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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Form 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1998

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)

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COMMUNICATIONS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)

North Carolina 56-182-82-70
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1396 Charlotte Highway, Fairview, NC 28730
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (828)628-1711

Securities registered pursuant to Section 12 (b) of the Act:

NONE

Securities registered pursuant to Section 12 (g) of the Act:

NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No

All of the voting stock of the registrant is held by an affiliate of the
registrant.

On March 31, 1999, the registrant had 1,000 shares of common stock
outstanding.

Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by reference
into the part of the Form 10-K indicated:

Part of Form
10-K Into
which
Document Incorporated
-------- ------------

Registration Statement on Form S-4........................... Item 14
Report on Form 8-K........................................... Item 14

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Statements contained in this Form 10-K that are not historical facts are
forward looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. Those statements involve
risks and uncertainties. The actual results of Communications Instruments, Inc.
and Subsidiaries (the "Company" or "CII") could differ significantly from past
results, and from those expressed or implied in forward looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as those
discussed elsewhere in this Form 10-K.

Item 1--Business

General

CII is a designer, manufacturer, and marketer of a broad line of high
performance relays, general purpose relays, solenoids and radio frequency
interference "RFI" filters. Relays are switches used to control electric
current in a circuit; solenoids convert electric signals into mechanical
motion; and RFI Filters are devices that control electromagnetic energy. They
are critical components for a wide range of commercial, industrial and
electronic end products. The high performance group focuses on producing highly
engineered relays and solenoids for customized niche applications that demand
reliable performance, small size, lightweight, low energy consumption, and
durability. The specialized industrial group focuses on general purpose relays
and RFI filters used in a broad range of niche commercial end products sold
directly to leading Original Equipment Manufacturers ("OEMs") and through
established distribution channels. The Company's products are used in a large
number of diverse end-use applications including commercial/industrial
equipment, commercial aircraft, defense electronics, communications equipment,
automatic test equipment, and niche automotive applications.

CII was initially formed in 1980 by Ramzi Dabbagh, the Company's Chairman and
Chief Executive Officer, and a group of private investors. The Company made its
initial acquisition of several relay and switch products from the CP Clare
division of General Instruments in 1980, and, since that initial acquisition,
Mr. Dabbagh and his management team have pursued a growth strategy of acquiring
manufacturers of relay products and related components, often consolidating the
acquired companies and/or their product lines into the Company's manufacturing
facilities and eliminating significant overhead. In May 1993, the Company was
acquired by the predecessor of CII Technologies Inc., a Delaware corporation
and the holder of all of the outstanding capital stock of the Company
("Parent") in a leveraged buyout transaction sponsored by a group of investors
and members of management.

In September 1997, the Company consummated an offering of $95.0 million
aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due
2004, (the "Offering"). Concurrent with the Offering, (i) Code, Hennessy &
Simmons III, LP, certain members of management, and certain other investors
(collectively the "New Investors") acquired approximately 87% of the Parent,
and certain of Parent's existing stockholders (the "Existing Stockholders"),
including certain members of management, retained approximately 13% of Parent's
capital stock (collectively the "Recapitalization"); (ii) the Company borrowed
approximately $2.7 million pursuant to a new senior credit facility providing
for loans of up to $25.0 million (the "Old Senior Credit Facility"); (iii) the
Company repaid approximately $29.3 million of outstanding obligations under its
prior senior credit facility (the "Old Credit Facility") including a success
fee of approximately $1.5 million in connection therewith and certain other
liabilities (the "Refinancing"); (iv) the Company purchased for $4.5 million
the remaining 20% of the outstanding capital stock of Kilovac Corporation
("Kilovac") that the Company did not then own (the "Kilovac Purchase"); and (v)
the Company paid a dividend of approximately $59.4 million to Parent, which was
used to consummate the Recapitalization and repay certain indebtedness of the
Parent. Pursuant to the Recapitalization, the New Investors, including Code,
Hennessy & Simmons, and certain Existing Stockholders, including members of
senior management, invested approximately $21.7 million, and the retention of
capital stock of Parent, which, for the purposes of the Recapitalization was
valued at approximately $3.3 million (collectively, the "Transactions").

On March 9, 1998, pursuant to a Registration Statement on Form S-4 under the
Securities Act of 1933, the Company completed an offer to exchange all of its
outstanding Notes for 10% Senior Subordinated Notes, due 2004, Series B.

The Company has the following subsidiaries, all of which are wholly owned by
the Company: Kilovac, a California corporation; Corcom Inc., an Illinois
corporation ("Corcom"); and Electro-Mech S. A., a Mexican corporation. The
Company also holds 40% of the shares of CII Guardian International Ltd., an
Indian corporation. Kilovac has the following subsidiaries, both of which are
wholly owned by Kilovac: Kilovac International FSC Ltd., a Jamaican
corporation; and Kilovac International, a California corporation. Corcom has
the following subsidiaries, all of which are wholly owned by Corcom: Corcom
S.A., a Mexican corporation, Corcom West Indies Ltd. and Corcom International
Ltd., both Barbados corporations, Corcom GmbH, a German corporation and Corcom
Far East Ltd., a Hong Kong corporation.

The Company was incorporated in North Carolina in 1980. The Company's
executive offices are located at 1396 Charlotte Highway, Fairview, North
Carolina, 28730 and its telephone number is (828) 628-1711.

Industry Segments

The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The adoption
of SFAS No. 131 results in revised and additional disclosures but had no effect
on the financial position or results of operations of the Company.

The Company has five business units, which have separate management teams and
infrastructures that offer electronic products. These five business units have
been aggregated into two reportable segments that are managed separately
because each operating segment represents a strategic business platform that
offers different products and serves different markets.

The Company's two reportable operating segments are: (i) the High Performance
Group ("HPG") and (ii) the Specialized Industrial Group ("SIG"). HPG includes
the Communications Instruments Division, Kilovac and Hartman. Products
manufactured by HPG include high performance signal level relays, power relays
and contactors, high voltage relays, solenoids and electronic products. HPG
accounted for 74% of 1998 consolidated net sales. SIG includes Corcom and the
Midtex Division. Products manufactured by SIG include RFI filters and general
purpose relays. SIG accounted for 26% of 1998 consolidated net sales.

In evaluating financial performance, management focuses on operating income
as a segment's measure of profit or loss. Operating income is before interest
expense, interest income, cancellation fees, other income and expense, income
taxes and extraordinary items.

Products

Relays

A relay is an electrically operated switch, which controls electric current
or signal transmissions. Electromechanical relays utilize discrete switching
elements which are opened or closed by electromagnetic energy and thus control
circuits with physical certainty. These relays are designed to meet exacting
circuit and ambient conditions and can control numerous circuits
simultaneously. Certain low wattage relays are used to switch signals in test
equipment, computers and telecommunications systems. Higher power relays, which
switch or control high voltage or high currents, are used in the electrical
distribution systems for aircraft, heart defibrillators, electric vehicles and
spacecraft power grids. Due to various application requirements, relays come in
thousands of shapes and sizes and with differing levels of performance
reliability. Because of the fundamental switching functions performed by such
products, they are critical components in a wide range of commercial and
industrial electrical and electronic applications.

High performance relays--High performance relays are characterized by their
reliable performance and durability in adverse operating environments. High
performance relays provide customers with the advantages of smaller size,
lighter weight, longer life, lower energy consumption, and greater reliability
than general-purpose relays. Many of the Company's high performance relays are
hermetically sealed in metal or ceramic enclosures to protect the internal
operating mechanisms from harsh environments and to improve performance and
reliability. The Company manufactures more than 400 types of high performance
relays in its North Carolina, Ohio, Virginia and California facilities. High
performance relays generally command higher selling prices than general-purpose
relays. The Company's high performance relays are sold to manufacturers of
commercial aircraft, communication systems, medical equipment, avionics
systems, automatic test equipment, aerospace and defense products. High
performance relays accounted for approximately 74%, 82% and 79% of the
Company's net sales in 1998, 1997 and 1996, respectively.

General purpose relays--The Company's general-purpose relays generally are
targeted towards niche applications with which the Company has sole source
relationships or limited competition. The Company's general-purpose relays are
used in commercial and industrial applications where performance and
reliability requirements are somewhat less demanding than those for high
performance relays. These relays are generally manufactured for the Company in
Mexico and in Asia where longer production runs create operating efficiency
with production lines that are either semi-automated or utilize lower-cost
assembly labor. The Company's general purpose relay offering includes some of
the more sophisticated product types in the general-purpose category. Specific
applications for the Company's general-purpose relays include environmental
management systems and telecommunication switches. General-purpose relays
accounted for approximately 12%, 13% and 15% of the Company's net sales in
1998, 1997 and 1996 respectively.

Solenoids--Solenoids are similar to relays in design, but rather than control
currents or transmissions, they are applied when a defined mechanical motion is
required in the user's equipment or system. Like relays, solenoids can be made
in many sizes and shapes to meet specific customer application requirements.
The Company supplies products to the high performance and the general-purpose
solenoid markets. High performance solenoids are custom designed and are used
in the aerospace industry, and in applications such as aerospace de-icing
equipment, commercial aircraft fuel shut-off valves, locking mechanisms for
landing gear, and thrust reversers for aircraft engines. General-purpose
solenoid types are used in vending machines, automation equipment, office
equipment, and cameras.

Filters

RFI Filters--RFI Filters are electronic components used to protect electronic
equipment from radio frequency interference conducted through the AC power
cord. RFI Filters also are used to control the emission of the RFI generated by
electronic equipment so these emissions do not interfere with other electronic
devices. The Company also manufactures a complete line of Signal SentryTM
products, which are filtered modular RJ

jacks designed to solve RFI problems on signal lines. RFI filters are
manufactured primarily in Mexico. The Company maintains a catalog of standard
commercial filters that contains approximately 500 designs, offering a variety
of sizes, electrical configurations, current ratings and environmental
capabilities. These filters consist of electronic circuits utilizing passive
electrical components: inductance coils, capacitors and resistors. These
circuits are enclosed in a metal or plastic case having terminals, lead wires
or integral connectors, for attachment to associated equipment. The Company
also manufactures and sells RFI filters for the military and facility markets.
Both product lines are similar to commercial filters in their basic function
and design. However, military filters are subject to extremely high performance
requirements as described by military specification. Facility filters are
larger versions of the Company's line of commercial filters and are used to
control RFI conducted through the main power line feeding secure facilities.
All the Company's filters are designed and built to operate continuously for at
least five years when connected across a live A/C power line. The filters must
perform without interruption because, in most cases, they are energized even
when the equipment in which they are installed is switched off. RFI Filters
accounted for approximately 14% of the Company's net sales in 1998.

Sales and Distribution

The Company sells its products worldwide through a network of independent
sales representatives and distributors in countries throughout North America,
Europe and Asia. This sales network is supported by the Company's internal
staff of direct product marketing managers, customer service associates,
application engineers and marketing communication specialists.

Product Development

The Company intends to develop new products with its customers to meet the
application requirements of its customers and to expand the Company's technical
capabilities. The Company has in the past formed strategic partnerships with
certain customers to develop new products, improve existing products, and
reduce total product costs. The Company's customers funded approximately $1.0
million of the Company's product development expenses in both 1998 and 1997.

The Company currently is developing several new power line electromagnetic
interference filters for use in industrial and medical equipment as well as new
filtered connectors to be used in telecom and network equipment. Some of these
products are proprietary for certain of the Company's larger OEM customers and
others will be standard catalog products for sale to the industry as a whole.
These products are currently in the prototype stage and the Company expects to
begin manufacturing and selling these products in 1999.

The Company currently is developing several new high performance relays to be
used in the commercial airframe, high frequency communications, space
satellite, and automatic test equipment market place. These products are
currently in the prototype stage and the Company expects to begin manufacturing
and selling certain of these products in 1999 and beyond.

Proprietary Rights

The Company currently holds nine US patents, two registered US trademarks and
four foreign registered trademarks, and has three US patent applications, one
international patent application and thirteen US trademark applications in
process. The Company intends to continue to seek patents on its products and
trademark applications, as appropriate. The Company does not believe that the
success of its business is materially dependent on the existence, validity or
duration of any patent or trademark.

The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers, and
consultants. Although the Company intends to protect its intellectual property
rights vigorously, there can be no assurance that these and other security
arrangements will be successful. The Company has from time to time received,
and may receive in the future, communications from third parties asserting
patents on certain of the Company's products and technologies. Although the
Company

has not been a party to any material intellectual property litigation, if a
third party were to make a valid claim and the Company could not obtain a
license on commercially reasonable terms, the Company's operating results could
be materially and adversely affected. Litigation, which could result in
substantial cost to and diversions of resources of the Company, may be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or the occurrence of
litigation relating to patent infringement or other intellectual property
matters could have a material adverse affect on the Company's business and
operating results.

Customers

The Company has established a diversified base of customers representing a
wide range of industries and applications. Sales to customers outside of the
United States totaled approximately 18.3% of net sales during 1998 (comprised
primarily of approximately 11.7% to Europe, 4.0% to North America, 1.8% to Asia
and 0.8% to other locations). No single customer directly accounted for 6% or
8% or more of the Company's total net sales for 1998 or 1997, respectively.

Backlog

The Company's backlog at December 31, 1998 was $58.4 million, with $49.8
million shippable within one year. The Company's backlog at December 31, 1997
was $61.7 million, with $42.9 million shippable within one year.

Competition

The Company competes primarily on the basis of quality, reliability, price,
services, and delivery. Its primary competitors are Teledyne Relays, Jennings,
Leach, and Eaton in the high performance relay market, the Electromechanical
Products division of Siemens in the general purpose relay market, G. W. Lisk in
the solenoid market, and Amp Inc., Shaffner A.G., and Delta in the RFI filter
market. Several of the Company's competitors have greater financial, marketing,
manufacturing, and distribution resources than the Company and some have more
automated manufacturing facilities. There can be no assurance that the Company
will be able to compete successfully in the future against its competitors or
that the Company will not experience increased price competition, which could
adversely affect the Company's results of operations. The Company also faces
competition for acquisition opportunities from its competitors.

Environmental Matters

The Company is subject to various foreign, federal, state, and local
environmental laws and regulations. The Company believes its operations are in
material compliance with such laws and regulations. However, there can be no
assurance that violations will not occur or be identified, or that
environmental laws and regulations will not change in the future, in a manner
that could materially and adversely affect the Company.

Under certain circumstances, such environmental laws and regulations may also
impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by an entity or its predecessors,
or at locations at which wastes or other contamination attributable to an
entity or its predecessors have come to be located. The Company can give no
assurance that such liability at facilities the Company currently owns or
operates, or at other locations, will not arise or be asserted against the
Company or entities for which it may be responsible. Such other locations could
include, for example, facilities formerly owned or operated by the Company (or
an entity or business that the Company has acquired), or locations to which
wastes generated by the Company (or an entity or business that the Company has
acquired) have been sent. Under certain circumstances such liability at several
locations (discussed below), or at locations yet to be identified, could
materially and adversely affect the Company.

The Company has been identified as a potentially responsible party ("PRP")
for investigation and cleanup costs at two sites under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA provides for joint and several liabilities for
the costs of remediating a site, except under certain circumstances. However,
the Company believes it will be allocated responsibility for a relatively small
percentage of the cleanup costs at each of these sites, and in both instances
other PRP's also will be required to contribute to such costs. Although the
Company's total liability for cleanup costs at these sites cannot be predicted
with certainty, the Company does not currently believe that its share of those
costs will have a material adverse effect on the Company's financial position
or results of operations.

Soil and groundwater contamination has been identified at and about the
Company's Fairview, North Carolina facility resulting in that site's inclusion
in the North Carolina Department of Environmental, Health & Natural Resource's
Inactive Hazardous Waste Sites Priority List. The Company believes that the
Fairview contamination relates to the past activities of a prior owner of the
Fairview property (the "Prior Owner"). On May 11, 1995, the Company entered
into a settlement agreement (the "Settlement Agreement) with the Prior owner,
pursuant to which the Prior Owner agreed to provide certain funds for the
investigation and remediation of the Fairview contamination in exchange for a
release of certain claims by the Company. In accordance with the Settlement
Agreement, the Prior Owner has placed $1.75 million in escrow to fund further
investigation, the remediation of contaminated soils and the installation and
start-up of a groundwater remediation system at the Fairview facility. The
Company is responsible for investigation, soil remediation and start-up costs
in excess of the escrowed amount, if any. The Settlement Agreement further
provides that after the groundwater remediation system has been operating for
three years, the Company will provide to the Prior Owner an estimate of the
then present value of the cost to continue operating and maintaining the system
for an additional 27 years. After receiving the estimate, the Prior Owner is to
deposit with the escrow agent an additional sum equal to 90% of the estimate,
up to a maximum of $1.25 million. Although the Company believes that the Prior
Owner has the current ability to satisfy its obligations pursuant to the
Settlement Agreement, the Company does not believe that the total investigation
and remediation costs will exceed the amounts that the Prior Owner is required
to provide pursuant to the Settlement Agreement. The Company has a recorded
liability at December 31, 1998 for the total remediation costs of approximately
$2.4 million, representing the discounted amount of future remediation costs
over the estimated remaining period of remediation. Applicable environmental
laws provide for joint and several liabilities, except under certain
circumstances. Accordingly, the Company, as the current owner of a contaminated
property, could be held responsible for the entire cost of investigating and
remediating the site. If the site remedial system fails to perform as
anticipated, or if the funds to be provided by the Prior Owner pursuant to the
Settlement Agreement together with the Company's reserve are insufficient to
remediate the property, or if the Prior Owner fails to make the scheduled
future contribution to the environmental escrow, the Company could be required
to incur costs that could materially and adversely affect the Company.

In connection with the Company's purchase of certain assets and certain
liabilities of Hartman Electrical Manufacturing ("Hartman"), a division of
Figgie International, Inc. ("Figgie") (the "Hartman Acquisition"), the Company
entered into an agreement pursuant to which it leases from a wholly-owned
subsidiary of Figgie a manufacturing facility in Mansfield, Ohio, (the
"Mansfield Property") at which Hartman has conducted operations (the "Lease").
The Mansfield Property may contain contamination at levels that will require
further investigation and may require soil and/or groundwater remediation. As a
lessee of the Mansfield Property, the Company may become subject to liability
for remediation of such contamination at and/or from such property, which
liability may be joint and several except under certain circumstances. The
Lease also includes an indemnity from Lessor to the Company, guaranteed by
Figgie, for certain environmental liabilities in connection with the Mansfield
Property, subject to a dollar limitation of $12.0 million (the "Indemnification
Cap). In addition, in connection with the Hartman Acquisition, Figgie has
placed $515,000 in escrow for environmental remediation costs at the Mansfield
Property to be credited towards the Indemnification Cap as provided in the
Lease. The Company believes that, while actual remediation costs may exceed the
cash amount escrowed, such costs will not exceed the Indemnification Cap. If
costs exceed the escrow and the Company is unable to obtain, or is delayed in
obtaining, indemnification under the Lease for any reason, the Company

could be materially and adversely affected. See Note 10 to Consolidated
Financial Statements of Communications Instruments, Inc. and Subsidiaries. The
Company does not maintain environmental impairment liability insurance.

Employees

As of December 31, 1998, the Company had approximately 1,890 employees. Of
these employees, approximately 390 are salaried employees and approximately
1,500 are hourly workers. Of the approximately 390 salaried employees,
approximately 135 perform manufacturing functions, over 75 are engineers
engaged in research and development activities, including the design and
development of new customer applications, 35 perform quality assurance tasks
and 42 perform customer service. Approximately 135 of the Company's employees
in the Mansfield, Ohio facility are represented by the International Union of
Electronics, Electrical, Salaried, Machine and Furniture Workers AFL, CIO and
are covered by a collective bargaining agreement, which is scheduled to expire
in September 1999. Approximately 125 of the Company's employees in the
Waynesboro, Virginia facility are represented by the United Electrical, Radio,
and Machine Workers of America, which is scheduled to expire in December 2000.
A closing effects agreement has been negotiated and accepted by the Union as of
March 19, 1999 due to the Waynesboro, VA relocation finalized in November 1998
and announced in January 1999. The Company believes that its relations with its
employees are satisfactory.

Recent Developments

In January 1999, the Company entered into a joint venture operation, Shanghai
CII Electronics Co. LTD with Shanghai CI Electronic Appliance Co. LTD. Each
party holds 50% of the shares of the new company. The new joint venture is a
manufacturer and marketer of relay components.

The Company has announced plans to relocate the manufacturing in its
Waynesboro, Virginia facility to its North Carolina facilities. These plans were
finalized in late 1998. The relocation will be completed by the end of 1999. The
cost of the relocation is estimated at approximately $1.0 million including the
estimated costs of employee separation and preparing the North Carolina
facilities for the relocation. Management expects that a significant portion of
these costs will be expensed as incurred during 1999.

On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation ("Products"), a marketer and
manufacturer of relays, transformers and contactors for the HVAC industry.
Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4
million. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make
additional payments to the former shareholders of Products not to exceed $4.0
million in the aggregate. The payment of the purchase price and related fees
was financed by the issuance of $55.0 million of Tranche Term B loans in
accordance with an amendment to the Senior Credit Facility, the contribution of
$5.0 million in additional paid in capital by the Parent, and a draw on the
revolving loan portion of the Company's Senior Credit Facility. Products has
manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and
Guttenburg, Iowa and has approximately 1,000 employees. The acquisition will be
accounted for under the purchase method of accounting. Products will be a part
of the Company's SIG operating segment.

Item 2--Properties

Facilities

The Company, headquartered in Fairview, North Carolina, operates the
following manufacturing and distribution facilities. The Company believes that
such facilities are maintained in good condition and are adequate for its
present and intended needs:

Square Owned/ Operating
Location Footage Leased Segment Products Manufactured
- -------- ------- ------- --------- ---------------------------------------------

Fairview, North
Carolina............... 70,000 Owned HPG High performance relays and solenoids
Mansfield, Ohio......... 53,000 Leased HPG High performance power relays
Juarez, Mexico.......... 47,000 Owned SIG RFI filters
Juarez, Mexico.......... 45,000 Leased SIG General purpose relays
Carpinteria,
California............. 44,000 Leased HPG High voltage and power switching relays
Waynesboro, Virginia ... 40,000 Leased HPG High performance relays
Libertyville, IL........ 35,000 Leased SIG RFI filters
Asheville, North
Carolina............... 26,000 Owned HPG High performance relays and electronic relays
El Paso, Texas.......... 16,000 Leased SIG Distribution Center
Juarez, Mexico.......... 13,000 Leased SIG RFI Filters
Martinsreid, Germany.... 7,000 Leased SIG Sales and Distribution Center
El Paso, Texas.......... 6,000 Leased SIG Distribution center

The Company's facilities contain an aggregate of approximately 402,000
square feet of floor space. The Company currently has additional manufacturing
space available in certain of its facilities.

The Company believes this available manufacturing capacity will allow for
the integration of future product line acquisitions and/or the development of
new product lines. The Company's two facilities in North Carolina, its facility
in Ohio, and its facility in Virginia, each of which manufactures products for
the military, maintain Military Standard 790 and Military Standard I 45208
certifications. The Company's facility in Ohio, its three facilities in Mexico,
and its facility in Illinois are all IS9001 certified and its facility in
California is IS9001 and QS9000 certified.

The leases for the Company's manufacturing facility in Illinois expires in
1999, its two leased facilities in Juarez, Mexico expire in 2001 and 2000,
respectively, its facility in Martinsreid, Germany expires in 2000, its
facility in Ohio expires in 2001, subject to an option to purchase, and its
facility in California expires in 2002. The lease for the Company's Waynesboro,
VA manufacturing facility expires in 1999. The Company expects no penalties for
moving out of the Waynesboro, VA facility.

Item 3--Legal Proceedings

The Company is involved in legal proceedings from time to time in the
ordinary course of its business. As of the date of this Form 10-K, the Company
is not a party to any lawsuit or proceeding which, individually or in the
aggregate, in the opinion of management, is reasonably likely to have a
material adverse effect on the financial condition of the Company.

Item 4--Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5--Market for Registrant's Common Equity and Related Stockholder Matters

Not Applicable

Item 6--Selected Consolidated Financial Data

The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following selected consolidated
financial data as of the dates and for the periods indicated were derived from
the audited consolidated financial statements of the Company contained
elsewhere in this Form 10-K, except data as of, and for, (i) the year ended
December 31, 1994, (ii) the year ended December 31, 1995 and (iii) data as of
December 31, 1996, which was derived from audited consolidated financial
statements of the Company (including its predecessors) not included in this
Form 10-K. The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and the related notes thereto, appearing elsewhere in this Form 10-K.

SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)

Fiscal Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- ------- --------

Statement of Operations Data:
Net sales....................... $31,523 $ 39,918 $66,336 $89,436 $120,030
Cost of sales................... 24,330 28,687 46,779 59,601 81,285
------- -------- ------- ------- --------
Gross profit................... 7,193 11,231 19,557 29,835 38,745
Selling expenses................ 2,382 3,229 4,903 6,077 8,635
General and administrative
expenses....................... 2,248 3,326 5,464 7,432 8,935
Research and development........ 103 301 1,011 1,090 1,328
Amortization of goodwill and
other intangible assets........ 177 251 543 648 1,769
Special compensation charge
(1)............................ -- 1,300 -- -- --
Environmental expense (2)....... -- 951 -- -- --
Special acquisition expenses
(3)............................ -- 2,064 -- 260 --
------- -------- ------- ------- --------
Income (loss) from operations.. 2,283 (191) 7,636 14,328 18,078
Interest expense and other
financing costs, net (4)....... (1,279) (2,309) (5,055) (6,573) (12,552)
Cancellation fees (5)........... -- -- -- (800) --
Other income (expense), net .... -- 2 201 (17) (171)
------- -------- ------- ------- --------
Income (loss) before income
taxes,
minority interest in
subsidiary and extraordinary
item.......................... 1,004 (2,498) 2,782 6,938 5,355
Provision for (benefit from)
income taxes................... 386 (812) 1,120 2,836 2,371
------- -------- ------- ------- --------
Income (loss) before minority
interest in subsidiary and
extraordinary item............. 618 (1,686) 1,662 4,102 2,984
Income applicable to minority
interest in subsidiary......... -- (35) (33) (55) --
------- -------- ------- ------- --------
Income (loss) before
extraordinary item............. 618 (1,721) 1,629 4,047 2,984
Extraordinary item (less income
tax benefit: 1997--$266, 1998--
$234) (6)...................... -- -- -- (398) (351)
------- -------- ------- ------- --------
Net income (loss).............. $ 618 $(1,721) $ 1,629 $ 3,649 $ 2,633
======= ======== ======= ======= ========
Other Financial Data:
Gross Margin %.................. 22.8% 28.1% 29.5% 33.4% 32.3%
Depreciation and amortization... $ 2,158 $ 2,442 $ 3,551 $ 4,320 $ 6,928
Capital expenditures............ $ 444 $ 1,139 $ 2,449 $ 2,146 $ 2,795
Ratio of earnings to fixed
charges (7).................... 1.8x NA 1.7x 2.1x 1.4x
Net cash provided by (used in)
Operating Activities........... $ 1,333 $ 1,960 $ 8,498 $ 6,438 $ 9,232
Financing Activities........... 256 13,645 5,973 6,433 41,482
Investing Activities........... (1,544) (15,484) (14,548) (12,689) (50,543)
Other Non-GAAP Financial Data
(8):
Adjusted EBITDA................ $ 4,351 $ 6,618 $11,873 $19,128 $ 24,766
Adjusted EBITDA Margin %....... 13.8% 16.6% 17.9% 21.4% 20.6%
Balance Sheet Data:
Cash............................ $ 72 $ 193 $ 116 $ 298 $ 469
Working capital................. 8,274 10,590 12,143 21,268 23,958
Property, plant and equipment,
net............................ 11,735 13,225 15,796 16,824 22,841
Total assets.................... 26,836 48,531 60,725 76,283 129,881
Total debt ..................... 12,197 23,452 30,622 101,622 138,681
Stockholder's equity
(deficiency)................... 7,667 10,293 11,750 (43,594) (35,855)

- --------
(1) Reflects a special compensation charge of $1.3 million which represents (i)
the difference between the purchase price of common stock of Parent issued
to seven employees on December 1, 1995 and the estimated fair market value
of such shares (based upon the appraised value on December 1, 1995) and
(ii) a related special cash bonus granted by the Company to the same seven
employees to pay taxes associated with such stock issuances.
(2) Reflects a non-recurring charge of $951,000 which represents primarily the
costs incurred to date and the present value of the estimated future costs
payable by the Company over the next 30 years for groundwater remediation
at the Company's Fairview, North Carolina facility. See "Business--
Environmental Matters."

(3) Special acquisition expenses in 1993 consist primarily of costs related to
the relocation of a facility following the acquisition of Midtex Relays,
Inc. and costs associated with relocating certain operations acquired from
West Coast Electrical Manufacturing Co. and CP Clare Corporation. Such
expense in 1995 includes costs primarily related to (i) the relocation of
certain assets acquired from Hi-G Company, Inc. and from Deutsch Relays,
Inc. and (ii) the write-off of an agreement with a business development
consultant. Such expense in 1997 consists of one-time costs associated with
the integration of operations acquired from Genicom Corporation in
Waynesboro, Virginia ("Genicom") to the Company.
(4) Interest expense in 1996 includes a charge of $1.6 million related to costs
associated with the preparation of a withdrawn initial public offering of
Parent's capital stock. Interest expense in 1997 includes additional
success fee expense of $917,000 related to the payment of the Old Credit
Facility.
(5) Reflects commitment fees and other expenses of $800,000 incurred in
connection with a credit facility set up to provide financing in the event
the Offering was not consummated.
(6) Extraordinary item in 1997 represents the write-off of the unamortized
portion of financing fees associated with the Old Credit Facility (as
defined), and in 1998 represents the write-off of the unamortized portion
of financing fees associated with the Old Senior Credit Facility (as
defined).
(7) For purposes of determining the ratio of fixed charges, earnings are
defined as earnings before income taxes and minority interest in subsidiary
plus fixed charges, and fixed charges consist of interest expense, which
includes amortization of deferred debt issuance costs and deferred
financing costs and the portion of rental expense on capital and operating
leases deemed representative of the interest factor. The Company's earnings
were insufficient to cover fixed charges for the year ended December 31,
1995 by $4.7 million.
(8) Adjusted EBITDA represents income (loss) before interest expense (net),
income taxes, depreciation and amortization, gain or loss on disposal of
assets, extraordinary, unusual and nonrecurring items, the special
compensation charge, environmental expense and special acquisition charges
referred to in footnotes (1), (2) and (3) above, the provision for loss in
April, 1997 for receivables relating primarily to a single customer and the
non-cash write-ups and non-cash charges resulting from the write-up of
inventory, intangibles and fixed assets arising in connection with the
acquisition of 80% of Kilovac (the "Kilovac Acquisition"), the Hartman
Acquisition, the Kilovac Purchase, the purchase of 100% ownership in ibex
Aerospace Inc. ("ibex") of Naples, Florida (the "ibex Acquisition"), the
purchase of certain assets and certain liabilities of the Genicom Relays
Division ("GRD") of Genicom (the "GRD Acquisition"), the purchase of
certain assets and certain liabilities of Wilmar Electronics Inc. (the
"Wilmar Acquisition"), the acquisition of all the outstanding capital stock
of Corcom, Inc. (the "Corcom Merger"), and the purchase of certain assets
and certain liabilities of the Cornell Dubilier's electronics relays
division (the "CD Acquisition") pursuant to Accounting Principles Board
Opinion Nos. 16 and 17. Adjusted EBITDA is not intended to represent cash
flow from operations or net income as defined by generally accepted
accounting principles and should not be considered as a measure of
liquidity or an alternative to, or more meaningful than, operating income
or operating cash flow as an indication of the Company's operating
performance. Adjusted EBITDA is included herein because management believes
that certain investors find it a useful tool for measuring the Company's
ability to service its debt. There are no significant commitments for
expenditures of funds not contemplated by this measure of adjusted EBITDA.
Adjusted EBITDA as presented may not be comparable to other similarly
titled measures presented by other companies and could be misleading unless
substantially all companies and analysts calculate adjusted EBITDA in the
same manner.

Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations

General

Some of the matters discussed below and elsewhere herein contain forward-
looking statements regarding the future performance of the Company and future
events. These matters involve risks and uncertainties that could cause actual
results to differ materially from the statements contained herein. The
following discussion and analysis of the results of operations, financial
condition and liquidity of the Company should be read in conjunction with the
consolidated financial statements and the related notes thereto included
elsewhere in this Form 10-K.

Overview

In July 1998, the Company purchased certain assets and assumed certain
liabilities of Cornell Dubilier's electronics relay division ("CD") for
$848,000 (the "CD Acquisition"). The CD Acquisition was financed with a draw on
the Company's Senior Credit Facility.

In June 1998, the Company acquired all of the outstanding capital stock of
Corcom, an Illinois corporation pursuant to the merger of RF Acquisition Corp.,
a newly formed wholly owned subsidiary of the Company, with and into Corcom
(the "Corcom Merger"). The Company paid $13.00 per share to the shareholders of
Corcom in exchange for the shares received in the Merger (approximately
$51.1 million in the aggregate). The Company used a portion of the proceeds of
$48.1 million of borrowings under a $60.0 million credit facility entered into
with the Bank of America National Trust and Savings Association on June 19,
1998 (the "Senior Credit Facility"), additional paid in capital of $5.0 million
contributed by the Parent, and $7.4 million in cash from Corcom to finance the
Merger, repay $7.4 million of debt (the "Old Senior Credit Facility") and fund
the related merger costs. Corcom is an electromagnetic interference filter
manufacturer located in Libertyville, Illinois.

In May 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1
million (the "Wilmar Acquisition"). Wilmar was consolidated into Kilovac in
June 1998. The Wilmar Acquisition was financed with a draw on the Company's Old
Senior Credit Facility.

In December 1997, the Company purchased certain assets and assumed certain
liabilities of the Genicom Relays Division ("GRD") of Genicom for $4.7 million
(the "GRD Acquisition"). The Company financed the GRD Acquisition with funds
borrowed on its Old Senior Credit Facility.

In October 1997, the Company purchased 100% ownership in ibex Aerospace Inc.
("ibex") for approximately $2.0 million, excluding expenses (the "ibex
Acquisition"). ibex was a wholly owned subsidiary of SOFIECE of Paris, France.
The ibex operation was consolidated into the Company's Hartman division in
1998. Of the $2.0 million purchase price, approximately $1.3 million was paid
at closing, and the remainder of the purchase price was paid by the Company
through the issuance of a non-interest bearing note in the amount of $850,000
to the sellers, which note is payable on October 31, 1999. The Company financed
the $1.3 million paid at closing with funds borrowed on its Old Senior Credit
Facility.

In July 1996, the Company acquired certain assets and assumed certain
liabilities of Hartman Electrical Manufacturing, a division of Figgie
International, Inc. for $12.0 million, excluding acquisition costs. The Company
financed the Hartman Acquisition with secured bank debt, which was refinanced
in conjunction with the consummation of the Offering and the Transactions.

In November 1995, the Company formed a joint venture, CII Guardian
International, Ltd., in India with Guardian Controls, Ltd., an Indian company
("Guardian Controls"), Kerala State Industrial Development Corporation
("KSIDC"), and certain other investors (the "Indian Joint Venture"). The
Company initially had a 28% interest in the Indian Joint Venture. As of
December 31, 1998, the Company has a 40% interest in the Indian Joint Venture.
The Indian Joint Venture started production in the fourth quarter of 1996.

In October 1995, the Company acquired an 80% interest in Kilovac for an
aggregate purchase price of $14.4 million, excluding acquisition costs, which
was financed with secured bank debt, subordinated debt of Parent and the
issuance by Parent of preferred stock. The Company acquired the remaining 20%
interest in Kilovac, refinanced such indebtedness and Parent redeemed such
preferred stock in conjunction with the consummation of the Initial Offering
and the Transactions.

Results of Operations

The Company has improved gross margins, offset by the dilutive effect of
acquisitions in 1998, in recent years primarily due to increased production
volumes at existing facilities as a result of the acquisition of product lines
which have been incorporated into the Company's existing manufacturing
facilities, internal growth, improved pricing, greater use of low labor cost
production facilities in Mexico and China, and improved production efficiencies
due to improved manufacturing processes at certain of the Company's plants. Due
to the Company's historical growth through acquisitions, the Company believes
that period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance.

The following table sets forth for the periods indicated information derived
from the consolidated statements of operations expressed as a percentage of net
sales. There can be no assurance that the trends in sales growth or operating
results will continue in the future.

Years Ended
December 31,
-------------------
1996 1997 1998
----- ----- -----

Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 70.5 66.6 67.7
----- ----- -----
Gross profit......................................... 29.5 33.4 32.3
Selling expenses..................................... 7.4 6.8 7.2
General and administrative expenses.................. 8.2 8.3 7.4
Research and development............................. 1.5 1.2 1.1
Other expenses....................................... 0.9 1.1 1.5
----- ----- -----
Operating income..................................... 11.5 16.0 15.1

Discussion of Consolidated Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net sales of the Company for 1998 increased by $30.6 million, or 34.2%, to
$120.0 million from $89.4 million in 1997. Excluding the effect of the Corcom
Merger, net sales of the Company for 1998 increased $13.5 million, or 15.1%, to
$102.9 million from $89.4 in 1997. This increase is due primarily to the effect
of fourth quarter 1997 and other fiscal 1998 acquisitions. There are no
significant changes in net sales of the base business.

Gross profit of the Company for 1998 increased $8.9 million, or 29.9%, to
$38.7 million from $29.8 million in 1997. Gross profit as a percentage of net
sales decreased to 32.3% from 33.4% in 1997. Excluding the effect of the Corcom
Merger, gross profit of the Company for 1998 increased $3.8 million, or 12.6%
to $33.6 million from $29.8 million in 1997. Excluding the Corcom Merger, gross
profit as a percentage of net sales decreased to 32.6% from 33.4% in 1997. The
decrease in gross margin as a percentage of net sales is due primarily to lower
gross profits as a percent of net sales for acquired companies, the sale of
acquired inventories that were written up to fair market value and the cost to
assimilate the GRD Acquisition, the ibex Acquisition, the Wilmar Acquisition,
and the CD Acquisition into existing operations.

Selling expenses for the Company for 1998 increased $2.6 million, or 42.1%,
to $8.6 million from $6.1 million in 1997. Selling expenses as a percentage of
net sales increased to 7.2% in 1998 from 6.8% in 1997. Excluding the effect of
the Corcom Merger, selling expenses for the Company for 1998 increased
$871,000, or 14.3%, to $6.9 million from $6.1 million in 1997. Excluding the
effect of the Corcom Merger, selling expenses as a percentage of net sales was
6.8% in 1998 and 1997.

General and administrative expenses for the Company for 1998 increased $1.5
million, or 20.2%, to $8.9 million from $7.4 million in 1997. General and
administrative expenses as a percentage of net sales decreased to 7.4% from
8.3% in 1997. Excluding the effect of the Corcom Merger, general and
administrative expenses for the Company for 1998 decreased $29,000, or 0.4%.
Excluding the effect of the Corcom Merger, general and administrative expenses
as a percentage of net sales decreased to 7.2% from 8.3% in 1997. The decrease
in general and administrative expenses as a percentage of

net sales is caused primarily by a reduction in bad debt expense for 1998 when
compared to 1997 and additional 1998 net sales without a corresponding increase
in fixed costs. The bad debt expense relates primarily to the collectibility of
an account receivable from a single customer relating to a dispute over product
specification.

Research and development expenses for the Company in 1998 increased
$238,000, or 21.8%, to $1.3 million from $1.1 million in 1997. Research and
development expenses as a percentage of net sales decreased to 1.1% from 1.2%
in 1997. Excluding the effect of the Corcom Merger, research and development
expenses for the Company increased $139,000, or 12.8%, to $1.2 million from
$1.1 million in 1997. Excluding the effect of the Corcom Merger, research and
development expenses as a percentage of net sales was 1.2% in 1998 and 1997.

Amortization of goodwill and other intangibles for the Company in 1998
increased $1.1 million, or 173.0%, to $1.8 million from $648,000 in 1997.
Excluding the effect of the Corcom Merger, amortization of goodwill and other
intangibles increased $114,000, or 17.6%, to $762,000 from $648,000 in 1997.
This increase is due primarily to the amortization of goodwill due to the
Kilovac Purchase (third quarter 1997), the ibex Acquisition (fourth quarter
1997), the Wilmar Acquisition (second quarter 1998) and the CD Acquisition
(third quarter 1998).

Interest expense and other financing costs of the Company for 1998 increased
$6.0 million, or 91.0%, to $12.6 million from $6.6 million in 1997. Interest
expense in 1997 includes other financing costs related to the Recapitalization
of $917,000 for the success fee associated with the repayment of the Old Credit
Facility. The increase was due primarily to the increased debt levels
associated with the issuance of the $95.0 million Notes and financing the
Corcom Merger, the ibex Acquisition, the GRD Acquisition, the Wilmar
Acquisition and the CD Acquisition partially offset by the pay down of the Old
Credit Facility on September 18, 1997.

Cancellation fees in 1997 reflect $800,000 of commitment fees and other
expenses incurred in connection with a credit facility to provide financing in
the event that the Offering was not consummated.

Income tax expense was $2.4 million in 1998, compared to expense of $2.8
million in 1997. Income taxes as a percentage of income before taxes were 44.3%
in 1998 and 40.9% in 1997. The increase in percentage is due primarily to an
increase in nondeductible goodwill.

The extraordinary item in 1998 reflects the write-off of $585,000 of
unamortized deferred financing fees associated with the Old Senior Credit
Facility, net of tax of $234,000. The extraordinary item in 1997 reflects the
write-off of $664,000 of unamortized deferred financing fees associated with
the Old Credit Facility, net of tax of $266,000.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net sales of the Company for 1997 increased by $23.1 million, or 34.8%, to
$89.4 million from $66.3 million in 1996. The increase was due primarily to (i)
the full year effect of the Hartman Acquisition which represented $23.6 million
in net sales in 1997, an increase of $13.4 million from $10.2 million in net
sales for the period from July 3, 1996 (the date following the date of the
Hartman Acquisition) to December 31, 1996, (ii) the ibex Acquisition which
represented $451,000 in net sales for the period from November 1, 1997 (the
date following the date of the ibex Acquisition) to December 31, 1997 and (iii)
the GRD Acquisition which represented $560,000 in net sales for the period from
December 2, 1997 (the date following the date of the GRD Acquisition) to
December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex
Acquisition, and the GRD Acquisition, net sales of the Company for 1997
increased $8.7 million, or 15.4%, to $64.8 million from $56.2 million in 1996,
primarily as a result of a $6.7 million increase in net sales of high
performance products and a $1.7 million increase in net sales of general
purpose relays. The Company attributes this increase in net sales to growth in
end use markets, market share gains, and introduction of new products.

Gross profit of the Company for 1997 increased $10.3 million, or 52.6%, to
$29.8 million from $19.6 million in 1996. The Company's gross profit as a
percentage of net sales increased to 33.4% in 1997 from 29.5% in 1996. Such
increase was primarily due to the full year effect of the Hartman Acquisition.
Excluding the effect of the Hartman Acquisition, the ibex Acquisition, and the
GRD Acquisition, gross profit of the Company increased $4.5 million, or 25.4%,
to $22.3 million from $17.8 million in 1996. Excluding the Hartman Acquisition,
the ibex Acquisition and the GRD acquisition, the Company's gross profit as a
percentage of net sales increased to 34.5% in 1997 from 31.7% in 1996. The
increase in gross profit as a percentage of net sales was primarily due to
improved yields, productivity and cost reductions.

Selling expenses for the Company in 1997 increased $1.2 million, or $23.9%,
to $6.1 million from $4.9 million in 1996. Such increase was due primarily to
the full year effect of the Hartman Acquisition. Selling expenses for the
Company as a percentage of net sales decreased to 6.8% in 1997 from 7.4% in
1996. Excluding the Hartman Acquisition, the ibex acquisition and the GRD
Acquisition, selling expenses for the Company increased $735,000, or 15.8%, to
$5.4 million in 1997 from $4.6 million in 1996. Such increase was primarily due
to additional commissions on higher sales volume, additional personnel costs
and increased advertising costs. Excluding the Hartman Acquisition, the ibex
Acquisition and the GRD Acquisition, selling expenses for the Company as a
percentage of net sales was 8.3% in 1997 and 1996.

General and administrative expenses for the Company in 1997 increased $2.0
million, or 36.0%, to $7.4 million from $5.5 million in 1996. Such increase was
due primarily to the full year effect of the Hartman Acquisition. General and
administrative expenses as a percentage of net sales increased to 8.3% in 1997
from 8.2% in 1996. Excluding the Hartman Acquisition, the ibex Acquisition, and
the GRD Acquisition, general and administrative expenses increased $1.4
million, or 29.5%, to $6.2 million from $4.8 million in 1996. Such increase was
due primarily to additional personnel and compensation costs and bad debt
expense. The bad debt expense relates primarily to the collectibility of
accounts receivable from a single customer in relation to a dispute over
product specification. Excluding the Hartman Acquisition, the ibex Acquisition,
and the GRD Acquisition, general and administrative expenses as a percentage of
net sales increased to 9.5% in 1997 from 8.5% in 1996.

Research and development expenses for the Company in 1997 increased $79,000,
or 7.8%, to $1.1 million from $1.0 million in 1996. Research and development
expenses as a percentage of net sales decreased to 1.2% in 1997 from 1.5% in
1996. Excluding the effect of the Hartman Acquisition, the ibex Acquisition,
and the GRD Acquisition, research and development expenses for the Company
decreased $44,000, or (4.4%), to $967,000 from $1.0 million in 1996. Such
decrease was primarily due to the reallocation of engineering resources to cost
reduction projects in product manufacturing. Excluding the Hartman Acquisition,
the ibex Acquisition, and the GRD Acquisition, research and development
expenses as a percentage of net sales decreased to 1.5% in 1997 from 1.8% in
1996.

Amortization of goodwill and other intangible assets of the Company in 1997
increased $105,000, or 19.3%, to $648,000 from $543,000 in 1996. Such increase
was due primarily to the full year effect of the Hartman Acquisition and
additional goodwill amortization associated with the Kilovac Purchase and the
ibex Acquisition.

Special acquisition expenses were $260,000 in 1997. The expenses related
primarily to one-time expenses associated with the transition of GRD from its
prior owner to the Company. There were no such expenses in 1996.

Interest expense and other financing costs, including cancellation fees, of
the Company for 1997 increased $2.3 million, or 45.9%, to $7.4 million from
$5.1 million in 1996. Interest expense in 1997 includes other financing costs
related to the Recapitalization of $917,000 for the success fee associated with
the repayment of the Old Credit Facility. 1996 interest expense includes other
financing costs of $1.6 million associated with a withdrawn initial public
offering of the Parent. Excluding the other financing costs in 1996 and 1997,
interest expense increased by $2.2 million or 65%. Such increase was due
primarily to the additional interest expense

on the Notes. Interest expense includes the accrual of the success fee,
amortization of loan origination fees, commitment fees related to the Old
Senior Credit Facility and other miscellaneous interest expenses including the
portion of rental expense on capitalized leases allocable to interest.

Cancellation fees reflect $800,000 of commitment fees and other expenses
incurred in connection with a credit facility to provide financing in event the
Offering was not consummated.

Income tax expense was $2.8 million in 1997, compared to expense of $1.1
million in 1996. Income taxes as a percentage of income before taxes were 40.9%
in 1997 and 40.3% in 1996. The increase in percentage is due primarily to
increased effective state tax rate.

The extraordinary item in 1997 reflects the write-off of unamortized
deferred financing costs associated with the Old Credit Facility net of income
tax benefit of $266,000.

Segment Discussion

High Performance Group

Year ended December 31, 1998 Compared to Year Ended December 31, 1997

Net sales of HPG increased by $11.6 million, or 15.0%, to $89.1 million from
$77.5 million in 1997. The increase was due primarily to the effect of the ibex
Acquisition, the Genicom Acquisition and the Wilmar Acquisition.

Operating income of HPG increased by $2.4 million, or 19.3%, to $14.8
million from $12.4 million in 1997. Operating income of HPG as a percentage of
HPG net sales increased to 16.6% from 16.0% in 1997. This increase was caused
primarily a reduction in bad debt expenses for 1998 when compared to 1997 and
increased net sales with low additional fixed costs partially offset by the
cost of assimilating acquisitions. The bad debt expense relates primarily to
the collectibility of an account receivable from a single customer relating to
a dispute over product specification.

Year ended December 31, 1997 Compared to Year Ended December 31, 1996

Net sales of HPG increased by $21.3 million, or 38.0%, to $77.5 million from
$56.1 million in 1997. The increase was due primarily to the (i) the full year
effect of the Hartman Acquisition which represented $23.6 million in net sales
in 1997, an increase of $13.4 million from $10.2 million in net sales for the
period from July 3, 1996 (the date following the date of the Hartman
Acquisition) to December 31, 1996, (ii) the ibex Acquisition which represented
$451,000 in net sales for the period from November 1, 1997 (the date following
the date of the ibex Acquisition) to December 31, 1997 and (iii) the GRD
Acquisition which represented $560,000 in net sales for the period from
December 2, 1997 (the date following the date of the GRD Acquisition) to
December 31, 1997. Excluding the effect of the Hartman Acquisition, the ibex
Acquisition, and the GRD Acquisition, net sales of HPG for 1997 increased $6.9
million, or 15.1%, to $52.9 million from $46.0 million in 1996, primarily as a
result of growth in end use markets, market share gains and introduction of new
products.

Operating income of HPG increased $6.2 million, or 99.4%, to $12.4 million
from $6.2 million in 1997. Operating income of HPG as a percentage of HPG net
sales increased to 16.0% from 11.1% in 1997. This increase was due primarily to
the full year effect of the Hartman Acquisition. Excluding the Hartman
Acquisition, operating income of HPG increased $1.7 million, or 31.4%, to $7.2
million from $5.5 million in 1996. Excluding the Hartman Acquisition, operating
income of HPG as a percentage of net sales of HPG increased to 13.5% from 11.9%
in 1996. This increase is due primarily to improved yields, productivity and
cost reductions, partially offset by increased selling expenses and general and
administrative expenses, higher commissions on higher sales volume, additional
personnel costs, increased advertising costs and an increase in bad debt
expense relating to the collectibility of an account receivable from a single
customer relating to a dispute over product specification.

Specialized Industrial Group

Year ended December 31, 1998 Compared to Year Ended December 31, 1997

Net sales of SIG increased by $19.2 million, or 157.1%, to $31.4 million
from $12.2 million in 1997. Excluding the effect of the Corcom Merger and the
CD Acquisition, net sales of SIG increased by $1.2 million, or 10.1%, to $13.4
million from $12.2 million in 1997. This increase is due primarily to growth in
end use markets.

Operating income of SIG increased by $1.4 million, or 70.2%, to $3.3 million
from $1.9 million in 1997. Operating income of SIG as a percentage of SIG net
sales decreased to 10.6% from 15.9% in 1997. Excluding the effect of the Corcom
Merger, operating income of SIG increased by $547,000, or 28.1%, to $2.5
million from $1.9 million in 1997. Excluding the effect of the Corcom Merger
operating income as a percentage of net sales increased to 17.4% from 15.9% in
1997. This increase was due primarily to improved productivity.

Year ended December 31, 1997 Compared to Year Ended December 31, 1996

Net sales of SIG increased by $1.8 million, or 16.9%, to $12.2 million from
$10.4 million in 1997. This increase is due primarily to growth in end use
markets.

Operating income of SIG increased by $518,000, or 36.3%, to $1.9 million
from $1.4 million in 1997. Operating income of SIG as a percentage of SIG net
sales increased to 15.9% from 13.7% in 1996. The increase is due primarily to
improved productivity partially offset by higher commissions on higher sales
volume and additional personnel costs.

Liquidity and Capital Resources

Cash provided by operating activities was $9.2 million in 1998, $6.4 million
in 1997 and $8.5 million in 1996. The increase in cash provided by operations
from 1997 to 1998 is primarily due to (i) the one time payment in 1997 of items
related to the Recapitalization including $1.5 million for the success fee and
$800,000 for commitment fees and other expenses incurred in connection with a
credit facility set up to provide financing in event the Offering was not
consummated, (ii) higher earnings adjusted for depreciation and amortization, a
decrease in accounts receivable and other current assets, and an increase in
accounts payable partially offset by (iii) a decrease in accrued liabilities
and an increase in inventory. The decrease in cash from operating activities
for the period from 1996 to 1997 was mainly due to (i) the one time payment in
1997 of items related to the Recapitalization including $1.5 million for the
success fee and $800,000 for commitment fees and other expenses incurred in
connection with a credit facility set up to provide financing in the event the
Offering was not consummated, (ii) increases in accounts receivable due to
higher revenues and decreases in accounts payable offset by (iii) higher
profitability and decreases in inventory.

The Company's accounts receivable increased from $11.6 million at year end
1997 to $15.6 million at year end 1998. Of this increase $4.7 million is
attributable to the Corcom Merger and the Wilmar Acquisition. The Company's
accounts receivable increased from $9.2 million at year end 1996 to $11.6
million at year end 1997. Of this increase approximately $545,000 is
attributable to the ibex Acquisition. The days' sales outstanding for accounts
receivable was approximately 51 trade days, 50 trade days and 48 trade days at
December 31, 1996, 1997 and 1998, respectively. The continued decreases in
days' sales outstanding can be attributed to increased collection efforts.

The Company's inventories increased from $19.4 million at year end 1997 to
$26.7 million at year end 1998. Of this increase, $6.0 million was attributable
to the Corcom Merger, $505,000 was attributable to the CD Acquisition, and
$132,000 was attributable to the Wilmar Acquisition. The Company's inventories
increased from $17.1 million at year end 1996 to $19.4 million at year end
1997. Of this increase, $3.8 million

was attributable to the GRD Acquisition and $456,000 was attributable to the
ibex Acquisition. These increases were offset by the sale of inventory
associated with the planned cessation of production of a product line acquired
in the Hartman Acquisition and improved inventory planning techniques.

The Company's accounts payable increased from $4.8 million at year-end 1997
to $7.4 million at year end 1998. Of this increase, $1.5 million was
attributable to the Corcom Merger and the remainder is due to higher inventory
purchases. The Company's accounts payable decreased from $5.1 million at year-
end 1996 to $4.8 million at year end 1997. The decrease was due primarily to
lower inventory purchases offset by $476,000 of accounts payable assumed in the
ibex Acquisition.

The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and secured borrowings. The
Company financed the Hartman Acquisition (approximately $13.0 million in
borrowings) with borrowings under the Old Credit Facility. The Company financed
the purchase of the remaining 20% of Kilovac with proceeds from its bond
offering. The Company financed the ibex Acquisition with borrowings on its Old
Senior Credit Facility (approximately $1.3 million) and the issuance of a non
interest-bearing note in the amount of $850,000 payable to the sellers on
October 31, 1999. The Company financed the GRD Acquisition with borrowings on
its Old Senior Credit Facility of $4.7 million. The Company financed the Wilmar
Acquisition with borrowings on its Old Senior Credit Facility (approximately
$2.1 million in borrowings). The Company financed the Corcom Merger with its
Senior Credit Facility (approximately $40.7 million in net borrowings) and
additional paid in capital of $5.0 million contributed by the Parent. The
Company financed the CD Acquisition with borrowings under the Senior Credit
Facility (approximately $848,000 in borrowings).

Capital expenditures, excluding the Hartman Acquisition, the Kilovac
Purchase, the ibex Acquisition, the GRD Acquisition, the Wilmar Acquisition,
the Corcom Merger and the CD Acquisition were $2.8 million in 1998, $2.1
million in 1997 and $2.4 million in 1996. In 1998, capital expenditures
included approximately $182,000 for increased capacity, approximately $1.5
million for increased efficiency, approximately $712,000 for equipment
replacement and rework and approximately $437,000 for new product development.
In 1997, capital expenditures included approximately $609,000 for increased
capacity, approximately $891,000 for increased efficiency, approximately
$456,000 for equipment replacement and rework and approximately $190,000 for
new product. In 1996, capital expenditures included approximately $1.5 million
for increased capacity, approximately $318,000 for increased efficiency and
approximately $644,000 for equipment replacement and rework. Acquisition
spending totaled $47.7 million in 1998, $10.6 million in 1997 and $12.7 million
in 1996. Capital expenditures for the Company for 1999 are expected to be
approximately $4.5 million excluding the effect of any 1999 acquisitions.

On June 19, 1998, the Company entered into the Senior Credit Facility, using
a portion of such facility to finance the Corcom Merger and repay $7.4 million
of debt on the Old Senior Credit Facility. The Senior Credit Facility enables
the Company to borrow up to $60.0 million, subject to certain borrowing
conditions. The Senior Credit Facility is available for general corporate and
working capital purposes and to finance acquisitions and is secured by the
Company's assets. The amount available for borrowings on the Senior Credit
Facility at December 31, 1998 was $14.4 million. On September 18, 1997, the
Company applied the proceeds of the Notes, together with borrowings under the
Old Senior Credit Facility, to repay all outstanding obligations

under the Old Credit Facility and to pay a dividend to the Parent. In
connection with the Offering, the Company also paid to its existing senior
lenders under the Old Credit Facility a success fee in the amount of
approximately $1.5 million. In connection with the Offering, the Company also
entered into the Old Senior Credit Facility, which enabled the Company to
borrow up to $25.0 million, subject to certain borrowing conditions.

Although there can be no assurances, the Company anticipates that its cash
flow generated from operations and borrowings under the Senior Credit Facility
will be sufficient to fund the Company's working capital needs, planned capital
expenditures, scheduled interest payments and its business strategy for the
next twelve months. However, the Company may require additional funds if it
enters into strategic alliances, acquires significant assets or businesses or
makes significant investments in furtherance of its growth strategy. The
ability of the Company to satisfy its capital requirements will be dependent
upon the future financial performance of the Company, which in turn will be
subject to general economic conditions and to financial, business, and other
factors, including factors beyond the Company's control.

Instruments governing the Company's indebtedness, including the Senior
Credit Facility and the Indenture, contain financial and other covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of the Company and its subsidiaries.

Such limitations, together with the highly leveraged nature of the Company,
could limit corporate and operating activities, including the Company's ability
to respond to changing market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.

Inflation

The Company does not believe inflation has had any material effect on the
Company's business over the past three years.

Disclosure Regarding Forward-Looking Statements

Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking
statements. All such forward looking statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Important
factors that could cause future financial performance to differ materially from
past results and from those expressed or implied in this document include,
without limitation, the risks of acquisition of businesses (including limited
knowledge of the business acquired and potential misrepresentations from
sellers), changes in business strategy or development plans, dependence on
independent sales representatives and distributors, environmental regulations,
availability of financing, competition, reliance on key management personnel,
ability to manage growth, loss of customers and a variety of other factors.

Year 2000 Compliance

The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two-
digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
data based information.

The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Many of the Company's systems have
hardware and packaged software recently purchased from

large vendors who have represented that these systems are Year 2000 compliant.
Internal and external resources are being used to make the required
modifications and are expected to be completed and tested by June 30, 1999. The
Company's major systems, including its manufacturing, general ledger and
payroll systems have been due for upgrades in order to maintain vendor support.
The Company, therefore, would be devoting the efforts of its internal resources
to some or all of these projects through the normal course of business even if
Year 2000 issues had not existed.

The Company relies upon third parties for its operations including, but not
limited to, suppliers of inventory, software, telephone service, electric power,
water and financial services. The Company is in the process of communicating
with these third parties with whom it does significant business to determine
their Year 2000 Compliance readiness and the extent to which the Company is
vulnerable to any third party Year 2000 issues. Initial communications with
these third parties is expected to be completed by June 30, 1999. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. If it has been determined
that a vendor will not be Year 2000 compliant in a timely manner, the Company
will replace them with an alternative vendor. In most cases, there are more than
one vendor which can satisfy the Company's purchasing requirements. In the case
of no alternative suppliers being available, the Company will build inventory to
maintain production until the situation can be resolved. The Company is
verifying that its major customers are Year 2000 compliant. If it is determined
that a customer will not be compliant in a timely manner, the Company may
request C.O.D. terms. However, in most cases the Company believes that its
records will be sufficient to ensure collectibility from their customers.

The total cost to the Company of these Year 2000 Compliance activities is
estimated to be less than $250,000, including any software upgrades, equipment
upgrades or incidentals and is not anticipated to be material to its future
financial position, results of operations or cash flows in any given year. All
costs will be funded through its regular operating and financing activities.
These costs and the date on which the Company plans to complete the Year 2000
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ from those plans.

Impact of New Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for all fiscal
quarters beginning after June 15, 1999. The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company has not determined at this time what
impact, if any, that this new accounting standard will have on its financial
statements.

Item 7A--Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risks from changes in interest rates and
foreign currency exchange rates which may adversely affect its results of
operations and financial condition. The Company seeks to minimize these risks
through its regular operating and financing activities.

The Company engages in neither speculative nor derivative financial or
trading activities.

Interest Rate Risk

The Company has exposure to interest rate risk related to certain
instruments entered into for other than trading purposes. Specifically, the
Company has in place the Senior Credit Facility, which consists of a term

loan ($33.0 million at December 31, 1998) and the revolving credit facility
($9.7 million at December 31, 1998), which bears interest at variable rates.
(See Note 7 to the Consolidated financial statements). Borrowings under the
Senior Credit Facility (both the term loan and revolving credit facility) bear
interest based on the Lenders' Reference Rate (as defined in the Senior Credit
Facility) or LIBOR Rate plus an applicable margin. While changes in the
Reference Rate or the LIBOR Rate could affect the cost of funds borrowed in the
future, existing amounts outstanding at December 31, 1998 are primarily at
fixed rates. The Company, therefore, believes the effect, if any, of reasonably
possible near-term changes in interest rates on the Company's consolidated
financial position, results of operations and cash flows would not be material.

In September 1997, the Company consummated an offering of $95,000,000
aggregate principal amount of 10% Senior Subordinated Notes (the "Notes"), due
2004, (the "Offering"). The Company's Notes are at a fixed interest rate of 10%.
As a result, a change in the fixed rate interest market would change the
estimated fair market value of the Notes. The Company believes that a 10% change
in the long term interest rate would not have a material effect on the Company's
financial condition, results of operations and cash flows.

While the Company historically has not used interest rate swaps, it may, in
the future, use interest rate swaps to assist in managing the Company's overall
borrowing costs and reduce exposure to adverse fluctuations in interest rates.

Foreign Currency Exchange Risk

The Company has seven foreign subsidiaries or divisions, located in Mexico,
Germany, Jamaica, Barbados and Hong Kong as well as a Joint Venture in India.
The Company generates about 18% of its net sales from customers located outside
the United States. The Company's ability to sell its products in these foreign
markets may be affected by changes in economic, political or market conditions
in the foreign markets in which it does business.

The Company experiences foreign currency translation gains and losses, which
are reflected in the Company's consolidated statement of operations and
comprehensive income, due to the strengthening and weakening of the US dollar
against the currencies of the Company's foreign subsidiaries or divisions and
the resulting effect on the valuation of the intercompany accounts and certain
assets of the subsidiaries which are denominated in US dollars. The net gain
resulting from foreign currency translations was $64,000 in 1998 compared to a
loss of $4,000 and $2,000 in 1997 and 1996, respectively.

The Company anticipates that it will continue to have exchange gains or loss
from foreign operations in the future.

Item 8--Financial Statements and Supplementary Data

The consolidated financial statements of the Company are filed as a separate
section of this report.

Item 9--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

Item 10--Directors and Executive Officers of the Registrant

Executive Officers and Directors

The executive officers and directors of the Company, and their ages and
position with the Company as of December 31, 1998 are set forth below:

Name Age Position or Affiliation
- ---- --- -----------------------

Ramzi A. Dabbagh........ 64 Chairman of the Board, Chief Executive Officer, and Director
Michael A. Steinback.... 44 President, Chief Operating Officer and Director
G. Daniel Taylor........ 62 Executive Vice President of Business Development and Director
Richard L. Heggelund.... 52 Chief Financial Officer
Michael J. Adams........ 42 Vice President for Sales and Marketing
Theodore H. Anderson.... 42 Vice President
Daniel R. McAllister.... 45 Vice President
James R. Mikesell....... 56 Vice President
Carl R. Freas........... 60 Vice President
Brian P. Simmons........ 38 Director
Andrew W. Code.......... 40 Director
Steven R. Brown......... 29 Director
Jon S. Vesely........... 33 Director
Donald E. Dangott....... 66 Director

The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below:

Ramzi A. Dabbagh is the Chairman of the Board and Chief Executive Officer of
the Company. He served as President of Communications Instruments from 1982 to
1995. Mr. Dabbagh served as President and Chairman of the National Association
of Relay Manufacturers ("NARM") from 1991 to 1993 and has been a director of
NARM since 1990.

Michael A. Steinback became President of the Company in 1998, Chief
Operating Officer of CII and a director of the Company in 1995. He served as
the Vice President of Operations of CII from 1994 to 1995. From 1990 to 1993,
Mr. Steinback was Vice President of Sales and Marketing for CP Clare
Corporation. Mr. Steinback has served on the Board of Directors of NARM for two
years.

G. Daniel Taylor has been the Executive Vice President of Business
Development of the Company since 1995 and a director of the Company since 1993.
He served as a director of Kilovac from 1995 to 1997. He joined the Company in
1981 as Vice President of Engineering and Marketing and became Executive Vice
President in 1984. He has served as the Company's representative to NARM and
has acted as an advisor to the National Aeronautics and Space Administration
("NASA") for relay applications and testing procedures since 1967.

Richard L. Heggelund became Chief Financial Officer of the Company in 1998.
Prior to joining the Company, Mr. Heggelund was Vice President of Finance for
the Abex/NWL division of Parker Hannifin Corporation. Prior to that he was Vice
President and Chief Financial Officer of Power Control Technologies Inc. and
Abex NWL Aerospace which were acquired by Parker Hannifin Corporation. From
1988 to 1995, Mr. Heggelund was Vice President and Chief Financial Officer of
Datron Inc., an aerospace/defense manufacturer. Mr. Heggelund graduated from
the University of Wisconsin-Madison with a B.B.A. degree in Accounting.

Michael J. Adams joined the Company in 1998 as Vice President of Sales and
Marketing after six years with Square D Company, his last position being
Operations Manager of its Asheville, North Carolina Facility. Mr. Adam's prior
experience includes the establishment of the OEM business with Square D and the
Director of Marketing for Square D's residential business.

Theodore H. Anderson joined the Company in 1993 as Vice President and
General Manager of the Juarez, Mexico operations and was promoted to Vice
President and General Manager of North Carolina operations in January 1997. Mr.
Anderson was employed by CP Clare Corporation from 1990 to 1993 as Product
Marketing Manager, and was previously employed by Midtex Relays, Inc. as its
General Manager from 1986 to 1990 at which time he joined CP Clare Corporation.

Daniel R. McAllister has served as Vice President of the Company and Vice
President of Manufacturing and Engineering of Kilovac since the Kilovac
Acquisition in 1995 and had served as Vice President of Product Development of
Kilovac since 1990.

James R. Mikesell joined the Company as Vice President and General Manager
of Hartman in 1996 upon the completion of the Hartman Acquisition. Mr. Mikesell
joined Hartman Electrical Manufacturing in 1994, from IMO Industries, where he
had been the General Manager of their Controlex Division for the previous five
years.

Carl R. Freas has been Vice President and General Manager of the Juarez,
Mexico operations since December 1997 and previously served as director of
manufacturing since 1993. Mr. Freas was employed by Seimens Electromechanical
Division from 1984 to 1990 and held the position as Plant Manager, was self-
employed from 1990 to 1993 as a business consultant and small business owner,
at which time he joined the Company as Director of Manufacturing. He was
promoted to General Manager of the Company in January 1997 and then to Vice
President in December 1997.

Brian P. Simmons is a Principal of Code, Hennessy & Simmons, Inc. Since
founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Simmons has been actively
involved in the investment origination and investment management activities of
such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Simmons was
a Vice President with Citicorp's Leveraged Capital Group and before that was
employed by Mellon Bank.

Andrew W. Code is a Principal of Code, Hennessy & Simmons, Inc. Since
founding Code, Hennessy & Simmons, Inc. in 1988, Mr. Code has been actively
involved in the investment organization and investment management activities of
such company. Prior to founding Code, Hennessy & Simmons, Inc., Mr. Code was a
Vice President with Citicorp's Leveraged Capital Group and before that was
employed by American National Bank.

Steven R. Brown is a Vice President of Code, Hennessy & Simmons, Inc. Mr.
Brown was employed by Heller Financial from 1991 until 1994, at which time he
joined Code, Hennessy & Simmons, Inc. Mr. Brown held various positions within
Heller's commercial leveraged lending and real estate departments.

Jon S. Vesely is a Principal of Code, Hennessy & Simmons, Inc. Prior to
joining Code, Hennessy & Simmons, Inc. in 1991, Mr. Vesely was employed by
First Chicago Corporation in its leveraged leasing group.

Donald E. Dangott has served as a director of the Company from 1994 to
September 17, 1997, and from October 30, 1997 to present. He held various
positions at Eaton Corporation until 1993, including serving as the director of
Business Development Commercial and Military Controls Operations from 1990 to
1993, and he presently serves as a business development consultant. He is the
Executive Director and a member of the Board of Directors of the NARM.

Item 11--Executive Compensation

Executive Compensation

The following sets forth a summary of all compensation paid to the chief
executive officer and the three other executive officers of the Company (the
"Named Executive Officers") for services rendered in all capacities to the
Company for the year ended December 31, 1998.

Summary Compensation Table

Annual Long Term
Compensation Compensation
---------------- -------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Salary Bonus Compensation Options/SAR's (#'s) Compensation (1)
- ------------------ -------- ------- ------------ ------------------- ----------------

Ramzi A. Dabbagh (4).... $198,616 $76,667 $25,121 495 $7,680
Chairman, and Chief
Executive Officer
Michael A. Steinback.... $163,411 $62,062 $28,280 350 $ 902
President and Chief
Operating Officer
G. Daniel Taylor (4).... $127,426 $49,235 $13,707 264 $4,689
Executive Vice
President of Business
Development
Richard L. Heggelund
(2).................... $ 43,978 $ 2,240 None None $ 710
Chief Financial Officer
Michael J. Adams........ $120,170 $60,638 $ 7,150 None $ 642
Vice President of Sales
And Marketing
David Henning (3)....... $113,011 $55,025 $ 6,000 190 $1,682
Vice President Finance
Corcom

- --------
(1) These amounts represent insurance premiums paid by the Company with respect
to term life insurance.
(2) Mr. Heggelund joined the Company as Chief Financial Officer on September 7,
1998
(3) Mr. Henning left his position as Chief Financial Officer on September 6,
1998
(4) The Company maintains key-man life insurance on Messrs. Dabbagh and Taylor
and has agreed to pay out of the proceeds of such policy three years'
salary to the estate of either officer in the event of the death of such
officer.

Potential realizable value at
assumed Annual rates of stock
price appreciation For option
Individual Grants term
----------------------------- -----------------------------
Number of Percent of total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in of base
Name Granted (#) fiscal year Price ($/Sh) Expiration Date 5%($) 10%($)
- ---- ------------ ---------------- ------------ --------------- ------ ------

Ramzi A. Dabbagh........ 495 18.6% $10.00 12/31/07 $1,027 $1,312
Michael A. Steinback.... 350 13.2% $10.00 12/31/07 $ 726 $ 928
G. Daniel Taylor........ 264 9.9% $10.00 12/31/07 $ 548 $ 700
David Henning........... 190 7.1% $10.00 12/31/07 $ 394 $ 504

Executive compensation is determined by the compensation committee of the
Company's Board of Directors (the "Compensation Committee"). The Compensation
Committee is composed of Brian P. Simmons and Steven R. Brown. None of the
Company's directors other than Donald E. Dangott receive compensation for
services as directors. Mr. Dangott receives compensation for his services as a
director in the amount of the greater of $1,000 per meeting or $1,000 per day
of service.

Employment Agreements

The Company is party to an employment agreement with Mr. Steinback which
expires in April, 1999 and is subject to automatic renewal unless either the
Company or Mr. Steinback elects to terminate such agreement. Mr. Steinback is
entitled to receive an annual salary (subject to annual review) of
approximately $172,000, annual auto allowances, and other standard employee
benefits applicable to the Company's other executive officers, and is entitled
to participate in the Company's executive bonus plan. Mr. Steinback is entitled
to receive full salary and benefits for a year if he is terminated at any time
during such year.

Stock Option Plan

Parent has established a stock option plan (the "Plan") which provides for
the granting of options and other stock-based awards to officers and employees
of Parent and the Company representing up to 5.4% of Parent's outstanding
capital stock on a fully-diluted basis. The Company granted 2,658 shares under
the Plan during 1998. All stock options were granted at an exercise price of
$10.00 per share, which was the price of the Parent's stock at the time of the
Recapitalization.

Item 12--Security Ownership of Certain Beneficial Owners and Management

Parent owns all of the Company's issued and outstanding capital stock. The
following table sets forth certain information regarding beneficial ownership
of the common stock of Parent after the consummation of the Recapitalization by
(i) each stockholder who owns beneficially more than 5% of the outstanding
capital stock of Parent and (ii) each director, each Named Executive Officer
and all directors and executive officers of the Company as a group. Except as
set forth in the footnotes to the table, each stockholder listed below has
informed the Company that such stockholder has sole voting and investment power
with respect to the shares of common stock of the Parent beneficially owned by
such stockholder.

Shares of Parent Common
Stock
Beneficially Owned (1)
------------------------
Name and Address Number Percent
- ---------------- ------------ -----------

Code, Hennessy & Simmons III, L. P. (2).............. 736,180 72.6%
TCW/Crescent Mezzanine, L.L.C. (3)................... 90,101 8.8%
Ramzi A. Dabbagh (4)................................. 48,330 4.8%
Michael A. Steinback (4)............................. 30,713 3.0%
G. Daniel Taylor (4)................................. 20,176 2.0%
Richard L. Heggelund (4)............................. 2,264 0.2%
Michael J. Adams (4)................................. 2,000 0.2%
David Henning (4).................................... 10,940 1.1%
Brian P. Simmons (5) (6)............................. 736,180 72.6%
Andrew W. Code (5) (6)............................... 736,180 72.6%
Jon S. Vesely (6).................................... -- --
------------ ---------
Steven R. Brown (6).................................. -- --
------------ ---------
Donald E. Dangott.................................... 5,600 *
Directors and executive officers as a group (14
persons)............................................ 873,200 85.3%

- --------
* Amount represents less than 2% ownership
(1) Pursuant to rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person has beneficial ownership of any securities as to which
such person, directly or indirectly, through any contract, arrangement,
undertaking, relationship or otherwise has or shares voting power and/or
investment power and as to which such person has the right to acquire such
voting and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the sum
of the number of shares outstanding as of such date and the number of
shares as to which such person has the right to acquire voting and/or
investment power within 60 days.

(2) The address of Code, Hennessy & Simmons III, L. P. is 10 South Wacker
Drive, Suite 3175, Chicago, Illinois 60606.
(3) Includes shares of common stock held by certain affiliates of TCW/Crescent
Mezzanine, L.L.C. ("TCW/Crescent LLC") listed herein, and also includes
10,101 shares of common stock that TCW will have the right to acquire upon
exercise of certain warrants issued to TCW in connection with the
Recapitalization, TCW/Crescent LLC is the general partner of (i)
TCW/Crescent Mezzanine Partners, L. P. (the "L. P."), which holds 6.0% of
the Parent's outstanding common stock and (ii) TCW/Crescent Mezzanine
Investment Partners, L. P. (the "Investment L. P."). The managing owner of
TCW/Crescent Mezzanine Trust (the "Trust") is TCW/Crescent LLC. The general
partner of TCW Shared Opportunity fund II, L. P. ("SHOP II") is TCW
Investment Management Corporation ("TIMCO"). The investment adviser of TCW
leveraged Income Trust, L. P. ("LINC") is TIMCO. The investment adviser of
Crescent/Mach I Partners, L. P. ("MACH I") is TCW Asset Management Company
("TAMCO"). The entities referred to above are hereinafter collectively
referred to as "TCW". TCW holds 100% of the Parent's outstanding warrants
to purchase 10,101 shares of common stock; the L. P. holds 67.6% of the
warrants, and the Trust holds 20.6% of the warrants. Messrs. Mark
Attanasio, Robert Beyer, Jean-Marc Chapus and Mark Gold are portfolio
managers of one or more of the L. P. Investment L. P., trust, SHOP II, MACH
I or LINC, and with respect to such entities, exercise voting and
dispositive powers on their behalf. The address of TCW is 11100 Santa
Monica Boulevard, Suite 200, Los Angeles, California 94111.
(4) The address of each such person is c/o CII Technologies Inc., 1396
Charlotte Highway, Fairview, North Carolina 28730.
(5) All of such shares are held of record by Code, Hennessy & Simmons III, L.
P. Messrs. Simmons and Code are officers, directors and stockholders of
Code, Hennessy & Simmons, Inc., the sole general partner of CHS Management
III, L. P., the sole general partner of Code, Hennessy & Simmons III, L. P.
Messrs. Simmons and Code disclaim beneficial ownership of such shares.
(6) The address of each such person is c/o Code, Hennessy & Simmons, Inc., 10
South Wacker Drive, Suite 3175, Chicago, IL 60606.

Item 13--Certain Relationships and Related Transactions

Management Agreement

In connection with the Recapitalization, the Company entered into a
Management Agreement with CHS Management III, L. P. ("CHS Management"), an
affiliate of Code, Hennessy & Simmons, Inc. pursuant to which CHS Management
will provide financial and management consulting services to the Company and
receive a monthly fee of $41,667. In addition, pursuant to the Management
Agreement, the Company paid $500,000 to CHS Management at the closing of the
Transactions as compensation for services rendered in connection with the
Transactions. The Management Agreement also provides that when and as the
Company consummates the acquisition of other businesses, the Company will pay
to CHS Management a fee equal to one percent of the acquisition price of each
such business as compensation for services rendered by CHS Management to the
Company in connection with the consummation of such acquisition. The Company
paid $300,000 to CHS Management at the time of the Corcom Merger for services
rendered in connection with the Merger. The term of the Management Agreement is
five years, subject to automatic renewal unless either CHS Management or the
Company elects to terminate; provided that the Management Agreement will
terminate automatically upon the occurrence of a change of control of the
Company. The Company believes that the fees to be paid to CHS Management for
the professional services to be rendered are at least as favorable to the
Company as those which could be negotiated with an unrelated third party. The
Company also reimburses CHS Management for expenses incurred in connection with
its services rendered to the Company and Parent.

Stockholders Agreement

In connection with the Recapitalization, Parent's stockholders entered into
a Stockholders Agreement. This agreement provides, among other things, for the
nomination of and voting for at least seven directors of Parent

by Parent's stockholders. The Stockholders Agreement also provides the number
of directors (subject to a minimum of seven) to be determined by Code, Hennessy
& Simmons, Inc. The following individuals were initially designated by Code,
Hennessy & Simmons, Inc. to serve as directors of Parent: Ramzi A. Dabbagh,
Michael A. Steinback, G. Daniel Taylor, Brian P. Simmons, Andrew W. Code, Jon
S. Vesely, and Steve R. Brown. See "Item 10--"Directors and Executive Officers
of the Registrant."

Registration Agreement

In connection with the Recapitalization, Parent's stockholders entered into
a Registration Agreement. The Registration Agreement grants certain demand
registration rights to Code, Hennessy & Simmons. An unlimited number of such
demand registrations may be requested by Code, Hennessy & Simmons. In the event
that Code, Hennessy & Simmons makes such a demand registration request, all
other stockholders of Parent will be entitled to participate in such
registration on a pro rata basis (based on shares held). Code, Hennessy &
Simmons may request, pursuant to its demand registration rights, and each other
stockholder may request, pursuant to his or its participation rights, that up
to all of such stockholder's shares of common stock be registered by Parent.
Parent is entitled to postpone such a demand registration for up to 180 days
under certain circumstances. In addition, the parties to the Registration
Agreement are granted certain rights to have shares included in registrations
initiated by Parent or its stockholders ("piggyback registration rights").
Expenses incurred in connection with the exercise of such demand or piggyback
registration rights shall, subject to limited exceptions, be borne by Parent.

Tax Sharing Agreement

The operations of the Company are included in the Federal income tax returns
filed by Parent. Prior to the closing of the Initial Offering, Parent and the
Company entered into a Tax Sharing Agreement pursuant to which the Company
agreed to advance to Parent (i) so long as Parent files consolidated income tax
returns that include the Company, payments for the Company's share of income
taxes assuming the Company is a stand-alone entity, which in no event may
exceed the group's consolidated tax liabilities for such year, and (ii)
payments to or on behalf of Parent in respect of franchise or similar taxes and
governmental charges incurred by it relating to the business, operations or
finances of the Company.

Recapitalization

In connection with the Recapitalization, and subject to certain adjustments,
Messrs. Dabbagh, Steinback, Taylor, and Henning received approximately $3.6
million, $1.21 million, $1.8 million, and $435,000, respectively, in net cash
proceeds from their sale of shares of Parent and Parent's repayment of
indebtedness owing to them. Upon the satisfaction of certain conditions,
Messrs. Dabbagh, Steinback, Taylor and Henning could receive from funds
escrowed at the time of the consummation of the Transactions approximately
$251,000, $115,000, $148,000 and $41,000, respectively, in net cash proceeds.

Old Credit Facility

Bank of America National Trust and Savings Association ("Bank of America")
was a lender and agent under the Old Credit Facility. A portion of the net
proceeds of the Offering was used to satisfy the obligations outstanding under
the Old Credit Facility. As a result of such repayment, Bank of America, as
agent under the Old Credit Facility for the benefit of all the existing lenders
thereunder, received a success fee of $1.5 million. Bank of America is a lender
and the administrative agent in the Senior Credit Facility. Bank of America is
an affiliate of BancAmerica Securities, Inc., one of the Initial Purchasers. In
addition, an affiliate of Bank of America and BancAmerica Securities, Inc. owns
a limited partnership interest in CII Associates, L P., which in turn, held a
portion of the capital stock and certain indebtedness of Parent acquired and
repaid in connection with the Recapitalization. Subject to certain adjustments,
the net proceeds from the Recapitalization allocable to such affiliate based on
such partnership interest equaled approximately $12.6 million.

Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Communications Instruments,

Inc. and Subsidiaries

Consolidated Financial Statements for the
Years Ended December 31, 1996, 1997 and 1998
and Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT

Communications Instruments, Inc.:

We have audited the accompanying consolidated balance sheets of
Communications Instruments, Inc. and Subsidiaries (the "Company") as of
December 31, 1997 and 1998, and the related consolidated statements of
operations and comprehensive income, stockholder's deficiency, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Greenville, South Carolina

March 30, 1999

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)

December 31,
------------------
ASSETS 1997 1998
------ -------- --------

Current assets:
Cash and cash equivalents................................ $ 298 $ 469
Accounts receivable (less allowance for doubtful
accounts: 1997--$796; 1998--$479)....................... 11,602 15,598
Inventories.............................................. 19,377 26,656
Deferred income taxes.................................... 2,130 2,246
Other current assets..................................... 1,334 1,622
-------- --------
Total current assets................................... 34,741 46,591
-------- --------
Property, plant and equipment, net......................... 16,824 22,841
-------- --------
Other assets:
Cash restricted for environmental remediation............ 445 340
Environmental settlement receivable...................... 1,160 1,220
Goodwill (net of accumulated amortization: 1997--$874;
1998--$1,872)........................................... 16,010 39,971
Intangible assets, net................................... 6,969 18,705
Other noncurrent assets.................................. 134 213
-------- --------
Total other assets..................................... 24,718 60,449
-------- --------
Total assets............................................... $ 76,283 $129,881
======== ========

LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------

Current liabilities:
Accounts payable......................................... $ 4,753 $ 7,405
Accrued interest......................................... 2,820 2,799
Other accrued liabilities................................ 5,844 6,792
Current portion of long-term debt........................ 56 5,637
-------- --------
Total current liabilities.............................. 13,473 22,633
Long-term debt............................................. 101,566 133,044
Accrued environmental remediation costs.................... 2,364 2,353
Deferred income taxes...................................... 1,862 7,041
Other liabilities.......................................... 612 665
-------- --------
Total liabilities...................................... 119,877 165,736
-------- --------
Commitments and contingencies
Stockholder's deficiency:
Common stock--$.01 par value; 1,000 shares authorized,
issued and outstanding.................................. -- --
Additional paid-in capital............................... 12,317 17,317
Accumulated deficit...................................... (55,827) (53,194)
Accounts receivable--due from Parent..................... (42) --
Accumulated other comprehensive income (loss)............ (42) 22
-------- --------
Total stockholder's deficiency......................... (43,594) (35,855)
-------- --------
Total liabilities and stockholder's deficiency............. $ 76,283 $129,881
======== ========

See notes to consolidated financial statements.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands)

Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------

Net sales.......................................... $66,336 $89,436 $120,030
Cost of sales...................................... 46,779 59,601 81,285
------- ------- --------
Gross margin....................................... 19,557 29,835 38,745
------- ------- --------
Operating expenses:
Selling expenses................................. 4,903 6,077 8,635
General and administrative expenses.............. 5,464 7,432 8,935
Research and development expenses................ 1,011 1,090 1,328
Amortization of goodwill and other intangible
assets.......................................... 543 648 1,769
Acquisition related expenses..................... -- 260 --
------- ------- --------
Total operating expenses....................... 11,921 15,507 20,667
------- ------- --------
Operating income................................... 7,636 14,328 18,078
Interest expense and other financing costs, net.... (5,055) (6,573) (12,552)
Other income (expense), net........................ 201 (17) (171)
Cancellation fees.................................. -- (800) --
------- ------- --------
Income before income taxes, minority interest and
extraordinary item................................ 2,782 6,938 5,355
Income tax expense................................. 1,120 2,836 2,371
------- ------- --------
Income before minority interest and extraordinary
item.............................................. 1,662 4,102 2,984
Income applicable to minority interest in
subsidiary........................................ (33) (55) --
------- ------- --------
Income before extraordinary item................... 1,629 4,047 2,984
Extraordinary item--loss on early extinguishment of
debt (net of income tax benefit: 1997--$266;
1998--$234)....................................... -- (398) (351)
------- ------- --------
Net income......................................... 1,629 3,649 2,633
Other comprehensive income (loss):
Foreign currency translation adjustment............ (2) (4) 64
------- ------- --------
Comprehensive income............................... $ 1,627 $ 3,645 $ 2,697
======= ======= ========

See notes to consolidated financial statements.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (Dollars in thousands)

Accounts Accumulated
Common Stock Additional Receivable Other
------------- Paid-in Accumulated Due From Comprehensive
Shares Amount Capital Deficit Parent Income (loss)
------ ------ ---------- ----------- ---------- -------------

BALANCES AT DECEMBER 31,
1995................... 1,000 $-- $12,317 $ (1,744) $(244) $(36)
Currency translation
loss, net............ -- -- -- -- -- (2)
Advances to Parent,
net.................. -- -- -- -- (170) --
Net income............ -- -- -- 1,629 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1996................... 1,000 -- 12,317 (115) (414) (38)
Currency translation
loss, net............ -- -- -- -- -- (4)
Repayments by Parent,
net.................. -- -- -- -- 372 --
Dividend to Parent.... -- -- -- (59,361) -- --
Net income............ -- -- -- 3,649 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1997................... 1,000 -- 12,317 (55,827) (42) (42)
Currency translation
gain, net............ -- -- -- -- -- 64
Contributions from
Parent............... -- -- 5,000 -- -- --
Repayments by Parent,
net.................. -- -- -- -- 42 --
Net income............ -- -- -- 2,633 -- --
----- ---- ------- -------- ----- ----
BALANCES AT DECEMBER 31,
1998................... 1,000 $-- $17,317 $(53,194) $ -- $ 22
===== ==== ======= ======== ===== ====

See notes to consolidated financial statements.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------

Cash flows from operating activities:
Net income..................................... $ 1,629 $ 3,649 $ 2,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 3,551 4,320 6,928
Extraordinary loss........................... -- 664 585
Deferred income taxes........................ (500) (401) (471)
Minority interest............................ 33 55 --
Loss (gain) on disposal of assets............ (386) (5) 54
Other........................................ 1 11 (12)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Decrease (increase) in accounts
receivable................................ 1,175 (1,812) 667
Decrease (increase) in inventories......... 607 2,023 (614)
Decrease (increase) in other current
assets.................................... 432 (605) 434
Increase (decrease) in accounts payable.... 1,462 (781) 1,129
Increase (decrease) in accrued
liabilities............................... 554 (24) (1,873)
Changes in other assets and liabilities.... (60) (656) (228)
-------- -------- --------
Net cash provided by operating
activities............................... 8,498 6,438 9,232
-------- -------- --------
Cash flows from investing activities:
Acquisition of businesses and product lines,
net of cash acquired.......................... (12,678) (10,561) (47,675)
Investment in joint venture.................... (167) -- (95)
Proceeds from sale of assets................... 746 18 22
Purchases of property, plant and equipment..... (2,449) (2,146) (2,795)
-------- -------- --------
Net cash used in investing activities..... (14,548) (12,689) (50,543)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of bonds................ $ -- $ 95,000 $ --
Net borrowings (repayments) under lines of
credit........................................ -- (2,674) 3,900
Borrowings under long-term debt agreements..... 11,266 -- 35,100
Principal payments under long-term debt
agreements.................................... (3,456) (22,125) (2,000)
Payments of capital leases..................... (640) (23) (88)
Payment of loan fees........................... (346) (4,763) (843)
Payments of amounts owed to former stockholders
of subsidiary................................. (745) -- (226)
Additional paid in capital (from Parent)....... -- -- 5,000
Dividend to Parent............................. -- (59,361) --
Repayments from (advances to) Parent........... (104) 372 500
Other.......................................... (2) 7 139
-------- -------- --------
Net cash provided by financing
activities............................... 5,973 6,433 41,482
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (77) 182 171
Cash and cash equivalents, beginning of year.... 193 116 298
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 116 $ 298 $ 469
======== ======== ========
See notes 7 and 9 for interest and taxes paid,
respectively

Supplemental schedule of noncash investing
activities:
See Note 1 for assets acquired and liabilities
assumed in acquisitions.
During the year ended December 31, 1997, the
Company entered into a noninterest bearing note
payable to the former owners of ibex Aerospace,
Inc. in the amount of $850 as a result of the
acquisition of this business (see Notes 1 and
7).

See notes to consolidated financial statements.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNLESS SPECIFIED, DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)

1. BUSINESS DESCRIPTION, RECAPITALIZATION and ACQUISITIONS

Business Description

Communications Instruments, Inc. and Subsidiaries (the "Company") is engaged
in the design, manufacture and distribution of electromechanical, electronic
and filter products, which include high performance relays, general purpose
relays, solenoids and EFI filters for the commercial/industrial equipment,
commercial airframe, defense/aerospace, communications, automotive and
automatic test equipment industries. Manufacturing and assembly operations are
performed primarily in North Carolina, California, Virginia, Ohio, Illinois,
Texas, Germany and Juarez, Mexico. The Company is a wholly owned subsidiary of
CII Technologies Inc. (the "Parent").

Recapitalization

On September 18, 1997, the Company entered into a series of recapitalization
transactions (collectively, the "Transactions"). These transactions are
described below.

Code, Hennessy & Simmons III, L.P., certain members of Company management
and certain other investors (collectively, the "New Investors") acquired
approximately 87% of the capital stock of the Parent. Certain of the Parent's
existing stockholders, including certain members of management, retained
approximately 13% of the Parent's capital stock (collectively, the
"Recapitalization").

Concurrently, the Company issued $95.0 million of 10% Senior Subordinated
Notes due 2004 (the "Old Notes") pursuant to an Indenture, dated September 18,
1997, by and among Communications Instruments, Inc., Kilovac, Kilovac
International, Inc. ("Kilovac International") and Norwest Bank Minnesota,
National Association (the "Indenture") through a private placement offering
permitted by Rule 144A of the Securities Act of 1933, as amended (the
"Offering"). On January 30, 1998, the Company filed a registration statement
with the Securities and Exchange Commission for the registration of its 10%
Senior Subordinated Notes due 2004, Series "B" (the "Notes") to be issued in
exchange for the Old Notes (the "Exchange"). The registration statement became
effective on January 30, 1998 and the Exchange was completed on March 9, 1998.

Also, on September 18, 1997, the Company borrowed approximately $2.7 million
pursuant to a new senior credit facility with a syndicate of financial
institutions providing for revolving loans of up to $25.0 million (the "Old
Senior Credit Facility").

The Company repaid approximately $29.3 million of outstanding obligations
under the then existing credit facility (the "Old Credit Facility"), including
a success fee of approximately $1.5 million in connection therewith and certain
other liabilities (the "Refinancing").

The Company paid a dividend of approximately $59.4 million to the Parent
(the "Dividend"), which was used by the Parent in conjunction with the proceeds
of issuances of the Parent's common stock (approximately $9.8 million), the
Parent's preferred stock (approximately $2.0 million) and junior subordinated
debt of the Parent (approximately $12.7 million) as follows: approximately
$71.5 million was used to purchase shares of the Parent's capital stock from
existing shareholders; approximately $3.5 million was used to pay
Recapitalization and other financing expenses; and approximately $7.6 million
was used to repay certain indebtedness of the Parent.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Acquisitions

Acquisitions, unless otherwise noted below, are accounted for as purchases.
The purchase prices are allocated to the assets acquired and liabilities
assumed based on their relative fair values, and any excess cost is allocated
to goodwill. The fair value of significant property, plant and equipment and
intangibles and other assets acquired are determined generally by appraisals.

Hartman Electrical Division

On July 2, 1996, the Company purchased certain assets and assumed certain
liabilities of the Hartman Electrical Division ("Hartman") of Figgie
International, Inc. for an aggregate purchase price of approximately $13.024
million including acquisition costs of approximately $1.0 million (the "Hartman
Acquisition"). Hartman is a manufacturer and marketer of high current
electromechanical relays for critical applications in the military and
commercial aerospace markets. The transaction was financed through additional
borrowings of approximately $13.0 million on the Old Credit Facility.

Kilovac Corporation 20% Purchase

On September 18, 1997, the Company purchased for approximately $4.5 million
the remaining 20% of the outstanding stock of Kilovac Corporation ("Kilovac")
that the Company did not then own (the "Kilovac Purchase"). The transaction was
financed through proceeds from the Recapitalization and the issuance of senior
subordinated notes.

On October 11, 1995, the Company had purchased an 80% ownership interest in
Kilovac for an aggregate purchase price of approximately $15.681 million
including acquisition costs of approximately $1.3 million. Kilovac designs and
manufactures high voltage electromechanical relays. The Company was obligated
to purchase the remaining 20% interest in Kilovac at the option of the selling
shareholders on either December 31, 2000 or December 31, 2005, or upon the
occurrence of certain events, if earlier, at an amount determined in accordance
with the terms of the purchase agreement. An estimated $2.3 million ($694 and
$468 , net of tax at December 31, 1997 and 1998) was initially payable to the
sellers upon the future realization of potential tax benefits associated with a
net operating loss carryforward.

ibex Aerospace Inc.

On October 31, 1997, the Company acquired certain assets and assumed certain
liabilities of ibex Aerospace Inc. ("ibex") for approximately $2.0 million (the
"ibex Acquisition"). Of the $2.0 million, approximately $1.3 million was paid
at closing. The Company issued a noninterest bearing note payable to the
sellers in the amount of $850 (discounted to $697) for the remainder of the
purchase price. This note is payable on October 31, 1999. Ibex was a
manufacturer and marketer of high current electromechanical relays for critical
applications in the military and commercial aerospace markets. In 1998, ibex
was consolidated into Hartman. The transaction was financed through a draw on
the Company's Old Senior Credit Facility and the issuance of the note payable
to the sellers discounted to $697.

Pro forma financial information is not presented relating to the ibex
Acquisition as this entity was not a significant subsidiary of the Company in
1997.

Genicom Relays Division

On December 1, 1997, the Company acquired certain assets and assumed certain
liabilities of the Genicom Relays Division ("GRD") of Genicom Corporation
("Genicom") for approximately $4.7 million (the "GRD Acquisition"). GRD,
located in Waynesboro, Virginia, is a manufacturer of high performance signal
relays. The GRD Acquisition was financed by a draw on the Company's Old Senior
Credit Facility.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has announced the relocation of the manufacturing in its
Waynesboro, VA facility to its facilities in North Carolina. These plans were
finalized in late 1998. The relocation will be completed by the end of 1999.
The estimated costs of this facility relocation, including estimated costs of
employee separation and preparing the North Carolina facilities for the
relocation, are approximately $1.0 million. Management expects that a
significant portion of these costs will be expensed as incurred during 1999.

Wilmar Electronics Inc.

On May 6, 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1
million (the "Wilmar Acquisition"). Wilmar was a producer of high performance
protective relays. Wilmar was consolidated into the Company's Kilovac
subsidiary in June 1998. The Wilmar Acquisition was financed with a draw on the
Company's Old Senior Credit Facility.

Pro forma financial information is not presented relating to the Wilmar
Acquisition as this entity was not a significant subsidiary of the Company in
1998.

Corcom, Inc.

On June 19, 1998, the Company acquired all of the outstanding capital stock
of Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of
RF Acquisition Corp., a newly formed wholly owned subsidiary of the Company,
with and into Corcom (the "Corcom Merger"). The Company paid $13.00 per share
to the shareholders of Corcom in exchange for the shares received in the Merger
(approximately $51.1 million in the aggregate). The Company used a portion of
the proceeds of $48.1 million of borrowings under a $60.0 million credit
facility entered into with Bank of America National Trust and Savings
Association on June 19, 1998 (the "Senior Credit Facility"), additional paid-in
capital of $5.0 million contributed by the Parent, and $7.4 million in cash
from Corcom to finance the Merger, repay $7.4 million of debt and fund the
related merger costs. Corcom is an electromagnetic interference filter
manufacturer located in Libertyville, Illinois.

The allocation of purchase price is subject to final determination based on
changes in certain estimates that may occur within the first year of
operations. Management believes that there will be no material changes to the
allocation of the purchase price.

Cornell Dubilier

On July 24, 1998, the Company purchased certain assets and assumed certain
liabilities of the Cornell Dubilier electronics relay division ("CD") for $848
(the "CD Acquisition"). During 1998, CD was consolidated into the Midtex
Division. The CD Acquisition was financed through a draw on the Company's
Senior Credit Facility.

Pro forma financial information is not presented relating to the CD
Acquisition as this entity was not a significant subsidiary of the Company in
1998.

The following summarizes the purchase price allocations as of the respective
dates of acquisition:

Hartman Kilovac ibex GRD Wilmar Corcom CD
Acquisition Purchase Acquisition Acquisition Acquisition Merger Acquisition
----------- -------- ----------- ----------- ----------- -------- -----------

Current assets.......... $10,229 $ 47 $1,041 $3,887 $ 381 $ 12,761 $505
Property, plant and
equipment.............. 3,172 169 150 2,045 80 7,374 82
Intangibles and other
assets................. 3,799 4,577 1,762 24 2,023 35,550 380
Liabilities assumed..... (4,176) (293) (965) (1,273) (356) (10,635) (119)
------- ------ ------ ------ ------ -------- ----
Purchase price, net of
acquired cash.......... $13,024 $4,500 $1,988 $4,683 $2,128 $ 45,050 $848
======= ====== ====== ====== ====== ======== ====

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following unaudited 1996 pro forma financial information shows the
results of operations of the Company as though the Hartman Acquisition, the
Kilovac Purchase, the Transactions and the GRD Acquisition occurred as of
January 1, 1996. The following unaudited 1997 pro forma financial information
shows the results of operations of the Company as though the Kilovac Purchase,
the Transactions, the GRD Acquisition and the Corcom Merger occurred as of
January 1, 1997. The following unaudited 1998 pro forma financial information
shows the results of operations as though the Corcom Merger occurred as of
January 1, 1998. These results include, but are not limited to, the straight
line amortization of excess purchase price over the net assets acquired over a
thirty year period and an increase in interest expense as a result of the debt
borrowed to finance the transactions.

1996 1997 1998
------- -------- --------

Net sales..................................... $90,812 $140,568 $136,314
Operating income.............................. 8,654 18,862 18,339
Income (loss) before extraordinary item....... (2,671) 1,306 1,878
Net income (loss)............................. (2,671) 908 1,527

The unaudited pro forma financial information presented above does not
purport to be indicative of either (i) the results of operations had the Corcom
Merger taken place on January 1, 1998, had the Kilovac Purchase, the
Transactions, the GRD Acquisition and the Corcom Merger taken place on January
1, 1997, or had the Hartman Acquisition, the Kilovac Purchase, the Transactions
and the GRD Acquisition taken place on January 1, 1996 or (ii) future results
of operations of the combined businesses.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The accompanying consolidated financial
statements include Communications Instruments, Inc. and its wholly owned
subsidiaries, Electro-Mech S.A., Kilovac and Corcom. All intercompany
transactions have been eliminated in consolidation.

Cash and Cash Equivalents--All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.

Investment--In November 1995, the Company formed a joint venture in India
with Guardian Controls Ltd., an Indian Company, a bank and certain financial
investors. The Company has a 40% interest in the joint venture which was formed
for the purpose of manufacturing relays, relay components, and subassemblies in
India for the domestic Indian market and global markets. The Company accounts
for the joint venture using the equity method. The joint venture started
production during the fourth quarter of 1996. The balance of the investment in
the joint venture at December 31, 1997 and 1998, was $108 and $171,
respectively.

Revenue Recognition--Except as stated below, sales and the related cost of
sales are recognized upon shipment of products sold, net of estimated discounts
and allowances.

Certain sales of Kilovac, which constitute an immaterial component of total
consolidated sales, represent revenues received under long-term fixed price
development contracts. Revenues under these contracts are recognized based on
the percentage of completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. Costs in excess of
contract revenues on cost sharing development contracts are expensed in the
period incurred as costs of sales. Provision for estimated losses, if any, on
fixed price contracts is made in the period such losses are determined by
management.

Certain sales of Hartman represent revenues received under long-term
commercial and governmental contracts. Provision for estimated losses, if any,
on long-term contracts is made in the period such losses are determined by
management.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Warranty Costs--Estimated warranty costs are provided based on known claims
and historical claims experience.

Allowance for Doubtful Accounts--Allowance for doubtful accounts is provided
based on management's assessment of collectibility of the Company's accounts
receivable and historical experience. The changes in the allowance for doubtful
accounts receivable consist of the following at December 31:

1996 1997 1998
----- ---- -----

Allowance, beginning of year......................... $ 420 $466 $ 796
Provision for (recovery of) uncollectible accounts... 93 428 (42)
Write-off of uncollectible accounts, net............. (147) (98) (383)
Effect of acquisitions and other..................... 100 -- 108
----- ---- -----
Allowance, end of year............................... $ 466 $796 $ 479
===== ==== =====

The write-off of uncollectible accounts in 1998 relates primarily to one
customer receivable balance, which was provided for during 1997. The Company
settled the claim made by this customer during 1998.

Inventories--Inventories are stated at the lower of cost (first-in, first-
out method) or market.

Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty years.

Goodwill--Goodwill represents the excess of cost over net assets acquired
and is being amortized by the straight-line method over the estimated period
benefited of thirty years due to the long life cycles of the products. The
Company evaluates goodwill for impairment based on anticipated undiscounted
future cash flows.

Intangible Assets--Intangible assets are amortized on a straight-line basis
over the estimated lives of the related assets or, in the case of the debt
issuance costs, using a method which approximates the effective interest method
over the life of the related debt issue.

Income Taxes--The Company accounts for income taxes using an asset and
liability approach as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities. The Company files a
consolidated Federal income tax return with the Parent. Current and deferred
tax expenses are allocated to the Company from the Parent as if the Company
filed a separate tax return.

Long-lived Assets--The Company analyzes the carrying value of intangible
assets and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

Research and Development--Research and development costs are charged to
expense as incurred.

Use of Estimates in the Preparation of Financial Statements--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reporting period. Actual results could differ from those estimates. Examples of
significant estimates and assumptions made in the preparation of these
financial statements include the Company's allowance for doubtful accounts,
reserves for inventory obsolescence, fair values of assets acquired and
liabilities assumed in connection with purchase business combinations, accrual
for environmental remediation costs, and provision for losses, if any, to be
incurred on fixed price sales contracts.

Fair Value of Financial Instruments--The estimated fair values of the
Company's financial instruments, including primarily cash and cash equivalents,
accounts receivable and accounts payable, approximate their carrying values at
December 31, 1997 and 1998, due to their nature. The fair value of the
Company's Senior Credit Facility (as defined) is estimated using the current
rates that would be available for borrowing a like amount from the bank and the
fair value of the Notes (as defined) is estimated based on quoted market
prices.

Accumulated Other Comprehensive Income (Loss)--Accumulated other
comprehensive income (loss) is comprised solely of foreign currency translation
adjustments. Financial information related to foreign operations is translated
into US dollars based on exchange rates as obtained from a local U.S. bank and
The Wall Street Journal. Assets and liabilities are translated based on rates
in effect on the balance sheet date. Income statement amounts are translated
using average exchange rates in effect during the period. The income tax effect
of the foreign currency translation adjustments was not material for any year
during the three year period ended December 31, 1998.

New Accounting Standard--The Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for all fiscal quarters beginning after June 15, 1999. The new
standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company has not
determined at this time what impact, if any, that this new accounting standard
will have on its financial statements.

Reclassifications--Certain 1996 and 1997 amounts have been reclassified to
conform with the 1998 presentation.

3. INVENTORIES

Inventories consist of the following at December 31:

1997 1998
------- -------

Finished goods......................................... $ 2,882 $ 6,786
Work-in-process........................................ 8,981 9,093
Raw materials and supplies............................. 12,520 17,401
Reserve for obsolescence............................... (5,006) (6,624)
------- -------
Total.............................................. $19,377 $26,656
======= =======

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at December 31:

1997 1998
------- -------

Land and land improvements.............................. $ 655 $ 1,450
Buildings............................................... 2,645 3,290
Machinery and equipment................................. 23,577 32,715
Construction in progress................................ 662 489
------- -------
27,539 37,944
Less accumulated depreciation........................... (10,715) (15,103)
------- -------
Total............................................... $16,824 $22,841
======= =======

Property, plant and equipment generally are depreciated using the following
lives: land improvements--7 years, buildings--20 years and machinery and
equipment--3 to 8 years.

5. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

Range of
1997 1998 Asset Lives
------ ------- -----------

Debt issuance costs.......................... $4,763 $ 4,937 5-7
Covenants not to compete..................... 380 675 2.5-5
Patents and patent application............... 2,069 6,534 11-17
Trademarks................................... 450 5,085 30
Acquired workforce........................... -- 1,390 5
Acquired customer base....................... -- 1,710 14
Acquired computer software -- 290 4
Other........................................ 3 3 5
------ -------
7,665 20,624
Less accumulated amortization................ (696) (1,919)
------ -------
Total.................................... $6,969 $18,705
====== =======

6. OTHER ACCRUED LIABILITIES

Significant items comprising this account balance at December 31, 1997 and
1998, respectively, were accrued loss contingencies related to long-term sales
contracts of $573 and $150, accrued warranty liabilities of $736 and $391, and
accrued vacation liabilities of $1,011 and $1,087, respectively.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. LONG-TERM DEBT

Long-term debt consists of the following at December 31:

1997 1998
-------- --------

Senior Credit Facility term loan payable to a bank due in
quarterly installments of $1,000 from March 31, 1999
through June 30, 1999, $1,375 from September 30, 1999
through June 30, 2000, $1,750 from September 30, 2000
through June 30, 2001, $2,125 from September 30, 2001
through June 30, 2002, and $2,500 from September 30, 2002
to the final $2,500 payment on June 19, 2003. Interest is
at base rate, or LIBOR rate, plus applicable margin. $ -- $ 33,000
Senior Credit Facility revolving loan payable to a bank
due June 19, 2003. Interest at base rate, or LIBOR rate,
plus applicable margin. -- 9,700
Old Senior Credit Facility revolving loan payable to a
bank, repaid in 1998. Interest at base rate, or LIBOR
rate, plus applicable margin. 5,800 --
10% Senior Subordinated Notes due 2004, Series "B" 95,000 95,000
Note payable to former owners of ibex Aerospace Inc., non-
interest bearing note discounted using 10% interest rate,
due October 31, 1999 708 782
Note payable to the City of Mansfield, 6% interest rate,
due in four equal annual installments of $25 to the final
payment on May 22, 2002 -- 100
Obligations under capital leases 114 99
-------- --------
101,622 138,681
Less--current portion (56) (5,637)
-------- --------
Total $101,566 $133,044
======== ========

Debt maturities at December 31, 1998 are as follows:

1999............................................................. $ 5,637
2000............................................................. 6,294
2001............................................................. 7,775
2002............................................................. 9,275
2003............................................................. 14,700
Thereafter....................................................... 95,000
--------
Total........................................................ $138,681
========

The Company has a borrowing arrangement with a bank which provides for a
maximum credit facility of $60.0 million (including $3.0 million for stand-by
letters of credit), limited by outstanding indebtedness under the initial $35.0
million term loan agreement, or availability under the borrowing base, as
defined in the loan agreement (the "Senior Credit Facility"). The amount
available for borrowings under the Senior Credit Facility at December 31, 1998
was approximately $14.4 million. All funds may be borrowed as either a base
rate loan, or LIBOR loan. For base rate loans and LIBOR loans an applicable
margin is added to the base rate interest rate or the LIBOR interest rate based
on a Consolidated Senior Leverage Ratio Level (as defined in the Senior Credit
Facility). The base rate is the higher of a Reference Rate (as defined in the
Senior Credit Facility) or the federal funds rate plus 1/2%. At December 31,
1998, LIBOR borrowing rates ranged from 7.625%-8.125%. At December 31, 1998,
the base-rate borrowing rate was a 9.25%. The weighted average borrowing rate
on the Senior Credit Facility, calculated based on borrowings outstanding at
December 31, 1998 under base rate and LIBOR loans, was 7.74%. The weighted
average borrowing rate on the Old Senior Credit Facility at December 31, 1997
was 8.68%. The estimated fair value of the Senior Credit Facility approximates
its carrying value at December 31, 1997 and December 31, 1998.

The Company and its wholly owned subsidiaries, Kilovac and Kilovac
International, have guaranteed the 10% Senior Subordinated Notes (the "Notes")
on a full, unconditional, and joint and several basis, which

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

guarantees are fully secured by the assets of such guarantors. The Company and
its wholly-owned subsidiaries, including Kilovac and Kilovac International,
have guaranteed the Senior Credit Facility on a full, unconditional, and joint
and several basis, which guarantees are fully secured by the assets of such
guarantors.

Interest on the 10% Senior Subordinated Notes is payable semi-annually in
arrears on March 15 and September 15 of each year and began on March 15, 1998.
The Notes will mature on September 15, 2004, unless previously redeemed, and
the Company will not be required to make any mandatory redemption or sinking
fund payment prior to maturity except in connection with a change in ownership.
The Notes may be redeemed, in whole or in part at any time, on or after
September 15, 2001 at the option of the Company, at the redemption prices set
forth in the Indenture, plus, in each case, accrued and unpaid interest and
premium, if any, to the date of redemption. In addition, at any time prior to
September 15, 2000, the Company may, at its option, redeem up to 33.3% in
aggregate principal amount of the Notes at a redemption price of 110% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption, with the net cash proceeds of an equity offering (as defined in the
Indenture), provided that not less than $63.4 million aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of
such redemption. The estimated fair value of the Notes at December 31, 1997 and
1998 was approximately $95.0 million and $91.2 million, respectively.

Letters of credit outstanding under credit facilities at December 31, 1997
and 1998 were $850 and $950, respectively.

The Senior Credit Facility requires the Company to pay commitment fees at an
annual rate of 0.5% on the undrawn amount of the Senior Credit Facility,
subjected to adjustment based on the Consolidated Senior Leverage Ratio of the
Company.

On June 19, 1998, the Company extinguished all outstanding debt which was
outstanding at December 31, 1997, under the Old Senior Credit Facility. The
extraordinary loss recorded in the 1998 consolidated statement of operations
relates to the write-off of the unamortized portion of the debt issuance costs
related to the Old Senior Credit Facility. On September 18, 1997, the Company
extinguished all debt which was outstanding at December 31, 1996, under former
debt agreements (see Note 1). The extraordinary loss recorded in the 1997
consolidated statement of operations relates to the write-off of the
unamortized portion of the debt issuance costs related to such former debt
agreements.

The terms of the Senior Credit Facility and the Indenture (see Note 1) place
certain restrictions on the Company including, but not limited to, the
Company's ability to incur additional indebtedness, incur liens, pay dividends
or make certain other restricted payments (as defined), consummate certain
asset sales, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of the assets of the Company and its subsidiaries. The Senior
Credit Facility also contains financial covenants including interest coverage
ratios, leverage ratios, limitations on capital expenditures and minimum levels
of consolidated earnings before interest, taxes, depreciation and amortization,
as defined by the Senior Credit Facility. As of December 31, 1998, the Company
was in compliance with the financial covenants of the Senior Credit Facility
and the Indenture.

Interest Expense and Other Financing Costs--Interest expense and other
financing costs include interest expense and costs associated with an initial
public offering withdrawn by the Company during 1996. Interest expense and
other financing costs for the years ended December 31, 1996, 1997 and 1998 are
as follows:

1996 1997 1998
------ ------ -------

Interest expense.................................... $3,427 $6,573 $12,552
Other financing costs............................... 1,628 -- --
------ ------ -------
Total........................................... $5,055 $6,573 $12,552
====== ====== =======

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In addition, commitment fees and other expenses incurred in connection with
a credit facility to provide financing in the event that the Offering was not
consummated (cancellation fees) were $800 in the year ended December 31, 1997.

On September 18, 1997, the Company paid a success fee to the lender of the
Old Credit Facility, which was based upon the market value or appraised value
of the Company on the valuation date, as required by a change in control per
the terms of the agreement. The amount of the success fee paid was $1,466. At
December 31, 1996, $567 was accrued related to this fee, based on management's
estimate of the value of the Company. The remainder of the fee was charged to
1997 operations and is included in interest expense and other financing costs
in the accompanying 1997 consolidated statement of operations.

Interest paid amounted to $2,826, $4,129 (including success fee) and $12,694
for the years ended December 31, 1996, 1997 and 1998, respectively.

8. LEASES

The Company leases certain office equipment under capital lease
arrangements. The leased assets have a net book value of $114 and $99 at
December 31, 1997 and 1998, respectively. The future minimum lease obligation
under capital leases as of December 31, 1997 and 1998, is included in long-term
debt (see Note 7).

The Company leases certain premises and equipment under noncancelable
operating leases which have remaining terms from one to five years and which
provide for various renewal options. Total rent expense charged to operations
was approximately $815, $1,053 and $1,340 for the years ended December 31,
1996, 1997 and 1998, respectively.

Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1998 are as follows:

1999............................................................... $1,297
2000............................................................... 768
2001............................................................... 435
2002............................................................... 132
2003............................................................... 23
------
Total.......................................................... $2,655
======

9. INCOME TAXES

The significant components of income tax expense are:

Year Ended December
31,
----------------------
1996 1997 1998
------ ------ ------

Current tax expense:
Federal......................................... $1,404 $2,724 $2,370
State........................................... 175 453 368
Foreign......................................... 41 60 104
------ ------ ------
Total current tax expense......................... 1,620 3,237 2,842
Deferred tax benefit.............................. (500) (401) (471)
------ ------ ------
Total tax expense............................. $1,120 $2,836 $2,371
====== ====== ======

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In addition, the Company recorded an income tax benefit from an
extraordinary item totaling $266 and $234 during the years ended December 31,
1997 and 1998, respectively. Income tax payments amounted to approximately
$1,142, $2,251 and $1,574 for the years ended December 31, 1996, 1997 and 1998,
respectively.

The Company's effective tax rate differs from the statutory rate for the
following reasons:

Year Ended
December 31,
----------------
1996 1997 1998
---- ---- ----

Provision at statutory Federal tax rate............... 34.0% 34.0% 34.0%
Effective state income tax rate....................... 3.5 4.4 3.0
Nondeductible meals, entertainment and officers' life
insurance expenses................................... 0.9 0.4 0.7
Mexican income taxes.................................. 1.5 0.9 1.9
Nondeductible goodwill................................ -- 1.5 5.3
Other, net............................................ 0.9 (0.3) (0.6)
---- ---- ----
40.8% 40.9% 44.3%
==== ==== ====

Deferred income taxes consisted of the following at December 31:

1997 1998
------ -------

Current deferred tax assets:
Federal net operating loss carryforward............... $ 222 $ --
State net operating loss carryforward................. 57 --
Other................................................. 2,287 2,584
------ -------
Total current deferred tax assets....................... 2,566 2,584
Current deferred tax liabilities........................ 436 338
------ -------
Total current deferred tax assets, net.................. $2,130 $ 2,246
====== =======
Long-term deferred tax assets:
Accrued expenses...................................... $ 428 $ 440
Federal net operating loss carryforward............... 886 1,470
State net operating loss carryforward................. 106 159
Federal tax credit carryforward....................... 317 848
------ -------
1,737 2,917
Less--Valuation allowance............................. (110) (75)
------ -------
Total long-term deferred tax assets..................... 1,627 2,842
------ -------
Long-term deferred tax liabilities:
Property and equipment................................ 2,437 3,401
Intangibles........................................... 862 5,448
Other................................................. 190 1,034
------ -------
Total long-term deferred tax liabilities................ 3,489 9,883
------ -------
Total long-term deferred tax liabilities, net........... $1,862 $ 7,041
====== =======
Deferred tax assets (liabilities), net.................. $ 268 $(4,795)
====== =======

At December 31, 1998, the Company had a Federal net operating loss
carryforward of approximately $4.7 million which expires beginning in 2010.
Internal Revenue Code Section 382 imposes certain limitations on the ability of
a taxpayer to utilize its Federal net operating losses in any one year if there
is a change in ownership

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of more than 50% of the Company. Management has considered the Section 382
limitation and believes that it is more likely than not that the entire Federal
net operating loss carryforward will be utilized. For state tax purposes,
California tax law limits loss carryforwards to a five-year period. A valuation
allowance has been recorded relating to Kilovac for the portion of the
California net operating loss carryforward which may not be realized due to the
previously mentioned limitation. In addition, Kilovac has Federal general
business and alternative minimum tax credit carryforwards subject to Internal
Revenue Code Section 382 which expire beginning in 2016. Realization of tax
benefits is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. The amount of the deferred tax asset
considered realizable could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

10. CONTINGENCIES

Litigation

From time to time the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business. While the
outcome of these lawsuits and proceedings cannot be predicted with certainty,
management believes that the lawsuits and proceedings, either singularly or in
the aggregate, would not have a material adverse effect on the financial
condition or results of operations of the Company.

Environmental Remediation

The Company has been notified by the State of North Carolina Department of
Environment, Health & Natural Resources ("NCDHNR") that its manufacturing
facility in Fairview, North Carolina has sites containing hazardous wastes
resulting from activities by a prior owner (the "Prior Owner"). Additionally,
the Company has been identified as a potentially responsible party for
remediation at two superfund sites which formerly were used by hazardous waste
disposal companies employed by the Company.

Several soil and groundwater contaminations have been noted at the Fairview
facility, the most serious of which is TCE contamination in the groundwater.
Remedial investigations have been on-going at the facility and the NCDHNR has
placed the facility on the Inactive Hazardous Sites Inventory. Soil remediation
was completed in January 1996 and the groundwater remediation system was
formally set in operation on April 1, 1997.

In the acquisition agreement of the predecessor company, the Company
obtained indemnity from the selling shareholders for any environmental clean up
costs as a result of existing conditions which would not be paid by the Prior
Owner. The indemnity was limited to the extent of amounts owed to the selling
shareholders through the subordinated note.

On May 11, 1995, the Company reached a settlement with the Prior Owner which
resulted in a cash deposit of $1.75 million to an escrow account and an
obligation for the Prior Owner to pay to the escrow account after the
groundwater remediation system has been operating at least at 90% capacity for
three years, an amount equal to the lesser of 90% of the present value of the
long term operating and maintenance costs of the groundwater remediation system
or $1.25 million. The Company has reflected the present value of the
receivable, discounted at 5% (approximately $1.16 million and $1.22 million at
December 31, 1997 and 1998, respectively) and the cash as restricted assets as
the funds are held in escrow to be used specifically for the Fairview facility
environmental remediation and monitoring and will become unrestricted only when
the NCDHNR determines that no further action is required.

In October, 1995, the Company released the selling shareholders from their
indemnity obligation. This action resulted in the recording of a separate
environmental remediation liability and the recognition in 1995 operations of
an expense of $951 of environmental related costs which are not covered under
the settlement

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with the Prior Owner. The environmental remediation liability is recorded at
the present value, discounted at 5%, of the best estimate of the cash flows to
remediate and monitor the remediation over the estimated thirty year
remediation period, which was developed by a third party environmental
consultant based on experience with similar remediation projects and methods
and taking inflation into consideration.

Total amounts estimated to be paid related to environmental liabilities are
approximately $3.814 million calculated as follows at December 31, 1998:

1999............................................................. $ 135
2000............................................................. 135
2001............................................................. 135
2002............................................................. 135
2003............................................................. 135
Thereafter....................................................... 3,139
-------
3,814
Discount to present value........................................ (1,461)
-------
Liability at present value....................................... $ 2,353
=======

Assets recorded in relation to the above environmental liabilities are
approximately $1.605 million and $1.56 million at December 31, 1997 and 1998,
respectively.

In connection with the Hartman Acquisition, the Company entered into an
agreement (the "Lease") pursuant to which it leases from the former owner of
Hartman a manufacturing facility in Mansfield, Ohio (the "Mansfield Property"),
at which Hartman has conducted operations. The Mansfield Property may contain
contamination at levels that will require further investigation and may require
soil and/or groundwater remediation. As a lessee of the Mansfield Property, the
Company may become subject to liability for remediation of such contamination
at and/or from such property, which liability may be joint and several except
under certain circumstances. The Lease of the Mansfield Property includes an
indemnity from the former owner of Hartman to the Company for certain
environmental liabilities in connection with the Mansfield Property, subject to
a dollar limitation of $12.0 million (the "Indemnification Cap"). In addition,
the former owner has placed $515 in escrow for potential environmental
remediation costs at the Mansfield Property to be credited towards the
Indemnification Cap as provided in the Lease. The Company believes that, while
actual remediation costs may exceed the cash amount escrowed, such costs will
not exceed the Indemnification Cap. Accordingly, no liability has been recorded
in the accompanying consolidated financial statements for the potential
environmental remediation.

11. EMPLOYEE BENEFITS

The Company has a self-funded welfare benefit plan (the "Plan") for its
employees. The Plan was formed in 1981 to provide hospitalization and medical
benefits for substantially all full-time employees of the Company and their
dependents. The Plan is funded principally by employer contributions in amounts
equal to the benefits provided. Employee contributions vary depending upon the
amount of coverage elected by the employee. Employer contributions amounted to
$792, $1,252 and $2,437 for the years ended December 31, 1996, 1997 and 1998,
respectively.

Effective January 1, 1988, the Company implemented an investment retirement
plan (the "Retirement Plan") pursuant to Section 401(k) of the Internal Revenue
Code for all employees who qualify based on tenure with the Company. The
Retirement Plan provides for employee and Company contributions subject to
certain limitations. The cost of the Retirement Plan charged to operations was
approximately $297, $412 and $348 during the years ended December 31, 1996,
1997 and 1998, respectively.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. STOCK PLAN

On September 18, 1997, the Parent adopted the 1997 Management Stock Plan
(the "1997 Plan"). The 1997 Plan is administered by the Compensation Committee
of the Board of Directors. All employees of the Company who are selected by the
Compensation Committee are eligible to participate in the 1997 Plan. The 1997
Plan provides for the granting of non-qualified incentive stock options. The
shares of common stock issuable under the 1997 Plan are common shares of the
Parent and may be either authorized unissued shares, or treasury shares, or any
combination thereof. A total of 53,163 shares of the Parent's common stock are
subject to options under the 1997 Plan, subject to adjustment at the discretion
of the Compensation Committee or the Board of Directors. The Company accounts
for options granted under the 1997 Plan in accordance with the requirements of
Accounting Principles Board Opinion No. 25 and related interpretations.

The Company granted 2,658 shares under the 1997 Plan during 1998 (no grants
were issued in 1997). All such shares granted expire on December 31, 2007,
subject to earlier expiration in certain circumstances. Shares under option
vest as follows: 33 1/3% of the options vested immediately, 33 1/3% vested on
December 31, 1998, and the remaining 33 1/3% vest on December 31, 1999. All
stock options were granted at an exercise price of $10.00 per share, which was
the issuance price of the Parent's stock at the time of the Recapitalization
(see Note 1) and the estimated fair value of the Parent's stock at the date of
the grant. Accordingly, no compensation cost for such grants has been reflected
in the Company's 1998 consolidated statement of operations.

A summary of stock option activity under the 1997 Plan is as follows:

1998
-----

Granted during year................................................ 2,658
Exercised during year.............................................. (417)
Forfeited during year.............................................. (76)
-----
Outstanding at December 31......................................... 2,165
=====
Exercisable at December 31......................................... 1,302
=====

The exercise price of all options granted, exercised and forfeited during
1998, and of all of the options outstanding and exercisable at December 31,
1998 was $10.00 per share.

The Parent's common stock is closely held by Code, Hennessy & Simmons III,
LP, certain members of Company management and certain other investors. Based on
information available to the Company, including trading activity in the
Parent's common stock during 1998, the Company has determined that compensation
cost, had it been determined based on the fair value at the grant date for
options under the 1997 Plan, would have been immaterial. As such, management
believes the pro forma effect on net income for the year ended December 31,
1998 is immaterial.

13. SIGNIFICANT CUSTOMERS

Approximately 20% of the Company's net sales in 1998 were made, directly or
indirectly, to the U.S. Department of Defense.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. RELATED PARTY TRANSACTIONS

Nonemployee shareholder groups (or their affiliates) of the Parent provide
management services to the Company. In connection with the Recapitalization,
the Company entered into an agreement with CHS Management III, L.P., ("CHS
Management"), an affiliate of Code, Hennessy & Simmons, Inc., pursuant to which
the Company will pay $500,000 per year to CHS Management for financial and
management services provided by CHS Management. The term of this agreement is
five years, subject to automatic renewal unless either CHS Management or the
Company elects to terminate (subject to earlier termination in certain
circumstances). The Company was charged $150, $283 and $529 for services
provided by CHS Management or other nonemployee shareholder groups of the
Parent for the years ended December 31, 1996, 1997 and 1998, respectively.
Additionally, such groups were paid $130 in 1996 for fees related to the
Hartman acquisition, $267 in 1997 for fees related to the Recapitalization, and
$300 in 1998 for fees related to the Corcom Merger (see Note 1).

Included in Other Accrued Liabilities at December 31, 1998 are payables owed
to the Parent of approximately $458. Such amounts are due to the Parent
primarily as a result of a tax sharing agreement between the Company and the
Parent.

15. BUSINESS SEGMENTS

The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The adoption
of SFAS No. 131 results in revised and additional disclosures but had no effect
on the financial position or results of operations of the Company. The
information for 1996 and 1997 has been restated from the prior year's
presentation in order to conform to the 1998 presentation.

The Company has five business units which have separate management teams and
infrastructures that offer electronic products. These five business units have
been aggregated into two reportable segments that are managed separately
because each operating segment represents a strategic business platform that
offers different products and serves different markets.

The Company's two reportable operating segments are: (i) the High
Performance Group ("HPG") and (ii) the Specialized Industrial Group ("SIG").
HPG includes the Communications Instruments Division, Kilovac and Hartman.
Products manufactured by HPG include high performance signal level relays and
power relays, high voltage and power switching relays, solenoids and other
electronic products. HPG accounted for 74% of 1998 consolidated net sales. SIG
includes Corcom and the Midtex Division. Products manufactured by SIG include
RFI filters and general purpose relays. SIG accounted for 26% of 1998
consolidated net sales.

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (See Note 2).
Intersegment sales, which are eliminated in consolidation, are recorded at
standard cost.

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Financial information for the Company's operating segments and a
reconciliation of reportable segment net sales, operating income, and assets to
the Company's consolidated totals are as follows:

1996 1997 1998
------- ------- --------

Net sales:
High Performance Group.......................... $56,145 $77,483 $ 89,089
Specialized Industrial Group.................... 10,434 12,201 31,363
Intersegment elimination (1).................... (243) (248) (422)
------- ------- --------
Consolidated net sales............................ $66,336 $89,436 $120,030
======= ======= ========
Operating income:
High Performance Group.......................... $ 6,210 $12,384 $ 14,769
Specialized Industrial Group.................... 1,426 1,944 3,309
------- ------- --------
Consolidated operating income..................... 7,636 14,328 18,078
------- ------- --------
Interest expense and other financing costs, net... (5,055) (6,573) (12,552)
Other income (expense), net....................... 201 (17) (171)
Cancellation fees................................. -- (800) --
------- ------- --------
Consolidated income before income taxes, minority
interest and extraordinary items................. $ 2,782 $ 6,938 $ 5,355
======= ======= ========
Depreciation and amortization expense:
High Performance Group.......................... $ 3,230 $ 3,819 $ 4,365
Specialized Industrial Group.................... 69 100 1,839
------- ------- --------
3,299 3,919 6,204
Amortization of debt issuance costs (2)......... 252 401 724
------- ------- --------
Consolidated depreciation and amortization
expense.......................................... $ 3,551 $ 4,320 $ 6,928
======= ======= ========
Purchases of property, plant and equipment:
High Performance Group.......................... $ 2,274 $ 1,953 $ 2,034
Specialized Industrial Group.................... 175 193 761
------- ------- --------
Consolidated capital expenditures................. $ 2,449 $ 2,146 $ 2,795
======= ======= ========
Assets:
High Performance Group.......................... $56,094 $71,403 $ 69,351
Specialized Industrial Group.................... 4,631 4,880 60,530
------- ------- --------
Consolidated assets............................... $60,725 $76,283 $129,881
======= ======= ========

- --------
(1)--represents net sales between HPG and SIG
(2)--included on the consolidated statements of cash flows as depreciation and
amortization and included in the consolidated statement of operations as
interest expense. Management does not consider these costs in managing the
operations of the reportable segments

COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

Financial information for the Company's net sales by Geographic Area is as
follows:

Net sales
------------------------
1996 1997 1998
------- ------- --------

United States.................................... $53,718 $74,703 $ 98,094
North America (Non US)........................... 1,748 3,226 4,853
United Kingdom................................... 4,272 3,554 7,020
Germany.......................................... 140 206 3,085
France........................................... 647 564 1,459
Japan............................................ 219 158 1,537
Other international.............................. 5,592 7,025 3,982
------- ------- --------
Total........................................ $66,336 $89,436 $120,030
======= ======= ========

Revenues are attributed to countries based on location of customer.

Direct and indirect net sales to the department of defense were
approximately 27% of HPG 1998 net sales and less than 1% of SIG 1998 net sales.

16. SUBSEQUENT EVENTS (UNAUDITED)

On January 29, 1999, the Company formed a joint venture, Shanghai CII
Electronics Co. Ltd. with Shanghai CI Electric Appliance Co. Ltd. Each party
holds 50% of the shares of the new company. The new joint venture is a
manufacturer and marketer of relay components. The Company's initial investment
is expected to be approximately $100.

On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation ("Products"), a marketer and
manufacturer of relays, transformers, and contactors for the HVAC industry.
Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4
million. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make
additional payments to the former shareholders of Products not to exceed $4.0
million in the aggregate. The payment of the purchase price and related fees
was financed by the issuance of $55.0 million of Tranche Term B loans, in
accordance with an amendment to the Senior Credit Facility, the contribution of
$5.0 million in additional paid in capital by the Parent, and a draw on the
revolving loan portion of the Company's Senior Credit Facility. Products has
manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and
Guttenberg, Iowa and has approximately 1,000 employees. The acquisition will be
accounted for under the purchase method of accounting.

********

PART IV

ITEM 14.--EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a)The following documents are filed as a part of this report:

1. Financial Statements.

2. None.

3. EXHIBITS.

2.1+ Agreement and Plan of Merger, dated as of March 10, 1998,
by and among the Company, RF Acquisition Corp. and Corcom,
Inc. is incorporated by reference to Report on Form 8-K
(File Number 333-38209).

3.1 Articles of Incorporation of the Company is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

3.2 By-laws of the Company is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

3.3 Articles of Incorporation of Kilovac Corporation ("Kilovac") is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).

3.4 By-laws of Kilovac Corporation is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

3.5 Articles of Incorporation of Kilovac International, Inc.
("Kilovac International") is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

3.6 By-laws of Kilovac International is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

3.7 Amended and Restated Articles of Incorporation of Corcom,
Inc.

3.8 By-laws of Corcom, Inc.

4.1 Indenture dated as of September 18, 1997 by and among the
Company, Kilovac, Kilovac International and Norwest Bank
Minnesota, National Association is incorporated by reference to
Registration Statement on Form S-4 (File number
333-38209).

4.2 Purchase Agreement dated as of September 12, 1997 between the
Company, Kilovac and Kilovac International and BancAmerica
Securities, Inc. and Salomon Brothers, Inc is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

4.3 Registration Rights agreement dated as of September 18, 1997
between the Company, Kilovac and Kilovac International and
BancAmerica Securities, Inc. and Salomon Brothers, Inc is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).

4.4 Supplemental Indenture, dated as of June 18, 1998 between
Corcom, Inc. and Norwest Bank Minnesota, National
Association.

10.1 Employment Agreement dated as of May, 1993 between the Company
and Ramzi A. Dabbagh is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.2 Employment Agreement dated as of May, 1993 between the Company
and G. Daniel Taylor is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.3 Employment Agreement dated as of May, 1993 between the Company
and Michael A. Steinbeck is incorporated by reference to
Registration Statement on Form S-4 (File number
333-38209).

10.4 Employment Agreement dated as of January 7, 1994 between the
Company and David Henning is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

10.5 Management Agreement, dated as of September 18, 1997 among the
Company, Parent and CHS Management III, L.P. is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.6 Tax Sharing Agreement dated as of September 18, 1997 between the
Company, Parent, Kilovac International and Kilovac International
FSC Ltd. is incorporated by reference to Registration Statement
on Form S-4 (File number 333-38209).

10.7+ Credit Agreement dated as of September 18, 1997 between the
Company, Parent, various banks, Bank of America National Trust
and Savings Association and BancAmerica Securities, Inc. is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).

10.8 Pledge Agreements dated as of September 18, 1997 by Parent, the
Company, Kilovac and Kilovac International in favor of Bank of
America Trust and Savings Association is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.9 Subsidiary Guarantee dated as of September 18, 1997 by Kilovac
and Kilovac International in favor of Bank of America National
Trust and Savings Association is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

10.10 Security Agreement dated as of September 18, 1997 among Parent,
the Company, Kilovac and Kilovac International in favor of Bank
of America National Trust and Savings Association is incorporated
by reference to Registration Statement on Form S-4 (File number
333-38209).

10.11 Stock Subscription and Purchase Agreement dated as of September
20, 1995, by and among the Company, Kilovac and the stockholders
and optionholders of Kilovac named therein is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.12+ Asset Purchase Agreement dated as of June 27, 1996 between the
Company and Figgie International Inc. is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.13 Environmental Remediation and Escrow Agreement, dated as of July
2, 1996 is incorporated by reference to Registration Statement on
Form S-4 (File number 333-38209).

10.14 Lease Agreement dated as of July 2, 1996 by and between
Figgie Properties, Inc. and Communications Instruments,
Inc. dba Hartman Division of CII Technologies Inc. is in-
corporated by reference to Registration Statement on Form
S-4 (File number 333-38209).

10.15 Second Amendment to Stock Subscription and Purchase Agreement
dated as of August 26, 1996, by and among the Company, Kilovac
and certain selling stockholders is incorporated by reference to
Registration Statement on Form S-4 (File number 333-38209).

10.16+ Recapitalization Agreement dated as of August 6, 1997 and among
Parent, certain investors and certain selling stockholders is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).

10.17 Amendment to the Recapitalization Agreement dated as of September
18, 1997 by and among Parent, certain investors and certain
selling stockholders is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.18 Indemnification and Escrow Agreement dated as of September 18,
1997 by and among Parent, certain investors, certain
selling stockholders and American National Bank and Trust Company
of Chicago is incorporated by reference to Registration Statement
on Form S-4 (File number 333-38209).

10.19 Stockholders Agreement dated September 18, 1997 by and among
Parent and certain of its stockholders is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.20 Registration Agreement dated as of September 18, 1997 by and
among Parent and certain of its stockholders is incorporated by
reference to Registration Statement on Form S-4 (File number
333-38209).

10.21 Form of Junior Subordinated Promissory Note of Parent is
incorporated by reference to Registration Statement on Form S-4
(File number 333-38209).

10.22 Employment Agreement dated as of October 11, 1995 between Kilovac
and Dan McAllister is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.23 Employment Agreement dated as of October 11, 1995 between Kilovac
and Pat McPherson is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.24 Employment Agreement dated as of October 11, 1997 between Kilovac
and Rick Danchuk is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.25 Employment Agreement dated as of October 11, 1997 between Kilovac
and Robert A. Helman is incorporated by reference to Registration
Statement on Form S-4 (File number 333-38209).

10.26 Asset Purchase Agreement dated as of November 30, 1997 by and
between the Company and Genicom Corporation is incorporated by
reference to Report on Form 8-K (File Number 333-38209).

10.27+ Stock Purchase Agreement dated as of October 31, 1997 by and
between the Company and Societe Financiere D'Investissements
Dans L'Equipement et la Construction Electrique, S.A., the
sole stockholder of IBEX Aerospace Technologies, Inc.

10.28+ Asset Purchase Agreement dated May 6, 1998, between
Kilovac Corporation, Zerubavel Heifetz, Cesar Marestaing
and Wilmar Electronics, Inc.

10.29+ Asset Purchase Agreement dated as of July 24, 1998, by and
between the Company and Cornell-Dubilier Electronics, Inc.

10.30 Voting Agreement dated as of March 10, 1998, by and among RF
Acquisition Corp., Werner E. Neuman and James A.
Steinback.

10.31+ Credit Agreement dated as of June 19, 1998, among the Company,
Parent, Bank of America National Trust and Savings Association
and certain other lending institutions from time to time a
party thereto.

10.32+ Pledge Agreement dated as of June 19, 1998, among Parent, the
Company, Kilovac and Kilovac International in favor of Bank of
America National Trust and Savings Association.

10.33+ Subsidiary Guarantee dated as of June 19, 1998 by
Kilovac, Kilovac International and Corcom, Inc. in favor
of Bank of America National Trust and Savings Association.

10.34+ Security Agreement dated as of June 19, 1998, among
Parent, the Company, Kilovac, Kilovac International and
Corcom, Inc. in favor of Bank of America National Trust
and Savings Association.

12.1 Statement of Computation of Ratios.

21.1 Subsidiaries of the Company, Kilovac, Corcom, Inc. and
Kilovac International

24.1 Powers of Attorney.

27 Financial Data Schedule.

- -------
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule to such agreement upon the request of the Commission in
accordance with Item 601 of Regulation S-K.