Networks Electronic Corp – ‘PRE 14C’ for 9/10/99

On:  Thursday, 9/2/99   ·   For:  9/10/99   ·   Accession #:  1011438-99-494   ·   File #:  0-01817

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Preliminary Proxy Information Statement   —   Schedule 14C
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRE 14C     Schedule 14C Information Statement                    89    523K 

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SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT   
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE  
SECURITIES EXCHANGE ACT OF 1934   

Check the appropriate box:                                                      
[X]   Preliminary Information Statement                                         
[X]   Confidential,  For  Use of the  Commission  Only  (as  permitted  by  Rule
14c-5(d)(2))                                                        
[ ]   Definitive information statement                                          

NETWORKS ELECTRONIC CORP.   
(Name of Registrant as Specified in Its Charter)  

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)  

Payment of filing fee (Check the appropriate box):                              

[ ] No fee required.                                                
      [X]   Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
under the Exchange Act.                                 
 (1)   Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.25 PER SHARE                 
(2)   Aggregate number of securities to which transaction applies:  
1,673,888 SHARES OF COMMON STOCK                        
  (3)   Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11 (set forth the amount on which
            the filing fee is calculated and state how it was determined): $7.50
PER SHARE                                               
  (4)   Proposed maximum aggregate value of transaction: $12,554,160.00*
(5)   Total fee paid: $2,511**                                      
[ ]   Fee previously paid with preliminary materials.               
    [ ]   Check box if any part of the fee is offset as provided by Exchange
            Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
           registration statement number, or the form or schedule and the date
of its filing.                                          
(1)   Amount previously paid: NOT APPLICABLE                        
(2)   Form, Schedule or Registration Statement No.: NOT APPLICABLE  
(3)   Filing party: NOT APPLICABLE                                  
(4)   Date filed: NOT APPLICABLE                                    

*   For purposes of calculation of the filing fee only. Assumes the purchase, at
   a purchase price of $7.50 per share, of 1,673,888 shares of common stock of
the Registrant, representing all of such shares outstanding on a fully  
diluted basis.                                                          

**  The amount of the filing fee  represents  1/50th of 1% of the  transaction  
value.                                                                  

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NETWORKS ELECTRONIC CORP.   
9750 DE SOTO AVENUE   
CHATSWORTH, CALIFORNIA 91311
--------------------  

INFORMATION STATEMENT   
--------------------  

SEPTEMBER ___, 1999   
--------------------  

    This information statement (the "Information Statement") is furnished by
the Board of Directors (the "Board") of Networks Electronic Corp., a California 
corporation (the "Company"), to holders of the outstanding shares of common     
stock, $0.25 par value per share, of the Company (the "Common Stock") in        
connection with an Agreement and Plan of Merger, dated as of July 16, 1999 (the 
"Merger Agreement"), by and among the Company, NE Holdco Corp., a Delaware      
corporation (the "Parent"), and NE Merger Corp., a Delaware corporation         
specifically organized for the purpose of effecting the Merger (as defined      
below) and a direct, wholly owned subsidiary of the Parent (the "Sub") providing
for the merger (the "Merger") of Sub with and into the Company.                 

   As a result of the Merger, the Company, as the surviving corporation in
the Merger (the "Surviving Corporation"), will become a wholly-owned subsidiary 
of the Parent, and each issued and outstanding share of Common Stock (other than
shares owned by Parent, Sub, the Company or any of their respective             
subsidiaries, or by shareholders who have validly perfected their dissenters'   
rights under the California General Corporation Law (the "CGCL")) will be       
converted into the right to receive $7.50 in cash plus the Additional Amount.   
The "Additional Amount" is an amount equal to the product of: (a) $7.50         
multiplied by (b) 10%, multiplied by (c) a fraction, the numerator of which     
shall be the number of days in the period from and including the date which is  
the 120th day following July 16, 1999 (the date of the Merger Agreement) to but 
excluding the date on which the Effective Time occurs, and the denominator of   
which shall be 365. See "THE MERGER AGREEMENT -- Consideration to be Received in
the Merger." The total aggregate amount of consideration to be received by the  
Company's shareholders in the Merger (including the holders of outstanding      
options) is approximately $12.6 million. A copy of the Merger Agreement is      
attached hereto as Annex A.                                                     

  In the probate matter of IN RE: MIHAI D. PATRICHI TRUST (L.A.S.C. Case
No.BP037966) (the "Patrichi Probate Matter"), the Superior Court of the State of
California, County of Los Angeles (the "Court") ruled that the trustees of the  
Mihai D. Patrichi Trust (the "Trust") must dispose of the Trust's shares in the 
Company. On August 11, 1999, the Court approved the pending sale of the Trust's 
shares to the Parent. The Trust currently owns approximately 47% or 790,383     
shares of the Company's 1,673,888 shares of outstanding Common Stock, which were
acquired by the Trust upon the death of the Company's founder, Mihai D.         
Patrichi.                                                                       

      Concurrently with the parties' execution of the Merger Agreement, pursuant
to a Stock Purchase Agreement dated as of July 16, 1999 with Parent (the "Stock 
Purchase Agreement"), Ileana Wachtel and Rodica Patrichi, as trustees of the    
Trust (the "Trustees"), David Wachtel, Ileana Wachtel, Radu Patrichi and Rodica 
Patrichi (such persons and the Trust, collectively, the "Sellers") agreed to    
sell all shares of the Company's Common Stock held by them for $7.50 per share  
in cash. As of the date of the Stock Purchase Agreement, David Wachtel and      
Ileana Wachtel owned in the aggregate 82,277 shares of Common Stock, and Radu   
and Rodica Patrichi owned 20,881 shares and 1,103 shares, respectively. In the  
aggregate, the Sellers own 894,644 shares of Common Stock, representing         
approximately 53% of the total outstanding shares of Common Stock. See "THE     
MERGER -- Ancillary Agreements."                                                

    All parties to the Stock Purchase Agreement controlling in the aggregate
approximately 53% of the Common Stock of the Company, representing a majority of
the votes entitled to be cast at a meeting to consider the Merger Agreement and 
the Merger, executed and delivered to the Company, on August 25, 1999, a written
consent in lieu of a meeting of shareholders (the "Consent") approving the      
Merger Agreement and the Merger and adopting the Merger Agreement.              

      THE MERGER AGREEMENT PROVIDES THAT THE MERGER WILL BECOME EFFECTIVE AT THE
TIME OF ACCEPTANCE FOR FILING BY THE CALIFORNIA SECRETARY OF STATE AND THE      
SECRETARY OF STATE OF DELAWARE OF A COPY OF THE MERGER AGREEMENT AND SUCH OTHER 
DOCUMENTS AS MAY BE REQUIRED BY APPLICABLE LAW. THE EFFECTIVE TIME OF THE MERGER
WILL BE ON SEPTEMBER __, 1999 UNLESS YOU ARE OTHERWISE NOTIFIED.                
--------------------  

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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY      
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT, AND IF GIVEN OR     
MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING   
BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS INFORMATION STATEMENT SHALL
NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION       
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THE 
DATE OF SUCH DOCUMENT, OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE   
COMPANY SINCE THE DATE HEREOF OR THE DATE OF SUCH DOCUMENT.                     

    WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES AT THIS TIME.       

This Information Statement is first being mailed to shareholders on or about    
September ___, 1999.                                                            
--------------------  

The date of this Information Statement is September ___, 1999       

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                              TABLE OF CONTENTS                                 

                                                                            PAGE

                                                                                
SUMMARY......................................................................5  
      General................................................................5  
      The Parties ...........................................................5  
      Required Vote; Written Consent in Lieu of Meeting; Effective Time of      
Merger.......................................................................5  
      Procedure for Receipt of Merger Consideration..........................6  
      Dissenters' Rights.....................................................6  
      The Merger.............................................................6  
      Summary Consolidated Historical Financial Data.........................7  
GENERAL......................................................................9  
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING............................9  
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION................................9  
DISSENTERS' RIGHTS..........................................................10  
THE MERGER..................................................................11  
      Background of the Merger..............................................11  
      Recommendation of the Board...........................................13  
      Opinion of the Company's Financial Advisors...........................14  
      Projections...........................................................16  
      Interests of Certain Persons in the Merger............................16  
      Purpose of the Merger.................................................17  
      Certain Effects of the Merger; Plans for the Company After the Merger.17  
      Accounting Treatment of the Merger....................................18  
      Regulatory Approvals..................................................18  
      Certain Federal Income Tax Consequences of the Merger.................18  
      Ancillary Agreements..................................................18  
THE MERGER AGREEMENT........................................................18  
      The Merger............................................................19  
      Consideration to be Received in the Merger............................19  
      Exchange of Stock Certificates........................................19  
      Representations and Warranties........................................20  
      Certain Covenants.....................................................20  
      Conditions to Consummation of the Merger..............................23  
      Termination; Fees and Expenses........................................24  
      Amendment and Waiver..................................................25  
ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS...............................25  
      Financing for the Merger..............................................26  
      Payment and Waiver....................................................26  

CERTAIN INFORMATION REGARDING THE COMPANY...................................30  
CERTAIN INFORMATION REGARDING PARENT AND SUB................................28  
SELECTED HISTORICAL FINANCIAL DATA..........................................28  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............28  
PRICE RANGE OF COMMON STOCK.................................................30  
AVAILABLE INFORMATION.......................................................30  
INDEX TO FINANCIAL STATEMENTS..............................................F-1  
ANNEXES                                                                         
      Annex A:  Agreement and Plan of Merger...............................A-1  
      Annex B: Chapter 13 of the General Corporation Law of the State of        
California.................................................................B-1  
      Annex C: Opinion of The Seidler Companies Incorporated...............C-1  

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SUMMARY   

    THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED 
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS   
INFORMATION STATEMENT, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED BY     
REFERENCE HEREIN. SHAREHOLDERS OF THE COMPANY ARE ENCOURAGED TO REVIEW CAREFULLY
THIS INFORMATION STATEMENT, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, IN THEIR ENTIRETY. THIS INFORMATION STATEMENT, INCLUDING THE  
ANNEXES HERETO, CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE 
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH INVOLVE RISKS AND       
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE  
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, 
INCLUDING, WITHOUT LIMITATION, ACTUAL AND POTENTIAL COMPETITION AND CERTAIN     
TECHNOLOGY RISKS.                                                               

GENERAL                                                                         

This Information Statement is being delivered in connection with the
Merger of Sub with and into the Company pursuant to the Merger Agreement. As a  
result of the Merger, the Company will become a wholly-owned subsidiary of the  
Parent, and each issued and outstanding share of Common Stock (other than shares
that are owned by the Parent, Sub, the Company or any of their respective       
subsidiaries, or by shareholders who have validly perfected their dissenters'   
rights under the CGCL) will be converted into the right to receive $7.50 in cash
plus the Additional Amounts (together, the "Merger Consideration"), and the     
equity interest of all pre-Merger shareholders in the Company (other than the   
Parent, if applicable) will be terminated.                                      

      Concurrently with the parties' execution of the Merger Agreement, pursuant
to the Stock Purchase Agreement, the Sellers have agreed to sell all shares of  
the Company's Common Stock held by them to Parent for $7.50 per share in cash.  
See "THE MERGER -- Ancillary Agreements."                                       

THE PARTIES.                                                                    

COMPANY. The Company designs, fabricates, assembles and sells high  
technology components for aerospace and U.S. Government defense prime           
contractors. The Company was incorporated in the State of California in October 
1953. The Company operates two divisions: the US Bearing Division and the       
Ordnance Technology Division. The Company's principal executive offices are     
located at 9750 De Soto Avenue, Chatsworth, California 91311, and its telephone 
number is (818) 341-0440. See "CERTAIN INFORMATION REGARDING THE COMPANY."      

    PARENT.  The Parent is a special  purpose  holding company formed by GWB
(USA),  Inc. for use in connection  with the Merger.  Its principal  executive  
offices are located at Five Concourse  Parkway,  Suite 810,  Atlanta,  Georgia  
30328-6111,  and its telephone  number is (770) 395-2970.  GWB (USA),  Inc. is  
an investment firm specializing in leveraged buyouts.                           

      SUB. The Sub is a newly incorporated Delaware corporation organized by the
Parent to acquire all the outstanding shares of Common Stock of the Company     
pursuant to the Merger Agreement and has not carried on any activities other    
than in connection with the Merger. The Sub is a direct wholly owned subsidiary 
of the Parent. The Sub's principal executive offices are located at Five        
Concourse Parkway, Suite 810, Atlanta, Georgia 30328-6111, and its telephone    
number is (770) 395-2970.                                                       

See "CERTAIN INFORMATION REGARDING PARENT AND SUB" and "EXPENSES."  

REQUIRED  VOTE;  WRITTEN  CONSENT IN LIEU OF  MEETING;  EFFECTIVE  TIME OF THE  
MERGER                                                                          

Under the California General Corporation Law (the "CGCL") and the   
Company's Articles of Incorporation, (the "Articles of Incorporation"), the     
affirmative vote of holders of at least a majority of the outstanding shares of 
Common Stock is required to approve and adopt the Merger Agreement and Merger.  
On August 30, 1999, the Sellers, who combined then held of record, in the       
aggregate 894,644 shares of Common Stock, representing a majority of the votes  
entitled to be cast at a meeting to consider the Merger Agreement and the       
Merger, executed and delivered to the Company the Consent approving the Merger  
Agreement and the Merger and adopting the Merger Agreement. On August 30, 1999, 
there were issued and outstanding 1,673,888 shares of Common Stock. The Merger  
Agreement provides that the Merger will become effective at such time (the      
"Effective Time") as the certificate of merger is filed with the Secretary of   
State of the State of Delaware and the articles of merger are filed with the    
Secretary of the State of California, in accordance with the laws of the        
respective states. The required filings are expected to be made as soon as      
practicable 20 days after the date of this Information Statement. See "THE      
MERGER AGREEMENT"; "REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING."         

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PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION                                   

Upon consummation of the Merger, each holder of a certificate or    
certificates representing shares of Common Stock of the Company ("Certificates")
outstanding immediately prior to the Effective Time (except for the Sellers, the
Parent, Sub, any other of Parent's wholly owned subsidiaries, or in the treasury
of the Company or by any wholly owned subsidiary of Company or any shareholder  
who has validly perfected dissenter's rights under the CGCL (the "Public        
Shareholders")) will, upon the surrender thereof, duly endorsed if required, to 
a bank or trust company to be designated by Parent and reasonably acceptable to 
the Company (the "Exchange Agent"), be entitled to receive the Merger           
Consideration.                                                                  

Detailed instructions with regard to the surrender of certificates, 
together with a letter of transmittal, will be forwarded to former holders of   
Common Stock by the Exchange Agent promptly following the Effective Time. For   
purposes of receiving the Merger Consideration, a shareholder need only hold the
Common Stock immediately before the Effective Time. Holders of Common Stock     
should not submit their certificates to the Exchange Agent until they have      
received such materials. Payment for shares of Common Stock will be made to     
former holders of shares as promptly as practicable following receipt by the    
Exchange Agent of their certificates and other required documents. No interest  
will be paid or accrued on the cash payable upon the surrender of certificates. 
See "PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION." SHAREHOLDERS SHOULD NOT    
SEND ANY SHARE CERTIFICATES AT THIS TIME.                                       

DISSENTERS' RIGHTS                                                              

  Under Chapter 13 of the CGCL, holders of Common Stock at the Effective
Time who strictly comply with the applicable requirements of the CGCL may       
dissent from the Merger and demand payment in cash from the Company of the fair 
value of their Common Stock. Chapter 13 of the CGCL is set forth in full in     
Annex B hereto. See "Dissenters' Rights" and Annex B.                           

THE MERGER                                                                      

    BACKGROUND  TO THE MERGER.  For a description  of the events  leading to
the  approval  of the  Merger  Agreement  by the  Board,  see  "THE  MERGER  -- 
Background to the Merger."                                                      

  APPROVAL OF THE BOARD. On July 16, 1999, the Board determined that the
Merger Agreement and the Merger are fair to and in the best interests of the    
shareholders of the Company and approved and adopted the Merger Agreement.      
See "THE MERGER -- Background to the Merger."                                   

   OPINIONS OF THE COMPANY'S FINANCIAL ADVISORS. At the July 16 meeting of
the Company's Board, The Seidler Companies Incorporated ("TSC"), financial      
advisor to the Company, delivered its oral opinion (which was subsequently      
confirmed in writing dated August 30, 1999) that as of such date, the Merger    
Consideration to be received by the holders of shares of Common Stock pursuant  
to the Merger Agreement is fair to such holders. The full text of the written   
opinion of TSC, which sets forth the assumptions made, matters considered and   
limitations on the review undertaken in connection with the opinion, is attached
hereto as Annex C and is incorporated herein by reference. Holders of such      
shares of Common Stock are urged to, and should, read such opinion in its       
entirety.                                                                       

INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of the  
existing senior management of the Company may be designated as members of senior
management of the Company following the Merger. David Wachtel, currently the    
Company's Chairman, has an employment agreement that will provide him with      
certain benefits if the Merger occurs. For example, Mr. Wachtel's employment    
agreement with the Company entitles him to compensation if his employment with  
the Company is terminated under certain specified conditions following a change 
in control transaction. Mr. Wachtel is currently negotiating a new employment   
agreement with Parent to be effective upon consummation of the Merger. The      
Company estimates that the maximum aggregate payments required to be paid under 
this agreement would be approximately $87,500. Mr. Wachtel is also considered   
the beneficial owner of 82,277 shares of Company Common Stock. Ileana Wachtel   
and Rodica Patrichi and Glen Linderman are directors of the Company who also own
shares in the Company. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
MANAGEMENT." In addition, Michael Patrichi, Ileana Wachtel and Rodica Patrici   
are beneficiaries of the Trust. See "THE MERGER -- Interests of Certain Persons 
in the Merger."                                                                 

     PURPOSE OF THE MERGER. The purpose of the Merger is to maximize the value
of the Company to its shareholders in the context of a sale of control pursuant 
to the order of the California Superior Court mandating the sale of the Trust's 
interest in the Company.                                                        

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   CERTAIN EFFECTS OF THE MERGER. Following the Effective Time, the Parent
will own 100% of the Company's outstanding capital stock, and the public        
Shareholders will cease to have any ownership interests in, or rights as,       
shareholders of the Company. As a result of the Merger, the Company will be a   
privately held corporation and a wholly owned subsidiary of the Parent and there
will be no public market for the Common Stock. The directors of the Sub at the  
Effective Time will be the directors of the Company after the Merger and will   
hold office from the Effective Time until the next annual meeting of the        
shareholders of the Company and until their successors are elected or appointed 
and are duly qualified. The officers of the Company at the Effective Time will  
be the officers of the Company following the Merger and will hold office from   
the Effective Time until their respective successors are duly elected or        
appointed and qualified in the manner provided in the Company's Articles of     
Incorporation, as in effect at the Effective Time, or as otherwise provided by  
law. See "THE MERGER - Certain Effects of the Merger."                          

   CONDITIONS TO THE MERGER. The respective obligations of the Parent, the
Sub and the Company to effect the Merger are subject to the satisfaction, at or 
prior to the Effective Time, of certain conditions, including shareholder       
approval, no violation of any statute or law and obtaining proper consents. See 
"THE MERGER AGREEMENT -- Conditions to Consummation of the Merger."             

REGULATORY MATTERS. Upon providing this Information Statement to    
shareholders of the Company, the Parent and the Company know of no remaining    
federal or state regulatory requirements that must be complied with or approvals
that must be obtained in order to consummate the Merger, other than the filing  
of the certificate of merger with the Secretary of States of the State of       
Delaware and the State of California.                                           

     EFFECTIVE TIME. The Merger Agreement provides that the Merger will become
effective at the time of acceptance for filing by the California Secretary of   
State and the Secretary of State of Delaware of a copy of the Merger Agreement  
and such other documents as may be required by applicable law. The effective    
date of the Merger will be on September __, 1999 unless you are otherwise       
notified.                                                                       

     TERMINATION, AMENDMENT AND WAIVER. The Merger Agreement may be terminated
at any time prior to the Effective Time, notwithstanding the approval thereof by
the shareholders of the Company: (i) by the mutual written consent, duly        
authorized by the boards of directors of the Parent and the Company; (ii) by the
Parent or the Company if the conditions to each party's obligation to effect the
Merger have been satisfied and the Effective Time shall not have occurred on or 
before September 30, 1999; (iii) by the Parent or the Company if the Effective  
Time shall not have occurred on or before December 31, 1999; (iv) by either the 
Parent or the Company if a court of competent jurisdiction in the United States 
or other U.S. governmental authority shall have issued a non-appealable final   
order, decree or ruling or taken any other action having the effect of          
restraining, enjoining or otherwise prohibiting the Merger. See "THE MERGER     
AGREEMENT -- Termination; Fees and Expenses."                                   

      CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. It is expected that
the receipt of cash for shares of Common Stock in the Merger or pursuant to the 
exercise of Dissenters' Rights will be treated for federal income tax purposes  
as a taxable transaction. Holders of Common Stock are strongly urged to consult 
their own tax advisors regarding the tax consequences of the Merger. See "THE   
MERGER -- Certain Federal Income Tax Consequences of the Merger."               

    ACCOUNTING  TREATMENT.  The  Merger  will be  accounted  for  under  the
"purchase" method of accounting.                                                

    ANCILLARY  AGREEMENTS.  The  Sellers  and  Parent  entered  into a Stock
Purchase  Agreement  dated as of July 16,  1999.  See "THE  MERGER - Ancillary  
Agreements."                                                                    

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA                                  

      The summary consolidated financial data presented below for, and as of the
end of, each of the years in the five-year period ended June 30, 1999 are       
derived from the consolidated financial statements of the Company, which        
financial statements have been audited by Hurley & Company, independent         
certified public accountants.                                                   

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 FIVE-YEAR FINANCIAL HISTORY
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) 
                                  YEARS ENDED JUNE 30,
                                    ------------------------------------------
                                 1998    1997     1996     1995     1994
                                    ------  ------  -------  -------  --------
Operations                                                                      
Net sales ........................$6,000  $4,010  $3,933   $3,007   $2,783
                                    ------  ------  -------  -------  --------
Net income (loss) ................   980     162       31    1,767     (800)
                                     ------  ------  -------  -------  ---------
Net income (loss) per common share   .59     .10      .02     1.11     (.50)
                                    ------  ------  -------  -------  --------
Financial position                                                              
Working capital (deficiency)...... 1,467     882      835    1,128   (1,004)
                                    ------  ------  -------  -------  --------
Stockholders' equity (deficiency in                                             
assets).............................   945    (111)    (242)     (32)  (1,877)  
                                    ------  ------  -------  -------  --------
Total assets...................... 5,681   4,641    3,282    3,175    2,603 
                                    ------  ------  -------  -------  --------
Long-term debt.................... 3,009   3,408    2,367    2,327    1,966 
                                    ------  ------  -------  -------  --------

No cash dividends have been paid or accrued during the past five years.   
Reference is made to the financial statements and notes thereto included        
beginning on page F-1.                                                          

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GENERAL   

This Information Statement is being delivered in connection with the
Merger of Sub with and into the Company pursuant to the Merger Agreement. As a  
result of the Merger, the Company will become a wholly-owned subsidiary of the  
Parent, each issued and outstanding share of Common Stock (other than shares    
that are owned by the Parent, Sub, the Company or any of their respective       
subsidiaries, or by shareholders who have validly perfected their Dissenters'   
Rights under the CGCL) will be converted into the right to receive the Merger   
Consideration, and the equity interest of all pre-Merger shareholders in the    
Company (other than the Parent) will be terminated.                             

Concurrently with the parties' execution of the Merger Agreement and
pursuant to the Stock Purchase Agreement, the Sellers agreed to sell all shares 
of the Company's Common Stock held by them. As of the date of the Stock Purchase
Agreement, the Trust owned 790,383 shares of Common Stock, David Wachtel and    
Ileana Wachtel owned in the aggregate 82,277 shares of Common Stock, and Radu   
Patrichi and Rodica Patrichi owned 20,881 shares and 1,103 shares, respectively.
In the aggregate, the Sellers owned 894,644 shares of Common Stock, representing
approximately 53% of the total outstanding shares of Common Stock at the date of
the Stock Purchase Agreement. All parties to the Stock Purchase Agreement       
controlling in the aggregate approximately 53% of the Common Stock of the       
Company, representing a majority of the votes entitled to be cast at a meeting  
to consider the Merger Agreement and the Merger, executed and delivered to the  
Company, on August 25, 1999, a written consent in lieu of a meeting of          
shareholders (the "Consent") approving the Merger Agreement and the Merger and  
adopting the Merger Agreement.                                                  

   The information contained in this Information Statement with respect to
the Parent, Sub and their respective affiliates has been furnished to the       
Company by the Parent, and the Company assumes no responsibility for the        
accuracy or completeness of such information.                                   

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MERGER AND RELATED TRANSACTIONS DESCRIBED   
HEREIN, OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND, IF GIVEN 
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING   
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.                             

REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING   

Under the CGCL and the Company's Articles of Incorporation, the     
affirmative vote of holders of a majority of the voting power of the outstanding
shares of Common Stock is required to approve and adopt the Merger Agreement and
Merger at a duly convened meeting of the shareholders of the Company called for 
such purpose. Pursuant to Section 603 of the CGCL, any action required by the   
CGCL to be taken at any meeting of shareholders of the Company may be taken     
without a meeting, without prior notice and without a vote of the shareholders  
of the Company if a written consent, setting forth the action to be taken, is   
signed by the holders of a majority of the votes entitled to be cast at such    
meeting of shareholders.                                                        

The Sellers currently own approximately 53% or 894,644 shares of the
Company's 1,673,888 shares of outstanding Common Stock. This gives the Sellers  
the effective power to approve or disapprove any corporate action submitted to a
vote of the Company's shareholders, in each case, regardless of how other       
shareholders of the Company may vote.                                           

     On August 25, 1999, the Sellers, who combined then held of record, in the
aggregate 894,644 shares of Common Stock, representing a majority of the votes  
entitled to be cast at a meeting to consider the Merger Agreement and the       
Merger, executed and delivered to the Company the Consent approving the Merger  
Agreement and the Merger and adopting the Merger Agreement. On August 25, 1999, 
there were issued and outstanding 1,673,888 shares of Common Stock. The Merger  
Agreement provides that the Merger will become effective at such time (the      
"Effective Time") as the certificate of merger is filed with the Secretary of   
State of the State of Delaware and the articles of merger are filed with the    
Secretary of State of the State of California, in accordance with the laws of   
the respective states. Rule 14c-2(b) of the Securities Exchange Act of 1934, as 
amended (the "Exchange Act") requires that this Information Statement be sent to
shareholders at least 20 calendar days prior to the earliest date on which the  
Merger may be effective. The required filings are expected to be made as soon as
practicable 20 days after the date of this Information Statement.               

PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION   

Upon consummation of the Merger, each holder of a Certificate or    
Certificates representing shares of Common Stock of the Company outstanding     
immediately prior to the Effective Time (except for the Sellers or any          

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shareholder who has validly perfected Dissenter's Rights under the CGCL) (the   
"Public Shareholders") will, upon the surrender thereof, duly endorsed, if      
required, to the Exchange Agent, be entitled to receive the Merger Consideration
into which such shares of Common Stock of the Company represented thereby will  
have been automatically converted as a result of the Merger. The Merger         
Agreement provides that Parent will take appropriate steps to cause the         
Surviving Corporation to deposit with the Exchange Agent, at or prior to the    
Effective Time, the amount necessary to enable the Exchange Agent to exchange   
the Merger Consideration for Certificates received by the Exchange Agent. A     
Letter of Transmittal will be sent to all shareholders of the Company of record 
as of the Effective Time under separate cover, promptly after the Effective Time
for use in surrendering their Common Stock. Detailed instructions concerning the
procedure for completing the Letter of Transmittal, surrendering certificates   
and the payment of Merger Consideration will be set forth in the Letter of      
Transmittal. For Common Stock to be validly surrendered pursuant to the Merger, 
a Letter of Transmittal (or a manually signed facsimile thereof), properly      
completed and duly executed, with any required signature guarantees, must be    
received by the Exchange Agent at one of its addresses set forth in the Letter  
of Transmittal and the certificates representing Common Stock must be received  
by the Exchange Agent. Checks representing the Merger Consideration payable to  
each shareholder will be sent to such shareholder as soon as practicable after  
the receipt of the Letters of Transmittal and certificates for Common Stock, as 
applicable. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF          
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED.                                      

DISSENTERS' RIGHTS

Shareholders who comply with the applicable statutory procedures of 
Chapter 13 of the CGCL may be entitled to Dissenters' Rights under Chapter 13 of
the CGCL. In order to exercise and perfect Dissenters' Rights, the record holder
of Common Stock at the Effective Time must follow the steps summarized below    
properly and in a timely manner. A person having a beneficial interest in shares
of Common Stock held of record in the name of another person, such as a broker  
or nominee, must act promptly to cause the record holder to follow the steps    
summarized below properly and in a timely manner to perfect Dissenters' Rights. 

  CHAPTER 13 OF THE CGCL IS REPRINTED IN ITS ENTIRETY AS ANNEX B TO THIS
INFORMATION STATEMENT. SET FORTH BELOW IS A SUMMARY DESCRIPTION OF CHAPTER 13.  
THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO        
DISSENTERS' RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX B. ALL
REFERENCES IN CHAPTER 13 AND THIS SUMMARY TO "SHAREHOLDER" ARE TO THE RECORD    
HOLDER OF THE SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME AS 
TO WHICH DISSENTERS' RIGHTS ARE ASSERTED. FAILURE TO COMPLY STRICTLY WITH THE   
PROCEDURES SET FORTH IN CHAPTER 13 OF THE CGCL WILL RESULT IN THE LOSS OF       
DISSENTERS' RIGHTS.                                                             

      Company shareholders of record who comply with the requirements of Chapter
13 will be entitled to exercise dissenters' rights pursuant to the provisions of
Chapter 13 of the California Corporations Code. In accordance with these        
provisions, dissenting Company shareholders will have the right to be paid in   
cash the fair market value of their shares of Common Stock as determined by     
appraisal (excluding any appreciation or depreciation as a consequence of the   
Merger) by fully complying with the procedures set forth under California       
Corporations Code.                                                              

DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.    
Persons who are beneficial owners of shares held of record by another person,   
such as brokers, banks or nominees, should instruct the record holder to follow 
the procedures outlined below if they wish to dissent from the Merger with      
respect to any or all of their shares.                                          

Dissenting shareholders must submit to the Company at its principal 
office, 9750 De Soto Avenue, Chatsworth, California 91311, Attention: Secretary,
a written demand that the Company purchase for cash some or all of their shares.
The notice must state the number of shares held of record which the shareholder 
demands to be purchased and the amount claimed to be the "fair market value" of 
those shares. That statement of fair market value will constitute an offer by   
the dissenting shareholder to sell such shares at that price. SUCH DEMAND WILL  
NOT BE EFFECTIVE UNLESS IT IS RECEIVED NOT LATER THAN TWENTY (20) DAYS FROM THE 
DATE OF THIS INFORMATION STATEMENT ("DISSENTERS DUE DATE").                     

   If Company shareholders have a right to require the Company to purchase
their shares for cash under the dissenters' rights provisions of the California 
Corporations Code, the Company will mail to each such shareholder a notice of   
approval of the Merger within ten days after the effective date of the Merger,  
stating the price determined by it to represent the "fair market value" of the  
dissenting shares, and a brief description of the procedure to be followed if   
the shareholder desires to exercise such dissenters' rights. The statement of   
price will constitute an offer to purchase any dissenting shares at that price. 

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      To perfect their dissenters' rights, shareholders of record must: (i) make
written demand for the purchase of their dissenting shares upon the Company on  
or before the Dissenters Due Date and (ii) within 30 days after the mailing to  
shareholders by the Company of the notice of approval of the principal terms of 
the Merger, submit the certificate(s) representing their dissenting shares to   
the Company or its transfer agent for notation thereon that they represent      
dissenting shares. The notice of approval of the Merger will specify the date by
which the submission of certificates for endorsement must be made and a         
submission made after that date will not be effective for any purpose. Failure  
to follow any of these procedures may result in the loss of statutory           
dissenters' rights.                                                             

If a dissenting shareholder and the Company agree that shares are   
dissenting shares and agree upon the price of the shares, the Company, upon     
surrender of the certificates, will make payment of that amount (plus interest  
thereon at the legal rate on judgments from the date of such agreement) within  
30 days after such agreement. Any agreement between dissenting shareholders and 
the Company fixing the "fair market value" of any dissenting shares must be     
filed with the Secretary of the Company.                                        

If the Company denies that the shares are dissenting shares, or the 
Company and a dissenting shareholder fail to agree upon the "fair market value" 
of the shares, the dissenting shareholder may, within six months after the date 
on which notice of approval of the Merger was mailed to the shareholder, but not
thereafter, file a complaint (or intervene in a pending action, if any) in the  
Superior Court for the County of Los Angeles, State of California, requesting   
that the Superior Court determine whether the shares are dissenting shares and  
the "fair market value" of such dissenting shares. The Superior Court may       
appoint one or more impartial appraisers to determine the "fair market value"   
per share of the dissenting shares. The costs of the action will be assessed or 
apportioned as the Superior Court considers equitable, but if the "fair market  
value" is determined by the Superior Court to exceed 125% of the price offered  
in the Merger, the Company will be required to pay such costs including, in the 
discretion of the Superior Court, attorneys' fees, fees of expert witnesses and 
interest at the legal rate on judgments. A dissenting shareholder must bring    
such an action within six months after the date on which the notice of approval 
of the Merger Agreement was mailed to the shareholder, whether or not the       
Company responds within such time to the shareholder's written demand that the  
Company purchase for cash shares voted against the Merger Agreement.            

    SHAREHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS MUST STRICTLY
COMPLY WITH THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE CGCL. FAILURE TO TAKE 
ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF DISSENTERS' RIGHTS WILL    
RESULT IN THE TERMINATION OR WAIVER OF SUCH RIGHTS.                             

THE MERGER

BACKGROUND TO THE MERGER                                                        

      The Mihai D. Patrichi Trust (the "Trust") presently owns of record 790,383
shares, or approximately 47.3% of the Company's outstanding Common Stock. The   
provisions of the Trust provide that the trustees act in a prudent manner for   
the benefit of the Trust's beneficiaries. On [_____], 1998, one of the          
beneficiaries of the Trust, Michael Patrichi instutited the Patrichi Probate    
Matter by filing objections to the accountings filed by the Trustees on _______,
1998, asserting that the Trustees should be removed and replaced as the Trustees
of the Trust.                                                                   

  On October 1, 1998, the Court ordered the Trustees to sell the Trust's
interest in the Company as soon as possible at the highest and best price. On   
October 9, 1998, the Board determined that a change of control of the Company   
was probable and established a special committee comprised of David Wachtel and 
Glenn Linderman to investigate measures to enhance shareholder value, evaluate  
proposals seeking to acquire shares of the Company and retain investment        
bankers. The Company and the Trust decided to cooperate in the process of the   
Court ordered sale of the Trust's shares in the Company. The Court ordered the  
Trust to select an investment banking firm from among four firms listed in the  
Court's order. With approval from the Court, on November 9, 1998, the Company   
executed an engagement letter with TSC (the "TSC Engagement Letter"), to        
investigate methods of maximizing shareholder value and facilitating the sale of
the Company pursuant to the Court's order.                                      

      TSC commenced the solicitation process with a letter to selected financial
and strategic investors whom TSC identified as likely to have an interest in a  
transaction with the Company. Included among those contacted were entities in   
the manufacturing industry as well as potential financial investors. Those who  
showed greater interest were asked to enter into a confidentiality agreement    
with the Company. Upon the execution of such agreement, each prospective bidder 
was provided with a Confidential Information Memorandum, which was prepared by  
TSC and the Company in connection with the sale process and contained detailed  
information about the Company's operations and financial position. TSC          
distributed the Confidential Information Memorandum to certain identified       
potential buyers                                                                

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during January and February 1999. Certain of the potential purchasers who       
received the Confidential Information Memorandum conducted additional due       
diligence on the Company including, meeting with members of the Company's       
management to discuss structural and economic factors important to the business.

TSC received indications of interest from a number of potential     
purchasers. On May 26, 1999 TSC sent a letter to each of the prospective        
purchasers which requested preliminary proposals to be delivered to the Company 
and TSC by Wednesday June 2, 1999 and which specified the procedures to be      
followed in submitting proposals, indicating that the terms of any submitted    
proposal, including any conditions, would be considered together with price in  
determining whether an offer was acceptable. On May 28, 1999, Parent provided a 
preliminary proposal to TSC.                                                    

On June 23, 1999, TSC sent a letter to each prospective bidder which
provided each such bidder with a form stock purchase agreement and form merger  
agreement and which requested that each such bidder respond with a formal bid by
July 2, 1999. On July 2, 1999, TSC received two bids, one from Parent and one   
from Bidder 1 which met certain minimum standards set by the Company upon the   
advice of TSC. Each of the two bids proposed the acquisition of all of the      
shares of the Common Stock of the Company, including those held by the Trust.   

   On July 9, TSC received a bid from a third bidder, Bidder 2. On July 9,
the Special Committee of the Board held a meeting to evaluate alternatives      
concerning the Court ordered sale by the Trust of its interest in the Company.  
Representatives of TSC in attendance at the meeting outlined the terms of the   
proposals made to purchase all of the outstanding shares of the Common Stock.   
TSC began its presentation by stating that for over nine months TSC had         
investigated methods for maximizing shareholder value and that during that time 
TSC had received together with the three formal offers two expressions of       
interest to purchase the Company.                                               

 TSC gave a detailed presentation of the Parent, Bidder 1 and Bidder 2
offers, including TSC's analysis of the strength of each party's ability to     
finance the transaction. Explained that based on TSC's knowledge of Parent and  
Bidder 1 and TSC's analysis of each party's financial condition that Parent and 
Bidder 1 had the financial capibility to consumate the transaction. TSC reviewed
the terms of the Bidder 2 offer, and advised the Special Committee that the     
offer from Bidder 2 contained a substantially lower price per share and advised 
the Committee to pursue the Parent and Bidder 1 offers. Following extensive     
discussion and review, the members of the Special Committee determined, based   
upon part on TSC's advice and the Special Committee's own review of the offers  
to pursue the Parent and Bidder 1 offers. Bidder 4's offer was structured as a  
stock swap, but Bidder 4's offer was contingent upon the receipt of a fairness  
opinion from TSC which TSC was unwilling to provide. TSC advised the Special    
Committee that although Bidder 3 made no formal offer, Bidder 3 continued to be 
interested in the Company.                                                      

  The remainder of the July 9 meeting was spent discussing the Company's
strategy for pursuing the offers of Parent and Bidder 1. Legal counsel to the   
Company recommended that the Company distribute a revised Merger Agreement and  
Stock Purchase Agreement to Parent and Bidder 1, specifying a $7.50 price. TSC  
advised the Special Committe of its concerns that neither Parent nor Bidder 1   
would continue to pursue the transaction absent an executed definitive          
agreement. TSC stated that both offers were very favorable to the Company and   
that they were almost equal. Following significant discussion on the matter, it 
was determined to distribute a Merger Agreement to both parties with a $7.50    
price and, ask both parties to sign and return the Agreements. The Special      
Committee also requested that each bidder deliver a "highly confident letter"   
from a bank.                                                                    

     TSC presented the competing bids to the entire Board at a meeting held on
July 16. At that meeting, TSC outlined the positive and negative aspects of the 
competing bids. After TSC's presentation and substantial analysis and discussion
by the board, and after being advised by TSC with respect to the fairness and   
integrity of the competing bids and receiving the oral opinion of TSC as to the 
fairness of the bids (subsequently confirmed by delivery of a written opinion   
dated August 27, 1999), the Company accepted Parent's bid. At the Board meeting 
on July 16, the Sellers executed the Stock Purchase Agreement and the Company   
executed the Merger Agreement. On July 28, the Company issued a press release   
announcing that the Merger Agreement had been executed.                         

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    Following announcement, Bidder 2 delivered a second acquisition proposal
to TSC, which included a stated offer of $8.10 per share for all or a portion of
the Common Stock. The Special Committee held an emergency meeting on July 30 in 
order to fully evaluate the terms of the new offer. TSC presented an analysis to
the Special Committee of Bidder 2's new proposal. TSC informed the Special      
Committee that Bidder 2's proposal was not in the form of a binding merger      
agreement, but in the form of a proposal for a letter of intent, which had not  
yet been provided to TSC or the Company. Bidder 2's second proposal also        
included a financing condition, but it was without evidence of the availability 
of such financing. In addition, Bidder 2's proposal included a due diligence    
condition which would provide Bidder 2 with a broad basis upon which to abandon 
the merger. After significant discussion, the Special Committee determined to   
proceed with its merger transaction with Parent, pending receipt of further     
clarification of Bidder 2's new proposal. On August 10, a motion was heard      
before the Court to obtain approval of the Parent bid. This motion was opposed  
by Bidder 2 and Bidder 2 had the opportunity to provide the Court with evidence 
as to the merits of the Parent bid. On August 11, 1999, Judge Harvey Schneider  
of the Superior Court of the State of California for the County of Los Angeles  
approved of the disposition to Parent of the Trust's interest in the Company    
pursuant to the terms of the Stock Purchase Agreement, over the bid of Bidder 2,
and found that the Board had acted reasonably and made the only reasonable      
decision available in determining to accept the offer of Parent.                

RECOMMENDATION OF THE BOARD OF DIRECTORS                                        

On July 16, 1999 the Board, with three directors in favor and one   
abstaining, approved the Merger and recommended that shareholders vote to       
approve the Merger and adopt the Merger Agreement. See "THE MERGER -- Background
of the Merger." In making its determination and recommendation, the members of  
the Board considered various factors, including, but not limited to, the        
following, all of which they believe support such approval and adoption:        

      (i) the Company's business, its current financial condition and results of
operations, its future prospects and the current and anticipated developments in
the Company's industry;                                                         

     (ii) the relationship between the Merger Consideration and the historical
market prices and recent trading activity of the Common Stock, including the    
fact that the $7.50 per share price represents a premium of more than 37.9% over
the market price of the Common Stock at the time TSC sent out the first round of
Confidential Information Memoranda on February 4, 1999 and an approximately     
44.5% premium over the average closing price of the Common Stock for the 90     
trading days prior to receipt of Parent's offer (See "PRICE RANGE OF COMMON     
STOCK");                                                                        

      (iii) the oral opinion of TSC delivered to the Board on July 16, 1999 (and
subsequently confirmed by delivery of a written opinion dated August 27, 1999)  
to the effect that, as of such date, the Merger Consideration to be received by 
the holders of the Company's Common Stock pursuant to the Merger Agreement is   
fair to such holders (see " -- Opinion of the Company's Financial Advisor" and  
Annex C hereto);                                                                

   (iv) the fact that the holders of a majority of the voting power of the
Company were prepared to support the Merger and to receive $7.50 per share for  
their Common Stock;                                                             

     (v) the other terms and conditions of the Merger Agreement, including the
facts that the Merger Agreement was structured as much as possible to be the    
equivalent of the immediate sale of the Company, with limited representations   
and warranties by the Company and limited conditions to Parent's obligation to  
consummate the Merger;                                                          

   (vi) the fact that the Merger Consideration is all cash, and the amount
will be adjusted under certain conditions;                                      

 (vii) the fact that the Company and TSC had previously identified and
contacted the parties believed most likely to be interested in a transaction    
with the Company; that thereafter it was widely reported that a change of       
control transaction was available; and that several other parties, including    
companies previously contacted, did emerge as possible bidders, but that with   
the exception of one other bid, no firm proposal at $7.50 per share or higher   
was received from any other party; and                                          

     (viii) the fact that stockholders at the Effective Time (other than those
executing the Consent if the Stock Purchase Agreement are not consummated prior 
thereto) have the right to dissent from the Merger and to demand appraisal of   
the fair value of their Common Stock under the CGCL (See "DISSENTERS' RIGHTS"). 

     In view of the wide variety of factors considered, the Board did not find
it practicable to, and did not, quantify, or otherwise attempt to assign        
relative weights to, the specific factors considered or determine that any      
factor was of                                                                   

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particular importance in reaching its determination that the Merger is fair to, 
and in the best interests of, the Shareholders.                                 

    THE COMPANY  BOARD HAS APPROVED THE MERGER AND HAS  DETERMINED  THAT THE
MERGER  IS FAIR  TO,  AND IN THE  BEST  INTERESTS  OF,  THE  COMPANY'S  PUBLIC  
SHAREHOLDERS.                                                                   

OPINION OF THE COMPANY'S FINANCIAL ADVISORS                                     

  The Board of the Company requested TSC to provide an opinion as to the
fairness from a financial point of view to shareholders of the consideration to 
be received by such shareholders pursuant to the terms of the Merger Agreement. 
On August 27, 1999, TSC delivered its written opinion (the "TSC Fairness        
Opinion") to the effect that, as of the date of such opinion and based upon and 
subject to the assumptions, limitations and qualifications set forth therein,   
the Merger Consideration to be received by shareholders pursuant to the Merger  
Agreement is fair to such shareholders from a financial point of view.          

A COPY OF THE TSC FAIRNESS OPINION IS ATTACHED HERETO AS APPENDIX C.
SHAREHOLDERS ARE URGED TO READ THE TSC FAIRNESS OPINION CAREFULLY IN ITS        
ENTIRETY FOR THE ASSUMPTIONS MADE, THE PROCEDURES FOLLOWED, THE MATTERS         
CONSIDERED AND THE LIMITS OF THE REVIEW MADE BY TSC IN CONNECTION WITH SUCH     
UPDATED OPINION.                                                                

In connection with the TSC Fairness Opinion, TSC performed certain  
procedures and reviewed with the management of the Company the assumptions on   
which such analyses were based. The following is a summary of the results of    
such analyses made by TSC in connection with the TSC Fairness Opinion.          

   HISTORICAL STOCK PRICE PERFORMANCE. To provide comparative market data,
TSC examined the Company's historical Common Stock performance. TSC's analysis  
consisted of a historical analysis of closing prices and trading volumes from   
January 1, 1994 through August 20, 1999. TSC also examined trading volumes at   
specified prices of the Common Stock for the twelve months ended August 20,     
1999. Since January 1, 1994, the Common Stock reached a high of $8.50 per share 
and a low of $.000625 per share. On August 20, 1999, the closing price of the   
Common Stock was $7.25 per share.                                               

      PREMIUM ANALYSIS. TSC reviewed publicly available information to determine
the premiums paid in (i) 16 selected transactions in the aerospace and defense  
industry completed between January 1, 1995 and July 30, 1999 (the "Selected     
Aerospace and Defense Transactions") and (ii) 36 mergers and acquisitions       
transactions ranging in size from $5 million to $25 million completed between   
January 1, 1996 and July 30, 1999 (the "Selected M&A Transactions"). For the    
Selected Aerospace and Defense Transactions, TSC reviewed the percentage premium
in each transaction represented by the offer prices over the trading prices one 
day, one week and one month prior to the announcement date of each respective   
transaction. The mean percentage amount by which the offer prices exceeded the  
closing stock prices one day, one week and one month prior to the announcement  
date for the Selected Aerospace and Defense Transactions was approximately      
38.3%, 40.1% and 51.2%, respectively. For the Selected M&A Transactions, TSC    
reviewed the percentage premium in each transaction represented by the offer    
prices over the trading prices one day, one week and one month prior to the     
announcement date of each respective transaction. The mean percentage amount by 
which the offer prices exceeded the closing stock prices one day, one week and  
one month prior to the announcement date for the Selected M&A Transactions was  
approximately 69.3%, 58.3% and 59.3%, respectively. The percentage amount by    
which the Merger Consideration exceeded the closing stock price of the Common   
Stock one day, one week and one month prior to July 23, 1999 the date of the    
announcement of the Merger, was approximately 25.0%, 25.0% and 87.5%,           
respectively. The percentage by which the Merger Consideration exceeded the     
closing stock price of the Common Stock one day, one week and one month prior to
August 20, 1999 was 9.1%, 11.1% and 36.4%, respectively.                        

     COMPARISON OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. TSC analyzed
the Company's operating performance relative to select publicly traded bearing  
manufacturers (the "Bearing Comparable Companies"). TSC compared certain market 
trading statistics for the Company with the Bearing Comparable Companies,       
including total enterprise value (defined as market value of common equity plus 
book value of total debt less cash and cash equivalents) (based on reported     
closing prices for the Bearing Comparable Companies on August 20, 1999 as a     
multiple of latest twelve months ("LTM") revenues, LTM earnings before interest,
taxes, depreciation and amortization ("EBITDA") and LTM earnings before interest
and taxes ("EBIT"), and price to earnings ratios ("P/E") based on LTM earnings  
per share ("EPS") and book value of common equity per share. As of August 20,   
1999, this analysis resulted in (i) a range of 0.6x to 2.5x, and a mean of 1.2x 
total enterprise value to LTM revenues compared to 2.0x for the Common          

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Stock based on the Merger Consideration, (ii) a range of 4.2x to 7.4x, and a    
mean of 5.7x total enterprise value to LTM EBITDA compared to 6.1x for the      
Company based on the Merger Consideration, (iii) a range of 6.2x to 11.8x, and a
mean of 8.8x total enterprise value to LTM EBIT compared to 7.3x for the Company
based on the Merger Consideration, (iv) a range of 7.4x to 20.1x, and a mean of 
13.4x P/E based on LTM EPS compared to 8.6x for the Company based on the Merger 
Consideration, and (v) a range of 1.1x to 3.2x, and a mean of 1.8x price to book
value of common equity per share compared to 6.0x for the Company based on the  
Merger Consideration.                                                           

    TSC also analyzed the Company's operating performance relative to select
publicly traded pyrotechnic manufacturers (the "Pyrotechnic Comparable          
Companies"). TSC compared certain market trading statistics for the Company with
the Pyrotechnic Comparable Companies, including total enterprise value (defined 
as market value of common equity plus book value of total debt less cash and    
cash equivalents) based on reported closing prices for the Pyrotechnic          
Comparable Companies on August 20, 1999 as a multiple of latest twelve months   
("LTM") revenues, LTM earnings before interest, taxes, depreciation and         
amortization ("EBITDA") and LTM earnings before interest and taxes ("EBIT"), and
price to earnings ratios ("P/E") based on LTM earnings per share ("EPS") and    
book value of common equity per share. As of August 20, 1999, this analysis     
resulted in (i) a range of 0.7x to 1.0x, and a mean of 0.8x total enterprise    
value to LTM revenues compared to 2.0x for the Common Stock based on the Merger 
Consideration, (ii) a range of 6.9x to 10.5x, and a mean of 8.3x total          
enterprise value to LTM EBITDA compared to 6.1x for the Company based on the    
Merger Consideration, (iii) a range of 2.1x to 9.3x, and a mean 4.5x total      
enterprise value to LTM EBIT compared to 7.3x for the Company based on the      
Merger Consideration, (iv) a range of 11.6x to 12.2x and a mean of 11.9 P/E     
based on LTM EPS compared to 8.6x for the Company based on the Merger           
Consideration, and (v) a range of 0.8x to 6.6x, and a mean of 2.9x price to book
value of common equity per share compared to 6.0x for the Company based on the  
Merger Consideration.                                                           

      ANALYSIS OF SELECTED TRANSACTIONS IN THE AEROSPACE AND DEFENSE SECTOR. TSC
reviewed publicly available information for the Selected Aerospace and Defense  
Transactions. TSC reviewed the consideration paid in such transactions in terms 
of the total enterprise value as a multiple of LTM revenues, EBITDA and EBIT of 
the acquired entity prior to its acquisition as well as the equity value        
(defined as market value of common equity) as a multiple of LTM net income and  
book value of common equity of the acquired entity prior to its acquisition. The
analysis resulted in (i) a range of 6.3x to 14.0x, and a mean of 10.0x total    
enterprise value to LTM revenue compared to 2.0x for the Company based on the   
Merger Consideration, (ii) a range of 7.8x to 27.0x, and a mean of 15.2x total  
enterprise value to LTM EBITDA compared to 6.1x for the Company based on the    
Merger Consideration, (iii) a range of 0.5x to 2.3x, and a mean of 1.5x total   
enterprise value to LTM EBIT compared to 7.3x for the Company based on the      
Merger Consideration, (iv) a range of 3.6x to 21.2x, and a mean of 13.7x equity 
value to LTM net income compared to 8.6x for the Company based on the Merger    
Consideration, and (v) a range of 2.4x to 5.2x, and a mean of 3.8x equity value 
to book value of common equity compared to 6.0x for the Company based on the    
Merger Consideration.                                                           

DISCOUNTED CASH FLOW ANALYSIS. For purposes of this analysis, TSC   
performed a discounted cash flow analysis for the Company on a stand-alone basis
based on projections provided by management. In performing its analysis, TSC    
calculated the estimated "Free Cash Flow" based on stand-alone projected        
unleveraged operating income adjusted for cash taxes paid. TSC analyzed the     
projections and discounted the stream of Free Cash Flows from fiscal 2000 to    
fiscal 2004, provided in such projections, back to August 20, 1999 using        
discount rates ranging from 11.0% to 16.0%. TSC based the discount rate         
assumptions on the Company's weighted average cost of capital, as adjusted to   
reflect potential adverse factors, including the strict qualification process   
which the Company's products are subject to, narrow customer concentration,     
dependence upon the defense industry and uncertainty concerning the future      
market for the Company's products. To estimate the residual values of the       
Company on a stand-alone basis at the end of the forecast period, TSC applied   
terminal multiples of 6.0x to 10.0x projected fiscal 2004 EBITDA and discounted 
such value estimates back to August 20, 1999 using discount rates ranging from  
11.0% to 16.0%. TSC then aggregated the present values of the Free Cash Flows   
and the present values of the residual values to derive a range of implied      
enterprise values for the Company on a stand-alone basis. The range of implied  
enterprise values stand-alone were then adjusted for the Company's net debt to  
yield implied equity values of the Company on a stand-alone basis. The range of 
equity values were then divided by the number of fully diluted shares to        
determine a range of equity values per share for the Company on a stand-alone   
basis. The results of this analysis indicated a range of implied equity values  
of $5.25 to $6.87 per share.                                                    

     The summary set forth above does not purport to be a complete description
of the analyses performed by TSC, but describes, in summary form, the principal 
elements of the analyses made by TSC in connection with the TSC Fairness        
Opinion. The preparation of a fairness opinion involves various determinations  
as to the most appropriate and relevant methods of financial analysis and the   
application of these methods to the particular circumstances and, therefore,    
such an opinion is not readily susceptible to summary description. Each of the  
analyses conducted by TSC was carried out in order to provide a different       
perspective on the transaction and to add to the total mix of information       
available. TSC did not form a conclusion as to whether any individual analysis, 
considered in isolation, supported or                                           

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failed to support an opinion as to                                              
fairness from a financial point of view. Rather, in reaching its conclusion, TSC
considered the results of the analyses in light of each other and ultimately    
reached its opinion based on the results of all analyses taken as a whole. TSC  
did not place particular reliance or weight on any individual analysis, but     
instead concluded that its analyses, taken as a whole, supported its            
determination. Accordingly, notwithstanding the separate factors summarized     
above, TSC believes that its analyses must be considered as a whole and that    
selecting portions of its analysis and the factors considered by it, without    
considering all analyses and factors, could create an incomplete or misleading  
view of the process underlying its opinion. In performing its analyses, TSC made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by TSC are not necessarily 
indicative of actual values or future results, which may be significantly more  
or less favorable than suggested by such analyses.                              

The TSC Fairness Opinion was provided pursuant to the TSC Engagement
Letter.                                                                         

PROJECTIONS                                                                     

    In connection with the solicitation of bids for the Company, the Company
made available to interested parties access to certain financial projections    
prepared by the Company's management. These projections were prepared by the    
Company's management to assist in financial planning and analysis and not with a
view to publication. Such projections were prepared based on historical         
information available at such time and estimates as to the future financial     
performance of the Company. The projections encompassed estimates of future     
revenues, expenses, taxes and income. The projections were not prepared in      
accordance with the guidelines established by the American Institute of         
Certified Public Accountants for preparation and presentation of financial      
forecasts, nor have they been audited, compiled or otherwise examined by        
independent accountants or auditors.                                            

   These projections were also delivered to TSC as part of the information
reviewed by TSC in rendering its opinion as to the fairness from a financial    
point of view to shareholders of the consideration to be received by such       
shareholders pursuant to the Merger Agreement.                                  

     Projections are based upon forecasts of future financial performance, and
the projections as well as the assumptions on which they are based are          
inherently subject to substantial uncertainties. Consequently, projections are  
not indicative of actual future results, which may be significantly more or less
favorable than suggested by the projections. The projections provided to        
potential bidders and to TSC were based upon the assumed realization in full of 
all the Company's management's goals. The Company updated its projections       
following the end of its fourth fiscal quarter. This set of management          
projections projected fiscal year 1999 revenues of $8.1 million and fiscal year 
2000 revenues of $9.9 million. In addition, this set of management projections  
projected fiscal year 1999 EBITDA of $2.9 million and fiscal year 2000 EBITDA of
$3.5 million.                                                                   

 Projections are not intended by management to be indicative of actual
future results, but were prepared to assist in financial planning and analysis. 
The Board does not assume that the projections are indicative of actual future  
results but are the best currently available estimates and judgments of         
management as to the future operating and financial performance of the Company. 

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

    Information with respect to certain contracts, agreements, arrangements,
or understandings with certain of the Company's executive officers, directors or
affiliates is set forth below. See, also, "-- Ancillary Agreements" and         
"-- Background of the Merger."                                                  

    THE  TRUST.  The Trust is the  beneficial  owner of 790,383  shares,  or
approximately 47% of the Company's outstanding Common Stock.                    

     EMPLOYMENT AGREEMENT. David Wachtel, the Company's chairman, is currently
in negotiations for an agreement (the "Wachtel Letter Agreement"), providing for
termination of the existing employment agreement between the Company and Mr.    
Wachtel upon consummation of the Merger and the waiver by Mr. Wachtel of all    
severance pay thereunder, and providing for Mr. Wachtel to continue in the      
employment of the Company for a term of three (3) years.                        

TREATMENT OF STOCK OPTIONS. The Company has outstanding options to  
purchase shares of Common Stock which are held by officers of the Company.      
Pursuant to the Merger Agreement, the Company agreed to use its reasonable good 
faith efforts to cause all outstanding stock options to be canceled at the      
Effective Time for an amount in cash equal to the Merger Consideration, less the
per share option exercise price, except as otherwise agreed. Pursuant thereto,  
the                                                                             

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Company has entered into an agreement with each holder of outstanding options   
providing for such cancellation. See "THE MERGER AGREEMENT -- Conditions to the 
Merger."                                                                        

     DIRECTOR LIABILITY AND INDEMNIFICATION. Under the CGCL, a corporation may
indemnify any agent to the corporation, including a director to the corporation 
or its stockholders, for monetary damages for breach of fiduciary duty as a     
director. Such provision may not, however, eliminate or limit director monetary 
liability for: (i) breaches of the director's duty of loyalty to the corporation
or its stockholders (unless determined otherwise by the court) and (ii) amounts 
paid in defending or settling or otherwise disposing of a pending action without
court approval (unless the agent is successful in its defense). The Company's   
by-laws provide that the Company shall indemnify each present and former        
director and officers of the Company or any of its subsidiaries to the fullest  
extent permitted by applicable law.                                             

    Under the CGCL, a corporation has the power to indemnify any director or
officer against expenses, judgments, fines, and settlements incurred in a       
proceeding, other than an action by or in the right of the corporation, if the  
person acted in good faith and in a manner that the person reasonably believed  
to be in the best interests of the corporation or not opposed to the best       
interests of the corporation, and, in the case of a criminal proceeding, had no 
reasonable cause to believe the conduct of the person was unlawful. In the case 
of an action by or in the right of the corporation, the corporation has the     
power to indemnify any officer or director against expenses incurred in         
defending or settling the action if such person acted in good faith and in a    
manner such person reasonably believed to be in or not opposed to the best      
interests of the corporation; provided, however, that no indemnification may be 
made when a person is adjudged liable to the corporation, unless a court        
determines such person is entitled to indemnity for expenses, and then such     
indemnification may be made only to the extent such court shall determine. The  
CGCL requires that to the extent an officer or director of a corporation is     
successful on the merits or otherwise in defense of any third-party or          
derivative proceeding, or in defense of any claim, issue, or matter therein, the
corporation must indemnify the officer or director against expenses incurred in 
connection therewith.                                                           

  The Merger Agreement provides that the indemnification and exculpation
provisions in favor of the past and present directors or officers of the Company
currently in effect will remain in effect for at least six years from the       
Effective Time and that the current directors' and officers' liability insurance
policies (or other policies providing, subject to certain conditions, at least  
the same coverage as the current policies).                                     

PURPOSE OF THE MERGER                                                           

    The purpose of the Merger is to maximize the value of the Company to its
shareholders in the context of a sale of control pursuant to the order of the   
California Superior Court mandating the sale of the Trust's interest in the     
Company.                                                                        

CERTAIN EFFECTS OF THE MERGER; PLANS FOR THE COMPANY AFTER THE MERGER           

   Following the Effective Time, the Parent will own 100% of the Company's
outstanding capital stock. Accordingly, the Parent will be the sole beneficiary 
of any future earnings and growth of the Company after the Effective Time (until
shares of capital stock, if any, are issued to other shareholders) and will have
the ability to benefit from any corporate opportunities that may be pursued by  
the Company in the future. At the Effective Time, the public Shareholders will  
cease to have any ownership interests in, or rights as, shareholders of the     
Company. Following the Effective Time, the public Shareholders will not benefit 
from any increase in the value of the Company or any payment of dividends on the
Common Stock and will not bear the risk of any decrease in the value of the     
Company.                                                                        

As a result of the Merger, the Company will be a privately held     
corporation and a wholly owned subsidiary of the Parent and there will be no    
public market for the Common Stock. At the Effective Time, the Common Stock will
cease to be quoted on the OTC Bulletin Board and price quotations with respect  
to sales of shares of the Common Stock in the public market will no longer be   
available. In addition, registration of the Common Stock under the Exchange Act 
will be terminated. This termination will make certain provisions of the        
Exchange Act, such as the short-swing profit recovery provisions of Section     
16(b) and the requirement under the proxy rules of Regulation 14A of furnishing 
a proxy or information statement in connection with shareholders meetings, no   
longer applicable to the Company. After the Effective Time, the Company will no 
longer be required to file periodic reports with the Securities and Exchange    
Commission (the "Commission") in connection with the Common Stock.              

   The directors of the Sub at the Effective Time will be the directors of
the Company after the Merger and will hold office from the Effective Time until 
the next annual meeting of the shareholders of the Company and until their      
successors are elected or appointed and are duly qualified. The officers of the 
Company at the Effective Time will be the officers of the Company following the 
Merger and will hold office from the Effective Time until their respective      

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successors are duly elected or appointed and qualified in the manner provided in
the Company's Articles of Incorporation, as in effect at the Effective Time, or 
as otherwise provided by law.                                                   

ACCOUNTING TREATMENT OF THE MERGER                                              

Under applicable accounting standards, the Merger will treated as a 
purchase of the Company by the Parent.                                          

REGULATORY APPROVALS                                                            

The Parent and the Company know of no remaining federal or state    
regulatory requirements that must be complied with or approvals that must be    
obtained in order to consummate the Merger, other than the filing of the        
certificate of merger with the Secretary of State of the State of Delaware and  
the filing of articles of merger with the Secretary of States of the State of   
California.                                                                     

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER                           

The receipt of Merger Consideration for Common Stock pursuant to the
Merger or cash pursuant to the exercise of dissenters' rights will be a taxable 
transaction for federal income tax purposes and may also be a taxable           
transaction under applicable state, local or foreign tax laws. In general, a    
shareholder of the Company will recognize gain or loss for federal income tax   
purposes equal to the difference between the amount of cash received for the    
shares of Common Stock sold and such shareholder's adjusted tax basis in such   
shares. Assuming the shares constitute capital assets in the hands of the       
shareholder, such gain or loss will be capital gain or loss. Capital gain       
recognized in 1999 generally will be taxed to individuals and certain other     
non-corporate entity shareholders at a maximum federal tax rate of 20 percent   
with respect to shares of Common Stock held for more than 12 months. The federal
tax rates applicable to ordinary income will generally apply to gain recognized 
on the sale or exchange of shares held for one year or less. The highest        
statutory federal income tax rate currently applicable to an individual         
shareholder is 39.6%. Capital losses not offset by capital gains may be deducted
against individuals' and offer non-corporate shareholders' ordinary income up to
a maximum annual amount of $3,000 ($1,500 for a married person filing           
separately). Unused capital losses may be carried forward indefinitely by       
individuals and other non-corporate shareholders. All net capital gain of a     
corporate shareholder is subject to tax at ordinary corporate rates. A corporate
shareholder can deduct capital losses only to the extent of capital gains, with 
unused losses being carried back three years and forward five years.            

THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF  
SHAREHOLDERS, SUCH AS FINANCIAL INSTITUTIONS, BROKER-DEALERS, PERSONS WHO       
RECEIVED PAYMENT IN RESPECT OF OPTIONS TO ACQUIRE COMMON STOCK, SHAREHOLDERS WHO
ACQUIRED COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR     
OTHERWISE AS COMPENSATION, PERSONS OWNING COMMON STOCK AS PART OF A "STRADDLE," 
"HEDGE" OR "CONVERSION TRANSACTION," INDIVIDUALS WHO ARE NOT CITIZENS OR        
RESIDENTS OF THE UNITED STATES AND FOREIGN CORPORATIONS.                        

     THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO       
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE 
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM 
TAX, AND STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH 
TAX LAWS.                                                                       

ANCILLARY AGREEMENTS                                                            

      Concurrently with the parties' execution of the Merger Agreement, pursuant
to the Stock Purchase Agreement, the Sellers agreed to sell all shares of the   
Company's Common Stock held by them, subject to approval if the sale by the     
Court. As of the date of the Stock Purchase Agreement, the Trust owned 790,383  
shares of Common Stock, David and Ileana Wachtel owned in the aggregate 82,277  
shares of Common Stock, and Radu and Rodica Patrichi owned 20,881 shares and    
1,103 shares, respectively. In the aggregate, the Sellers own 894,644 shares of 
Common Stock, representing approximately 53% of the total outstanding shares of 
Common Stock.                                                                   

THE MERGER AGREEMENT

    The following is a description of certain terms and provisions set forth
in the Merger Agreement. This description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is        
attached hereto as Annex A and is incorporated by reference herein.             

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THE MERGER                                                                      

 The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, and in accordance with the CGCL, at the Effective Time, the 
Sub will be merged with and into the Company. The Company will continue as the  
surviving corporation in the Merger (the "Surviving Corporation") and will      
become a wholly owned subsidiary of the Parent. At the Effective Time, each     
share of Common Stock issued and outstanding immediately prior to the Effective 
Time held by the Public Shareholders will be converted automatically into the   
right to receive from the Company the Merger Consideration.                     

The Merger Agreement provides that the directors of the Sub at the  
Effective Time will be the directors of the Surviving Corporation until the next
annual shareholders' meeting and until their successors shall be elected or     
appointed and shall be duly qualified and that the officers of the Company at   
the Effective Time will continue as the officers of the Surviving Corporation   
until their respective successors are elected or appointed as provided in the   
Surviving Corporation's Articles of Incorporation and By-laws. The Merger       
Agreement provides that the Articles of Incorporation and Bylaws of the Company 
as in effect at the Effective Time will be the Articles of Incorporation and    
Bylaws of the Surviving Corporation.                                            

CONSIDERATION TO BE RECEIVED IN THE MERGER                                      

At the Effective Time: (i) each share of Common Stock issued and    
outstanding immediately prior to the Effective Time (other than shares that are 
canceled as described in clause (ii) and Appraisal Shares (as defined below), if
any, which will be treated as described below) will be converted into the right 
to receive, by virtue of the Merger and without any further action from the     
Parent, the Merger Consideration, subject to applicable withholding or back-up  
withholding taxes, if any, payable by the holder thereof, without interest      
thereon, upon surrender of the certificate formerly representing such share;    
(ii) each share that is held by the Parent, Sub or any other of the Parent's    
wholly owned subsidiaries, or in the treasury of the Company or by any wholly   
owned subsidiary of the Company, will be canceled and will cease to exist, and  
no payment will be made with respect thereto; and (iii) each issued and         
outstanding share of common stock of Sub will be converted into the right to    
receive one share of common stock of the Surviving Corporation after the Merger.

 The Merger Agreement further provides that any shares of Common Stock
which are issued and outstanding immediately prior to the Effective Time and    
held by a Shareholder who has not voted (such shares, the "Appraisal Shares") in
favor of or consented to the Merger in writing and who complies with all the    
provisions of the CGCL concerning the right of holders of shares of capital     
stock to dissent from the Merger and require appraisal of their shares (a       
"Dissenting Shareholder") will not be converted into or represent the right to  
receive the Merger Consideration as described above but instead will be         
converted, at the Effective Time, into the right to receive any consideration   
that may be determined to be due to the Dissenting Shareholder pursuant to the  
CGCL; provided, however, that the shares of Common Stock outstanding immediately
before the Effective Time and held by a Dissenting Shareholder who, after the   
Effective Time, fails to establish his entitlement to dissenters' rights as     
provided in Chapter 13 of the CGCL or withdraws or forfeits the Dissenting      
Shareholder's right to appraisal, in either case pursuant to the CGCL, will be  
deemed to be converted as of the Effective Time into the right to receive the   
Merger Consideration, without interest. The Company may not, without the prior  
written consent of the Parent, voluntarily make any payment with respect to any 
demands for appraisal or offer to settle or settle any such demands.            

EXCHANGE OF STOCK CERTIFICATES                                                  

  Prior to the Effective Time, the Parent will designate a bank or trust
company reasonably satisfactory to the Company to act as Exchange Agent (the    
"Exchange Agent") in the Merger and take all steps necessary to enable and cause
the Surviving Corporation to provide such Exchange Agent with funds necessary to
make payments to the holders of shares of Common Stock of the Merger            
Consideration. Promptly after the Effective Time, the Exchange Agent will mail  
to each record holder of certificates which immediately prior to the Effective  
Time represented outstanding shares a letter of transmittal and instructions for
use in effecting the surrender of such certificates in exchange for the Merger  
Consideration, subject to any required back-up withholding taxes. Upon surrender
of a certificate for cancellation to the Exchange Agent, together with such     
letter of transmittal, duly executed, the holder of such certificate will be    
entitled to receive in exchange therefor an amount equal to the product of the  
number of shares represented by such certificate multiplied by the Merger       
Consideration, subject to any withholding taxes, without any interest thereon,  
and the certificates so surrendered will promptly be canceled.                  

  NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY. At and after the Effective
Time, each holder of a certificate that represented issued and outstanding      
shares of Common Stock immediately prior to the Effective Time shall cease to   
have                                                                            

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any rights as a Shareholder of the Company, except for the right to surrender   
his or her certificates in exchange for the Merger Consideration or to perfect  
his or her right to receive payment for his or her shares pursuant to Chapter 13
of the CGCL and Section 2.7 of the Merger Agreement and there shall be no       
further transfers on the stock transfer books of the Company of the shares that 
were outstanding immediately prior to the Effective Time. If, after the         
Effective Time, certificates that formerly represented shares of Common Stock   
are presented to the Company, such certificates will be canceled and exchanged  
for cash in the manner described above, subject to applicable law with respect  
to Appraisal Shares.                                                            

   FAILURE TO EXCHANGE. Any cash which remains undistributed to the former
shareholders of the Company for six months after the Effective Time will be     
delivered by the Exchange Agent to the Company, and the Company shall thereafter
act as the Exchange Agent.                                                      

   NO LIABILITY. Notwithstanding anything to the contrary contained in the
Merger Agreement, none of the Company, the Parent, Sub or the Exchange Agent    
will be liable to any holder of shares of Common Stock for any Merger           
Consideration delivered to a public official pursuant to any applicable         
abandoned property, escheat or similar law. Each of the Parent, the Exchange    
Agent and the Company, as applicable, will be entitled to deduct and withhold   
from the Merger Consideration otherwise payable to any holder of certificates   
which prior to the Effective Time represented shares such amounts as it is      
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law.                  

REPRESENTATIONS AND WARRANTIES                                                  

In the Merger Agreement, the Company has made to the Parent and Sub 
various customary representations and warranties, subject to identified         
exceptions, with respect to, among other things: (i) due organization, valid    
existence and good standing of the Company and certain of its subsidiaries and  
certain similar corporate matters; (ii) the capital structure of the Company and
certain of its subsidiaries; (iii) the authorization, execution, delivery and   
enforceability of the Merger Agreement; (iv) conflicts under the Company's      
Articles of Incorporation or By-laws, required consents or approvals and        
violations of instruments or law; (v) documents and financial statements filed  
by the Company with the Commission and the accuracy of information contained    
therein; (vi) the accuracy of the information, other than information supplied  
by the Parent or Sub, included in this Information Statement; (vii) the absence 
of certain material adverse events or changes; (viii) the absence of certain    
broker and other similar fees; (ix) litigation; (x) violations of applicable    
law; (xi) any payments due to third parties as a result of the Merger Agreement;
(xii) ownership of property; (xiii) material agreements and (xiv) opinion of    
financial advisor to the Company.                                               

In the Merger Agreement, the Parent and Sub have made to the Company
various customary representations and warranties, subject to identified         
exceptions, with respect to, among other things: (a) due organization, valid    
existence and good standing and certain similar corporate matters; (b) the      
authorization, execution, delivery and enforceability of the Merger Agreement;  
(c) conflicts under articles of incorporation or by-laws, required consents or  
approvals and violations of instruments or law; (d) the accuracy of the         
information supplied by the Parent, Sub and their respective affiliates,        
included in this Information Statement and certain other documents; (e)         
financing arrangements; (f) the absence of certain prior activities and         
liabilities; (g) the financial condition of the Surviving Corporation after the 
Effective Time; and (h) the absence of certain fees.                            

   None of the representations and warranties in the Merger Agreement will
survive the Effective Time.                                                     

CERTAIN COVENANTS                                                               

  CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, the Company has
agreed that, during the period from the date of the Merger Agreement to the     
Effective Time, except as contemplated by the Merger Agreement or previously    
disclosed to the Parent, each of the Company and its subsidiaries will carry on 
its respective operations according to its ordinary and usual course of business
and consistent with past practice in all material respects.                     

In addition, except as contemplated by the Merger Agreement or as   
previously disclosed to the Parent prior to the Effective Time, neither the     
Company nor its subsidiaries will, without the prior written consent of the     
Parent: (a) issue, sell or repurchase or authorize or propose the issuance, sale
or repurchase of any shares of capital stock of the Company and its subsidiaries
or securities convertible into such shares, or any warrants, options or other   
convertible securities other than the issuance of shares pursuant to the        
exercise of options outstanding on the date of the Merger Agreement; (b) declare
or pay any dividend or distribution on any shares of its capital stock; (c)     
except for such transactions in the ordinary and usual course of business and   
consistent with past practice, authorize or enter into any agreement with       
respect to any material commitment or transaction which requires the Company to 
pay in excess of $50,000; (d) except in the ordinary course of business and     
consistent with past practice and except as previously                          

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disclosed to Parent or as may be required by law, adopt or amend in any material
respect any material profit sharing, compensation, stock option, pension,       
retirement, deferred compensation, employment or other employee benefit plan,   
agreement, trust, plan, fund or other arrangement (collectively, "Compensation  
Plans"), or grant, or become obligated to grant, any general or specific        
increase in the compensation of executive officers or any increase in the       
compensation (including severance pay) payable or to become payable to any      
executive officer or institute any material new welfare program or Compensation 
Plan or make any change in any Compensation Plan; (e) except as required by the 
consummation of the Merger, pay, discharge or satisfy any material claims,      
liabilities or obligations (absolute, accrued, contingent or otherwise), other  
than the payment, discharge or satisfaction in the ordinary and usual course of 
business and consistent with past practice; (f) except for such transactions in 
the ordinary and usual course of business and consistent with past practice,    
incur any material liability (absolute, accrued, contingent or otherwise) or    
issue any debt securities or assume, guarantee, endorse or otherwise as an      
accommodation become responsible for, the obligations of any other individual or
entity; (g) subject to the rights of the Company's shareholders under applicable
law, propose or adopt any amendments to the Articles of Incorporation or        
By-laws; or (h) agree, in writing or otherwise, to take any of the foregoing    
actions.                                                                        

      ACCESS TO INFORMATION AND CONFIDENTIALITY. So long as the Merger Agreement
has not been terminated, between the date of the Merger Agreement and the       
Effective Time, the Company has agreed to (i) give the Parent and its authorized
representatives reasonable access during normal business hours to all offices   
and other facilities and to all books and records of it and its subsidiaries and
(ii) permit the Parent to make such inspections as Parent may reasonably require
and cause the Company's officers and those of its subsidiaries to furnish the   
Parent (at such time as it would otherwise become available in the ordinary and 
usual course of business and consistent with past practice) with such financial 
and operating data and other information (consistent with that which is         
currently being prepared by the Company) with respect to the business and       
properties of the Company as the Parent may from time to time reasonably        
request.                                                                        

Subject to any additional requirements of law and the terms of the  
Confidentiality Agreement between the parties dated January 25, 1999 (the       
"Confidentiality Agreement"), the Merger Agreement provides that Parent and Sub 
will hold and will cause their respective representatives, advisors and         
financing sources to hold in strict confidence, unless compelled to disclose by 
judicial or administrative process, or, in the written opinion of its counsel   
with a copy sent to the Company, by other requirements of law, all documents and
information concerning the Company furnished to Parent, Sub or any of their     
respective representatives, advisors and financing sources in connection with   
the transactions contemplated by the Merger Agreement. Prior to any disclosure  
pursuant to the foregoing, Parent will notify the Company and afford the Company
an opportunity to obtain a protective order against such disclosure (except to  
the extent that such information can be shown to have been (x) previously known 
by Parent, (y) in the public domain through no fault of Parent, its             
representatives or advisors or (z) later lawfully acquired by Parent from other 
sources, unless Parent knows that such other sources are not entitled to        
disclose such information). The Merger Agreement also provides that Parent and  
Sub will not release or disclose such information to any other person, except in
connection with the Merger Agreement to (1) its auditors, attorneys, and other  
representatives and advisors with a need to know such information and (2)       
responsible financial institutions in connection with obtaining the financing   
contemplated by the Merger Agreement. Any such persons must first be advised of 
the confidentiality provisions of the Merger Agreement and the Confidentiality  
Agreement and agree to be bound thereby. If the transactions contemplated by    
this Agreement are not consummated, such confidence shall be maintained except  
to the extent such information can be shown to have been (i) previously known by
Parent, (ii) in the public domain through no fault of Parent, its               
representatives or advisors or (iii) later lawfully acquired by Parent from     
other sources, unless Parent knows that such other sources are not entitled to  
disclose such information and, if requested by the Company, Parent will return  
to the Company all copies of information furnished by the Company to Parent or  
its agents, representatives, advisors or financing sources, or derived          
therefrom, or shall in writing confirm the destruction of such information      

     NO SOLICITATION. The Merger Agreement provides that the Company will not,
nor will the Company permit any officer, director, employee, representative of  
the Company to solicit any proposals or offers from any person relating to any  
acquisition or purchase of all or a material amount of the assets of, or any    
securities of, or any merger, consolidation or business combination with, the   
Company. The Company may, however, furnish information to, and may engage in    
discussions or negotiations with, any person, and may waive any provision of any
confidentiality or standstill agreement to which it or any of its               
representatives is a party, if (i) counsel advises the Company's Board that     
failure to furnish such information, engage in such discussions or negotiations,
or waive any provision of any such agreement, could involve the Board in a      
breach of their fiduciary duties or (ii) the Board believes, in good faith,     
after consultation with the financial advisor, that such person may make a bona 
fide proposal for a transaction, including, without limitation, a tender or     
exchange offer for Shares, more favorable to the Company's shareholders than the
transactions contemplated by the Merger (such transaction being a "Superior     
Offer"). Provided further that the Board of Directors of the Company may make   
such disclosure to shareholders which, in the judgment of the Board of          
Directors, upon advice of counsel, may be required by law or necessary to       
discharge any fiduciary duty imposed thereby.                                   

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INFORMATION STATEMENT. The Merger Agreement requires the Company to 
prepare an information statement relating to the Merger and its approval by the 
Company's shareholders satisfying the requirements of Section 603 of the CGCL   
and Regulation 14C promulgated under the Exchange Act (the "Information         
Statement"). From and after the date of the Merger Agreement, the Company shall 
use its reasonable best efforts to expeditiously (1) obtain and furnish the     
information required to be included by it in the Information Statement, (2)     
prepare and file the Information Statement with the Commission, (3) respond to  
any comments made by the Commission with respect to the preliminary Information 
Statement and (4) cause the definitive Information Statement to be mailed to its
shareholders at the earliest practicable time.                                  

     COOPERATION. Subject to the terms and conditions in the Merger Agreement,
each of the parties to the Merger Agreement agreed to use its reasonable best   
efforts (i) to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and       
regulations to consummate and make effective the transactions contemplated by   
the Merger Agreement, including, without limitation, (a) promptly making their  
respective filings, and thereafter using their reasonable best efforts promptly 
to make any required submissions, under the HSR Act and (b) promptly making any 
filings that are required to be made or seeking any consents, approvals, permits
or authorizations that are required to be obtained under any other federal,     
state or foreign law or regulation and (ii) to refrain from taking, directly or 
indirectly, any action contrary to or inconsistent with the provisions of the   
Merger Agreement, including actions which would impair such party's ability to  
consummate the transactions contemplated in the Merger Agreement. Pursuant to   
the Merger Agreement, if, at any time after the Effective Time, any further     
action is necessary or desirable to carry out the purposes of the Merger        
Agreement, the proper officers and directors of each party to the Merger        
Agreement shall use their respective reasonable best efforts to take all such   
necessary action.                                                               

    PUBLIC ANNOUNCEMENTS. The Merger Agreement provides that the Parent, Sub
and the Company will consult with each other before issuing any press release or
otherwise making any public statements with respect to the Merger and shall not 
issue any such press release or make any such public statement prior to such    
consultation, except as may be required by law or any securities exchange or    
similar authority (in which case prior notice of at least 24 hours by the       
Company to the Parent or by the Parent or Sub to the Company, as applicable, of 
such issuance of a press release or making of a public statement shall be       
required).                                                                      

      DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE. The Merger Agreement
provides that, the Company shall and, from and after the Effective Time, the    
Parent and the Company shall, maintain the right to indemnification and         
exculpation of officers and directors provided for in the Company's Articles of 
Incorporation and By-laws as in effect on the date of the Merger Agreement with 
respect to indemnification and exculpation for acts and omissions occurring     
prior to the Effective Time, including, without limitation, the transactions    
contemplated by the Merger Agreement. Further, the Parent agreed that for six   
years after the Effective Time, the Parent or the Company will maintain         
officers' and directors' liability insurance covering the persons who, on the   
date of the Merger Agreement, were covered by the Company's officers' and       
directors' liability insurance policies with respect to actions and omissions   
occurring prior to the Effective Time, on terms which are not materially less   
favorable, in the aggregate, than the terms of such insurance in effect for the 
Company on the date of the Merger Agreement.                                    

   The Merger Agreement also provides that the Company shall, (i) and from
and after the Effective Time Parent and the Surviving Corporation shall, to the 
fullest extent permitted under applicable law, indemnify and hold harmless each 
present and former director and officer of the Company (collectively, the       
"Indemnified Parties") against any costs or expenses (including attorneys'      
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid  
in settlement in connection with any pending, threatened or completed claim,    
action, suit, proceeding or investigation, whether civil, criminal,             
administrative or investigative, arising out of or pertaining to any action or  
omission occurring prior to the Effective Time (including, without limitation,  
any claim, action, suit, proceeding or investigation arising out of or          
pertaining to the transactions contemplated by the Merger Agreement (a          
"Claim")), (ii) in the event of any such Claim (whether arising before or after 
the Effective Time), advance expenses to each such Indemnified Party, including 
the payment of the fees and expenses of counsel selected by such Indemnified    
Party, which counsel shall be reasonably satisfactory to the Company or the     
Surviving Corporation, as the case may be, promptly after statements therefor   
are received, and (iii) cooperate fully in the defense of any such matter. The  
Merger Agreement further provides that neither the Company nor the Surviving    
Corporation shall be liable for any settlement effected without its written     
consent (which consent shall not be unreasonably withheld).                     

    The Merger Agreement also provides that notwithstanding any provision to
the contrary contained in the Articles of Incorporation or By-Laws of the       
Company as in effect on the date of the Merger Agreement, any determination     
required to be made with respect to whether an Indemnified Party's conduct      
complies with the standards set forth under the CGCL or under such charter      
provisions shall be made by independent counsel selected by the Indemnified     
Party and reasonably acceptable to the Company, the Parent, Sub or the Surviving
Corporation, which shall pay such counsel's fees and expenses (it being agreed  
that neither the Company, nor the Parent, Sub or the Surviving                  

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Corporation shall challenge any such determination by such independent counsel  
which is favorable to an Indemnified Party).                                    

This section shall survive the closing of the Merger, is intended to
benefit the Company, Parent, Sub or the Surviving Corporation and each of the   
indemnified parties and shall be binding on all successors and assigns of Parent
and Surviving Corporation.                                                      

      NOTIFICATION OF CERTAIN MATTERS. Pursuant to the Merger Agreement, between
the date of the Merger Agreement and the Effective Time, the Company will       
promptly notify the Parent and Sub in writing if it becomes aware of any fact or
condition that causes or constitutes a breach of its representations and        
warranties as of the date of the Merger Agreement, or if it becomes aware of the
occurrence after the date of the Merger Agreement of any fact or condition which
would (except as expressly contemplated by the Merger Agreement) cause or       
constitute a breach of any such representation or warranty had such             
representation or warranty been made as of the time of occurrence or discovery  
of such fact or condition. Should any such fact or condition require any change 
in the Company Disclosure Schedule if such Company Disclosure Schedule were     
dated prior to the date of occurrence or discovery of any such fact or          
condition, the Company will promptly deliver to Parent and Sub a supplement to  
the Company Disclosure Schedule specifying such change. Each party hereto shall 
promptly notify each other party of any default, the threat or commencement of  
any proceeding or any development before the Effective Time that would be likely
to have a material adverse effect on the financial condition, results of        
operations or business of the Company. Notwithstanding the foregoing sentence,  
no party to the Merger Agreement shall be required to give notice with respect  
to events that are reported in the financial or general interest newspapers that
do not specifically relate to such party or the transactions contemplated by the
Merger Agreement.                                                               

   EMPLOYEE BENEFITS. In the Merger Agreement, the Parent agreed to honor,
and from and after the Effective Time, to cause the Company to honor after the  
Effective Time, in accordance with their respective terms as in effect on the   
date of the Merger Agreement, the employment, severance, bonus, and commission  
agreements and similar arrangements to which the Company is a party which are   
contemplated by the Merger Agreement.                                           

     ACKNOWLEDGMENT OF THE PARENT AND SUB. In the Merger Agreement, the Parent
and Sub acknowledged that any projections prepared by the Company and provided  
to the Parent and/or Sub as part of the due diligence process were and are      
merely estimates made by the Company as of the time they were provided and the  
Parent and Sub have in no way relied on any such projections. The Parent and Sub
agree and acknowledge that neither the Company nor any of its affiliates has    
made or is making any representation or warranty as to the accuracy or          
completeness of the confidential information memorandum furnished by the        
financial advisor on behalf of the Company or any subsequent or supplemental    
materials provided by such person. The Parent and Sub further agreed and        
acknowledged in the Merger Agreement that the only representations and          
warranties made by the Company with respect to the transactions contemplated by 
the Merger Agreement are those representations and warranties contained in the  
Merger Agreement (together with the exceptions to such representations and      
warranties set forth in the disclosure schedules to the Merger Agreement) and   
only those representations and warranties have and will have any legal effect   
following the date of the Merger Agreement, which effect will continue solely to
the extent specifically set forth in the Merger Agreement.                      

CONDITIONS TO CONSUMMATION OF THE MERGER                                        

   The respective obligations of the Company, the Parent and Sub to effect
the Merger are subject to the satisfaction or waiver, where legally permissible,
of the following conditions: (i) Shareholder Approval of the Merger Agreement   
shall have been obtained; (ii) no statute, rule, regulation, order, decree or   
injunction shall have been enacted, entered, promulgated or enforced by any     
court or governmental authority of competent jurisdiction which restrains,      
enjoins or otherwise prohibits the consummation of the Merger; provided,        
however, that the Company, the Parent and Sub shall use their reasonable best   
efforts to have any such order, decree or injunction vacated and (iii) all      
authorizations, consents, orders or approvals of, or declarations or filings    
with, or expirations of waiting periods imposed by, any court, administrative   
agency or commission or other governmental authority or instrumentality, the    
failure of which to file, obtain or occur is reasonably likely to have a        
material adverse effect on the Company or the Parent.                           

     The obligations of the Parent and Sub to effect the Merger are subject to
the satisfaction or waiver, where legally permissible, prior to the Effective   
Time of the following conditions: (i) the representations and warranties of the 
Company set forth in the Merger Agreement shall be true and correct as of the   
date of the Merger Agreement and (except to the extent such representations and 
warranties speak as of an earlier date) as of immediately before the Effective  
Time, except as otherwise contemplated by the Merger Agreement, and the Company 
shall have performed all obligations required to be performed by it at or prior 
to the Effective Time, except to the extent the failure of such representations 
and warranties to be true and correct or the failure to perform obligations     
thereunder would not,                                                           

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individually or in the aggregate, have a material adverse                       
effect on the financial condition, results of operations or business of the     
Company, taken as a whole; (ii) the Parent shall have received a certificate    
signed on behalf of the Company by the chief executive officer and the chief    
financial officer of the Company to the effect of clause (i) above; (iii) Parent
shall have received an opinion, dated as of the Closing Date, from Troop Steuber
Pasich Reddick & Tobey, LLP, counsel to the Company, as to matters that are     
customary for transactions of this type; (iv) Parent shall have received        
financing of the Merger Consideration and associated transaction expenses on    
terms and conditions satisfactory to Parent in its sole discretion and (v)      
Parent shall have confirmed that the Confidential Information Memorandum        
furnished by the Financial Advisor on behalf of the Company does not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they  
were made, not misleading, and Parent shall have certified such confirmation or 
the failure thereof to the Company in writing no later than August 18, 1999.    

The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver, where legally permissible, prior to the Effective Time  
of the following conditions: (i) the representations and warranties of the      
Parent and Sub set forth in the Merger Agreement shall be true and correct as of
the date of the Merger Agreement and (except to the extent such representations 
and warranties speak as of an earlier date) as of immediately before the        
Effective Time, except as otherwise contemplated by the Merger Agreement, and   
the Parent and Sub shall have performed all obligations required to be performed
by them at or prior to the Effective Time, except to the extent the failure of  
such representations and warranties to be true and correct or the failure to    
perform obligations thereunder would not, individually or in the aggregate, have
a Material Adverse Effect (as defined in the Merger Agreement); and (ii) the    
Company shall have received a certificate signed on behalf of Parent and Sub by 
their respective chief executive officers and the chief financial officers to   
the effect of clause (i) above; and (iii) the Board shall have approved the     
Merger.                                                                         

TERMINATION; TERMINATION FEES AND EXPENSES                                      

      The Merger Agreement may be terminated and the Merger contemplated thereby
may be abandoned at any time prior to the Effective Time, whether before or     
after Shareholder Approval:                                                     

    (i)   if the boards of  directors  of the  Company  and the Parent  both
consent in writing; or                                                          

(ii) by the Company or the Parent if the conditions to each party's 
obligation to effect the Merger have been satisfied and the Effective Time shall
not have occurred before September 30, 1999 or by the Company or the Parent if  
the Effective Time shall not have occurred before December 31, 1999, provided,  
however, that the right of the Company or the Parent to terminate the Merger    
Agreement pursuant to the foregoing provision shall not be available in the     
event that the Company's or the Parent's, as the case may be, failure to fulfill
any obligation under the Merger Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date; or           

     (iii) by the Parent or the Company if any court of competent jurisdiction
in the United States or other United States governmental body shall have issued 
an order, decree or ruling or taken any other action restraining, enjoining or  
otherwise prohibiting the Merger and such order, decree, ruling or other action 
shall have become final and nonappealable; or                                   

  (iv) by the Company, subject to certain other provisions of the Merger
Agreement, if the Board shall concurrently approve, and the Company shall       
concurrently enter into, a definitive agreement providing for the implementation
of a Superior Offer (as defined below), provided, however, that (a) the Company 
is not then in breach of its non-solicitation covenant, (b) the Board shall have
complied with the other terms of the Merger Agreement in connection with such   
Superior Offer, and (c) the Company shall simultaneously make the termination   
fee payments required by the Merger Agreement. "Superior Offer" means an        
Alternative Proposal which is superior from a financial point of view to the    
Company's Public Shareholders to the Merger and the other transactions          
contemplated thereby and for which financing, to the extent required, is then   
committed or which, in the good faith judgment of the Company's Board after     
consultation with the Company's financial advisors, is reasonably capable of    
being obtained.                                                                 

      The Merger Agreement provides that if the Company intends to terminate the
Merger Agreement pursuant to paragraph (iv) above, the Company shall provide to 
the Parent written notice of its intention to terminate the Merger Agreement    
pursuant to such provision, advising the Parent (a) that the Board has          
determined, by action of a majority of the members of the Board who are not     
affiliated with either the Parent or the person making such Alternative Proposal
or their respective affiliates, that such Alternative Proposal is a Superior    
Offer and that, in the exercise of its good faith judgment as to fiduciary      
duties to shareholders under applicable law, after consultation with the        
Company's outside legal counsel, failure by the Board to terminate the Merger   
Agreement could reasonably be expected to result in a breach of such duties and 
(b) as to the material terms of any such Alternative Proposal. At any time after
the fifth business day following receipt of such notice, the Company may        
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only if the Board determines, by action of a majority of the members of the     
Board who are not affiliated with either the Parent or the person making such   
Alternative Proposal or their respective affiliates, that failure by the Board  
to terminate the Merger Agreement continues to be reasonably expected to result 
in a breach of its fiduciary duties to shareholders under applicable law (which 
determination shall be made in light of any revised proposal made by the Parent 
prior to the expiration of such five business day period) and concurrently      
enters into a definitive agreement providing for the implementation of such     
Alternative Proposal.                                                           

     In the event of termination of the Merger Agreement by the Company or the
Parent as provided in the Merger Agreement, the Merger Agreement shall forthwith
become void, except as otherwise provided in the Merger Agreement, provided that
no party thereto shall be relieved from liability for any breach of the Merger  
Agreement.                                                                      

      If the Merger Agreement is terminated under the circumstances described in
paragraph (iv) above the Company shall pay to the Parent a termination fee of   
$750,000.                                                                       

AMENDMENT AND WAIVER                                                            

     The Merger Agreement provides that, to the extent permitted by applicable
law, the Merger Agreement may be amended by action taken by the Company, the    
Parent and Sub (and the shareholders, if required by applicable law) at any time
before or after adoption of the Merger Agreement by the shareholders; provided, 
however, that after the adoption of the Merger Agreement by the shareholders, no
amendment shall be made which decreases the price per share, changes the form of
consideration to be received by the holders of Common Stock in the Merger or    
which adversely affects the rights of shareholders of the Company thereunder    
without the approval of the Shareholders. The Merger Agreement further provides 
that it may not be amended, except by an instrument in writing signed on behalf 
of all the parties. Under the terms of the Merger Agreement, at any time prior  
to the Effective Time, the parties thereto may (a) extend the time for the      
performance of any of the obligations or other acts of the other parties        
thereto, (b) waive any inaccuracies in the representations and warranties       
contained in the Merger Agreement or in any document, certificate or writing    
delivered pursuant thereto or (c) waive compliance with any of the agreements or
conditions contained in the Merger Agreement unless such waiver is unlawful or  
specifically prohibited. Any agreement on the part of any party to any such     
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party                                                  

ESTIMATED FEES AND EXPENSES; SOURCES OF FUNDS   

     Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated       
thereby will be paid by the party incurring such expenses, except that the      
Parent will pay certain costs and expenses related to this Information          
Statement. It is estimated that, if the Merger is consummated, expenses incurred
in connection therewith will be approximately as follows:                       

                                                                [Download Table]

                                      THE COMPANY       THE PARENT  

                                                                    
SEC filing fees......................  $2,511                    -- 

Legal fees and expenses..............  $200,000            $100,000 

Accounting fees and expenses.........  $5,000               $15,000 

Printing costs.......................  $20,000                   -- 

Exchange agent fees and expenses.....  $10,000                   -- 

Miscellaneous........................  $10,000                   -- 

      Total..........................  $247,511            $115,000 
                                      ===========        ===========

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FINANCING FOR THE MERGER                                                        

The Parent expects to obtain the funds for the Merger Consideration 
payable to holders of Common Stock in the Merger and fees and expenses related  
to the Merger from a combination of a cash contribution to capital by Parent's  
sole stockholder and loans from an affiliate of Parent and from a reputable     
financial institution.                                                          

PAYMENT FOR SHARES OF COMMON STOCK                                              

     As a result of the Merger, the Public Shareholders will cease to have any
equity interest in the Company. After consummation of the Merger, each share of 
Common Stock issued and outstanding immediately prior to the consummation of the
Merger held by Public Shareholders will be required to be surrendered to the    
Exchange Agent in order that such share be canceled and converted automatically 
into the right to receive the Merger Consideration. No interest will be paid or 
accrued on the cash payable upon the surrender of such certificates.            

DETAILED INSTRUCTIONS WITH REGARD TO THE SURRENDER OF CERTIFICATES, 
TOGETHER WITH A LETTER OF TRANSMITTAL, WILL BE FORWARDED TO FORMER HOLDERS OF   
COMMON STOCK BY THE EXCHANGE AGENT PROMPTLY FOLLOWING THE EFFECTIVE TIME.       
HOLDERS OF COMMON STOCK SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE EXCHANGE    
AGENT UNTIL THEY HAVE RECEIVED SUCH MATERIALS. PAYMENT FOR SHARES OF COMMON     
STOCK WILL BE MADE TO FORMER HOLDERS OF SHARES AS PROMPTLY AS PRACTICABLE       
FOLLOWING RECEIPT BY THE EXCHANGE AGENT OF THEIR CERTIFICATES AND OTHER REQUIRED
DOCUMENTS.                                                                      

CERTAIN INFORMATION REGARDING THE COMPANY   

INTRODUCTION.                                                       

    PRINCIPAL  BUSINESS.  The  principal  business  of  the  Company  is the
design,  fabrication,  assembly  and sale of high  technology  components  for  
aerospace  and U.S.  Government  defense  prime  contractors.  The Company was  
incorporated  in  the  State  of  California  in  October  1953.  The  Company  
operates two divisions:                                                         

1.    The U.S. Bearing Division                                     

The US Bearing Division designs, engineers and fabricates spherical,
self-aligned, self-lubricating and specialized bearings used primarily in the   
aerospace and defense industries. In many cases these high precision bearings,  
including rod-ends, journals, bushings and connecting links are designed and    
fabricated under demanding quality standards in order to support extreme load   
and temperature criteria. These parts are used in numerous applications in both 
aircraft as well as space applications including space shuttles and the space   
station. Examples of usage are in door and window structures, landing gear,     
wings, engines and turbo-thrust support. The Company utilizes its engineering   
capability to support its marketing efforts by maintaining an ongoing rapport   
with engineers at numerous original equipment manufacturers (OEMs). This        
cooperative engineering relationship provides the US Bearing Division the       
opportunity to win approvals to manufacture many new items.                     

The Division competes primarily in an arena where the items are     
non-catalog items, termed "specials". In this arena, it is necessary to be      
pre-approved to manufacture the parts by having the Company's name listed as an 
approved manufacturer on the OEM drawing. The US Bearings Division holds        
thousands of such approvals, and is in constant communication with many OEMs on 
cooperative engineering projects. Once approvals are obtained, the Division is  
able to sell its product both in the production and after market cycles. The    
Division sells its products through agents, manufacturer's representatives,     
distributors and its own in house sales effort.                                 

2.    Ordnance Technology Division                                  

   The Ordnance Technology Division designs, engineers and fabricates high
precision miniature pyrotechnic devices. These devices are mostly sold to prime 
defense contractors for munitions applications. These highly specialized        
electro-mechanical devices, such as switches, piston actuators, cord and wire   
cutters, initiator-igniters, and thermal relay switches are all single use items
and are used in numerous custom applications to cut cords and wires, initiate   
subsequent charges, pull pins, push switches and alternate circuits. As in the  
US Bearing Division the marketing of the Division's products is supported by    
ongoing cooperative engineering relationships. These efforts have resulted in   
the creation of many new approvals over the years. Currently in excess of 30% of
the Ordnance Division backlog of unfilled                                       

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orders are from approvals received in the past 24 months. The Division sells its
products through agents, distributors and its own in house sales effort.        

PRODUCT DEPENDENCY. For fiscal year 1998, Ordnance Division igniters
represented approximately 15% of the total revenue for the year, and spherical  
bearings represented approximately 29% of the Company's total revenue. For      
fiscal year 1997, Ordnance Division igniters represented approximately 20%,     
switches and relays represented approximately 15% of the Company's revenue while
spherical bearings represented 30% of the Company's total revenue. For fiscal   
year 1996 the Ordnance Division switches and relays represented approximately   
20% of the Company's revenue and spherical bearings represented approximately   
38% of the Company's revenue.                                                   

    The Company uses a self-lubricating teflon based liner system on many of
its bearings. Specifications for this liner system are governed by the military 
standard MIL-I-81820. It is necessary for the Company to requalify this system  
once every five years. The Company is currently undergoing the necessary testing
to achieve this certification and has no reason to believe that it will not do  
so. However, failure to achieve this certification could adversely affect the   
Company's business.                                                             

 Many of the Company's parts including various bearings, igniters, and
actuators are sold as sub-components of larger systems. The Company is not      
always able to track the actual usage of these items and therefore may be       
affected by cancellations of any programs that use these parts as               
sub-components.                                                                 

CUSTOMER DEPENDENCY. The Company's Bearing Division manufactures    
specialized bearings for sale to the defense and aerospace industries either    
directly to the U.S. Government or to Government prime contractors, such as: The
Boeing Company and Lockheed Martin Corporation. The Ordnance Division of the    
Company manufactures electro-pyrotechnic devices for the defense and aerospace  
industries. Its products are sold to a few prime contractors such as: Eagle     
Picher and Textron Systems. Most of the items sold to Textron Systems are for   
the Sensor Fuzed Weapon (SFW) missile program. The Company has in place a long  
term supplier agreement through 2003 whereby the Company may supply parts to    
Textron Systems for this and similar programs. While the Company has no reason  
to believe it will lose any of its key customers, or that any key programs might
be canceled, the loss of business of any key customer, or program cancellation  
could adversely affect the Company's overall business.                          

      The Company does a significant amount of business with government agencies
and prime contractors of the government. In many of these contracts the customer
has the ability to terminate these contracts at their convenience. Even though  
these contracts may be terminated under this provision, the customer is still   
liable to pay all incurred expenses plus profit on the contract.                

COMPETITION. The Company encounters varied degrees of competition   
depending upon the division involved. The Bearing Division sells its product    
lines in competitive markets on the basis of a combination of price, delivery,  
and product quality. Many of the Division's competitors are divisions or        
segments of large diversified companies with financial resources greater than   
those of the Company. The Ordnance Division sells its products on a less        
competitive basis than does the Bearing Division, although they do compete with 
other ordnance component manufacturers with similar capacity to the Company's   
Ordnance Division. The Company's two divisions sell a number of products for    
which they are the sole source.                                                 

     RESEARCH AND DEVELOPMENT. During the last three fiscal years, the Company
has engaged in limited Company-sponsored research and development activities.   
The estimated amount spent during the years ended June 30, 1999, 1998, and 1997 
on such activities was approximately $100,000, $51,000 and $6,000, respectively.

    EMPLOYEES.   At  June  30,  1999,  the  Company  had   approximately  75
employees, as compared with 71 at June 30, 1998.                                

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                    CORPORATE SUMMARY OF RESULTS BY DIVISION                     
                                 (IN THOUSANDS)                                  

                                       1998    1997     1996     1995     1994   
                                      -------  ------   ------   ------   ------ 
                                                                                 
Bearing Division:                                                                
  Sales* ...........................  $3,338   $2,087   $2,383   $1,895   $1,530 
  Pretax income (loss)** ...........     474      51      212    1,117      (398)
  Identifiable assets ..............   3,434   2,892    1,984    2,133    1,759  
Ordnance Division:                                                               
  Sales* ...........................   2,662   1,923    1,550    1,112    1,253  
  Pretax income (loss)** ...........   1,068     457       47      633     (146) 
  Identifiable assets ..............   2,247   1,749    1,298    1,042      844  
Capital expenditures of each segment:                                            
  Bearings .........................     216     856      181       28        2  
  Ordnance .........................     110     442      138       17        3  
-------------                                                                    
<FN>                                                                             
*  No intersegment sales.                                                        
**    Does not include interest expense in any of the five years presented.      
</FN>                                                                            

CERTAIN INFORMATION REGARDING PARENT AND SUB  

     The Parent is a special purpose holding company formed by GWB (USA), Inc.
for use in connection with the Merger. The Sub is a newly incorporated Delaware 
corporation organized by the Parent to acquire all the outstanding shares of    
Common Stock of the Company pursuant to the Merger Agreement and has not carried
on any activities other than in connection with the Merger. The Sub is a direct 
wholly owned subsidiary of the Parent. GWB (USA) is the United States arm of    
Gartland Whalley and Barker plc ("GWB"), a U.K. publicly traded company listed  
on the Alternative Investment Market (AIM) that focuses on developing industrial
businesses. GWB currently has three publicly traded affiliates in the UK that   
principally manufacture industrial products for numerous industries, including  
aerospace, telecommunications and household construction and improvement, and   
GWB, through its affiliates, has acquired several industrial businesses in the  
United States.                                                                  

SELECTED HISTORICAL FINANCIAL DATA

   Set forth below is selected financial data relating to the Company. The
data should be read in conjunction with the historical consolidated financial   
statements of the Company and the notes thereto.                                

 FIVE-YEAR FINANCIAL HISTORY
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) 
                                  YEARS ENDED JUNE 30,
                                    ------------------------------------------
                                 1998    1997     1996     1995     1994
                                    ------  ------  -------  -------  --------
Operations                                                                      
Net sales ........................$6,000  $4,010  $3,933   $3,007   $2,783
                                    ------  ------  -------  -------  --------
Net income (loss) ................   980     162       31    1,767     (800)
                                     ------  ------  -------  -------  ---------
Net income (loss) per common share   .59     .10      .02     1.11     (.50)
                                    ------  ------  -------  -------  --------
Financial position                                                              
Working capital (deficiency)...... 1,467     882      835    1,128   (1,004)
                                    ------  ------  -------  -------  --------
Stockholders' equity (deficiency in                                             
assets).............................   945    (111)    (242)     (32)  (1,877)  
                                    ------  ------  -------  -------  --------
Total assets...................... 5,681   4,641    3,282    3,175    2,603 
                                    ------  ------  -------  -------  --------
Long-term debt.................... 3,009   3,408    2,367    2,327    1,966 
                                    ------  ------  -------  -------  --------

No cash dividends have been paid or accrued during the past five years.   
Reference is made to the financial statements and notes thereto included        
beginning on page F-1.                                                          

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

Information regarding the Company's financial condition, changes in 
financial condition, and results of operations for the fiscal year ended June   
30, 1998 and the nine months ended March 31, 1999, is set forth under the       
caption entitled "Management's Discussion and Analysis of Financial Condition   
and Results of Operations" on pages F-__ through F-___, respectively, hereof.   

SECURITY OWNERSHIP OF   
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The Trust owns 790,383 shares (approximately 47%) and together with the
other Sellers, beneficially controls 894,644 shares (approximately 53%) of the  
Common Stock. The Trust is administered by Ileana Wachtel (Mihai Patrichi's     
daughter) and Rodica Patrichi (Mihai Patrichi's widow). As a result of the      
probate action by Michael Patrichi (Mihai Patrichi's son and one of the         
beneficiaries of the Trust) to force the sale of the interest in the Company    
held by the Trust (L.A.S.C. Case No. BP037966), the Court ordered the sale of   
the Trust's shares and has approved the sale contemplated by the Stock Purchase 
Agreement. There is no such other person who owns 10% or more of the Common     
Stock.                                                                          

  The following table sets forth, to the knowledge of the Company, based
upon information provided by the shareholders set forth below or publicly       
available filings, information regarding the ownership of the Common Stock at   
August 25, 1999 by (a) all persons known to the Company to be the beneficial    
owners of more than 5% of the Common                                            

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Stock outstanding, (b) each director and executive officer of the Company, and  
(c) all directors and executive officers of the Company as a group. Except as   
noted below, each such owner (a) has sole voting and investment power for the   
shares indicated as beneficially owned by such owner and (b) is located at the  
Company's executive offices at 9750 De Soto Avenue, Chatsworth, California      
91311. In addition, shares are deemed to be beneficially owned by a person if   
the person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided; in  
computing the percentage ownership of any person, the amount of shares          
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a       
result, the percentage of outstanding shares of any person as shown in the      
following table does not necessarily reflect the person's actual voting power at
any particular date.                                                            

                                                                [Download Table]

                                                 AMOUNT        ERCENTAGE        
                        NAME AND ADDRESS      BENEFICIALLY     OF CLASS         
        CATEGORY      OF BENEFICIAL OWNER         OWNED       P   (4)           
      -------------  ----------------------- ---------------- ------------      
                                                                                
      Director       Ileana Wachtel           872,660(1)(2)(3)   52.1%          
                     9750 De Soto Avenue                                        
                     Chatsworth, CA 91311                                       

      Director       Rodica Patrichi          791,486(2)         47.2%          
                     73095 Shadow Mt. Drive                                     
                     Palm Desert, CA 92260                                      
      Director/      David Wachtel            872,660(3)         52.1%          
      Officer        9750 De Soto Avenue                                        
                     Chatsworth, CA 91311                                       
      Director       Glenn Linderman            4,000             ***           
                     2101 Robinson, #1                                          
                     Redondo   Beach,    CA                                     
                     90278                                                      
      Officer        Mohammad Tabassi          25,513             1.5%          
                     19442 Romar St.                                            
                     Northridge, CA 91324                                       
      Officer        Robert Shearin             1,500             ***           
                     14164 Terra Bella Street                                   
                     Arleta, CA 91331                                           
                     All directors and        904,776            54.0%          
                     officers  as  a  group                                     
                     (6 persons)                                                
      Other          Moldovita Church          90,909(5)          5.4%          
                     c/o 73095  Shadow  Mt.                                     
                     Dr.                                                        
                     Palm Desert, CA 92260                                      
----------------------                                                          
<FN>                                                                            
*** Represents less than 1% of the outstanding Common Stock.                    

(1) Ileana Wachtel is the wife of David Wachtel, the CEO of the Company.        

(2) For Ileana Wachtel, approximately 156,076 shares and for Rodica Patrichi,   
    approximately 166,076 shares are being held in the Mihai D. Patrichi trust  
    (a total of 790,383 shares) which currently has voting power over the       
    holdings and in which Ileana Wachtel and Rodica Patrichi are co-trustees.   

(3) Includes shares of Common Stock held by the Mihai D. Patrichi Trust and     
    controlled by trustees including Mr. Wachtel's spouse, Ileana Wachtel, a    
    beneficiary.                                                                

(4) Based on 1,673,888 shares of Common Stock outstanding as of August 30, 1999,
    including 3,000 exercisable stock options.                                  

(5) Rodica Patrichi is a co-trustee along with an unrelated party of a trust    
    that has voting power over these shares.                                    
</FN>                                                                           

As of July 31, 1999, there were no required filings under Section 16 of the     
Exchange Act of 1934 with respect to changes in beneficial ownership of the     
Common Stock occurring during or subsequent to the year ended June 30, 1999,    
which have not been reported on Forms 3, 4, or 5, respectively.                 

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                  PRICE RANGE OF COMMON STOCK AND DIVIDENDS                     


    The Company's Common Stock is quoted on the OTC Bulletin Board. The         
following table sets forth the high and low bid quotations of the Common Stock  
as reported on the OTC Bulletin Board for the periods listed.                   

                                                                                

Year Ended December 31, 1997                                                    
     First Quarter.........................................    $1 3/8    $  7/8 
     Second Quarter........................................         1       3/8 
     Third Quarter.........................................       7/8       3/8 
     Fourth Quarter........................................    1 5/16       5/8 

Year Ending December 31, 1998                                                   
     First Quarter.........................................    $11/16        5/8
     Second Quarter .......................................    1 5/16          1
     Third Quarter.........................................    2 9/16      1 1/8
     Fourth Quarter........................................    3  7/8     2 1/16

Year Ending December 31, 1999                                                   
     First Quarter.........................................    $8 1/4   $  3 3/8
     Second Quarter .......................................     8          3    
     Third Quarter (as of August 13, 1999).................     8 1/2      4 1/4

    The quotations above reflect inter-dealer prices, without mark-up, mark-down
or commission and may not necessarily represent actual transactions.            
Shareholders are urged to obtain current market quotations for the Common Stock.

Networks Electronic Corp. stock was formerly listed on NASDAQ, the      
over-the-counter market, as NWRK. As of May 7, 1993, the stock has been quoted  
on the OTC electronic bulletin board. On July 27, 1998, the day prior to the    
Company's announcement of the execution of the Merger Agreement, the Company's  
closing bid quotation on the OTC Bulletin Board was $7 1/16.                    

DIVIDENDS                                                                       

The Company has never paid cash dividends on its Common Stock.          

AVAILABLE INFORMATION   

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other      
information with the Commission. The reports, proxy statements and other        
information filed by the Company can be inspected and copied at the Commission's
Public Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C.,  
20549 and at the Commission's regional offices at Suite 1400, Citicorp Center,  
5600 West Madison Street, Chicago, Illinois 60661 and Suite 1300, Seven World   
Trade Center, New York, New York 10048. Copies of such materials can be obtained
from the Commission at prescribed rates from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The    
Commission also maintains a Web site that contains reports, proxy and           
information statements and other information regarding registrants that file    
electronically with the Commission (such as the Company) at                     

This Information Statement includes information required to be disclosed
pursuant to Rule 14c-2 under the Exchange Act.                                  

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                         INDEX TO FINANCIAL INFORMATION                         

                                                                            PAGE
                                                                                

Report of Independent Certified Public Accountant ............................15
Balance Sheets - Assets ......................................................16
Balance Sheets - Liabilities and Stockholders' Equity (Deficiency in Assets)..16
Statements of Operations .....................................................17
Statement of Stockholders' Equity (Deficiency in Assets) .....................18
Statements of Cash Flows .....................................................19
Notes to the Financial Statements ............................................20

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 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

       I have audited the accompanying balance sheets of Networks Electronic
Corp. as of June 30, 1998 and 1997, and the related statements of operations,   
stockholders' equity (deficiency in assets) and cash flows for each of the three
years in the period ended June 30, 1998. My audits also included the financial  
statement schedule listed in the Index at Item 14. These financial statements   
and financial statement schedule are the responsibility of the Corporation's    
management. My responsibility is to express an opinion on these financial       
statements and financial statement schedule based on my audits.                 

      I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
I believe that my audits provide a reasonable basis for my opinion.             

    In my opinion, such financial statements referred to above present
fairly, in all material respects, the financial position of Networks Electronic 
Corp. as of June 30, 1998 and 1997, and the results of its operations and its   
cash flows for each of the three years in the period ended June 30, 1998, in    
conformity with generally accepted accounting principles. Also, in my opinion,  
such financial statement schedule, when considered in relation to the basic     
financial statements taken as a whole, presents fairly in all material respects 
the information set forth therein.                                              

                                                              HURLEY & COMPANY

August 28, 1998                                                                 
Granada Hills, California                                                       

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                            NETWORKS ELECTRONIC CORP.                                                                 

                                 BALANCE SHEETS                                                                       

                                     ASSETS                                                                           

                                                                             MARCH 31,              JUNE 30,          
                                                                            -----------   --------------------------- 
                                                                               1999          1998            1997     
                                                                            -----------   ------------   ------------ 
CURRENT ASSETS:                                                                                                       
                                                                                                                      
   Cash and cash equivalents .............................................   $  476,751   $    338,666   $     185,144
                                                                             ----------   ------------   ------------ 
                                                                             ----------   ------------   ------------ 
   Receivables:...........................................................                                            
     Trade accounts receivable ...........................................    1,142,439      1,308,501        712,709 
     Less allowance for doubtful accounts ................................            -          5,000          5,000 
                                                                             ----------   ------------   ------------ 
                                                                             ----------   ------------   ------------ 
                                                                                             1,303,501        707,709 
                                                                             ----------   ------------   ------------ 
                                                                             ----------   ------------   ------------ 
   Other receivables .....................................................        6,563          7,787         79,354 
   Due from officer                                                               3,669         15,093              - 
   Inventories, less reserve for obsolescence of $375,000 and $180,000,                                             2 
     respectively ........................................................    1,529,348      1,432,781       1,189,80 
   Prepaid expenses and deposits .........................................       58,936         30,576         39,832 
   Deferred income taxes, current portion ................................       50,000         65,000         24,000 
                                                                             ----------   ------------   ------------ 
          Total current assets ...........................................    3,267,706      3,193,404       2,225,841
                                                                             ----------   ------------   ------------ 
PROPERTY AND EQUIPMENT, AT COST:                                                                                      
   Land and improvements .................................................      146,664        146,664         131,773
   Buildings and improvements ............................................    3,705,944      3,698,588       3,438,250
   Machinery and equipment ...............................................    4.512,773      4,418,639       4,367,555
                                                                             ----------   ------------   ------------ 
                                                                              8,365,381      8,263,891       7,937,578
   Less accumulated depreciation .........................................    5,966,145      5,854,878       5,723,480
                                                                             ----------   ------------   ------------ 
   Property and equipment, net............................................    2,399,236      2,409,013       2,214,098
                                                                             ----------   ------------   ------------ 
DEFERRED INCOME TAXES, NON-CURRENT PORTION ...............................       11,701         16,701         119,571
DEFERRED CHARGES, NET OF ACCUMULATED AMORTIZATION OF $29,444 AND $7,495,                                             2
     RESPECTIVELY ........................................................       72,239         61,387          81,15 
                                                                             ==========   ============   ============ 
                                                                           $  5,750,882   $  5,680,505   $  4,640,662 
                                                                             ==========   ============   ============ 

           LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIENCY IN ASSETS)                                                 
CURRENT LIABILITIES:                                                                                                  
   Notes payable and current maturities of long-term debt.................  $   157,000   $   492,000    $  220,000   
   Note payable, related party - current portion.........................             -       100,000       100,000   
   Accounts payable......................................................       215,430       291,619       479,384   
   Customer advances and deposits........................................             -       238,318         2,834   
   Current portion of pre-petition debt:                                                                              
     Adjudication award payable..........................................             -             -        41,951   
     Accrued pension liability...........................................       167,304       152,157       279,079   
     Other payables......................................................             -         6,689        29,997   
   Other accrued expenses................................................       220,281       213,419       190,262   
   Income taxes payable..................................................        82,455       232,295             -   
                                                                            ------------  ------------  ------------  
          Total current liabilities......................................       842,470     1,726,497     1,343,507   
                                                                            ------------  ------------  ------------  

LONG-TERM DEBT:                                                                                                       
   Long-term debt, less current maturities...............................     2,781,712     2,829,329     3,042,193   
   Long-term portion of accrued pension liability........................        41,387       179,633       366,209   
                                                                            ------------  ------------  ------------  
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 15)..........................             -             -             -   
                                                                            ------------  ------------  ------------  
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS):                                                                          
   Common stock - par value $.25 per share; authorized 10,000,000 shares,       418,472                               
     issued and outstanding 1,671,221 shares.............................                     417,805       417,805   
   Additional paid-in capital............................................       285,327       280,985       280,985   
   Stock options exercisable.............................................         4,625         6,750             -   
   Retained earnings (accumulated deficit)...............................     1,705,081       567,698      (412,111)  
   Stock subscriptions receivable........................................             -             -       (14,063)  
   Pension liability adjustment..........................................      (328,192)     (328,192)     (383,863)  
                                                                            ------------  ------------  ------------  
          Total stockholders' equity (deficiency in assets)..............     2,085,313       945,046      (111,247)  
                                                                            ============  ============  ============  
                                                                            $ 5,750,882   $ 5,680,505 $   4,640,662   
                                                                            ============  ============  ============  

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

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                            NETWORKS ELECTRONIC CORP.                                                             

                            STATEMENTS OF OPERATIONS                                                              


                                                    NINE MONTHS                                                   
                                                       ENDED                 YEARS ENDED JUNE 30,                 
                                                  -----------------  -------------------------------------        
                                                    MARCH 31, 1999       1998            1997            1996     
                                                  -----------------  ------------     -----------     ----------- 
                                                                                                                  
NET SALES.........................................   $6,065,880      $ 6,000,054      $ 4,009,719     $ 3,932,925 
COST OF SALES.....................................    3,626,229        4,098,050        2,980,518       3,189,521 
                                                    ------------     ------------      -----------     -----------
   GROSS PROFIT...................................    2,439,651        1,902,004        1,029,201         743,404 
SELLING, ADMINISTRATIVE AND OTHER.................      528,829          575,749          794,202         568,560 
                                                    ------------     ------------      -----------     -----------
   OPERATING INCOME...............................    1,910,822        1,326,255          234,999         174,844 
                                                    ------------     ------------      -----------     -----------
OTHER INCOME (EXPENSE):                                                                                           
   Interest expense...............................     (156,432)        (264,327)        (225,023)       (229,291)
   Loss on disposition of assets..................            -                -                -          (7,273)
   CRA debt forgiveness...........................            -                -          161,875          33,125 
   Vendor debt forgiveness........................            -           19,551           40,296               - 
   Rental income, net.............................      139,093          181,920           57,583               - 
   Other, net.....................................            -           14,426           13,386          58,489 
                                                    ------------     ------------      -----------     -----------
                                                                         (48,430)          48,117        (144,950)
                                                    ------------     ------------      -----------     -----------
   INCOME BEFORE INCOME TAX PROVISION (BENEFIT)...    1,893,483        1,277,825          283,116          29,894 
INCOME TAX PROVISION (BENEFIT)....................      756,100          298,016          121,493            (690)
                                                    ============     ============      ===========     ===========
   NET INCOME.....................................    1,137,383      $   979,809      $   161,623     $    30,584 
                                                    ============     ============      ===========     ===========
NET INCOME PER SHARE - BASIC......................          .68      $       .59      $       .10     $       .02 
                                                    ============     ============      ===========     ===========
 WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC......    1,672,367        1,671,221        1,671,221       1,647,515 
                                                    ============     ============      ===========     ===========
NET INCOME PER SHARE - DILUTED....................          .68      $       .59      $       .10     $       .02 
                                                    ============     ============      ===========     ===========
 WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED....   $1,677,310        1,672,399        1,671,848       1,648,284 
                                                    ============     ============      ===========     ===========

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

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                           NETWORKS ELECTRONIC CORP.                                                                          

            STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)                                                          
                    YEARS ENDED JUNE 30, 1998, 1997, AND 1996                                                                 


                                                                                                                  RETAINED    
                                        COMMON        COMMON       ADDITIONAL     STOCK           STOCK           EARNINGS/   
                                        STOCK          STOCK        PAID-IN      OPTIONS       SUBSCRIPTIONS     ACCUMULATED  
                                        SHARES        AMOUNT        CAPITAL     EXERCISABLE     RECEIVABLE        DEFICIT     
                                     ------------  -------------  ------------  -------------  --------------- ---------------
                                                                                                                              
Balance, July l, 1995................  1,596,221   $    399,055   $   285,672   $          -   $            -  $     (604,318)
    Net income.......................          -              -             -              -                -          30,584 
    Stock options exercised..........     75,000         18,750        (4,687)             -          (14,063)              - 
    Pension liability adjustment.....          -              -             -              -                -               - 
                                     ------------  -------------  ------------  -------------  --------------- ---------------
Balance, June 30, 1996...............  1,671,221        417,805       280,985              -          (14,063)       (573,734)
    Net income.......................          -              -             -              -                -         161,623 
    Pension liability adjustment.....          -              -             -              -                -               - 
                                     ------------  -------------  ------------  -------------  --------------- ---------------
Balance, June 30, 1997...............  1,671,221        417,805       280,985              -          (14,063)       (412,111)
    Net Income.......................          -              -             -              -                -         979,809 
    Stock options Issued.............          -              -             -          6,750                -               - 
    Reclass stock  Subscription                                                                                               
       Receivable to Current Asset...          -              -             -              -           14,063               - 
    Pension liability Adjustment.....          -              -             -              -                -               - 
                                     ------------  -------------  ------------  -------------  --------------- ---------------
Balance, June 30, 1998...............  1,671,221   $    417,805   $   280,985   $      6,750   $            -  $    567,698   
                                     ============  =============  ============  =============  =============== ===============

                                       ADJUSTMENTS                                                                            
                                       TO EQUITY        TOTAL                                                                 
                                     --------------  ------------                                                             
Balance, July l, 1995................$   (I12,671 )  $   (32,262)                                                             
    Net income.......................            -        30,584                                                              
    Stock options exercised..........            -             -                                                              
    Pension liability adjustment.....     (240,732)     (240,732)                                                             
                                     --------------  ------------                                                             
Balance, June 30, 1996...............     (353,403)     (242,410)                                                             
    Net income.......................            -       161,623                                                              
    Pension liability adjustment.....      (30,460)      (30,460)                                                             
                                     --------------  ------------                                                             
Balance, June 30, 1997...............     (383,863)     (111,247)                                                             
    Net Income.......................            -       979,809                                                              
    Stock options Issued.............            -         6,750                                                              
    Reclass stock  Subscription                                                                                               
       Receivable to Current Asset...            -        14,063                                                              
    Pension liability Adjustment.....       55,671        55,671                                                              
                                     --------------  ------------                                                             
Balance, June 30, 1998...............$   (328,192 )  $   945,046                                                              
                                     ==============  ============                                                             


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

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                                                        [Enlarge/Download Table]
                            NETWORKS ELECTRONIC CORP.                                                    

                            STATEMENTS OF CASH FLOWS                                                     


                                                    NINE MONTHS                                          
                                                       ENDED               YEARS ENDED JUNE 30,          
                                                   -------------  -------------------------------------- 
                                                     MARCH 31,                                           
                                                        1999          1998         1997          1996    
                                                    -------------  ----------- -------------  -----------
CASH FLOWS FROM OPERATING ACTIVITIES                                                                     
                                                                                                         
   Net income....................................... $ 1,137,383  $   979,809 $     161,623  $    30,584 
                                                    -------------  ----------- -------------  -----------
   Adjustments to reconcile net income to net                                                            
      cash provided by operations:                                                                       
    Noncash items included in net income:                                                                
      Depreciation and amortization.................     125,792      153,347       126,221      130,307 
      Deferred income taxes.........................      20,000       61,870       120,693         (862)
      Loss on disposition of assets.................           -            -             -        7,273 
    Changes in                                                                                           
      Accounts receivable and refundable Income          173,710                                         
      taxes.........................................                 (525,255)       34,096      (14,760)
      Inventories...................................     (96,567)    (242,979)     (146,546)      18,690 
      Prepaid expenses and deposits.................     (28,360)       9,256       (20,255)     (11,537)
      Deferred charges..............................     (25,377)      (2,184)      (88,647)           - 
      Accounts payable and accrued expenses.........     (76,016)    (487,694)      (77,455)     119,508 
      Income taxes payable..........................    (149,840)     232,295             -       (6,276)
      Customer advances and deposits................    (238,318)     235,484         2,834      (11,585)
                                                                   ----------- -------------  -----------
         TOTAL ADJUSTMENTS..........................    (418,075)    (565,860)      (49,059)     230,758 
                                                    -------------  ----------- -------------  -----------

         NET CASH PROVIDED BY OPERATING ACTIVITIES..     719,308      413,949       112,564      261,342 
                                                    -------------  ----------- -------------  -----------
 CASH FLOWS FROM INVESTING ACTIVITIES                                                                    
   Capital expenditures.............................    (101,490)    (326,313)   (1,261,318)    (318,602)
   Proceeds from disposition of assets..............           -            -             -       64,627 
                                                    -------------  ----------- -------------  -----------
         NET CASH USED IN INVESTING ACTIVITIES......    (101,490)    (326,313)   (1,261,318)    (253,975)
                                                    -------------  ----------- -------------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES                                                                     
   Mortgage debt reduction..........................  (1,582,528)    (120,000)     (120,000)    (143,125)
   Other payments of long-term debt.................    (350,089)    (141,488)      (19,661)           - 
   Proceeds from long-term borrowings...............   1,550,000      320,624     1,354,667      168,045 
   Proceeds from notes payable, related parties.....           -            -       122,000            - 
   Payments on notes payable, related parties.......    (100,000)           -      (102,222)     (50,667)
   Stock options issued.............................           -        6,750             -            - 
                                                    -------------  ----------- -------------  -----------
 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES    (479,733)      65,886     1,234,784      (25,747)
                                                    -------------  ----------- -------------  -----------
 NET INCREASE (DECREASE) IN CASH AND CASH                                                                
    EQUIVALENTS.....................................     138,085      153,522        86,030      (18,380)
 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.....     338,666      185,144        99,114      117,494 
                                                    -------------  ----------- -------------  -----------
 CASH AND CASH EQUIVALENTS AT END OF YEAR...........  $  476,751  $   338,666 $     185,144  $    99,114 
                                                    =============  =========== =============  ===========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES             

         In the fiscal year ended June 30, 1998, a stock subscription receivable
in the amount of $14,063 that was subsequently collected was reclassified as a  
current asset.                                                                  

 In the fiscal year ended June 30, 1998, the Company reduced its
additional minimum pension liability in the amount of $55,671 by increasing     
stockholders' equity for the same amount.                                       

  In the fiscal year ended June 30, 1997, the Company entered into
capital leases for telephone and office equipment. Total assets and related     
lease obligations pertaining to these transactions amounted to $36,951.         

   In the fiscal year ended June 30, 1997, the Company recognized an
additional minimum pension liability in the amount of $30,460 by increasing     
stockholders' deficiency in assets for the same amount.                         

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In the fiscal year ended June 30, 1996, the Company recognized an         
additional minimum pension liability in the amount of $240,732 by increasing    
stockholders' deficiency in assets for the same amount.                         

 NETWORKS ELECTRONIC CORP.

 NOTES TO THE FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                             

CASH AND CASH EQUIVALENTS                                                       

   Cash and cash equivalents include cash on hand and on deposit and
highly liquid debt instruments with original maturities of three months or less.
Substantially all cash is on deposit with one financial institution.            

PROPERTY AND EQUIPMENT                                                          

Depreciation is computed by using the declining-balance and   
straight-line methods over the estimated service lives of the assets which range
from three years for tooling to forty years for the building. When assets are   
retired or otherwise disposed of, the cost and related accumulated depreciation 
are removed from the accounts, and any resulting gain or loss is recognized in  
income for the period. The cost of maintenance and repairs is charged to income 
as incurred; significant renewals and improvements are capitalized. Deduction is
made for retirements resulting from renewals or improvements.                   

INCOME TAXES                                                                    

     Deferred income taxes are provided for the estimated tax effects of
timing differences between financial and taxable income with respect to         
depreciation, pension costs, California franchise tax, reserve for inventory    
obsolescence, capitalized inventory costs, net operating loss carryforwards     
(when applicable), and other items.                                             

DEFERRED CHARGES                                                                

        The Company recognizes as deferred charges certain loan fees and lease
costs, which are being amortized over periods ranging from approximately two to 
five years.                                                                     

PENSION PLAN                                                                    

        The Company funds accrued pension costs on its noncontributory pension
plan covering substantially all employees. Unrecognized prior service cost,     
previously amortized over thirty years, was expensed in the year ended June 30, 
1993, due to the fact that participants' accrued benefits under the plan were   
frozen as of August 31, 1992. (See Note 9).                                     

REVENUE RECOGNITION                                                             

The Company recognizes sales revenue when parts are shipped to
customers.                                                                      

EARNINGS PER SHARE                                                              

      In the quarter ended December 31, 1997, the Company adopted SFAS No.
128, "Earnings Per Share," for all periods presented. This standard specifies   
the computation, presentation, and disclosure requirements for earnings per     
share. Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted-average number of shares
of common stock outstanding during the period. Diluted earnings per share       
calculations reflect the assumed exercise and conversion of employee stock      
options.                                                                        

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RESEARCH AND DEVELOPMENT                                                        

  Research and development expenditures are expensed in the period
incurred. Research and development expense amounted to $50,874, $6,207, and     
$97,009 during the years ended June 30, 1998, 1997, and 1996, respectively.     

RECLASSIFICATIONS                                                               

       Certain amounts from prior years have been reclassified to conform to
the current year's presentation.                                                

USE OF ESTIMATES                                                                

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

FAIR VALUE OF FINANCIAL INSTRUMENTS                                             

         Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose        
estimated fair values for its financial instruments. The following summary      
presents a description of the methodologies and assumptions used to determine   
such amounts.                                                                   

         Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial instrument;  
they are subjective in nature and involve uncertainties, matters of judgment,   
and, therefore, cannot be determined with precision. These estimates do not     
reflect any premium or discount that could result from offering for sale at one 
time the Company's entire holdings of a particular instrument. Changes in       
assumptions could significantly affect the estimates. Since the fair value is   
estimated at June 30, 1998, the amounts that will actually be realized or paid  
at settlement of the instruments could be significantly different.              

       The carrying amount of cash and cash equivalents is assumed to be the
fair value because of the liquidity of these instruments. Accounts receivable,  
accounts payable, and accrued expenses approximate fair value because of the    
short maturity of these instruments. The recorded balances of notes payable and 
long-term debt (with the exception of the Company's non-interest bearing CRA    
loan) are assumed to be the fair value since the rates specified in the notes   
approximate current borrowing rates available for financing with similar terms  
and maturities.                                                                 

RECENT ACCOUNTING PRONOUNCEMENTS                                                

       The FASB issued SFAS No. 130 "Reporting Comprehensive Income" in June
1997 which established standards for reporting and displaying comprehensive     
income and its components in a full set of general purpose financial statements.
In addition to net income, comprehensive income includes all changes in equity  
during a period, except those resulting from investments by and distributions to
owners. The Company will adopt SFAS 130, which is effective for fiscal years    
beginning after December 15, 1997, in the first quarter of the year ending June 
30, 1999.                                                                       

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" that establishes standards for        
reporting information about operating segments in annual and interim financial  
statements. SFAS 131 also establishes standards for related disclosures about   
products and services, geographic areas, and major customers. SFAS 131 is       
effective for fiscal years beginning after December 15, 1997. The Company will  
adopt SFAS 131 in the first quarter of the year ending June 30, 1999. Reporting 
and disclosures under SFAS 131 are not expected to be materially different than 
present disclosures.                                                            

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SFAS No. 132 "Employers' Disclosures about Pensions and Other 
Post-retirement Benefits" was issued in February 1998 and standardizes          
disclosure requirements for pension and other post-retirement benefit plans to  
the extent practicable. Adoption of this standard for fiscal years beginning    
after December 15, 1997, and restatement of prior period comparative disclosures
is required. The Company will adopt SFAS 132 in the fiscal year ending June 30, 
1999.                                                                           

BASIS OF PRESENTATION                                                           

      In the opinion of the Company, the accompanying unaudited portion of
the condensed financial statements contain all adjustments necessary to present 
fairly its financial position and the results of its operations and cash flows  
for the periods shown.                                                          

       Certain prior period amounts have been reclassified to conform to the
current period's presentation.                                                  

     The preparation of the Company's financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and   
liabilities and disclosure of contingent assets and liabilities at the date of  
the financial statements and the reported amounts of revenues and expenses      
during the reporting period. Actual results could differ from those estimates.  
The results of operations for the respective nine month period is not           
necessarily indicative of the results to be expected for a full year of         
operations.                                                                     

2.       INVENTORIES                                                            

   Inventories are valued as the lower of cost (FIFO) or market. The
inventories at March 31, 1999 and June 30, 1998 consisted of the following:     

                                                                [Download Table]


                                           MARCH 31,          JUNE 30,       
                                            1999         1998        1997    
                                         ------------ -----------  ----------
                                                                             
Raw materials............................   $166,410 $   132,287  $   93,843 
Work in process..........................    938,750     629,592     523,711 
Finished goods and components............    881,688   1,045,902     752,248 
                                         ------------ -----------  ----------
                                           1,986,848   1,807,781   1,369,802 
Less reserve for obsolescence............   (457,500)   (375,000)   (180,000)
                                         ============ ===========  ==========
                                          $1,529,348 $ 1,432,781  $1,189,802 
                                         ============ ===========  ==========

3.       DEFERRED CHARGES                                                       

         Deferred charges consist of costs associated with the lease of space at
the Company's facility in Chatsworth (See Note 16 below) in the amount of       
$78,647, loan fees of $10,000 pertaining to additional financing obtained in    
March 1997, plus an additional $2,184 in loan fees paid in March 1998.          
Amortization expense related to these costs amounted to $21,949 and $7,495 for  
the years ended June 30, 1998 and 1997, respectively.                           

4.       LONG-TERM DEBT, NOTES PAYABLE                                          

     At March 31, 1999, June 30, 1998 and June 30, 1997, the Company's long-term
debt consisted of the following:                                                

                                                        [Enlarge/Download Table]


                                                        MARCH 31,                    JUNE 30,             
                                                                         ---------------------------------
                                                           1999              1998              1997       
                                                     -----------------   --------------   ----------------
                                                                                                          
Note payable to bank, secured by first deed of trust                                                      
on land and building, payable in monthly installments                                                     
of $14,167 including interest at an annual                                                                
rate of 7.27%.  Matures in February 2014.............       1,544,553                -                  - 

Note payable to bank, secured by first deed of trust                                                      
on land and building, principal payable in monthly                                                        
installments of $10,000 through June 2000, with                                                           
interest payable monthly at a reference rate plus                                                         
2.25% (10.75% at both June 30, 1998 and June 30,                                                          
1997, respectively). A balloon payment for                                                                
$1,342,528 is due in June 2000 (See Notes 5 and 17)..              -    $    1,582,528   $      1,702,528 

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Note payable to Community Redevelopment Agency, City                                                      
of Los Angeles ("CRA"),non-interest bearing                                                               
construction loan, secured by second deed of trust                                                        
on land and building, no principal payments required                                                      
through August 2001, with level monthly principal                                                         
payments of $4,604 applicable over the remaining 20                                                       
years through August 2021............................       1,105,000        1,105,000          1,105,000 

Notes payable to lessee, secured by assignment of                                                         
rents, principal payable in monthly installments                                                          
totaling $7,663 through March 2002, with interest                                                         
payable monthly at annual rates ranging from 7.0% to                                                      
10.0% (blended rate 8.88% at June 30, 1998)..........         275,872          344,840            185,635 

Note payable to financial institution, secured by                                                         
machinery and equipment, principal payable in                                                             
monthly installments of $5,667 along with interest                                                        
at a reference rate plus 2.75% (11.25% at both June                                                       
30, 1998 and June 30, 1997, respectively) through                                                         
March 1999, with a balloon payment for the balance                                                        
also due in March 1999. A 7.5% prepayment penalty                                                         
applies on the outstanding balance if this loan is                                                        
refinanced prior to maturity.........................               -          268,500            237,500 

Note payable to finance company, secured by                                                               
telephone equipment, payable in monthly installments                                                      
of $656 including interest at an annual rate of                                                           
approximately 17.3%. Matures in October 1999.........           3,616            8,259             14,453 

Note payable to vendor, secured by office equipment,                                                      
payable in monthly installments of $395 including                                                         
interest at an annual rate of approximately 12.4%.                                                        
Matures in December 2001.............................           9,671           12,202             17,077 
                                                     -----------------   --------------   ----------------
                                                            2,938,712        3,321,329          3,262,193 
Less current maturities..............................         157,000          492,000            220,000 
                                                     -----------------   --------------   ----------------
                                                       $    2,781,712   $    2,829,329   $      3,042,193 
                                                     =================   ==============   ================

Maturities of long-term debt in each of the next five years are as
follows:                                                          

                                                                [Download Table]


Year ending June 30,                  
                                      
1999.................... $    492,000 
2000....................    1,561,000 
2001....................       95,000 
2002....................      115,000 
2003....................       55,000 
Thereafter..............    1,003,329 
                          ------------
                         $  3,321,329 
                          ============

       In February 1999 the Company received a Real Estate Secured Loan (the
        "Term Loan") and a Revolving Line of Credit (the "Revolver") from City
        National Bank. The Term Loan for approximately $1,550,000, covered the
     amount owed under the existing first trust deed, secured with Wells
       Fargo Bank (See Note 3 above) and is secured by a first trust deed on
        the Chatsworth facility. The loan is fully amortized over 15 years and
    is set at an effective annual interest rate of 2.50% over the rate
       applicable on Ten Year Treasury Notes at the time of the execution of
        the loan documents (approximately 7.27%), with monthly installments of
      principal and interest approximating $14,167 and commencing March 1,
    1999. The Revolver allows for advances not to exceed the lesser of
        $1,250,000 or 80% of eligible accounts receivable, and is secured by a
         senior lien and perfected security interest on all personal property of
       the Company. The principal matures on approximately February 1, 2000,
  with interest payable monthly at a variable annual interest rate
    equivalent to a bank reference rate plus 1.50% (currently 10.00%).
      Various financial covenants pertaining to a minimum level of working
capital, net worth, etc. apply.                               

In March 1999 the Company repaid in full its outstanding loan 
    obligation with a financial institution in the amount of $224,898,
        including $223,167 in principal and $2,231 in accrued interest, less a
      $500 deposit. The funds for the pay-off were provided by operations.

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5.       CREDIT AGREEMENTS                                                      

     The Company reached an agreement with its bank, as confirmed by the
Company's plan for reorganization entered into on November 9, 1994. Terms of the
agreement include the payment of interest at the bank's reference rate plus     
2.25% (currently 10.75%), $10,000 per month principal payments until maturity,  
and a balloon payment of $1,342,528 in June 2000. Additionally, in the event of 
default, the entire outstanding principal balance of the note will become       
immediately due and payable and will bear interest equal to 4 percentage points 
above the applicable interest rate as defined above. The Company is currently in
the process of refinancing this debt (See Note 17).                             

         The Los Angeles City Council approved the funding of $1,300,000 through
the Community Redevelopment Agency for the retrofit and repair of the Company's 
Chatsworth building (damaged as a result of the Northridge Earthquake in January
1994) and the remodeling of the north building site, 35,000 square feet of which
were subsequently leased to a tenant beginning March 1997 (See Note 17 below).  
Of the total $1,300,000 commitment, 15% ($195,000) is a grant and 85%           
($1,105,000) is an interest-free loan to be repaid over 20 years, beginning 5   
years from the effective date of the loan, which was August 26, 1996. At June   
30, 1996, $220,833 was expended, resulting in the recognition of $33,125 (15%)  
as forgiveness of debt income, and the balance of $187,708 as long-term debt.   
The remainder of the commitment was disbursed during the year ended June 30,    
1997; accordingly, an additional $161,875 was recorded as forgiveness of debt   
income.                                                                         

         The Company's average aggregate borrowings were $3,425,000, $2,708,000,
and $2,047,000, at weighted average interest rates of 7.7%, 8.2%, and 10.7% in  
1998, 1997, and 1996, respectively. The average aggregate borrowings and        
weighted average interest rate computations include notes payable to related    
parties during these years. Interest paid amounted to $263,689, $231,536, and   
$225,301 during the fiscal years ended June 30, 1998, 1997, and 1996,           
respectively.                                                                   

6.       NOTES PAYABLE, RELATED PARTIES                                         

    (a) In January 1995, the Company received a $152,000 loan from the
estate of its former president and chief executive officer, secured by specific 
machinery and equipment. The loan was being repaid in equal monthly principal   
installments of $4,222 (plus interest at 10%) over a three year period. A loan  
fee of $2,000 was charged to consummate the transaction. The outstanding loan   
balance at June 30, 1996 was $80,222, of which $50,667 was the current portion. 
In March 1997, the Company obtained other financing and paid off the remaining  
principal balance of $42,222. Interest expense on this note during the years    
ended June 30, 1997 and 1996 was $4,296 and $8,391, respectively.               

    (b) In August 1996 the Company's vice president loaned the Company
$100,000 at an annual interest rate of 13%, secured by the Company's accounts   
receivable. The loan maturity date was subsequently extended through December   
1998, with interest payable monthly. On October 30, 1998 the Company fully paid 
back this officer loan along with accrued interest of $1,104. Interest expense  
on this loan during the nine months ended March 31, 1999 and 1998 amounted to   
$4,381 and $9,757, respectively.                                                

        (c) In September 1996, a Director advanced the Company $22,000 for a
fee of $200. The money was repaid by the Company in October 1996.               

7.       STOCK OPTION PLAN                                                      

        The Company's Board of Directors adopted the Networks Electronic Corp.
1996 Stock Incentive Plan (the "1996 Plan"), providing for the grant of up to   
100,000 shares of the Company's common stock to directors, officers, employees  
and consultants of the Company. The 1996 Plan was submitted to and approved by  
the shareholders of the Company at the Annual Meeting of Shareholders held on   
December 13, 1996. Under the 1996 Plan, 9,000 options have been issued to       
officers and other key employees at the Company. These options were issued at   
market ($1.58) on November 21, 1997, and have been valued at approximately      
$6,750 under the Black-Scholes pricing model. They become exercisable on a      
quarterly pro-rata basis over a three-year period and have an expiration date   
for exercise of November 21, 2002.                                              

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        The Company also has a qualified stock option plan, as amended October
15, 1974, under which options to purchase up to an aggregate of 185,200 shares  
of the Company's common stock may be granted to key employees at a price not    
less than the fair market value at the date of grant. Options issued under this 
plan will expire unless exercised within five years of the grant date. During   
the year ended June 30, 1993, the Company issued 20,000 stock options (10,000   
each) under this plan to an officer and director, exercisable at a price of     
$1.00 per share. These stock options have since expired due to the officer's    
cessation of employment and the director's resignation from the board.          

       During the year ended June 30, 1995, the Company's Board of Directors
awarded 75,000 fully-vested stock options to its chief executive officer,       
exercisable at a price of $. 1875 per share, and 2,500 additional stock options 
(500 each) to five other key employees, exercisable at a price of $.25 per      
share. The exercise price, in each instance, corresponded to the mid-point of   
the closing bid and ask price of the Company's common stock on the date of      
grant, which was November I, 1994 for the chief executive officer's options and 
March 31, 1995 for the other key employees' options.                            

     The chief executive officer exercised his 75,000 options during the
year ended June 30, 1996; accordingly, the Company recorded a stock subscription
receivable for $14,063. During the year ended June 30, 1998, the Company        
reclassified the receivable to a current asset, as the receivable was collected 
in July 1998. A total of 1,500 stock options awarded to three of the five key   
employees expired due to cessation of employment; the remaining 1,000 stock     
options issued (to two officers) became fully vested on March 31, 1998 and were 
subsequently exercised in August 1998. All of these non-qualified stock options 
were issued outside of the existing stock option plan. Currently, no other      
options are outstanding nor have any been previously granted.                   

8.       INCOME TAXES                                                           

Income taxes (benefits) consisted of the following:           

                                                        [Enlarge/Download Table]


                                                                YEARS ENDED JUNE 30,           
                                                       ----------------------------------------
                                                          1998          1997           1996    
                                                       -----------   -----------   ------------
                                                                                               
Federal income tax (benefit)......................... $   184,192   $    93,413   $     (1,490)
California franchise tax.............................     113,824        28,080            800 
                                                       -----------   -----------   ------------
                                                      $   298,016   $   121,493   $       (690)
                                                       ===========   ===========   ============

Current.............................................. $   236,146   $       800   $        172 
Deferred.............................................      61,870       120,693           (862)
                                                       -----------   -----------   ------------
                                                      $   298,016   $   121,493   $       (690)
                                                       ===========   ===========   ============

         The differences between the effective income tax rate and the statutory
federal income tax rate are as follows:                                         

                                                        [Enlarge/Download Table]


                                                                 YEARS ENDED JUNE 30,           
                                                       -----------------------------------------
                                                          1998           1997          1996     
                                                       ------------   -----------   ------------
                                                                                                
Computed statutory federal income tax................ $    434,460   $    93,665   $      4,484 
Increases (decreases) resulting from:                                                           
   California franchise tax, net of federal tax                                                 
     benefit.........................................       75,124        18,533          1,391 
   Tax credits.......................................       (3,862)            -        (12,104)
   Rate differential due to expected utilization of                                             
     federal NOL carryforward to future year at                                                 
     higher effective tax rate.......................            -         2,594          5,680 
   Valuation allowance, due to unlikelihood of                                                  
     future realization of deferred tax benefit......     (210,000)            -         10,000 
   Other.............................................        2,294         6,701        (10,141)
                                                       ------------   -----------   ------------
Income tax provision (benefit)....................... $    298,016$      121,493   $       (690)
                                                       ============   ===========   ============

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     Net income taxes paid amounted to $800, $800, and $9,500 during the
fiscal years ended June 30, 1998, 1997, and 1996, respectively. The Company's   
current income tax provision (benefit) is based on current year taxable income  
(loss). The deferred income tax provision (benefit) is based on the temporary   
differences between the book basis and tax basis of assets and liabilities at   
the end of each year and the expected reversal of those differences. The        
deferred tax provision (benefit) in 1998, 1997, and 1996 is as follows:         

                                                        [Enlarge/Download Table]


                                                                YEARS ENDED JUNE 30,           
                                                      -----------------------------------------
                                                         1998          1997           1996     
                                                      ------------  ------------   ------------
Change in temporary difference:                                                                
                                                                                               
   Depreciation..................................... $      3,448  $      2,606   $     (2,901)
   Inventory obsolescence...........................      (82,710)       (8,660)        (4,330)
   Pension plan.....................................       47,919       134,300         (1,521)
   Litigation.......................................       (2,619)        6,109         19,253 
   Other............................................           35         2,525            (44)
   Accrued vacation and sick leave..................       (3,051)       (8,002)        (3,511)
   Uniform capitalization...........................        1,753         1,298          4,327 
   Alternative minimum tax credits..................            -             -            628 
   Other tax credits................................       53,524        (3,000)       (12,104)
   California franchise tax.........................      (38,429)       (9,275)           382 
   Utilization of federal and California NOL                                                   
    carryforwards...................................      292,000         2,792              - 
   Benefit of federal and California NOL                                                       
    carryforwards...................................            -             -        (11,041)
   Valuation allowance, due to estimate of future                                              
    realization.....................................     (210,000)            -         10,000 
                                                      ------------  ------------   ------------
Deferred income tax provision (benefit)............. $     61,870  $    120,693   $       (862)
                                                      ============  ============   ============

        During the fiscal year ended June 30, 1998, the Company fully utilized
the tax benefits (approximately $292,000) of its federal and California net     
operating loss (NOL) carryforwards in the amounts of approximately $636,000 and 
$817,000, respectively. The Company also reversed a cumulative valuation        
allowance of $210,000 due to the certainty of the NOL realization. Additionally,
the Company utilized the balance of its federal general business credit         
carryover of approximately $29,000, its alternative minimum tax credit carryover
of approximately $5,000, as well as (effectively all of) its California tax     
credit carryovers of approximately $20,000.                                     

      Significant  components of the  Company's  deferred tax  liabilities
and assets at June 30, 1998 and June                                            
30, 1997 are:                                                                   

                                                        [Enlarge/Download Table]


                                                                     1998            1997     
                                                                 -------------   -------------
Liabilities                                                                                   
                                                                                              
   Depreciable property, plant and equipment................... $      67,299   $      63,851 
   Pension plan................................................        60,558          12,639 
   California franchise tax....................................         2,432          40,861 
   Litigation..................................................             -           2,619 
                                                                 -------------   -------------
   Gross deferred tax liabilities..............................       130,289         119,970 
                                                                 -------------   -------------
Assets                                                                                        
   Inventory...................................................       173,372          92,415 
   Accounts receivable.........................................         2,142           2,165 
   Other employee benefits.....................................        35,767          32,728 
   Alternative minimum tax credits.............................           709           5,648 
   Other tax credits...........................................             -          48,585 
   NOL carryforwards...........................................             -         292,000 
                                                                 -------------   -------------
   Gross deferred tax assets...................................       211,990         473,541 
                                                                 -------------   -------------
   Deferred income tax asset...................................        81,701         353,571 
   Valuation allowance.........................................             -        (210,000)
                                                                 -------------   -------------
   Deferred income tax asset-- net............................. $      81,701   $     143,571 
                                                                 =============   =============

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          The respective deferred tax benefits at the June 30, 1998 and June 30,
1997 balance sheet dates are presented as follows:                              

                                                        [Enlarge/Download Table]


                                                                    1998            1997     
                                                                 ------------   -------------
                                                                                             
Current portion................................................ $     65,000   $      24,000 
Non-current portion............................................       16,701         119,571 
                                                                 ------------   -------------
         Total................................................. $     81,701   $     143,571 
                                                                 ============   =============

9.       EMPLOYEE RETIREMENT PLAN                                               

       The Company has a defined benefit pension plan covering substantially
all of its employees. The plan has been modified through amendment, with all    
participants' accrued benefits frozen as of August 31, 1992. The freeze was     
necessitated primarily as a means of reducing annual pension funding            
requirements.                                                                   

         Pension expense was $39,987, $41,380, and $32,311 for the years ended
June 30, 1998, 1997, and 1996, respectively, and was determined in accordance   
with the requirements of Statement of Financial Accounting Standards (SFAS) No. 
87 "Employers' Accounting for Pension Plans."                                   

     Periodic pension costs for the years ended June 30, 1998, 1997, and
1996 are summarized below:                                                      

                                                        [Enlarge/Download Table]


                                                         1998           1997           1996      
                                                      ------------   ------------  --------------
                                                                                                 
Service cost........................................ $          -   $          -  $           -  
Interest cost.......................................      189,233        191,664        193,558  
Actual return on plan assets........................     (231,859)      (144,607)      (116,942) 
Net amortization and deferral.......................       82.613         (5,677)       (44,305) 
                                                      ------------   ------------  ------------- 
         Total pension expense...................... $     39,987   $     41,380  $      32,311  
                                                      ============   ============  ============= 

The status of the plan is as follows:                         

                                                        [Enlarge/Download Table]


                                                                     1998           1997      
Actuarial present value of benefit obligations:                                               
                                                                                              
   Vested benefits............................................  $  (2,404,153)  $ (2,420,450) 
   Nonvested benefits.........................................        (20,563)       (25,403) 
                                                                 -------------  --------------
   Accumulated benefit obligation.............................     (2,424,716)    (2,445,853) 
   Effect of future salary increases..........................              -              -  
                                                                 -------------  ------------- 
   Projected benefit obligation...............................     (2,424,716)    (2,445,853) 
   Fair value of plan assets..................................      2,092,926      1,800,565  
                                                                 -------------  ------------- 
   Projected  benefit  obligation  in excess of fair  value of                                
   plan assets................................................       (331,790)      (645,288) 
   Unrecognized net loss......................................        328,192        383,863  
                                                                 -------------  ------------- 
   Accrued pension cost.......................................         (3,598)      (261,425) 
   Minimum pension adjustment.................................       (328,192)      (383,863) 
                                                                 -------------  ------------- 
   Accrued pension liability..................................       (331,790)      (645,288) 
   Less current portion.......................................       (152,157)      (279,079) 
                                                                 -------------  ------------- 
   Long-term portion..........................................  $    (179,633)  $   (366,209) 
                                                                 =============  ============= 

    A minimum pension liability equal to the excess of the accumulated
benefit obligation over the fair value of plan assets and liabilities already   
accrued was reflected in the balance sheets at June 30, 1998 and 1997 through   
the recording of an increase to stockholders' equity of $55,671 at June 30,     
1998, and an increase to stockholders' deficiency in assets of $30,460 at June  
30, 1997, respectively.                                                         

      The expected long-term rate of return on plan assets was 9% for both
1998 and 1997. The discount rate used in determining the actuarial present value
of accumulated benefit obligations was 8% for both 1998                         

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and 1997. There was no rate of increase in future compensation levels at both   
June 30, 1998 and June 30, 1997 because of the plan curtailment.                

       Since the court confirmation of its Chapter 11 Reorganization Plan in
November 1994, the Company continues to make pension plan contributions in the  
amount of $2,400 per month. In addition, a balloon payment of approximately     
$262,000 was made in March 1998 to cover the following: (1) a funding deficiency
of approximately $123,000 carried over from the Plan year ended June 30, 1996,  
(2) the balance of the minimum funding standard charges (including interest)    
totaling approximately $79,000 for the Plan year ended June 30, 1997, and (3)   
the second annual installment of approximately $60,000 due on approximately     
$240,000 in plan contributions for the Plan year ended June 30, 1995. The 1995  
plan contributions have been deferred and are currently being amortized over a  
statutory five year period (beginning with the year ended June 30, 1996), as the
result of IRS granting the Company's request for waiver of the minimum funding  
standard.                                                                       

        The total minimum funding requirement for the year ended June 30, 1998
is approximately $152,000, which includes an annual waiver installment (as noted
above) of approximately $60,000, and an additional $92,000 in minimum funding   
standard charges for the current year. The Company currently has more than      
sufficient liquidity to meet this obligation, which must be fully paid by March 
15, 1999 to avoid an IRS, imposed 10% excise tax.                               

        The Plan assets are held by Connecticut General Life Insurance Company
("CIGNA"), through a guaranteed group annuity contract (an immediate            
participation guarantee) established in 1980. The contract stipulates that CIGNA
pay benefits and invest funds which have been contributed for the purpose of    
providing retirement benefits to eligible participants in accordance with the   
terms of the Networks Electronic Corporation Pension Plan.                      

10.      BUSINESS SEGMENTS                                                      

   The principal business of the Company is the design, fabrication,
assembly and sale of high technology assemblies for aerospace and defense prime 
contractors. The Company operates two divisions: ( 1 ) US Bearing Division whose
products are spherical, self-aligned, self-lubricating and specialized bearings 
used chiefly in the aircraft and space industries, and (2) Ordnance Division    
whose products include miniaturized electro-pyrotechnic devices such as         
switches, initiator-igniters for missile subsystems, thermal relay switches, and
glass-to-metal seals used solely for the defense and aerospace industries.      

                                                        [Enlarge/Download Table]


                                                               INCOME                      CAPITAL                  
                                                               BEFORE                     XPENDITURE     EPRECIATION
                                                              NCOME TAX                                             
                                                              PROVISION                                             
                                                SALES*       I(BENEFIT)      ASSETS      E          S   D           
                                              ------------   ------------  ------------  ------------   ------------
Year ended June 30, 1998:                                                                                           
                                                                                                                    
   Bearings...............................   $  3,337,949   $    474,497  $  3,433,794  $    216,402   $     78,832 
   Ordnance...............................      2,662,105      1,067,655     2,246,711       109,911         52,566 
                                              ------------   ------------  ------------  ------------   ------------
                                             $  6,000,054      1,542,152  $  5,680,505  $    326,313   $    131,398 
                                              ============   ------------  ============  ============   ============
Interest expense..........................                       264,327                                            
                                                             ------------                                           
                                                            $  1,277,825                                            
                                                             ============                                           
Year ended June 30, 1997:                                                                                           
   Bearings...............................   $  2,086,521   $     51,206  $  2,891,596  $    856,392   $     80,080 
   Ordnance...............................      1,923,198        456,933     1,749,066       441,877         38,646 
                                              ------------   ------------  ------------  ------------   ------------
                                             $  4,009,719        508,139  $  4,640,662  $  1,298,269   $    118,726 
                                              ============   ------------  ============  ============   ============
Interest expense..........................                       225,023                                            
                                                             ------------                                           
                                                            $    283,116                                            
                                                             ============                                           
Year ended June 30, 1996:                                                                                           
   Bearings...............................   $  2,383,133   $    211,870  $  1,984,455  $    180,328   $    100,269 
   Ordnance...............................      1,549,792         47,315     1,297,470       138,274         30,038 
                                              ------------   ------------  ------------  ------------   ------------
                                             $  3,932,925   $    259,185  $  3,281,925  $    318,602   $    130,307 
                                              ============   ------------  ============  ============   ============
Interest expense..........................                       229,291                                            
                                                             ------------                                           
                                                            $     29,894                                            
                                                             ============                                           

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------------                                                                                                        
<FN>                                                                                                                

* All sales were made to unaffiliated customers and there were no inter-segment                                     
sales.                                                                                                              
</FN>                                                                                                               

11.      FOURTH QUARTER ADJUSTMENTS                                             

During the fourth quarter of fiscal 1996, the Company recorded
significant adjustments to its accounts, which resulted in reducing net income  
by approximately $50,000. The adjustments were principally to correct the       
Company's year-end inventory accounts.                                          

12.      EMPLOYMENT AGREEMENT, RELATED PARTY RECEIVABLE                         

    The Company has an employment agreement effective May 1, 1998 with
David Wachtel, its President and Chief Executive Officer. The agreement provides
for an annual base salary of $175,000, payable through the close of business on 
the later of April 30, 1999 or 180 days following delivery of written notice of 
the Company's intent to terminate the agreement. Mr. Wachtel's prior employment 
contract expired April 30, 1998, and called for minimum annual compensation of  
$150,000 for a period of three years. The Board of Directors has also agreed to 
pay all medical and dental insurance premiums for the Company's corporate       
officers, plus the deductible expense portions operative under the respective   
plans.                                                                          

      During the year ended June 30, 1998, a stock subscription receivable
from the Company's President in the amount of $14,063 was reclassified as a     
current asset. The receivable was collected in July 1998. The total receivable  
due from the officer at June 30, 1998 was $15,093, including $1,030 in personal 
expenses.                                                                       

         During the year ended June 30, 1996, the Company's outstanding advances
totaling $27,228 previously made to Mihai D. Patrichi, the Company's Founder and
former President and Chief Executive Officer (who passed away in November 1994),
were repaid by the Mihai D. Patrichi Trust.                                     

13.      MAJOR CUSTOMERS                                                        

       Sales to the Department of Defense accounted for approximately 15% of
sales in 1998, 14% of sales in 1997, and 20% of sales in 1996. Sales to         
Eagle-Picher Industries accounted for approximately 16% and 11% of sales in 1998
and 1997, respectively. Sales to Textron Systems accounted for approximately 15%
of sales in 1998. Sales to Hughes Missile Systems accounted for approximately   
13% of sales in 1996. No other customer had sales exceeding 10% of total revenue
during the years ended June 30, 1998, 1997, and 1996, respectively.             

14.      GAINS AND LOSSES ON DISPOSITIONS OF PROPERTY                           

         During the year ended June 30, 1996, the Company sold fully depreciated
machinery for $13,500. In January 1996, the Company completed the sale of its   
Florida condominium property, recognizing a loss of $20,773. The net proceeds   
from the transaction were approximately $51,000. Of this amount, approximately  
$22,500 was utilized to pay off the related mortgage debt, with the balance used
for general administrative purposes.                                            

15.      LITIGATION                                                             

     The Company reached final settlement and pay-off of a judgment on a
wrongful discharge lawsuit. The agreed-upon payment of $52,525 was made in April
1998. Separately, the Company's insurance carrier provided a $47,000            
reimbursement to the Company.                                                   

        There were other wrongful discharge claims, but negotiated settlements
were reached. Networks agreed to settle these cases by making payments totaling 
$40,000 over a period of one to three years. At June 30, 1998, there were no    
unpaid balances remaining on these claims.                                      

     The Company, during its normal course of business, may be subjected
from time to time with legal proceedings against it. Both counsel and management
do not expect that the ultimate outcome of any current claims will have a       
material adverse effect on the Company's financial statements.                  

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16.      LEASE AGREEMENT                                                        

   In March 1997, the Company ("Lessor") leased approximately 35,000
square feet of its Chatsworth facility. The lease agreement requires monthly    
base rent at $17,850, with approximately 2 1/2 months free rent and a cost of   
living increase every 18 months over the initial 62-month term of the lease.    
Accordingly, the scheduled rent increase in September 1998 will incorporate a   
cost of living increase of approximately 2.4%. The tenant also reimburses the   
Company for pro-rata utilities, property taxes, and insurance. The lessee has an
option to extend the original lease term for an additional 60 months. Rental    
income under this agreement, net of allocated depreciation and amortized        
deferred lease costs, amounted to $181,920 and $57,583 for the years ended June 
30, 1998 and June 30, 1997, respectively.                                       

   Additionally, the tenant reimbursed the Company $23,175 for costs
incurred in connection with negotiating the lease arrangement, contributed      
$100,000 toward the Company's cost of constructing improvements to its          
Chatsworth property, and agreed to loan the Company up to $288,000 at an annual 
interest rate of 10% to fund additional improvements. At June 30, 1997,         
approximately $185,635 of the available loan commitment had been utilized. The  
remainder of the initial commitment was borrowed in September and November 1997.
In December 1997, the tenant loaned the Company an additional $130,000 at an    
annual interest rate of 7% to fund roof repairs. At June 30, 1998, the          
outstanding aggregate balance remaining on the loans was $344,840. The loans are
being amortized monthly over 5 years (requiring level principal payments        
currently totaling $7,663), with the monthly payment netted against the lessee's
rent (See Note 4).                                                              

17.      SUBSEQUENT EVENTS                                                      

        (a) In July 1998, shipments approximating $238,000 were returned by an
Ordnance customer. The Company has recorded the customer payments received as   
advance deposits which will be recognized as revenue as the order is re-shipped.
The returned parts have an inventory value of approximately $100,000 (net of an 
$85,000 reserve) and are functional for other customer applications. The Company
has completed customer-requested modifications to the item and the testing      
environment to ensure that future deliveries will be compatible with the        
customer's system.                                                              

      (b) In August 1998, the Company received approval from City National
Bank for a Real Estate Secured Loan (the "Term Loan") and a Revolving Line of   
Credit (the "Revolver"). The Term Loan is approved for a maximum amount of      
$1,550,000 or the amount owing under the existing first trust deed secured loan 
with Wells Fargo Bank (See Notes 4 and 5 above), whichever is less, and is to be
secured by a first trust deed on the Chatsworth facility. The loan is to be     
fully amortized over 15 years and is set at an effective annual interest rate of
2.50% over the rate applicable on Ten Year Treasury Notes at the time of the    
execution of the loan documents (currently approximately 7.27%). The Term Loan  
will not be assumable and a pre-payment penalty will apply. The Revolver allows 
for advances not to exceed the lesser of $1,250,000 or 80% of eligible accounts 
receivable, and is to be secured by a senior lien and perfected security        
interest on all personal property of the Company. The principal will mature on  
October I, 1999, with interest payable monthly at a variable annual interest    
rate equivalent to a bank reference rate plus 1.50% (currently 10.00%). Various 
financial covenants pertaining to a minimum level of working capital, net worth,
etc. will apply. It is anticipated that bank fees on these transactions will    
approximate $35,000.                                                            

        (c) In August 1998, the Community Development Commission of the County
of Los Angeles (the "CDC") approved a $650,000 business loan to the Company, the
proceeds of which are to be used to payoff the Company's unfunded pension       
liability (See Note 9) and as a source of permanent working capital. The loan is
to be fully amortized over a five year (60 month) period at a fixed annual      
interest rate of 7.50%. Monthly payments will approximate $13,025, with loan    
fees totaling approximately $13,000. The loan is to be collateralized by a first
security interest in all equipment, and by a junior security interest in all    
other assets. Additionally, the obligation is to be guaranteed by the Mihai D.  
Patrichi Trust, and there is to be an assignment of life insurance in the amount
of $650,000 on the life of David Wachtel, the Company's chief executive officer.
The Company also agrees to attain certain employment goals in the 36 months     
following the funding of the loan.                                              

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

RESULTS OF OPERATIONS                                                           

      Company net sales for the nine months ended March 31, 1999 increased
41% to $6,066,000 from $4,288,000 for the comparable period of the prior year.  
Bearing Division sales, comprising approximately 51% of the current sales mix,  
increased by 35% and Ordnance Division sales increased by 49%. Approximately    
$238,000 of Ordnance Division revenue pertained to re-shipped parts which had   
been previously paid-for and returned by a customer prior to June 30, 1998. For 
the quarter ended March 31, 1999, net sales increased by approximately 32% from 
the comparable period of the prior year.                                        

       The Company's backlog of orders increased by 29% when compared to the
same period a year earlier. At March 31, 1999 the backlog was approximately     
$6,200,000 compared to $4,800,000 at March 31, 1998.                            

  Gross profit margins during the nine months ended March 31, 1999
improved to 40.2% from 30.9% for the nine months ended March 31, 1998. For the  
quarter ended March 31, 1999 gross profit margins improved to 37.7% from 31.7%  
for the comparable quarter in the previous year. Management believes the margin 
increases are attributable to both increased sales volume and operational       
efficiencies brought about through overall organizational improvements. The     
Bearing Division margins increased by approximately 11 percentage points from   
the nine months ended March 31, 1998, while the Ordnance Division margins       
increased by approximately 7 percentage points from the nine month period ended 
March 31, 1998.                                                                 

     General and administrative expenses increased by 21% (approximately
$91,000) compared to the nine month period ended March 31, 1998, while for the  
quarter ended March 31, 1999 general and administrative expenses increased by   
11% when compared to the comparable quarter in the previous year. These         
increases are due primarily to higher legal and professional fees associated    
with a number of additional disclosures included in this year's Annual Form 10-K
and the engagement of an investment banking firm. The possibility of continued  
sales growth in the months ahead, along with additional fees to be paid to the  
investment banking firm (upon consummation of a business transaction) could     
cause G & A expenses to continue to increase through the remainder of the       
current fiscal year.                                                            

        Consistent with the growth trend established by the Company, operating
income increased by more than $1,023,000 to $1,911,000, when compared with the  
nine months ended March 31, 1998. For the quarter ending March 31, 1999         
operating income increased by approximately $256,000 to $587,000 from the same  
period in the previous year.                                                    

      Non-operating income during the nine months ended March 31, 1999 was
comparable to the nine months ended March 31, i998 and should remain so for the 
foreseeable future. The Company has leased (since March 1997) a portion of its  
building to another enterprise, bringing in approximately $180,000 annually     
($45,000 quarterly) in net rental income through at least March 2002 (the end of
the initial lease term).                                                        

        Interest expense declined by about 16% as compared to the prior year's
nine month period ended March 31st, with average aggregate borrowing decreasing 
by approximately 7%, primarily the result of the pay-off of a $100,000 officer  
note in October 1998 and the pay-off of a $225,000 loan obligation with a       
financial institution in March 1999. The effective annual interest rate was     
approximately 7.01% and 7.76% during the nine months ended March 31, 1999 and   
March 31, 1998 respectively. The interest rate decline was largely due to a     
general 0.75% decrease in bank reference rates last fall. Management has        
recently refinanced its building loan, thereby further reducing its expected    
future borrowing rate.                                                          

LIQUIDITY AND CAPITAL RESOURCES                                                 

         The Company's working capital at March 31, 1999 was $2,425,000 compared
to $1,465,000 at June 30, 1998. The $960,000 improvement in working capital was 
largely the result of net income earned in the nine months ended March 31, 1999 
of $1,137,000, plus $126,000 in depreciation and amortization, less $101,000 in 
capital expenditures, less the net reclassification of approximately $187,000 in
debt and pension obligations from long-term to short-term. The short-term       
operating liquidity is expected to be enhanced by the current                   

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growth trend in sales established by the Company, along with the new revolving  
line-of-credit with expected availability in the range of $1,000,000. This      
anticipated improvement is expected by the Company to be sufficient to meet the 
Company's near and mid-term capital requirements, namely, the funding of its    
pension plan obligation and the maturity of additional debt.                    

YEAR 2000 ISSUE                                                                 

    The Year 2000 readiness issue, which is common to most businesses,
arises from the inability of information systems, and other time and date       
sensitive products and systems, to properly recognize and process date-sensitive
information or system failures. Assessments of the potential cost and effects of
Year 2000 issues vary significantly among businesses, and it is extremely       
difficult to predict the actual impact. Recognizing this uncertainty, management
has analyzed, assessed and planned for various Year 2000 issues across its      
businesses.                                                                     

         The Year 2000 issue has an impact on both information technology ("IT")
systems and non-IT systems, such as its manufacturing systems and physical      
facilities including, but not limited to, security systems and utilities.       
Management believes that a majority of the Company's IT systems are Year 2000   
ready. The Company has replaced or upgraded those systems that were identified  
as non-Year 2000 compliant. Non-IT system issues are more difficult to identify 
and resolve. The Company has identified non-IT Year 2000 issues concerning its  
products and services, as well as its physical facility locations.              

        The Company has completed efforts to ensure Year 2000 readiness of its
products and services. The Company has migrated to a Year 2000 compliant Network
Operating System, and its key financial, manufacturing and other in-house       
systems have been vendor certified to be compliant.                             

     The Year 2000 readiness of its customers varies, and the Company is
encouraging its customers to evaluate and prepare their own systems. These      
efforts by customers to address Year 2000 issues may affect the demand for      
certain products and services; however, the impact to the revenue of any change 
in revenue patterns is not certain.                                             

        The Company in the process of assessing the Year 2000 readiness of its
key suppliers and business partners. The Company's direction of this effort is  
to ensure the adequacy of resources and supplies to minimize any potential      
business interruptions. Management is in the process of completing this part of 
its Year 2000 readiness plan.                                                   

        Although management believes that its efforts have been successful and
the total costs will be immaterial (i.e., less than $10,000) to its financial   
position and results of operations, it recognizes that any failure could cause a
potential impact.                                                               

        The Year 2000 issue presents a number of other risks and uncertainties
that could impact the Company, such as public utilities failures, potential     
claims against it for damages arising from products and services that are not   
Year 2000 compliant, and the response ability of certain government commissions 
of the various jurisdictions where the Company conducts business. While the     
Company continues to believe the Year 2000 issues described above will not      
materially affect its financial position or results of operations, it remains   
uncertain as to what extent, if any, the Company may be impacted.               

FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION                  

   Potential risks and uncertainties that could affect the Company's
future operating results and financial condition include, without limitation,   
the following factors:                                                          

HISTORY OF LOSSES; VARIABILITY OF OPERATING RESULTS                             

  The Company emerged from bankruptcy protection in November 1994.
Despite historical losses, the Company experienced its first operating profit in
four years during the year ended June 30, 1995, in the amount of approximately  
$47,000, and has recorded operating profits during the years ended June 30,     
1996, 1997, and 1998 in the amounts of approximately $175,000, $235,000, and    
$1,326,000, respectively. There can be no                                       

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assurance that the Company will be profitable in the future or that future      
revenues and operating results will not also vary substantially. Management has 
expended and continues to expend substantial time and resources in attempting to
resolve problems arising from the Company's past financial condition and to     
restore confidence in the Company. Although the research and development        
expenditures of the Company have increased, its financial condition limits its  
ability to engage in large-scale research and development.                      

         Continued profits, if any, will depend upon various factors, including,
but not limited to, management's ability to restore confidence in the Company,  
continued market acceptance of the Company's current products, the Company's    
ability to successfully manufacture its products, the ability of the Company to 
develop distribution and marketing channels, develop and introduce new products 
or to create new markets for its existing products as well as the successful    
implementation of its planned marketing strategies. If the Company is not able  
to achieve its operating and business objectives, the Company may find it       
necessary to reduce its expenditures for sales, marketing, and research and     
development, or undertake other such actions as may be appropriate, and may be  
otherwise unable to achieve its goals or continue its operations.               

COMPETITION                                                                     

  Certain of the Company's existing and potential competitors have
substantially greater financial, marketing and other resources than the Company.
These competitors have also been able to market their products successfully to  
the Company's existing and potential customers in the defense and aerospace     
industries. Increased competition could result in price reductions, reduced     
margins and loss of market share, all of which could materially adversely affect
the Company. The Company has determined to follow a strategy of continuing      
product development to the extent permitted by the financial resources of the   
Company to protect its competitive position to the extent practicable. Although 
in recent years the Company has shown increases in revenue, there can be no     
assurance that the Company will be able to maintain its position in the field or
continue to compete successfully against current and future sources of          
competition or that the competitive pressures faced by the Company will not     
adversely affect its profitability or financial performance.                    

TECHNOLOGICAL CHANGE                                                            

 Advances in technology characterize the markets for specialized
bearings and ordnance products. Accordingly, the Company's ability to compete in
those markets may depend in large part on its success in enhancing its existing 
products and in developing new products. There can be no assurance that the     
Company will succeed in such efforts or that any of its products will not be    
rendered obsolete or uneconomical by technological advances made by others.     

DEPENDENCE ON KEY CUSTOMERS                                                     

       During the nine-month periods ended March 31, 1999 and 1998, sales to
Textron Systems accounted for approximately 23% and 16%, respectively, of the   
Company's sales. Sales to Eagle Picher Industries accounted for approximately   
11% and 15%, respectively, of the Company's sales during these periods. Sales to
the Department of Defense constituted approximately 19% of the Company's sales  
during the nine-month period ended March 31, 1999 and approximately 11% of the  
Company's sales during the nine-month period ended March 31, 1998. A significant
decline in sales to any key customers could adversely affect the Company.       
Additionally, export sales (denominated in U.S. dollars) accounted for          
approximately 10% of sales revenue by the Company for both the nine months ended
March 31, 1999 and nine months ended March 31, 1998.                            

DEPENDENCE UPON DEFENSE INDUSTRY                                                

     The Company has been supplying components for United States defense
programs for over forty years. Reliance upon defense programs has certain       
inherent risks, including the uncertainty of economic conditions, dependence on 
congressional appropriations and administrative allotment of funds, changes in  
governmental policies that may reflect military and political developments and  
other factors characteristic of the defense industry. The Company is unable to  
predict the impact of decreases or shifts in defense appropriations for programs
in which the Company's products are incorporated.                               

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PRODUCT LIABILITY AND RISK MANAGEMENT                                           

         As a manufacturer of ordnance products and specialized bearings for the
defense and aerospace industries, the Company is subject to the risk of claims  
arising from injuries to persons or property. The Company maintains both general
liability insurance and limited product liability insurance. Although the       
Company has instituted quality control procedures that it believes produce      
products of the highest quality, the Company may become subject to future       
proceedings alleging defects in its products.                                   

NO EARTHQUAKE INSURANCE                                                         

     The Company's principal executive offices are located in a facility
owned by the Company in Chatsworth, California - an area that sustained damage  
from the 1994 Northridge, California earthquake. The Company does not currently 
carry insurance against earthquake-related risks. The Company suffered          
approximately $1.2 million in damages, costs and renovations to its facility    
resulting from that earthquake, and recovered only approximately $384,000 from  
insurers as a result of insured flood damage caused by the earthquake.          

KEY PERSONNEL                                                                   

        The Company's success is highly dependent on the efforts and abilities
of its Chairman, David Wachtel, and key members of staff. The loss of services  
of Mr. Wachtel or any of these key members could have a material adverse effect 
on the Company. The Company does not maintain key man life insurance on Mr.     
Wachtel or any other employee.                                                  

    The Mihai D. Patrichi Trust presently owns of record approximately
47.3% of the Company's outstanding voting stock. Accordingly, the Trust is, as a
practical matter, able to control the election of a majority of the directors,  
and, therefore, the business and affairs of the Company, and approve or         
disapprove any corporate action submitted to a vote of the Company's            
shareholders, in each ease, regardless of how other shareholders of the Company 
may vote.                                                                       

         In the matter of In Re: Mihai D. Patrichi Trust (Case No. BP03796), now
pending in the Superior Court of California for the county of Los Angeles, the  
court has ruled that the Trust must dispose of all of its shares in the Company.
Sale by the Trust of its interest in the Company would effect a change in the   
control of the Company.                                                         

 The Board of Directors of the Company has established a special
committee (the "Special Committee") to examine and make a recommendation to the 
Board of Directors, as to what actions the Company should take in connection    
with the Trust's sale of all of its interest in the Company. The Special        
Committee has engaged an investment banking firm (The Seidler Companies         
Incorporated) to determine the course of conduct to be adopted by the Company   
and to investigate methods of enhancing shareholder value, including the        
possible sale of the Company, merger or consolidation of the Company with       
complimentary businesses, acquisition and recapitalizations.                    

       The Company believes that there is a significant possibility that the
Special Committee may recommend to the Board of Directors that the Company      
pursue one or more transactions that may result in a change of control, and that
absent any action by the Board of Directors, a change of control would likely   
occur in connection with a sale by the Trust of its interest in the Company.    

  There can be no assurance that such a change of control would be
accomplished smoothly or that the Company will be successful in retaining key   
members of management. The ability of the Company to make the change of control 
successfully will depend on its capability to make the transition in an         
efficient, effective and timely manner and on its ability to retain key         
management, marketing and production personnel. Making the change in control an 
efficient and timely process will also require the dedication of management     
resources, which may temporarily distract management's attention from the       
day-to-day business of the Company. The inability of management to make the     
change of control smoothly could have an adverse effect on the business and     
operational results of the Company. In addition, there can be no assurance that 
the present and potential customers of the Company will continue their current  
utilization patterns without regard to a change of control. A loss of key       
members of management could affect business relations with the Company's        
customers.                                                                      

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Any significant reduction in utilization patterns by the Company's customers    
could have an adverse effect on the near-term business and results of operations
of the Company's business.                                                      

The Company expects that the costs related to the retention of
investment bankers, as well as additional legal and accounting fees expected to 
be incurred, will impact the Company's earnings during the fiscal year.         

         Also, sales of substantial amounts of Common Stock in the public market
under Rule 144 or otherwise, or even the potential for such sales, could        
adversely affect the prevailing market prices for the Company's Common Stock and
could impair the Company's ability to raise capital through the sale of its     
equity securities.                                                              

VOLATILITY OF WORKLOAD                                                          

         To remain profitable, the Company is highly dependent on its ability to
maintain a suitably sized staff of qualified technical personnel commensurate   
with a fluctuating volume of work. New contracts often arise at unscheduled or  
unanticipated times. The Company endeavors to maintain adequate staff to respond
to these unscheduled opportunities. If the Company overestimates its projected  
workload, the resulting financial burden can reduce profitability. Occasionally,
the Company is faced with the opposite problem - a shortage of suitable         
technical personnel - or the funds to pay premium rates to obtain the necessary 
skilled labor that is in short supply, and is unable to timely perform          
contracts, potentially resulting in cost overruns or late delivery penalties.   

CONTRACTS                                                                       

     The Company generates substantially all of its revenues pursuant to
procurement contracts for custom designed or manufactured bearings or ordnance  
products. The ability of the Company to generate additional revenues will depend
upon its ability to obtain additional contracts. Substantially all of the       
Company's contracts are on a fixed-fee basis. Accordingly, the Company is       
subject to the risk of cost overruns. Because the Company manufactures ordnance 
and specialized bearings for the defense and aerospace industries, the Company  
is subject to extremely stringent quality control standards and testing. These  
standards are implemented through internal operational quality control          
procedures of the Company and through customer audits. Furthermore, lot         
acceptance test procedures ("LATs") are required by the Company's customers.    
These LATs include environmental testing and detonation and non-detonation      
tests. Generally, the Company's ordnance products are manufactured in batches   
and then subjected to LATs under standards that result in rejection of an entire
manufactured batch if a single unit fails. From time to time, the Company has   
experienced LATs failures resulting from human error or technical problems.     
Occurrence of LATs failures of this type on large contracts could adversely     
impact the revenues of the Company and no assurance can be given that such      
failures will not occur in the future.                                          

GOVERNMENTAL REGULATION                                                         

         The Company's operations are subject to, and substantially affected by,
extensive federal, state and local laws, regulations, orders and permits which  
govern environmental protection, health and safety, zoning and other matters.   
These regulations may impose restrictions on the Company's operations that could
adversely affect the Company's results, such as limitations on the expansion of 
metals plating facilities of the Company, and limitations on or banning disposal
of hazardous waste generated by the Company's operations. Because of heightened 
public concern, companies in the metals plating business, including the Company,
may become subject to judicial and administrative proceedings involving federal,
state or local agencies. These governmental agencies may seek to impose fines on
the Company or to revoke or deny renewal of the Company's waste generation and  
disposal permits or licenses for violations of environmental laws or regulations
or to require the Company to remediate environmental problems resulting from its
operations, all of which could have a material adverse effect on the Company.   
The Company may also be subject to actions brought by individuals or community  
groups in connection with the permitting or licensing of its operations, any    
alleged violations of such permits and licenses, or other such matters.         

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    

      The Company generally has export sales ranging between 5% and 15% of
total sales during the period. These transactions are denominated in U.S.       
dollars, effectively protecting the Company against foreign currency            
fluctuations.                                                                   

   During the quarter ended March 31, 1999, the Company refinanced a
mortgage note payable of approximately $1,525,000 and paid-off a promissory note
payable of approximately $225,000 that were both indexed to reference rates. At 
March 31, 1999, the Company did not have any remaining loan obligations that    
were subject to variable interest rates.                                        

DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.                                                         

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ANNEX A   

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

 NE HOLDCO CORP.

 NE MERGER CORP.

 AND

 NETWORKS ELECTRONIC CORP.

 DATED AS OF JULY 16, 1999

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), is dated as of July 16,    
1999, by and among NE Holdco Corp., a Delaware corporation ("Parent"), NE Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("SUB"),  
and Networks Electronic Corp., a California corporation (the "COMPANY").        

ARTICLE I                                                                       
 DEFINITIONS

Section 1.1 DEFINITIONS. As used herein, the terms below shall have the         
following meanings. Any of such terms, unless the context otherwise requires,   
may be used in the singular or plural, depending on the reference.              

"ADDITIONAL  AMOUNT"  shall  have the  meaning  set forth in Section
2.7.                                                                            

"AGREEMENT" shall have the meaning set forth in the Preamble.       

"AGREEMENT  OF MERGER " shall have the  meaning set forth in Section
2.2.                                                                            

"ARTICLES OF INCORPORATION" shall mean the Amended Articles of      
Incorporation of the Company in effect as of the date hereof.                   

   "BY-LAWS" shall mean the Amended and Restated By-Laws of the Company in
effect as of the date hereof.                                                   

"CERTIFICATES" shall have the meaning set forth in Section 2.10(b). 

"CGCL"  shall  mean  the  General  Corporation  Law of the  State of
California.                                                                     

"CLOSING"  shall have the meaning set forth in Section 2.2.         

"CLOSING DATE" shall have the meaning set forth in Section 2.2.     

"COMPANY" shall have the meaning set forth in the Preamble.         

"COMPANY DISCLOSURE SCHEDULE" shall mean the schedules prepared and 
delivered by the Company to and for Parent and Sub and dated as of the date     
hereof, which set forth the exceptions to the representations and warranties of 
the Company contained herein and certain other information called for by this   
Agreement.                                                                      

"COMPENSATION  PLANS"  shall have the  meaning  set forth in Section
5.1(d).                                                                         

"CONFIDENTIALITY AGREEMENT" shall mean that certain confidentiality 
agreement dated as of ____________, 1999 by and between Parent and [the         
Financial Advisor, as agent for the Company/the Company], as amended.           

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"DISSENTING  SHARES"  shall  have the  meaning  set forth in Section
2.9(a).                                                                         

"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.   

"EXCHANGE  ACT" shall mean the  Securities  Exchange Act of 1934, as
amended.                                                                        

"EXCHANGE  AGENT"  shall  have the  meaning  set  forth  in  Section
2.10(a).                                                                        

"FINANCIAL ADVISOR" shall mean The Seidler Companies Incorporated.  

"FUND" shall have the meaning set forth in Section 2.10(a).         

    "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.                                                               

"INDEMNIFIED  PARTIES"  shall have the  meaning set forth in Section
5.7(c).                                                                         

"INFORMATION   STATEMENT"  shall  have  the  meaning  set  forth  in
Section 3.6.                                                                    

"LETTER  OF  TRANSMITTAL"  shall  have  the  meaning  set  forth  in
Section 2.10(b).                                                                

"MERGER" shall have the meaning set forth in Section 2.1.           

"MERGER  CONSIDERATION"  shall have the meaning set forth in Section
2.7.                                                                            

"OPTION" shall have the meaning set forth in Section 2.12.          

"PARENT" shall have the meaning set forth in the Preamble.          

"PARENT DISCLOSURE SCHEDULE" shall mean the schedules prepared and  
delivered by Parent and Sub to and for the Company and dated as of the date     
hereof, which sets forth the exceptions to the representations and warranties of
Parent and Sub contained herein and certain other information called for by this
Agreement.                                                                      

"SEC"  shall mean the  Securities  and  Exchange  Commission  or any
successor thereto.                                                              

"SEC REPORTS" shall have the meaning set forth in Section 3.5.      

"SECURITIES ACT" shall mean the Securities Act of 1933, as amended. 

"SHARE" shall mean a share of Stock.                                

"SIGNIFICANT  SUBSIDIARIES"  shall  have the  meaning  set  forth in
Section 4.1.                                                                    

"SPECIAL  MEETING"  shall  have the  meaning  set  forth in  Section
5.4(a)(i).                                                                      

"STOCK"  shall  mean,  the common  stock of the  Company,  par value
$.25 per share.                                                                 

"STOCK  OPTION  PLAN"  shall have the  meaning  set forth in Section
2.12.                                                                           

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"SUB" shall have the meaning set forth in the Preamble.             

"SUPERIOR OFFER" shall have the meaning set forth in Section 5.3.   

"SURVIVING   CORPORATION"  shall  have  the  meaning  set  forth  in
Section 2.1.                                                                    

ARTICLE II                                                                      
THE MERGER

   Section 2.1 THE MERGER. At the Effective Time (as hereinafter defined),
upon the terms and subject to the conditions hereof, and in accordance with the 
CGCL, Sub shall be merged with and into the Company (the "Merger") as soon as   
practicable following the satisfaction of the conditions set forth in Article VI
hereof. Following the Merger, the Company shall continue as the surviving       
corporation (the "SURVIVING CORPORATION") and the separate corporate existence  
of Sub shall cease.                                                             

      Section 2.2 (a) EFFECTIVE TIME/CLOSING. The Merger shall be consummated by
the filing with the California Secretary of State and shall be effective at the 
time of acceptance for filing by the California Secretary of State and the      
Secretary of State of the State of Delaware of a copy of an agreement of merger 
(the "Agreement of Merger") in such form as is required by, and executed in     
accordance with, the relevant provisions of the CGCL, and such other documents  
as shall be required by the applicable provisions of the CGCL and the Delaware  
General Corporation Law (the effective time of such filing being the "EFFECTIVE 
TIME").                                                                         

  (b) The closing of the Merger (the "Closing") will take place at 10:00
a.m. PST, on a date to be specified by the Company and Parent, which shall be no
later than the second business day after the satisfaction and/or waiver of each 
of the conditions set forth in Sections 6.1 and 6.2 (the "Closing Date") at the 
offices of Troop Steuber Pasich Reddick & Tobey, LLP, unless another date, time 
or place is agreed to in writing by Parent and the Company.                     

 Section 2.3 EFFECTS OF THE MERGER. At the Effective Time the separate
existence of Sub shall cease and Sub shall be merged with and into the Company  
and the Company shall be a wholly-owned subsidiary of Parent.                   

     Section 2.4 ARTICLES OF INCORPORATION AND BY-LAWS. Subject to Section 5.7
hereof, the Articles of Incorporation and By-Laws of the Company as in effect at
the Effective Time shall be the Articles of Incorporation and By-Laws of the    
Surviving Corporation.                                                          

      Section 2.5 DIRECTORS. The directors of Sub at the Effective Time shall be
the directors of the Surviving Corporation, until the next annual shareholders' 
meeting of the Surviving Corporation and until their successors shall be elected
or appointed and shall be duly qualified.                                       

   Section 2.6 OFFICERS. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation and will hold office 
from the Effective Time until their respective successors are duly elected or   
appointed and qualify in the manner provided in the Articles of Incorporation   
and By-Laws of the Surviving Corporation, or as otherwise provided by law.      

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Section 2.7 CONVERSION OF SHARES. Each Share issued and outstanding 
immediately prior to the Effective Time (other than Shares held by Parent, Sub  
or any other wholly-owned subsidiary of Parent, or in the treasury of the       
Company or held by any wholly-owned subsidiary of the Company, all of which     
shall be cancelled, and Dissenting Shares, as hereinafter defined) shall, by    
virtue of the Merger and without any action on the part of the holder thereof,  
be converted into the right to receive the Merger Consideration (as defined     
below), subject to applicable withholding or back-up withholding taxes, if any, 
payable by the holder thereof, without interest thereon, upon surrender of the  
certificate formerly representing such Share. As used in this Agreement, the    
term "MERGER CONSIDERATION" shall mean the sum, in cash, of $7.50 plus the      
Additional Amount (as defined below). As used in this Agreement, the term       
"ADDITIONAL AMOUNT" shall mean an amount equal to the product of: (a) $7.50;    
MULTIPLIED BY (b) 10%, MULTIPLIED BY (c) a fraction, the numerator of which     
shall be the number of days in the period from and including the date which is  
the 120th day following the date of this Agreement to but excluding the date on 
which the Effective Time occurs, and the denominator of which shall be 365.     

   Section 2.8 CONVERSION OF SUB COMMON STOCK. Each share of common stock,
par value $.01 per share, of Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and represent the right to receive one 
share of the common stock of the Surviving Corporation.                         

Section 2.9 DISSENTING SHARES.                                      

            GENERAL. Notwithstanding anything in this Agreement to the contrary,
Shares which are issued and outstanding immediately prior to the Effective Time 
which are Dissenting Shares (as defined in Section 1300(b) of the CGCL), if any 
("DISSENTING SHARES"), shall not be converted into or represent a right to      
receive the Merger Consideration pursuant to Section 2.7 hereof, but the holders
thereof shall be entitled only to such rights as are granted by the CGCL. Each  
holder of Dissenting Shares who becomes entitled to payment for such Shares     
pursuant to the CGCL shall receive payment therefor from the Surviving          
Corporation in accordance with the CGCL; PROVIDED, HOWEVER, that (i) if any such
holder of Dissenting Shares shall have failed to establish his entitlement to   
appraisal rights as provided in the CGCL, (ii) if any such holder of Dissenting 
Shares shall have effectively withdrawn his demand for appraisal of such Shares 
or lost his right to appraisal and payment for his Shares under the CGCL or     
(iii) if neither any holder of Dissenting Shares nor the Surviving Corporation  
shall have filed a petition demanding a determination of the value of all       
Dissenting Shares within the time provided in the CGCL, such holder or holders  
(as the case may be) shall forfeit the right to appraisal of such Shares and    
each such Share shall thereupon be deemed to have been converted, as of the     
Effective Time, into and represent the right to receive payment from the        
Surviving Corporation of the Merger Consideration, without interest thereon, as 
provided in Section 2.7 hereof.                                                 

Section 2.10 PAYMENT FOR SHARES.                                    

(a) EXCHANGE MECHANICS. Prior to the Effective Time, Parent shall   
designate a bank or trust company reasonably satisfactory to the Company to act 
as Exchange Agent in the Merger (the "EXCHANGE AGENT"). At or prior to the      
Effective Time, Parent will take all steps necessary to enable and cause the    
Surviving Corporation to provide the Exchange Agent funds (the "FUND") necessary
to make the payments contemplated by Section 2.7. Out of the Fund, the          

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Exchange Agent shall, pursuant to irrevocable instructions, make the payments   
referred to in Section 2.7. The Fund shall not be used for any other purpose.   
The Exchange Agent may invest portions of the Fund, as directed by Parent (so   
long as such directions do not impair the Exchange Agent's ability to make the  
payments referred to in Section 2.7 hereof or otherwise impair the rights of    
holders of Shares), provided that no such investments may be made other than in 
direct obligations of the United States of America, obligations for which the   
full faith and credit of the United States of America is pledged to provide for 
the payment of principal and interest, commercial paper rated of the highest    
quality by Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
certificates of deposit issued by a commercial bank having capital exceeding    
$500,000,000. Any net earnings resulting from, or interest or income produced   
by, such investments shall be paid to the Surviving Corporation as and when     
requested by Parent. The Surviving Corporation shall replace any monies lost    
through any investment made pursuant to this Section 2.10(a). Deposit of funds  
pursuant hereto shall not relieve Parent or the Surviving Corporation of their  
obligations to make payments in respect of Shares and Parent hereby guarantees  
the Surviving Corporation's obligations in respect thereof.                     

(b) LETTER OF TRANSMITTAL. Promptly after the Effective Time, the   
Surviving Corporation shall cause the Exchange Agent to mail to each record     
holder, as of the Effective Time, of an outstanding certificate or certificates 
which immediately prior to the Effective Time represented Shares (the           
"CERTIFICATES") a form letter of transmittal (the "LETTER OF TRANSMITTAL") for  
return to the Exchange Agent (which shall specify that delivery shall be        
effected, and risk of loss and title to the Certificates shall pass, only upon  
proper delivery of the Certificates to the Exchange Agent) containing           
instructions for use in effecting the surrender of the Certificates, and        
receiving payment with respect to the Shares evidenced thereby. Upon surrender  
to the Exchange Agent of a Certificate, together with the Letter of Transmittal 
duly executed, the holder of such Certificate shall be entitled to receive in   
exchange therefor cash in an amount equal to the product of the number of Shares
represented by such Certificate MULTIPLIED by the Merger Consideration, and such
Certificate shall forthwith be cancelled. No interest will be paid or accrued on
the cash payable upon the surrender of the Certificates. If payment is to be    
made to a person other than the person in whose name the Certificate surrendered
is registered, it shall be a condition of payment that the Certificate so       
surrendered shall be properly endorsed or otherwise in proper form for transfer 
and that the person requesting such payment shall pay any transfer or other     
taxes required by reason of the payment to a person other than the registered   
holder of the Certificate surrendered or establish to the satisfaction of the   
Surviving Corporation that such tax has been paid or is not applicable. Until   
surrendered in accordance with the provisions of this Section 2.10(b), each     
Certificate (other than Certificates representing Shares held by Parent, Sub or 
any other wholly-owned subsidiary of Parent, the Company or any wholly-owned    
subsidiary of the Company which shall have been cancelled, or Dissenting Shares)
shall represent for all purposes the right to receive the Merger Consideration  
in cash MULTIPLIED BY the number of Shares evidenced by such Certificate,       
without any interest thereon.                                                   

  (c) RETURN OF UNCLAIMED FUNDS. Any cash provided to the Exchange Agent
pursuant to this Section 2.10 and not exchanged for Certificates within six     
months after the Effective Time will be returned by the Exchange Agent to the   
Surviving Corporation which thereafter will act as Exchange Agent.              
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto  
shall be liable to a holder of Shares for any Merger Consideration delivered to 
a public official pursuant to applicable abandoned property, escheat or similar 
laws.                                                                           

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   Section 2.11 NO FURTHER RIGHTS OR TRANSFERS. At and after the Effective
Time, each holder of a Certificate that represented issued and outstanding      
Shares immediately prior to the Effective Time shall cease to have any rights as
a shareholder of the Company, except for the right to surrender his or her      
Certificate or Certificates in exchange for the payment provided pursuant to    
Sections 2.7 and 2.10 hereof or to perfect his or her right to receive payment  
for his or her Shares pursuant to the CGCL and Section 2.9 hereof if such holder
has validly exercised and perfected and not withdrawn his or her right to       
receive payment for his or her Shares, and there shall be no transfers on the   
stock transfer books of the Surviving Corporation of the Shares which were      
outstanding immediately prior to the Effective Time. If, after the Effective    
Time, Certificates formerly representing Shares are presented to the Surviving  
Corporation, they shall be cancelled and exchanged for cash as provided in this 
Article II.                                                                     

     Section 2.12 STOCK OPTIONS. Immediately prior to the Effective Time, each
holder of a then-outstanding Company stock option issued pursuant to the        
Company's Amended 1996 Stock Incentive Plan (the "STOCK OPTION PLAN"), whether  
or not then presently exercisable, to purchase Shares (an "OPTION") will be     
entitled to receive at such holder's option, and shall receive, in settlement of
such Option, either (i) a cash payment from the Company equal to the product of 
(x) the total number of Shares then subject to each such Option with an exercise
price equal to $7.50 per Share or less1 MULTIPLIED BY (y) the excess of the     
Merger Consideration over the exercise price per Share subject to such Option,  
subject to any required withholding of taxes or (ii) an option to acquire the   
same number of shares of the stock of the Surviving Corporation as the holder of
such Option would have been entitled to receive pursuant to the Stock Option    
Plan upon the same terms and conditions as the Options exchanged therefore,     
provided that the Board of the Company shall, at the request of Parent, limit a 
holder's options to that set forth in clause (i) above. If necessary or         
appropriate under the Stock Option Plan, the Company will, upon the request of  
Parent, use its reasonable best efforts to obtain the written acknowledgment of 
each person holding an Option that the payment of the amount of cash or options 
referred to above will satisfy in full the Company's obligation to such person  
pursuant to such Option. By virtue of the foregoing treatment of the Options, at
the Effective Time all Options shall be cancelled and shall cease to exist.     

    Section 2.13 ADJUSTMENTS. If, between the date of this Agreement and the
Effective Time, the outstanding Shares shall be changed into a different number 
of shares or a different class by reason of any reclassification,               
recapitalization, split-up, combination, exchange of shares or readjustment, or 
a stock dividend thereon shall be declared with a record date prior to the      
Effective Time, the amount of consideration to be received pursuant to this     
Article II in exchange for each outstanding Share or Option or shall be         
correspondingly adjusted.                                                       

ARTICLE III                                                                     
REPRESENTATIONS AND WARRANTIES OF THE COMPANY       

The Company represents and warrants to Parent and Sub as follows:               

  Section 3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its state or            
jurisdiction of incorporation and is in good standing as a foreign corporation  
in each jurisdiction where the properties owned, leased or                      

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operated, or the business conducted, by it require such qualification and where 
failure to be in good standing or to so qualify would have a material adverse   
effect on the financial condition, results of operations or business of the     
Company. The Company has made available to Parent true and correct copies of the
Articles of Incorporation and By-Laws.                                          

Section 3.2 CAPITALIZATION.                                         

   (a) COMPANY CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of Stock. As of the date hereof, there are        
1,881,133 shares of Stock issued and outstanding, with 7,245 shares held in     
treasury. Except as set forth in Section 3.2(a) of the Company Disclosure       
Schedule and except for 7,323 shares of Stock issuable upon exercise of         
outstanding Options issued pursuant to the Stock Option Plan, there are not now,
and at the Effective Time there will not be, any existing options, warrants,    
calls, subscriptions, or other rights, or other agreements or commitments,      
obligating the Company to issue, transfer or sell any shares of capital stock of
the Company. All issued and outstanding Shares are validly issued, fully paid,  
nonassessable and free of preemptive rights.                                    

  (b) SUBSIDIARIES. The Company does not hold any shares of stock or any
other security or interest, nor does it hold, directly or indirectly, any rights
to acquire any shares of stock or any other security or interest in any other   
corporation, partnership, trust or other business association.                  

Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT.                   

     (a) COMPANY APPROVALS. The Company has full corporate power and authority
to execute and deliver this Agreement and, subject to obtaining the necessary   
approval of this Agreement and the transactions contemplated hereby by its      
shareholders to the extent required by applicable law, to consummate the        
transactions contemplated hereby. The execution and delivery of this Agreement  
by the Company and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Company, and no other     
corporate proceedings on the part of the Company are necessary for the execution
and delivery of this Agreement by the Company and, subject to the filing of the 
Agreement of Merger pursuant to Section 2.2 and obtaining the necessary         
approvals of the Company's shareholders to the extent required by applicable    
law, the performance by the Company of its obligations hereunder and the        
consummation by the Company of the transactions contemplated hereby. This       
Agreement has been duly executed and delivered by the Company and, assuming (i) 
this Agreement constitutes a valid and binding obligation of each of Parent and 
Sub, (ii) the necessary approvals of the Company's shareholders to the extent   
required by applicable law have been obtained and (iii) the authorizations,     
consents and approvals described in Section 3.3(b) of this Agreement have been  
obtained, this Agreement constitutes a valid and binding agreement of the       
Company, enforceable against the Company in accordance with its terms, except to
the extent that its enforceability may be limited by applicable bankruptcy,     
insolvency, reorganization, moratorium or other laws affecting the enforcement  
of creditors rights generally or by general equitable principles.               

  (b) OTHER AUTHORIZATIONS. Except as set forth in Section 3.3(b) of the
Company Disclosure Schedule, other than in connection with, or in compliance    
with, applicable requirements of (i) the CGCL with respect to the transactions  
contemplated hereby, (ii) the Exchange Act                                      

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(including, without limitation, the filing of the Information Statement), (iii) 
the Securities Act, (iv) the securities laws of the various states, and (v) HSR 
Act, no authorization, consent or approval of, or filing with, any court or any 
public body or authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement other than authorizations, consents 
and approvals the failure to obtain, or filings the failure to make, that would 
not, in the aggregate, have a material adverse effect on the financial          
conditions, results of operations or business of the Company.                   

Section 3.4 NO VIOLATION. None of the execution or delivery of this 
Agreement by the Company, the performance by the Company of its obligations     
hereunder or the consummation by the Company of the transactions contemplated   
hereby will (a) subject to shareholder approval, constitute a breach or         
violation of any provision of the Articles of Incorporation or By-Laws of the   
company, (b) except as set forth in Section 3.4 of the Company Disclosure       
Schedule, constitute a breach, violation or default (or any event which, with   
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in the 
creation of any lien or encumbrance upon any of the properties or assets of the 
Company under, any note, bond, mortgage, indenture, deed of trust, license,     
agreement or other instrument to which the Company is a party or by which they  
or any of their respective properties or assets are bound or (c) constitute a   
violation of any order, writ, injunction, decree, statute, rule or regulation of
any court or governmental authority applicable to the Company or any of its     
properties or assets, other than, in the case of clauses (b) and (c) above, such
breaches, violations, defaults, terminations, accelerations or creation of liens
and encumbrances which, in the aggregate, would not have a material adverse     
effect on the financial condition, results of operations or business of the     
Company or as set forth in Section 3.4 of the Company Disclosure Schedule.      

  Section 3.5 SEC REPORTS. Since June 30, 1998 the Company has filed all
forms, reports and documents ("SEC REPORTS") with the SEC required to be filed  
by it pursuant to the Securities Act, the Exchange Act and the SEC rules and    
regulations promulgated thereunder. Copies of all such SEC Reports have been    
made available to Parent by the Company. None of such SEC Reports (as of their  
respective filing dates) contained any untrue statement of a material fact or   
omitted to state a material fact required to be stated therein or necessary in  
order to make the statements therein, in light of the circumstances under which 
they were made, not misleading. The audited and unaudited consolidated financial
statements of the Company included in the SEC Reports have been prepared in     
accordance with generally accepted accounting principles applied on a consistent
basis (except as otherwise stated in such financial statements, including the   
related notes, and except that the interim financial statements do not contain  
all of the footnote disclosures required by generally accepted accounting       
principles) and fairly present in all material respects the financial position  
of the Company as of the dates thereof and the results of its operations and its
cash flows for the periods then ended, subject, in the case of the interim      
unaudited financial statements, to year-end audit adjustments.                  

Section 3.6 INFORMATION STATEMENT; OTHER INFORMATION. None of the   
information included in the information statement to be distributed to          
shareholders of the Company in connection with the Merger, or any schedules     
required to be filed with the SEC in connection therewith (collectively referred
to herein as the "INFORMATION STATEMENT"), except information supplied by Parent
or Sub in writing for inclusion in the Information Statement or in such         
schedules (as to which the Company makes no representation), will, as of the    
date the Information Statement                                                  

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is first mailed to such shareholders, and on the                                
date of the meeting of the Company's shareholders and the date of any           
adjournment thereof, contain any untrue statement of a material fact or omit to 
state any material fact required to be stated therein or necessary in order to  
make the statements therein, in light of the circumstances under which they were
made, not misleading. No representation is made by the Company with respect to  
any forward-looking information which may have been supplied by the Company     
whether or not included by Parent or Sub in the Information Statement.          

      Section 3.7 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 3.7
of the Company Disclosure Schedule, since March 31, 1999, there has not been any
material adverse change in the financial condition, results of operations or    
business of the Company ("Material Adverse Change").                            

     Section 3.8 CERTAIN BROKERS' FEES. With the exception of the fees payable
to the Financial Advisor pursuant to the engagement letter with the Company     
dated November 9, 1998, a copy of which will be made available to Parent,       
neither the Company nor any of its officers, directors or employees has employed
any broker or finder or incurred any liability for any financial advisory,      
brokerage or finder's fees or commissions to any brokers or finders in          
connection with the transactions contemplated herein.                           

     Section 3.9 LITIGATION. There is no claim, suit or proceeding pending or,
to the knowledge of the Company, threatened which would, if adversely           
determined, individually or in the aggregate, effect a Material Adverse Change. 

     Section 3.10 NO VIOLATIONS. To the knowledge of the Company, the business
of the Company is not being conducted in violation of, or in a manner which     
could cause liability under any applicable law, rule or regulation, judgment,   
decree or order of any governmental entity, except for any violations or        
practices which, individually or in the aggregate, have not effected and will   
not effect a Material Adverse Change.                                           

Section 3.11 CERTAIN AGREEMENTS. Except as disclosed in the Company 
Disclosure Schedule, neither the execution and delivery of this Agreement nor   
the consummation of the transactions contemplated hereby or thereby will (i)    
result in any payment becoming due to any current or former director, employee  
or independent contractor of the Company from the Company under any employee    
benefit plan, agreement or otherwise, (ii) materially increase the benefits     
otherwise payable under any such plan or agreement or (iii) result in the       
acceleration of the time of payment or vesting of any such benefits.            

    Section 3.12 PROPERTIES, LIENS. Except (i) as reflected in the financial
statements (and the notes thereto) as of and for the period ended March 31,     
1999, as set forth in the Company's quarterly report on Form 10-Q filed with the
SEC for the quarter ended on March 31, 1999, (ii) as reflected in the financial 
statements (and the notes thereto) as of and for the period ended June 30, 1998,
as set forth in the Company's annual report on Form 10-K filed with the SEC for 
the year ended on June 30, 1998 and (iii) except for statutory mechanics' and   
materialmen's liens, and liens for current taxes not yet due, the Company owns, 
free and clear of any liens, claims, charges, options or other encumbrances, all
of its tangible and intangible property, real and personal, whether or not      
reflected in the financial statements referred to above. To the knowledge of the
Company, all                                                                    

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plants, structures and material equipment owned or leased by the                
Company and used in the operation of its business are in satisfactory condition 
and repair for the requirements of such business.                               

 Section 3.13 CONTRACTS. Except as disclosed in the Company Disclosure
Schedule, the Company is not a party to or subject to and union agreement or    
employment agreement, any lease for real or personal property, any commitment to
buy or sell any products or services in excess of $50,000 per annum or any      
material agreement, license or authorization which has not been terminated or   
performed in its entirety which may, by its terms, be terminated or adversely   
affected by reason of the execution of this Agreement or the consummation of the
transactions contemplated hereby. All material agreements to which the Company  
is obligated are valid and in full force and effect, and neither the Company    
nor, to its knowledge, the other contracting party has breached any material    
provisions thereunder.                                                          

   Section 3.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
Opinion of the Financial Advisor dated the date hereof, a copy of which has been
delivered to Parent, to the effect that, as of such date, the Merger Price is   
fair to the Company's stockholders from a financial point of view.              

ARTICLE IV
REPRESENTATIONS AND WARRANTIES
 OF PARENT AND SUB

Parent and Sub represent and warrant to the Company as follows:                 

Section 4.1 ORGANIZATION. Each of Parent, Sub and their respective  
Significant Subsidiaries (within the meaning of Regulation S-X under the        
Exchange Act ("SIGNIFICANT SUBSIDIARIES")) is a corporation duly organized,     
validly existing and in good standing under the laws of its state or            
jurisdiction of incorporation and is in good standing as a foreign corporation  
in each other jurisdiction where the properties owned, leased or operated, or   
the business conducted, by it require such qualification and where failure to be
in good standing or so to qualify would have a material adverse effect on the   
financial condition, results of operations or business of Parent and its        
subsidiaries taken as a whole.                                                  

Section 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT.                   

   (a) PARENT AND SUB APPROVALS. Each of Parent and Sub has full corporate
power and authority to execute and deliver this Agreement and to consummate the 
transactions contemplated hereby. The execution and delivery of this Agreement  
by Parent and Sub and the consummation of the transactions contemplated hereby  
have been duly authorized by the respective Boards of Directors of Parent and   
Sub, and by Parent as the sole shareholder of Sub, and no other corporate       
proceedings on the part of Parent or Sub are necessary for the execution and    
delivery of this Agreement by each of Parent and Sub, the performance by each of
Parent and Sub of their respective obligations hereunder and the consummation by
each of Parent and Sub of the transactions so contemplated. This Agreement has  
been duly executed and delivered by each of Parent and Sub and, assuming (i)    
this Agreement constitutes a valid and binding obligation of the Company and    
(ii) the authorizations, consents and approvals described in Section 4.2(b) of  
this                                                                            

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Agreement have been obtained, this Agreement constitutes a valid and            
binding agreement of each of Parent and Sub, enforceable against each of Parent 
and Sub in accordance with its terms, except to the extent that its             
enforceability may be limited by applicable bankruptcy, insolvency,             
reorganization, moratorium or other laws affecting the enforcement of creditors 
rights generally or by general equitable principles.                            

     (b) OTHER AUTHORIZATIONS. Other than in connection with, or in compliance
with, applicable requirements of (i) the CGCL and the Delaware General          
Corporation Law with respect to the transactions contemplated hereby, (ii) the  
Exchange Act (including, without limitation, the filing of the Information      
Statement), (iii) the Securities Act, (iv) the Securities Laws of the various   
states and (v) the HSR Act no authorization, consent or approval of, or filing  
with, any court or any public body or authority is necessary for the            
consummation by Parent and Sub of the transaction contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or     
filings the failure to make, would not, in the aggregate, have a material       
adverse effect on the financial conditions, results of operations or business of
Parent and its subsidiaries taken as a whole or on the ability of Parent and Sub
to consummate the transactions contemplated hereby.                             

Section 4.3 NO VIOLATION. Neither the execution or delivery of this 
Agreement by Parent and Sub, the performance by Parent and Sub of their         
respective obligations hereunder nor the consummation by them of the            
transactions contemplated hereby will (a) constitute a breach or violation under
the Articles of Incorporation or By-Laws of Parent or Sub or (b) constitute a   
breach, violation or default (or any event which, with notice or lapse of time  
or both, would constitute a default) under, or result in the termination of or  
accelerate the performance required by or result in the creation of any lien or 
encumbrance upon any of the properties or assets of Parent or any of its        
subsidiaries under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument to which Parent or any of its subsidiaries 
is a party or by which they or any of their respective properties or assets are 
bound or (c) constitute a violation of any order, writ, injunction, decree,     
statute, rule or regulation of any court or governmental authority applicable to
Parent or Sub or any of their respective properties or assets, other than, in   
the case of clauses (b) and (c) above, such breaches, violations, defaults,     
terminations, accelerations or creation of liens and encumbrances which, in the 
aggregate, would not have a material adverse effect on the financial condition, 
results of operations or business of Parent and its subsidiaries taken as a     
whole or on the ability of Parent and Sub to consummate the transactions        
contemplated hereby, or as set forth in Section 4.3 of the Parent Disclosure    
Schedule                                                                        

  Section 4.4 INFORMATION STATEMENT. None of the information supplied in
writing by Parent, Sub or their respective affiliates specifically for inclusion
in the Information Statement will, at the time the Information Statement is     
mailed or at the time of the Special Meeting (as defined in Section 5.4) or at  
the Effective Time, contain any untrue statement of a material fact or omit to  
state any material fact required to be stated therein or necessary in order to  
make the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Special Meeting any event with
respect to Parent or Sub, or with respect to information supplied by Parent or  
Sub for inclusion in the Information Statement, shall occur which is required to
be described in an amendment of, or a supplement to, such document, such event  
shall be so described to the Company in a timely manner.                        

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Section 4.5 FINANCING. Parent is highly confident that one or more  
responsible financial institutions will be able to provide Parent with the funds
necessary to consummate the Merger and the transactions contemplated hereby on a
timely basis and on terms and conditions satisfactory to Parent, which          
confidence is based solely on Parent's experience and its internal assumptions  
based on information made available to Parent. Upon receipt of the necessary    
financing from such financial institution(s), Parent will keep cash available to
it sufficient to enable Parent to carry out all of its obligations under this   
Agreement. An affiliate of Parent, Gartland Whalley and Barker B.V, has provided
to the Company a support letter, a copy of which is attached as Exhibit A       
hereto, upon which the Company is relying upon in entering this Agreement.      

Section 4.6 NO PRIOR ACTIVITIES. Sub has not incurred, directly or  
indirectly, any liabilities or obligations, except those incurred in connection 
with its organization or with the negotiation of this Agreement and the         
transactions contemplated hereby. Sub has not engaged, directly or indirectly,  
in any business or activity of any type or kind, or entered into any agreement  
or arrangement with any person or entity, or is subject to or bound by any      
obligation or undertaking, that is not contemplated by or in connection with    
this Agreement and the transactions contemplated hereby.                        

     Section 4.7 SURVIVING CORPORATION AFTER THE MERGER. At the Effective Time
and after giving effect to any changes in the Surviving Corporation's assets and
liabilities as a result of the Merger and after giving effect to the financing  
for the Merger and the use of proceeds therefrom, the Surviving Corporation will
not (a) be insolvent (either because its financial condition is such that the   
sum of its debts is greater than the fair market value of its assets or because 
the present fair saleable value of its assets will be less than the amount      
required to pay its debts as they become due), (b) have unreasonably small      
capital with which to engage in its business or (c) have incurred or plan to    
incur debts beyond its ability to pay as they become absolute and matured.      

      Section 4.8 CERTAIN FEES. Neither Parent, Sub or any affiliate thereof nor
any of their officers, directors or employees has employed any broker or finder 
or incurred any liability for any financial advisory, brokerage or finder's fees
or commissions to any brokers and finders in connection with the transactions   
contemplated herein.                                                            

 ARTICLE V
 COVENANTS

     Section 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement or previously disclosed to Parent, during the period from the    
date of this Agreement to the Effective Time, the Company will, and will cause  
each of its subsidiaries to, conduct its respective operations according to its 
ordinary and usual course of business and consistent with past practice in all  
material respects. Without limiting the generality of the foregoing, and except 
as contemplated by this Agreement or as previously disclosed to Parent, prior to
the Effective Time, the Company will not, and the Company will cause its        
subsidiaries not to, without the prior written consent of Parent:               

     (a) issue, sell or repurchase, or authorize or propose the issuance, sale
or repurchase, of any shares of capital stock of the Company and its            
subsidiaries, or securities convertible into such shares, or any rights,        
warrants or options to acquire such shares or other                             

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convertible securities, other than the issuance of Shares pursuant to the       
exercise of Options as outstanding on the date hereof;                          

(b) declare or pay dividends or a distribution on any shares of its 
capital stock;                                                                  

(c) except for such transactions in the ordinary and usual course of
business and consistent with past practice, authorize or enter into any         
agreement with respect to any material commitment or transaction which requires 
the Company to pay in excess of $50,000;                                        

     (d) except as set forth in Section 5.1 of the Company Disclosure Schedule
and except in the ordinary course of business and consistent with past practice 
and except as previously disclosed to Parent or as may be required by law, adopt
or amend in any material respect any material profit sharing, compensation,     
stock option, pension, retirement, deferred compensation, employment or other   
employee benefit plan, agreement, trust, plan, fund or other arrangement        
(collectively, "COMPENSATION PLANS"), or grant, or become obligated to grant,   
any general or specific increase in the compensation of executive officers or   
any increase in the compensation (including severance pay) payable or to become 
payable to any executive officer or institute any material new welfare program  
or Compensation Plan or make any change in any Compensation Plan;               

    (e) except as required by the consummation of the Merger, pay, discharge
or satisfy any material claims, liabilities or obligations (absolute, accrued,  
contingent or otherwise), other than the payment, discharge or satisfaction in  
the ordinary and usual course of business and consistent with past practice;    

(f) except for such transactions in the ordinary and usual course of
business and consistent with past practice, incur any material liability        
(absolute, accrued, contingent or otherwise) or issue any debt securities or    
assume, guarantee, endorse or otherwise as an accommodation become responsible  
for, the obligations of any other individual or entity; or                      

    (g) subject to the rights of the Company's shareholders under applicable
law, propose or adopt any amendments to the Articles of Incorporation or        
By-laws; or                                                                     

     (h) agree, in writing or otherwise, to take any of the foregoing actions.

Section 5.2 ACCESS TO INFORMATION.                                  

   (a) GENERAL. So long as this Agreement has not been terminated, between
the date of this Agreement and the Effective Time, the Company will give Parent 
and its authorized representatives reasonable access during normal business     
hours to all offices, production facilities and other facilities and to all     
books and records of it, will permit Parent to make such inspections as it may  
reasonably require and will cause its officers to furnish Parent (at such time  
as it would otherwise become available in the ordinary and usual course of      
business and consistent with past practice) with such financial and operating   
data and other information (consistent with that which is currently being       
prepared by the Company) with respect to the business and properties of the     
Company as Parent may from time to time reasonably request.                     

      (b) CONFIDENTIALITY. Subject to any additional requirements of law and the
terms of the Confidentiality Agreement, Parent and Sub (i) will hold and will   
cause their respective                                                          

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representatives, advisors and financing sources to hold in strict confidence,   
unless compelled to disclose by judicial or administrative process, or, in the  
written opinion of its counsel with a copy sent to the Company, by other        
requirements of law, all documents and information concerning the Company       
furnished to Parent, Sub or any of their respective representatives, advisors   
and financing sources in connection with the transactions contemplated by this  
Agreement, PROVIDED, HOWEVER, that, prior to any disclosure pursuant to the     
foregoing, Parent shall notify the Company and afford the Company an opportunity
to obtain a protective order against such disclosure (except to the extent that 
such information can be shown to have been (x) previously known by Parent, (y)  
in the public domain through no fault of Parent, its representatives or advisors
or (z) later lawfully acquired by Parent from other sources, unless Parent knows
that such other sources are not entitled to disclose such information) and (ii) 
will not release or disclose such information to any other person, except in    
connection with this Agreement to (1) its auditors, attorneys, and other        
representatives and advisors with a need to know such information and (2)       
responsible financial institutions in connection with obtaining the financing   
contemplated by Section 4.5 hereof, provided that such persons shall have first 
been advised of the confidentiality provisions of this Section 5.2(b) and the   
Confidentiality Agreement and agreed to be bound thereby. If the transactions   
contemplated by this Agreement are not consummated, such confidence shall be    
maintained except to the extent such information can be shown to have been (i)  
previously known by Parent, (ii) in the public domain through no fault of       
Parent, its representatives or advisors or (iii) later lawfully acquired by     
Parent from other sources, unless Parent knows that such other sources are not  
entitled to disclose such information and, if requested by the Company, Parent  
will return to the Company all copies of information furnished by the Company to
Parent or its agents, representatives, advisors or financing sources, or derived
therefrom, or shall in writing confirm the destruction of such information.     

Section 5.3 ACQUISITION PROPOSALS. From and after the date of this  
Agreement, the Company will not, and will instruct its officers, directors,     
employees, agents and other representatives not to, solicit any proposals or    
offers from any person relating to any acquisition or purchase of all or a      
material amount of the assets of, or any securities of, or any merger,          
consolidation or business combination with, the Company; PROVIDED, HOWEVER, that
the Company may furnish information to, and may engage in discussions or        
negotiations with, any person, and may waive any provision of any               
confidentiality or standstill agreement to which it or any of its               
representatives is a party, if (i) counsel advises the Company's Board of       
Directors that failure to furnish such information, engage in such discussions  
or negotiations, or waive any provision of any such agreement, could involve the
Board of Directors in a breach of their fiduciary duties or (ii) the Board of   
Directors believes, in good faith, after consultation with the Financial        
Advisor, that such person may make a BONA FIDE proposal for a transaction,      
including, without limitation, a tender or exchange offer for Shares, more      
favorable to the Company's shareholders than the transactions contemplated by   
the Merger (such transaction being a "SUPERIOR OFFER"); and provided further    
that nothing herein shall prevent the Company's Board of Directors from taking, 
and disclosing to the Company's shareholders, a position contemplated by Rules  
14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender   
offer, or from making such other disclosure to shareholders which, in the       
judgment of the Board of Directors, upon advice of counsel, may be required by  
law or necessary to discharge any fiduciary duty imposed thereby.               

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Section 5.4 INFORMATION STATEMENT.                                  

 The Company shall prepare an information statement relating to the Merger and
its approval by the Company's shareholders satisfying the requirements of       
Section 603 of the CGCL and Regulation 14C promulgated under the Exchange Act   
(the "Information Statement"). From and after the date hereof, the Company shall
use its reasonable best efforts to expeditiously (1) obtain and furnish the     
information required to be included by it in the Information Statement, (2)     
prepare and file the Information Statement with the SEC, (3) respond to any     
comments made by the SEC with respect to the preliminary Information Statement  
and (4) cause the definitive Information Statement to be mailed to its          
shareholders at the earliest practicable time.                                  

Section 5.5 COOPERATION. Subject to the terms and conditions herein 
provided and to the fiduciary duties of the Company's directors, each of the    
parties hereto agrees to use its reasonable best efforts (a) to take, or cause  
to be taken, all action, and to do, or cause to be done, all things necessary,  
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement including, without    
limitation, (i) promptly making their respective filings, and thereafter using  
their reasonable best efforts promptly to make any required submissions, under  
the HSR Act and (ii) promptly making any filings that are required to be made or
seeking any consents, approvals, permits or authorizations that are required to 
be obtained under any other applicable federal, state or foreign law or         
regulation and (b) to refrain from taking, directly or indirectly, any action   
contrary to or inconsistent with the provisions of this Agreement, including    
action which would impair such party's ability to consummate the transactions   
contemplated hereby. In case at any time after the Effective Time any further   
action is necessary or desirable to carry out the purposes of this Agreement,   
the proper officers and directors of each party to this Agreement shall use     
their respective reasonable best efforts to take all such necessary action.     

      Section 5.6 PUBLIC ANNOUNCEMENTS. Parent, Sub and the Company will consult
with each other before issuing any press release or otherwise making any public 
statement with respect to the Merger and shall not issue any such press release 
or make any such public statement prior to such consultation, except as may bc  
required by law or any securities exchange or similar authority (in which case  
prior notice of at least 24 hours by the Company to Parent or by Parent or Sub  
to the Company, as applicable, of such issuance of a press release or making of 
a public statement shall be require). The parties agree that, upon execution of 
this Agreement, they will cause to be disseminated the joint press release      
attached hereto as Annex A.                                                     

Section 5.7 INDEMNIFICATION AND INSURANCE.                          

    (a) CONTINUATION OF CHARTER OBLIGATIONS. The Company shall, and from and
after the Effective Time, Parent and the Surviving Corporation shall, maintain  
the right to indemnification and exculpation of officers and directors provided 
for in the Articles of Incorporation and By-Laws of the Company as in effect on 
the date hereof, with respect to indemnification and exculpation for acts and   
omissions occurring prior to the Effective Time, including, without limitation, 
the transactions contemplated by this Agreement.                                

      (b) CONTINUATION OF D&O INSURANCE. For six years after the Effective Time,
Parent or the Surviving Corporation shall maintain officers' and directors'     
liability                                                                       

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insurance covering the persons who are presently covered by the                 
Company's officers' and directors' liability insurance policies (copies of which
have heretofore been delivered to Parent) with respect to actions and omissions 
occurring prior to the Effective Time, on terms which are not less favorable    
than the terms of such current insurance in effect for the Company on the date  
hereof.                                                                         

(c) INDEMNIFICATION. (i) The Company shall, and from and after the  
Effective Time, Parent and the Surviving Corporation shall, to the fullest      
extent permitted under applicable law, indemnify and hold harmless, each present
and former director and officer of the Company (collectively, the "INDEMNIFIED  
PARTIES") against any costs or expenses (including attorneys' fees), judgments, 
fines, losses, claims, damages, liabilities and amounts paid in settlement in   
connection with any pending, threatened or completed claim, action, suit,       
proceeding or investigation, whether civil, criminal, administrative or         
investigative, arising out of or pertaining to any action or omission occurring 
prior to the Effective Time (including, without limitation, any claim, action,  
suit, proceeding or investigation arising out of or pertaining to the           
transactions contemplated by this Agreement) and in the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the  
Effective Time), (ii) the Company or the Surviving Corporation shall advance    
expenses to each such Indemnified Party, including the payment of the fees and  
expenses of counsel selected by such Indemnified Party, which counsel shall be  
reasonably satisfactory to the Company or the Surviving Corporation, as the case
may be, promptly after statements therefor are received, and (iii) the Company  
and the Surviving Corporation will cooperate fully in the defense of any such   
matter. Neither the Company nor the Surviving Corporation shall be liable for   
any settlement effected without its written consent (which consent shall not be 
unreasonably withheld).                                                         

     (d) ELIGIBILITY FOR INDEMNIFICATION. Notwithstanding any provision to the
contrary contained in the Articles of Incorporation or By-Laws of the Company as
in effect on the date hereof, any determination required to be made with respect
to whether an Indemnified Party's conduct complies with the standards set forth 
under the CGCL, under such charter provisions shall be made by independent      
counsel selected by the Indemnified Party and reasonably acceptable to the      
Company, Parent, Sub or the Surviving Corporation, which shall pay such         
counsel's fees and expenses (it being agreed that neither the Company, Parent,  
Sub nor the Surviving Corporation shall challenge any such determination by such
independent counsel which is favorable to an Indemnified Party).                

(e) SURVIVAL. This Section 5.7 shall survive the closing of the     
transactions contemplated hereby, is intended to benefit the Company, Parent,   
Sub or the Surviving Corporation and each of the Indemnified Parties (each of   
whom shall be entitled to enforce this Section 5.7 against the Company or the   
Surviving Corporation, as the case may be) and shall be binding on all          
successors and assigns of Parent and the Surviving Corporation.                 

(f) MERGER, ASSIGNMENT, ETC. In the event Parent, the Surviving     
Corporation or any of their respective successors or assigns (i) consolidates   
with or merges into any other person and shall not be the continuing or         
surviving corporation or entity of such consolidation or merger or (ii)         
transfers all or substantially all of its properties and assets to any person,  
then, and in each such case. proper provision shall be made so that the         
successors and assigns of Parent or the Surviving Corporation assume the        
obligations set forth in this Section 5.7.                                      

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Section 5.8 NOTIFICATION OF CERTAIN MATTERS.                        

Between the date of this Agreement and the consummation of the Merger, the      
Company will promptly notify Parent and Sub in writing if it becomes aware of   
any fact or condition that causes or constitutes a breach of its representations
and warranties set forth herein or made in connection herewith as of the date of
this Agreement, or if it becomes aware of the occurrence after the date of this 
Agreement of any fact or condition which would (except as expressly contemplated
by this Agreement) cause or constitute a breach of any such representation or   
warranty had such representation or warranty been made as of the time of        
occurrence or discovery of such fact or condition. Should any such fact or      
condition require any change in the Company Disclosure Schedule if such Company 
Disclosure Schedule were dated prior to the date of occurrence or discovery of  
any such fact or condition, the Company will promptly deliver to Parent and Sub 
a supplement to the Company Disclosure Schedule specifying such change. Each    
party hereto shall promptly notify each other party of any default, the threat  
or commencement of any proceeding or any development before the Effective Time  
that would be likely to have a material adverse effect on the financial         
condition, results of operations or business of the Company. Notwithstanding the
foregoing provisions of this Section 5.8, no party shall be required to give    
notice with respect to events that are reported in the financial or general     
interest newspapers that do not specifically relate to such party or the        
transactions contemplated hereby.                                               

     Section 5.9 EMPLOYEE BENEFITS. Parent agrees to honor, and from and after
the Effective Time shall cause the Surviving Corporation to honor, in accordance
with their respective terms as in effect on the date hereof, the employment,    
severance, bonus, and commission agreements and similar arrangements to which   
the Company is a party which are set forth in Section 5.9 of the Company        
Disclosure Schedule.                                                            

   Section 5.10 ACKNOWLEDGMENT OF PARENT AND SUB. Parent and Sub agree and
acknowledge that they have had the opportunity to ask questions of              
representatives of the Company. Parent and Sub acknowledge that any projections 
prepared by the Company and provided to Parent and/or Sub as part of the due    
diligence process were and are merely estimates made by the Company as of the   
time they were provided and Parent and Sub have in no way relied on any such    
projections. Parent and Sub agree and acknowledge that neither the Company nor  
any of its affiliates has made or is making any representation or warranty as to
the accuracy or completeness of the Confidential Information Memorandum         
furnished by the Financial Advisor on behalf of the Company or any subsequent or
supplemental materials provided by such person or any other information which   
has been provided by the Company or any other person acting on behalf of the    
Company during such due diligence process. Without limiting the foregoing,      
Parent and Sub agree and acknowledge that the only representations and          
warranties made by the Company with respect to the transactions contemplated    
hereby are those representations and warranties contained in Article III of this
Agreement (together with the exceptions to such representations and warranties  
set forth in the Company Disclosure Schedule) and only those representations and
warranties have and will have any legal effect following the date hereof, which 
effect will continue solely to the extent specifically set forth herein.        

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ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER      

   Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where legally permissible, prior to the Effective Time  
of the following conditions:                                                    

   (a) This Agreement shall have been adopted by the requisite vote of the
shareholders of the Company in accordance with applicable law, if such vote is  
required by applicable law.                                                     

    (b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by any court or governmental     
authority of competent jurisdiction which restrains, enjoins or otherwise       
prohibits the consummation of the Merger; PROVIDED, HOWEVER, that the Company,  
Parent and Sub shall use their reasonable best efforts to have any) such order, 
decree or injunction vacated.                                                   

(c) Other than the filing provided for in Section 2.02, all         
authorizations, consents, orders or approvals of, or declarations or filings    
with, or expirations of waiting periods imposed by, any court, administrative   
agency or commission or other governmental authority or instrumentality, the    
failure of which to file, obtain or occur is reasonably likely to have a        
material adverse effect on the Company or Parent.                               

     (d) The applicable waiting period under the HSR Act shall have expired or
been terminated.                                                                

    Section 6.2 CONDITIONS TO THE OBLIGATION OF PARENT AND SUB TO EFFECT THE
MERGER. The obligation of Parent and Sub to effect the Merger is subject to the 
satisfaction or waiver, where legally permissible, prior to the Effective Time  
of the following conditions:                                                    

   (a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)  
as of immediately before the Effective Time (giving effect to any supplement to 
the Company Disclosure Schedule), except as otherwise contemplated by this      
Agreement, and the Company shall have performed all obligations required to be  
performed by it at or prior to the Effective Time, except to the extent the     
failure of such representations and warranties to be true and correct or the    
failure to perform obligations hereunder would not, individually or in the      
aggregate, have a material adverse effect on the financial condition, results of
operations or business of the Company.                                          

(b) Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of the   
Company to the effect of clause (a) above.                                      

    (c) Parent shall have received an opinion, dated as of the Closing Date,
from Troop Steuber Pasich Reddick & Tobey, LLP, counsel to the Company, as to   
matters that are customary for transactions of this type; or                    

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(d) Parent shall have received financing of the Merger Price and    
associated transaction expenses on terms and conditions satisfactory to Parent  
in its sole discretion.                                                         

(e) Parent shall have confirmed that the Confidential Information   
Memorandum furnished by the Financial Advisor on behalf of the Company does not 
contain any untrue statement of a material fact or omit to state any material   
fact necessary to make the statements therein, in light of the circumstances    
under which they were made, not misleading, and Parent shall have certified such
confirmation or the failure thereof to the Company in writing no later than     
August 18, 1999.                                                                

 Section 6.3 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is subject to the    
satisfaction or waiver, where legally permissible, prior to the Effective Time  
of the following conditions:                                                    

      (a) The representations and warranties of Parent and Sub set forth in this
Agreement shall be true and correct as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)  
as of immediately before the Effective Time, except as otherwise contemplated by
this Agreement, and Parent and Sub shall have performed all obligations required
to be performed by them at or prior to the Effective Time, except to the extent 
the failure of such representations and warranties to be true and correct as of 
immediately before the Effective Time or the failure to perform obligations     
hereunder would not, individually or in the aggregate, have a Company Material  
Adverse Effect;                                                                 

 (b) The Company shall have received a certificate signed on behalf of
Parent and Sub by their respective chief executive officers and the chief       
financial officers to the effect of clause (a) above; and                       

     (c) The Board of Directors of the Company shall have approved the Merger.

ARTICLE VII 
TERMINATION; AMENDMENT; WAIVER

    Section 7.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,   
notwithstanding approval thereof by the shareholders of the Company:            

    (a) by mutual written consent duly authorized by the boards of directors
of Parent and the Company;                                                      

  (b) subject to Section 7.5(a), by the Company or the Parent if (i) the
conditions specified in Section 6.1 have been satisfied and the Effective Time  
shall not have occurred on or before September 30, 1999 or (ii) the Effective   
Time shall not have occurred on or before December 31, 1999; PROVIDED, HOWEVER, 
that the right of the Company or the Parent to terminate this Agreement pursuant
to this Section 7.1(b) shall not be available in the event that the Company's or
the Parent's, as the case may be, failure to fulfill any obligation under this  
Agreement has been the cause of, or resulted in, the failure of the Effective   
Time to occur on or before such date;                                           

      (c) by Parent or the Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an     
order, decree or ruling                                                         

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or taken any other action restraining, enjoining or otherwise prohibiting the   
Merger and such order, decree, ruling or other action shall have become final   
and nonappealable; or                                                           

    (d) by the Company, subject to Section 7.2, if the Board of Directors of
the Company shall concurrently approve, and the Company shall concurrently enter
into, a definitive agreement providing for the implementation of a Superior     
Offer, PROVIDED, HOWEVER, that (i) the Company is not then in breach of Section 
5.3, (ii) the Board of Directors of the Company shall have complied with Section
7.2 in connection with such Superior Offer, and (iii) the Company shall         
simultaneously make the payments required by Section 7.3. For purposes of this  
Agreement, "SUPERIOR OFFER" means an Alternative Proposal which is superior from
a financial point of view to the Company's shareholders (other than any         
shareholders affiliated with the Parent) to the Merger and the other            
Transactions contemplated hereby and for which financing, to the extent         
required, is then committed or which, in the good faith judgment of the         
Company's board of directors after consultation with the Company's financial    
advisors is reasonably capable of being obtained.                               

      Section 7.2 CERTAIN ACTION PRIOR TO TERMINATION. The Company shall provide
to the Parent written notice of its intention to terminate this Agreement       
pursuant to Section 7.1(e) advising the Parent (a) that the Board of Directors  
of the Company has determined, by action of a majority of the members of the    
Board of Directors of the Company who are not affiliated with either the Parent 
or the person making such Alternative Proposal or their respective affiliates,  
that such Alternative Proposal is a Superior Offer and that, in the exercise of 
its good faith judgment as to fiduciary duties to shareholders under applicable 
law, after consultation with the Company's outside legal counsel, failure by the
Board of Directors to terminate this Agreement could reasonably be expected to  
result in a breach of such duties and (b) as to the material terms of any such  
Alternative Proposal. At any time after the fifth business day following receipt
of such notice, the Company may terminate this Agreement as provided in Section 
7.1(e) only if the Board of Directors of the Company determines, by action of a 
majority of the members of the Board of Directors of the Company who are not    
affiliated with either the Parent or the person making such Alternative Proposal
or their respective affiliates, that failure by the Board of Directors to       
terminate this Agreement continues to be reasonably expected to result in a     
breach of its fiduciary duties to shareholders under applicable law (which      
determination shall be made in light of any revised proposal made by the Parent 
prior to the expiration of such five business day period) and concurrently      
enters into a definitive agreement providing for the implementation of such     
Alternative Proposal.                                                           

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  Section 7.3 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1 hereof, this Agreement    
shall forthwith become void and have no effect, without any liability on the    
part of any party or its directors, officers or shareholders, other than the    
provisions of the last sentence of Section 5.2(b) and Sections 5.7 and 8.9 and  
under the Confidentiality Agreement and other than the payment by the Company to
Parent, in the event of a termination pursuant to Section 7.1(e), of $750,000   
cash. Without limiting the generality or effect of any provision of the         
Confidentiality Agreement, if this Agreement is terminated pursuant to Section  
7.1, for a period of three years after termination of this Agreement (unless    
otherwise previously requested in writing by the Company) Parent and Sub will   
not, and will cause their subsidiaries and affiliates not to, acquire or offer  
or propose to acquire, beneficial ownership of any Shares. Nothing contained in 
this Section 7.2 shall relieve the Company, Parent or Sub from liability for any
breach of this Agreement.                                                       

  Section 7.4 AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by action taken by the Company, Parent and Sub (and the
shareholders of the Company, if required by applicable law) at any time before  
or after adoption of this Agreement by the Company's shareholders; PROVIDED,    
HOWEVER, that after the adoption of this Agreement by the Company's             
shareholders, no amendment shall be made which decreases the price per Share,   
changes the form of consideration to be received by the holders of Shares in the
Merger or which adversely affects the rights of shareholders of the Company     
hereunder without the approval of such shareholders. This Agreement may not be  
amended except by an instrument in writing signed on behalf of all the parties. 

      Section 7.5 EXTENSION WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the       
representations and warranties contained herein or in any document, certificate 
or writing delivered pursuant hereto or (c) waive compliance with any of the    
agreements or conditions contained herein UNLESS waiver is unlawful or          
specifically prohibited. Any agreement on the part of any party to any such     
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.                                                 

ARTICLE VIII
 MISCELLANEOUS

   Section 8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations and warranties made herein shall terminate at the Effective 
Time or the earlier termination of this Agreement pursuant to Section 7.1 as the
case may be; PROVIDED, HOWEVER, that if the Merger is consummated, Sections     
2.10, 5.5 (with respect to the last sentence thereof), 5.7 and 5.10 will survive
the Effective Time to the extent contemplated by such sections, and provided    
further that the last sentence of Section 5.2(b), Section 8.9 and the           
Confidentiality Agreement will in all events survive the termination of this    
Agreement.                                                                      

Section 8.2 ENTIRE AGREEMENT: ASSIGNMENT. This Agreement, the Annex,
Exhibits and Schedules referred to herein, the letter(s) contemplated by Section
4.5 hereof and the Confidentiality Agreement (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all   
other prior agreements and understandings, both written and oral, among the     
parties or any of them with respect to the subject matter hereof and (b) shall  
not be assigned by                                                              

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operation of law or otherwise, provided that Parent may assign its rights and   
obligations or those of Sub to any wholly-owned, direct or indirect, subsidiary 
of Parent, but no such assignment shall relieve Parent of its obligations       
hereunder if such assignee does not perform such obligations.                   

     Section 8.3 VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other  
provisions of this Agreement, which shall remain in full force and effect.      

Section 8.4 NOTICES. All notices and other communications among the 
parties shall be in writing; and shall be deemed to have been duly given when   
(i) delivered in person, or (ii) one business day after delivery to a reputable 
overnight courier service (i.e., Federal Express), postage pre-paid, or (iii)   
delivered by telecopy and promptly confirmed by telephone and by delivery of a  
copy in person or overnight as aforesaid, in each case with postage prepaid,    
addressed as follows:                                                           

If to Parent or Sub:                                                

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

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

------------------                                      
Tele:                                                   
Fax:                                                    
Attention:                                              

With a copy to:                                                     

------------------                                      
------------------                                      
------------------                                      
Telecopy:                                               
Attention:                                              

If to the Company:                                                  

Networks Electronic Corp.                               
9750 De Soto Avenue                                     
Chatsworth, California 91311                            
Tel:  (818) 341-0440                                    
Fax: (818)                                              
Attention:  David Wachtel                               

With a copy to:                                         

Troop, Steuber, Pasich,                                 
Reddick & Tobey, LLP                                    
2029 Century Park East, 24th Floor                      
Los Angeles, CA 90067                                   
Tel:  (310) 728-3200                                    

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Fax: (310) 728-2200                                     
Attention:  Murray Markiles                             

or to such other address as the person to whom notice is given may have         
previously furnished to the others in writing in the manner set forth above     
(provided that notice of any change of address shall be effective only upon     
receipt thereof).                                                               

Section 8.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND  
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS OF 
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.                                                                   

     Section 8.6 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent, Sub or the Company, the word "subsidiaries" means any   
corporation more than 50 percent of whose outstanding voting securities, or any 
partnership, joint venture or other entity more than 50 percent of whose total  
equity interest, is directly or indirectly owned by Parent, Sub or the Company, 
as the case may be. For. purposes of this Agreement neither the Company nor any 
subsidiary of the Company shall not be deemed to be an affiliate or subsidiary  
of Sub or Parent. The headings contained in this Agreement are for reference    
purposes only and shall not affect in any way the meaning or interpretation of  
this Agreement. Inclusion of information in the Company Disclosure Schedule or  
the Parent Disclosure Schedule, as applicable, does not constitute an admission 
or acknowledgment of the materiality of such information. If an ambiguity or    
question of intent or interpretation arises, then this Agreement will be        
construed as if drafted jointly by the parties to this Agreement and no         
presumption or burden of proof will arise favoring or disfavoring any party to  
this Agreement by virtue of the authorship of any of the provisions of this     
Agreement.                                                                      

     Section 8.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except for the provisions 
of Sections 2.7, 2.12, 2.13, 5.7 and 5.10 (which are intended to be for the     
benefit of the persons referred to therein and their beneficiaries, and may be  
enforced by such persons as intended third-party beneficiaries), nothing in this
Agreement, express or implied, is intended to confer upon any other person any  
rights or remedies of any nature whatsoever under or by reason of this          
Agreement.                                                                      

   Section 8.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which 
together shall constitute one and the same agreement.                           

    Section 8.9 EXPENSES. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party      
incurring such expenses.                                                        

      Section 8.10 OBLIGATION OF PARENT. Whenever this Agreement requires Sub to
take any action, such requirement will be deemed to include an undertaking on   
the part of Parent to cause Sub to take such action.                            

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      Section 8.11 SALE OF THE COMPANY. The parties hereto agree and acknowledge
that for the purposes of this Agreement no "sale" of the Company shall be deemed
to have occurred until the consummation of the Merger at the Effective Time.    

* * * * * * * * * *       

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IN WITNESS WHEREOF, each of' the parties has caused this Agreement to be        
executed on its behalf by its officers thereunto duly authorized, all as of the 
day and year first above written.                                               

                       ---------------------------------
("Parent")

       By: /s/ DERICK C. MARSH
                         ---------------------------------
 Name: Derick C. Marsh
Title: Vice President 

                         ---------------------------------
("Sub") 

       By: /s/ DERICK C. MARSH
                      ------------------------------
 Name: Derick C. Marsh
Title: Vice President 

                             NETWORKS ELECTRONIC CORP.
               ("Company")

     By: /s/ DAVID WACHTEL
                     -----------------------------
Name: David Wachtel 
Title: President/CEO  

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 COMPANY DISCLOSURE SCHEDULE

     This COMPANY DISCLOSURE SCHEDULE is an itemization by Networks Electronic
Corporation, a California corporation (the "COMPANY"), of those matters that    
constitute exceptions to the items set forth in SECTION 3 of the Agreement and  
Plan of Merger, dated as of July ___, 1999 (the "AGREEMENT"), by and among the  
Company, Parent and Sub. Unless otherwise noted herein, any capitalized term in 
this COMPANY DISCLOSURE SCHEDULE shall have the same meaning assigned to such   
term in the Agreement. The inclusion of any item herein shall not be deemed to  
be an admission of any obligation or liability to any third party. Disclosures  
made under the heading of one section may apply to, augment or qualify          
disclosures under one or more sections. Section headings are provided herein for
convenience only. Where the terms of a lease, contract or other disclosure item 
have been summarized or described in this Company Disclosure Schedule, such     
summary or description does not purport to be a complete statement of the       
material terms of such lease, contract or other item. This COMPANY DISCLOSURE   
SCHEDULE may be amended by the Company prior to the Closing.                    

SCHEDULE 3.4(B)                                                                 

  The following credit agreements have customary acceleration provisions
upon a "change of control":                                                     

(1)    Community Redevelopment Agency of Los Angeles                            
354 South Spring Street, Suite #800                               
Los Angeles, CA 90013-1258                                        
(Subordination Agreement with City National Bank for amount owed) 
per Second Modification, dated August 26, 1996 and recorded       
on SEPTEMBER 18, 1996  IN THE AMOUNT OF $1,105,000.00             

(2)   City National Bank                                                        
San Fernando Valley CBC                                             
16133 Ventura Blvd., Suite 280                                      
Encino, CA 91436                                                    

SECURED REAL ESTATE LOAN #635510  IN THE AMOUNT OF $1,550,000.      
TRANSACTION DATED:  FEBRUARY 2, 1999 - MATURITY DATE:  FEB. 1, 2014 

ACCOUNTS RECEIVABLES & INVENTORY LOAN IN THE AMOUNT OF $1,250,000.  
TRANSACTION DATED:  FEBRUARY 2, 1999.  MATURITY:  OCTOBER 1, 1999   
LOAN NO. 082-635315/84646                                           

(3)   Community Development Commission of the County of Los Angeles             
2 Coral Circle                                                      
Monterey Park, CA 91755                                             

LOAN AMOUNT:  $650,000.                                             

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TRANSACTION DATE:  4-19-1999 - MATURITY DATE:  MAY 1, 2004          
("Documents are binding upon Borrower's successors, representatives 
and assigns, and are legally enforceable in accordance with their   
respective terms") Page 3 of Business Loan Agreement.               

SCHEDULE 3.11                                                                   

(1)   Executive Employment Agreement by and between the Company and David       
Wachtel, dated May 1, 1998.                                         

SCHEDULE 3.13                                                                   

(1)    Community Redevelopment Agency of Los Angeles                            
354 South Spring Street, Suite #800                               
Los Angeles, CA 90013-1258                                        
(Subordination Agreement with City National Bank for amount owed) 
per Second Modification, dated August 26, 1996 and recorded       
on SEPTEMBER 18, 1996  IN THE AMOUNT OF $1,105,000.00             

(2)   City National Bank                                                        
San Fernando Valley CBC                                             
16133 Ventura Blvd., Suite 280                                      
Encino, CA 91436                                                    

SECURED REAL ESTATE LOAN #635510  IN THE AMOUNT OF $1,550,000.      
TRANSACTION DATED:  FEBRUARY 2, 1999 - MATURITY DATE:  FEB. 1, 2014 

ACCOUNTS RECEIVABLES & INVENTORY LOAN IN THE AMOUNT OF $1,250,000.  
TRANSACTION DATED:  FEBRUARY 2, 1999.  MATURITY:  OCTOBER 1, 1999   
LOAN NO. 082-635315/84646                                           

(3)   Community Development Commission of the County of Los Angeles             
2 Coral Circle                                                      
Monterey Park, CA 91755                                             

LOAN AMOUNT:  $650,000.                                             
TRANSACTION DATE:  4-19-1999 - MATURITY DATE:  MAY 1, 2004          
("Documents are binding upon Borrower's successors, representatives 
and assigns, and are legally enforceable in accordance with their   
respective terms") Page 3 of Business Loan Agreement.               

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(4)   Single Tenant Lease Agreement between the Company and Link Door Controls. 
      (This Lease Agreement was originally by and between the Company and Sentex
    Systems, dated August 20, 1996. In December 1997, an Assignment of Lease
was made to Link Door Controls.)                                    

(5)   Promissory Notes between Sentex Systems and the Company, currently owing  
by the Company:                                                     

                                                                [Download Table]

                                            
Loan #1     $45,053.53  Start Date:  3-03-97

Loan #2     $39,196.20  Start Date:  5-05-97

Loan #3     $103,125.73 Start Date:  6-19-97

Loan #4     $79,900.00  Start Date:  9-15-97

Loan #5     $20,724.54  Start Date: 11-18-97

Loan #6     $130,000.00 Start Date: 12-08-97

Total Principal Amounts:  $418,000.00                               

(6)   The following is a purchase order under which the Company has committed to
purchase materials from a supplier:                                 

                                                                [Download Table]

                                                    
ORDER DATE    SUPPLIER     PO#           TOTAL ORDER
              NAME                                  
6/8/99        Star Net     1576          $508,920.00

(7)   The following is a list of purchase orders under which the Company has    
committed to sell products in excess of $50,000 to third parties:   

                                                                [Download Table]

ORDERDATE      CUSTOMER NAME              PURCHASE ORDER        TOTAL ORDER 

                                                                            
11/17/98       KELLY AIR FORCE BASE       F41608-99-C-0049     $1,531,038.31
03/25/99       LOCKHEED NEW ORLEANS       R140196              $1,195,706.95
05/11/99       DEFENSE SUPPLY CENTER      SP0441-99-C-5372     $1,079,024.00
               RICHMOND                                                     
06/18/99       TEXTRON SYSTEMS            I575P0129660           $484,469.55
10/20/98       KELLY AIR FORCE BASE       f4-1608-98-c-0698      $437,500.00
04/20/99       DEFENSE SUPPLY CENTER      SP0441-99-C-5319       $218,324.40
               RICHMOND                                                     
06/30/99       INDUSTRIA ENGINEERING      33832                   $92,800.00

                                      A-28                                  

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08/24/98       DEFENSE SUPPLY CENTER      SPO41-98-M-YA61         $87,849.30
               RICHMOND                                                     
05/13/99       PSI BEARINGS               99273                   $78,925.00
04/26/99       WESCO AIRCRAFT             136691                  $72,175.50
07/09/99       AIRLAX, INC.               6972                    $59,812.50
04/26/99       WESCO AIRCRAFT             136691                  $58,707.90

--------                                                                        
1 Insert base Merger Consideration amount.                                      

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ANNEX B   

CHAPTER 13
DISSENTERS' RIGHTS
1.    SECTION                                                                   

1300.    Shareholder in short-form merger; Purchase at fair market value;       
"Dissenting shares"; "Dissenting shareholder".                
1301.    Notice to holder of dissenting shares of reorganization approval;      
Demand for purchase of shares; Contents of demand.            
1302.    Stamping or endorsing dissenting shares.                               
1303.    Dissenting shareholder entitled to agreed price with interest thereon; 
When price to be paid.                                        
1304.    Action by dissenters to determine whether shares are dissenting shares 
of fair market value of dissenting shares or both; Joinder of 
  shareholders; Consolidation of actions; Determination of issues;
Appointment of appraisers.                                    
1305.    Duty and report of appraisers; Court's confirmation of report;         
     Determination of fair market value by court; Judgment, and payment;
Appeal; Costs of action.                                      
1306.    Prevention of payment to holders of dissenting shares of fair market   
value; Effect.                                                
1307.    Disposition of dividends upon dissenting shares.                       
1308.    Rights and privileges of dissenting shares; Withdrawal of demand for   
payment.                                                      
1309.    When dissenting shares lose their status.                              
1310.    Suspension of proceedings for compensation or valuation pending        
litigation.                                                   
1311.    Shares to which chapter inapplicable.                                  
1312.    Attack on validity of reorganization or short-form merger; Rights of   
shareholders; Burden of proof.                                

SS. 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET VALUE;      
"DISSENTING SHARES"; "DISSENTING SHAREHOLDER". (a) If the approval of the       
outstanding shares (Section 152) of a corporation is required for a             
reorganization under subdivisions (a) and (b) or subdivision (e) OR (F) of      
Section 1201, each shareholder of the corporation entitled to vote on the       
transaction and each shareholder of a subsidiary corporation in a short-form    
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the    
shares owned by the shareholder which are dissenting shares as defined in       
subdivision (b). The fair market value shall be determined as of the day before 
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the        
proposed action, but adjusted for any stock split, reverse stock split, or share
divided which becomes effective thereafter.                                     

(b) As used in this chapter, "dissenting shares" means shares which come within 
all of the following descriptions:                                              

      (1)   Which were not immediately prior to the reorganization or short-form
    merger either (A) listed on any national securities exchange
           certified by the Commissioner of Corporations under subdivision (o)
       of Section 25100 or (B) listed on the list of OTC margin stocks
           issued by the Board of Governors of the Federal Reserve System, and
            the notice of meeting of shareholders to act upon the reorganization
       summarizes this section and Sections 1301, 1302, 1303 and 1304;
           provided, however, that this provision does not apply to any shares
      with respect to which there exists any restriction on transfer
            imposed by the corporation or by any law or regulation; and provided
          further, that this provision does not apply to any class of shares
       described in SUBPARAGRAPH (A) OR (B) if demands for payment are
            filed with respect to 5 percent or more of the outstanding shares of
that class.                                             

(2)   Which were outstanding on the date for the determination of   
            shareholders entitled to vote on the reorganization and (A) were not
    voted in favor of the reorganization or, (B) if described in
       SUBPARAGRAPH (A) OR (B) of paragraph (1) (without regard to the
           provisos in that paragraph), were voted against the reorganization,
          or which were held of record on the effective date of a short-form
    merger; provided, however, that SUBPARAGRAPH (A) rather than
        SUBPARAGRAPH (B) of this paragraph applies in any case where the
      approval required by Section 1201 is sought by written consent
rather than at a meeting.                               

    (3)   Which the dissenting shareholder has demanded that the corporation
       purchase at their fair market value, in accordance with Section
1301.                                                   

    (4)   Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.                           

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(c)   As used in this chapter, "dissenting shareholder" means the recordholder  
   of dissenting shares and includes a transferee of record. Amended Stats
   1982 ch 36 ss. 3, effective February 17, 1982; Stats 1990 ch 1018 ss. 2
  (AB 2259); Stats 1993 ch 543 ss. 13 (AB 2063). WITKIN SUMMARY (9TH ED)
      CORPORATIONS SS. 206-208; RUTTER CAL PRAC GUIDE, CORPORATIONS SS.SS. 8:302
ET SEQ.                                                             

SS. 1301. NOTICE TO HOLDER OF DISSENTING SHARES OR REORGANIZATION APPROVAL ;    
DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND. (a) If, in the case or a     
reorganization, any shareholders of a corporation have a right, under Section   
1300, subject to compliance with paragraphs (3) and (4) of subdivision (b)      
thereof, to require the corporation to purchase their shares for cash, such     
corporation shall mail to each such shareholder a notice of the approval of the 
reorganization by its outstanding shares (Section 152) within 10 days after the 
date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 
and this section, a statement of the price determined by the corporation to     
represent the fair market value of the dissenting shares and a brief description
of the procedure to be followed if the shareholder desires to exercise the      
shareholder's right under such sections. The statement of price constitutes an  
offer by the corporation to purchase a the price stated any dissenting shares as
defined in subdivision (b) of Section 1300, unless they lose their status as    
dissenting shares under Section 1309. (b) Any shareholder who has a right to    
require the corporation to purchase the shareholder's shares for cash under     
Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision  
(b) thereof, and who desires the corporation to purchase such shares shall make 
written demand upon the corporation for the purchase of such shares and payment 
to the shareholder in cash of their fair market value. The demand is not        
effective for any purpose unless it is received by the corporation or any       
transfer agent thereof (1) in the case of shares described in clause (i) or (ii)
of paragraph (1) of subdivision (b) of Section 1300 (without regard to the      
provisos in that paragraph), not later than the date of the shareholders'       
meeting to vote upon the reorganization, or (2) in any other case within 30 days
after the date on which the notice of the approval by the outstanding shares    
pursuant to subdivision (a) or the notice pursuant to the subdivision (i) of    
Section 1110 was mailed to the shareholder.                                     

(c) The demand shall state the number and class of the shares held of record by 
the shareholder which the shareholder demands that the corporation purchase and 
shall contain a statement of what such shareholder claims to be the fair market 
value of those shares as of the day before the announcement of the proposed     
reorganization or short-form merger. The statement of fair market value         
constitutes an offer by the shareholder to sell the shares at such price.       
Amended Stats 1980 ch 501 ss. 5, ch 1155 ss. 1. CAL JUR 3D (REV) CORPORATIONS   
SS.SS. 414, 430, 431, 434, 435.                                                 

SS. 1302. STAMPING OR ENDORSING DISSENTING SHARES. Within 30 days after thE date
on which notice of the approval by the outstanding shares or the notice pursuant
to subdivision (i) of Section 1110 was mailed to the shareholder, the           
shareholder shall submit to the corporation at its principal office or at the   
office of any transfer agent thereof, (a) if the shares are certificated        
securities, the shareholder's certificates representing any shares which the    
shareholder demands that the corporation purchase, to be stamped or endorsed    
with a statement that the shares are dissenting shares or to be exchanged for   
certificates of appropriate denomination so stamped or endorsed or (b) if the   
shares are uncertificated securities, written notice of the number of shares    
which the shareholder demands that the corporation purchase. Upon subsequent    
transfers of the dissenting shares on the books of the corporation, the new     
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original    
dissenting holder of the shares. Amended Stats 1986 ch 766 ss. 23. WITKIN       
SUMMARY (9TH ED) CORPORATIONS SS. 207; CAL JUR 3D (REV) CORPORATIONS SS. 435.   

SS. 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST THEREON;
WHEN PRICE TO BE PAID. (a) If the corporation and the shareholder agree that the
shares are dissenting shares and agree upon the price of the shares, the        
dissenting shareholder is entitled to the agreed price with interest thereon at 
the legal rate on judgments from the date of the agreement. Any agreements      
fixing the fair market value of any dissenting shares as between the corporation
and the holders thereof shall be filed with the secretary of the corporation.   

(b) Subject to the provisions of Section 1306, payment of the fair market value 
of dissenting shares shall be made within 30 days after the amount thereof has  
been agreed or within 30 days after any statutory or contractual conditions to  
the reorganization are satisfied, whichever is later, and in the case of        
certificated securities, subject to surrender of the certificates therefor,     
unless provided otherwise by agreement. Amended Stat 1980 ch 501 ss. 6; Stats   
1986 ch 766 ss. 24. WITKIN SUMMARY (9TH ED) CORPORATIONS SS. 208; CAL JUR 3D    
(REV) CORPORATIONS SS. 436                                                      

SS. 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES
OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER OF SHAREHOLDERS;     
CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES; APPOINTMENT OF APPRAISERS.   
(a) If the corporation denies that the shares are dissenting shares, or the     
corporation and the shareholder fail to agree upon the fair market value of the 
shares, then the shareholder demanding purchase of such shares as dissenting    
shares or any interested corporation, within six months after the date on which 
notice                                                                          

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of the approval by the outstanding shares (Section 152) or notice pursuant to   
subdivision (i) of Section 1110 was mailed to the shareholder, but not          
thereafter, may file a complaint in the superior court of the proper county     
praying the court to determine whether the shares are dissenting shares or the  
fair market value of the dissenting shares or both or may intervene in any      
action pending on such a complaint.                                             

(b) Two or more dissenting shareholders may join as plaintiffs or be joined as  
defendants in any such action and two or more such actions may be consolidated. 

(c) On the trial of the action, the court shall determine the issues. If the    
status of the shares as dissenting shares is in issue, the court shall first    
determine that issue. If the fair market value of the dissenting shares is in   
issue, the court shall determine, or shall appoint one or more impartial        
appraisers to determine, the fair market value of the shares. Added Stats 1975  
ch 682 ss. 7, effective January 1, 1977. WITKIN SUMMARY (9TH ED) CORPORATIONS   
SS. 208; CAL JUR 3D (REV) CORPORATIONS SS. 437                                  

SS. 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF REPORT;        
DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND PAYMENT; APPEAL; COST
OF ACTION. (a) If the court appoints an appraiser or appraisers, they shall     
proceed forthwith to determine the fair market value per share. Within the time 
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any 
party, the report shall be submitted to the court and considered on such        
evidence as the court considers relevant. If the court finds the report         
reasonable, the court may confirm it.                                           

(b) If a majority of the appraisers appointed fail to make and file a report    
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the    
court shall determine the fair market value of the dissenting shares.           

(c) Subject to the provisions of Section 1306, judgment shall be rendered       
against the corporation for payment of an amount equal to the fair market value 
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to    
require the corporation to purchase, with interest thereon at the legal rate    
from the date on which judgment was entered.                                    

(d) Any such judgment shall be payable forthwith with respect to uncertificated 
securities and, with respect to certificated securities, only upon the          
endorsement and delivery to the corporation of the certificates for the shares  
described in the judgment. Any party may appeal from the judgment.              

(e) The costs of the action, including reasonable compensation to the appraisers
to be fixed by the court, shall be assessed or apportioned as the court         
considers equitable, but, if the appraisal exceeds the price offered by the     
corporation, the corporation shall pay the costs (including in the discretion of
the court attorneys' fees, fees of expert witnesses and interest at the legal   
rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 
if the value awarded by the court for the shares is more than 125 percent of the
price offered by the corporation under subdivision (a) of Section 1301). Amended
Stats 1977 ch 235 ss. 16; Stats 1986 ch 766 ss. 25. WITKIN SUMMARY (9TH ED)     
CORPORATIONS SS. 191, 208; CAL JUR 3D (REV) CORPORATIONS SS.SS. 437, 438; RUTTER
CAL PRAC GUIDE, CORPORATIONS SS.SS. 8:341 ET SEQ.                               

SS. 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR MARKET  
VALUE; EFFECT. To the extent that the provisions of Chapter 5 prevent the       
payment to any holders of dissenting shares of their fair market value, they    
shall become creditors of the corporation for the amount thereof together with  
interest at the legal rate on judgments until the date of payment, but          
subordinate to all other creditors in any liquidation proceeding, such debt to  
be payable when permissible under the provisions of Chapter 5. Added Stats 1975 
ch 682 ss. 7, effective January 1, 1977. WITKIN SUMMARY (9TH ED) CORPORATIONS   
SS. 206; CAL JUR 3D (REV) CORPORATIONS SS. 432.                                 

SS. 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES. Cash dividendS       
declared and paid by the corporation upon the dissenting shares after the date  
of approval of the reorganization by the outstanding shares (Section 152) and   
prior to payment for the shares by the corporation shall be credited against the
total amount to be paid by the corporation therefor. Added Stats 1975 ch 682 ss.
7, effective January 1, 1977.                                                   

SS. 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF DEMAND FOR  
PAYMENT. Except as expressly limited in this chapter, holders of dissenting     
shares continue to have all the rights and privileges incident to their shares, 
until the fair market value of their shares is agreed upon or determined. A     
dissenting shareholder may not withdraw a demand for payment unless the         
corporation consents thereto. Added Stats 1975 ch 682 ss. 7, effective January  
1, 1977.                                                                        

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SS. 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS. Dissenting shares losE their
status as dissenting shares and the holders thereof cease to be dissenting      
shareholders and cease to be entitled to require the corporation to purchase    
their shares upon the happening of any of the following:                        

      (a)   The corporation abandons the reorganization. Upon abandonment of the
  reorganization, the corporation shall pay on demand to any
          dissenting shareholder who has initiated proceedings in good faith
  under this chapter all necessary expenses incurred in such
proceedings and reasonable attorneys' fees.             

      (b)   The shares are transferred prior to their submission for endorsement
         in accordance with Section 1302 or are surrendered for conversion
     into shares of another class in accordance with the articles.

      (c)   The dissenting shareholder and the corporation do not agree upon the
            status of the shares as dissenting shares or upon the purchase price
       of the shares, and neither files a complaint or intervenes in a
           pending action as provided in Section 1304, within six months after
          the date on which notice of the approval by the outstanding shares
           or notice pursuant to subdivision (i) of Section 1110 was mailed to
the shareholder.                                        

  (d)   The dissenting shareholder, with the consent of the corporation,
         withdraws the shareholder's demand for purchase of the dissenting
         shares. Added Stats 1975 ch 682 ss. 7, effective January 1, 1977.
RUTTER CAL PRAC GUIDE, CORPORATIONS SS.SS. 8:353 ET SEQ.

SS. 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION PENDING       
LITIGATION. If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings  
under Sections 1304 and 1305 shall be suspended until final determination of    
such litigation. Added Stats 1975 ch 682 ss. 7, effectivE January 1, 1977.      

SS. 1311. SHARES TO WHICH CHAPTER INAPPLICABLE. This chapter, except SectioN    
1312, does not apply to classes of shares whose terms and provisions            
specifically set forth the amount to be paid in respect to such shares in the   
event of a reorganization or merger. Amended Stats 1988 ch 919 ss. 8. CAL JUR 3D
(REV) CORPORATIONS SS. 431; CAL JUR 3D SUBROGATION SS.SS. 9, 18.                

SS. 1312. ATTACK ON VALIDITY OF REORGANIZATION OF SHORT-FORM MERGER; RIGHT OF   
SHAREHOLDERS; BURDEN OF PROOF. (a) No shareholder of a corporation was has a    
right under this chapter to demand payment of cash for the shares held by the   
shareholder shall have any right at law or in equity to attack the validity of  
the reorganization or short-form merger set aside or rescinded, except in an    
action to test whether the number of shares required to authorized or approve   
the reorganization have been legally voted in favor thereof; but any holder of  
shares of a class whose terms and provisions specifically set forth the amount  
to be paid in respect to them in the event of a reorganization or short-form    
merger is entitled to payment in accordance with those terms and provisions or, 
if the principal terms of the reorganization are approved pursuant to           
subdivision (b) of Section 1202, is entitled to payment in accordance with the  
terms and provisions of the approved reorganization.                            

   (b)   If one of the parties to a reorganization or short-form merger is
           directly or indirectly controlled by, or under common control with,
 another party to the reorganization or short-form merger,
            subdivision (a) shall not apply to any shareholder of such party was
      has not demanded payment of cash for such shareholder's shares
       pursuant to this chapter; but if the shareholder institutes any
         action to attack the validity of the reorganization or short-form
           merger or to have the reorganization or short-form merger set aside
            or rescinded, the shareholder shall not thereafter have any right to
            demand payment of cash for the shareholder's shares pursuant to this
      chapter. The court in any action attacking the validity of the
            reorganization or short-form merger or to have the reorganization or
      short-form merger set aside or rescinded shall not restrain or
       enjoin the consummation of the transaction except upon 10 days'
       prior notice to the corporation and upon a determination by the
      court that clearly no other remedy will adequately protect the
          complaining shareholder or the class of shareholders of which such
shareholder is a member.                                

   (c)   If one of the parties to a reorganization or short-form merger is
           directly or indirectly controlled by, or under common control with,
        another party to the reorganization or short-form merger, in any
         action to attack the validity of the reorganization or short-form
           merger or to have the reorganization or short-form merger set aside
            or rescinded, (1) a party to the reorganization or short-form merger
        which controls another party to the reorganization or short-form
            merger shall have the burden of proving that the transaction is just
          and reasonable as to the shareholders of the controlled party, and
         (2) a person who controls two or more parties to a reorganization
         shall have the burden of proving that the transaction is just and
     reasonable as to the shareholders of any party so controlled.
Amended Stats 1988 ch 919 see 9.                        

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WITKIN SUMMARY (9TH ED) CORPORATIONS SS. 206, 210; CAL JUR 3D (REV) CORPORATIONS
SS.SS. 431, 432; RUTTER CAL PRAC GUIDE, CORPORATIONS SS.SS. 8:361 ET SEQ.       

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ANNEX C   
OPINION OF TSC

August 27, 1999                                                                 

The Board of Directors                                                          
NETWORKS ELECTRONIC CORP.                                                       
9750 De Soto Avenue                                                             
Chatsworth, CA  91311                                                           

Gentlemen:                                                                      

    You have requested our opinion as to the fairness from a financial point
of view to the shareholders of Networks Electronic Corp. (the "Company") of the 
consideration to be received by such shareholders pursuant to the terms of the  
Agreement and Plan of Merger, dated as of July 16, 1999 (the "Agreement"),      
between the Company and NE Merger Corp. ("Acquisition Sub"), an affiliate of GWB
(USA), Inc. ("GWB"), pursuant to which Acquisition Sub will be merged (the      
"Merger") with and into the Company.                                            

 Pursuant to the Agreement, each share of common stock of the Company,
other than certain shares specified in the Agreement, will be converted into the
right to receive a cash payment per share equal to $7.50.                       

In arriving at our opinion, we have reviewed the Agreement and the  
exhibits thereto. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company, including information     
provided during discussions with the Company's management. Included in the      
information provided during discussions with the Company's management were      
certain financial projections of the Company for the period beginning July 1,   
1998 and ending June 30, 2004 prepared by the management of the Company. In     
addition, we have compared certain financial and securities data of the Company 
with various other companies whose securities are traded in public markets,     
reviewed the historical stock prices and trading volumes of the common stock of 
the Company, reviewed prices and premiums paid in certain other business        
combinations and conducted such other financial studies, analyses and           
investigations as we deemed appropriate for purposes of this opinion.           

      In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its           
representatives, or that was otherwise reviewed by us. With respect to the      
financial projections supplied to us, we have assumed that management's         
projections have been reasonably prepared on the basis reflecting the best      
currently available estimates and judgments of the management of the Company as 
to the future operating and financial performance of the Company. We have not   
assumed any responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have relied as to certain legal matters on advice of counsel 
to the Company.                                                                 

     Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of, 
the date of this letter. It should be understood that, although subsequent      
developments may affect this opinion, we do no have any obligation to update,   
revise or reaffirm this opinion. Our opinion does not address the relative      
merits of the Merger and the other business strategies being considered by the  
Company's Board of Directors, nor does it address the Board's decision to       
proceed with the Merger. Our opinion does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed transaction. 

 The Seidler Companies Incorporated ("TSC"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and       
securities in connection with mergers, acquisition, underwritings, sales and    
distributions of listed and unlisted securities, private placements and         
valuations for corporate and other purposes.                                    

   Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the consideration to be received by the Public          
Shareholders of the Company pursuant to the Agreement is fair to such           
shareholders from a financial point of view.                                    

Very truly yours,                                                               

THE SEIDLER COMPANIES INCORPORATED                                              

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRE 14C’ Filing		Date		First		Last			Other Filings
		2/1/14		80		81
		6/30/04		89
		5/1/04		81
		11/21/02		41
		2/1/00		40
		12/31/99		7		73
		10/1/99		80		81
		9/30/99		7		73
For Period End:		9/10/99
Filed on:		9/2/99
		8/30/99		5		29
		8/27/99		12		89
		8/25/99		2		28
		8/20/99		14		15
		8/18/99		24		73
		8/13/99		30
		8/11/99		2		13
		7/31/99		29
		7/30/99		14
		7/23/99		14
		7/16/99		2		89
		7/2/99		12
		6/30/99		7		39
		6/23/99		12
		6/2/99		12
		5/28/99		12
		5/26/99		12
		4/30/99		46
		3/31/99		28		63			10-Q
		3/15/99		45
		3/1/99		40
		2/4/99		13
		2/2/99		80		81
		1/25/99		21
		12/31/98		30					10-Q
		11/9/98		11		63
		10/30/98		41
		10/9/98		11
		10/1/98		11
		8/28/98		32
		7/27/98		30
		7/1/98		89
		6/30/98		27		63			10-K405,  NT 10-K
		5/1/98		46		81
		4/30/98		46
		3/31/98		41		50			10-Q
		12/31/97		30		37			10-Q
		12/15/97		38		39
		11/21/97		41
		6/30/97		27		49			10-K,  NT 10-K
		12/13/96		41
		9/18/96		80		81
		8/26/96		41		81
		8/20/96		82
		6/30/96		35		49			10-K,  NT 10-K
		1/1/96		14
		6/30/95		42		49			10-K/A
		3/31/95		42
		1/1/95		14
		11/9/94		41
		1/1/94		14
		6/30/93		37		42
		5/7/93		30
		8/31/92		37		44
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