**Exhibit 99**
**Risks Relating to Our Business**
**We have recently incurred significant net losses, primarily due to the currenteconomic climate. Unless we are able to increase our sales or further reduceour costs, we will continue to incur net losses.**
     The current economic climate has resulted in reduced capital spending fromits peak for networking products. Spending for networking products hasstabilized and may see a rebound. It is not expected to return to levels seenat their peak for the foreseeable future. As a result, many of our customerscontinue to express uncertainty as to their future requirements. While we haveexperienced a significant increase in net sales, we nevertheless incurred a netloss during the first three months of fiscal 2005. The increase in net salesis largely the result of the acquisition of Sterling. We expect currentindustry conditions to continue for at least the next 6 to 12 months andperhaps for a longer period. We do not expect substantial growth in the marketswe serve. Any decline in demand for our customers’ products or a deteriorationof general economic conditions would likely result in reduction in demand forour products and our business, operating results and financial condition wouldsuffer.
     Although we have implemented personnel reductions and other cost reductionprograms, many of our costs are fixed in the near term. Consequently, we willneed to generate higher revenues while containing costs and operating expensesif we are to return to profitability. If our efforts to increase our revenuesand contain our costs are not successful, we will continue to incur net losses.
**Our net sales and operating results vary significantly from quarter to quarter,and our stock price may fall if our quarterly performance does not meetanalysts’ or investors’ expectations.**
     Our quarterly net sales and operating results have varied significantly inthe past and are likely to vary significantly in the future, which makes itdifficult to predict our future operating results. Accordingly, we believethat quarter-to-quarter comparisons of our net sales and operating results arenot meaningful and should not be relied upon as an indicator of our futureperformance. Some of the factors which cause our net sales and operatingresults to vary include:
• the timing of customer orders, particularly from our largest customers; • the level of demand for our customers’ products; • the cancellation or postponement of orders; • our ability to manufacture and ship our products on a timely basis; • changes in our product mix; • competitive pressures resulting in lower prices; • our ability to control costs and expenses; • the introduction of new products or technologies by us or our competitors; • the timing of our receipt of license fees and royaltypayments relating to our intellectual property; and
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• general economic factors.
     Our net sales and operating results have been and in one or more futurequarters will likely be below the expectations of public market analysts andinvestors. If this occurs, the price of our common stock would likely decline.
**Our success depends on the long-term growth of the communications industry andits use of our technologies. If these events do not occur, our net sales maydecline and our business would likely be significantly harmed.**
     Our subsystems and components are used primarily in military, videobroadcast, industrial, enterprise, metropolitan area, wide area andtelecommunication networks. These markets are rapidly evolving and it isdifficult to predict their potential size or future growth rate. In addition,there is uncertainty as to the extent to which communication technologies willbe used throughout these markets. Our success in generating revenue in thesemarkets will depend on the long-term growth of these markets and their use ofcommunication technologies. If these markets do not grow, or if the use ofcommunication technologies in these markets does not expand, our net sales maydecline and our business would likely be significantly harmed.
     The market for communications equipment is changing rapidly and isdominated by several large manufacturers. Our future growth will depend, inpart, upon (1) our ability to develop and introduce new products for thismarket and (2) the growth of the communications equipment market and (3) ourability to compete successfully in our sales to the communications industry.The growth in the market for communications equipment products and services isdependent on a number of factors, including without limitation:
• the amount of capital expenditures by network providers; • regulatory and legal developments; • changes to capital expenditure rates by network providers; • the addition of new customers to the market; and • end-user demand for integrated Internet, data, video, voiceand other network services.
     We cannot predict the growth rate of the market for telecommunicationsequipment products and services. The current economic climate, changes andconsolidation in the service provider market and constraints on capitalavailability have had a material adverse effect on many of our service providercustomers, causing some of these customers to go out of business and a numberof other customers to substantially reduce their expansion plans and purchases.
**We must develop new products and technology as well as enhancements to existingproducts and technology in order to remain competitive. If we fail to do so,our products will no longer be competitive and our net sales will decline.**
     The market for our products and technology is characterized by rapidtechnological change, new and improved product introductions, changes incustomer requirements and evolving industry standards. Our future success willdepend to a substantial extent on our ability to develop, introduce and supportnew products and technology on a successful and timely basis.
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If we fail to develop and deploy new products and technologies orenhancements of existing products on a successful and timely basis or weexperience delays in the development, introduction or enhancement of ourproducts and technologies, our products will no longer be competitive and ournet sales will decline. The introduction of new and enhanced products maycause our customers to defer or cancel orders for existing products. Inaddition, a slowdown in demand for existing products ahead of a new productintroduction could result in a write down in the value of inventory on handrelating to existing products.
     The development of new, technologically advanced products is a complex anduncertain process requiring high levels of innovation and highly skilledengineering and development personnel, as well as the accurate anticipation oftechnological and market trends. We cannot assure you that we will be able toidentify, develop, manufacture, market or support new or enhanced productssuccessfully, if at all, or on a timely basis. Further, we cannot assure youthat our new products will gain market acceptance or that we will be able torespond effectively to product announcements by competitors, technologicalchanges or emerging industry standards. Any failure to respond totechnological change would significantly harm our business.
**Our products are incorporated into larger systems which must comply withvarious domestic and international government regulations. If the performanceof our products contributes to our customers’ inability to comply with theserequirements, we may lose these customers and our net sales will decline.**
     In the United States, our products are incorporated into larger systemswhich must comply with various regulations and standards defined by the FederalCommunications Commission and Underwriters Laboratories. Internationally, ourproducts are incorporated into larger systems which must also comply withstandards established by local authorities in various countries which may varyconsiderably. If the performance of our products contributes to our customers’inability to comply with existing or evolving standards established byregulatory authorities or to obtain timely domestic or foreign regulatoryapprovals we may lose these customers and our net sales will decline.
**If our products fail to comply with evolving industry standards or alternativetechnologies in our markets, we may be required to make significantexpenditures to redesign our products.**
     Our products comprise only a part of an entire networking system and mustcomply with evolving industry standards in order to gain market acceptance. Inmany cases, we introduce a product before an industry standard has becomewidely accepted and we depend on the companies that provide other components tosupport industry standards as they evolve. Because industry standards do notexist in some cases at the time we are developing new products, we may developproducts that do not comply with the eventual industry standard. If thisoccurs, we would need to redesign our products to comply with adopted industrystandards. In addition, if alternative technologies were adopted as anindustry standard within our target markets, we would have to dedicatesignificant time and resources to redesign our products to meet this newindustry standard. If we are required to redesign our products, we may incursignificant expenses and losses due to lack of customer demand, unusablepurchased components for these products and the diversion of our engineers fromfuture product development efforts. If we are
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not successful in redesigning our products or developing new products tomeet new standards or any other standard that may emerge, our net sales willdecline.
**We are also dependent on sales to the military/aerospace industry, includingU.S. and foreign government entities.**
     Approximately 24% of our sales for the quarter ended July 31, 2004 camefrom direct and indirect sales to the military/aerospace industry, which isheavily dependent on sales to U.S. and foreign government entities, eitherdirectly through contracts with such entities or indirectly throughdistributors and to prime contractors or subcontractors who are buildingsystems or subsystems for them. A significant decline in U.S. and foreigngovernment expenditures could have a material adverse effect on our sales.
**We may continue to derive a significant portion of our net sales from a fewlarge customers, and our net sales may decline significantly if any of thesecustomers cancels, reduces or delays purchases of our products.**
     Our success will depend on our continued ability to develop and managerelationships with significant customers. For the three months ended July 31,2004, our two largest customers and their respective contract manufacturersaccounted for 14.7% of our net sales, with Tellabs Operations, Inc. and GeneralDynamics accounting for 8.2% and 6.5% of our net sales, respectively. For thethree months ended July 31, 2003, our two largest customers and theirrespective contract manufacturers accounted for 9.0% of our net sales, with theProcurement Department for the German Ministry of Defense and withManufacturing Services accounting for 4.8% and 4.2% of our net sales,respectively. We expect our dependence on sales to a small number of largecustomers to continue.
     The markets in which we sell our products are dominated by a relativelysmall number of systems manufacturers, thereby limiting the number of ourpotential customers. As a result, our relationships with these customers arecritically important to our business. We cannot assure you that we will beable to retain our largest customers, that we will be able to attractadditional customers or that our customers will be successful in selling theirproducts that incorporate our products. Our customers have in the past soughtprice concessions from us and will continue to do so in the future. Also, manyof our customers have canceled, reduced or delayed purchases of our products.Further, some of our customers may in the future shift their purchases ofproducts from us to our competitors or to joint ventures between thesecustomers and our competitors. The loss of or a significant reduction inorders from one or more of our largest customers, our inability to successfullydevelop relationships with additional customers or future price concessionsthat we may make could cause our net sales to significantly decline.
**Our sales cycle runs from our customers’ initial design to production forcommercial sale. This cycle is long and unpredictable and may cause our netsales to decline or increase our operating expenses.**
     We cannot predict the timing of our sales accurately because of the lengthof our sales cycles. As a result, if sales forecasts from specific customersare not realized, we may be unable to compensate for the sales shortfall andour net sales may decline. The period of time between
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our initial contact with a customer and the receipt of a purchase ordermay span up to a year or more, and varies by product and customer. During thistime, customers may perform, or require us to perform, extensive evaluation andqualification testing of our products. Generally, they consider a wide rangeof issues before committing to purchase our products, including ability tointeroperate with other subsystems and components, product performance andreliability. We may incur substantial sales and marketing expenses and expendsignificant management effort while our potential customers are qualifying ourproducts. Even after incurring these costs, we ultimately may not sell any ormay only sell small amounts of our products to these potential customers.Consequently, if new sales do not result from our efforts to qualify ourproducts, our operating expenses will increase.
**Our customers may cease purchasing our products at any time and may cancel ordefer purchases on short notice, which may cause our net sales to decline orincrease our operating expenses.**
     We generally do not have long-term contracts with our customers. Salesare typically made pursuant to individual purchase orders, often with extremelyshort lead times, that may be canceled or deferred by customers on short noticewithout significant penalty. Our customers base their orders for our productson the forecasted sales and manufacturing schedules for their own products.Our customers have in the past significantly accelerated, canceled or delayedorders for our products in response to unanticipated changes in themanufacturing schedules for their own products, and will likely do so again inthe future. During the last twelve months, our customers have cancelled anumber of orders. The reduction, cancellation or delay of individual customerpurchase orders has caused and could continue to cause our net sales todecline. Moreover, these uncertainties complicate our ability to accuratelyplan our manufacturing schedule and may increase our operating expenses.
**If we do not decrease our manufacturing costs or increase sales of highermargin products as the average unit price of our existing products decreases,our gross margins will decline.**
     The average unit prices of our products frequently decrease as theproducts mature in response to increased competition, the introduction of newproducts and increased unit volumes. Most of our products are designed andmanufactured in our own facilities. Accordingly, a significant portion of ourcost of sales is fixed over the near term. In order to remain competitive, wemust continually reduce our manufacturing costs through design and engineeringchanges and increases in manufacturing efficiencies. We must also continue todevelop and introduce on a timely basis new products that incorporate featuresthat can be sold at higher average selling prices. Our inability to reducemanufacturing costs or introduce new products with higher average sellingprices will cause our gross margins to decline, which would significantly harmour operating results.
**The market for our products is highly competitive, which may result in lostsales or lower gross margins.**
     The market for our products is highly competitive. For optoelectronics, wecompete primarily with Agilent Technologies, Inc., Finisar Corporation, JDSUniphase Corporation and Optical Communications Products, Inc. For fiberoptics, we compete primarily with Amphenol
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Corporation, Molex, Inc. and Tyco International, Ltd. and numerous othersmaller companies. For RF products we compete with ADC Telecommunications, Inc,Amphenol, ITT Cannon (a subsidiary of ITT Industries), Kings Electronics Co.,Inc, Radiall, S.A. and numerous other companies globally. In the microwaveproducts business, we compete with Huber+Suhner, WL Gore Associates, Inc. and alarge number of smaller companies.
     Many of these companies have substantially greater financial, technical,marketing and distribution resources and brand name recognition than we have.As a result, these competitors are able to devote greater resources than we canto the development, promotion, sale and support of their products. Inaddition, several of our competitors have large market capitalizations or cashreserves and are much better positioned than we are to acquire other companiesin our consolidating industry in order to gain new technologies or products.Many of our competitors have much greater name recognition, more extensivecustomer bases, better-developed distribution channels and broader productofferings than we do. These companies can leverage their customer bases andbroader product offerings and adopt aggressive pricing policies to gain marketshare. In addition, companies with diversified product offerings can bettersustain an economic downturn.
     We expect that more companies, including some of our customers, will enterthe markets for our products. We may not be able to compete successfullyagainst either current or future competitors. Competitive pressures, combinedwith weakening demand, may result in further price reductions, lower marginsand loss of market share. In addition, some of our current and potentialcustomers are attempting to integrate their operations by producing their ownsubsystems or components or acquiring one or more of our competitors which mayeliminate the need to purchase our products. Furthermore, larger companies inother related industries are developing and acquiring technologies and applyingtheir significant resources, including their distribution channels and brandname recognition, in an effort to capture significant market share. While thistrend has not historically impacted our competitive position, it may result infuture decreases in our net sales.
     Further, we manufacture many of our products in the United States and theUnited Kingdom. Our manufacturing costs are higher than the manufacturingcosts of some of our competitors, particularly those located in foreigncountries that benefit from lower-priced labor and government subsidies. Ifour current or potential future customers decide to purchase products fromthese lower-cost competitors, we could suffer a significant decline in oursales, which could have a material adverse effect on our business, operatingresults and financial condition.
**We depend on suppliers for several key components. If we underestimate oroverestimate our requirements for these components, our business could besignificantly harmed.**
     We purchase several key components that are incorporated into our productsfrom a limited number of suppliers. We have experienced shortages and delaysin obtaining key components in the past and expect to experience shortages anddelays in the future. These shortages and delays have typically occurred whendemand within the industry has increased rapidly and exceeds the capacity ofsuppliers of key components in the short term. Delays and shortages also oftenoccur in the early stages of a product’s life cycle. The length of shortages
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and delays in the past has varied from several days to a month. We areunable to predict the length of any future shortages or delays.
     Some of our critical components used in production of certain of ourproducts are purchased from a key supplier which has been acquired by acompetitor of the Company. If this supplier increases prices, reducesquantities available to us or ceases to supply us, our business and results ofoperations may be significantly harmed.
     The inability to obtain sufficient quantities of these components thatmeet our quality requirements may interrupt and delay the manufacturing of ourproducts or result in the cancellation of orders for our products. Inaddition, our suppliers could discontinue the manufacture or supply of thesecomponents at any time. We may not be able to identify and integratealternative sources of supply in a timely fashion, or at all. Any transitionto alternative suppliers may result in delays in shipment and increasedexpenses and may limit our ability to deliver products to our customers.Furthermore, if we are unable to identify an alternative source of supply, wemay have to redesign or modify our products, which may cause delays inshipments, increased design and manufacturing costs and increased prices forour products.
     We make forecasts for our component requirements based on anticipatedproduct orders. Although we enter into long-term agreements for the purchaseof key components from time to time, our purchases of key components aregenerally made on a purchase order basis. We may also maintain an inventory oflimited source components to limit the potential impact of a componentshortage. We may not accurately predict the demand for our products and thelead-time required to obtain key components. If we overestimate ourrequirements, we may have excess inventory, which may become obsolete and wouldincrease our costs. If we underestimate our requirements, we may haveinadequate inventory, which could interrupt our manufacturing and delaydelivery of our products to our customers. Either of these occurrences wouldsignificantly harm our business.
**Our success depends on our ability to hire and retain qualified personnel, andif we are unable to do so, our product development efforts and customerrelations will suffer.**
     Our products require sophisticated manufacturing, research anddevelopment, marketing and sales, and technical support. Our success dependson our ability to attract, train and retain qualified technical personnel ineach of these areas. Competition for personnel in all of these areas isintense and we may not be able to hire or retain sufficient personnel toachieve our goals or support the anticipated growth in our business. Themarket for the highly-trained personnel we require is very competitive, due tothe limited number of people available with the necessary technical skills andunderstanding of our products and technology. If we fail to hire and retainqualified personnel, our product development efforts and customer relationswill suffer.
**Our products may contain defects which may cause us to incur significant costs,divert our attention from product development efforts and result in a loss ofcustomers.**
     Our products are complex and may contain defects, particularly when firstintroduced or as new versions are released. Our customers integrate oursubsystems and components into systems and products that they developthemselves or acquire from other vendors. As a result,
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when problems occur in equipment or a system into which our products havebeen incorporated, it may be difficult to identify the source of the problem.We may be subject to liability claims for damages related to product defects orexperience manufacturing delays as a result of these defects in the future, anyor all of which could be substantial. The length of any future manufacturingdelays in connection with a product defect will depend on the nature of thedefect and whether we or one of our component suppliers was the source of thedefect. Moreover, the occurrence of defects, whether caused by our products ortechnology or the products of another vendor, may result in significantcustomer relations problems and injury to our reputation and may impair themarket acceptance of our products and technology.
**We are subject to environmental laws and other legal requirements that have thepotential to subject us to substantial liability and increase our costs ofdoing business.**
     Our properties and business operations are subject to a wide variety offederal, state, and local environmental, health and safety laws and other legalrequirements, including those relating to the storage, use, discharge anddisposal of toxic, volatile or otherwise hazardous substances used in ourmanufacturing processes. We cannot assure you that these legal requirementswill not impose on us the need for additional capital expenditures or otherrequirements. If we fail to obtain required permits or otherwise fail tooperate within these or future legal requirements, we may be required to paysubstantial penalties, suspend our operations or make costly changes to ourmanufacturing processes or facilities. Although we believe that we are incompliance and have complied with all applicable legal requirements, we mayalso be required to incur additional costs to comply with current or futurelegal requirements.
**Economic, political and regulatory risks associated with internationaloperations may limit our sales and increase our costs of doing business abroad.**
     A significant portion of our sales are generated from customers locatedoutside the United States, principally in Europe. We also operate amanufacturing facility in the United Kingdom. Sales to customers locatedoutside of the United States were approximately 24.2% of our net sales duringthe three months ended July 31, 2004 and approximately 37.6% of our net salesduring the three months ended July 31, 2003. Our international operations aresubject to a number of risks and uncertainties, including:
• difficulties in managing operations in different locations; • changes in foreign currency rates; • longer accounts receivable collection cycles; • difficulties associated with enforcing agreements through foreign legal systems; • seasonal reductions in business activities in some parts ofthe world, such as during the summer months in Europe; • trade protection measures and import and export licensing requirements; • changes in a specific country’s or region’s political or economic conditions; • potentially adverse tax consequences; • the potential difficulty in enforcing intellectual propertyrights in some foreign countries; and
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• acts of terrorism directed against the United States or U.S.affiliated targets.
     These factors could adversely impact our international sales or increaseour costs of doing business abroad or impair our ability to expand intointernational markets, and therefore could significantly harm our business.
**We may pursue additional acquisitions. If we are unable to successfullyintegrate any businesses or technologies that we acquire in the future or areunable to realize the intended benefits of any future acquisitions, ourbusiness will be harmed.**
     As part of our strategy, we may pursue opportunities to buy otherbusinesses or technologies that would complement our current products, expandour markets or enhance our technical capabilities, or that may otherwise offergrowth opportunities. Our experience in acquiring other businesses andtechnologies is limited. Acquisitions could result in a number of financialconsequences, including:
• use of significant amounts of cash; • the incurrence of debt and contingent liabilities; • potentially dilutive issuances of equity securities; • large one-time write-offs; and • amortization expenses related to goodwill and other intangible assets.
     Acquisitions also involve numerous operational risks, including:
• difficulties in integrating operations, products, technologies and personnel; • unanticipated costs or write-offs associated with the acquisition; • diversion of management’s attention from other business concerns; • diversion of capital and other resources from our existing businesses; and • potential loss of key employees of purchased organizations.
     If we are unable to successfully integrate other businesses ortechnologies that we may acquire in the future or are unable to realize theintended benefits of any future acquisitions, our business will be harmed.
**Our inability to protect our intellectual property rights would significantlyimpair their value and our competitive position.**
     We rely on a combination of patent, copyright, trademark and trade secretlaws, as well as confidentiality agreements and licensing arrangements, toestablish and protect our proprietary rights. Although we have numerous issuedpatents and pending patent applications, we cannot assure you that any patentswill issue as a result of our pending patent applications or, if issued, thatany patent claim allowed will be sufficiently broad to protect our technology.In addition, we cannot assure you that any existing or future patents will notbe challenged, invalidated or circumvented, or that any right grantedthereunder would provide us with meaningful protection of our technology.Despite our efforts to protect our proprietary rights, unauthorized parties mayattempt to copy or otherwise obtain and use our products or technology. We maybe unable to
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detect the unauthorized use of our intellectual property or to takeappropriate steps to enforce our intellectual property rights. Policingunauthorized use of our products and technology is difficult. In addition, thelaws of some foreign countries do not protect our proprietary rights to thesame extent as do the laws of the United States. Further, enforcing ourintellectual property rights could result in the expenditure of significantfinancial and managerial resources and the success of these efforts cannot bepredicted with certainty. Litigation has been necessary and may continue to benecessary in the future to enforce our intellectual property rights. Thislitigation could be costly and its outcome cannot be predicted with certainty.Our inability to adequately protect against unauthorized use of ourintellectual property would significantly impair its value and our competitiveposition.
**We are currently involved in pending patent litigation which, if decidedagainst us, could impair our ability to prevent others from using ourtechnology, result in the loss of future royalty income and require us to paysignificant monetary damages.**
     We are a plaintiff in a lawsuit relating to our intellectual propertyrights. The defendant in this lawsuit is Picolight, Inc. (District ofDelaware). In this action, the Company alleges that optoelectronic productssold by the defendant infringe numerous of the Company’s patents. We areseeking monetary damages and injunctive relief. The defendant in this lawsuithas asserted an affirmative defense and filed counterclaims and contends thatthe patents are invalid, unenforceable and/or not infringed by the productssold by the defendant. Picolight has asserted an antitrust counterclaim basedon the alleged unenforceability of our patents. If successful, the defendant isseeking attorneys’ fees and costs in connection with the lawsuit. We intend topursue this lawsuit and defend against the counterclaims vigorously. OnNovember 24, 2003, a jury returned a verdict finding that Picolight infringedsix of our patents. The case is currently in the inequitable conduct phase andwe are awaiting the judge’s ruling. The third phase on validity is dependenton the outcome of the inequitable conduct phase, and would be followed by thedamages phase.
     The outcome of this lawsuit cannot be predicted with certainty. If one ormore of these patents were found to be invalid or unenforceable, we would losethe ability to prevent others from using the technologies covered by theinvalidated patents. This could result in significant decreases in our salesand gross margins for our products that use these technologies. In addition, wewould lose the future royalty payments from our current licensees of thesepatents. We could also be required to pay significant monetary damages to oneor more of the defendants or be required to reimburse them for their legalfees. Accordingly, if one or more of these patents were found to be invalid orunenforceable, our business would be significantly harmed.
**Various litigation matters, in which we are a defendant could result insignificant monetary damages and expenses or restrictions on our ability tosell our products.**
     We are involved in various litigation matters that arise from time to timein the ordinary course of business. Our Annual Reports on Form 10-K andquarterly reports on Form 10-Q describe certain matters in which we are adefendant.
     In recent years, there has been significant litigation in the UnitedStates involving patents and other intellectual property rights. From time totime, third parties may assert patent,
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copyright and other intellectual property rights to technologies used inour business. In addition, our rights to use our name or other trademarks aresubject to challenge by others. Any claims, with or without merit, could betime-consuming, result in costly litigation, and divert the efforts of ourtechnical and management personnel. If we are unsuccessful in defendingourselves against such claims, we could be subject to significant monetarydamages and may be required to do one or more of the following: (1) stop usingthe challenged technology or selling our products that use or incorporate suchtechnology, (2) attempt to obtain a license to sell or use the relevanttechnology, which license may not be available on reasonable terms or at all,(3) attempt to license a substitute technology on reasonable terms or (4)redesign the applicable products to avoid infringement.
     In the event a claim against us was successful and we could not obtain alicense to the relevant technology on acceptable terms or license a substitutetechnology or redesign our products to avoid infringement, our business wouldbe significantly harmed.
     **Risks Relating to the Securities Markets and Ownership of Our Common Stock**
**The market prices for securities of technology related companies have beenvolatile in recent years and our stock price could fluctuate significantly.**
     Our common stock has been publicly traded only since June 27, 2000. Themarket price of our common stock has been subject to significant fluctuationssince the date of our initial public offering. These fluctuations couldcontinue. Factors that could affect our stock price include:
• economic and stock market conditions generally andspecifically as they may impact participants in the communicationindustry; • earnings and other announcements by, and changes in marketevaluations of, participants in the optical communication industry; • changes in financial estimates and recommendations bysecurities analysts following our stock; • announcements or implementation by us or our competitors oftechnical innovations or new products; and • strategic moves by us or our competitors, such asacquisitions.
     In addition, the securities of many companies have experienced extremeprice and volume fluctuations in recent years, often unrelated to thecompanies’ operating performance. Specifically, market prices for securitiesof technology related companies have frequently reached elevated levels, oftenfollowing their initial public offerings. These levels may not be sustainableand may not bear any relationship to these companies’ operating performances.
**Provisions in our charter documents and Delaware law may delay or prevent anacquisition of our company, which could decrease the value of your shares.**
     Our restated certificate of incorporation and bylaws and Delaware lawcontain provisions that could make it more difficult for a third party toacquire us without the consent of our board of directors. These provisionsinclude a classified board of directors and limitations on actions
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by our shareholders by written consent. In addition, our board ofdirectors has the right to issue preferred stock without shareholder approval,which could be used to dilute the stock ownership of a potential hostileacquiror. Delaware law also imposes some restrictions on mergers and businesscombinations between us and any holder of 15% or more of our outstanding commonstock. These provisions apply even if the offer may be considered beneficialby some shareholders.
**Risks Relating to the Merger with Sterling**
**We may be unable to successfully complete the integration of the operations ofthe Company and Sterling and realize the full cost savings we anticipate.**
     The merger involves the integration of two companies that previouslyoperated independently. The difficulties of combining the companies’operations include:
• the necessity of coordinating geographically separatedorganizations, systems and facilities; and • integrating personnel with diverse business backgrounds andorganizational cultures.
     The process of integrating operations could cause an interruption of, orloss of momentum in, the activities of one or more of the combined company’sbusiness and the possible loss of key personnel. The diversion of management’sattention and any delays or difficulties encountered in connection with themerger and the integration of the two companies’ operations could have anadverse effect on the business, results of operations, financial condition orprospects of the combined company after the merger. We cannot give anyassurance that anticipated operating efficiencies will be realized within thetime periods contemplated or even that they will be realized at all.
**We may not realize expected benefits from the consolidation of certain Sterlingoperations into the Mesa, Arizona facility.**
     We currently are engaged in a consolidation of the manufacturingoperations associated with our RF and microwave components and assembliesbusiness, and a relocation of the manufacturing operations of our TrompeterElectronics, Inc. subsidiary from Westlake Village, California to Mesa,Arizona. Although we anticipate synergies and improved operating performanceto result from this consolidation, we cannot guarantee any such benefits. Inaddition, this consolidation may affect adversely our ability to retain keyemployees, which could affect adversely our operating results.
**Other Risks Relating to Our Business**
**We are exploring various strategic alternatives to maximize shareholder value,including a possible sale of the Company. The outcome of this process isuncertain.**
     On May 19, 2004, we announced that our Board of Directors had decided toexplore various strategic alternatives to maximize shareholder value, includinga possible sale of the Company. In that connection, our Board of Directors hasformed a committee and has retained
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CIBC World Markets Corp, as its exclusive financial advisor. There can be noassurance that a transaction will result involving the Company.
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