         ---------  ---------

As of December 31, 1995, fully amortized covenants not to compete and   
goodwill aggregating $2,600,000 were eliminated against the related accumulated 
amortization. As of June 25, 1996, the remaining net unamortized balance of     
covenants not to compete aggregating $163,000 ($2,792,000 cost and $2,629,000   
accumulated amortization) were written off pursuant to the litigation settlement
with the former owner of acquired businesses (Note 17). As of December 31, 1996,
goodwill included $17,979,000, resulting from the Minority Interest Acquisition,
the ADS and Elsinore acquisitions and the intangible asset resulting from the   
purchase of the AMP Facility manufacturing assets.                              

NOTE 7--SHORT-TERM BORROWINGS                                                   

   Short-term borrowings outstanding as of December 31, 1995 and 1996 includes
the following (amounts in thousands):                                           

                                                        [Enlarge/Download Table]

                                                                                                    DECEMBER 31,    
                                                                                                --------------------
                                                                                                  1995       1996   
                                                                                                ---------  ---------
                                                                                                                    
Promissory note, 15% interest and principal payable as described below......................... $  --      $   1,250
Short-term revolving line of credit............................................................       911        724
                                                                                                ---------  ---------
    Total short-term borrowings................................................................ $     911  $   1,974
                                                                                                ---------  ---------
                                                                                                ---------  ---------

  The promissory note was issued on December 5, 1996 in conjunction with the
Elsinore acquisition and is payable to the former owners. The promissory note,  
plus accrued interest, is payable on or before February 17, 1997. The purchase  
agreement provides for a reduction of the principal balance of the promissory   
note should the amount of working capital as of the closing date be less than a 
defined amount.                                                                 

The Company and the former owners of Elsinore disagree on the amount of 
working capital as of the closing date. On February 14, 1997, the former owners 
were paid $956,000 which reflects the Company's determination of the working    
capital adjustment. The Company and the former owners of                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--SHORT-TERM BORROWINGS (CONTINUED)                                       
Elsinore are attempting to resolve the difference. If the difference is not     
resolved, the purchase agreement provides for arbitration of the dispute.       
Management believes the ultimate resolution will not have a material adverse    
effect on the Company's consolidated financial position, results of operations  
or cash flows.                                                                  

The Company's Swiss subsidiary has a short-term revolving line of credit
with a Swiss bank under which borrowings of $911,000 and $724,000 were          
outstanding at December 31, 1995 and 1996, respectively. Interest on the line   
accrues at the bank's prime rate (5.25% at December 31, 1996) plus 0.25%. The   
line of credit is guaranteed by the Company.                                    

NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES               

Convertible subordinated notes payable (the "Convertible Notes") are as 
follows (amounts in thousands):                                                 

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 31,     
                                                                          -------------------- 
                                                                            1995       1996    
                                                                          ---------  --------- 
                                                                                               
Convertible Notes, 15% interest and principal payable as described                             
  below.................................................................. $  --      $   3,000 
Unamortized original issue discount......................................    --            (78)
                                                                          ---------  --------- 
  Convertible Notes, net................................................. $  --      $   2,922 
                                                                          ---------  --------- 
                                                                          ---------  --------- 

   In conjunction with the ADS acquisition, the Company sold Convertible Notes
and Redeemable Warrants to a group of investors, who are also related parties   
(Note 21). As described in Note 14, $124,000 of the aggregate $3,000,000        
proceeds was allocated to Redeemable Warrants in the consolidated financial     
statements. The corresponding reduction in the recorded principal amount of the 
notes is treated as debt discount and is being amortized as interest expense    
over the life of the notes resulting in a 20.5% effective interest rate.        

The Convertible Notes mature on the earlier of June 30, 1997 or the     
occurrence of an initial public offering ("IPO"), as defined. If an IPO does not
occur by June 30, 1997, the $3,000,000 outstanding principal balance will       
convert into 750,000 shares of Series E preferred stock at a $4.00 per share    
conversion price.                                                               

Interest is payable quarterly commencing December 31, 1996. On each     
quarterly interest payment date, the Company may elect to either pay the        
interest in cash or defer the interest payment until the principal portion of   
the Convertible Notes is due and payable (the "Deferred Interest"). The Deferred
Interest is added to the principal balance of the Convertible Notes for the     
purpose of computing the interest payable for subsequent quarters. The Company's
senior debt agreements, as described in Note 10, prohibit the Company from      
making interest payments in cash until the senior debt is repaid in full.       
Deferred Interest aggregates $129,000 as of December 31, 1996 and is included in
accrued expenses.                                                               

    When the Deferred Interest is payable, each note holder may elect to receive
the amount payable in either cash, in Series E preferred stock at a $4.00 per   
share conversion price if an IPO has not occurred or if an IPO has occured in   
shares of common stock, the number of which is calculated using the per share   
price at which such shares were offered in the IPO.                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES (CONTINUED)   
   The Convertible Notes are subordinate in right of payment to the senior and
senior subordinated obligations described in Note 10, pari passu with the       
acquisition financing payable to sellers described in Note 10 and senior to all 
capital shares of the Company.                                                  

NOTE 9--ACCRUED EXPENSES                                                        

Accrued expenses are comprised of the following (amounts in thousands): 

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 31,    
                                                                          --------------------
                                                                            1995       1996   
                                                                          ---------  ---------
                                                                                              
Salaries, wages, compensated absences and payroll related taxes.......... $   1,413  $   2,842
Compensation payable to Minority Stockholder (Note 17)...................       652     --    
Due to former owner of acquired businesses (Note 17).....................       242     --    
Interest payable to related parties (Notes 10 and 21)....................    --            129
Other accrued expenses...................................................       739      4,270
                                                                          ---------  ---------
  Total accrued expenses................................................. $   3,046  $   7,241
                                                                          ---------  ---------
                                                                          ---------  ---------

NOTE 10--LONG-TERM OBLIGATIONS                                                  

Long-term obligations outstanding includes the following (amounts in    
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                                                 DECEMBER 31,     
                                                                                             -------------------- 
                                                                                               1995       1996    
                                                                                             ---------  --------- 
                                                                                                                  
SENIOR DEBT                                                                                                       
  Senior revolving line of credit..........................................................  $   4,304  $  11,982 
  Senior term notes payable, due in quarterly installments through September 30, 2001 plus                        
    interest...............................................................................     13,178     16,769 

SENIOR SUBORDINATED DEBT PAYABLE TO RELATED PARTIES                                                               
  Senior subordinated notes payable, due on December 31, 2001 plus 12% interest payable                           
    semi-annually..........................................................................      5,833      6,027 

CAPITAL LEASE OBLIGATIONS                                                                                         
  Interest at 6.59% to 18.08%, secured by leased equipment (Note 5)........................        446        662 

ACQUISITION FINANCING PAYABLE TO SELLERS                                                                          
  Payable to Allard stockholders, due in monthly installments of $56,000 through August 18,                       
    1999...................................................................................     --          1,531 
  Payable to Minority Stockholder, due in monthly installments of $33,000 through December                        
    15, 1997...............................................................................     --            383 
                                                                                             ---------  --------- 
    Total long-term obligations............................................................     23,761     37,354 
    Less current portion payable to unaffiliated lenders...................................     (1,612)    (3,004)
                                                                                             ---------  --------- 
      Long-term obligations, less current portion..........................................  $  22,149  $  34,350 
                                                                                             ---------  --------- 
                                                                                             ---------  --------- 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)                                      
1994 DEBT REFINANCING                                                           

 In November 1994, the Company refinanced substantially all of its debt. A
senior revolving line of credit and senior term notes (collectively "Senior     
Debt") were provided by two banks (the "Senior Lenders"). Senior subordinated   
notes were provided by two institutional lenders (the "Senior Subordinated      
Lenders"). Fees and expenses associated with obtaining the financing aggregated 
$2,634,000 and are capitalized as deferred financing costs. As described in Note
14, $1,835,000 of the proceeds were allocated to Redeemable Warrants issued to  
the lenders. Proceeds from the refinancing were used to repay existing debt     
outstanding of $19,769,000, including $960,000 of notes payable to related      
parties, and costs incurred in connection with the refinancing.                 

 The Company incurred a $264,000 extraordinary loss in connection with the
debt refinancing related to the write-off of unamortized deferred financing     
costs, a charge for unamortized debt discounts and a prepayment penalty.        

SENIOR DEBT                                                                     

The Senior Debt is secured by the Company's assets of $67,380,000 at    
December 31, 1996, which excludes equipment under capital lease obligations     
(Note 5) and certain accounts receivable and inventory of the Company's Swiss   
subsidiary.                                                                     

  During 1996, the Senior Debt agreement was amended to provide a portion of
the funds for the ADS and Elsinore acquisitions and the AMP Facility purchase,  
and to accommodate the Minority Interest Acquisition. Maximum borrowings        
permitted under the senior revolving line of credit were increased $10,750,000  
and the Company issued an additional $5,000,000 of senior term notes. In        
addition, the interest rates charged on all borrowings under the Senior Debt    
agreement were increased 2% effective September 18, 1996. Fees and expenses     
associated with obtaining the financing and amendments aggregated $835,000 and  
are capitalized as deferred financing costs. Fees and expenses includes $179,000
ascribed to the value of Redeemable Warrants issued to the Senior Lenders in    
conjunction with obtaining the revolving line of credit increase (Note 14).     

SENIOR REVOLVING LINE OF CREDIT                                         

    At December 31, 1996, the Company had a $15,750,000 senior revolving line of
credit, subject to a defined borrowing base, expiring on September 18, 1999. The
Company is required to pay an annual commitment fee of 0.5% on the unused       
portion. At December 31, 1996, additional borrowings of $3,768,000 were         
available under the agreement.                                                  

   At the Company's option, borrowings under the revolving line of credit bear
interest at either the Base Rate plus 3.25% or the Eurodollar Rate plus 4.5% per
annum. The Base Rate is the higher of the Federal Funds rate plus 1.5% or the   
prime rate. The Eurodollar Rate is the London Interbank Offered Rate ("LIBOR"). 
At December 31, 1996, the interest rate charged was 10.0% on $8,000,000 of the  
borrowings outstanding and 11.5% on $3,982,000 of the borrowings outstanding.   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)                                      
SENIOR TERM NOTES                                                       

   The senior term notes are due in quarterly installments as follows (amounts
in thousands):                                                                  

                                                                [Download Table]
                                                                              
March 31, 1997 through and including December 31, 1997.............  $     469
March 31, 1998 through and including December 31, 1998.............        874
March 31, 1999 through and including June 30, 2001.................        969
September 30, 2001.................................................      1,938

  At the Company's option, the senior term notes bear interest at either the
Base Rate plus 3.5% or the Eurodollar Rate plus 5.0% per annum. The Base Rate   
and Eurodollar Rate are the same rates as under the senior revolving line of    
credit. At December 31, 1996, the interest rate charged was 10.5% on $12,000,000
of the term notes and 11.75% on $5,000,000 of the term notes.                   

  As described in Note 14, $442,000 of the proceeds of the senior term notes
issued in 1994 were allocated to Redeemable Warrants in the consolidated        
financial statements. The corresponding reduction in the recorded principal     
amounts of the notes is treated as debt discount and is being amortized as      
interest expense over the life of the notes resulting in a 11.45% effective     
interest rate based on the interest rates in effect at December 31, 1996.       
Unamortized debt discount was $322,000 and $231,000 at December 31, 1995 and    
1996, respectively.                                                             

ADMINISTRATIVE AND OTHER FEES                                           

 The Senior Lenders receive various administrative fees during the term of
the Senior Debt agreement, payable on a monthly and quarterly basis. These fees 
aggregated $49,000 and $146,000 for the years ended December 31, 1995 and 1996, 
respectively. Administrative fees for the two month period from the inception of
the debt agreement to December 31, 1994 were not significant.                   

 In conjunction with one of the 1996 amendments, the Company agreed to pay
additional semi-annual fees on May 15 and November 15 each year commencing May  
15, 1997 and continuing until the Company receives a firm commitment for an     
underwritten public offering with at least $20,000,000 of net cash proceeds to  
the Company. The semi-annual fee payable on May 15, 1997 is $67,000 and each    
succeeding such semi-annual fee payment increases by $67,000 over the previous  
payment amount.                                                                 

   The Senior Lenders will receive a $250,000 success fee upon consummation of
the Offering.                                                                   

SENIOR SUBORDINATED NOTES PAYABLE TO RELATED PARTIES                            

The Senior Subordinated Lenders, who are also related parties (Note 21),
provided the Company with unsecured senior subordinated (to Senior Debt) term   
loans aggregating $7,000,000 (collectively referred to as "Senior Subordinated  
Debt") in conjunction with the Company's 1994 debt refinancing.                 

As described in Note 14, $1,393,000 of the proceeds of the senior       
subordinated notes were allocated to Redeemable Warrants in the consolidated    
financial statements. The corresponding reduction in the recorded principal     
amounts of the notes is treated as debt discount and is being amortized as      
interest expense over the life of the notes resulting in a 14.78% effective     
interest rate. Unamortized debt discount was $1,167,000 and $973,000 at December
31, 1995 and 1996, respectively.                                                

   One of the Senior Subordinated Lenders receives an advisory fee for as long
as the Senior Subordinated Debt is outstanding. During the years ended December 
31, 1994, 1995, and 1996, the                                                   

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)                                      
Company paid advisory fees of $12,000, $72,000 and $100,000, respectively.      
During 1996, the Senior Subordinated Lenders received $100,000 in fees and      
expenses associated with amendments to their loan agreement to accommodate the  
Minority Interest Acquisition, the ADS and Elsinore acquisitions and the AMP    
Facility purchase.                                                              

SENIOR AND SENIOR SUBORDINATED DEBT RESTRICTIVE COVENANTS                       

The Senior and Senior Subordinated Debt agreements contain certain      
restrictive covenants which require the Company to maintain certain defined     
financial ratios such as leverage, EBITDA, fixed charges, interest coverage,    
selling, general and administrative expense, accounts payable and current       
ratios, establish minimum levels of net worth, limit capital expenditures,      
including capital lease obligations, and limit additional indebtedness which may
be incurred. The debt agreements also prohibit the Company from making any      
dividend payments on its preferred or common stock.                             

 At December 31, 1995, the Company was in default of the leverage, EBITDA,
fixed charges, interest coverage and net worth restrictive covenants. On        
February 20, 1996, the Company received waivers of the defaults from its Senior 
and Senior Subordinated Lenders. Since March 31, 1996, the Company has been in  
compliance with the restrictive covenants.                                      

ACQUISITION FINANCING PAYABLE TO SELLERS                                        

In conjunction with the Minority Interest Acquisition and the ADS       
acquisition, the sellers provided financing that is payable in monthly          
installments over an eighteen-month and a three-year period, respectively. The  
Minority Stockholder and ADS payment obligations are non-interest bearing;      
original issue discounts of 9.75% and 11.5%, respectively, are being amortized  
over the payment obligation terms. Unamortized debt discounts were $17,000 and  
$247,000 as of December 31, 1996 for the Minority Stockholder and ADS payment   
obligations, respectively.                                                      

AGGREGATE MATURITIES                                                            

The aggregate maturities of long-term obligations are as follows as of  
December 31, 1996 (amounts in thousands):                                       

                                                                [Download Table]
                                                                              
Year ending December 31,                                                      
  1997............................................................  $   3,194 
  1998............................................................      4,404 
  1999............................................................     16,442 
  2000............................................................      3,902 
  2001............................................................     10,880 
                                                                    --------- 
    Total aggregate maturities....................................     38,822 
    Less unamortized debt discounts...............................     (1,468)
                                                                    --------- 
      Total long-term obligations.................................  $  37,354 
                                                                    --------- 
                                                                    --------- 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--INCOME TAXES                                                           

Loss before income taxes and extraordinary item was taxed under the     
following jurisdictions (amounts in thousands):                                 

                                                        [Enlarge/Download Table]

                                                                YEAR ENDED DECEMBER 31,      
                                                          -----------------------------------
                                                            1994       1995         1996     
                                                          ---------  ---------  -------------
                                                                                             
Domestic................................................. $  (1,605) $  (2,534)   $    (855) 
Foreign..................................................      (211)       166          750  
                                                          ---------  ---------       ------  
  Total.................................................. $  (1,816) $  (2,368)   $    (105) 
                                                          ---------  ---------       ------  
                                                          ---------  ---------       ------  

The provisions for income taxes are as follows (amounts in thousands):  

                                                        [Enlarge/Download Table]

                                                                     YEAR ENDED DECEMBER 31,     
                                                                 ------------------------------- 
                                                                   1994       1995       1996    
                                                                 ---------  ---------  --------- 
                                                                                                 
Current                                                                                          
  U.S. federal.................................................. $      10  $      60  $     269 
  State and local...............................................        42         24        194 
  Foreign.......................................................        40        127        161 
                                                                 ---------  ---------  --------- 
    Total current...............................................        92        211        624 
                                                                 ---------  ---------  --------- 

Deferred                                                                                         
  U.S. federal..................................................       456        751         70 
  State and local...............................................       137        226         21 
  Foreign.......................................................       (72)      (110)        (3)
                                                                 ---------  ---------  --------- 
    Total deferred..............................................       521        867         88 
                                                                 ---------  ---------  --------- 

Total provision                                                                                  
  U.S. federal..................................................       466        811        339 
  State and local...............................................       179        250        215 
  Foreign.......................................................       (32)        17        158 
                                                                 ---------  ---------  --------- 
    Total provision............................................. $     613  $   1,078  $     712 
                                                                 ---------  ---------  --------- 
                                                                 ---------  ---------  --------- 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--INCOME TAXES (CONTINUED)                                               
    Deferred tax liabilities (assets) are comprised of the following (amounts in
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                  YEAR ENDED DECEMBER 31,     
                                                              ------------------------------- 
                                                                1994       1995       1996    
                                                              ---------  ---------  --------- 
                                                                                              
Gross deferred tax liabilities                                                                
  Tax effect on earnings of subsidiary not consolidated for                                   
    income tax purposes...................................... $   1,454  $   2,431  $   2,688 
  Depreciable assets.........................................     1,072        781      1,347 
  Other......................................................       298        367        279 
                                                              ---------  ---------  --------- 
    Gross deferred tax liabilities...........................     2,824      3,579      4,314 
                                                              ---------  ---------  --------- 

Gross deferred tax (assets)                                                                   
  Inventory..................................................      (959)    (1,376)    (1,798)
  Loss carryforwards.........................................    (1,226)    (1,391)    (1,238)
  Accrued expenses...........................................      (145)      (220)      (605)
  Amortizable assets.........................................    --         --           (356)
  Allowance for doubtful accounts............................       (39)       (41)       (68)
  Other......................................................       (51)      (122)    --     
                                                              ---------  ---------  --------- 
    Gross deferred tax (assets)..............................    (2,420)    (3,150)    (4,065)
                                                              ---------  ---------  --------- 
Deferred tax assets valuation allowance......................     1,771      2,681      3,063 
                                                              ---------  ---------  --------- 
  Net deferred tax liability................................. $   2,175  $   3,110  $   3,312 
                                                              ---------  ---------  --------- 
                                                              ---------  ---------  --------- 

The provision for income taxes differs from the amount of income tax    
determined by applying the applicable U.S. statutory federal rate to the loss   
before income taxes and extraordinary item as a result of the following         
differences (amounts in thousands):                                             

                                                        [Enlarge/Download Table]

                                                                       YEAR ENDED DECEMBER 31,     
                                                                   ------------------------------- 
                                                                     1994       1995       1996    
                                                                   ---------  ---------  --------- 
                                                                                                   
Income tax (benefit) at U.S. statutory rates...................... $    (617) $    (805) $     (36)
Increase (decrease) resulting from                                                                 
  Tax on earnings of subsidiary not consolidated for tax                                           
    purposes......................................................       593        977         92 
  Book benefit not provided for net operating loss                                                 
    carryforwards.................................................       530        773        172 
  Amortization of assets and other expenses not deductible for                                     
    income tax purposes...........................................        81         68        137 
  State income taxes, net of federal benefit......................        27         16        157 
  Lower tax rates on earnings of foreign subsidiaries.............        (2)       (11)       (65)
  Other, net......................................................         1         60        255 
                                                                   ---------  ---------  --------- 
    Income tax at effective rates................................. $     613  $   1,078  $     712 
                                                                   ---------  ---------  --------- 
                                                                   ---------  ---------  --------- 

   Approximately $3,385,000 and $1,425,000 of the Company's loss carryforwards
remained at December 31, 1996 for federal and state income tax purposes,        
respectively. The carryforwards expire in varying amounts through 2011. No      
benefit for the remaining loss carryforwards has been recognized in the         
consolidated financial statements. The amount of loss carryforwards that may be 
utilized in the future                                                          

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--INCOME TAXES (CONTINUED)                                               
are subject to potential limitations upon the occurrence of a change in control 
of the Company, as defined in the Internal Revenue Code. A change in control may
have occurred during 1996 as a result of certain equity transactions and/or may 
occur upon the Offering.                                                        

Undistributed earnings of foreign subsidiaries are not material to the  
consolidated financial statements. As such, foreign taxes that may be due, net  
of U.S. foreign tax credits, have not been provided.                            

NOTE 12--DERIVATIVE FINANCIAL INSTRUMENTS                                       

The Company does not use derivative financial instruments for trading   
purposes but only to manage well defined interest and foreign exchange rate     
risks.                                                                          

INTEREST RATE RISK MANAGEMENT                                                   

   In January 1995, the Company entered into an interest rate cap agreement to
reduce the potential impact of increases in interest rates on the Company's     
floating-rate senior term notes. The agreement, with one of the Senior Lenders  
(Note 21), provides for a three month LIBOR interest rate cap of 9.375% during  
the period December 29, 1995 through December 31, 1998 and entitles the Company 
to receive from the Senior Lender on a quarterly basis the amounts, if any, by  
which interest payments on its senior term debt, computed using the actual three
month LIBOR rate, exceed the interest payment that would be due if the rate were
fixed at 9.375%. Unamortized premiums were $141,000 and $86,000 as of December  
31, 1995 and 1996, respectively, and are classified as other current and        
long-term assets in the consolidated financial statements.                      

FOREIGN EXCHANGE RISK MANAGEMENT                                                

 The Company enters into Swiss franc ("CHF") forward exchange contracts to
purchase Swiss francs as a general economic hedge against foreign inventory     
procurement and manufacturing costs. Market value gains and losses on forward   
foreign exchange contracts are recognized in the consolidated statements of     
operations and aggregated a net loss of $316,000 for the year ended December 31,
1996 (none in prior periods). No forward exchange contracts were open as of     
December 31, 1996.                                                              

    In January 1997, the Company entered into twelve forward exchange contracts,
with one of its Senior Lenders, to purchase a total of CHF 7,800,000 for        
$5,885,000 at rates ranging between 1.3021 and 1.3492 CHF per U.S. dollar.      
Settlement of the contracts is to occur in twelve equal monthly amounts of CHF  
650,000 from January 15, 1997 through December 15, 1997.                        

CREDIT RISK                                                                     

   The Company believes exposure to derivative credit losses is minimal in the
event of nonperformance by the Senior Lenders because any amounts due, but not  
paid, to the Company by the Senior Lenders could be offset against the Company's
principal and interest payments to the Senior Lenders.                          

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS                                    

The Company believes the recorded amounts of financial assets and       
liabilities approximates fair values as of December 31, 1995 and 1996, except as
described below (amounts in thousands):                                         

                                                        [Enlarge/Download Table]

                                                  DECEMBER 31, 1995       DECEMBER 31, 1996   
                                                ----------------------  ----------------------
                                                 RECORDED      FAIR      RECORDED      FAIR   
                                                  AMOUNT       VALUE      AMOUNT       VALUE  
                                                -----------  ---------  -----------  ---------
                                                                                              
Financial assets                                                                              
  Other current and long-term assets (interest                                                
    rate cap, Note 12)........................   $     141   $      20   $      86   $       1

Financial liabilities                                                                         
  Long-term obligations.......................      23,761      24,176      37,354      39,491

 The fair value of the interest rate cap is estimated by obtaining current
quotes as of the balance sheet date for a cap agreement of similar terms. The   
fair values of financial liabilities are estimated by discounting future cash   
flows at rates currently available to the Company for debt with the same        
remaining maturities, as advised by the Company's investment bankers.           

The recorded amounts shown in the table are included in the consolidated
financial statements under the indicated captions.                              

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS                           

Mandatorily redeemable common stock warrants (the "Redeemable Warrants")
were issued in conjunction with various debt and equity transactions during the 
three years ended December 31, 1996 and are summarized in the table below       
(amounts in thousands):                                                         

                                                        [Enlarge/Download Table]

                                               VALUE OF REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH                          
                                -------------------------------------------------------------------------------------           
                                             SENIOR                                                                      TOTAL  
                                 SENIOR       DEBT        SENIOR       FORMER     CONVERTIBLE   SERIES D    SERIES E    REDEEM- 
                                  TERM       AMEND-     SUBORDINATED   LENDER     SUBORDINATED  PREFERRED   PREFERRED    ABLE   
                                  NOTES       MENT         NOTES        DEBT         NOTES        STOCK       STOCK    WARRANTS 
                                ---------   ---------   -----------   ---------   -----------   ---------   ---------  ---------
                                                                                                                                
Balance, December 31, 1993....  $  --       $  --       $   --        $    650    $   --        $  --       $  --      $    650 
Redeemable Warrants issued                                                                                                      
  pursuant to anti-dilution                                                                                                     
  provisions upon the sale of                                                                                                   
  Preferred Stock.............     --          --           --              33        --           --          --            33 
Redeemable Warrants issued in                                                                                                   
  conjunction with debt                                                                                                         
  refinancing.................       442       --            1,393       --           --           --          --         1,835 
Adjustment to redemption                                                                                                        
  value.......................     --          --           --            (189)       --           --          --          (189)
                                ---------   ---------   -----------   ---------        -----    ---------   ---------  ---------
Balance, December 31, 1994....       442       --            1,393         494        --           --          --         2,329 
Adjustment to redemption                                                                                                        
  value.......................      (132)      --             (416)       (148)       --           --          --          (696)
                                ---------   ---------   -----------   ---------        -----    ---------   ---------  ---------
Balance, December 31, 1995....       310       --              977         346        --           --          --         1,633 
Redeemable Warrants issued in                                                                                                   
  conjunction with sale of                                                                                                      
  Convertible Notes and                                                                                                         
  Preferred Stock.............     --          --           --           --              124         492         124        740 
Redeemable Warrants issued                                                                                                      
  pursuant to anti-dilution                                                                                                     
  provisions upon the sale of                                                                                                   
  Preferred Stock.............     --          --           --               7        --           --          --             7 
Redeemable Warrants issued in                                                                                                   
  conjunction with Senior Debt                                                                                                  
  agreement amendment.........     --            179        --           --           --           --          --           179 
Adjustment to redemption                                                                                                        
  value.......................       455       --            1,434         527           319       1,266         319      4,320 
                                ---------   ---------   -----------   ---------        -----    ---------   ---------  ---------
Balance, December 31, 1996....  $    765    $    179    $    2,411    $    880    $      443    $  1,758    $    443   $  6,879 
                                ---------   ---------   -----------   ---------        -----    ---------   ---------  ---------
                                ---------   ---------   -----------   ---------        -----    ---------   ---------  ---------

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
 All Redeemable Warrants are subject to adjustment for anti-dilution, have
certain demand registration rights and, in certain instances, are cancellable   
upon the occurrence of certain defined events. The table below summarizes the   
number of the Company's common shares subject to Redeemable Warrants, the number
of Redeemable Warrants subject to cancellation, Redeemable Warrants exercisable 
and other information as of December 31, 1994, 1995 and 1996:                   

                                                        [Enlarge/Download Table]

                                                    REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH                      
                               -----------------------------------------------------------------------------------------
                                              SENIOR                                                                    
                                 SENIOR        DEBT        SENIOR       FORMER     CONVERTIBLE   SERIES D     SERIES E  
                                  TERM        AMEND-     SUBORDINATED   LENDER     SUBORDINATED  PREFERRED    PREFERRED 
                                  NOTES        MENT         NOTES        DEBT         NOTES        STOCK        STOCK   
                               -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                                        
Total number of the Company's                                                                                           
  common shares subject to                                                                                              
  Redeemable Warrants at                                                                                                
    December 31, 1994.........     84,748       --          266,990       94,558       --           --           --     
    December 31, 1995.........     84,748       --          266,990       94,558       --           --           --     
    December 31, 1996.........     84,748       70,893      266,990       97,426       49,079      194,618       49,079 
Redeemable Warrants subject to                                                                                          
  cancellation at                                                                                                       
    December 31, 1994.........     --           --          124,595       --           --           --           --     
    December 31, 1995.........     --           --          124,595       --           --           --           --     
    December 31, 1996.........     --           --           88,996       --           49,079      194,618       --     
Redeemable Warrants not                                                                                                 
  subject to cancellation and                                                                                           
  exercisable at                                                                                                        
    December 31, 1994.........     84,748       --          142,395       94,558       --           --           --     
    December 31, 1995.........     84,748       --          142,395       94,558       --           --           --     
    December 31, 1996.........     84,748       70,893      177,994       97,426       --           --           49,079 
Other information                                                                                                       
    Exercise price per share.. $     .035   $    14.11   $     .035   $    .0004   $     .035   $     .035   $     .035 
    Expiration date...........     Nov. 2,     Sep. 18,     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,
                                      2004         2006         2004         2004         2006         2003         2006


                                   TOTAL                                                                                
                                  REDEEM-                                                                               
                                   ABLE                                                                                 
                                 WARRANTS                                                                               
                                -----------                                                                             
                                                                                                                        
Total number of the Company's                                                                                           
  common shares subject to                                                                                              
  Redeemable Warrants at                                                                                                
    December 31, 1994.........     446,296                                                                              
    December 31, 1995.........     446,296                                                                              
    December 31, 1996.........     812,833                                                                              
Redeemable Warrants subject to                                                                                          
  cancellation at                                                                                                       
    December 31, 1994.........     124,595                                                                              
    December 31, 1995.........     124,595                                                                              
    December 31, 1996.........     332,693                                                                              
Redeemable Warrants not                                                                                                 
  subject to cancellation and                                                                                           
  exercisable at                                                                                                        
    December 31, 1994.........     321,701                                                                              
    December 31, 1995.........     321,701                                                                              
    December 31, 1996.........     480,140                                                                              
Other information                                                                                                       
    Exercise price per share..                                                                                          
    Expiration date...........                                                                                          

  The warrant holders have the right ("Put Option"), after various dates and
contingent upon certain events, to require the Company to redeem the warrants   
and, in certain instances, to purchase the common stock issued upon exercise of 
the warrants. In all instances, the redemption or purchase price, shall be equal
to the greater of either fair market value, book value, or a value based upon a 
defined formula which includes, in part, an earnings multiple. During the years 
ended December 31, 1994, 1995 and 1996, the Company increased (decreased) by    
$(189,000), $(696,000) and $4,320,000, respectively, the amount ascribed to the 
Redeemable Warrants to reflect estimated redemption value. The increase         
(decrease) was charged (credited) to stockholders' accumulated deficit.         

 Each warrants' terms and provisions and related Put Options are described
below.                                                                          

SENIOR TERM NOTE WARRANTS                                                       

DESCRIPTION OF REDEEMABLE WARRANTS                                      

   All of the Senior Term Note warrants are held by the Senior Lenders. All of
the warrants issued and outstanding are exercisable as of December 31, 1996 and 
are not subject to cancellation. The warrant holders are entitled to receive any
common stock dividends, when and if declared, which would have                  

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
been paid upon the exercise in full of the warrants immediately prior to the    
record date for such dividend. The warrants do not have voting rights.          

PUT OPTION                                                              

    The Senior Lenders have the right, if certain "Senior Term Note Put Events",
as defined below, occur prior to November 2, 1999, to require the Company to    
redeem all (but not less than all) of the warrants or the stock issued upon     
exercise of the warrants. After November 2, 1999, the Senior Lenders have the   
unrestricted right to require the Company to redeem all (but not less than all),
of the warrants or the shares issued upon exercise of the warrants.             

DEFINITIONS                                                             

The following terms are defined in the warrant agreements:              

SENIOR TERM NOTE PUT EVENTS--Defined as the occurrence of any of the    
following: (i) a defined change in control of the Company; (ii) certain         
consolidations or mergers or the sale of substantially all of the assets of the 
Company; (iii) repayment in full of all Senior Debt; or (iv) the filing of a    
registration statement which relates to a "Qualified Public Offering."          

    QUALIFIED PUBLIC OFFERING--Defined as a public offering of common stock with
net proceeds of at least $25,000,000 and valuing the total common stock equity  
of the Company at $55,000,000 or more at closing.                               

SENIOR DEBT AMENDMENT WARRANTS                                                  

DESCRIPTION OF REDEEMABLE WARRANTS                                      

 All of the Senior Debt Amendment warrants are held by the Senior Lenders.
All of the warrants issued and outstanding are exercisable as of December 31,   
1996 and, under certain circumstances, the number issued may be reduced. The    
warrant holders are entitled to receive any common stock dividends, when and if 
declared, which would have been paid upon the exercise in full of the warrants  
immediately prior to the record date for such dividend. The warrants do not have
voting rights.                                                                  

PUT OPTION                                                              

The Senior Lenders have the right, if certain put events occur prior to 
September 18, 2001, to require the Company to redeem all (but not less than all)
of the warrants or the stock issued upon exercise of the warrants. The put      
events are the same as the Senior Term Note Put Events described above. After   
September 18, 2001, the Senior Lenders have the unrestricted right to require   
the Company to redeem all (but not less than all) of the warrants or the stock  
issued upon exercise of the warrants.                                           

    The Senior Lenders' Put Option terminates upon the occurrence of a Qualified
Public Offering as described above.                                             

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
SENIOR SUBORDINATED NOTE WARRANTS                                               

DESCRIPTION OF REDEEMABLE WARRANTS                                      

All of the Senior Subordinated Note warrants are held by the Senior     
Subordinated Lenders and were issued in several series. The following table     
summarizes the warrants issued and outstanding as of December 31, 1996:         

                                                        [Enlarge/Download Table]

                                                          NUMBER OF                          
                                                           COMMON                            
                                                           SHARES                            
                                                         SUBJECT TO        DATE WARRANTS     
                                                          WARRANTS      BECOME EXERCISABLE   
                                                         -----------  -----------------------
                                                                                             
Series of Redeemable Warrants                                                                
  Series 1..............................................    142,395          November 2, 1994
  Series 2..............................................     35,599         December 31, 1996
  Series 3..............................................     35,599         December 31, 1997
  Series 4..............................................     53,397         December 31, 1998
                                                         -----------                         
    Total issued and outstanding........................    266,990                          
                                                         -----------                         
                                                         -----------                         

The Series 3 and Series 4 Redeemable Warrants are cancellable if certain
"Triggering Events", as defined below, occur prior to the warrants becoming     
exercisable. The Series 1 and Series 2 Redeemable Warrants to purchase an       
aggregate 177,994 common shares are not cancellable and are exercisable at      
December 31, 1996.                                                              

The warrant holders are not entitled to receive any common stock cash   
dividends. When and if cash dividends are declared, the number of common shares 
subject to warrants and the per share exercise price is subject to adjustment.  
The warrants have voting rights unless cancelled in accordance with the terms of
the warrant agreements.                                                         

PUT OPTION                                                              

   Until December 31, 2000, the Senior Subordinated Lenders have the right, if
a Triggering Event occurs and if the warrants are then exercisable, to require  
the Company to redeem all (or any portion) of the warrants issued and           
outstanding. If a Triggering Event does not occur, the Senior Subordinated      
Lenders have the right, only if the Senior Lenders elect (and are able) to      
exercise their respective Put Options, to require the Company to redeem all (or 
any portion) of their warrants as are issued and outstanding. After December 31,
2000, the Senior Subordinated Lenders have the unrestricted right to require the
Company to redeem all (or any portion) of the warrants issued and outstanding.  

DEFINITIONS                                                             

The following terms are defined in the warrant agreements:              

TRIGGERING EVENTS--Defined as payment in full of the Senior Subordinated
Debt and either of the following: (i) the sale of all or substantially all of   
the Company's assets or stock for cash in an amount equivalent to a common      
stockholder equity valuation of $30,000,000 or more; or (ii) an "Initial Public 
Offering."                                                                      

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
  INITIAL PUBLIC OFFERING--Defined as a public offering of common stock with
net proceeds of at least $25,000,000 and valuing the total common stock equity  
of the Company at $55,000,000 or more at closing.                               

FORMER LENDER DEBT WARRANTS                                                     

DESCRIPTION OF REDEEMABLE WARRANTS                                      

 In 1991, warrants were issued to a former senior subordinated lender (the
"Former Lender") to purchase 18% of a subsidiary's common stock. The warrants   
were exchangeable at the option of the Former Lender for warrants to purchase   
that number of the Company's common shares which have an equivalent fair market 
value on the exchange date to the number of the subsidiary's common shares      
subject to the original warrants (subject to adjustment for anti-dilution). The 
warrants were recorded at $380,000, the estimated fair market value on the date 
of issuance.                                                                    

    On November 2, 1994, the Former Lender exchanged its warrants for Redeemable
Warrants to purchase 88,339 shares of the Company's common stock. In conjunction
with the sales of Preferred Stock during 1994 and 1996 discussed in Note 15, the
Former Lender was issued an additional 6,219 and 2,868 Redeemable Warrants,     
respectively, pursuant to the warrant agreement anti-dilution provisions.       

The Redeemable Warrants were exercisable as of their respective issuance
dates and are not subject to cancellation. The Former Lender is entitled to     
receive common stock dividends, if declared, except such dividends are payable  
only upon exercise of the warrants and only with respect to number of shares    
exercised. The warrants do not have voting rights.                              

PUT OPTION                                                              

    Until December 30, 2000, the Former Lender has the right, only if the Senior
or Senior Subordinated Lenders or Series D Investors elect (and are able) to    
exercise their respective Put Options or if a Qualified Public Offering (as     
defined in the Senior Lenders' warrant agreements) has occurred, to require the 
Company to redeem all (or any portion) of the warrants or the shares issued upon
exercise of the warrants. On December 31, 2000 and thereafter, the Former Lender
has the unrestricted right to require the Company to redeem all (or any portion)
of the warrants or the shares issued upon exercise of the warrants issued and   
outstanding.                                                                    

CONVERTIBLE SUBORDINATED NOTE WARRANTS                                          

DESCRIPTION OF REDEEMABLE WARRANTS                                      

   The Convertible Subordinated Note warrants to purchase 49,079 common shares
are held by the Series D Investors and one of the Senior Subordinated Lenders   
(67% and 33%, respectively, and collectively referred to as Convertible Note    
Warrant Holders). The warrants were issued on September 18, 1996 in conjunction 
with the Company's sale of Convertible Notes and become exercisable on June 30, 
1997 provided a "Convertible Notes IPO" (as defined below) shall not have       
occurred or the Convertible Notes shall not have been repaid in full. None were 
exercisable as of December 31, 1996. The warrants are cancelled upon repayment  
of the Convertible Notes with the proceeds from a "Registered Public Offering"  
(as defined below) or expire on December 31, 2006. The Convertible Note Warrant 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
Holders are not entitled to receive any common stock cash dividends. When and if
cash dividends are declared, the number of common shares subject to warrants and
the per share exercise price is subject to adjustment. The warrants have voting 
rights unless cancelled in accordance with the terms of the warrant agreements. 

The warrant agreements provide for an increase in the number of common  
shares subject to the warrants if certain "Private Financing" (as defined below)
or Registered Public Offering transactions occur after June 30, 1997 but prior  
to the exercise date. The amount of the increase is a formula determined value  
based on the per share price of the financing transactions. No increase in the  
number of common shares is required provided the financing transactions result  
in a price in excess of $14.32 per share.                                       

PUT OPTION                                                              

Until December 31, 2000, the Convertible Note Warrant Holders have the  
right, if a Registered Public Offering occurs and if the warrants are then      
exercisable, to require the Company to redeem all (or any portion) of the       
warrants issued and outstanding. If a Registered Public Offering does not occur,
the warrant holders have the right, only if the Senior Lenders elect (and are   
able) to exercise their respective Put Options, to require the Company to redeem
all (or any portion) of their warrants as are issued and outstanding. After     
December 31, 2000, warrant holders have the unrestricted right to require the   
Company to redeem all (or any portion) of the warrants issued and outstanding.  

DEFINITIONS                                                             

The following terms are defined in the warrant agreements:              

CONVERTIBLE NOTES IPO--Defined as receipt by the Company from an        
underwriter, on or prior to June 30, 1997, of a firm commitment to underwrite a 
public offering for shares of the Company's common stock, which underwritten    
public offering shall close on or before July 11, 1997.                         

   PRIVATE FINANCING--Defined as any disposition by the Company or any selling
stockholder of any equity security or convertible security of the Company other 
than pursuant to a Registered Public Offering.                                  

    REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public
offering for the common stock of the Company.                                   

SERIES D PREFERRED STOCK WARRANTS                                               

DESCRIPTION OF REDEEMABLE WARRANTS                                      

All of the Series D preferred stock warrants are held by the Series D   
Investors. The warrants were issued in several series on February 20, 1996 in   
conjunction with the Company's sale of Series D                                 

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
preferred shares. The following table summarizes the warrants issued and        
outstanding as of December 31, 1996:                                            

                                                        [Enlarge/Download Table]

                                                          NUMBER OF                          
                                                           COMMON                            
                                                           SHARES                            
                                                         SUBJECT TO        DATE WARRANTS     
                                                          WARRANTS      BECOME EXERCISABLE   
                                                         -----------  -----------------------
                                                                                             
Series of Redeemable Warrants                                                                
  Series 1..............................................     55,605         December 31, 1997
  Series 2..............................................     55,605         December 31, 1998
  Series 3..............................................     83,408         December 31, 1999
                                                         -----------                         
    Total issued and outstanding........................    194,618                          
                                                         -----------                         
                                                         -----------                         

All series of Redeemable Warrants are cancellable if certain "Triggering
Events", as defined below, occur prior to the warrants becoming exercisable. In 
addition, a portion of the Series 1 warrants are cancellable if one or more     
"Registered Public Offerings", as defined below, occurs prior to December 31,   
1997 as summarized in the table below.                                          

                                                        [Enlarge/Download Table]

                                                                                                 NUMBER OF        
                                                                                               COMMON SHARES      
                                                                                            SUBJECT TO WARRANTS   
                                                                                         -------------------------
                                                                                         CANCELLABLE    REMAINING 
                                                                                         ------------  -----------
                                                                                                                  
Provided that before December 31, 1997 no Triggering Events occur and:                                            
  No Registered Public Offerings occur.................................................       --           55,605 
  A Registered Public Offering occurs with a fully diluted common stock equity value of                           
    (amounts subject to adjustment in certain circumstances)                                                      
      Greater than or equal to $60,000,000 but less than $65,000,000...................       13,901       41,704 
      Greater than or equal to $65,000,000 but less than $70,000,000...................       27,802       27,803 
      Greater than or equal to $70,000,000.............................................       41,704       13,901 

The number of common shares subject to warrants is subject to further   
reduction when, and if, any portion of the Senior Subordinated Note warrants is 
cancelled pursuant to the terms of those warrant agreements. The warrant holders
are not entitled to receive any common stock cash dividends. When and if cash   
dividends are declared, the number of common shares subject to warrants and the 
per share exercise price is subject to adjustment. The warrants have voting     
rights unless cancelled in accordance with the terms of the warrant agreements. 

PUT OPTION                                                              

   Until December 31, 2000, the Series D Investors have the right, only if any
of the other Redeemable Warrant holders elect (and are able) to exercise their  
respective Put Options, to require the Company to redeem all (or any portion) of
the warrants issued and outstanding. After December 31, 2000, the Series D      
Investors have the unrestricted right to require the Company to redeem all (or  
any portion) of the warrants issued and outstanding.                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
DEFINITIONS                                                             

The following terms are defined in the warrant agreements:              

  TRIGGERING EVENTS--Defined as either of the following: (i) the sale of all
or substantially all of the Company's assets or stock for cash in an amount     
equivalent to a common stockholder equity valuation of $60,000,000 or more; or  
(ii) a Qualified (Series D Investors) Public Offering.                          

  REGISTERED PUBLIC OFFERINGS--Defined as the closing of underwritten public
offerings with gross proceeds of at least $25,000,000 and valuing the fully     
diluted total common stock equity at an amount greater than or equal to         
$60,000,000 but less than $75,000,000.                                          

 QUALIFIED (SERIES D INVESTORS) PUBLIC OFFERING--Defined as the closing of
underwritten public offerings with gross proceeds of at least $25,000,000 and   
valuing the fully diluted total common stock equity at an amount equal to or    
greater than the "Minimum Equity Market Value", as defined below.               

 MINIMUM EQUITY MARKET VALUE--Defined as: (i) for the period from February
20, 1996 through December 30, 1997--$75,000,000; (ii) for the period from       
December 31, 1997 through December 30, 1998--$95,000,000; (iii) for the period  
from December 31, 1998 through December 30, 1999-- $120,000,000. Antidilution   
provisions set forth in the warrant agreements require adjustment of the        
foregoing amounts. Through December 30, 1997, the adjusted Minimum Equity Market
Value is approximately $86,000,000 to $93,000,000, depending on the impact of   
certain transactions.                                                           

In March, 1997, the Series D Investors agreed as part of the            
Recapilalization to convert warrants to purchase 99,250 common shares into      
common stock in exchange for the cancellation of all of the remaining warrants  
outstanding.                                                                    

SERIES E PREFERRED STOCK WARRANTS                                               

DESCRIPTION OF REDEEMABLE WARRANTS                                      

  The Series E Preferred Stock warrants to purchase 49,079 common shares are
held by the Series D Investors and one of the Senior Subordinated Lenders (67%  
and 33%, respectively, and collectively referred to as Series E Warrant         
Holders). The warrants were issued on September 18, 1996 in conjunction with the
Company's sale of Series E Preferred Stock and are exercisable as of December   
31, 1996. The Series E Warrant Holders are not entitled to receive any common   
stock cash dividends. When and if cash dividends are declared, the number of    
common shares subject to warrants and the per share exercise price is subject to
adjustment. The warrants have voting rights.                                    

The warrant agreements provide for an increase in the number of common  
shares subject to the warrants if certain "Private Financing" or "Registered    
Public Offering" transactions, as defined below, occur prior to the exercise    
date. The amount of the increase is a formula determined value based on the per 
share price of the financing transactions. No increase in the number of common  
shares is required provided the financing transactions result in a price in     
excess of $14.32 per share.                                                     

PUT OPTION                                                              

  Until December 31, 2000, the Series E Warrant Holders have the right, if a
Registered Public Offering occurs and if the warrants are then exercisable, to  
require the Company to redeem all (or any portion) of the warrants issued and   
outstanding. If a Registered Public Offering does not occur, the warrant holders

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)               
have the right, only if the Senior Lenders elect (and are able) to exercise     
their respective Put Options, to require the Company to redeem all (or any      
portion) of their warrants as are issued and outstanding. After December 31,    
2000, warrant holders have the unrestricted right to require the Company to     
redeem all (or any portion) of the warrants issued and outstanding.             

DEFINITIONS                                                             

The following terms are defined in the warrant agreements:              

   PRIVATE FINANCING--Defined as any disposition by the Company or any selling
stockholder of any equity security or convertible security of the Company other 
than pursuant to a Registered Public Offering.                                  

    REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public
offering for the common stock of the Company.                                   

NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK                                 

At December 31, 1993, the Company's preferred shares were mandatorily   
redeemable at the option of the holders. In conjunction with the 1994 debt      
refinancing the Company's Articles of Incorporation were amended and the        
preferred stockholders' mandatory redemption rights were terminated. As a       
result, the Company's mandatorily redeemable preferred shares were reclassified 
in the consolidated financial statements to stockholders' equity (deficit).     

As of December 31, 1995, the number of preferred shares authorized to be
issued included 167,702 Series A shares, 1,636,316 Series B shares, and         
3,000,000 Series C shares. On January 31, 1996 and September 15, 1996, the      
Company's Articles of Incorporation were further amended to authorize the       
issuance of 2,000,000 Series D shares and 1,500,000 Series E shares,            
respectively. All preferred shares are without par value and each share is      
entitled to one vote for each common share which would be issuable upon         
conversion.                                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED)                     
The table below summarizes preferred stock issued during the three year 
period ended December 31, 1996 (amounts in thousands):                          

                                                        [Enlarge/Download Table]

                                                SERIES A     SERIES B     SERIES C     SERIES D     SERIES E      TOTAL  
                                               -----------  -----------  -----------  -----------  -----------  ---------
                                                                                                                         
Balance, December 31, 1993...................   $     168    $   2,000    $   3,000    $  --        $  --       $   5,168
Issuance of 271,471 Series C preferred shares                                                                            
  at $1.50 per share, net of issuance costs                                                                              
  of $26,000.................................      --           --              381       --           --             381
                                                    -----   -----------  -----------  -----------  -----------  ---------
Balance, December 31, 1994 and December 31,                                                                              
  1995.......................................         168        2,000        3,381       --           --           5,549
Issuance of 75,000 Series C preferred shares                                                                             
  at $1.50 per share.........................      --           --              112       --           --             112
Issuance of 2,000,000 Series D preferred                                                                                 
  shares as described below, net of issuance                                                                             
  costs of $558,000..........................      --           --           --            5,450       --           5,450
Issuance of 750,000 Series E preferred shares                                                                            
  as described below, net of issuance costs                                                                              
  of $137,000................................      --           --           --           --            2,739       2,739
                                                    -----   -----------  -----------  -----------  -----------  ---------
Balance, December 31, 1996...................   $     168    $   2,000    $   3,493    $   5,450    $   2,739   $  13,850
                                                    -----   -----------  -----------  -----------  -----------  ---------
                                                    -----   -----------  -----------  -----------  -----------  ---------

    The following table summarizes the number of preferred shares outstanding as
of the dates indicated:                                                         

                                                        [Enlarge/Download Table]

                                           SERIES A    SERIES B     SERIES C     SERIES D    SERIES E      TOTAL   
                                           ---------  -----------  -----------  -----------  ---------  -----------
                                                                                                                   
Number of shares outstanding as of                                                                                 
  December 31, 1993.......................   167,702    1,583,532    2,000,000      --          --        3,751,234
  December 31, 1994.......................   167,702    1,583,532    2,271,471      --          --        4,022,705
  December 31, 1995.......................   167,702    1,583,532    2,271,471      --          --        4,022,705
  December 31, 1996.......................   167,702    1,583,532    2,346,471    2,000,000    750,000    6,847,705

    Concurrent with the 1994 debt refinancing, 271,471 Series C preferred shares
were issued to related parties consisting of 138,995 shares issued to certain   
common stockholders ("Investors") and 132,476 shares issued to the Senior       
Subordinated Debt Lenders.                                                      

On February 9, 1996, certain members of Company management purchased for
$112,000 an aggregate of 75,000 Series C preferred shares. On February 20, 1996,
the Company sold 2,000,000 Series D preferred shares at $3.25 per share and     
issued Redeemable Warrants to purchase 194,618 common shares to the Series D    
Investors. Proceeds from the sale aggregating $492,000 were ascribed to the     
Redeemable Warrants to reflect their estimated fair market value on the issuance
date. The proceeds from the sale were used to fund the Minority Interest        
Acquisition.                                                                    

    On September 18, 1996, the Company sold 750,000 Series E preferred shares at
$4.00 per share and issued Redeemable Warrants to purchase 49,079 common shares 
to the Series D Investors and the Senior Subordinated Lenders. Proceeds from the
sale aggregating $124,000 were ascribed to the Redeemable Warrants to reflect   
their estimated fair market value on the issuance date. The proceeds from the   
sale were used to fund the ADS Acquisition.                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED)                     
   Dividends are payable quarterly to the holders of preferred stock, when and
if declared by the Board of Directors. Cash dividends at the annual rate of     
$.10, $.1263, $.15, $.325 and $.40 per share related to the Series A, Series B, 
Series C, Series D and Series E shares, respectively, accumulate from July 1,   
1993 for the Series A and Series B shares, from July 1, 1994 for the Series C   
shares, from February 15, 1996 for the Series D shares and from September 18,   
1996 for the Series E shares. All cumulative, unpaid dividends on the stock are 
to be cancelled and eliminated if the Company's common stock becomes registered 
in a public offering of common stock with gross proceeds of at least $10,000,000
at a per share price of not less than $15.87 on or before December 31, 1996. In 
January 1997, the holders of the preferred stock agreed to extend the           
cancellation date to May 5, 1997 and further, agreed to waive their right to    
receive all cumulative unpaid dividends, contingent on the consummation of the  
Offering. The Senior and Senior Subordinated Debt agreements prohibit the       
Company from paying dividends and, as a result, no dividend payments have been  
declared since issuance. Series A, Series B, Series C, Series D and Series E    
accumulated dividends in arrears aggregate $58,000 ($.350 per share), $700,000  
($.442 per share), $862,000 ($.379 per share), $568,000 ($.284 per share) and   
$85,000 ($.113 per share), respectively, as of December 31, 1996.               

Each share of preferred stock is convertible into .28357 of a share of  
common stock, subject to adjustment in certain circumstances. All cumulative    
unpaid dividends, if any, are payable upon conversion. Liquidation preference is
equal to $1.00, $1.263, $1.50, $3.25 and $4.00 per share for the Series A,      
Series B, Series C, Series D and Series E shares, respectively, plus declared   
but unpaid dividends. The aggregate liquidation preference for all preferred    
stock, excluding accumulated dividends in arrears, is $15,187,000 as of December
31, 1996. Payment of the Series D and Series E preferred stock per share        
liquidation preference, plus declared but unpaid dividends, is senior to the    
Series A, Series B and Series C preferred stock. Payment of the Series A, Series
B and Series C preferred stock per share liquidation preference is pari passu to
the Series A, Series B and Series C stockholders as a group; payment of declared
but unpaid dividends are pro rata based on the relative proportion of the       
amounts accumulated but unpaid. Payment of the Series D and Series E preferred  
stock per share liquidation preference, plus declared but unpaid dividends, is  
pari passu to the Series D and Series E stockholders as a group.                

At December 31, 1996, the Company had warrants outstanding to purchase a
total of 52,784 Series B shares at an exercise price of $1.263 per share. The   
warrants were issued in 1990 and expire on April 15, 2001. At December 31, 1996,
a total of 52,784 authorized and unissued Series B shares were reserved for     
issuance upon exercise of the warrants.                                         

NOTE 16--COMMON STOCK                                                           

    At December 31, 1995 and 1996, the Company was authorized to issue 2,268,560
and 4,253,550 common shares, respectively, without par value. As of December 31,
1996, a total of 3,391,709 common shares were reserved for issuance upon        
exercise of all warrants and stock options and the conversion of the preferred  
stock and Convertible Notes.                                                    

 At December 31, 1996, in addition to the Redeemable Warrants, the Company
had issued non-redeemable warrants to purchase a total of 9,355 common shares at
an exercise price of $4.454 per share expiring on February 20, 2001.            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--COMMON STOCK (CONTINUED)                                               
   The Company has a qualified stock option plan for key employees under which
options to purchase common shares may be granted. The plan permits the granting 
of incentive stock options, as defined by Section 422 of the Internal Revenue   
Code, non-qualified stock options, restricted stock options and stock           
appreciation rights. The plan expires in 2003. Options generally vest in equal  
installments over five years from the date of grant and remain exercisable until
December 31, 2002.                                                              

The following table summarizes stock option activity for the three years
ended December 31, 1996 (the grant date and per share exercise price is         
parenthetically noted):                                                         

                                                        [Enlarge/Download Table]

                                                                                           NUMBER OF OPTIONS    
                                                                                        ------------------------
                                                                                        AVAILABLE               
                                                                                        FOR GRANT   OUTSTANDING 
                                                                                        ----------  ------------
                                                                                                                
Options available for grant and outstanding, December 31, 1993.........................    145,471       67,915 
Granted (February and November 1994 at $.529 per share)................................   (123,211)     123,211 
Exercised..............................................................................     --           (2,269)
Expired or cancelled...................................................................      3,828       (3,828)
                                                                                        ----------  ------------
Options available for grant and outstanding, December 31, 1994.........................     26,088      185,029 
Increase in number of shares authorized................................................     32,469       --     
Granted (February and March 1995 at $.529 per share)...................................    (37,573)      37,573 
Expired or cancelled...................................................................     14,179      (14,179)
                                                                                        ----------  ------------
Options available for grant and outstanding, December 31, 1995.........................     35,163      208,423 
Increase in number of shares authorized................................................    283,570       --     
Granted (4,254 shares in February 1996 at $.529 per share, 87,198 and 14,887 shares in                          
  September 1996 at $1.234 and $7.053 per share, respectively, and 40,692 shares in                             
  December 1996 at $7.053 per share)...................................................   (147,031)     147,031 
Expired or cancelled (at $.529 per share)..............................................        453         (453)
                                                                                        ----------  ------------
Options available for grant and outstanding, December 31, 1996.........................    172,155      355,001 
                                                                                        ----------  ------------
                                                                                        ----------  ------------

Options for 141,845 shares were exercisable as of December 31, 1996 at a
weighted-average exercise price of $.633 per share. The remaining options       
outstanding vest each year as follows: 1997-- 53,371 shares; 1998--53,781       
shares; 1999--27,353 shares; 2000--35,407 shares; 2001--43,244 shares.          

The weighted-average exercise price of options outstanding was $.529 and
$1.724 per share at December 31, 1995 and 1996, respectively. The Company       
believes the per share exercise price of options granted through February 1996  
approximated the fair market value of the underlying common stock on the grant  
date. The exercise price of options granted after February 1996 were deemed to  
be below the fair market value of the underlying common stock on the grant date 
and such difference is being recognized as additional compensation expense in   
the consolidated financial statements on a straight line basis over the vesting 
period of the underlying options. Compensation expense recognized was $158,000  
for the year ended December 31, 1996. Compensatory options for 14,025 shares    
were exercisable as of December 31, 1996. The remaining compensatory options    
outstanding vest each year on December 31 as follows: 1997--15,954 shares;      
1998--18,846 shares; 1999--18,988 shares; 2000-- 31,720 shares; 2001--43,244    
shares.                                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--COMMON STOCK (CONTINUED)                                               
The Company measures compensation expense related to its employee stock 
option plan using the intrinsic value method as prescribed by APB Opinion No.   
25. Had compensation cost for the Company's stock option plan been determined   
based on the fair values of the options granted in 1995 and 1996 at the grant   
dates consistent with the method of SFAS 123, the Company's net loss applicable 
to common stockholders would have been as follows (amounts in thousands):       

                                                        [Enlarge/Download Table]

                                                                              YEAR ENDED      
                                                                             DECEMBER 31,     
                                                                         -------------------- 
                                                                           1995       1996    
                                                                         ---------  --------- 
                                                                                              
Net loss applicable to common stockholders                                                    
  As reported........................................................... $  (3,307) $  (6,357)
  Pro forma.............................................................    (3,307)    (6,362)

For purposes of the pro forma presentation, the fair value for options  
granted in 1995 and 1996 was estimated at the grant dates using a minimum value 
method, assuming a risk-free interest rate of 5.5% with no projected dividend   
yields. Unlike other permitted option pricing models, the minimum value method  
excludes stock price volatility which cannot be reasonably estimated for the    
Company. For purposes of pro forma disclosures, the estimated fair value of     
options granted in fiscal years after December 31, 1994 is amortized to expense 
over the options' vesting period. The effects of applying SFAS 123 in providing 
the pro forma disclosures are not likely to be representative of the effects on 
the reported consolidated financial statements in future years.                 

Pro forma per share information is not considered meaningful and has not
been presented above due to the Recapitalization that will occur concurrent with
the closing of the Offering.                                                    

NOTE 17--COMMITMENTS AND CONTINGENCIES                                          

FORMER OWNER OF ACQUIRED BUSINESSES                                             

In October 1991, a subsidiary of the Company acquired, in a purchase    
transaction, the net assets and stock of several companies under common control 
from the former owner (the "Former Owner"). The purchase agreements provided    
for: (i) purchase price adjustments based on changes in working capital; (ii) a 
consulting services agreement; and (iii) contingent consideration in the maximum
amount of $15,000,000 (of which none was ever paid) payable to the Former Owner 
based upon the acquired businesses' future attainment of defined performance    
criteria. During 1993 and 1994, the Company asserted various claims against the 
Former Owner for breach of representation, warranty provisions, and violation of
various covenants set forth in the purchase agreements. The Former Owner        
counterclaimed certain of these matters and litigation commenced.               

    On June 25, 1996, the Company and the Former Owner settled substantially all
claims which were the subject of the above arbitration and litigation. Under the
terms of the settlement, the Former Owner paid $190,000 to the Company as       
consideration for both parties agreeing to release each other from all monetary 
claims and terminating all agreements and pending arbitration and litigation    
proceedings. The consolidated results of operations for the year ended December 
31, 1996 include a net gain of $157,000 recorded pursuant to the settlement     
agreement. The net gain reflects the write off of the net amount due to the     
Former Owner of $242,000 and the $190,000 received in cash, reduced by the write
off of the remaining unamortized balances of non-compete agreements, which were 
terminated, and a litigation claim.                                             

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED)                              
    Both parties also agreed that the Company's claim for injunctive relief from
the Former Owner's alleged violation of various covenants contained in the      
purchase agreements related to non-compete and disclosure of confidential       
information would be decided by binding arbitration before a single arbitrator. 
The arbitrator is empowered to decide only the matter of injunctive relief;     
monetary claims for damages were resolved pursuant to the aforementioned        
settlement agreement. Management believes the ultimate disposition of the       
arbitration will not have a material adverse effect on the Company's            
consolidated financial position, results of operations or cash flows.           

MINORITY STOCKHOLDER                                                            

   In December 1993, the Minority Stockholder filed a stockholders' derivative
suit against the Company, certain wholly owned subsidiaries of the Company, a   
75% owned subsidiary of the Company (the "Majority Owned Subsidiary") and       
certain current and former officers and directors of the wholly owned and       
Majority Owned subsidiaries. The derivative suit was dismissed in conjunction   
with the Company's acquisition of the Minority Stockholder's 25% interest on    
February 20, 1996 (Note 2).                                                     

OTHER LITIGATION                                                                

The Company is a party to a license agreement with McDonnell Douglas    
pursuant to which the Company may request certain data in order to design and   
market modifications to aircraft manufactured by McDonnell Douglas. The         
agreement provides that the Company will pay McDonnell Douglas a royalty of five
percent of the net sales price of all modifications sold by the Company for     
which the Company has requested data from McDonnell Douglas. The Company has    
requested data for a single modification, which modification the Company        
believes is exempt from the obligation to pay royalties under the agreement.    
McDonnell Douglas has made a demand for $650,000 for royalties. The Company does
not believe that it is obligated to McDonnell Douglas in any amount. However,   
there can be no assurance that the Company will not be required to pay royalties
to McDonnell Douglas.                                                           

 The Company and its subsidiaries are also involved in other routine legal
and administrative proceedings incident to the normal conduct of business.      
Management believes the ultimate disposition of these matters, as well as the   
matter discussed in the preceding paragraph, will not have a material adverse   
effect on the Company's consolidated financial position, results of operations  
or cash flows.                                                                  

LEASE COMMITMENTS                                                               

 The Company leases certain facilities and equipment under various capital
and operating leases. Certain leases require payment of property taxes and      
include escalation clauses. Future minimum                                      

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED)                              
capital and operating lease commitments under non-cancelable leases are as      
follows as of December 31, 1996 (amounts in thousands):                         

                                                        [Enlarge/Download Table]

                                                                           CAPITAL     OPERATING 
                                                                           LEASES       LEASES   
                                                                         -----------  -----------
                                                                                                 
Year ending December 31,                                                                         
  1997..................................................................  $     314    $   1,857 
  1998..................................................................        278        1,799 
  1999..................................................................        147        1,672 
  2000..................................................................         27        1,427 
  2001..................................................................          4          985 
  2002 and thereafter...................................................     --            4,052 
                                                                         -----------  -----------
  Total minimum payments required.......................................        770    $  11,792 
                                                                                      -----------
                                                                                      -----------
  Less: Amount representing future interest cost........................       (108)             
                                                                         -----------             
    Recorded obligation under capital leases............................  $     662              
                                                                         -----------             
                                                                         -----------             

   Total rental expense charged to operations for the years ended December 31,
1994, 1995 and 1996 was $1,373,000, $1,531,000 and $1,614,000 respectively.     

NOTE 18--CONSOLIDATED STATEMENTS OF CASH FLOWS                                  

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION                  

During the three years ended December 31, 1996, the Company paid the    
following amounts in cash (amounts in thousands):                               

                                                        [Enlarge/Download Table]

                                                                    YEAR ENDED DECEMBER 31,    
                                                                -------------------------------
                                                                  1994       1995       1996   
                                                                ---------  ---------  ---------
                                                                                               
Interest....................................................... $   3,049  $   3,275  $   2,983
Income taxes paid..............................................        33         33        132

INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES                       

Certain noncash investing and financing transactions occurred during the
three years ended December 31, 1996, as follows (amounts in thousands):         

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED DECEMBER 31,    
                                                                  -------------------------------
                                                                    1994       1995       1996   
                                                                  ---------  ---------  ---------
                                                                                                 
Debt incurred for the acquisition of machinery and equipment..... $     276  $      33  $     414
Financing provided by sellers in connection with acquisitions....        --         --      3,492
Liabilities assumed in conjunction with acquisitions.............        --         --      2,687

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19--FOREIGN OPERATIONS AND EXPORT REVENUES                                 

FOREIGN OPERATIONS                                                              

The Company operates in one business segment--avionics components       
manufacturing and integration services. Domestic and foreign operations consist 
of (amounts in thousands):                                                      

                                                        [Enlarge/Download Table]

                                                                          YEAR ENDED DECEMBER 31,     
                                                                      ------------------------------- 
                                                                        1994       1995       1996    
                                                                      ---------  ---------  --------- 
                                                                                                      
Revenues                                                                                              
  Gross revenues                                                                                      
    United States.................................................... $  46,207  $  54,394  $  64,383 
    Western Europe...................................................     7,309      9,388     10,882 
                                                                      ---------  ---------  --------- 
      Total gross revenues...........................................    53,516     63,782     75,265 
                                                                      ---------  ---------  --------- 
  Less interarea transfers                                                                            
    United States....................................................      (721)      (814)    (1,496)
    Western Europe...................................................    (5,703)    (7,129)    (8,670)
                                                                      ---------  ---------  --------- 
      Total interarea transfers......................................    (6,424)    (7,943)   (10,166)
                                                                      ---------  ---------  --------- 
  Net revenues                                                                                        
    United States....................................................    45,486     53,580     62,887 
    Western Europe...................................................     1,606      2,259      2,212 
                                                                      ---------  ---------  --------- 
      Total net revenues............................................. $  47,092  $  55,839  $  65,099 
                                                                      ---------  ---------  --------- 
                                                                      ---------  ---------  --------- 

Income from operations                                                                                
  United States...................................................... $   1,494  $   1,354  $   3,727 
  Western Europe.....................................................       266        501        746 
  Interarea eliminations.............................................    --            (20)      (222)
                                                                      ---------  ---------  --------- 
    Total income from operations..................................... $   1,760  $   1,835  $   4,251 
                                                                      ---------  ---------  --------- 
                                                                      ---------  ---------  --------- 

Consolidated assets                                                                                   
  United States...................................................... $  35,990  $  34,425  $  67,889 
  Western Europe.....................................................     5,713      6,490      6,015 
  Interarea eliminations.............................................    (4,018)    (4,586)    (4,638)
                                                                      ---------  ---------  --------- 
    Total consolidated assets........................................ $  37,685  $  36,329  $  69,266 
                                                                      ---------  ---------  --------- 
                                                                      ---------  ---------  --------- 

    Interarea sales are accounted for at prices which the Company believes would
be equivalent to unaffiliated customer sales. Interarea transfers and           
eliminations reflect the shipment of raw component parts between areas.         
Operating income excludes net interest expense, other income (expense) and      
minority interests which are directly attributable to the related operations.   
Corporate assets are included with United States assets.                        

EXPORT REVENUES                                                                 

   Consolidated revenues include export revenues of $2,890,000, $5,161,000 and
$6,484,000 for the years ended December 31, 1994, 1995 and 1996, respectively.  
Export revenues are primarily derived from sales to customers located in Western
Europe, the Far East and Canada.                                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20--EMPLOYEE BENEFIT PLANS                                                 

   The Company's Swiss subsidiary sponsors a defined contribution pension plan
covering substantially all of its employees as required by Swiss law.           
Contributions and costs, which are shared equally by the Company and the        
employees, are determined as a percentage of each covered employees' salary.    
Company contributions and costs associated with the plan were $100,000, $148,000
and $151,000 for the years ended December 31, 1994, 1995 and 1996, respectively.

Substantially all of the Company's domestic employees are eligible to   
participate in a 401(k) defined contribution plan (the "Plan"). Participation in
the Plan is at the discretion of each individual employee who is eligible to    
participate. Each participating employee is permitted to make a contribution up 
to a maximum amount defined in the Plan. The Company and its subsidiaries may   
make periodic discretionary matching contributions to the Plan. No matching     
contributions were made to the plan during the years ended December 31, 1994,   
1995 and 1996. The costs associated with administering the plan were not        
significant for any period presented.                                           

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 21--RELATED PARTY TRANSACTIONS                                             

    The Company's transactions with related parties included in the consolidated
financial statements are summarized in the table below (amounts in thousands):  

                                                        [Enlarge/Download Table]

                                                                                             DECEMBER 31,          
                                                                                    -------------------------------
                                                                                      1994       1995       1996   
                                                                                    ---------  ---------  ---------
                                                                                                                   
INVESTORS                                                                                                          
14% demand notes                                                                                                   
  Interest earned during the period................................................ $     113  $  --      $  --    
  Amount repaid, including accrued interest, with proceeds from the 1994 debt                                      
    refinancing....................................................................     1,281     --         --    
Purchase of 271,471 shares of Series C preferred stock at $1.50 per share..........       208     --         --    

SENIOR SUBORDINATED LENDERS                                                                                        
Interest and advisory fees                                                                                         
  Earned during the period.........................................................       150        912        983
  Accrued and payable as of period end.............................................       137     --             43
Purchase of Convertible Notes, Series E preferred stock and Redeemable Warrants in                                 
  conjunction with the ADS Acquisition.............................................    --         --          2,000
Fees and expenses earned --                                                                                        
  Capitalized as deferred financing costs..........................................       140     --             18
  Recorded as a reduction of gross proceeds from the sale of preferred shares......    --         --             18

SERIES D INVESTORS                                                                                                 
Purchases of debt and equity securities                                                                            
  Series D preferred stock and Redeemable Warrants in conjunction with Minority                                    
    Interest Acquisition...........................................................    --         --          6,500
  Convertible Notes, Series E preferred stock and Redeemable Warrants in                                           
    conjunction with the ADS Acquisition...........................................    --         --          4,000
Fees and expenses earned --                                                                                        
  Capitalized as deferred financing costs..........................................    --         --             37
  Recorded as a reduction of gross proceeds from the sale of preferred shares......    --         --             37
Convertible Notes interest earned and accrued and payable as of year end...........    --         --             86

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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 21--RELATED PARTY TRANSACTIONS (CONTINUED)                                 
Each related party is described below and their fully diluted equity    
securities ownership percentage of the Company, as of December 31, 1996, is     
computed based upon the issued and outstanding Convertible Notes (Note 8),      
Redeemable Warrants (Note 14), preferred stock and warrants (Note 15) and common
stock and warrants (Note 16):                                                   

INVESTORS--Own 32.2% of the Company's issued and outstanding equity     
 securities and are represented on the Company's Board of Directors (Notes
14, 15 and 16).                                                         

SENIOR SUBORDINATED LENDERS--Own 20.6% of the Company's issued and      
    outstanding equity securities (including 8.1% acquired from an Investor in a
private transaction in 1994), are represented on the Company's Board of 
Directors, and provide a portion of the Company's Convertible Notes     
financing and the Subordinated Debt (Notes 8, 10, 14, 15 and 16).       

    SERIES D INVESTORS--Own 36.1% of the Company's issued and outstanding equity
    securities, are represented on the Company's Board of Directors, and provide
   a portion of the Company's Convertible Notes financing (Notes 8, 14, 15 and
16).                                                                    

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors of                                                    
Allard Industries, Inc.                                                         

  In our opinion, the accompanying balance sheets and the related statements
of income and changes in owner's net investment and of cash flows present       
fairly, in all material respects, the financial position of Aerospace Display   
Systems, a division of Allard Industries, Inc., at December 31, 1994 and 1995   
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted    
accounting principles. These financial statements are the responsibility of     
management; our responsibility is to express an opinion on these financial      
statements based on our audits. We conducted our audits of these statements in  
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements, assessing the accounting principles used and significant estimates  
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed 
above.                                                                          

PRICE WATERHOUSE LLP                                                            

Philadelphia, Pennsylvania                                                      
August 2, 1996                                                                  

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

BALANCE SHEETS

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,                   
                                                             -----------------------   SEPTEMBER 
                                                                1994        1995       18, 1996  
                                                             ----------  -----------  -----------
                                                                                      (UNAUDITED)
                                                                                                 
ASSETS                                                                                           
Current assets                                                                                   
  Cash and cash equivalents................................. $        1  $         1  $       1  
  Accounts receivable, net..................................      1,347        1,339      1,292  
  Inventories...............................................      2,520        2,961      3,273  
  Prepaid expenses..........................................         15           27         47  
                                                             ----------  -----------  -----------
    Total current assets....................................      3,883        4,328      4,613  
Property and equipment, net.................................        221          328        319  
Other assets................................................         27           45         40  
                                                             ----------  -----------  -----------
    Total assets............................................ $    4,131  $     4,701  $   4,972  
                                                             ----------  -----------  -----------
                                                             ----------  -----------  -----------

LIABILITIES AND OWNER'S NET INVESTMENT                                                           
Current liabilities                                                                              
  Accounts payable.......................................... $      409  $       597  $     405  
  Accrued expenses..........................................        278          281        246  
                                                             ----------  -----------  -----------
    Total current liabilities...............................        687          878        651  

Commitments and contingencies (Note 9)                                                           

Owner's net investment......................................      3,444        3,823      4,321  
                                                             ----------  -----------  -----------
    Total liabilities and owner's net investment............ $    4,131  $     4,701  $   4,972  
                                                             ----------  -----------  -----------
                                                             ----------  -----------  -----------

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

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

STATEMENTS OF INCOME

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                      PERIOD FROM  
                                                            YEAR ENDED               NINE MONTHS       JANUARY 1   
                                                           DECEMBER 31,                 ENDED             TO       
                                                  -------------------------------   SEPTEMBER 30,    SEPTEMBER 18, 
                                                    1993       1994       1995          1995             1996      
                                                  ---------  ---------  ---------  ---------------  ---------------
                                                                                             (UNAUDITED)           
                                                                                                                   
Revenues......................................... $   8,859  $   8,259  $   9,952     $   7,649        $   7,706   
Cost of sales....................................     6,483      6,192      6,594         5,154            4,855   
                                                  ---------  ---------  ---------       -------          -------   
  Gross profit...................................     2,376      2,067      3,358         2,495            2,851   
Selling, general and administrative expenses.....     1,642      1,516      1,991         1,454            1,286   
                                                  ---------  ---------  ---------       -------          -------   
  Income from operations.........................       734        551      1,367         1,041            1,565   
Interest expense.................................       209        204        150           122               52   
                                                  ---------  ---------  ---------       -------          -------   
  Income before provision for income taxes.......       525        347      1,217           919            1,513   
Provision for income taxes.......................       207        141        495           374              615   
                                                  ---------  ---------  ---------       -------          -------   
  Net income..................................... $     318  $     206  $     722     $     545        $     898   
                                                  ---------  ---------  ---------       -------          -------   
                                                  ---------  ---------  ---------       -------          -------   

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

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

STATEMENTS OF CHANGES IN OWNER'S NET INVESTMENT 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                             YEAR ENDED               PERIOD FROM  
                                                                            DECEMBER 31,               JANUARY 1   
                                                                   -------------------------------        TO       
                                                                     1993       1994       1995      SEPTEMBER 18, 
                                                                   ---------  ---------  ---------       1996      
                                                                                                    ---------------
                                                                                                      (UNAUDITED)  
                                                                                                                   
Owner's net investment at beginning of period..................... $   3,438  $   3,189  $   3,444     $   3,823   
Net income........................................................       318        206        722           898   
Net change in interdivision payables and other borrowings.........      (567)        49       (343)         (400)  
                                                                   ---------  ---------  ---------       -------   
Owner's net investment at end of period........................... $   3,189  $   3,444  $   3,823     $   4,321   
                                                                   ---------  ---------  ---------       -------   
                                                                   ---------  ---------  ---------       -------   

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

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                          PERIOD FROM  
                                                                YEAR ENDED               NINE MONTHS       JANUARY 1   
                                                               DECEMBER 31,                 ENDED             TO       
                                                      -------------------------------   SEPTEMBER 30,    SEPTEMBER 18, 
                                                        1993       1994       1995          1995             1996      
                                                      ---------  ---------  ---------  ---------------  ---------------
                                                                                                 (UNAUDITED)           
                                                                                                                       
Cash flows from operating activities                                                                                   
  Net income......................................... $     318  $     206  $     722     $     545        $     898   
  Adjustments to reconcile net income to net cash                                                                      
    provided by (used for) operating activities                                                                        
    Depreciation.....................................        16         33         49            35               51   
    Changes in assets and liabilities                                                                                  
      Accounts receivable............................       277        (71)         8          (177)              47   
      Inventories....................................       200       (201)      (441)          (86)            (312)  
      Prepaid expenses...............................         7         16        (12)          (12)             (20)  
      Other assets...................................        15     --            (18)           (4)               5   
      Accounts payable and accrued expenses..........      (193)        86        191           111             (227)  
                                                      ---------  ---------  ---------        ------           ------   
        Net cash provided by operating activities....       640         69        499           412              442   
                                                      ---------  ---------  ---------        ------           ------   
Cash flows from investing activities                                                                                   
  Capital expenditures...............................       (72)      (118)      (156)         (115)             (42)  
                                                      ---------  ---------  ---------        ------           ------   
        Net cash used in investing activities........       (72)      (118)      (156)         (115)             (42)  
                                                      ---------  ---------  ---------        ------           ------   
Cash flows from financing activities                                                                                   
  (Decrease) increase in interdivision payables and                                                                    
  other borrowings...................................      (567)        49       (343)         (297)            (400)  
                                                      ---------  ---------  ---------        ------           ------   
        Net cash (used in) provided by financing                                                                       
          activities.................................      (567)        49       (343)         (297)            (400)  
                                                      ---------  ---------  ---------        ------           ------   
Net increase in cash and cash equivalents............         1     --         --            --               --       
Cash and cash equivalents at beginning of the                                                                          
  period.............................................    --              1          1             1                1   
                                                      ---------  ---------  ---------        ------           ------   
Cash and cash equivalents at end of period........... $       1  $       1  $       1     $       1        $       1   
                                                      ---------  ---------  ---------        ------           ------   
                                                      ---------  ---------  ---------        ------           ------   
Supplemental disclosure of cash flow information--                                                                     
  Cash paid during the period for interest........... $     209  $     199  $     157     $     127        $      60   
                                                      ---------  ---------  ---------        ------           ------   
                                                      ---------  ---------  ---------        ------           ------   

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

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                              

DESCRIPTION OF THE BUSINESS                                                     

Aerospace Display Systems ("ADS" or the "Division") located in Hatfield,
Pennsylvania is a division of Allard Industries, Inc. ("Allard") and was        
acquired from the BF Goodrich Company ("BF Goodrich") in a purchase transaction 
in December 1992. ADS designs and manufactures dichroic liquid crystal displays 
("LCDs") and modules for both military and commercial aerospace applications for
the domestic and foreign aircraft industry, principally in North America and    
Europe.                                                                         

    On July 26, 1996 Allard entered into an agreement to sell certain assets and
the business of the Division to a subsidiary of DeCrane Aircraft Holdings, Inc. 
(Note 10).                                                                      

BASIS OF PRESENTATION                                                           

Preparation of these financial statements in conformity with generally  
accepted accounting principles requires the Division to make estimates and      
assumptions that affect the reported amounts on the balance sheets, at the date 
of the financial statements and the reported amounts of revenues and expenses   
during the reporting periods. Actual results could differ from those estimates. 

   The statements of income and changes in owner's net investment includes all
charges applicable to the Division. Allard provides certain services to, and    
incurs costs on behalf of, the Division. All of the allocations and estimates in
the financial statements are based on assumptions that the Division and Allard  
believe are reasonable.                                                         

  The financial information as of September 18, 1996 and for the nine months
ended September 30, 1995 and for the period from January 1 to September 18, 1996
is unaudited. In the opinion of the Division, the unaudited financial           
information is presented on a basis consistent with the audited financial       
statements and contain all adjustments, consisting only of normal recurring     
adjustments, necessary for a fair statement of the results for such interim     
periods presented. The results of operations for interim periods are not        
necessarily indicative of results of operations for the full year.              

INVENTORIES                                                                     

Inventories are stated principally at the lower of cost or market, as   
determined under the last-in, first-out ("LIFO") method. Costs include          
materials, labor and manufacturing overhead.                                    

PROPERTY AND EQUIPMENT                                                          

Property and equipment are stated at cost and are depreciated using     
straight-line and accelerated methods over their estimated useful lives, ranging
from four to fifteen years. Leasehold improvements are amortized using the      
straight-line method over their estimated useful lives or remaining lease term, 
whichever is less. Expenditures for maintenance and repairs are expensed as     
incurred. The cost of improvements are capitalized. Upon retirement or disposal,
the cost and accumulated depreciation of property and equipment are reduced and 
any gain or loss is recorded in income or expense.                              

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                  
INCOME TAXES                                                                    

The taxable income of the Division is included in the consolidated tax  
return of Allard. As such, separate income tax returns were not prepared or     
filed by the Division. The provision for income taxes included in these         
financial statements has been calculated as if the Division was a tax paying    
entity, using Statement of Financial Accounting Standards No. 109, "Accounting  
for Income Taxes" ("SFAS 109"). Under the liability method specified in SFAS    
109, a deferred tax asset or liability is determined based on the difference    
between the financial statement and tax basis of assets and liabilities as      
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in the liability for     
deferred taxes.                                                                 

REVENUE RECOGNITION                                                             

  Revenues from the sale of manufactured products are recorded when products
are shipped.                                                                    

STATEMENT OF CASH FLOWS                                                         

For purposes of the statement of cash flows, cash equivalents include   
short-term, highly liquid investments with original maturities of three months  
or less.                                                                        

ACCOUNTS RECEIVABLE                                                             

   Accounts receivable is net of an allowance for doubtful accounts of $28,000
at December 31, 1994 and 1995 (none at September 18, 1996).                     

NOTE 2--INVENTORIES                                                             

Inventories are comprised of the following (amounts in thousands):      

                                                        [Enlarge/Download Table]

                                                      DECEMBER 31,                         
                                              -----------------------------  SEPTEMBER 18, 
                                                  1994            1995            1996     
                                              ------------   --------------  --------------
                                                                              (UNAUDITED)  
                                                                                           
Raw material................................. $        832   $          977  $       1,260 
Work-in process..............................          655              533            560 
Finished goods...............................        1,033            1,451          1,453 
                                              ------------          -------        ------- 
  Total inventories.......................... $      2,520   $        2,961  $       3,273 
                                              ------------          -------        ------- 
                                              ------------          -------        ------- 

The division uses the last-in, first-out method ("LIFO") for valuing its
inventory. If the first-in, first-out ("FIFO") method had been used, inventories
would have been higher than reported by $33,000, $29,000 and $29,000 at December
31, 1994 and 1995 and September 18, 1996, respectively.                         

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 3--PROPERTY AND EQUIPMENT                                                  

Property and equipment includes the following (amounts in thousands):   

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,                     
                                                              --------------------   SEPTEMBER 18, 
                                                                1994       1995          1996      
                                                              ---------  ---------  ---------------
                                                                                      (UNAUDITED)  
                                                                                                   
Machinery and equipment...................................... $     214  $     354     $     380   
Computer equipment, furniture and fixtures...................        45         45            61   
Leasehold improvements.......................................        12         26            26   
                                                              ---------  ---------        ------   
  Total cost.................................................       271        425           467   
  Accumulated depreciation...................................       (50)       (97)         (148)  
                                                              ---------  ---------        ------   
    Net property and equipment............................... $     221  $     328     $     319   
                                                              ---------  ---------        ------   
                                                              ---------  ---------        ------   

The acquisition of the Division in December 1992 from BF Goodrich was a 
bargain purchase transaction and as a result, all property and equipment was    
recorded at $0 at the date of the acquisition. Depreciation expense related to  
capital expenditures subsequent to the purchase transaction amounted to $16,000,
$33,000 and $49,000 for the years ended December 31, 1993, 1994 and 1995,       
respectively, and $35,000 and $51,000 for the nine months ended September 30,   
1995 and the period from January 1 to September 18, 1996, respectively.         

NOTE 4--RELATED PARTY TRANSACTIONS                                              

NOTES PAYABLE                                                                   

The Division's cash requirements were met by funds generated from       
operations, supplemented as necessary by advances or borrowings from Allard.    
Borrowings from Allard were made pursuant to unwritten, informal arrangements.  
Interest was charged to the Division as the Division's share of Allard interest 
expense based on the Division's proportionate share of total Allard borrowings. 
Interest expense was $209,000, $204,000 and $150,000 for the years ended        
December 31, 1993, 1994 and 1995, respectively, and $122,000 and $52,000 for the
nine months ended September 30, 1995 and the period from January 1 to September 
18, 1996, respectively. Amounts payable to Allard are classified with owner's   
net investment in the accompanying balance sheets.                              

CORPORATE EXPENSES                                                              

The results of operations include significant transactions with Allard  
business units that are outside of the Division's operations. These transactions
involve functions and services (such as executive management, cash management,  
tax administration and strategic planning) that were provided to the Division by
these other Allard units. The payroll cost of these functions and services has  
been allocated to the Division based on Allard management's estimated           
proportionate level of effort in servicing the Division. Other costs of these   
functions and services have been allocated to the Division based on its revenues
in proportion to other Allard divisions. Allard and the Division's management   
believe this allocation methodology is reasonable. Corporate charges were       
$345,000, $264,000 and $360,000 for the years ended December 31, 1993, 1994, and
1995, respectively, and $240,000 and $301,000 for the                           

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)                                  
nine months ended September 30, 1995 and the period from January 1 to September 
18, 1996, respectively.                                                         

PURCHASES                                                                       

Purchases by the Division from other divisions of Allard were $347,000, 
$468,000 and $440,000 for the years ended December 31, 1993, 1994 and 1995,     
respectively, and $307,000 and $227,000 for the nine months ended September 30, 
1995 and the period from January 1 to September 18, 1996, respectively.         

NOTE 5--PENSION PLAN                                                            

Allard has a defined contribution 401(k) plan in which substantially all
employees of the Division may participate. Under this plan, employees may make  
voluntary contributions of their compensation. The Division may make periodic   
discretionary matching contributions to the plan. No matching contributions were
made to the plan during the years ended December 31, 1993, 1994 and 1995.       

NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION                      

The Division's sales are made principally to commercial OEM customers,  
airlines and U.S. government subcontractors. Sales to U.S. government           
subcontractors amounted to approximately $4,291,000, $3,869,000 and $3,454,000  
for the years ended December 31, 1993, 1994 and 1995, respectively, and         
$2,962,000 and $2,917,000 for the nine months ended September 30, 1995 and the  
period from January 1 to September 18, 1996, respectively.                      

   The Division is potentially subject to concentrations of credit risk as the
Division relies heavily on customers operating in the domestic and foreign      
commercial aircraft industry. Generally, the Division does not require          
collateral or other security to support accounts receivable subject to credit   
risk. Under certain circumstances, deposits or cash on delivery terms are       
required. The Division maintains reserves for potential credit losses.          

Certain customers each accounted for more than 10% of the Division's    
revenues, as follows:                                                           

                                                        [Enlarge/Download Table]

                                                                                                      PERIOD FROM    
                                                   YEAR ENDED                    NINE MONTHS           JANUARY 1     
                                                  DECEMBER 31,                      ENDED                 TO         
                                      -------------------------------------     SEPTEMBER 30,        SEPTEMBER 18,   
                                         1993         1994         1995             1995                 1996        
                                         -----        -----        -----     -------------------  -------------------
                                                                                           (UNAUDITED)               
                                                                                                                     
Customer A...........................        16%          12%          10%              11%                   7%     
Customer B...........................        13%          10%           8%               9%                   9%     
Customer C...........................        18%           3%          10%              10%                  13%     
Customer D...........................         6%          10%           9%               9%                   6%     
                                             --           --           --               --                   --      
  Total..............................        53%          35%          37%              39%                  35%     
                                             --           --           --               --                   --      
                                             --           --           --               --                   --      

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION (CONTINUED)          
   Complete loss of any of these customers could have an adverse impact on the
future results of operations.                                                   

Revenues include export revenues, principally to Western Europe, of     
$1,030,000, $1,930,000 and $1,623,000 for the years ended December 31, 1993,    
1994 and 1995, respectively, and $1,513,000 and $1,289,000 for the nine months  
ended September 30, 1995 and the period from January 1 to September 18, 1996,   
respectively.                                                                   

NOTE 7--ACCRUED EXPENSES                                                        

Accrued expenses are comprised of the following (amounts in thousands): 

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,                       
                                                              --------------------    SEPTEMBER 18,  
                                                                1994       1995           1996       
                                                              ---------  ---------  -----------------
                                                                                       (UNAUDITED)   
                                                                                                     
Salaries, wages and compensated absences and payroll related                                         
  taxes...................................................... $     113  $     116      $     171    
Commissions..................................................        43         40             34    
Warranty.....................................................        70         82             15    
Other accrued expenses.......................................        52         43             26    
                                                              ---------  ---------          -----    
  Total accrued expenses..................................... $     278  $     281      $     246    
                                                              ---------  ---------          -----    
                                                              ---------  ---------          -----    

NOTE 8--INCOME TAXES                                                            

The provisions for income taxes are as follows (amounts in thousands):  

                                                        [Enlarge/Download Table]

                                                                                YEAR ENDED           
                                                                               DECEMBER 31,          
                                                                      -------------------------------
                                                                        1993       1994       1995   
                                                                      ---------  ---------  ---------
                                                                                                     
Current                                                                                              
  U.S. federal....................................................... $     119  $      16  $     355
  State..............................................................        31          5        116
                                                                      ---------  ---------  ---------
    Total current....................................................       150         21        471
                                                                      ---------  ---------  ---------

Deferred                                                                                             
  U.S. federal.......................................................        43         90         18
  State..............................................................        14         30          6
                                                                      ---------  ---------  ---------
    Total deferred...................................................        57        120         24
                                                                      ---------  ---------  ---------
      Total provision................................................ $     207  $     141  $     495
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 8--INCOME TAXES (CONTINUED)                                                
    Deferred tax liabilities (assets) are comprised of the following (amounts in
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                              YEAR ENDED            
                                                                             DECEMBER 31,           
                                                                    ------------------------------- 
                                                                      1993       1994       1995    
                                                                    ---------  ---------  --------- 
                                                                                                    
Gross deferred tax liabilities                                                                      
  Inventory........................................................ $     341  $     341  $     341 
  Other............................................................        18         18         18 
                                                                    ---------  ---------  --------- 
    Gross deferred tax liabilities.................................       359        359        359 
                                                                    ---------  ---------  --------- 

Gross deferred tax (assets)                                                                         
  Fixed assets.....................................................      (233)      (127)       (59)
  Accrued expenses.................................................       (63)       (55)       (59)
  Other............................................................       (22)       (16)       (56)
                                                                    ---------  ---------  --------- 
    Gross deferred tax (assets)....................................      (318)      (198)      (174)
                                                                    ---------  ---------  --------- 
      Net deferred tax liability................................... $      41  $     161  $     185 
                                                                    ---------  ---------  --------- 
                                                                    ---------  ---------  --------- 

  The net deferred tax liability has been included in owner's net investment
in each period. Income taxes currently payable, and deemed remitted by the      
Division to Allard, amounted to $150,000, $22,000 and $471,000 for the years    
ended December 31, 1993, 1994 and 1995, respectively.                           

The provision for income tax differs from the amount of income tax      
determined by applying the applicable U.S. statutory federal rate to the income 
before income taxes as a result of the following differences (amounts in        
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                                YEAR ENDED           
                                                                               DECEMBER 31,          
                                                                      -------------------------------
                                                                        1993       1994       1995   
                                                                      ---------  ---------  ---------
                                                                                                     
Income tax at U.S. statutory rates................................... $     179  $     118  $     414
State income taxes, net of federal benefit...........................        28         23         80
Other, net...........................................................    --         --              1
                                                                      ---------  ---------  ---------
  Income tax at effective rates...................................... $     207  $     141  $     495
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------

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AEROSPACE DISPLAY SYSTEMS 
(A DIVISION OF ALLARD INDUSTRIES, INC.) 

NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.) 

NOTE 9--COMMITMENTS AND CONTINGENCIES                                           

    The Division has entered into certain operating leases which require minimum
annual payments as follows: 1996--$193,000; 1997--$194,000; 1998--$184,000;     
1999--$139,000, and 2000--$15,000. The total rental expense for all operating   
leases was $238,000, $166,000 and $181,000 for the years ended December 31,     
1993, 1994 and 1995, respectively.                                              

   The Division is also subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a       
material adverse effect on the financial position, results of operations or cash
flows of the Division.                                                          

NOTE 10--EVENT SUBSEQUENT TO REPORT OF INDEPENDENT ACCOUNTANTS (UNAUDITED)      

On September 18, 1996, a subsidiary of DeCrane Aircraft Holdings, Inc.  
consummated the purchase from Allard of the assets, subject to the liabilities, 
of the Division.                                                                

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY 
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS   
PROSPECTUS IN CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION  
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE      
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO    
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE      
COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY  
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT           
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT     
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE         
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS 
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF 
THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE    
HEREOF.                                                                         

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

TABLE OF CONTENTS 

                                                                [Download Table]

                                                                            PAGE
                                                                            ----
                                                                                
Prospectus Summary........................................................    3 
Risk Factors..............................................................    7 
Recent Developments.......................................................   13 
Use of Proceeds...........................................................   15 
Dividend Policy...........................................................   16 
Capitalization............................................................   17 
Dilution..................................................................   18 
Selected Consolidated Financial Data......................................   19 
Unaudited Pro Forma Consolidated Financial Data...........................   21 
Management's Discussion and Analysis of Financial Condition and Results of      
 Operations...............................................................   24 
Business..................................................................   30 
Management................................................................   47 
Principal and Selling Stockholders........................................   53 
Certain Transactions......................................................   55 
Description of Capital Stock..............................................   57 
Shares Eligible for Future Sale...........................................   62 
Underwriting..............................................................   63 
Legal Matters.............................................................   65 
Experts...................................................................   65 
Additional Information....................................................   65 
Index to Financial Statements.............................................  F-1 

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

 UNTIL MAY 12, 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS          
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING 
AS UNDERWRITERS AND WITH THIS RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.    

2,797,423 SHARES

[LOGO]

DECRANE AIRCRAFT
HOLDINGS, INC.

COMMON STOCK
($.01 PAR VALUE)

SCHRODER WERTHEIM & CO. 

DILLON, READ & CO. INC. 

ING BARINGS 

APRIL 16, 1997

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

Dates Referenced Herein   and   Documents Incorporated by Reference

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		3/31/98		85					10-K,  10-Q
		12/31/97		58		105			10-K
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		12/15/97		83		89
		7/11/97		96
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Filed on:		4/17/97
		4/16/97		1		122
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		3/31/97		55		85			10-Q
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		12/31/96		8		109
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		6/25/96		81		103
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