HCC INDUSTRIES INC /DE/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
-------------------

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: April 3, 1999

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from _________ to __________
Commission file number: 333-32207

HCC INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 95-2691666
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification No.)

4232 Temple City Blvd., Rosemead, California 91770
--------------------------------------------------
(Address of principal executive offices)

(626) 443-8933
----------------------------------------------------
(Registrant's telephone number, including area code)

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

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

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None

Securities registered pursuant to Section 12 (g) of the Act:
10 3/4% Senior Subordinated Notes Due 2007

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

Registrant's Common Stock, outstanding at April 3, 1999 was 135,495 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Documents referenced on Exhibits Index, which begins on page 48.

HCC INDUSTRIES INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

CAPTION PAGE

PART I

Item 1. - BUSINESS.............................................. 3
Item 2. - PROPERTIES............................................ 11
Item 3. - LEGAL PROCEEDINGS..................................... 11
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 14

PART II

Item 5. - MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS................ 14
Item 6. - SELECTED FINANCIAL DATA............................... 15
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................ 15
Item 7a. - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RATE RISK................................ 21
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA.................................................. 22
Item 9. - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE............................................ 41

PART III

Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................ 41
Item 11. - EXECUTIVE COMPENSATION................................ 42
Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................. 46
Item 13. - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.......................................... 47

PART IV

Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K............................... 48

SIGNATURES....................................................................... 51

2

PART I

ITEM 1 - BUSINESS

GENERAL

Except where the context indicates otherwise, the term "Company"
means HCC Industries Inc. and its wholly owned subsidiaries Hermetic Seal
Corporation, Glasseal Products, Inc., Sealtron, Inc., Norfolk Avon Realty
Trust, HCC Industries International, and HCC Foreign Sales Corporation.

The Company was incorporated in Delaware in 1985 and is one of the
largest custom manufacturers of high precision hermetically sealed electronic
connection devices in the United States. High precision hermetic seals are
used primarily to permit the flow of electricity across a barrier used to
separate different atmospheric media (such as gas or liquid to air or vacuum)
existing on opposite sides of the barrier. A hermetic seal is generally
accomplished through the creation of a glass-to-metal seal ("GTMS").The
hermetic seals manufactured by the Company generally fall into four
categories - terminals, headers, connectors and microelectronics packages. A
"terminal" is a device characterized by having only a single contact pin,
while a "header" has multiple contact pins inserted in a frame. A "connector"
is a type of terminal or header which can be mechanically coupled to or
uncoupled from another connection. A "microelectronic package" is a container
for thick and thin film substrates onto which hybrid circuitry has been
etched. The Company operates in the premium segment of the market by
providing high precision GTMS, custom designed to meet specific customer
requirements. Each GTMS generally consists of a metal body or housing, metal
contact pins, and an insulator fabricated from glass, ceramic or
glass/ceramic mixtures. GTMS range in size from a two foot long, eight inch
diameter cylindrical connector utilized for through-hull communication links
for nuclear submarines, to a 40/1000 inch outside diameter (12/1000 inch
inside diameter) implant to measure pressure in the heart chamber.

The Company believes that it has been an industry leader in the
design and manufacture of GTMS since it developed its GTMS process in 1945.
The Company has developed over 75,000 different configurations, primarily for
the following industries: (1) automotive (for use in, for example, the
initiators in airbags and seat belt pretensioners); (2) aerospace and
military electronics (for use in, for example, gyro guidance devices, flight
instrumentation, jet engine controls, and space suit controls); (3) test and
measurement (for use in, for example, temperature and pressure transducers,
infrared detection instrumentation, electro-optical devices and fuel
injection monitoring devices); (4) medical electronics (for use in, for
example, pacemakers, kidney dialysis machines and devices for monitoring
vital life signs); (5) telecommunications (for use, in for example, coaxial
cables); and (6) energy (for use in, for example, oil drilling equipment and
down-hole logging instrumentation and for conventional and nuclear electric
power generating plants).

On February 14, 1997, pursuant to a Stock Purchase and Sale
Agreement (the "Recapitalization Agreement") dated as of December 23, 1996,
the Company, certain members of management, Windward Capital Associates, L.P.
("Windward") and certain affiliates of Windward (collectively, with Windward,
the "Windward Group") and Metropolitan Life Insurance Company ("MetLife")
completed a recapitalization of the Company (the "Recapitalization"). The
Windward Group is a group of related entities which make merchant banking
investments pursuant to certain program agreements. In connection with the
Recapitalization, among other things: (i) the Company entered into Credit
Facilities, consisting of: (a) a $10,000,000 five year Revolving Credit
Facility, (b) a $30,000,000 five year Tranche A Term Loan and (c) a
$30,000,000 six and one-half year Tranche B Term Loan; (ii) the Company
issued $19,300,000, net of discount, in subordinated notes to the Windward
Group and MetLife along with 8,614 shares of common stock and certain
contingent anti-dilution warrants for an aggregate purchase price of
$22,500,000; (iii) the Company purchased a portion of the shares of Common
Stock (at $370 per share) beneficially owned by the selling stockholders for
$87,500,000, including certain transaction expenses, in cash and $5,000,000
in contingent subordinated notes; (iv) the Windward Group purchased 87,721
shares of Common Stock (at $370 per share) from the Company for $32,500,000
in cash; and (v) the Company repaid certain of its outstanding indebtedness.
In accounting for the recapitalization, no fair value adjustments were made
to the book value of the Company's assets and no goodwill was recognized. On
March 28, 1998, $2,500,000 of the contingent subordinated notes vested upon
achievement by the Company of certain

3

operating performance thresholds. On that date, the Company recorded a
$2,500,000 charge to equity to reflect additional purchase price associated
with the shares purchased in the Recapitalization.

On May 6, 1997, the Company issued $90,000,000 in principal amount
of Senior Subordinated Notes due in May 2007 (the "Old Notes") and used the
proceeds of such issuance to, among other things, (i) repay 100% of the
outstanding principal amount, together with all accrued but unpaid interest
thereon, of each of Term Loan A and Term Loan B and (ii) repurchase all
outstanding Mezzanine Units for $22,500,000, the initial purchase price
thereof, together with accrued but unpaid interest on the Mezzanine Notes. As
a result of this refinancing, the Company recorded an extraordinary loss of
$986,000, net of taxes. In addition on May 6, 1997, the Company amended the
Revolving Credit Facility to, among other things, increase the amount
available thereunder from $10,000,000 to $20,000,000. Pursuant to the
Registration Rights Agreement entered into with the issuance of the Old
Notes, the Company on November 3, 1997 filed a Registration Statement under
the Securities Act of 1933 with the SEC to exchange the Old Notes for
$90,000,000 of Senior Subordinated Exchange Notes (the "New Notes"). The
terms of the New Notes and the Old Notes are identical in all material
respects.

On June 20, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Connector Industries of America, a
glass-to-metal sealing company. The purchase price was $2,100,000 paid in
cash. The transaction was accounted for as an asset purchase. In conjunction
with the acquisition, the Company assigned $1,372,000 to intangibles which
will be amortized over a 14 year period on a straight line basis.

The demand for the Company's products is largely dependent on the
automotive and aerospace industries. Sales to Special Devices Inc. ("SDI"),
the Company's largest customer, accounted for approximately 35% of the
Company's consolidated sales for the fiscal year ended April 3, 1999. Sales
to the Company's ten largest customers accounted for approximately 50% of
consolidated sales during the 1999 fiscal year. Approximately 70% of the
Company's consolidated sales for fiscal 1999 were to customers with which the
Company had contractual agreements, sole source relationships, letters of
intent or long-term purchase orders. A substantial portion of these business
relationships are informal and certain of the Company's contractual
arrangements may be terminated at will. In the past, SDI has attempted to
find such second source suppliers and to secure a license from the Company to
produce GTMS products internally. In early 1997, SDI announced its intention
to internally produce 100,000 glass-to-metal seal units per week in partial
substitution of the units supplied to SDI by the Company. The Company shipped
a weekly average of approximately 1,000,000 units to SDI during fiscal 1999.
On March 18, 1999, the Company signed a new supply agreement with SDI through
the year 2002. The new agreement provided for price concessions to SDI in
consideration of a two year contract extension.

The Company's sales have grown at a compound annual growth rate of
11% over the last five years. While a substantial portion of the Company's
growth over the last several years has come from sales to the automotive
industry, particularly hermetically sealed connectors for use in airbag
initiators, the Company has also recognized consistent growth in its sales of
GTMS products to the aerospace, petrochemical and general industrial markets.
The Company believes this has been the result of its commitment to customer
service, development of close working relationships with many of its
customers and the value-added nature of its products.

4

COMPETITIVE STRENGTHS

The Company believes that it has the following competitive strengths:

LONG-TERM CUSTOMER RELATIONSHIPS. Many of the Company's customers,
including SDI, have been customers for over ten years. The Company believes
that both automotive and aerospace OEMs continue to seek long-term
partnerships with fewer core suppliers. The Company's relationships are
strengthened by the fact that many of its arrangements with its customers
provide for the Company to act as the sole source of supply for the customer.
The Company estimates that approximately 70% of the Company's consolidated
sales for fiscal year 1999 were from contractual agreements, sole source
relationships, letters of intent or long-term purchase orders.

MARKET LEADERSHIP. A number of the Company's products hold leading
market positions in their respective niche markets. The Company currently
believes based upon internal estimates that it produces hermetically sealed
products for approximately 50% of the airbag initiators produced in the U. S.
The Company believes, based upon long-term relationships with SDI and other
airbag initiator suppliers, that it is well positioned to continue to
increase its market share, as well as expand its sales internationally.

COMMITMENT TO QUALITY AND SERVICE. The Company believes that its
commitment to provide consistent, high quality products and services and
flexible manufacturing and custom designed products at competitive prices,
forms the basis for its strong and diversified customer relationships. The
Company manufactures most of its parts to specific customer requirements. The
Company utilizes Statistical Process Control, Design Failure Mode Effects
Analysis, Process Failure Mode Analysis, and a strict adherence to complete
manufacturing documentation in order to manufacture high quality products for
internal use as well as external customer sales. The Company's three
operating subsidiaries are registered to ISO 9001.

PROPRIETARY TECHNOLOGY. The Company operates in the automotive,
aerospace and general industrial technologies markets in which products
typically require sophisticated engineering and production techniques. The
Company designs and manufactures new products to fulfill customer needs, and
has developed proprietary manufacturing technology since its founding in
1945. The Company believes that this proprietary technology helps enable it
to attract and retain customers who require customized, high tolerance
products. The Company estimates that it has produced over 75,000 different
variations of GTMS.

LOW COST OPERATIONS. The Company believes that its extensive
"in-house" capabilities and vertical integration are competitive advantages
that have allowed it to become a low cost producer. By controlling the
tolerance of the component parts, the Company has been able to reduce scrap
and to increase the yields of its products. Furthermore, the Company is
continually developing and assessing its programs designed to increase
efficiency and enhance economies of scale in order to further reduce costs.

DIVERSE PRODUCTS AND CUSTOMERS. The Company has a diverse customer
base, with sales of numerous product variations to approximately 1,200
customers in fiscal 1999. Over the past several years, the Company has
recognized consistent growth in sales of GTMS products to the automotive,
aerospace and general industrial markets.

5

BUSINESS STRATEGY

The Company's strategy is to expand its business through:

FOCUSING ON CORE STRENGTHS. The Company continues to focus on what
it believes are its core strengths and to invest in those businesses that are
consistent with those strengths and which exhibit high growth potential. Core
strengths include the timely custom design and manufacturing of high
tolerance, high reliability components and the effective program management
of long term contracts and supply agreements.

LEVERAGING CUSTOMER RELATIONSHIPS. The Company works closely with
its customers to jointly develop and design new products and to improve the
performance and lower the cost of the Company's customers' products. The
Company has sole source supply contracts, shares product development, and
enters into other teaming arrangements with its key customers to further
strengthen and broaden its relationships. The Company believes that this
strategy, together with the successful performance under existing contracts
has led to additional long-term business from key existing customers and new
customers.

PURSUING SELECTIVE ACQUISITIONS. The Company intends to pursue
selective acquisitions and to add products and capabilities that are
complementary to its existing operations. Priority is expected to be given to
acquiring businesses whose products can be manufactured in the Company's
existing facilities ("fold-in" acquisitions). The Company's operations are
characterized by a relatively high level of operating leverage; therefore,
such fold-in acquisitions should allow the Company to allocate costs across
broader synergistic product lines and represent additional volume through the
Company's existing facilities which should provide opportunities to improve
profitability.

EXPANDING INTERNATIONALLY. The Company is considering the expansion
of its operations in Europe. The primary motivation in a geographic expansion
would most likely be to service the growth of its current customers'
operations as they expand their production operations abroad.

INDUSTRIES

The Company estimates the total size of the GTMS market to be $600
million, with approximately one-half estimated to be the specialized, high
precision segments in which the Company competes. The Company believes based
upon internal analysis that the market for high-end hermetically sealed
products is extremely fragmented, with no other competitor offering the same
breadth of products as the Company. The Company believes that its focus on
the high-end, custom segment of the GTMS market enables it to achieve higher
margins.

The Company sells its products to four principal industries: (i) the
automotive parts industry for use in airbag initiators, automotive crash
sensors, seat belt pretensioners, climate control devices and anti-lock
braking systems; (ii) the aerospace industry for use primarily in commercial
and military aviation and electronics; (iii) general industry for use
primarily in process control, and other industrial, medical and
telecommunications applications; and (iv) the petrochemical industry, for use
primarily in oil and gas downhole analysis equipment.

AUTOMOTIVE

The Company provides GTMS products used in initiators for airbag
devices. At present, each airbag device requires at least one initiator (the
device that deploys the airbag). The automotive airbag industry has undergone
dynamic growth over the recent past stemming from increased consumer demand
for automotive safety devices and federal regulations requiring such devices.
Regulations adopted by the National Highway Traffic Safety Administration
require that airbags be the automatic frontal crash protection system used
for both the driver and front passenger in 100% of all passenger automobiles,
light trucks and vans manufactured for sale in the U. S. after August 31,
1998.

6

Although not mandated by law, initiator-based safety systems are also
employed in automobiles produced and sold in Europe and Asia, although fewer
than in the U. S. The systems utilized in Europe and Asia include airbag
systems similar to those in use in the U. S. and seat-belt pretensioners that
employ initiators. While the majority of airbag initiators manufactured for
use in cars outside the U. S. employ plastic initiators, there is a trend
toward using GTMS in such products due to their increased reliability.

COMMERCIAL AND MILITARY AVIATION AND ELECTRONICS

The Company provides hermetic seals that are used for a number of
different applications in commercial and military aviation and electronics,
primarily to protect guidance and sensor devices from the effects of changes
in atmospheric conditions. The Company believes based upon internal estimates
that GTMS products are utilized in almost every model of commercial aircraft
currently in production and its customers include essentially all major
aerospace suppliers. The Company's sales to the aerospace industry are
dependent to a certain extent on new construction of commercial and military
aircraft. The Company competes with a number of different suppliers in this
market, based on quality, delivery and price.

GENERAL AND INDUSTRIAL

The Company provides GTMS used in pressure and temperature
transducers (sensors), industrial process control equipment, capacitor
end-seals for electronic devices and other industrial, medical and
telecommunications applications to a number of manufacturers. The Company
believes that its ability to help customers develop products to meet
demanding specifications allow for significant opportunities within this
market segment, including those customers not currently served by the
Company's products. The Company also believes that the increased
sophistication of equipment and increased level of automation being used in
industrial applications will increase demand for GTMS products.

PETROCHEMICAL

The Company provides GTMS used for down-hole logging equipment in
the oil and gas industry primarily under long-term contracts to oil field
equipment and service companies. The Company's sales to this industry during
any period are somewhat dependent on the current level of exploration and
drilling in the oil and gas industry and current demand for and price of
crude oil. The Company believes that it is one of only two significant
providers of GTMS to this industry. The Company expects that the trend toward
more sophisticated measurement-while-drilling equipment in the petrochemical
industry is likely to lead to more demand for the Company's products.

CUSTOMERS AND APPLICATIONS

In the past year, the Company has sold products to over 1,200
customers. The Company's ten largest customers accounted for approximately
50% of net sales for fiscal year 1999. The Company's largest customer, SDI (a
manufacturer of airbag initiators), represented approximately 35% of
consolidated sales for the fiscal year ended April 3, 1999.

7

Approximately 70% of the Company's consolidated sales for fiscal
year 1999 were to customers with which the Company had contractual
agreements, sole source relationships, letters of intent or long-term
purchase orders. The Company only begins to manufacture products upon receipt
of a purchase order. The Company's relationship with SDI includes a contract
expiring December 31, 2002 to produce approximately 75% of SDI's GTMS for its
initiators provided the Company maintains pricing and quality which are
generally equivalent to or better than other suppliers. The Company believes
that it currently provides nearly all of SDI's GTMS components. In early
1997, SDI announced its intention to internally produce 100,000
glass-to-metal seal units per week in partial substitution of the
glass-to-metal seal units supplied to SDI by the Company. Currently, the
Company expects SDI to continue to work toward their internal production goal.

The following table sets forth the Company's principal end-user
markets, certain applications for its products and certain of the Company's
customers in fiscal year 1999.

End Markets Automotive Aerospace Industrial/Petrochemical
- ----------- ---------- --------- ------------------------

Applications: Airbag Initiators Jet Engine Monitors Process Control Sensors
Crash Sensors Avionics Down Hole Drilling Sensors
Thermistors Fuel Gauge Indicators Lithium Batteries
Airbag Pressure Temperature Telecommunication
Switches Sensors Switching Devices
ABS De-icing Sensors Hybrid Circuit Packaging
Variable Speed Air Speed Indicators
Transmission Controls

Customers*: SDI Allied Signal/Honeywell Druck, Ltd.
NCS Pyrotechnie Rosemount Aerospace Power Conversion, Inc.
Keystone Hamilton Sundstrand Foxboro
Takata Raytheon Schlumberger
Teledyne Eaton Halliburton
Kemet
Sprague
Baker-Hughes
Omni Rel

Specific example of
product application: Airbag initiator Temperature Sensors High pressure electrical
bulkheads for down-hole use
(oil exploration)

What the product does: Electric current flows Passes electric current Carries electrical signals
from crash sensor through from sensors that detect between geological
initiator to begin excessive heat and/or fire formation measurement tools
inflation of the airbag. in aircraft and sensors.

Result: Airbag is inflated in Warning signal and Allows precise measurement
approximately 6 to 14 automatic release of fire of geology while protecting
milliseconds retardant sensitive equipment from
extreme heat and pressure.

* Other than SDI, all of the customers listed represented individually less
than 4% of the Company's consolidated sales for fiscal year 1999.

8

MANUFACTURING PROCESS

A GTMS is made by assembling three sets of component parts (metal
contacts or pins, glass bead(s) and an outer metal housing or shell) on a
graphite fixture. This assembly is put through a controlled atmosphere
furnace at approximately 1,800 degrees Fahrenheit until the glass becomes
molten. The graphite fixture is used to hold the components in place while
the glass is molten. As the assembly cools, a physical and chemical bond is
formed between the glass and the shell as well as the glass and the pin, thus
forming a hermetic seal.

The Company believes that its extensive "in-house" capabilities are
a key competitive advantage that has allowed it to become a low cost
producer. By specifically controlling the tolerance of the component parts,
the Company believes that it is able to increase the end yields of its
product. This attention to quality throughout the manufacturing process also
helps to ensure the timely delivery of its products. It also enables the
Company to respond very quickly to prototype and new product development
opportunities.

The Company manufactures most of its parts to specific customer
requirements. All three of the Company's operating subsidiaries use Computer
Aided Design ("CAD") to produce the drawings and specifications required by
the customer. The Company estimates that it has produced over 75,000
different variations to GTMS since 1945. This extensive library of designs
enables the Company to suggest design changes to its customers that reduce
manufacturing costs without sacrificing quality and therefore reduce the cost
to the customer (value engineering).

The Company has made a significant investment in Computer
Numerically Controlled ("CNC") machine tools in order to manufacture the
metal shells and pins to demanding customer specifications. The Company also
machines most of its own graphite fixtures thereby allowing it to maintain
process quality. Many of the glass preforms used in the Company's products
are manufactured internally as well. The Company has many proprietary
formulas for glass and glass/ceramic mixtures that it has developed in over
50 years of manufacturing.

The Company utilizes Statistical Process Control ("SPC"), Design
Failure Mode Effects Analysis, Process Failure Mode Effects Analysis and a
strict adherence to complete manufacturing documentation in order to
manufacture high quality products for internal use as well as external
customer sales. The Company believes that its knowledge and use of these
procedures give the Company a competitive advantage. Hermetic, Glasseal and
Sealtron are ISO 9001 registered. The ISO 9001 registration, an international
standard of quality, should facilitate business expansion in Europe.

MARKETING AND SALES

The Company's products are marketed throughout the Unites States to
customers in a wide variety of industries, both by Company-employed
salespersons, who work out of the Company's plants, and by a number of
independent regional manufacturers' sale representatives. The 14
Company-employed salespersons receive a base salary plus bonus potential.
Sales in Europe are through a two person office in Northampton, England. As
part of the Company's growth strategy, the Company believes that it can
capture an increasing share of the business outside the United States.
Economic, political, governmental and regulatory conditions in such
international markets could adversely affect the Company's ability to
successfully enter or operate in such markets. Therefore, no assurances can
be given that the Company's attempts to expand its business into such
international markets will be successful. The Company currently has 18
independent regional manufacturers-sales representatives spread
geographically across the U. S. and Europe. These representatives, who do not
exclusively sell the Company's products, are remunerated on a commission
basis. The Company believes there is a significant opportunity to increase
its sales through expansion of its sales and distribution efforts, both
within the markets it currently serves and in new markets.

9

COMPETITION

The Company believes based upon internal analysis that most of the
Company's competitors in the GTMS sector of the industry in which it competes
are smaller and have less technological and manufacturing expertise than the
Company. The Company believes that it occupies a favorable competitive
position because of its experience in engineering and production techniques.
Price has generally been a less significant competitive factor than the
quality and design of the GTMS because their cost typically is a small
percentage of the total cost of the end products in which they are used and
because of the importance of the uses to which many of the Company's products
are put. In addition, products for airbag initiators are qualified for
particular new automotive models and new products are subject to design and
process verification testing (prior to which there are no sales) which
typically takes 8 to 24 months and therefore helps to inhibit new entry into
the market.

BACKLOG

As of April 3, 1999, the Company had a backlog of $26.9 million
compared to $33.9 million as of March 28, 1998. The Company sells a majority
of its products pursuant to contractual agreements, sole source
relationships, letters of intent or long-term purchase orders, each of which
may permit early termination by the customer. However, due to the
specialized, highly engineered nature of the Company's product, it is not
practical in many cases for customers to shift their business to other
suppliers without incurring significant switching and opportunity costs.

EMPLOYEES

At April 3, 1999, the Company had approximately 800 employees,
substantially all of whom were located in the United States. None of the
Company's employees is subject to a union contract. The Company considers its
relations with its employees to be excellent.

RAW MATERIALS

The Company obtains raw materials, component parts and supplies from
a variety of sources and generally from more than one supplier. The Company's
principal raw materials are steel and glass. The Company's suppliers and
sources of raw materials are based in the United States and the Company
believes that its sources are adequate for its needs for the foreseeable
future. The loss of any one supplier would not have a material adverse effect
on the Company's financial condition or results of operations.

ENVIRONMENTAL MATTERS

The Company's operations are subject to numerous Environmental laws,
including those regulating air emissions and discharges to water, and the
storage, handling and disposal of solid and hazardous waste. The Company
believes that it is in substantial compliance with such laws and regulations.
Because Environmental Laws are becoming increasingly more stringent, the
Company's environmental capital expenditures and costs for environmental
compliance may increase in the future.

Under certain Environmental Laws, in particular CERCLA, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property. Generally, liability under CERCLA is joint and several and
remediation can extend to properties owned by third parties. Persons who
arrange for the disposal or treatment of hazardous or toxic substances or
otherwise cause the release of such substances into the environment may also
be liable under such laws for the costs of removal or remediation of such
substances at a disposal or treatment facility or other location where the
substances have migrated or come to be located, whether or not such facility
or location is or ever was operated by such person and regardless of whether
the method of disposal or treatment was legal at the time. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for the presence of such hazardous or toxic substances, and the
liability under such laws has been interpreted to be strict, joint and
several unless the harm is divisible and there is a reasonable basis for the
allocation of responsibility. In addition, the presence of hazardous or toxic
substances, or the failure to remedy such property properly may adversely

10

affect the market value of the property, as well as the owner's ability to
sell or lease the property. The Company has potential liability under
Environmental Laws for the remediation of contamination at two of its
facilities (see Item 3 for further discussion of environmental matters).

ITEM 2 - PROPERTIES

FACILITIES

The Company's principal executive offices are owned by the Company
and are located in the Hermetic Seal facility located in Rosemead,
California. Additionally, the Company has operating facilities in El Monte,
California; Lakewood, New Jersey, and Reading, Ohio, as set forth below. The
Company also owns approximately 47,400 square feet of plant and office space
in Avon, Massachusetts, which is currently vacant.

Location Owned/Leased Square Feet

Rosemead, CA................................ Owned 37,000
El Monte, CA................................ Owned* 110,000
Lakewood, NJ................................ Owned 50,000
Reading, OH................................. Owned 37,000

* On May 22, 1998, the Company purchased the facility located in El Monte,
California consisting of real property and an industrial building of
approximately 110,000 square feet of which approximately 22,000 square feet
is leased to an unrelated party.

ITEM 3 - LEGAL PROCEEDINGS

ENVIRONMENTAL MATTERS

ROSEMEAD, CALIFORNIA

REGIONAL GROUNDWATER CONTAMINATION. A portion of the San Gabriel
Valley in which the Rosemead facility is located was designated by the EPA as
a federal Superfund site in 1984. To facilitate cleanup and improve
administration of the site, the EPA subdivided the valley into seven
geographically distinct "operable units". The Company has been named as a
potentially responsible party ("PRP") under CERCLA for the El Monte Operable
Unit. The El Monte Operable Unit underlies the City of El Monte and portions
of the Cities of Temple City and Rosemead and has boundaries which are
defined roughly by the extent of known solvent contamination in the shallow
groundwater. If the Rosemead facility contributed to the regional
contamination, such contribution is in connection with alleged spills of the
degreasing solvent tetracholoroethylene (PCE) during the period from the
1950's until sometime in the mid-1980's when the Company stopped using this
solvent.

Many other companies are believed to be contributors to the
groundwater contamination in the El Monte Operable Unit. The Company and 18
other such companies have formed the Northwest El Monte Community Task Force
(the "Task Force") to undertake the investigation of the remediation, to
identify other potential contributors and potentially to undertake required
remediation. In March of 1995, the Task Force entered into a Consent
Administrative Order with the EPA to perform a Remedial Investigation and
Feasibility Study (RI/FS) of the operable unit. The RI/FS which began in
October of 1995 was originally scheduled for 90 weeks. It presently appears
that the RI/FS process will not be complete before July 1999. The RI/FS costs
of approximately $2.4 million to date have been funded with about one-quarter
of the costs coming from governmental entities and the balance paid pursuant
to a confidential interim allocation agreement of Task Force members. The
interim agreement with respect to the allocation of RI/FS expenses is not
binding on any of the participants regarding the allocation of remediation
expenses.

11

ON-SITE/SOIL AND GROUNDWATER CLEANUP COSTS. In addition to the
Operable Unit Remediation costs, the Company has voluntarily undertaken both
on-site soil and groundwater remediation. In 1995, the Company installed a
soil vapor extraction system. The system has been operational for
approximately 46 months and although it is not possible to determine how long
it will take to complete the remediation, to date the remediation system has
removed over 90% of contaminants in the soil.

The Company has installed a groundwater extraction system in
conjunction with a neighboring facility. This system extracts contaminated
water from the shallow aquifer and pumps the water for use in our neighbor's
manufacturing process prior to discharge to the municipal sanitary sewer. The
system has been operational since August 1996 and is designed to capture
contaminated groundwater from under the Company's property before it impacts
the regional groundwater flow. Although the system has been successful, it is
premature to determine how long it will be needed to remediate the
groundwater to acceptable levels, or if the operation of the system will be
discontinued and replaced with a regional groundwater remediation program.
The Company estimates the ongoing operating and maintenance costs for this
system to be $30,000 per year.

The Company believes that its financial liability with respect to
regional groundwater contamination may be substantially reduced by acting on
its own initiative to commence early remediation of groundwater contamination
under its property.

AVON, MASSACHUSETTS

The Company's facility in Avon, Massachusetts, currently inactive,
was purchased in 1985 and operated as its Hermetite facility until August of
1989 at which time all equipment was removed. Subsequent to its closure, the
Company identified significant levels of solvents in the groundwater.
Subsurface investigations have delineated a plume of contaminants extending
from the facility, beneath a neighboring property and into a town public
water supply wellfield about 800 feet to the southeast of the property. Since
the discovery of contaminants in 1991, the level of contaminants at the
facility has decreased. Despite the fact that contaminants continue to move
toward the wellfield, the levels at the well field remain within acceptable
drinking water standards.

The Avon property is subject to Massachusetts "Chapter 21E," the
state's hazardous site cleanup program. The site was initially classified in
the program's "Tier 1A" category, the highest tier based on the proximity to
the town wellfield. The property has since been reclassified to a less
stringent "Tier 1B" category based on the level of contaminants. Under Tier
1B procedures, the Company may design its own remediation program subject to
state oversight, auditing, and scheduling.

Pursuant to this procedure, the Company, through its licensed
consultants, designed a pump and treat remediation system which is intended
to capture the contaminants before they reach the town wells. In July 1996,
the program was approved by the Massachusetts Department of Environmental
Protection. The system has been designed so that its capacity can be expanded
to clean the site in less time if desired by increasing the number of
extraction wells. The initial cost of the system and the first year of
operation and maintenance was $116,000. Construction of the system has been
completed and the system is operational. To accelerate the cleanup, the
Company recently installed additional extraction wells closer to the source
area and expects to have the additional remediation system operational by
September 1999. The Company estimates that the cleanup could take 10 to 20
years at an ongoing operating and maintenance cost of $35,000 per year.

12

REMEDIATION

It is not presently possible to determine definitively the ultimate
cost to the Company for regional groundwater remediation in Rosemead. Such a
definitive determination cannot be made until (i) the completion of the
RI/FS, and the subsequent selection and approval by regulatory authorities of
a remediation strategy and program, if any, which may not be complete for
twenty-four to thirty-six months and (ii) an agreement among Task Force
members is reached regarding the Company's allocable share of remediation
liability. Similarly, it is not presently possible to determine definitively
the ultimate cost for remediation at the Avon site. Based on the analysis of
environmental engineering consultants, the Company believes its present value
cost exposure at both sites to be somewhere between $2 million and $10
million. Based upon the analysis of such environmental engineering
consultants, the Company established a $10 million accrual as of March 29,
1997, prior to accounting for taxes, in respect of all such environmental
matters.

Pursuant to the Recapitalization Agreement, the Selling Group has
agreed to indemnify the Company with respect to the after-tax costs of
contingent environmental and other liabilities, subject to a cap for all
indemnified liabilities of $30 million. Pursuant to the Recapitalization
Agreement, a $6.0 million interest bearing escrow account was established by
the selling stockholders (the "Deferred Amount") to secure indemnity claims
of the Company and others, including with respect to environmental
liabilities. Although there can be no assurances, the Company believes that
the Deferred Amount should be adequate to cover the costs of the remediation.
In the event the Deferred Amount is inadequate to cover the costs of
remediation, the Company has been informed by the individual members of the
Selling Group that they will draw upon personal funds to cover such excess
costs. If the Selling Group has aggregate indemnification liabilities in
respect of environmental matters in excess of $30 million, the Company has
agreed to indemnify the Selling Group for such claims to the extent such
claims exceed $30 million. In addition, the Company has insurance coverage
that may cover at least a portion of its costs.

13

OTHER

On March 3, 1998, Walter Neubauer, a former stockholder of the
Company filed a lawsuit in California Superior Court (Case BC186937; Walter
Neubauer vs. Andrew Goldfarb, et. al.) against the Company and certain other
stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii)
negligent misrepresentation, (iv) negligence, (v) violations of corporations
code and (vi) breach of contract. The allegations primarily relate to the
Company's exercise of an option to acquire Mr. Neubauer's stock in August
1996. The former stockholder is seeking damages of $40.0 million. Based upon
the Company's analysis of the current facts, it is management's belief that
the Company should ultimately prevail in this matter, although there can be
no assurance in this regard at this time.

On May 7, 1998, the Company filed a lawsuit against the former
stockholder in California Superior Court alleging (i) breach of contract,
(ii) intentional interference with business relations and (iii) interference
with prospective business advantage. All allegations relate to violations of
the noncompetition agreement executed by the former stockholder in August
1996. The Company is seeking damages of $50.0 million.

There are other various claims and legal proceedings against the
Company relating to its operations in the normal course of business, none of
which the Company believes will be material to its financial position and
results of its operations. The Company currently maintains insurance coverage
for product liability claims. There can be no assurance that coverage under
insurance policies will be adequate to cover any future product liability
claims against the Company. In addition, product liability insurance coverage
is expensive, difficult to maintain and may be unobtainable in the future on
acceptable terms.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS

Not Applicable

14

ITEM 6 - SELECTED FINANCIAL DATA

The following selected consolidated financial information for each
of the five fiscal years ended April 1, 1995, March 30, 1996, March 29, 1997,
March 28, 1998 and April 3, 1999 has been derived from the audited
consolidated financial statements of the Company. The information presented
below should be read in conjunction with Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere herein (in thousands).

April 1, March 30, March 29, March 28, April 3,
1995 1996 1997 1998 1999
-------- --------- --------- -------- ---------

STATEMENT OF OPERATIONS DATA:
Net sales $ 40,307 $ 52,207 $ 56,683 $ 64,561 $ 67,701
Cost of goods sold 25,423 32,562 35,729 38,922 41,361
--------- --------- --------- -------- ---------
Gross profit 14,884 19,645 20,954 25,639 26,340
Selling, general and
administrative expenses 6,274 9,107 9,308 8,552 7,213
Non-recurring expense(1) -- -- 10,000 1,250 --
--------- --------- --------- -------- ---------
Earnings from operations 8,610 10,538 1,646 15,837 19,127
Interest and other income 136 279 479 510 755
Interest expense (1,715) (1,924) (2,946) (10,327) (11,190)
Other expense(2) (1,369) -- -- -- --
--------- --------- --------- -------- ---------

Earnings (loss) before taxes, and
extraordinary item 5,662 8,893 (821) 6,020 8,692
Taxes (benefit) on earnings (loss) 1,810 3,230 (293) 2,406 3,325
--------- --------- --------- -------- ---------

Earnings (loss) before extraordinary
item 3,852 5,663 (528) 3,614 5,367
Extraordinary loss, net of tax(3) -- -- (1,186) (986) --
--------- --------- --------- -------- ---------

Net earnings (loss) $ 3,852 $ 5,663 $ (1,714) $ 2,628 $ 5,367
========= ========= ========= ======== =========

BALANCE SHEET DATA (AT PERIOD END)
Total assets $ 27,061 $ 33,668 $ 116,141 $ 62,860 $ 70,368
Working capital 5,541 10,387 7,594 16,883 22,079
Long-term debt, less
current portion 9,846 9,811 78,916 98,201 102,043
Stockholders' equity (deficit) 9,197 14,885 (53,340) (56,940) (51,372)
Dividends declared --- --- --- --- ---

(1) Represents $10.0 million non-recurring expense for environmental
remediation for fiscal 1997 and $1.3 million non-recurring expense for
financial advisory fee for fiscal 1998.
(2) Represents loss on sale of real property.
(3) Represents loss on retirement of debt, net of tax benefit.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following table and discussion should be read in conjunction
with the information contained in the consolidated financial statements and
notes thereto of the Company appearing elsewhere herein. Unless otherwise
stated, all references to years means the Company's fiscal year ending April
3, 1999 (1999), March 28, 1998 (1998) and March 29, 1997 (1997), respectively.

15

RESULTS OF OPERATIONS (IN MILLIONS)

1999 Percent 1998 Percent 1997 Percent
---- ------- ---- ------- ---- -------

Net sales $67.7 100.0% $64.6 100.0% $56.7 100.0%
Gross profit 26.3 38.9% 25.6 39.7% 21.0 37.0%
Selling, general and administrative
expenses 7.2 10.7% 8.5 13.2% 9.3 16.4%
Non-recurring expense - 0.0% 1.3 1.9% 10.0 17.6%
Earnings from operations 19.1 28.3% 15.8 24.5% 1.6 2.9%
Other income/(expense) (10.4) (15.4%) (9.8) (15.2%) (2.5) (4.4%)
Extraordinary loss (1) - 0.0% (1.0) (1.5%) (1.2) (2.1%)
Net earnings (loss) $5.4 7.9% $2.6 4.1% ($1.7) (3.0%)

(1) Represents extraordinary loss on retirement of debt, net of tax benefit.

COMPARISON OF THE FISCAL YEAR ENDED 1999 WITH 1998

NET SALES

The Company's net sales increased by approximately 4.8% or $3.1
million to $67.7 million for 1999 compared to sales of $64.6 million for
1998. The increase was primarily due to increasing demand in automotive
products. Unit shipments of airbag initiator products continued its year over
year significant volume increase. Shipments on existing programs and the
development of some new programs resulted in an overall 29% increase in unit
shipments. This increased volume was partially offset by both a price
reduction effected under a new supply agreement with the Company's largest
customer, Special Devices, Inc. ("SDI") and a change in the mix of automotive
products. Overall, revenue from automotive shipments increased approximately
7.4% in 1999 compared to 1998. The new agreement with SDI was effective March
18, 1999 and expires on December 31, 2002. SDI is currently relocating their
primary manufacturing facility and, as a result, the Company expects a
decrease in unit shipments to SDI until such move is completed and the
facility is fully operational.

On the non-automotive side, sales to existing aerospace, industrial
process control, and petrochemical customers increased slightly in 1999. Net
non-automotive shipments increased by approximately 3.3% in 1999 compared to
1998. Most of the increase was recognized in the first six months of fiscal
1999. Based on current order volume, the Company expects near term declines in
the aerospace, industrial process control and petrochemical sales.

GROSS PROFIT

Gross profit increased by approximately 2.7% or $0.7 million, to
$26.3 million for 1999 compared to $25.6 million for 1998. Gross margin
decreased to 38.9% for 1999 from 39.7% for 1998.

The increase in gross profit was attributable to the increased sales
volume. The decrease in gross margin was primarily attributable to price
concessions on automotive products that have exceeded the Company's ability
to reduce its production costs. Raw material prices have remained stable in
both periods. The Company continued to invest in its manufacturing operations
to increase its capacity, vertical integration and automation on high volume
lines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("S,G&A") expenses decreased by
approximately 15.7% or $1.3 million to $7.2 million for 1999 compared to $8.5
million for 1998. S,G&A expenses as a percent to sales decreased to 10.7% in
1999 from 13.2% for 1998.

16

The $1.3 million decrease in S,G&A expenses reflects a $1.9 million
reduction in contingent compensation costs in 1999 compared to 1998. The
reduction in contingent compensation costs was partially offset by increased
legal expenses associated with an abandoned business acquisition and an
approximate 5% increase in other administrative costs. Selling expenses were
flat for 1999 compared to 1998 as the higher sales volume was driven from
non-commissioned sales. The improvement in the percentage of S,G&A expenses
to sales reflects the increased growth in net sales and the reduction of
certain contingent compensation charges partially offset by increased legal
and administrative expenses.

EARNINGS FROM OPERATIONS

Operating earnings increased $3.3 million to $19.1 million for 1999
compared to $15.8 million for 1998. The increase in operating earnings and
operating margin was primarily attributable to the $0.7 million increased gross
profit , the $1.3 million reduction in non-recurring expenses, and lower S,G&A
expenses in 1999 compared to 1998.

OTHER EXPENSE, NET

Other expense, net increased $0.6 million to $10.4 million in 1999
from $9.8 million for 1998. This increase was attributable to the increased
interest expense associated with additional indebtedness incurred in 1998
from the Subordinated Notes due Selling Shareholders and Subordinated Bonus
Notes which was largely offset by higher interest income on invested cash
balances. The Company had $103.2 million of debt as of April 3, 1999 compared
to $99.1 million at March 28, 1998.

NET EARNINGS

Net earnings increased by approximately $2.8 million to $5.4 million
for 1999 from $2.6 million in 1998. The increase in net earnings was
primarily attributable to the increase in earnings from operations (discussed
above), partially offset by the increase in net interest expense in 1999.

COMPARISON OF THE FISCAL YEAR ENDED 1998 WITH 1997

NET SALES

The Company's net sales increased by approximately 13.9% or $7.9
million to $64.6 million for 1998 compared to sales of $56.7 million for
1997. The increase was primarily due to increasing demand in non-automotive
products. Sales to existing aerospace, industrial process control, and
petrochemical customers increased significantly in 1998. Net non-automotive
shipments increased by 25.4% in 1998 compared to 1997.

On the automotive side, unit shipments of airbag initiator products
increased significantly due to increased volumes on existing programs and the
development of some new programs. This increased volume was offset by a price
reduction effected under a new three year supply agreement with the Company's
largest customer, Special Devices, Inc. ("SDI"). Overall, revenue from
automotive shipments was flat in 1998 compared to 1997. The new agreement
with SDI was effective October 1, 1997 and expires on December 31, 2000.

GROSS PROFIT

Gross profit increased by approximately 22.4% or $4.6 million, to
$25.6 million for 1998 compared to $21.0 million for 1997. Gross margin
increased to 39.7% for 1998 from 37.0% for 1997.

The increase in gross profit was attributable to the increased sales
volume. The increase in gross margin was primarily attributable to an
improved sales mix between product lines coupled with efficiencies gained
through increased operating leverage on the higher sales volume.

17

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("S,G&A") expenses decreased by
approximately 8.1% or $0.8 million to $8.5 million for 1998 compared to $9.3
million for 1997. S,G&A expenses as a percent to sales decreased to 13.2% in
1998 from 16.4% for 1997.

The $0.8 million decrease in S,G&A expenses reflects an
approximate $1.2 million reduction in compensation costs. The decreased SG&A
expenses was partially offset by approximately $0.4 million of higher selling
expenses incurred in supporting the increased sales volume. The improvement
in the percentage of S,G&A expenses to sales reflects the increased growth in
net sales outpacing the increase in overall S,G&A expenses.

NON-RECURRING EXPENSE

The non-recurring expense was attributable to a $1.3 million
financial advisory fee paid in December 1997 to Windward Capital Partners for
financial advisory services rendered in connection with the Recapitalization
of the Company in February 1997. For 1997, the $10.0 million charge
represents estimated environmental costs.

EARNINGS FROM OPERATIONS

Operating earnings increased $14.2 million to $15.8 million for 1998
compared to $1.6 million for 1997. The increase in operating earnings and
operating margin was primarily attributable to the $8.7 million reduction in
non-recurring expenses, increased gross profit and lower S,G&A expenses (all
as discussed above) in 1998 compared to 1997.

OTHER EXPENSE, NET

Other expense, net increased $7.3 million to $9.8 million in 1998
from $2.5 million for 1997. This increase was attributable to the increased
interest expense associated with debt incurred in conjunction with the
Recapitalization in February 1997. The Company had $99.1 million of long-term
debt as of March 28, 1998 compared to $82.5 million at March 29, 1997.

NET EARNINGS

Net earnings increased by approximately $4.3 million to $2.6 million
for 1998 from a loss of $1.7 million in 1997. The increase in net earnings
was primarily attributable to the increase in earnings from operations
(discussed above), partially offset by the increase in interest expense in
1998.

18

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $7.0 million for 1999
compared to $8.7 million for 1998. The decrease of $1.7 million was primarily
attributable to increased net earnings (discussed above) and which was more
than offset by an increase in working capital requirements.

Net cash used in investing activities was $2.2 million for 1999
compared to $3.9 million for 1998. The $1.7 million decrease was primarily
attributable to the $2.2 million acquisition of Connector Industries of
America in June 1997 and partially offset by increased capital expenditures.

As of April 3, 1999, the Company's outstanding indebtedness is
$103.2 million, consisting of $90.0 million principal amount of the senior
subordinated notes and $13.2 million of other borrowings. The Company amended
the Revolving Credit Facility ("the Agreement") subsequent to its debt
offering to augment its liquidity requirements by increasing the size of the
facility to $20.0 million. Borrowings under the Agreement may be used for
general and other corporate purposes. The Agreement provides for interest on
outstanding balances at the bank's prime rate plus 1-1/4% and is
collateralized by accounts receivable and inventories of the Company. At
April 3, 1999 there was $15,500,000 available under the Agreement. The
Agreement includes covenants requiring maintenance of certain financial
ratios. At April 3, 1999 and March 28, 1998 there were no borrowings
outstanding under the Agreement.

The Company has a current Capital Lease Line of $3.0 million for
financing manufacturing equipment expiring June 30, 1999. The agreement
provides for three year or five year terms with interest at 2.00% above the
bank's index rate. The bank's index rate is the U.S. Treasury Note
bond-equivalent yield per annum corresponding to the average life of the
lease. At April 3, 1999 and March 28, 1998, there was $3.8 million and $3.5
million, respectively, outstanding under the capital leases, respectively.

The Company believes that cash flow from operations and the
availability of borrowings under the Revolving Credit Facility and Capital
Lease Line will provide adequate funds for ongoing operations, planned
capital expenditures and debt service during the terms of such facilities. To
the extent certain performance thresholds with respect to the Contingent
Notes (see Note 1 of the Consolidated Financial Statements) and Contingent
Bonuses (see Item 11) are met, and such obligations become vested, the
Company believes that cash flow from operations and availability of
borrowings will be sufficient to fund such obligations.

Capital expenditures for fiscal 2000 are expected to focus on
vertical integration with investments in equipment to expand manufacturing
capacity in machining, glass production, sealing and plating, as well as
automation equipment to lower production costs on the high volume production
lines. Expected capital expenditures for fiscal 2000 are approximately $3.0
million and will be financed through working capital and the Capital Lease
Line.

YEAR 2000 ISSUE

The Year 2000 readiness issue, which is common to most businesses,
arises from the inability of information systems, and other time and date
sensitive products and systems to properly recognize and process
date-sensitive information or system failures. Assessments of the potential
cost and effects of Year 2000 issues vary significantly among businesses, and
it is extremely difficult to predict the actual impact. Recognizing this
uncertainty, management is continuing to actively analyze, assess and plan
for various Year 2000 issues across its business. The products manufactured
by the Company do not have issues related to Year 2000 functionality.

The Year 2000 issue has an impact on both information technology
("IT") systems and non-IT systems, such as manufacturing systems and physical
facilities including, but not limited to, security systems and utilities.
Although management believes that a majority of the Company's IT systems are
Year 2000 ready, such systems still have to be tested for Year 2000
readiness. The Company is replacing or upgrading those systems that are
identified as non-Year 2000 compliant. Certain IT systems previously
identified as non-Year 2000 compliant are being upgraded or replaced which
should be complete by August 31, 1999. Non-IT system issues are more
difficult to identify and resolve.

19

The Company is actively identifying non-IT Year 2000 issues concerning its
physical facility locations. As non-IT areas are identified, management
formulates the necessary actions to ensure minimal disruption to its business
processes. Although management believes that its efforts will be successful
and the costs will be insignificant to its consolidated financial position
and results of operations, management also recognizes that any failure or
delay could cause a potential negative impact.

Independent of the Company's efforts to prepare for Year 2000
readiness, the Company has purchased and is implementing a new management
information system. This new system is Year 2000 compliant and was placed
into service on April 4, 1999.

The Year 2000 readiness of its customers varies. The Company is not
investigating whether or not its customers are evaluating and/or preparing
their own systems. These efforts by customers to address Year 2000 issues may
affect the demand for certain products and services; however, the impact to
the revenue or any change in revenue patterns is highly uncertain.

The Company has also initiated efforts to assess the Year 2000
readiness of its key suppliers and business partners. The Company's direction
of this effort is to ensure the adequacy of resources and supplies to
minimize any potential business interruptions. Management plans to complete
this part of its Year 2000 readiness plan in the early part of calendar 1999.
While the Company continues to believe the Year 2000 issue described above
will not materially affect its consolidated financial position or results of
operations, it remains uncertain as to what extent, if any, the Company may
be impacted.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income". For the fiscal years ended April 3, 1999,
March 28, 1998 and March 29, 1997, the Company had no comprehensive income
components as defined in SFAS No. 130.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The adoption of this
standard did not result in any additional reporting requirements for the
Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in fair value of derivatives will be recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The new rules are likely to be required for the
Company's fiscal year ending 2002. The Company does not believe that the new
standard will have any impact on the Company's financial statements.

FACTORS AFFECTING FUTURE PERFORMANCE

Although increases in operating costs could adversely affect the
Company's operations, management does not believe inflation has had a
material effect on operating profit during the past several years.

20

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This filing contains statements that are "forward looking
statements", and includes, among other things, discussions of the Company's
business strategy and expectations concerning market position, future
operations, margins, profitability, liquidity and capital resources. Although
the Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct.

All phases of the operations of the Company are subject to a number
of uncertainties, risks and other influences, including general economic
conditions, regulatory changes and competition, many of which are outside the
control of the Company, any one of which, or a combination of which, could
materially affect the results of the Company's operations and whether the
forward looking statements made by the Company ultimately prove to be
accurate.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates
on long-term debt obligations that impact the fair value of these
obligations. At April 3, 1999 the carrying value of our fixed-rate long-term
debt approximated its fair value.

The table below presents the principal amounts and weighted-average
interests rates for our outstanding fixed-rate debt by year of scheduled
maturities to evaluate the expected cash flows and sensitivity to interest
rate change (in thousands of dollars):

Expected Fixed Average
Maturity Rate Interest Rate
-------- ----- -------------

2000 $1,125 10.6%
2001 6,559 10.6%
2002 1,952 10.6%
2003 621 10.7%
2004 148 10.7%
2005 and thereafter 92,763 10.7%
------- -----

Total 103,168 10.6%
------- -----
------- -----

21

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO FINANCIAL STATEMENTS Page

Report of Independent Accountants 23

Consolidated Balances Sheets as of April 3, 1999 and
March 28, 1998 24

Consolidated Statements of Earnings for the years ended
April 3, 1999, March 28, 1998 and March 29, 1997 25

Consolidated Statements of Stockholder's Equity (Deficit) for the years ended
April 3, 1999, March 28, 1998 and
March 29, 1997 26

Consolidated Statements of Cash Flows for the years ended
April 3, 1999, March 28, 1998 and March 29, 1997 27

Notes to Consolidated Financial Statements 28

Schedule II - Valuation and Qualifying Accounts 40

All other financial statement schedules not listed have been omitted since the
required information is included in the consolidated financial statements, the
notes thereto, is not applicable, or not required.

22

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
HCC Industries Inc. and Subsidiaries
Rosemead, California

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of HCC Industries Inc. and Subsidiaries at April 3, 1999 and March
28, 1998, and the results of their operations and their cash flows for each
of the three years in the period ended April 3, 1999 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
June 25, 1999

23

HCC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

APRIL 3, MARCH 28,
1999 1998
-------- --------

CURRENT ASSETS:
Cash and cash equivalents $ 17,395 $ 13,441
Trade accounts receivable, less allowance for
doubtful accounts of $46 at April 3, 1999
and $40 at March 28, 1998 9,834 10,136
Inventories 4,370 4,610
Prepaid and deferred income taxes 293 260
Other current assets 468 416
--------- ---------

Total current assets 32,360 28,863

PROPERTY, PLANT AND EQUIPMENT, NET 19,153 14,617

OTHER ASSETS:
Intangible assets 5,352 5,643
Deferred financing costs 3,108 3,532
Deferred income taxes 4,275 4,192
Restricted cash 6,120 6,013
--------- ---------

TOTAL ASSETS $ 70,368 $ 62,860
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Current portion of long-term debt $ 1,125 $ 897
Accounts payable 2,449 2,947
Accrued liabilities 6,707 6,384
Income taxes payable --- 1,752
--------- ---------

Total current liabilities 10,281 11,980

LONG TERM LIABILITIES:
Long-term debt, net of current portion 102,043 98,201
Other long-term liabilities 9,416 9,619
--------- ---------
121,740 119,800
--------- ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; $.10 par value; authorized 550,000
shares, issued and outstanding 135,495 shares at
April 3, 1999 and 134,955 shares at March 28, 1998 14 13
Additional paid-in capital 200 ---
Accumulated deficit (51,586) (56,953)
--------- ---------

TOTAL STOCKHOLDERS' DEFICIT (51,372) (56,940)
--------- ---------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 70,368 $ 62,860
--------- ---------
--------- ---------

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

24

HCC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)

FOR THE YEAR ENDED
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
-------- ----------- ------------

NET SALES $ 67,701 $ 64,561 $ 56,683
Cost of goods sold 41,361 38,922 35,729
----------- ----------- -----------

GROSS PROFIT 26,340 25,639 20,954

Selling, general and administrative expenses 7,213 8,552 9,308
Non-recurring expense --- 1,250 10,000
----------- ----------- -----------

EARNINGS FROM OPERATIONS 19,127 15,837 1,646
----------- ----------- -----------

OTHER INCOME (EXPENSE):
Interest and other income 755 510 479
Interest expense (11,190) (10,327) (2,946)
------------ ----------- -----------

Total other expenses, net (10,435) (9,817) (2,467)
------------ ----------- -----------

EARNINGS (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 8,692 6,020 (821)
Taxes (benefit) on earnings (loss) 3,325 2,406 (293)
----------- ----------- -----------

Earnings (loss) before extraordinary item 5,367 3,614 (528)

Extraordinary loss on retirement of debt, net
of tax benefit of $656 (1998) and $657 (1997) --- (986) (1,186)
----------- ----------- -----------

NET EARNINGS (LOSS) $ 5,367 $ 2,628 $ (1,714)
----------- ----------- -----------
----------- ----------- -----------

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

25

HCC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

COMMON STOCK ADDITIONAL RETAINED TOTAL
------------ PAID-IN NOTE EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) EQUITY(DEFICIT)
------ ------ ---------- ---------- --------- ---------------

BALANCE, MARCH 30, 1996 500 $ 50 $ 1,757 $ (175) $13,253 $ 14,885

Payment of note receivable --- --- --- 175 --- 175

Repurchases of stock (453) (46) (38,637) --- (64,893) (103,576)

Sale of stock in recapitalization 97 10 36,880 --- --- 36,890

Net loss --- --- --- --- (1,714) (1,714)
--- ------ ------- --------- ------- ---------

BALANCE, MARCH 29, 1997 144 14 --- --- (53,354) (53,340)

Repurchases of stock (9) (1) --- --- (6,227) (6,228)

Net earnings --- --- --- --- 2,628 2,628
--- ----- ------- --------- ------- ---------

BALANCE, MARCH 28, 1998 135 13 --- --- (56,953) (56,940)

Sale of stock --- 1 200 --- --- 201

Net earnings --- --- --- --- 5,367 5,367
--- ------ ------- --------- ------- ---------

BALANCE, APRIL 3, 1999 135 $ 14 $ 200 $ --- $(51,586) $ (51,372)
--- ------ ------- --------- -------- ---------
--- ------ ------- --------- -------- ---------

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

26

HCC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

For The Year Ended
---------------------------------------
April 3, March 28, March 29,
1999 1998 1997
-------- -------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 5,367 $ 2,628 $ (1,714)
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
Depreciation 1,684 1,442 1,195
Amortization 715 715 604
Deferred income taxes (333) (1,111) (3,922)
Extraordinary loss --- 986 1,186
Non-recurring expense --- --- 10,000
Non-cash expense 1,085 3,000 ---
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable, net 302 (2,853) 851
Decrease (increase) in inventories 240 25 (323)
(Increase) in other assets (159) (91) (6,161)
Increase in accrued liabilities 120 810 260
(Decrease) increase in accounts payable
and income taxes payable (2,033) 3,120 (166)
---------- --------- --------

Net cash provided by operating activities 6,988 8,671 1,810
--------- --------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,242) (1,666) (1,943)
Business acquisition --- (2,200) ---
Cash collected on notes receivable --- --- 175
--------- --------- --------

Net cash used in investing activities (2,242) (3,866) (1,768)
---------- --------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (993) (80,607) (22,489)
Proceeds from issuance of long-term debt --- 90,000 90,309
Repurchases of stock --- (3,728) (33,331)
Restricted cash due to selling shareholders --- -- (69,282)
Deferred financing costs --- (3,870) (1,945)
Sale of stock 201 --- 38,874
Cost of recapitalization --- --- (1,984)
--------- --------- --------

Net cash (used in) provided by financing
activities (792) 1,795 152
---------- --------- --------

Net increase in cash and cash equivalents 3,954 6,600 194

Cash and cash equivalents at beginning of period 13,441 6,841 6,647
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,395 $ 13,441 $ 6,841
--------- --------- --------
--------- --------- --------
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Capital lease obligations and mortgages $ 3,978 $ 1,796 $ 1,426
Notes payable to stockholders --- 2,500 ---
Bonus notes payable to employees 1,085 3,000 ---
Due to selling stockholders --- --- 70,245

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

27

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

General

HCC Industries Inc. and Subsidiaries ("HCC" or "Company") was incorporated in
Delaware in 1985. HCC designs, manufactures and markets broad lines of
state-of-the-art, high precision electronic connection devices known as
hermetic seals. The Company's products are sold primarily in North America
and Europe to the aerospace, energy, test and measurement and automotive
industries.

On February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the
"Recapitalization Agreement") dated as of December 23, 1996, the Company,
certain members of management, Windward Capital Associates, L.P. ("Windward")
and certain affiliates of Windward (collectively, with Windward, the
"Windward Group") and Metropolitan Life Insurance Company ("MetLife")
completed a recapitalization of the Company (the "Recapitalization"). The
Windward Group is a group of related entities which make merchant banking
investments pursuant to certain program agreements. In connection with the
Recapitalization, among other things: (i) the Company entered into Credit
Facilities, consisting of: (a) a $10,000,000 five year Revolving Credit
Facility, (b) a $30,000,000 five year Tranche A Term Loan and (c) a
$30,000,000 six and one-half year Tranche B Term Loan; (ii) the Company
issued $19,300,000, net of discount, in subordinated notes to the Windward
Group and MetLife along with 8,614 shares of common stock and certain
contingent anti-dilution warrants ("Mezzanine Units") for an aggregate
purchase price of $22,500,000; (iii) the Company purchased a portion of the
shares of Common Stock (at $370 per share) beneficially owned by the selling
stockholders for $87,500,000, including certain transaction expenses, in cash
and $5,000,000 in contingent subordinated notes; (iv) the Windward Group
purchased 87,721 shares of Common Stock (at $370 per share) from the Company
for $32,500,000 in cash; and (v) the Company repaid certain of its
outstanding indebtedness. In accounting for the recapitalization, no fair
value adjustments were made to the book value of the Company's assets and no
goodwill was recognized. The contingent subordinated notes vest upon
achievement by the Company of certain operating performance thresholds or
achievement by the Windward Group of certain investment performance
thresholds. On March 28, 1998, upon vesting of the Contingent Subordinated
Notes, the Company recorded a $2,500,000 charge to equity to reflect
additional purchase price associated with the shares purchased in the
Recapitalization as described in (iii) above.

In addition, in connection with the Recapitalization, a $6,000,000 interest
bearing escrow account was established by the selling stockholders to fund
certain contingencies and/or items specifically indemnified by the selling
stockholders. The escrow account has been classified as restricted cash on
the consolidated balance sheet. The restricted cash escrow balance was
$6,120,000 at April 3, 1999 and $6,013,000 at March 28, 1998. Any funds
remaining in this account upon satisfaction of conditions specified in the
escrow agreement, will be paid to the selling stockholders.

On May 6, 1997, the Company issued $90,000,000 in principal amount of Senior
Subordinated Notes due in May 2007 (the "Old Notes") and used the proceeds of
such issuance to, among other things, (i) repay 100% of the outstanding
principal amount, together with all accrued but unpaid interest thereon, of
each of Term Loan A and Term Loan B and (ii) repurchase all outstanding
Mezzanine Units for $22,500,000, the initial purchase price thereof, together
with accrued but unpaid interest on the related notes. As a result of this
refinancing, the Company recorded an extraordinary loss of $986,000, net of
taxes. In addition on May 6, 1997, the Company amended the Revolving Credit
Facility to, among other things, increase the amount available thereunder
from $10,000,000 to $20,000,000. Pursuant to the Registration Rights
Agreement entered into with the issuance of the Old Notes, the Company on
November 3, 1997 filed a Registration Statement under the Securities Act of
1933 with the SEC to exchange the Old Notes for $90,000,000 of Senior
Subordinated Exchange Notes (the "New Notes"). The terms of the New Notes and
the Old Notes are identical in all material respects.

28

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

On June 20, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Connector Industries of America, a
glass-to-metal sealing company. The purchase price was $2,100,000 paid in
cash. The transaction was accounted for as an asset purchase. In conjunction
with the acquisition, the Company assigned $1,372,000 to intangibles which
are being amortized over a 14 year period on a straight line basis.

Principles Of Consolidation

The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries. All significant intercompany transactions
(which are primarily sales/purchases and receivables/payables) have been
eliminated in consolidation.

The Company's Senior Subordinated Notes are guaranteed by all operating
subsidiaries of the Company (the "Subsidiary Guarantors"). The guarantee
obligations of the Subsidiary Guarantors (which are all direct or indirect
wholly owned subsidiaries of the Company) are full, unconditional and joint
and several. The aggregate assets, liabilities, earnings, and equity of the
Subsidiary Guarantors are substantially equivalent to the total assets,
liabilities, earnings and equity of HCC Industries Inc. and its subsidiaries
on a consolidated basis. Separate financial statements of the Subsidiary
Guarantors are not included in the accompanying financial statements because
management of the Company has determined that separate financial statements
of the Subsidiary Guarantors would not be material to investors.

Use of Estimates

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, reported results
of operations and disclosure of contingencies at the dates of the
consolidated financial statements. Actual results could differ from those
estimates.

Accounting Period

The consolidated financial statements are based on the fiscal year ending on
the Saturday nearest to March 31.

Revenue Recognition

The Company generally recognizes revenue at the time of shipment.

Cash Equivalents

The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents. The Company has bank
balances, including cash and cash equivalents, which at times may exceed
federally insured limits.

29

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Accounts Receivable And Concentration Of Credit Risk

The Company grants uncollateralized credit to its customers who are located
in various geographical areas. Estimated credit losses and returns have been
provided for in the financial statements and, to date, have been within
management's expectations. Sales to the Company's four largest customers
accounted for 44% (1999), 42% (1998), and 43% (1997) of total sales. At April
3, 1999 and March 28, 1998, the four largest customers accounted for
approximately 42% and 40% of total accounts receivable, respectively.

Sales to SDI were $24,642,000, $23,836,000, and $15,243,000 for the fiscal
years 1999, 1998, and 1997, respectively. Accounts receivable from SDI as of
April 3, 1999 and March 28, 1998 were $3,016,000 and $3,100,000, respectively.

Inventories

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

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Depreciation is computed
generally by the straight-line method over the estimated useful lives of the
respective assets of 3 years to 40 years.

Repairs and maintenance are charged directly to expense as incurred. Additions
and betterments to property, plant and equipment are capitalized. When assets
are disposed of, the related cost and accumulated depreciation thereon are
removed from the accounts and any resulting gain or loss is included in
operations.

Intangible Assets

The excess of purchase price over net assets acquired is amortized on a
straight-line basis over the estimated useful lives of the respective assets
of 14 to 40 years. Amortization expense was $291,000 (1999), $264,000 (1998),
and $189,000 (1997). Accumulated amortization on the excess purchase price
over net assets acquired was $2,249,000 and $1,958,000 as of April 3, 1999
and March 28, 1998.

Long-Lived Assets

In accordance with SFAS No. 121, long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the Company evaluates the carrying value of its goodwill and
property, plant and equipment on an ongoing basis and recognizes an
impairment when the estimated future undiscounted cash flows from operations
are less than the carrying value of the related long-lived assets.

Income Taxes

The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.

30

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Stock Based Employee Compensation Awards

Statement of Financial Accounting Standards No. 123, "Accounting for the
Awards of Stock-Based Compensation to Employees" ("SFAS No. 123") encourages,
but does not require companies to record compensation cost for stock-based
compensation plans at fair value. The Company has adopted the disclosure
requirements of SFAS No. 123, which involves pro forma disclosure of net
income under SFAS No. 123, detailed descriptions of plan terms and
assumptions used in valuing stock option grants. The Company has chosen to
continue to account for stock-based employee compensation awards in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees".

Reclassifications

Certain reclassifications have been made to previously reported amounts to
conform with the current year presentation.

Recently Issued Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". For the fiscal years ended April 3, 1999, March 28,
1998 and March 29, 1997 the Company had no comprehensive income components as
defined in SFAS No. 130.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The adoption of this standard did
not result in any additional reporting requirements for the Company.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in fair value of derivatives will be recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The new rules are likely to be required for the Company's fiscal
year ending 2002. The Company does not believe that the new standard will
have any impact on the Company's financial statements.

31

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2. INVENTORIES:

Inventories consist of the following (in thousands):

April 3, March 28,
1999 1998
--------- ------------

Raw materials and component parts $ 2,279 $ 2,340
Work in process 2,091 2,270
--------- -----------

$ 4,370 $ 4,610
--------- -----------
--------- -----------

3. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following (in thousands):

April 3, March 28,
1999 1998
--------- ------------

Land $ 4,017 $ 3,180
Buildings and improvements 8,699 5,988
Furniture, fixtures and equipment 15,278 12,607
--------- -----------

27,994 21,775
Less accumulated depreciation (8,841) (7,158)
--------- -----------
$ 19,153 $ 14,617
--------- -----------
--------- -----------

32

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4 LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

April 3, March 28,
1999 1998
----------- ----------

10 3/4% Senior Subordinated Notes - interest payable
semi-annually; due May 15, 2007 $ 90,000 $ 90,000

Subordinated Notes due Selling Shareholders -
12% interest payable semi-annually; due March 28, 2001 2,500 2,500

Subordinated Bonus Notes - 10% interest payable semi-annually;
$3,000,000 due March 28, 2001 and
$1,085,000 due April 3, 2002 4,085 3,000

Term loans on land, building and improvements -
8% interest payable monthly; due May 2008 2,762 --

Other 3,821 3,598
---------- ---------

103,168 99,098
Less current portion 1,125 897
---------- ---------

$ 102,043 $ 98,201
========== =========

At April 3, 1999 and March 28, 1998, the prime rate was 7.75% and 8.50%,
respectively.

In issuing the 10 3/4% Senior Subordinated Notes, the Company incurred
$3,870,000 in deferred financing costs. These costs are being amortized using
the straight-line method over the term of the respective notes. For the year
ended April 3, 1999, the Company incurred amortization expense of $389,000 on
the deferred financing costs. In accordance with SFAS No. 107 "Disclosure
About Fair Value of Financial Instruments," the fair values of the Company's
long-term debt has been established based on current rates offered to the
Company for debt of the same remaining maturities. The carrying amounts of
the Company's loans approximate their fair values.

33

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Senior Subordinated Notes are redeemable at the option of the Company
commencing on May 15 of the year set forth below at the redemption prices
also set forth below:

Redemption
Period Price
------ ----------

2002 .......................................... 105.375%
2003 .......................................... 103.583%
2004 .......................................... 101.792%
2005 and thereafter ........................... 100.000%

Minimum payments due under long-term debt as of April 3, 1999 are as follows
(in thousands):

Fiscal
Year Amount
------ ------

2000 $ 1,125
2001 6,559
2002 1,952
2003 621
2004 148
2005 and thereafter 92,763
---------

$ 103,168
==========

Cash payments for interest were $10,752,000 (1999), $6,893,000 (1998) and
$2,241,000 (1997).

5. LINES OF CREDIT:

The Company has a revolving credit facility agreement, as amended on May 6,
1997, (the "Agreement") of up to $20,000,000 expiring on February 14, 2002.
The Agreement provides for interest on outstanding balances at the bank's
prime rate plus 1-1/4% and is collateralized by accounts receivable and
inventories of the Company. At April 3, 1999 there was $15,500,000 available
under the Agreement. The Agreement includes covenants requiring maintenance
of certain financial ratios. At April 3, 1999 and March 28, 1998 there were
no borrowings outstanding under the Agreement.

The Company has a capital lease line of credit of $3,000,000 for financing
manufacturing equipment expiring June 30, 1999. The agreement provides for
three year or five year terms with interest at 2.00% above the bank's index
rate. The bank's index rate is the U.S. Treasury Note bond-equivalent yield
per annum corresponding to the average life of the lease. At April 3, 1999
and March 28, 1998 there were $3,821,000 and $3,532,000 in borrowings
outstanding under the capital leases, respectively.

34

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6. TAXES ON EARNINGS:

The components of income tax expense (benefit) consist of the following (in
thousands):

1999 1998 1997
----------- -------- -------

Current:
Federal $ 3,090 $ 2,392 $ 2,484
State 568 469 488
---------- --------- --------
3,658 2,861 2,972
---------- --------- --------

Deferred:
Federal (290) (942) (3,334)
State (43) (169) (588)
---------- --------- ---------
(333) (1,111) (3,922)
---------- --------- ---------

$ 3,325 $ 1,750 $ (950)
========== ========= =========

The Company's effective tax rate differs from the statutory federal income
tax rate as follows:

1999 1998 1997
---------- -------- -------

Tax provision at the statutory rate 34.0% 34.0% (34.0%)
Nondeductible expenses 1.0% 2.2% 2.7%
State taxes, net of federal benefit 4.0% 4.6% (1.9%)
Other (0.7%) (0.8%) (2.5%)
---------- -------- -------
38.3% 40.0% (35.7%)
========== ======== ========

The components of the net deferred taxes are as follows (in thousands):

April 3, March 28,
1999 1998
---------- -----------

Deferred Tax Assets:
Environmental liabilities $ 3,766 $ 3,848
Accrued vacation and other 1,862 1,460
---------- ---------
5,628 5,308
Deferred Tax Liabilities:
Depreciation (1,126) (856)
---------- ---------

Deferred Tax Asset, net $ 4,502 $ 4,452
========== =========

Cash tax payments were $5,302,000 (1999), $859,000 (1998), and $4,454,000
(1997).

35

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7. CAPITAL STOCK:

The Company is authorized to issue an aggregate of 550,000 shares of common
stock. These shares may be issued in four different classes (A, B, C or D
shares) which differ only in voting rights per share as follows:

Voting Rights
Class Per Share
------ -------------

A 1
B 1
C None
D 10

The changes in each class of common shares for each of the three years in the
period ended April 3, 1999 are as follows (in thousands):

Class of Common Stock
-------------------------------------------------
A B C D Total
--------------
Par Par Par Par Par
Shares Value Shares Value Shares Value Shares Value Shares Value
------ ----- ------ ----- ------ ----- ------ ------ ------- -----

Balance - March 30, 1996 500 $ 50 500 $ 50
Repurchase of Stock
(June 1996) (206) (21) (206) (21)
Repurchase of Stock
(February 1997) (246) (25) (246) (25)
Sale of Stock 63 6 28 $ 3 4 $ 1 1 $ -- 96 10
------- ---- ---- ---- ---- ---- ---- ---- ------ ----

Balance - March 29, 1997 111 10 28 3 4 1 1 -- 144 14
Repurchase of Stock (8) (1) (1) -- -- -- -- -- (9) (1)
------- ---- ---- ---- ---- ---- ---- ---- ------ ----

Balance - March 28, 1998 103 9 27 3 4 1 1 -- 135 13
Sale of Stock -- 1 -- -- -- -- -- -- -- 1
------- ---- ---- ---- ---- ---- ---- ---- ------ ----

Balance - April 3, 1999 103 $ 10 27 $ 3 4 $ 1 1 $ -- 135 $ 14
======= ==== ==== ==== ==== ==== ==== ==== ====== ====

The remaining 414,505 shares are undesignated as to class.

In February 1997, the Company adopted a stock option plan (the "Option Plan")
which provides for the grant to employees and directors, from time to time,
of non-qualified stock options to purchase up to an aggregate of 22,887
shares of common stock at exercise prices to be determined by the Board of
Directors. The Option Plan provides for the grant of management options to
purchase 6,393 shares of common stock (the "Management Options"), management
performance options to purchase 14,206 shares of common stock (the
"Management Performance Options"), director options to purchase 710 shares of
common stock (the "Director Options") and director performance options to
purchase 1,578 shares of common stock (the "Director Performance Options").
The Management Options and Director Options are subject to a vesting schedule
that generally provides for each series of options to vest 20% per year over
five years if the Company attains specified annual or cumulative earnings
targets as defined in the Option Plan. The Management Performance Options and
Director Performance Options are subject to a vesting schedule based on a
change in control in which the Windward Group realizes specified annual rates
of return on its equity investment in the Company as defined in the Option
Plan. All options are exercisable over a period of 10 years and will
automatically vest on the seventh anniversary of the date on which the Option
Plan was adopted, regardless of whether the performance criteria are achieved.

36

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The Company granted options to purchase 470, 470 and 18,160 shares of common
stock for the years ended April 3, 1999, March 28, 1998 and March 27, 1997,
respectively, with an exercise price equal to the fair value of common stock
at the date of grant ($370.49 per share). At April 3, 1999 1,420 options were
exercisable and options to purchase 4,062 shares of common stock remained
available for grant.

The average fair value of each option granted was estimated on the date of
grant to be $99 using the minimum value method with the following assumptions
(i) risk-free interest rate of 5.48%, 6.43% and 6.25% for fiscal 1999, 1998
and 1997, respectively, (ii) expected option life of 5 years, (iii)
forfeiture rate of 0 and (iv) no expected dividends.

The Company has adopted the disclosure only provisions of SFAS No. 123. For
the years ended April 3, 1999 and March 28, 1998, had the Company recognized
compensation expense in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", net earnings
would have been $5,135,000 and $2,406,000, respectively. For the year ended
March 29, 1997, due to the limited time period for which stock options were
outstanding, there was no significant difference between the Company's net
loss and the pro forma net loss.

8. EMPLOYEE BENEFIT PLANS:

In 1993, the Company adopted the HCC Savings and Investment Plan (the "Plan")
which covers all eligible full-time employees. The Company established the
Plan to meet the requirements of a qualified retirement plan pursuant to the
provisions of Section 401(k) of the Internal Revenue Code. The Plan provides
participants the opportunity to make tax deferred contributions to a
retirement trust account in amounts up to 15% of their gross wages. The
Company has elected to make matching contributions in amounts that may change
from year to year. The Company contributed $536,000 (1999), $466,000 (1998)
and $480,000 (1997) in matching contributions to the Plan.

In connection with the Recapitalization, the Company adopted a bonus plan
(the "Bonus Plan"), pursuant to which the Company will grant Bonus Units
(each representing an interest in the bonus pool of $6.0 million) to certain
key employees. The Bonus Units are awarded by a committee of the Board of
Directors of the Company. On April 3, 1999 and March 28, 1998, $1.1 million
and $3.0 million of Bonus Units became vested, respectively. Vested
contingent bonuses become due and payable on the third anniversary of the
applicable vesting date and will bear interest at 10% per annum (payable
semi-annually in arrears) from each applicable vesting date until paid in
full.

9. COMMITMENTS AND CONTINGENCIES:

Environmental

As an ongoing facet of the Company's business, it is required to maintain
compliance with various environmental regulations. The cost of this
compliance is included in the Company's operating results as incurred. These
ongoing costs include permitting fees and expenses and specialized effluent
control systems as well as monitoring and site assessment costs required by
various governmental agencies. In the opinion of management, the maintenance
of this compliance will not have a significant effect on the financial
position or results of operations of the Company.

37

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

In August 1994, the U.S. Environmental Protection Agency ("EPA") identified
the Company as a potentially responsible party ("PRP") in the El Monte
Operable Unit ("EMOU") of the San Gabriel Valley Superfund Sites. In early
1995, the Company and the EPA executed an Administrative Consent Order which
requires the Company and other PRP's to perform a Remedial Investigation and
Feasibility Study ("RI/FS") for the EMOU. In addition, the Company's facility
in Avon, Massachusetts is subject to Massachusetts "Chapter 21E", the State's
hazardous site clean-up program. Uncertainty as to (a) the extent to which
the Company caused, if at all, the conditions being investigated, (b) the
extent of environmental contamination and risks, (c) the applicability of
changing and complex environmental laws (d) the number and financial
viability of other PRP's, (e) the stage of the investigation and/or
remediation, (f) the unpredictability of investigation and/or remediation
costs (including as to when they will be incurred), (g) applicable clean-up
standards, (h) the remediation (if any) that will ultimately be required, and
(i) available technology make it difficult to assess the likelihood and scope
of further investigation or remediation activities or to estimate the future
costs of such activities if undertaken. In addition, liability under CERCLA
is joint and several, and any potential inability of other PRP's to pay their
prorata share of the environmental remediation costs may result in the
Company being required to bear costs in excess of its prorata share.

In fiscal 1997, the Company with the help of independent consultants,
determined a range of estimated costs of $9,000,000 to $11,000,000 associated
with the various claims and assertions it faces. The time frame over which
the Company expects to incur such costs varies with each site, ranging up to
20 years as of April 3, 1999. These estimates are based partly on progress
made in determining the magnitude of such costs, experience gained from sites
on which remediation is ongoing or has been completed, and the timing and
extent of remedial actions required by the applicable governmental
authorities. As a result, the Company accrued $10,000,000 in fiscal 1997 for
existing estimated environmental remediation and other related costs which
the Company believes to be the best estimate of the liability. As of April 3,
1999, the accrual for estimated environmental costs was $9,416,000.

Claims for recovery of costs already incurred and future costs have been
asserted against various insurance companies. The Company has neither
recorded any asset nor reduced any liability in anticipation of recovery with
respect to such claims made.

The Company believes its accrual is adequate, but as the scope of its
obligations becomes more clearly defined, this accrual may be modified and
related charges against earnings may be made.

Pursuant to the Recapitalization Agreement, the Selling Group has agreed to
indemnify the Company with respect to the after-tax costs of contingent
environmental and other liabilities, subject to a cap for all indemnified
liabilities of $30 million. Pursuant to the Recapitalization Agreement, a
$6.0 million interest bearing escrow account was established by the selling
stockholders (the "Deferred Amount") to secure indemnity claims of the
Company and others, including with respect to environmental liabilities. Any
environmental costs, net of tax benefit, are expected to be funded from the
escrow account. Actual expenditures for environmental remediation for each of
the three years in the period ended April 3, 1999 were $203,000 (1999),
$381,000 (1998) and $297,000 (1997).

38

HCC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Other

On March 3, 1998, Walter Neubauer, a former stockholder of the Company filed
a lawsuit in California Superior Court against the Company and certain other
stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii)
negligent misrepresentation, (iv) negligence, (v) violations of corporations
code and (vi) breach of contract. The allegations primarily relate to the
Company's exercise of an option to acquire Mr. Neubauer's stock in August
1996. The former stockholder is seeking damages of $40.0 million. Based upon
the Company's analysis of the current facts, it is management's belief that
the Company should ultimately prevail in this matter, although there can be
no assurance in this regard at this time.

On May 7, 1998, the Company filed a lawsuit against the former stockholder in
California Superior Court alleging (i) breach of contract, (ii) intentional
interference with business relations and (iii) interference with prospective
business advantage. All allegations relate to violations of the
noncompetition agreement executed by the former stockholder in August 1996.
The Company is seeking damages of $50.0 million.

In addition to the above, the Company is involved in other claims and
litigation arising in the normal course of business. Based on the advice of
counsel and in the opinion of management, the ultimate resolution of these
matters will not have a significant effect on the financial position or the
results of operations of the Company.

10. RELATED PARTY TRANSACTIONS:

For the year ended April 3, 1999 the Company paid a total of $152,000 in fees
to Windward Capital Partners consisting of an annual management fee of
$125,000 and expenses totaling $27,000. For the year ended March 28, 1998 the
Company paid a total of $1,466,000 in fees to Windward Capital Partners
consisting of a non-recurring financial advisory fee of $1,250,000, an annual
management fee of $125,000 and expenses totaling $91,000.

39

HCC INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

ADDITIONS--
BALANCE CHARGED DEDUCTIONS--
AT TO COSTS UNCOLLECTIBLE BALANCE
BEGINNING AND ACCOUNTS AT END
OF YEAR EXPENSES WRITE OFFS OF YEAR
--------- ------------ ------------- -------

1999
Allowance for doubtful accounts $ 40 $ 6 $ -- $ 46
========= ========== =========== =========

1998
Allowance for doubtful accounts $ 40 $ -- $ -- $ 40
========= ========== =========== =========

1997
Allowance for doubtful accounts $ 40 $ 4 $ 4 $ 40
========= ========== =========== =========

40

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS FOR THE REGISTRANT

MANAGEMENT

The following table sets forth certain information concerning the
directors and executive officers of the Company. Each director is elected for
a one (1) year term or until such person's successor is duly elected and
qualified.

Name Age Position
- ----- ----- ---------

Andy Goldfarb 51 Chairman, President and Chief Executive Officer of HCC
Christopher H. Bateman 47 Director, Vice President and Chief Financial Officer of HCC
Richard Ferraid 43 Director of HCC and President of Glasseal
Robert H. Barton III 65 Director of HCC
Gary L. Swenson 61 Director of HCC
Noel E. Urben 61 Director of HCC
Robert Rau 61 Director of HCC
Thomas J. Sikorski 38 Director of HCC
John M. Leonis 65 Director of HCC
Fred Hauser 62 Director of HCC

Mr. Goldfarb joined the Company in 1976 and has served in various
capacities and currently serves as the Chairman, Chief Executive Officer and
President of HCC. Mr. Goldfarb has been a director of the Company since 1979.

Mr. Bateman joined the Company in 1986 from Touche Ross & Co. and has
served in various capacities and currently serves as a Vice President and the
Chief Financial Officer of HCC. Mr. Bateman has been a director of the
Company since 1989.

Mr. Ferraid joined the Company in 1992 and has served in various
capacities and currently serves as the President of Glasseal. Mr. Ferraid
became a director of the Company in February 1997 following the consummation
of the Recapitalization. Mr. Ferraid previously worked at Electrical
Industries, a competitor of the Company. Mr. Ferraid has 20 years of
experience in the GTMS industry.

Mr. Barton was elected a director of HCC in February 1997 following the
consummation of the Recapitalization. Mr. Barton was elected Chairman of
French Holdings, Inc. in October 1996 and Chairman and CEO of American Bumper
& Mfg. Co. in April 1997. Mr. Barton was Chief Executive Officer of Alcoa
Fujikura Ltd. from May 1984 to December 1996. He currently serves on the
Board of Directors of and as senior advisor of Alcoa Fujikura Ltd., and
serves on the Board of Directors of J. L. French Automotive Castings Inc. and
American Bumper & Mfg. Co.

Mr. Swenson was elected a director of HCC in February 1997 following the
consummation of the Recapitalization. Mr. Swenson has been President and
Senior Managing Director of Windward Capital Partners, L.P. since its
founding in 1994, and was a Managing Director of CS First Boston Corporation
from 1974 to 1994. Mr. Swenson currently serves on the Board of Directors of
J. L. French Automotive Castings Inc., Furr's Supermarkets, Inc. and American
Bumper & Mfg. Co. Mr. Swenson is Mr. Sikorski's father-in-law.

41

Mr. Urben was elected a director of HCC in February 1997 following the
consummation of the Recapitalization. Mr. Urben has been a Senior Managing
Director at Windward Capital Partners, L.P. since 1995, and prior to that he
was the President and a director at BT Capital Corporation. Mr. Urben
currently serves on the Board of Directors of Tycom Corporation, J. L. French
Automotive Castings, Inc. and Pressure Systems, Inc. Mr. Urben resigned as a
director of HCC on April 4, 1999.

Mr. Rau was elected a director of HCC in July 1998. Mr. Rau recently
retired as President of the Aerostructures Group and is a member of the Board
of Directors of The BFGoodrich Company. Prior to its merger with BFGoodrich,
Mr. Rau was President and Chief Executive Officer of Rohr, Inc. from 1993 to
1997. Before joining Rohr, he was an Executive Vice President of Parker
Hannifin Corporation. In addition, Mr. Rau is a member of the Board of
Governors of the Aerospace Industries Association, a past Chairman of the
General Aviation Manufacturers Association and a member of the Board of
Trustees of Whittier College.

Mr. Sikorski was elected a director of HCC in February 1997 following
the consummation of the Recapitalization. Mr. Sikorski has been a Managing
Director of Windward Capital Partners, L.P. since its founding in 1994. Prior
to joining Windward Capital Partners, L.P., Mr. Sikorski was Director of
Private Equity Investments at MetLife from 1992 to 1994 and prior to that was
a Vice President in the leveraged Buyout Group at the First Boston
Corporation from 1986 to 1992. Mr. Sikorski currently serves on the Board of
Directors of Furr's Supermarkets, Inc., DCV Holdings, Inc. and Palace
Entertainment, Inc. Mr. Sikorski is Mr. Swenson's son-in-law.

Mr. Leonis was elected a director of HCC in July 1997. Mr. Leonis
retired as Chairman of the Board of Directors of Litton Industries, Inc. in
March 1999. Mr. Leonis worked at Litton Industries in various capacities for
over 36 years. Mr. Leonis currently serves as a member of the Board of
Directors of the Los Angeles World Affairs Council and Town Hall.

Mr. Hauser was elected a director of HCC in April 1999. Mr. Hauser
retired from Metropolitan Life Insurance Company in 1997 as Senior Vice
President and Corporate Controller after 39 years with the company. Mr.
Hauser has served as a director of METMOR, MetLife's mortgage banking
operations, and MetLife Securities, a broker dealer. Mr. Hauser currently
serves on the board of the New York chapter of the Financial Executives
Institute, an organization of Chief Financial Officers, Treasurers and
Controllers of major corporations, and was its President in 1993-1994.

ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth the total value of compensation
received by the Chief Executive Officer and the two most highly compensated
executive officers, other than the Chief Executive Officer, who served as
executive officers of the Company as of April 3, 1999, (collectively with the
Chief Executive Officer, the "Named Executive Officers") for services
rendered in all capacities to the Company for the year ended April 3, 1999.

42

SUMMARY COMPENSATION TABLE (1)

LONG-TERM
COMPENSATION -
NUMBER OF
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(2)
- --------------------------- ----- ------ ----- ----------- --------------

Andrew Goldfarb 1999 $ 308,045 $ 105,000 -- $ 29,697
Chairman of the Board of Directors 1998 $ 301,725 $ 105,000 -- $ 22,491
Chief Executive Officer and 1997 $ 462,467 $ -- -- $ 25,319
President of HCC

Christopher Bateman 1999 $ 205,418 $ 20,000 -- $ 24,033
Chief Financial Officer and 1998 $ 201,150 $ 20,000 -- $ 24,070
Vice President of HCC 1997 $ 200,575 $ -- 3,195 $ 20,108

Richard Ferraid 1999 $ 205,418 $ 40,000 -- $ 13,608
President of Glasseal 1998 $ 201,150 $ 40,000 -- $ 13,608
1997 $200,000 $ 75,000 3,590 $ 13,608

(1) None of the executive officers has received perquisites the value of which
exceeded the lesser of $50,000 or 10% of the salary and bonus of such
executive officer.
(2) For 1999 all other compensation included the following amounts: Mr.
Goldfarb, $6,000 of Company contributions into the Company's 401(k) plan,
$2,713 for automobile allowance and $20,984 for allocated life insurance;
Mr. Bateman, $6,000 for Company contributions into the Company's 401(k)
plan, $17,337 for automobile allowance and $696 for allocated life
insurance; Mr. Ferraid, $6,000 for Company contributions into the Company's
401(k) plan, $7,200 for automobile allowance and $408 for allocated life
insurance.

GRANTS OF STOCK OPTIONS

There were no options granted to the named executive officers and no
options were exercised by the named executive officers for the fiscal year
ended April 3, 1999.

The following table sets forth information concerning the value of
unexercised options held by the Named Executive Officers. The Named Executive
Officers did not exercise any options during the fiscal year ended April 3,
1999.

OPTIONS OUTSTANDING AT APRIL 3, 1999
------------------------------------
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDER OPTION - OPTIONS -
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ----- -------------- -------------------

Christopher Bateman 244 / 2,952 $ - / $ - (1)
Richard Ferraid 244 / 3,346 $ - / $ - (1)

- ---------------------------------------
(1) There is no public market for the Company's stock. The fair market value
of a share of Common Stock is assumed to be equal to the exercise price
per share of the options held by the Named Executive Officers.

43

EMPLOYMENT AGREEMENTS

In February 1997, Andrew Goldfarb entered into an employment agreement
with HCC (the "Employment Agreement"). Pursuant to the Employment Agreement,
Mr. Goldfarb will be employed by HCC until April 1, 2000 provided that HCC
may terminate Mr. Goldfarb by reason of disability, death or for good cause
(as defined in the Employment Agreement). Upon termination by the Company for
reasons other than death, disability or good cause, Mr. Goldfarb will be
entitled to receive salary, bonus and benefits for the remainder of the term.
Following the date of any termination (other than by death) HCC has sole
discretion to retain Mr. Goldfarb as an exclusive consultant for a term of
three years (the "Consulting Period") in exchange for a consulting fee equal
to 50% of base salary. The agreement provides for a base salary to be
determined in accordance with HCC's policies and an annual bonus contingent
on certain performance-based criteria. Pursuant to the terms of the
agreement, Mr. Goldfarb, during the term of the Employment Agreement and the
Consulting Period may not solicit customers of the Company, engage in
business with any competing entity or induce any other employee of the
Company to leave his or her employment with the Company.

OPTION PLAN

In connection with the Recapitalization, HCC adopted the Option Plan
which provides for the grant to employees from time to time of non-qualified
stock options to purchase up to an aggregate of 22,887 shares of Common Stock
at exercise prices to be determined by the Board of Directors. The Option
Plan provides for the grant of management options to purchase 6,393 shares of
Common Stock (the "Management Options"), management performance options to
purchase 14,206 shares of Common Stock (the "Management Performance
Options"), director options to non-affiliates of Windward to purchase 710
shares of Common Stock (the "Director Options"), and director performance
options to non-affiliates of Windward to purchase 1,578 shares of Common
Stock (the "Director Performance Options"). The Management Options and
Director Options were granted subject to an EBITDA (as defined in the Option
Plan) vesting schedule that provides for 20% of each series of options to
vest in each of fiscal year 1998 through fiscal year 2002 if the Company
attains a specified target for each such year ($21.8 million EBITDA in fiscal
1998, $28.5 million EBITDA in fiscal 1999, $32.6 million EBITDA in fiscal
2000, $35.3 million EBITDA in fiscal 2001 and $37.6 million EBITDA in fiscal
2002). The Options will also vest if certain cumulative EBITDA targets are
achieved after certain multiple year periods or, so long as the Windward
Group realizes specified rates of return on its aggregate equity investment,
upon a Change of Control (as defined in the Option Plan). In addition,
regardless of whether the performance criteria are achieved, all Options
including, the performance-based Options, will vest automatically on the
seventh anniversary of the date of grant. On March 28, 1998, the 20% of stock
options related to the 1998 fiscal year became vested.

The Management Performance Options and Director Performance Options were
granted subject to a vesting schedule providing for 50% of each series of
options to vest upon a Change of Control in which the Windward Group realizes
a 30% compounded annual rate of return on its aggregate equity investment in
the Company and the remaining 50% of each series of options vesting upon a
Change of Control in which Windward Group realizes a 40% compounded annual
rate of return on its aggregate equity investment in the Company. As of April
3, 1999, 18,825 options have been granted under the Option Plan which entitle
the holders to purchase upon vesting 18,825 shares of Common Stock at an
exercise price of $370.49 per share. An additional 4,062 options may be
granted under the Option Plan.

CONTINGENT BONUS PLAN

In connection with the Recapitalization, HCC adopted the Bonus Plan,
pursuant to which the Company will grant Bonus Units (each representing an
interest in the bonus pool of $6.0 million) to certain key employees (the
"Participants"). The Bonus Units will be awarded by a committee of the Board
of Directors of HCC formed to administer the Bonus Plan. On April 3, 1999 and
March 28, 1998, $1.1 million and $3.0 million of Bonus Units became vested,
respectively. In addition, if the Company completes an IPO or a Sale Event
within 30 months of March 31, 1997 any unvested contingent bonuses will vest
in their entirety and become redeemable at par if (a) the equity market
capitalization of the Company is greater than $175.0 million for 20
consecutive trading days subsequent to the IPO (but prior to 30 months from
March 31, 1997) or if the equity valuation in the sale (after certain
specified adjustments) is greater than $175.0 million. Vested contingent
bonuses become due and

44

payable on the third anniversary of the applicable vesting date and will bear
interest at 10% per annum (payable semi-annually in arrears) from each
applicable vesting date until paid in full.

Pursuant to the Bonus Plan, all of an employee's Bonus Units terminate
immediately when such employee ceases to be employed by the Company, unless
such employment ceases due to such employees' death or disability, in which
case such employee will be vested in a portion of such employee's Bonus Units.

DIRECTOR COMPENSATION

Each of Messrs. Barton, Leonis, Rau and Hauser receive an annual fee of
$20,000. In addition, Messrs. Barton, Leonis and Rau were granted 695, 470
and 470 stock options, respectively, of which 215, 150 and 150, respectively,
are subject to a vesting schedule that generally provides for each option to
vest 20% per year over five years (25% over four years for Mr. Rau)
commencing on the first anniversary of the date of grant if the Company
attains specified annual or cumulative earnings targets set forth in the
Option Plan and the remaining options vest upon a change in control in which
the Windward Group realized specified annual rates of return on its equity
investment in the Company as defined in the Option Plan. All options
automatically vest on the seventh anniversary of the date of grant regardless
of whether the performance criteria are achieved. All options have an
exercise price equal to the fair value of the common stock at the date of
grant ($370.49 per share).

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In fiscal 1999, the Company had no compensation committee and
compensation matters were handled exclusively by Mr. Goldfarb, Chief
Executive Officer and Chairman of the Board of Directors of HCC.

45

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table lists all shares of HCC's Common Stock as of April
3, 1999, beneficially owned by each director of HCC, each executive officer
of HCC and each person known by the Company to beneficially own more than 5%
of such outstanding shares of Common Stock at such date. The table also
reflects the percentage of the shares owned beneficially by all executive
officers and directors of HCC as a group. Share numbers and percentages in
the table are rounded to the nearest whole share. As of April 3, 1999 there
were 135,495 shares of Common Stock of HCC outstanding.

Number of
Name and Address Shares of
of Beneficial Owners Common Stock* Percent
- -------------------- -------------- --------

Windward/Park HCC, L.L.C.(a)(b) 53,836 39.7%
Windward/Merban, L.P.(a)(b) 10,767 8.0%
Windward/Merchant, L.P.(a)(b) 21,535 15.9%
Windward Capital Associates, L.P.(a)(b)(c) 87,721 64.7%
Windward Capital Associates, Inc.(b)(c) 87,721 64.7%
Gary Swenson(b)(d)(e) 87,721 64.7%
Thomas J. Sikorski(b)(e) -- **
Noel E. Urben(b)(e) -- **
Robert Barton -- **
John M. Leonis(f) 270 0.2%
Robert Rau(g) 270 0.2%
Andrew Goldarb(h)(j) 30,453 22.5%
Christopher Bateman(h)(i) 9,173 6.8%
Richard Ferraid(h)(i) 3,558 2.6%

All directors and executive officers of the Company
as a group (7 persons)(i)(k) 43,724 32.3%

- -----------
* HCC's common equity is divided into four separate classes of Common stock,
par value $.10 per share: (i) Class A Common Stock with one vote per share,
(ii) Class B Common Stock with one vote per share, (iii) Class C Common
Stock with no voting rights, except as required by applicable state law and
(iv) Class D Common Stock with 10 votes per share. Except for voting
rights, all the common equity of the Company have identical economic terms.
Other than Windward/Merban, L.P. and Windward/Merchant, L.P., all other
stockholders of HCC own Class A Common Stock. See note (a) below.
** Less than 1.0%

(a) Windward/Park HCC, L.L.C. owns 53,836 shares of Class A Common Stock,
Windward/Merban L.P. owns 6,451 shares of Class B Common Stock and 4,316
shares of Class C Common Stock, Windward/Merchant, L.P. owns 21,055 shares
of Class B Common Stock and 480 shares of Class D Common Stock and Windward
Capital Associates, L.P. owns 1,583 shares of Class A Common Stock. The
Windward Group due to their common control may be deemed to beneficially
own each others shares, but each disclaims such beneficial ownership. The
Windward Group consists of Windward, Windward/Merchant, L.P., the partners
of which are Windward and an affiliate of Credit Suisse First Boston
Corporation, Windward/Merban, L.P., the partners of which are Windward and
an affiliate of Credit Suisse First Boston Corporation and Windward/Park
HCC, LLC, the members of which are Windward and MetLife. Pursuant to a set
of program agreements, the Windward Group, along with certain other
entities, invests in merchant banking investments organized and managed by
Windward and its affiliates. The program agreements govern the relationship
among the Windward Group and provide for, among other things, procedures
for investments, allocations of income and loss, distributions of funds,
transfers of interests between and among the partners or members or third
parties, provisions relating to the activities of the general partner or
manager, including in respect of fees, powers and limitations and removal
by the other partners or members, and procedures for the limited partners
or non-managing members to exercise voting and management control of the
investments. Windward and the other members of the Windward Group have
reached agreement concerning an early termination of the period during
which they may make future investments under their program agreements.
Windward and the other members have informed the Company that such
termination will not have any effect on their investment in, or the
management or control of, the Company.

46

(b) The business address for such person(s) is c/o Windward Capital Partners,
L.P., 1177 Avenue of the Americas, 42nd Floor, New York, New York 10036.

(c) Windward Capital Associates, L.P. may be deemed to share beneficial
ownership of the Common Stock owned of record by the Windward Group, by
virtue of its status as the general partner of Windward/Merchant, L.P.,
Windward/Merban, L.P. and the Managing Member of Windward/Park HCC, L.L.C.,
but disclaims such beneficial ownership. Windward Capital Associates, Inc.
may be deemed to share beneficial ownership of shares of Common Stock owned
of record by the Windward Group by virtue of its status as the general
partner of Windward Capital Associates, L.P., but disclaims such beneficial
ownership.

(d) Mr. Swenson may be deemed to share beneficial ownership of
the shares of Common Stock owned of record by the Windward Group, by virtue
of his status as the sole stockholder of Windward Capital Associates, Inc.,
the general partner of Windward Capital Associates, L.P. Mr. Swenson
disclaims such beneficial ownership. Windward Capital Associates, L.P. is
the general partner of Windward/Merchant, L.P., Windward/Merban, L.P. and
the Managing Member of Windward/Park HCC, L.L.C.

(e) Messrs. Swenson, Sikorski and Urben are limited partners of Windward
Capital Associates, L.P. None of Messrs. Swenson, Sikorski and Urben,
in their capacities as limited partners of Windward Capital Associates,
L.P., has or shares voting or investment power with Windward Capital
Associates, L.P. with respect to the Common Stock owned by Windward
Capital Associates, L.P. (f) Includes 270 shares of Common Stock owned
by the Leonis Family 1989 Inter Vivos Family Trust dated March 6, 1989.

(g) Includes 270 shares of Common Stock owned by the Rau Family Trust dated
December 14, 1984.

(h) The business address of such person(s) is c/o HCC Industries, Inc.,
4232 Temple City Blvd., Rosemead, CA 91770-1592.

(i) Excludes outstanding options to purchase shares of Common Stock
of which 244 and 244 are exercisable at March 28, 1998 for
Mr. Bateman and Mr. Ferraid, respectively.

(j) Includes 27,753 shares of Common Stock owned by the Andrew and Denise
Goldfarb Revocable Trust of 1995. Also includes 1,350 shares of Common
Stock owned by the Jessica Anne Goldfarb Irrevocable Trust and the 1,350
shares of Common Stock owned by the Rebecca Goldfarb Irrevocable Trust of
which Mr. Goldfarb's brother is the trustee. Mr. Goldfarb disclaims
beneficial ownership of the share of Common Stock owned by such trusts.

(k) Excludes shares of Common Stock referred to in notes (d) and (e) above.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For the year ended April 3, 1999 the Company paid a total of $152,000 in fees
to Windward Capital Partners consisting an annual management fee of $125,000
and expenses totaling $27,000. For the year ended March 28, 1998 the Company
paid a total of $1,466,000 in fees to Windward Capital Partners consisting of
a non-recurring financial advisory fee of $1,250,000, an annual management
fee of $125,000 and expenses totaling $91,000.

47

PART IV

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

The following documents are filed as part of this report:

Page Reference
Form 10-K

(a)(1) FINANCIAL STATEMENTS

Report of Independent Accountants 23

Consolidated Balance Sheets at April 3, 1999 and March 28, 1998 24

Consolidated Statements of Earnings for each of the three years ended
April 3, 1999, March 28, 1998 and March 29, 1997 25

Consolidated Statements of Stockholders' Equity for each of the three years
April 3, 1999, March 28, 1998 and March 29, 1997 26

Consolidated Statements of Cash Flows for each of the three years
ended April 3, 1999, March 28, 1998 and March 29, 1997 27

Notes to Financial Statements 28

(a)(2) FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts 40

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the applicable instructions or the
required information is included in the Consolidated Financial
Statements and Notes thereto, or they are inapplicable and are
therefore omitted.

The guarantee obligations of the Subsidiary Guarantors (which are
all direct or indirect wholly owned subsidiaries of the Company)
are full, unconditional and joint and several. The aggregate
assets, liabilities, earnings, and equity of the Subsidiary
Guarantors are substantially equivalent to the total assets,
liabilities, earnings and equity of HCC Industries Inc. and its
subsidiaries on a consolidated basis. Separate financial
statements of the Subsidiary Guarantors are not included in this
Form 10-K because management of the Company has determined that
separate financial statements of the Subsidiary Guarantors would
not be material to investors.

(a)(3) EXHIBITS

Regulation S-K Exhibit
Table Reference
---------------

2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.

2.1 First Amendment and Restatement of the Stock Purchase and Sale Agreement,
dated as of December 23, 1996, by and among the Company, the Windward
Group, MetLife and the Sellers named therein. (1)

2.2 Subordinated Note Agreement, dated as of February 14, 1997, by and among
the Company, Windward/Merchant L.P., Windward/Merban L.P. and MetLife. (1)

48

2.3 Escrow Agreement, dated as of February 14, 1997, by and among the Company,
Windward Capital Associates L.P., the Sellers named therein and U. S.
Trust Company of California, N.A., as escrow agent. (1)

3. CERTIFICATE OF INCORPORATION AND BY-LAWS.

3.1 Amended and Restated Certificate of Incorporation of the Company.(1)

3.2 Amended and Restated By-Laws of the Company. (1)

3.3 Certificate of Incorporation of Hermetic Seal Corporation. (1)

3.4 By-Laws of Hermetic Seal Corporation. (1)

3.5 Certificate of Incorporation of Glasseal Products, Inc. (1)

3.6 By-Laws of Glasseal Products, Inc. (1)

3.7 Certificate of Incorporation of Sealtron, Inc. (1)

3.8 By-Laws of Sealtron, Inc. (1)

3.9 Certificate of Incorporation of Sealtron Acquisition Corp. (1)

3.10 By-Laws of Sealtron Acquisition Corp. (1)

3.11 Articles of Incorporation of HCC Industries International. (1)

3.12 By-Laws of HCC Industries International. (1)

3.13 Declaration of Trust of Norfolk Avon Realty Trust. (1)

4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES.

4.1 Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company,
the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as
Trustee, relating to the 10 3/4% Senior Subordinated Notes due 2007 and
the 10 3/4% Senior Subordinated Exchange Notes due 2007. (1)

4.2 Form of 10 3/4% Senior Subordinated Exchange Notes due 2007. (1)

4.3 Registration Rights Amendment, dated May 6, 1997, among the Company, the
Subsidiary Guarantors, and Credit Suisse First Boston Corporation and
Furman Selz LLC, as Initial Purchasers. (1)

4.4 First Supplemental Indenture, dated as of October 24, 1997, to the
Indenture. (1)

9. VOTING TRUST AGREEMENT

9.1 Stockholders Agreement, dated as of February 14, 1997, by and among the
Company, the Windward Group and the Stockholders named therein. (1)

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10. MATERIAL CONTRACTS.

10.1 Credit Agreement, dates as of February 14, 1997, by and among the Company,
Fleet Capital Corporation, as Agent, and the Lender Parties thereto. (1)

10.2 Amendment No. 1 to the Credit Agreement, dated as of May 6, 1997, by and
among the Company, Fleet Capital Corporation, as Agent, and the Lender
Parties thereto. (1)

10.3 HCC Industries Inc. Stock Option Plan, dated February 14, 1997. (1)

10.4 Form of Stock Option Agreement (included in Exhibit 10.3). (1)

10.5 Contingent Bonus Plan of HCC Industries Inc., dated as of February 14,
1997. (1)

10.6 Form of Contingent Bonus Plan Award Agreement. (1)

10.7 Employment Agreement, dated as February 14, 1997, by and between the
Company and Andrew Goldfarb. (1)

10.10 Financial Advisory Services Agreement, dated as of February 14, 1997, by
and between Windward Capital Partners, L.P. and the Company. (1)

10.11 Letter Agreement, dated February 14, 1997 from the Company to Windward
Capital Partners, L.P., related to fees. (1)

10.12 Purchase Agreement, dated May 1, 1997, by and among the Company, the
Subsidiary Guarantors and Credit Suisse First Boston Corporation and
Furman Selz LLC, as Initial Purchasers. (1)

12. RATIO OF EARNINGS TO FIXED CHARGES.

12.1 Statement regarding the computation of ratio of earnings to fixed charges
for the Company.

21. SUBSIDIARIES

21.1 Subsidiaries of the Company. (1)

27. Financial Data Schedule.

- -------------
(1) Previously filed under the same exhibit number as an exhibit to
Registration Statement on Form S-4 (File No. 333-32207) and incorporated
herein by reference.

(a)(4) REPORTS ON FORM 8-K

None

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the city of Rosemead, State of California, on June 25, 1999.

HCC INDUSTRIES INC.

By: /s/ Andrew Goldfarb
-----------------------------
Andrew Goldfarb
Chairman, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated.

Signature Title Date

/s/ Andrew Goldfarb Chairman, President and Chief June 25, 1999
- ------------------------------------ Executive Officer
Andrew Goldfarb (Principle Executive Officer)

/s/ Christopher H. Bateman Director, Vice President and June 25, 1999
- ------------------------------------ Chief Financial Officer
Christopher H. Bateman (Principle Financial Officer)
Principal Accounting
Officer)

/s/ Robert H. Barton, III
- ------------------------------------ Director June 25, 1999
Robert H. Barton, III

/s/ Richard Ferraid Director June 25, 1999
- -----------------------------------
Richard Ferraid

/s/ Fred Hauser Director June 25, 1999
- ------------------------------------
Fred Hauser

/s/ John M. Leonis Director June 25, 1999
- ------------------------------------
John M. Leonis

/s/ Robert H. Rau Director June 25, 1999
- ------------------------------------
Robert H. Rau

/s/ Thomas J. Sikorski Director June 25, 1999
- ------------------------------------
Thomas J. Sikorski

/s/ Gary L. Swenson Director June 25, 1999
- ------------------------------------
Gary L. Swenson

51