Western Microwave, Inc. (the "Company") was incorporated in Virginia in 1962. The Company's mailing address is P.O. Box 64252, Sunnyvale, California 94086.

From 1962 until the sale of substantially all of its operating assets in 1995, the Company was engaged in the design, development, manufacture and sale of a wide range of microwave devices, components and subsystems which were used in both military and commercial microwave electronic systems (the "WMI Business"). On July 21, 1995, the Company sold certain of the assets associated with the conduct of the WMI Business to ST Microwave Corp. (the "Buyer") in exchange for cash and the assumption by the Buyer of certain of the liabilities of the Company. Between July 21, 1995 and September 15, 1995 when the Company's lease for its facility at 495 Mercury Drive, Sunnyvale, California expired, the Company disposed of substantially all of its remaining tangible assets. As a result of such transactions, the Company is no longer engaged in the WMI Business. The Company's remaining business activity involves the resolution of the Company's ongoing environmental liability for the cleanup of the Company's former facility in Sunnyvale, California (See Item 3, LEGAL PROCEEDINGS: Environmental Claims).

Pending the resolution of the Company's environmental liability, the Company has temporarily invested its assets in a portfolio of marketable securities with a view towards the preservation of such assets and the generation of investment income from interest, dividends and capital gains.

On May 9, 1996, the Board of Directors of the Company approved a Plan of Liquidation and Dissolution of the Company (the "Plan"), subject to the approval of the shareholders of the Company. The Company will submit the Plan to its shareholders for approval at a Special Meeting to be held on or about April 2, 1997.

Effective May 9, 1996, the Company's Common Stock was deleted from the Nasdaq SmallCap Market. The Company's Common Stock continues to trade on the Nasdaq OTC Bulletin Board.

HISTORY OF BUSINESS AND SALE OF THE WMI BUSINESS

BACKGROUND

In fiscal 1989, the Company began to experience a decline in sales attributable to a significant demand reduction in the defense electronics industry as a whole. This

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trend continued for the next six (6) fiscal years with annual sales decreasing from approximately $9.7 million in fiscal 1989 to approximately $2.5 million in fiscal 1994 (or a reduction of 74%). During the same period, a number of lawsuits were instituted against the Company alleging that the Company was responsible for contamination of the soil and groundwater at or in the vicinity of the Company's former facility on Reamwood Avenue in Sunnyvale, California. The contamination of the soil and groundwater at the former facility was alleged to have occurred sometime in the early 1980s prior to the closing of the Company's plating room operation in 1985.

In response to decreasing sales levels and increasing environmental and legal costs, both of which had a significant adverse effect on the Company's results of operations, management instituted a series of cost reduction programs in an attempt to remain profitable. For example, in fiscal 1990, management made the decision to substantially terminate the Company's amplifier business due to substantial losses incurred in prior years and the likelihood of continuing losses in the future.

In fiscal year 1991, the Company reorganized its manufacturing facilities, introduced new fabrication techniques and expanded its automated machining operations in an attempt to remain competitive in a declining industry. The Company also relocated to a new facility, reduced overhead by eliminating a number of middle management and support positions and improved its manufacturing efficiency. During this same period, the Company attempted to develop and introduce new products for commercial applications to replace lost sales in the defense sector. The significant cost cutting measures instituted by management in 1990 and 1991, as well as increased productivity, resulted in a return to profitability in fiscal 1991 with the Company reporting net income of approximately $1.08 million.

The Company was unable to sustain profitable operations in fiscal 1992 due primarily to a 42% decline in sales from approximately $8.17 million in 1991 to $4.74 million in 1992. During this period, the Company also incurred significant legal and other expenses in connection with the defense of the environmental litigation instituted against the Company. As a result of the above, the Company reported a net loss of approximately $80,000 in fiscal 1992.

Sales continued to decline in fiscal 1993 from approximately $4.74 million to $3.35 million. The Company's operations were also adversely impacted in such year by the sudden illness of Dr. Ibrahim Hefni, the Company's President and Chief Executive Officer. This resulted in a series of management changes until Dr. Hefni's return to work on a full-time basis in fiscal 1994. Notwithstanding continuing cost cutting measures, the Company was unable to return to profitable operations in 1993 in the face of decreasing sales and increasing legal and environmental costs. Although the Company reported net income of $9,160 for such year, such profit was attributable

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exclusively to investment income of $396,584, with the WMI Business operating at a loss.

As a result of the above, in February, 1994 the Company's Board of Directors solicited offers for the purchase of the operating assets and business of the Company. Prospective purchasers were furnished with a Confidential Offering Memorandum describing the WMI Business and seeking cash offers to purchase all of the Company's operating assets (including machinery, equipment, inventory and supplies), as well as all inventions, customer lists, backlog and goodwill. Although preliminary discussions were held with three (3) prospective purchasers and a preliminary offer was made by one prospective purchaser, the Board of Directors concluded that no acceptable offer had been received for the purchase of the WMI Business and the offering period terminated in accordance with its original terms on March 31, 1994.

As a result of the prior solicitation, in the early part of 1995, ST Microwave Corp. expressed a renewed interest in acquiring the WMI Business. The Company's lease for its facility on Mercury Drive in Sunnyvale, California was also due to expire in September of 1995. Further, although the Company reported a small profit for the fiscal year ended September 30, 1994, such profit was again attributable exclusively to investment income with the WMI Business reporting a continuing operating loss. Accordingly, after a review of the future prospects for the Company's defense-related business, the Board of Directors determined that it was in the best interests of the Company and its stockholders to sell the WMI Business. The Board also determined that it was in the Company's best interests to complete the sale as quickly as possible to maximize the value of the Company's assets on a going concern basis. As a result, on July 21, 1995, the Company completed the sale of the WMI Business to ST Microwave Corp.

SALE OF THE WMI BUSINESS

On July 25, 1995, the Company announced that it had completed the sale of certain of its operating assets associated with the conduct of its microwave components and subsystems businesses (the "WMI Business") to ST Microwave Corp. of Sunnyvale, California, a subsidiary of Signal Technology Corporation (the "Buyer"). The sale of the WMI Business was effected pursuant to the terms and upon the conditions contained in an Asset Purchase Agreement dated July 20, 1995 by and between the Company and the Buyer (the "Agreement").

The following is a summary of the major provisions contained in the Agreement and the other documents and agreements relating to the purchase and sale of the WMI Business:

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Acquired Assets: Included in the purchase and sale of the WMI Business were all government contracts, backlog of customer purchase orders, customer list, trademarks, patents and rights to manufacturing know-how, drawings, designs and technical documentation, inventories (other than machine shop inventory), selected production tooling, test fixtures and test sets and equipment, and trade accounts receivable and goodwill relating to the WMI Business.

Excluded Assets: Excluded from the purchase and sale of the WMI Business were cash and cash equivalents, marketable securities, all machine shop assets, all other production machinery and equipment, office furniture and computer equipment and all other intangible rights and assets not related to the WMI Business.

Purchase Price: The Purchase Price paid by the Buyer to the Company for the Acquired Assets was $1,433,965 of which $1,308,965 was paid at the closing and $125,000 was deposited into an Escrow Account in accordance with the Agreement. The purchase price was later adjusted pursuant to a settlement agreement entered into between the parties on October 20, 1995 to reflect decreases in outstanding accounts receivable as of the closing date. The adjusted purchase price paid for the acquired assets was $1,170,384. However, the Company is contesting approximately $32,000 claimed by the Buyer as a reduction in the purchase price for uncollected accounts receivable which may result in an increase in the adjusted purchase price upon resolution of the Company's claim.

Reassignable Accounts Receivable: The Company agreed to repurchase from the Buyer any of the accounts receivable purchased by the Buyer which remained outstanding as of 120 days after the closing date "Reassignable Accounts Receivable") on a dollar-for-dollar basis. The Buyer was entitled to deduct the purchase price to be paid by the Company for any Reassignable Accounts Receivable directly from the $125,000 Escrow Account established at the closing for such purpose. On November 21, 1995, the Buyer submitted a claim of $95,264.48 to the Escrow Agent for payment of Reassignable Accounts Receivable, which amount is being contested by the Company. The Company responded by providing an accounting of the amounts charged against the $125,000 escrow. Subsequently, the Buyer adjusted their claim to $32,000 . The Company is still contesting the claim and is attempting to resolve the matter, however, no agreement has yet been reached.

Assumed Liabilities: At the closing, the Buyer assumed only the liabilities, responsibilities and obligations of the Company arising on or after the closing for (i) the government contracts and all customer contracts included in the backlog and (ii) all warranty obligations of the Company. The Buyer did not assume any other liabilities or obligations of the Company, which liabilities and obligations, including specifically all environmental liabilities, remained with the Company after the closing.

Non-Competition: As a condition to the sale of the WMI Business, the Company agreed that for a period of five (5) years from the closing, the Company would not engage in any business which is in competition with the WMI Business sold to the Buyer or solicit any customers to discontinue or alter their relationships with the

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Buyer. The non-competition agreement entered into by the Company with the Buyer specifically excluded the continued operation of the Company's machine shop after the closing as well as the sale by the Company of any of the Excluded Assets to any person whether or not such person is in competition with the Buyer.

Assignment of Tradename: As part of the purchase and sale of the WMI Business, the Company has granted to the Buyer a license to utilize the name "Western Microwave" in the conduct of the microwave business formerly carried on by the Company. The Company has further agreed to assign all right, title and interest in and to such tradename upon obtaining the necessary shareholder approval to a change in the Company's name.

PLAN OF LIQUIDATION AND DISSOLUTION

Adoption of Plan by Board of Directors. On May 9, 1996, the Board of Directors of the Company approved a plan of dissolution and liquidation of the Company (the "Plan"), subject to the approval of the shareholders of the Company. The following summary description of the Plan is qualified in its entirety by reference to the Plan itself. The Plan provides that upon adoption by the Shareholders, the Company will be dissolved and its corporate existence terminated in accordance with Virginia law.

Sale or Other Disposition of Remaining Assets. Pursuant to the Plan, the Company will dispose of any remaining assets other than (i) cash and marketable securities or (ii) any assets associated with the cleanup of the Former Headquarters. At September 30, 1996, substantially all of the Company's assets consisted of cash and marketable securities.

Environmental Reserve; Holdback in Liquidation Distribution. The Company previously established a reserve to cover the potential costs and expenses to complete the cleanup of the environmental contamination at the Company's Former Headquarters and matters related thereto (the "Environmental Reserve"). At September 30, 1996, the amount of the Environmental Reserve was $1 million. Because it is anticipated that the cleanup of the Company's former headquarters located at 1271 Reamwood Avenue, Sunnyvale, California may not be accomplished for a number of years, and because changes and conditions at the site as the cleanup is undertaken or other unknown circumstances may result in a significant increase in future clean up costs which cannot be anticipated at this time, the Board of Directors intends to hold back $3 million from the initial liquidating distribution to the stockholders pending the final resolution of the environmental cleanup (the "Environmental Holdback").

The proposed liquidation will not discharge the Company's environmental liabilities. A Liquidating Trust is being established by the Board of Directors to make

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available assets for the environmental remediation at the Company's Former Headquarters and matters related thereto (the "Environmental Remediation"). See - -- Liquidating Trust Agreement. If the Environmental Holdback is insufficient to discharge the Company's obligations, the Shareholders may be liable in the amount of any distributions made to such Shareholders by the Company or the Trustee of the Liquidating Trust.

If, when the Environmental Remediation is completed, the full amount of the Environmental Holdback has not been utilized, the remainder will be distributed to the Shareholders holding interests in the Liquidating Trust at such time that the distribution is made.

Liquidating Trust Agreement. The Board of Directors will create a Liquidating Trust for the benefit of the Company's shareholders to hold the Company's assets and to satisfy the Company's liabilities and expenses during the liquidation. Shareholders will participate pro rata, in accordance with their percentage stock ownership interests in the Company, in any assets remaining in the Liquidating Trust after the payment of all costs and expenses and the satisfaction of all liabilities and other financial obligations by the Company. The Directors believe that the reserved amounts for future environmental costs and other contingencies and expenses will be sufficient to satisfy all present and future obligations of the Company during the liquidation. However, no assurances can be given that any assets will remain in the Liquidating Trust after the satisfaction of such liabilities and expenses or that any amounts will be available for future distribution from the Liquidating Trust. Further, due to the lengthy time period anticipated for resolution of the environmental issues, the existence of the Liquidating Trust may continue for a considerable period of time subsequent to the legal dissolution of the Company for purposes of discharging the Liquidating Trust's liabilities and distributing the Liquidating Trust's assets.

Investment of Proceeds. Pending any liquidating distributions, the assets of the Company will be invested in such manner as the Board of Directors, in its sole discretion, deems appropriate, with a view towards the preservation of such assets.

Costs and Expenses. The Board of Directors will authorize the payment of reasonable and necessary expenses relating to the administration of the plan and liquidating distributions contemplated thereunder, including but not limited to all legal, accounting, printing, appraisal and other fees and expenses of persons rendering services to the Company. The Plan also authorizes the payment of reasonable compensation to any person providing services on behalf of the Company in connection with the resolution of the Company's environmental matters and the investment of the Company's assets pending final liquidation.

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Employees

As of September 30, 1996, the Company had one full-time employee, Dr. Ibrahim Hefni, the Company's President, Treasurer and Chief Executive Officer.

Environmental Laws

In 1990 the Company was named as a defendant in two environmental lawsuits. Both lawsuits relate to the alleged contamination by the Company of the soil and groundwater at or in the vicinity of the Company's former headquarters at 1271 Reamwood Avenue, Sunnyvale, California (the "Former Headquarters") as the result of the operation of a plating room in the early 1980s. The plating operation was closed by the Company in 1985.

In 1992 the Company settled both environmental lawsuits. Under the terms of the settlements, the Company agreed to undertake certain soil and groundwater remediation activities at the Former Headquarters. The clean-up of the Former Headquarters will be undertaken in accordance with site clean-up requirements approved by the California Regional Water Quality Control Board ("RWQCB") in response to a workplan for remedial action submitted by the Company. The RWQCB is responsible for overseeing the remediation of contaminated sites which might affect the quality of the waters of the State of California.

The RWQCB has adopted site cleanup requirements for WMI to investigate and remediate VOC contamination found in the soil and groundwater at the site. Since the adoption of the cleanup orders, the RWQCB and WMI have disagreed as to the extent of WMI's liability for the contamination. In addition, WMI contends that there are other responsible parties who have contributed to the site contamination.

The disagreements between WMI and the RWQCB resulted in the imposition by the RWQCB in 1995 of administrative civil liability against WMI in the amount of $600,000. WMI appealed the order imposing civil liability and in June 1995 the parties entered into a Settlement Agreement to avoid future litigation. Under the terms of such Settlement Agreement, WMI agreed to dismiss its appeal of the RWQCB order, to pay a total of $100,000 in penalties, to expend $250,000 in soil and groundwater remediation activities and to contribute an additional $250,000 to an irrevocable account to be used solely for future investigation and remediation at the site. In addition, WMI agreed to accomplish certain remediation tasks in accordance with an agreed to schedule. In accordance with the schedule of tasks, in 1995 WMI undertook the excavation and remediation of contaminated soil from most of the "hot-spot" areas at the site and continued its efforts to evaluate and propose a final remediation plan for the remaining soil and groundwater contamination at the site. (See Item 3, LEGAL PROCEEDINGS - Environmental Claims).

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INVESTMENT OF CURRENT ASSETS

As a result of the sale of the WMI Business and the subsequent liquidation of other tangible assets, substantially all of the Company's remaining assets consist of cash and marketable securities. As of September 30, 1996, the Company's net current assets (current assets less current liabilities) totaled approximately $5.3 million. Pending the resolution of the Company's environmental liability for the cleanup of the Former Headquarters, the Company has invested substantially all of its current assets in a diversified portfolio of marketable securities.

At September 30, 1996, the Company's portfolio was invested as follows: 2% in fixed income securities maturing in the year 2020; 67% in common stocks; 29% in high-yielding preferred stocks; and 2% in money market funds. The portfolio has been structured to preserve capital with a view towards generating current income from interest, dividends and capital gains.

The estimated annual income from the investment of the Company's portfolio is approximately $410,000. In addition, the Company is expected to derive capital gains from the sale of certain investments which have appreciated over their original cost. At September 30, 1996, the net unrealized appreciation (net of tax effect) in the value of the investments over their original cost totaled $413,868. In addition, the Company had unrealized gains on put and call option contracts of $408,360 at September 30, 1996.