WHITTAKER CORP, 10-K, 1998-01-29

WHITTAKER CORP
10-K, 1998-01-29
MISCELLANEOUS FABRICATED METAL PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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FOR FISCAL YEAR ENDED OCTOBER 31, 1997 COMMISSION FILE NUMBER 0-20609

WHITTAKER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-4033076
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1955 N. SURVEYOR AVENUE 93063
SIMI VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 526-5700

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $.01 per share New York Stock Exchange
Pacific Exchange, Inc.
Series A Participating Cumulative New York Stock Exchange
Preferred Stock Purchase Rights Pacific Exchange, Inc.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)

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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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant: $115,722,695 as of December 31, 1997.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:11,204,658 shares
of Common Stock as of December 31, 1997.

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DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
WHERE
DOCUMENT INCORPORATED
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<S> <C>
Definitive Proxy Statement for the Annual Meeting of Stock-
holders to be held April 3, 1998 to be filed pursuant to
Section 14(a) of the Securities Exchange Act of 1934 (the
"Proxy Statement")........................................ Part III
</TABLE>
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PART I

ITEM 1. BUSINESS.

GENERAL

Whittaker Corporation ("Whittaker" or the "Company") was incorporated in
California in 1947 and became a Delaware corporation in 1986. Whittaker
maintains its principal executive and administrative offices at 1955 N.
Surveyor Avenue, Simi Valley, California 93063 (telephone number 805-526-
5700).

In its continuing operations the Company has been active during fiscal 1997
in the Aerospace business and in the Integration Services business. During the
fourth quarter of 1997, the Company decided to discontinue its Communications
segment and, on September 30, 1997, the Company sold its defense electronics
unit to Condor Systems, Inc. These actions implemented the Company's strategy
to reduce debt and explore strategic options. The decision to discontinue the
Communications segment followed the Company's evaluation of its core strengths
in the aerospace industry. Thus, the Company's financial statements report the
operating results and balance sheet items of these discontinued operations
separately from its continuing operations. See Notes 2 and 13 to Consolidated
Financial Statements in Part II, Item 8 of this Form 10-K for financial
information about discontinued operations and industry segments of continuing
operations. The Aerospace Group develops, manufactures and markets proprietary
fluid (pneumatic, hydraulic, and fuel) control valves and control systems and
fire and overheat detection products and systems for aircraft, land-based gas
turbines, and other industrial applications. The Company's Integration
Services business provides professional services for the integration of data
networks for hospitals and other enterprises. For the fiscal year ended
October 31, 1997, the Company's total sales from continuing operations were
$95.1 million, of which 94% were generated by the Aerospace Group and 6% were
generated by the Integration Services business. Set forth below is a
description of these two business areas and the operations of the discontinued
businesses.

CONTINUING OPERATIONS

Aerospace Group

PRODUCTS

Principal applications and representative products of the Company's
Aerospace group include:

Fluid and Pneumatic Controls. The Company designs and manufactures a broad
range of fluid control devices for both commercial and military aircraft. The
products are designed to control pneumatic, hydraulic and fuel flows in
aircraft systems. In commercial applications, they are used on virtually all
Boeing, McDonnell Douglas, and AirBus commercial aircraft, and virtually all
other aircraft and jet engines manufactured in the world, with the exception
of those manufactured in the former Communist countries. In addition,
commercial and industrial applications include ground fueling devices for
airports and valving systems, heat exchangers, and fuel skids for land-based
gas turbines, off-shore oil platforms, and petrochemical complexes. In
military applications, the products are used on military transports, bombers,
helicopters, fighters and landing craft. Both commercial and military
applications include aircraft turbine engines built by General Electric, Rolls
Royce and Pratt & Whitney. Sales of fluid control products were $63.5 million
in fiscal 1997, $73.9 million in fiscal 1996 and $59.5 million in fiscal 1995.

Fire and Overheat Detectors. The Company designs and manufactures continuous
length pneumatic fire and overheat detectors, optical flame detectors, smoke
detectors and bleed-air leak detection systems. These systems are used on
commercial and military aircraft, gas turbine engines, small naval vessels,
helicopters, and railcars. This equipment is widely used on a broad spectrum
of aircraft manufactured by Boeing, AirBus, McDonnell Douglas, Northrop
Grumman and many small manufacturers. The aircraft range from large commercial
transports to small commuter aircraft, private twin engine airplanes,
helicopters, military fighters and transport aircraft. The fire and overheat
detectors are used on aircraft engines manufactured by General Electric, Pratt
&

1
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Whitney and Rolls Royce. Industrial applications of such products include
complete fire protection systems for vehicles, gas turbine powered pumping and
electric power generation applications, as well as large scale systems to
protect oil platforms and refineries. Sales of fire and overheat detectors and
systems were $19.5 million in fiscal 1997, $21.8 million in fiscal 1996 and
$21.8 million in fiscal 1995.

Radio Frequency and High Temperature Cables. The Company designs and
manufactures high reliability silicon dioxide insulated coaxial and multiple
conductor cable systems which permit broad-band data transmission and control
function operation in extreme environments. Applications for these technologies
include signal transmission and control functions inside nuclear power plants
and reactors, power and control monitoring and electronic valve control at oil
refineries, extreme environmental condition cable applications near jet
engines, and critical connections in airborne electronic countermeasure
systems.

Hydrogen and Oxygen Analyzers. The Company's hydrogen and oxygen analyzers
have been developed for use in the extreme environment surrounding a nuclear
reactor. The analyzers monitor and protect against the dangerous build up of
these gases, which, left unchecked, could result in a catastrophic fire or
explosion. The key features of the hydrogen and oxygen analyzers include the
rugged and stable electrochemical based sensors in combination with accurate
and dependable control and display units.

PRODUCT DEVELOPMENT

In 1997 the Company developed a liquid fuel metering system for the
industrial gas turbine market which will be used to reduce the environmental
impact of power generation. This technology, incorporated into the gas metering
technology developed in 1996, should position Whittaker as a leader in the
turbine engine control segment of the industrial gas turbine market. In
addition to North America, the market potential for this product includes
Europe, Asia and Africa. The Company developed the ELIMINATOR design concept
for the ground fueling product line used in refueling aircraft at airports
throughout the world. This technology is a step up in the state of the art in
providing environmentally safe refueling of commercial and military aircraft.
The Company expanded its product lines in the sophisticated cryogenic and
missile fuel systems by providing a unique quick disconnect that assures no
spillage when systems are serviced.

During 1997 the Company was awarded a major contract by The Boeing Company to
supply passenger air conditioning and cabin pressurization control valves for
the Boeing 757 and 767 aircraft. The Company was also awarded a major contract
by Rolls Royce, which is teamed with the Pratt & Whitney design team, to
develop valve equipment for the Boeing Joint Strike Fighter (JSF). The
components will be used to provide pitch/yaw/roll control for the JSF aircraft.

The Aerospace Group spent $0.9 million, $1.4 million and $0.9 million on
research and development activities in fiscal 1997, 1996 and 1995,
respectively.

MARKETS AND CUSTOMERS

Sales to commercial customers, including foreign customers, were the major
contributor to Aerospace sales and profit in 1997. Sales directly or indirectly
to the United States Government, primarily under military procurement
contracts, continued to decrease as a percentage of Aerospace sales, dropping
to 19% of sales in 1997 compared to 27% of sales in 1996 and 28% in 1995.
Export sales to customers outside the United States represented 21% of
Aerospace sales in 1997, compared to 24% in 1996 and 22% in 1995.

The Company has been able to achieve increased sales of its primary aircraft
fluid and pneumatic control devices over the past three years. Increased
emphasis has been placed on expanding sales from overhaul repairs, retrofits,
upgrades and spare components to end-users such as airlines, cargo carriers,
maintenance stations, military bases and government agencies. New aircraft
production is continuing to rise, which should contribute to an improved
business climate for these Company products. The Company has also positioned
itself for continued growth in the Aerospace segment by expanding its product
offerings in related markets, including fire and overheat detection equipment
and industrial markets.

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In certain geographic areas and for certain products, sales are often made
indirectly through independent representatives or distributors.

Companies engaged in supplying military equipment to the United States
Government are subject to competition, changes in the continuing availability
of Congressional appropriations, changes in contract timing and scheduling,
complexity of designs and the potential for obsolescence, and other changes
which may result from world events. Contracts with the United States
Government are subject to termination for the convenience of the Government if
deemed in its best interests. Contracts which are terminated for convenience
generally provide for payments to a contractor for its costs and for fees or
profits related to work accomplished through the date of termination.

BACKLOG

At October 31, 1997, Aerospace Group backlog totaled $70.5 million (compared
to $38.7 million at October 31, 1996), of which $10.9 million is not expected
to be filled within fiscal 1998. The increase in the Aerospace Group backlog
at October 31, 1997 from October 31, 1996 is primarily the result of the
effect of a decrease in revenue recognized using the percentage of completion
method in the fluid and pneumatic controls product lines and increased levels
of backlog for fire and overheat detectors for aircraft, fluid control devices
and spare parts. Aerospace backlog includes no unfunded amounts relating to
government contracts.

COMPETITION

The military and commercial industries in which the Aerospace Group operates
are generally highly competitive, with competition centering on price,
technical innovation, product performance and product support. Competitors of
the Company in such markets may have substantially greater financial
resources, research and design capabilities, and manufacturing capacity.

Integration Services Segment

The business and operations of the Integration Services segment are
conducted by Aviant Information, Inc. ("Aviant") a wholly owned subsidiary of
the Company. Aviant was formed in the second quarter of 1997 to serve the
growing requirements of health care information management. By assessing
network needs, diagnosing problems and implementing corrective actions, Aviant
addresses critical issues for health care organizations such as network
management, collaborative communication, security management, remote-access
implementation and high-speed networking. Aviant offers a full range of
customizable unique services in four main areas: network assessments, design /
redesign, integration / implementation and continuing services.

Increasingly, health care providers are turning to information technology to
capture the business benefits of consolidation. Links can be built to
integrate disparate systems and connect users at remote facilities and across
the health care enterprise. By building flexible communications pathways,
organizations will be able to leverage existing legacy applications, implement
new strategic applications and capitalize on new business opportunities.

PRODUCTS AND SERVICES

Aviant provides knowledge management and information communication system
optimization for the dynamically critical health care market. Aviant includes
among its customers representative hospitals from major health networks in the
United States.

Principal services provided by Aviant include:

Network Assessments--Aviant offers complete assessment of network inventory,
system integrity and reliability, capacity, topology, IP address space
requirements and existing network management practices.

Network Design/Redesign--Aviant develops logical designs for bridge/routing,
mainframe connectivity and Internet access; makes technology-neutral
recommendations for network electronics, VLANs, IP address space network
management, protocol analyzers and remote monitoring; and creates guidelines
for acceptance testing.

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Network Integration and Implementation--Aviant offers project management,
including, procurement, staging, configurations, acceptance tests and
documentation.

Continuing Services--Aviant offers customized, planned and managed
preventive maintenance programs which include, among other things, standard
break/fix hardware support, on-call and remote diagnostic support, time and
materials dispatch and onsite engineering.

MARKETS AND CUSTOMERS

Aviant's customers include major hospitals and health care networks
throughout the United States. These health care providers are using Aviant's
concept of INFOnology to insure the delivery of complete and timely patient
information to every point of care in the enterprise system. Aviant has
established strong relationships with industry leading technology companies
and is affiliated with major healthcare management and information
associations.

Aviant operates sales and support offices throughout the United States.
Sales of Aviant services for the eight months ended October 31, 1997 were $5.1
million. At October 31, 1997 Aviant's backlog totaled $5.3 million of which
$0.5 million was not expected to be filled in fiscal 1998.

COMPETITION

The integration services business in which Aviant operates is generally
highly competitive and includes systems vendors offering integration services,
networking products vendors, software solutions providers and systems
integrators and consultants. Some of the competitors of the Company have
substantially greater financial resources and established reputations.

DISCONTINUED OPERATIONS

Business to be Divested

Xyplex Networks ("Xyplex") is a provider of network access solutions for the
enterprise edge market. Xyplex designs, develops and markets a comprehensive
line of networking products that allow its customers a migration path from
their existing legacy infrastructures to new and emerging data networking
architectures. In addition, Xyplex offers high-performance Ethernet and
Asynchronous Transfer Mode (ATM) Local Area Network switching and hub products
and provides a full range of network design, consulting, integration, and
support services for small businesses and large enterprise-wide solutions. On
January 19, 1998, the Company entered into a definitive agreement to sell all
of the common stock of its wholly-owned subsidiary, Whittaker Xyplex, Inc.,
the parent company of Xyplex, Inc., to MRV Communications, Inc., for $35
million in cash plus warrants to purchase up to 500,000 shares of common stock
of MRV Communications, Inc. The sale is subject to customary closing
conditions, including Hart-Scott-Rodino Act clearance.

Assets Held for Sale or Development

Also to be divested is a 996-acre parcel of land formerly used, until 1987,
by the Company's former Bermite division, a discontinued technology unit. The
land is located in the City of Santa Clarita, California, approximately 35
miles from downtown Los Angeles. In September 1995, the city granted the
entitlements necessary to develop this property as a mixed-use, residential,
commercial, and light industrial development. In February 1996 the city
approved a Development Agreement which, among other things, extended the ten-
year life of the entitlements to over 20 years. In connection with its ongoing
discussions with potential developers, the Company, in the fourth quarter of
1997, wrote down the carrying value of this land by $15.7 million to reflect
this asset at its estimated fair value. See Note 3 to Consolidated Financial
Statements in Part II, Item 8 of the Form 10-K for information about the
parcel remaining to be divested.

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Divested Operations

On September 30, 1997, the Company sold its defense electronics unit to
Condor Systems, Inc. This unit designed and manufactured electronic systems
for command, control and communications; radar countermeasure systems and
electronic combat systems and other radar surveillance and tracking systems
used in tactical training.

ENVIRONMENTAL

Compliance with Federal, state and local provisions that have been enacted
or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Company, nor is the Company estimating any material capital expenditures for
environmental control facilities in fiscal 1998 or 1999.

EMPLOYEE RELATIONS

As of October 31, 1997, the Company employed approximately 500 persons in
its continuing businesses, about 7% of whom were represented by labor
organizations. The Company believes that it has generally good relations with
its employees.

ITEM 2. PROPERTIES.

The Company's corporate headquarters are located in a portion of its
facilities in Simi Valley, California, which consist of approximately 276,000
square feet in three buildings leased by the Company. The Company owns a
30,000 square foot production facility in Colorado which was formerly used in
its discontinued defense electronics business.

The Company, in its continuing operations, also leases one facility in
California which consists of approximately 93,000 square feet under a lease
that expires in 1999 and one facility in Massachusetts, used in its
discontinued communications segment, which consists of approximately 101,000
square feet under a lease that expires in 1998. The Company has options to
renew these leases for various terms. Approximately 59% of the square footage
is used for manufacturing, engineering, and product development, while the
remainder is used for sales, marketing, and other general and administrative
support.

The Company also leases and occupies sales and technical support offices
throughout the United States as well as in Europe, Mexico, Southeast Asia, and
South Africa.

The Company believes that in general its plants and equipment are adequately
maintained, in good operating condition and adequate for the Company's present
needs. The Company regularly upgrades and modernizes its facilities and
equipment and expands it facilities as necessary to meet customer
requirements.

ITEM 3. LEGAL PROCEEDINGS.

ENVIRONMENTAL MATTERS

CERCLA and such other state laws provide for the imposition of clean-up
liability on anyone who arranges for the disposal or treatment of hazardous
substances at designated sites. Accordingly, anyone who generates hazardous
substances may be a potentially responsible party if the treatment, storage,
or disposal facility that

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handles the substances becomes the subject of an environmental clean-up under
such laws. This is true even if the treatment, storage, or disposal facility
has the proper licenses and permits issued by appropriate governmental
authorities and treats, stores, or disposes of the hazardous substances in
accordance with the terms of such licenses and permits. The various state
environmental agencies and the U.S. Environmental Protection Agency take the
position under these environmental laws that all responsible parties are
jointly and severally liable for the costs of cleaning up sites subject to
their jurisdiction and for any environmental damages caused by the treatment
or disposal of hazardous substances at such sites.

In nearly all of the environmental matters in which the Company is involved
as a potentially responsible party, the Company contributed a very small
amount (generally much less than 1%) of the total wastes treated or disposed
of at these various treatment or disposal facilities and participates as a so-
called "de minimis" party. De minimis parties are generally allowed to settle
their potential liability for clean-up activities by agreeing with the state
or Federal environmental authorities and the other, larger responsible parties
to bear a share of the past and estimated future clean-up costs based on the
volume of the waste each de minimis party contributed, plus a "premium" or
"multiplier." These premiums or multipliers are designed to allow for the
uncertainty of estimates of future costs and the desirability of settling
liability early to avoid so-called transaction costs, i.e., the legal,
consulting, and other expenses, which tend to consume a significant amount of
the funds actually spent on the resolution of environmental matters.

Where the Company does not qualify for such treatment, the Company's
potential liability on a particular environmental matter could be significant,
or the Company believes that the premium or multiplier for a de minimis
settlement is unreasonable, the Company may elect to participate in the
settlement or remediation activities as, or on the same basis as, a major
party, generally paying its allocated share of remediation expenses and
transaction costs as they are incurred, often over several years.

In addition to the CERCLA and similar actions described above, the Company
also, from time to time, conducts or participates in remedial investigations
and clean-up activities at facilities currently or formerly occupied by its
operating units. In the most significant of these sites, the Company has
"clean closed" 13 of 14 facilities regulated under the Resource Conservation
and Recovery Act at its former Bermite division in Santa Clarita, California.
The Company is currently working to close the 14th of such facilities and to
complete an investigation of the entire 996-acre property in anticipation of
the development of the property for a planned mixed-use residential and
commercial development.

In 1997, the Company made cash expenditures of approximately $3.3 million on
environmental matters, excluding expenditures for clean-up activities at its
former Bermite division. This amount was charged to reserves for environmental
contingencies related to the Company's discontinued operations. In 1997, 1996
and 1995, the Company made cash expenditures for clean-up activities at its
former Bermite division of $2.6 million, $4.0 million and $0.8 million,
respectively.

OTHER LEGAL MATTERS

There are also various other claims and suits pending against the Company.
Based on an evaluation, which included consultation with counsel concerning
the legal and factual issues involved, the Company is of the opinion that such
claims and suits pending against the Company, including the environmental
matters discussed above, will not have a material adverse effect, singly or in
the aggregate, on the financial position of the Company. See Note 10 of Notes
to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

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

Not applicable.

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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth the names, ages and positions of the current
executive officers of the Registrant.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Joseph F. Alibrandi..... 69 President and Chief Executive Officer
Lynne M. O. Brickner.... 45 Vice President and Secretary
John K. Otto............ 43 Vice President, Chief Financial Officer and Treasurer
Eva Jonutis............. 48 Controller
Roland G. Patitz........ 61 President, Whittaker Controls, Inc.
John J. Stobie.......... 43 President, Safety Systems Division
Michael C. Thurk........ 44 President, Xyplex, Inc. and Whittaker Communications, Inc.
</TABLE>

Mr. Alibrandi joined Whittaker in July 1970 as President and Director and
served as Chief Executive Officer from November 1974 through January 1995. He
became Chairman of the Board in December 1985 and has continuously served in
such capacity since then. He was appointed President and Chief Executive
Officer on September 30, 1996.

Ms. Brickner joined Whittaker in September 1995 as Assistant General Counsel
and Assistant Vice President. She was named Secretary and General Counsel in
September 1996 and as Vice President in October 1996. Prior to joining
Whittaker, Ms. Brickner was a practicing attorney with Kaye, Scholer, Fierman,
Hays & Handler since 1990.

Mr. Otto joined Whittaker in 1983 as Whittaker's Manager of Banking and
Cash. He was named Assistant Treasurer in 1986 and Treasurer in 1988. He was
appointed Vice President of the Company in December 1996 and Chief Financial
Officer in October 1997.

Ms. Jonutis joined Whittaker in 1974 as a cost accountant and served as its
Director of Financial Services from 1987 to 1993. She rejoined Whittaker in
October 1996 and was appointed Controller in December 1996.

Mr. Patitz joined Whittaker in 1976 as Vice President of Operations of
Whittaker Controls, Inc. He was named President of Whittaker Controls, Inc. on
December 1, 1997.

Mr. Stobie joined Whittaker Controls in 1977 where he served as Materials
Manager, Manufacturing Manager and Manufacturing Engineering Manager prior to
his appointment in 1995 as Director of Operations of the Company's Safety
Systems Division. In 1996 he was appointed Executive Vice President of
Operations and on December 1, 1997, he was named President of Safety Systems.

Mr. Thurk joined Whittaker in June 1996 as President of Xyplex, Inc. and of
Whittaker Communications, Inc. Prior to joining Whittaker, he was Senior Vice
President of General DataComm and served in that position since 1994. Prior to
1994, he held various positions at Digital Equipment Corp. where he was named
Vice President of its Networking Business Unit in 1991 and Vice President
Telecommunications Business Segment in 1993.

The term of office of each executive officer (except for Mr. Patitz, Mr.
Stobie and Mr. Thurk, who serve at the discretion of the Board of Directors)
will expire at the next annual meeting of the Board of Directors, which is
scheduled to be held on April 3, 1998.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.

PRINCIPAL MARKETS

The Common Stock is listed on the New York Stock Exchange and the Pacific
Exchange, Inc. (Symbol: WKR). The Series A Participating Cumulative Preferred
Stock Purchase Rights are listed on the New York Stock Exchange and the
Pacific Exchange, Inc., and, at the present time, trade with the Common Stock
and are not separately transferable. The Series D Participating Convertible
Preferred Stock (the "Series D Preferred Stock") is not listed or traded on
any exchange. See Note 6 of Notes to Consolidated Financial Statements in Part
II, Item 8 of this Form 10-K.

COMMON STOCKHOLDERS

As of December 31, 1997 there were 4,861 registered holders of the Common
Stock.

COMMON STOCK PRICES

The following table sets forth the high and low sales prices of the Common
Stock during Whittaker's two most recent fiscal years.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
------------- ------------- ------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996............ 24 3/4 16 7/8 26 3/8 22 1/4 23 1/8 13 5/8 14 3/4 13 1/8
1997............ 14 1/4 11 5/8 11 7/8 9 1/8 11 3/4 10 1/2 15 3/16 10 7/16
</TABLE>

DIVIDENDS

Dividends of $0.25 were last declared on each share of Series D Preferred
Stock for the first two quarters of fiscal 1996 and no dividends have been
declared or paid during the remainder of fiscal 1996 and fiscal 1997. No
dividends have been declared on the Common Stock during the two most recent
fiscal years.

Since April 30, 1996, the Company has been prohibited from declaring or
paying dividends on any of its outstanding shares by restrictions in its
credit agreement with a group of lenders and its 7% convertible subordinated
note. Thus, the Company has not paid or declared dividends (including any
quarterly dividend for the Series D Preferred Stock) or redeemed shares since
that date. However, dividends on the Series D Preferred Stock have been
accrued since that date. In the foreseeable future, in light of the Company's
current financial condition and its strategy of using earnings from operations
to fund growth internally, the Company's present intention is to refrain from
paying cash dividends on the Common Stock, even if the Company is otherwise
able to do so under its current credit facility and its convertible
subordinated note. See Note 5 and Note 6 of Notes to Consolidated Financial
Statements in Part II, Item 8 of this Form 10-K for further description of the
Company's credit facility and of the convertible subordinated note.

SALES OF UNREGISTERED SECURITIES

During the three most recent fiscal years, the Company has issued 1,974,333
unregistered shares of common stock to Raytheon Company ("Raytheon") on April
10, 1996. Such shares were issued as partial consideration for the Company's
acquisition of Xyplex, Inc. and the holders of such shares are subject to
certain limitations set forth in the Stockholder's Agreement between Raytheon
and the Company. The shares were issued in reliance upon Section 3(b) and 4(a)
of the 1934 Act and Regulation D promulgated thereunder. A registration
statement on Form S-3 covering the shares was filed by the Company on May 15,
1996 and was amended on March 10, 1997.

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TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK

CHASE MELLON SHAREHOLDER SERVICES
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660

RIGHTS AGENT FOR SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK PURCHASE
RIGHTS

MELLON BANK N.A.
Post Office Box 444
Pittsburgh, Pennsylvania 15230

ITEM 6. SELECTED FINANCIAL DATA.

WHITTAKER CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS*
Sales.......................... $ 95,133 $ 98,647 $ 81,298 $ 71,276 $ 55,802
Income (loss) from continuing
operations, before accounting
change and extraordinary item. (32,930) 9,817 6,627 6,046 1,304
Cumulative effect of accounting
change........................ -- -- -- -- 1,512
Income (loss) from discontinued
operations.................... (122,452) (26,944) 1,238 4,015 4,440
Loss on disposal of
discontinued operations....... (4,791) -- -- -- --
Extraordinary item............. (3,409) -- -- -- --
Net income (loss).............. (163,582) (17,127) 7,865 10,061 7,256
Earnings (loss) per share
Continuing operations, before
accounting change and
extraordinary item.......... (2.95) .93 .69 .64 .13
Accounting change............ -- -- -- -- .16
Discontinued operations...... (11.42) (2.55) .13 .42 .47
Extraordinary item........... (.31) -- -- -- --
Net income (loss)............ (14.68) (1.62) .82 1.06 .76
Average common and common
equivalent shares outstanding
(in thousands)................ 11,144 10,569 9,625 9,502 9,491
OTHER DATA*
Working capital................ (76,366) (65,731) 72,272 79,983 73,924
Total assets................... 167,442 340,448 227,137 200,981 194,508
Long-term debt................. 222 453 70,694 54,742 56,782
Stockholders' equity (deficit). (30,723) 131,136 102,424 93,950 83,748
Current ratio.................. 0.55:1 0.65:1 3.40:1 3.81:1 3.15:1
Capital additions.............. 2,300 1,700 2,000 1,300 700
Stockholders of record......... 4,900 5,200 5,500 5,700 7,100
</TABLE>
- --------
* Operating results and balance sheet items reflect the segregation of
continuing operations from discontinued operations. See Note 2 of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

9
<PAGE>

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

RESULTS OF OPERATIONS

During the fourth quarter of 1997, the Company decided to discontinue its
Communications segment and sold its defense electronics business. These units
are reflected in the results of operations as discontinued operations. The
Company's continuing operations are now comprised of two operating business
segments: Aerospace and the newly formed Integration Services business. These
actions implemented a strategy to reduce debt and explore strategic options
after the Company's evaluation of its core strengths in the aerospace
industry.

The Aerospace segment is comprised of Whittaker Controls, Inc., a wholly
owned subsidiary, which designs and manufactures a broad range of fluid
control devices and Whittaker Safety Systems division which designs and
manufactures continuous length pneumatic fire and overheat detectors, optical
flame and smoke detectors and silicon dioxide insulated coaxial and multiple
conductor cable systems. The Integration Services segment is comprised of
Aviant Information, Inc., a wholly owned subsidiary, which provides turnkey
data networking solutions for hospitals and other enterprises.

The discontinued operations include the Company's defense electronics
business which designed and manufactured a wide range of command, control and
communication systems, radar countermeasure systems and electronic combat
systems and Xyplex Networks, including the operations of Whittaker
Communications, Inc. ("WCI"). Xyplex Networks designs, develops and markets a
comprehensive line of networking products.

Comparison of 1997 to 1996

Sales. The Company's sales, from continuing operations, for 1997 of $95.1
million decreased by $3.5 million (3.6%) from the sales in the prior fiscal
year. The Company's Aerospace segment sales for fiscal 1997 decreased by $8.8
million (8.9%) from 1996 due to reduced sales from contracts qualifying, under
the Company's current policy, for revenue recognition using the percentage of
completion method and reduced sales of certain industrial products. Also
negatively impacting the 1997 sales were production inefficiencies associated
with the move of the fire and overheat detector operations from Concord,
California to Simi Valley, California. Partially offsetting these decreases in
the Aerospace segment sales were the sales generated by the Company's newly
formed Integration Services business.

Gross Margin. The Company's gross margin, from continuing operations, for
1997 as a percentage of sales was 29.2%, compared with 49.0% for 1996. The
1997 gross margin consists of Aerospace gross margin of $29.2 million
partially offset by losses at the Company's newly formed Integration Services
business. Aerospace segment gross margin as a percentage of sales decreased
from 49.0% of sales in 1996 to 32.6% in 1997 primarily reflecting production
inefficiencies associated with the move of the Concord, California operations
to Simi Valley, California, lower sales volume of fluid control devices,
increases in inventory valuation allowances and estimated contract losses
recorded in the fourth quarter of 1997.

Engineering and Development. Engineering and development expenses, of the
Company's continuing operations, for 1997 decreased by $0.4 million from 1996.
The 1997 engineering and development expenses consist of Aerospace segment
expenses of $0.9 million and Integration Services segment expenses of $0.1
million.

Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) of the Company's continuing operations for 1997 increased by
$0.4 million from 1996. Aerospace segment SG&A expenses were $12.7 million
(14.1% of sales) for 1997 compared to $16.4 million (16.6% of sales) for 1996.
This decrease was primarily the result of the reduction of management
incentive costs. Substantially offsetting this reduction in Aerospace segment
SG&A expenses were $3.5 million of expenses related to the Integration
Services segment.

10
<PAGE>

Interest. Interest expense increased to $18.3 million in 1997 from $10.9
million in 1996 primarily as a result of higher interest rates. Interest
income decreased in 1997 by $5.8 million from 1996 which included interest
income received in 1996 associated with federal income tax refunds for prior
years.

Assets Held for Sale or Development. In connection with ongoing discussions
with potential developers the Company, in 1997, wrote down the carrying value
of a 996 acre land parcel held for sale or development by $15.7 million to its
estimated fair value.

Income Taxes. In compliance with FASB 109, the Company has established a
full valuation allowance against its current potential carry forward benefits.
The Company will continue to offset income tax benefits with a valuation
allowance until such time as its pretax profits would allow for the
elimination of these allowances. In the fourth quarter of 1997, the Company
recorded a $4.2 million tax benefit for continuing operations representing
loss carry-back benefits and the reversal of prior year overaccruals of tax
liabilities.

Sales from discontinued operations for 1997 decreased by $23.4 million or
19.0% from 1996. Sales from the discontinued defense electronics business
decreased by $15.5 million from $31.7 million in 1996 to $16.2 million in
1997. Sales from the discontinued Communications segment decreased by $7.9
million from $91.5 million in 1996 to $83.6 million in 1997.

Gross margin from discontinued operations decreased by $6.8 million from
$42.9 million in 1996 to $36.1 million in 1997. The defense electronics
business gross margin increased slightly from $0.3 million in 1996 to
$0.7 million in 1997. This increase reflected the absence, in 1997, of
inventory write-offs and contract cost growth included in 1996 results,
substantially offset by the effects of reduced sales volume. The discontinued
Communications segment gross margin was $35.4 million for 1997 compared to
$42.6 million in 1996. This decrease reflected primarily the effects of
reduced sales volume.

The discontinued operations results for 1997 include a goodwill and other
intangibles impairment charge of $30.2 million to reflect the significant
deterioration in the Communications segment revenues and the reduced
amortization periods for certain goodwill and other intangibles, and a
restructuring charge of $5.3 million. In connection with the decision to
discontinue the Communications segment, the Company, in the fourth quarter of
1997, wrote down the assets of this segment by $55.7 million to their
estimated net realizable value. The results of operations of the discontinued
operations include tax benefits of $2.6 million representing loss carry-back
benefits and the reversal of prior year overaccruals of tax liabilities.

The loss on disposal of discontinued operations is net of income tax
benefits of $0.3 million and includes estimated operating losses of the
Communications segment until the estimated disposal date. The loss on disposal
of discontinued operations may be adjusted in future periods depending on the
accuracy of these estimates.

Extraordinary Item. The significant increase in the interest rate at which
the Company can borrow under the terms of its credit agreement represents a
substantial modification to that credit agreement. Accordingly, the Company
recorded a charge of $3.4 million (net of $0.2 million of taxes) representing
the write-off of the unamortized portion of debt issuance costs incurred in
connection with obtaining that credit agreement.

Comparison of 1996 to 1995

Sales. The Company's continuing operations for 1996 consisted solely of the
Aerospace segment. Sales of continuing operations were $98.6 million compared
to $81.3 million in 1995 primarily reflecting increased sales of aircraft and
pneumatic controls devices.

Gross Margin. The Company's gross margin, from continuing operations for
1996 as a percentage of sales was 49.0%, compared with 47.0% for 1995. Gross
margin for 1996 was $48.3 million compared to $38.2 million in 1995. This
increase was attributable to increased margins and improved manufacturing
yields on commercial

11
<PAGE>

aircraft after market and industrial product lines. Partially offsetting this
increase was pension income of $0.6 included in the 1995 gross margin.

Engineering and Development. Engineering and development expenses of the
Company's continuing operations for 1996 increased by $0.5 million from $0.9
million in 1995 to $1.4 million in 1996.

Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) of the Company's continuing operations for 1996 increased by
$5.5 million from 1995. This increase was primarily the result of increased
management incentive costs and legal expenses in 1996 and the inclusion in
1995 of a recovery related to the Company's insurance claim for damage from
the 1994 Northridge, California earthquake and increased pension income.

Interest. Interest expense increased to $11.0 million in 1996 from $5.9
million in 1995 primarily as a result of higher interest rates and the
incremental debt related to an acquisition made in 1995. Interest income
increased by $5.7 million from 1995 as a result of interest income received in
1996 associated with federal income tax refunds for prior years.

Sales from discontinued operations for 1996 increased by $45.0 million or
57.6% from 1995. Sales from the discontinued defense electronics unit
decreased by $12.1 million from $43.8 million in 1995 to $31.7 million in
1996. Sales from the discontinued Communications segment increased by $57.2
million from $34.3 million in 1995 to $91.5 million in 1996 reflecting the
acquisition of Xyplex Inc. in April of 1996.

Gross margin from discontinued operations increased by $11.5 million from
$31.3 million in 1995 to $42.8 million in 1996. This increase reflected the
acquisition of Xyplex Inc. in 1996 partially offset by lower margins
associated with lower sales of defense electronics products and favorable
settlements included in the 1995 gross margin related to insurance and
contract claims and higher pension income in 1995.

Engineering and development expenses for the discontinued operations
increased from $6.8 million in 1995 to $18.6 million in 1996. This increase is
attributable to the acquisition of Xyplex, Inc. in April of 1996 and the
inclusion of WCI for a full year in 1996. Selling, general and administrative
expenses for the discontinued operations were $53.5 million in 1996 compared
to $18.8 million in 1995. This increase was primarily attributable to the
acquisition of Xyplex in 1996 and the inclusion of WCI for a full year in
1996. Amortization expense included in Communications segment SG&A expenses
for 1996 was $6.9 million compared to $1.0 million in 1995.

The discontinued operations results for 1996 include the write-off of
acquired in-process research and development of $11.7 million compared to a
write-off of $3.3 million in 1995. During 1996 the Company's discontinued
defense electronics business incurred restructuring costs of $0.8 million and
the discontinued Communications segment incurred restructuring costs of $1.6
million.

General

In fiscal 1997, 1996 and 1995, approximately 18%, 27%, and 28%,
respectively, of the Company's continuing operations sales were directly or
indirectly attributable to the United States Government. Substantially all of
these sales relate to the Aerospace segment. Companies engaged in supplying
military equipment to the United States Government are subject to competition,
changes in the continuing availability of Congressional appropriations,
changes in contract timing and scheduling, complexity of designs and the
potential for obsolescence, and other changes which may result from world
events. A loss of Government business, although not anticipated by the
Company, could have a material adverse effect on the Company's operations.

12
<PAGE>

FINANCIAL CONDITION AND LIQUIDITY

On April 10, 1996, in conjunction with the purchase of Xyplex, Inc., the
Company amended and increased its bank credit facility and borrowed an
additional $76.5 million under such facility. At that time the amended credit
agreement consisted of an $85.0 million revolving credit facility with a five-
year term and an $85.0 million term loan repayable in quarterly installments
over five years. The cash payment to Raytheon Company for the purchase of
Xyplex, Inc. on April 10, 1996 was $67.3 million.

At October 31, 1997, the Company's debt totaled $129.6 million, which
consisted of $79.9 million of loans under the revolving credit facility, $34.0
million under the term loan, $15.0 million of convertible subordinated debt,
and $0.7 million of other debt. In addition, there were $2.9 million of
letters of credit outstanding under the revolving credit facility. Since July
31, 1996, the Company has not been in compliance with one or more of the four
financial ratio covenants in its credit agreement and, at October 31, 1997,
the Company was not in compliance with any such covenants. The Company has
obtained successive waivers of these defaults. A waiver agreement dated as of
July 31, 1997 required the Company to make, in addition to previously
scheduled principal payments, principal payments on the term loan by September
30, 1997, in an aggregate amount of not less than $20 million and to pay a fee
on November 3, 1997 of $1.8 million. In addition, the waiver permitted the
Company to retain fifty percent of the net cash proceeds from certain asset
sales which previously would have been used to repay the term loan. A waiver
dated December 31, 1997, waived the defaults up to but not including January
31, 1998. Under the terms of this latest waiver, the interest rate on loans
outstanding under the credit agreement is equal to the agent bank's prime rate
plus 4.25%. There is no assurance that in future periods, the Company will be
in compliance with any of the financial covenants contained in its credit
agreement, or that, after expiration of the current waiver on January 31,
1998, additional waivers of the financial covenants will be obtained and, if
obtained, that any such waivers would contain terms which would be as
favorable to the Company as, or would materially differ from, waivers granted
in the past. Consequently, bank debt in the amount of $105.3 million, which
otherwise would have been classified as noncurrent, has been classified as
current. Furthermore, acceleration of the debt under the credit agreement by
the bank lending group upon the Company's failure, after January 31, 1998, to
comply with any of the financial ratio covenants would be an event of default
under the Company's $15 million 7% convertible subordinated note. Because of
this possible cross-default, the entire $15 million principal balance of the
7% convertible subordinated note has also been classified as current debt. At
October 31, 1997, the Company had unused and available credit of $0.2 million
under its revolving credit facility.

The Company believes that its existing cash and available credit under its
revolving credit facility will be adequate to meet future operating cash needs
through the waiver period. Thereafter, the Company may need additional
financing to meet its operating cash needs. However, there can be no assurance
that the Company will be able to obtain such additional financing.

Debt as a percent of total capitalization (stockholders' equity plus debt)
was 131.1% at October 31, 1997, compared with 55.3% at October 31, 1996. The
current ratio at October 31, 1997 was 0.55, compared with 0.65 at October 31,
1996, while working capital was ($76.4) million at October 31, 1997, compared
with ($65.7) million at October 31, 1996. Excluding the debt reclassifications
discussed above, the current ratio would have been 1.88 and working capital
would have been $44.0 million at October 31, 1997 and at October 31, 1996 the
current ratio and working capital would have been 3.31 and $85.3 million.

Cash flow provided by continuing operations in 1997 was $5.5 million,
compared to $2.9 million in 1996. The $2.6 million increase from 1996 to 1997
was due primarily to significant non-cash charges incurred in 1997 totalling
$19.3 million, greater increases in accounts payable and accrued liabilities
in 1997 compared to 1996 totalling $11.6 million and greater reductions in
accounts receivable, inventories and prepaids and deferred and recoverable
income taxes in 1997 compared to 1996 totalling $17.4 million. Substantially
offsetting these was the net loss in 1997 of $36.3 million compared to net
income of $9.8 million in 1996.

Capital expenditures of continuing operations during 1997 were $2.3 million,
compared to $1.7 million in 1996. At October 31, 1997, there were
approximately $0.7 million of approved capital expenditures outstanding for
the replacement and upgrade of existing plant and equipment at the various
facilities of the Company's

13
<PAGE>

continuing operations. Funds for these and other capital expenditures are
expected to be provided from operations and advances under the credit
agreement. Capital expenditure amounts are a component of one of the financial
ratio covenants contained in the Company's credit agreement.

The Company has been evaluating the most advantageous means to realize the
value of its 996-acre parcel of land, located in the City of Santa Clarita,
California. Since 1986, the Company has undertaken the environmental
remediation of this property and related cash expenditures during 1997
totalled $2.6 million. During the fourth quarter of 1997, in connection with
its strategy to reduce debt, the Company decided to sell this land and thus
recorded a non-cash write-down of $15.7 million to state this asset at its
estimated fair value. Financial Accounting Standards Board Statement No. 121
("FAS 121") requires that long-lived assets be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of the
asset may not be recoverable. Under the standard, when an impairment write-
down is required, the related assets are adjusted to their estimated fair
value. For purposes of FAS 121, fair value has been determined to be the
amount a willing buyer would pay a willing seller for such assets in a current
transaction that is other than a forced or liquidation sale.

The estimation process involved in determining if assets have been impaired
and in determining fair value is inherently uncertain since it requires
estimates of current market yields as well as future events and conditions. In
determining fair value the Company considered, among other things, the range
of preliminary purchase prices being discussed with potential buyers and
developers as well as estimates of the total cost of environmental
remediation.

On September 30, 1997, the Company sold its defense electronics unit and the
net proceeds of $18.4 million from the sale were used to prepay term debt
under the Company's credit agreement.

See Note 10 of Notes to Consolidated Financial Statements in Part II, Item 8
of this Form 10-K for information regarding commitments and contingencies.

Impact of Year 2000

The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs or products that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or send invoices, or could result in liability arising from such
product failures.

Based on a recent assessment, the Company has determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems.

14
<PAGE>

However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.

The Company will utilize both internal and external resources to reprogram
or replace and test the software for Year 2000 modifications. The Company is
not able at this time to estimate the cost of the Year 2000 project or its
anticipated completion date and therefore is unable to determine whether or
not the Year 2000 Issue will have a material impact on future financial
results.

Subsequent Event

On January 19, 1998, the Company entered into a definitive agreement to sell
all of the common stock of its wholly-owned subsidiary, Whittaker Xyplex,
Inc., the parent company of Xyplex, Inc., to MRV Communications, Inc., for $35
million in cash plus warrants to purchase up to 500,000 shares of common stock
of MRV Communications, Inc. The sale is subject to customary closing
conditions, including Hart-Scott-Rodino Act clearance.

Statements made herein that are not based on historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The risk factors that could cause actual results to differ
from the forward looking statements include delay in developing new programs
and products, inability to qualify for new programs or to develop new
products, loss of existing business and inability to attract new business and
customers, reduced spending by commercial and defense customers and
development of competing products.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

15
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of Whittaker Corporation

We have audited the accompanying consolidated balance sheets of Whittaker
Corporation as of October 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended October 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Whittaker Corporation at October 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended October 31, 1997, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Los Angeles, California
December 12, 1997

16
<PAGE>

WHITTAKER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------
1997 1996 1995
--------- -------- -------
RESTATED--NOTE 2
(DOLLARS IN THOUSANDS
EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Sales............................................. $ 95,133 $ 98,647 $81,298
Costs and expenses
Cost of sales................................... 67,308 50,355 43,095
Engineering and development..................... 965 1,398 925
Selling, general and administrative............. 26,982 26,618 21,153
Restructuring costs............................. -- 200 --
--------- -------- -------
Operating income (loss)........................... (122) 20,076 16,125
Interest expense.................................. 18,299 10,937 5,897
Interest income................................... (456) (6,295) (556)
Write-down of asset held for sale or development.. 15,677 -- --
Other expense..................................... 3,495 684 169
--------- -------- -------
Income (loss) from continuing operations before
extraordinary item and provision for taxes....... (37,137) 14,750 10,615
Provision (benefit) for taxes (Note 7)............ (4,207) 4,933 3,988
--------- -------- -------
Income (loss) from continuing operations before
extraordinary item............................... (32,930) 9,817 6,627
Discontinued operations (Note 2)
Income (loss) from discontinued operations...... (122,452) (26,944) 1,238
Loss on disposal of discontinued operations..... (4,791) -- --
Extraordinary item, less income tax benefit of
$224 (Note 14)................................... (3,409) -- --
--------- -------- -------
Net income (loss)................................. $(163,582) $(17,127) $ 7,865
========= ======== =======
Earnings (loss) per share
Continuing operations........................... $ (2.95) $ .93 $ .69
Discontinued operations
Income (loss) from discontinued operations.... (10.99) (2.55) .13
Loss on disposal of discontinued operations... (.43) -- --
Extraordinary item................................ (.31) -- --
--------- -------- -------
Net income (loss)................................. $ (14.68) $ (1.62) $ .82
========= ======== =======
</TABLE>

The accompanying notes are an integral part of these statements.

17
<PAGE>

WHITTAKER CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
AT OCTOBER 31,
--------------------
1997 1996
-------- ----------
RESTATED--
NOTE 2
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash....................................................... $ 6,366 $ 1,566
Receivables................................................ 27,337 33,252
Inventories................................................ 37,032 31,225
Prepaids and other current assets.......................... 914 728
Income taxes recoverable................................... 3,238 5,443
Deferred income taxes...................................... 11,244 8,079
Net current assets of discontinued units................... 7,766 41,834
-------- --------
Total Current Assets..................................... 93,897 122,127
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements................................. 299 2,518
Buildings and improvements................................. 8,355 13,224
Equipment.................................................. 22,343 20,204
Construction in progress................................... 384 891
-------- --------
31,381 36,837
Less accumulated depreciation and amortization............. (21,550) (19,323)
-------- --------
9,831 17,514
-------- --------
OTHER ASSETS
Goodwill, net of amortization.............................. 14,032 14,387
Other intangible assets, net of amortization............... 1,119 1,362
Notes and other noncurrent receivables..................... 3,443 2,898
Other noncurrent assets.................................... 7,672 11,327
Assets held for sale or development........................ 15,214 31,129
Net noncurrent assets of discontinued units................ 22,234 139,704
-------- --------
63,714 200,807
-------- --------
$167,442 $340,448
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

18
<PAGE>

WHITTAKER CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES & STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
AT OCTOBER 31,
---------------------
1997 1996
--------- ----------
RESTATED--
NOTE 2
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt..................... $ 129,353 $161,482
Accounts payable......................................... 9,579 7,225
Accrued liabilities...................................... 31,331 19,151
--------- --------
Total Current Liabilities.............................. 170,263 187,858
--------- --------
OTHER LIABILITIES
Long-term debt........................................... 222 453
Other noncurrent liabilities............................. 12,603 12,019
Deferred income taxes.................................... 15,077 8,982
--------- --------
Total Other Liabilities................................ 27,902 21,454
--------- --------
Commitments and contingencies (Notes 3, 9, and 10)
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred Stock, par value $1 per share, authorized
5,000,000 shares--
$5.00 Cumulative Convertible Preferred Stock, none
outstanding at October 31, 1997 and October 31, 1996.. -- --
Series D Participating Convertible Preferred Stock,
outstanding 577.18 shares at October 31, 1997 and
October 31, 1996...................................... 1 1
Common Stock, authorized 40,000,000 shares--
Par value, $.01 per share, outstanding 11,204,658
shares at October 31, 1997 and 11,029,155 shares at
October 31, 1996...................................... 112 110
Additional paid-in capital............................... 72,041 70,321
Retained earnings (deficit).............................. (102,877) 60,704
--------- --------
Total Stockholders' Equity (deficit)................... (30,723) 131,136
--------- --------
$ 167,442 $340,448
========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

19
<PAGE>

WHITTAKER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
-----------------------------
1997 1996 1995
--------- -------- --------
RESTATED--NOTE 2
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Continuing Operations
Net income (loss).............................. $ (36,339) $ 9,817 $ 6,627
Adjustments to reconcile net income (loss) to
net cash provided (used) by operations:
Depreciation and amortization................ 2,841 2,629 2,385
Net periodic pension (income) expense........ 208 (63) (1,119)
Income taxes recoverable..................... 2,205 (3,991) (1,386)
Deferred taxes............................... 2,930 1,108 784
Impairment charge............................ 15,677 -- --
Extraordinary loss........................... 3,633 -- --
Changes in operating assets and liabilities:
Receivables................................ 5,785 (2,677) 174
Inventories and prepaid expenses........... (5,993) (6,881) 2,116
Accounts payable and other liabilities..... 14,534 2,973 (351)
--------- -------- --------
Total from continuing operations............... 5,481 2,915 9,230
--------- -------- --------
Discontinued Operations
Net income (loss).............................. (127,243) (26,944) 1,238
Adjustments to reconcile net income (loss) to
net cash provided (used) by operations:
Depreciation and amortization................ 20,869 16,010 5,680
Intangible asset impairment charge and other
write-offs.................................. 90,376 -- --
Net periodic pension (income) expense........ 381 (142) (1,601)
Acquired in-process research and development. -- 11,700 3,250
Deferred taxes............................... (4,736) (8,291) 2,115
Changes in operating assets and liabilities.. 19,043 5,181 844
--------- -------- --------
Total from discontinued operations............. (1,310) (2,486) 11,526
--------- -------- --------
Net cash provided by operating activities....... 4,171 429 20,756
--------- -------- --------
INVESTING ACTIVITIES
Continuing Operations
Sale of property, plant and equipment.......... 15,029 -- --
Purchase of property, plant and equipment...... (2,320) (1,661) (2,005)
Collections of notes receivable................ (415) 1,724 1,147
(Increase) decrease in assets held for sale or
development................................... 238 (4,014) (1,626)
Contingent payments on purchased business...... -- (1,839) --
Other items, net............................... 1,257 1,886 4,356
--------- -------- --------
Total from continuing operations............... 13,789 (3,904) 1,872
--------- -------- --------
Discontinued Operations
Net proceeds (expenditures) relating to
discontinued operations....................... 17,476 (72,474) (41,371)
--------- -------- --------
Net cash provided (used) by investing
activities..................................... 31,265 (76,378) (39,499)
--------- -------- --------
FINANCING ACTIVITIES
Issuance of convertible subordinated debt....... -- -- 15,000
Issuance of other debt.......................... -- 84,800 56,960
Reduction of debt............................... (32,360) -- (55,500)
Reduction (increase) in deferred debt costs..... 4 (3,281) (808)
Dividends paid.................................. -- (1) (4)
Purchases of common stock....................... -- (6,472) (1,094)
Proceeds from shares issued under stock option
plans.......................................... 1,720 2,308 843
--------- -------- --------
Net cash provided (used) by financing
activities..................................... (30,636) 77,354 15,397
--------- -------- --------
Net increase (decrease) in cash................. 4,800 1,405 (3,346)
Cash at beginning of year....................... 1,566 161 3,507
--------- -------- --------
Cash at end of year............................. $ 6,366 $ 1,566 $ 161
========= ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest....................................... $ 18,080 $ 9,792 $ 5,079
========= ======== ========
Income taxes................................... $ 433 $ 280 $ 1,424
========= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

20
<PAGE>

WHITTAKER CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE YEARS ENDED OCTOBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- -------------- PAID-IN RETAINED
$5.00 SERIES D SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- --------- ------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1,
1994................... $ 2 $ 1 8,486 $ 85 $17,787 $ 76,075 $ 93,950
Net income.............. -- -- -- -- -- 7,865 7,865
Cash dividends--
preferred stock........ -- -- -- -- -- (4) (4)
Conversion of preferred
stock.................. (2) -- 4 -- (7) -- (9)
Shares issued under
stock option plans..... -- -- 154 1 842 -- 843
Purchases of common
stock.................. -- -- (55) -- (225) (860) (1,085)
Income tax benefits from
stock options
exercised.............. -- -- -- -- 864 -- 864
------- ------- ------ ---- ------- --------- ---------
BALANCE AT OCTOBER 31,
1995................... -- 1 8,589 86 19,261 83,076 102,424
Net loss................ -- -- -- -- -- (17,127) (17,127)
Cash dividends--
preferred stock........ -- -- -- -- -- (1) (1)
Conversion of preferred
stock.................. -- -- 104 1 -- (1) --
Shares issued under
stock option plans..... -- -- 660 6 2,213 -- 2,219
Shares reacquired....... -- -- (298) (3) (1,226) (5,243) (6,472)
Shares issued on
acquisition of
business............... -- -- 1,974 20 49,984 -- 50,004
Income tax benefits from
stock options
exercised.............. -- -- -- -- 89 -- 89
------- ------- ------ ---- ------- --------- ---------
BALANCE AT OCTOBER 31,
1996................... -- 1 11,029 110 70,321 60,704 131,136
Net loss................ -- -- -- -- -- (163,582) (163,582)
Shares issued under
stock option plans..... -- -- 176 2 1,238 -- 1,240
Income tax benefits from
stock options
exercised.............. -- -- -- -- 482 -- 482
Translation adjustment.. -- -- -- -- -- 1 1
------- ------- ------ ---- ------- --------- ---------
BALANCE AT OCTOBER 31,
1997................... $ -- $ 1 11,205 $112 $72,041 $(102,877) $ (30,723)
======= ======= ====== ==== ======= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

21
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Basis of Presentation: As discussed in Note 5, the Company has not been
in compliance with one or more financial ratio covenants in its credit
agreement with its lending group since July 31, 1996. The Company has obtained
a waiver of such defaults up to but not including January 31, 1998 and
anticipates receiving an additional waiver prior to that date. The Company has
adopted a plan to sell its non-core Communications business (see Note 2) and a
parcel of land in Santa Clarita, California (see Note 3), the net proceeds of
which will be used to repay debt. Management believes that it has current
financing in place in order to meet the Company's obligations as they come due
through October 31, 1998.

(B) Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles may require management to make certain estimates and
assumptions that could affect the amounts reported in the financial statements
and accompanying notes. These estimates and assumptions include, among other
things, future costs to complete long-term contracts, valuation of slow moving
or obsolete inventories, and amounts of estimated liabilities for contingent
losses and future costs of litigation. Actual costs could differ from these
estimates.

(C) Inventories: Inventories are stated at the lower of cost or market. Cost
has been determined principally on the first-in, first-out (FIFO) method.
Certain of the Company's inventories relate to long-term programs and may
require more than one year to be realized. Inventories consisted of the
following:

<TABLE>
<CAPTION>
OCTOBER 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Parts and materials...................................... $19,620 $19,779
Work in process.......................................... 15,595 10,012
Finished goods........................................... 1,817 1,629
Unliquidated progress billings........................... -- (195)
------- -------
$37,032 $31,225
======= =======
</TABLE>

(D) Intangibles: Goodwill is amortized using the straight-line method over
40 years. Other intangible assets principally relate to acquired intangibles
and include patents, technology, and software. Amortization is recorded on a
straight-line basis, generally over periods ranging from 5 to 15 years.

Accumulated amortization of goodwill and of other intangible assets at
October 31, 1997 amounted to $1.5 million and $2.9 million, respectively, and
at October 31, 1996 amounted to $1.1 million and $2.6 million, respectively.

(E) Property and Depreciation: Property, plant and equipment is recorded at
cost. Depreciation is computed principally by use of the straight-line method
based upon the estimated useful lives of such assets, ranging from four to
thirty years. Depreciation of leasehold improvements is computed on a
straight-line basis over the shorter of the estimated useful lives of the
improvements or the terms of the leases. During 1997, 1996 and 1995
depreciation of $2.2 million, $1.8 million, and $1.6 million, respectively,
was charged to expense.

(F) Revenue Recognition: For the majority of its operations, the Company
recognizes revenues upon shipment of its product or upon completion of the
services it renders. The Company accrues estimated warranty and installation
costs at the time of shipment. The Company generally uses the percentage-of-
completion method for recognition of revenues and profits on significant long-
term contracts.

22
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

(G) Engineering and Development Costs: Company-sponsored engineering and
development costs are expensed as incurred. Costs related to engineering and
development contracts are included in inventory and charged to cost of goods
sold upon recognition of related revenue.

(H) Earnings (Loss) Per Share: Earnings (loss) per share have been computed
based on the weighted average number of common and common equivalent shares
outstanding during the periods, after deducting from 1995 net income the
dividend requirements on the $5.00 Cumulative Convertible Preferred Stock.
Common stock equivalents include Series D Participating Convertible Preferred
Stock, on an if converted method and dilutive employee stock options,
calculated using the treasury stock method. Common equivalent shares have been
excluded from the 1997 calculation as antidilutive. The statements of income
for prior periods have been restated to segregate continuing and discontinued
operations. This restatement resulted in a reduction to previously reported
net loss per share for 1996 of $0.08. There was no effect on the previously
reported net income per share for 1995.

Fully diluted earnings (loss) per share include the additional potential
dilutive effect of employee stock options. The inclusion of additional shares
assuming the conversion of the convertible subordinated debt would have been
antidilutive. Fully diluted earnings (loss) per share are not presented
because the calculations result in dilution of less than 3%.

(I) Reclassification: Certain previously reported amounts have been
reclassified to conform to the current period presentation.

(J) Impairment of Long-Lived Assets: When indicators of impairment of long-
lived assets used in operations or long-lived assets to be disposed of, other
than long-lived assets of discontinued operations, are present and, the
undiscounted future cash flows estimated to be generated by those assets is
less than the carrying value of such assets, an impairment loss would be
recorded by the Company.

(K) New Accounting Standards: In October 1996, the Accounting Standards
Executive Committee issued SOP 96-1 "Environmental Remediation Liabilities."
The Company is not required to adopt this standard until fiscal 1998, however,
the Company has elected to adopt this new standard in the current fiscal year.
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions under the
Comprehensive Environmental Response Compensation and Liability Act of 1980.
The Company is also a potentially responsible party in a number of actions
brought under similar state laws. The Company has provided for its aggregate,
estimated liability for contingencies, including the remediation costs related
to these federal and state actions, in compliance with Financial Accounting
Standards Board ("FASB") Statement No. 5. SOP 96-1 gives guidance on the
recognition and measurement of environmental remediation liabilities. In
addition to the incremental direct costs of the remediation efforts, the SOP
requires the accrual of costs of compensation and benefits for employees that
are expected to devote a significant amount of time to the remediation
efforts. These accruals are adjusted as further information develops or
circumstances change. The total remediation costs for the sites associated
with these federal and state actions is estimated to be $4.6 million. As of
October 31, 1997, all of these estimated costs have been accrued and are
reflected in accrued liabilities and, in the case of those costs to be
incurred beyond one year, other noncurrent liabilities in the Consolidated
Balance Sheet of the Company. The Company, at this time, does not anticipate
any additional significant costs, beyond those already recognized, will be
incurred in the remediation efforts for these sites. Costs of future
expenditures for environmental remediation efforts are not discounted to their
present value.

23
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

In February of 1997 the FASB issued FAS No. 128, "Earnings per Share,"
effective for the 1998 fiscal year. FAS No. 128 establishes new standards for
computing and reporting earnings per share. Under the new guidelines the
Company's basic and diluted net earnings (loss) per share would have been:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Basic............................................. $(14.68) $(1.70) $0.92
Diluted........................................... $(14.68) $(1.70) $0.82
</TABLE>

The Company will adopt FAS No. 128 in the first quarter of fiscal 1998.

In June of 1997 the FASB issued FAS No. 130, "Reporting Comprehensive
Income," effective for the 1999 fiscal year. FAS No. 130 establishes standards
for reporting and displaying comprehensive income and its components in the
financial statements. Comprehensive income is defined as the change in the
equity of a business enterprise during a period from transactions and other
events from nonowner sources. The Company does not expect the adoption of this
standard to have a material effect on its consolidated financial statements.

In June of 1997 the FASB issued FAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for the 1999 fiscal year.
FAS No. 131 requires the reporting of certain information about operating
segments of a business enterprise and replaces FAS No. 14. The Company does
not expect the adoption of this standard to have a material effect on its
consolidated financial statements.

NOTE 2. DISCONTINUED OPERATIONS

During the fourth quarter of 1997, the Company, in connection with its
strategy to reduce debt and explore strategic options, sold its defense
electronics unit and discontinued its Communications segment. Accordingly, the
Company's continuing operations are now comprised of two operating segments:
Aerospace and Integration Services. Integration Services had previously been
included, since its formation in the second quarter of 1997, within the
Communications segment. Previously reported financial statements have been
restated to reflect the discontinuance of these businesses.

The financial statements reflect the operating results and balance sheet
items of the discontinued operations separately from the continuing
operations.

Operating results of the discontinued operations were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
----------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Sales......................................... $ 99,818 $123,230 $78,181
Costs and expenses............................ 224,926 164,196 75,740
--------- -------- -------
Income (loss) before taxes.................... (125,108) (40,966) 2,411
Tax provision (benefit)....................... (2,656) (14,022) 1,173
--------- -------- -------
Income (loss) from discontinued operations.... $(122,452) $(26,944) $ 1,238
========= ======== =======
</TABLE>

24
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2. DISCONTINUED OPERATIONS--(CONTINUED)

Net assets of the discontinued businesses at October 31, 1997 and October
31, 1996 were as follows:

<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1997 1996
------- --------
<S> <C> <C>
Current assets........................................... $24,034 $ 67,308
Current liabilities...................................... 16,268 25,474
------- --------
Net current assets..................................... 7,766 41,834
------- --------
Property, plant and equipment............................ 5,137 25,852
Other noncurrent assets.................................. 22,400 127,414
Deferred taxes........................................... 5,303 13,562
------- --------
Net noncurrent assets.................................. 22,234 139,704
------- --------
Net assets............................................. $30,000 $181,538
======= ========
</TABLE>

The 1997 discontinued operations loss before taxes includes a fourth quarter
charge of $55.7 million for the write-down of the net assets of Xyplex, Inc.
to their estimated net realizable value. Also included in the 1997 loss is a
goodwill and other intangibles impairment charge of $30.2 million and
restructuring costs of $5.3 million. The 1996 discontinued operations loss
before taxes includes the write-off of acquired in-process research and
development of $11.7 million.

The 1997 loss on disposal of discontinued operations of $4.8 million is net
of tax benefits of $0.3 million and reflects proceeds realized from the
disposition of discontinued operations of $18.9 million. Of these proceeds,
$18.4 million was used to reduce the Company's bank debt. The loss on disposal
reflects provisions for accrued liabilities for retained obligations arising
directly as a result of the decision to dispose of these operations and the
estimated future results of operations of such businesses through the date of
disposition. The loss on disposal reported in 1997 may be adjusted in future
periods depending on the accuracy of these estimates.

NOTE 3. ASSETS HELD FOR SALE OR DEVELOPMENT

Assets held for sale or development at October 31, 1997 and October 31,
1996, include $15.0 million and $29.1 million, respectively, of land formerly
used by a discontinued technology unit. The land is located in the City of
Santa Clarita, California.

During the fourth quarter of 1997, in connection with its strategy to reduce
debt, the Company decided to sell this land and thus recorded a non-cash
write-down of $15.7 million dollars to reflect this asset at its estimated
fair value. Financial Accounting Standards Board Statement No. 121 ("FAS 121")
requires that long-lived assets be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. Under the standard, when an impairment write down is required,
the related assets are adjusted to their estimated fair value. For purposes of
FAS 121, fair value has been determined to be the amount a willing buyer would
pay a willing seller for such assets in a current transaction that is other
than a forced or liquidation sale.

The cost of environmental remediation of this property is estimated to be
approximately $14.0 million and includes grading of the land, direct clean-up
costs and legal costs. All of these costs have been considered in estimating
the fair value of this asset at October 31, 1997. The Company, at this time,
does not anticipate any significant additional costs, above those already
recognized, will be incurred for the remediation efforts of this land.

25
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3. ASSETS HELD FOR SALE OR DEVELOPMENT--(CONTINUED)

The estimation process involved in determining if assets have been impaired
and in the determination of fair value is inherently uncertain since it
requires estimates of current market yields as well as future events and
conditions. In determining fair value the Company considered, among other
things, the range of preliminary purchase prices being discussed with
potential buyers and developers as well as estimates of the total cost of
environmental remediation.

NOTE 4. RECEIVABLES

<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable--billed........................ $25,366 $18,085
Trade accounts receivable--unbilled...................... 960 12,000
Other receivables........................................ 2,672 3,631
Allowance for doubtful accounts.......................... (1,661) (464)
------- -------
Total receivables........................................ $27,337 $33,252
======= =======
</TABLE>

Unbilled receivables represent recoverable costs and accrued profits, not
billable to customers at the balance sheet date, which are generally billable
upon product delivery and acceptance and/or completion of milestones. All
amounts are reduced by appropriate progress billings. Amounts representing
retainages under contracts are not material. Claims subject to further
negotiations and which may not be collected within one year are not
significant at October 31, 1997.

NOTE 5. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------
1997 1996
----------------- -----------------
(IN THOUSANDS)
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Borrowings under revolving credit
facility.................................. $ 79,936 12.5% $ 65,000 8.6%
Borrowings under term loan................. 34,016 12.5% 81,000 8.6%
Other note, payable semiannually to 1999,
with interest at the lesser of 10% or 65%
of prime.................................. 259 5.5% 459 5.4%
7% convertible subordinated note due May 1,
2005 (Note 2)............................. 15,000 7.0% 15,000 7.0%
Capitalized lease obligations payable in
varying monthly or quarterly installments
through 1999, with interest rates ranging
to 9.67% (Note 9)......................... 364 8.7% 476 8.0%
-------- --------
$129,575 $161,935
Less current maturities.................... 129,353 161,482
-------- --------
$ 222 $ 453
======== ========
</TABLE>

26
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5. LONG-TERM DEBT--(CONTINUED)

Maturities of long-term debt are as follows for the periods stated:

<TABLE>
<CAPTION>
YEAR ENDING
OCTOBER 31
----------- (IN THOUSANDS)
<S> <C>
1998..................................................... $129,353
1999..................................................... 162
2000..................................................... 60
2001..................................................... --
2002..................................................... --
</TABLE>

On April 10, 1996, the Company increased the amount of its bank credit
facility to $170.0 million. At October 31, 1997, the credit facility consisted
of an $85.0 million revolving credit facility that expires in April 2001, of
which the Company was permitted to utilize $83.0 million and a $34.0 million
term loan payable in quarterly installments until 2001. At the end of fiscal
1997, the interest rate on loans outstanding under the credit agreement was
equal to the agent bank's prime rate plus 4.0% with interest payable monthly.
At that time, the Company was obligated to pay letter of credit fees which
ranged between 4.625% per annum and 5.125% per annum on the aggregate amount
of outstanding letters of credit, and commitment fees on the unused amount of
the revolving credit facility. Additional borrowings under the credit facility
will be used to fund future working capital and other corporate requirements.
At October 31, 1997, the Company had $2.9 million of letters of credit
outstanding and unused and available credit of $0.2 million under its
revolving credit facility.

The Company's obligations under the credit agreement are secured by a pledge
of shares of stock of subsidiaries of the Company, accounts receivable,
inventory, equipment, intellectual property and other assets of the Company
and its subsidiaries. The agreement includes four financial ratio covenants
with respect to financial leverage, cash flow, and net worth. Since July 31,
1996, the Company has not been in compliance with one or more of the four
financial ratio covenants and at October 31, 1997 the Company was not in
compliance with any of such covenants. A waiver dated as of July 31, 1997
required the Company to make, in addition to previously scheduled principal
payments, principal payments on the term loan by September 30, 1997, in an
aggregate amount of not less than $20 million and to pay a fee on November 3,
1997 of $1.8 million. In addition, the waiver permitted the Company to retain
fifty percent of the net cash proceeds from certain asset sales which
previously would have been used to repay the term loan. A waiver dated
December 31, 1997 waives the defaults up to but not including January 31,
1998. Under the terms of this latest waiver, the interest rate on loans
outstanding under the credit agreement is equal to the agent bank's prime rate
plus 4.25%.

There can be no assurance that in future periods the Company will be in
compliance with any of the financial ratio covenants contained in its credit
agreement, or that, after expiration of the latest waiver on January 31, 1998,
additional waivers of the financial covenants will be obtained. There can be
no assurance that any future waivers would contain terms which would be as
favorable to the Company as, or would materially differ from, waivers granted
in the past. Consequently, bank debt in the amount of $105.3 million, which
otherwise would have been classified as noncurrent, has been classified as
current. Acceleration of the debt under the credit agreement by the bank
lending group upon the Company's failure, after January 31, 1998, to comply
with any of the financial ratio covenants noted above would be an event of
default under the Company's $15 million 7% convertible subordinated note.
Because of this possible cross default, the entire $15 million principal
balance of the 7% convertible subordinated note has also been classified as
current debt.

Under the Company's 7% convertible subordinated note, the Company may not
pay or declare cash dividends or redeem shares of the Company if the Company's
tangible net worth is less than $15 million. As of April 30, 1996, the
Company's tangible net worth was less than $15 million and the Company has not
paid or

27
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5. LONG-TERM DEBT--(CONTINUED)

declared dividends (including the quarterly dividend for the Series D
Preferred Stock) or redeemed shares since that date. However, dividends on the
Series D Preferred Stock have been accrued since that date.

In order to reduce the risk of higher interest expense under the Company's
credit agreement that could result from an increase in the level of market
interest rates, the Company in June 1996 purchased an interest rate cap with
an initial notional amount of $42.5 million. Under the terms of the interest
rate cap, the Company will receive a payment at the end of each quarterly
period, as defined in the interest rate cap agreement, if three-month LIBOR at
the beginning of the period exceeds 7.5%. The amount of such payment will be
the interest for such period on the notional amount of the interest rate cap
at the beginning of such period calculated using an interest rate equal to the
positive difference, if any, between LIBOR at the beginning of such period and
7.5%. The interest rate cap expires in July 1999. The cost of this interest
rate cap is being amortized over its 37- month term. At October 31, 1997, the
unamortized cost was $151,000.

On February 26, 1997, the Company concluded the sale and leaseback of its
Simi Valley facilities. The net proceeds of $17.4 million from the sale were
used to prepay term debt under the Company's credit agreement. The initial
lease term covers the fifteen year period ending February 28, 2012 and calls
for rent escalations of 6% every three years beginning with the fourth year.
On September 30, 1997, the Company sold its defense electronics unit and the
net proceeds of $18.4 million from the sale were used to prepay term debt
under the Company's credit agreement.

NOTE 6. CAPITAL STOCK

On April 28, 1995, all the outstanding shares of $5.00 Cumulative
Convertible Preferred Stock were either redeemed or converted into Common
Stock. Each share of the $5.00 Cumulative Convertible Preferred Stock was
voting, cumulative and convertible into 1.854 shares of Common Stock plus
$74.16 in cash, was redeemable, at the Company's option, at $100 per share and
was entitled to preference of $100 per share upon voluntary liquidation and
$50 per share upon involuntary liquidation. Each share of Series D
Participating Convertible Preferred Stock is nonvoting, cumulative and, in
connection with a qualifying transfer, convertible into 326.531 shares of
Common Stock. Holders of the Series D Participating Convertible Preferred
Stock, of which there is presently only one, are entitled to a $1.00 per share
liquidation preference and to the greater of $.25 per share per quarter or any
dividends paid in respect of the number of shares of Common Stock underlying
each share of Series D Participating Convertible Preferred Stock. The Board of
Directors is authorized to issue preferred stock in series, to fix dividend
rates, conversion rights, voting rights, rights and terms of redemption and
liquidation preferences, and to increase or decrease the number of shares of
any series.

Common Stock reserved for issuance at October 31, 1997 was as follows:

<TABLE>
<CAPTION>
SHARES IN
THOUSANDS
---------
<S> <C>
For conversion of Series D Participating Convertible Preferred
Stock........................................................ 188
For stock options............................................. 1,721
For conversion of 7% convertible subordinated note............ 619
-----
2,528
=====
</TABLE>

On January 24, 1997, the Board of Directors adopted, and on April 4, 1997,
the shareholders approved, an amendment to the Whittaker Corporation 1992
Stock Option Plan for Non-Employee Directors (the "1992 Plan") that increased
from 50,000 to 150,000 the number of shares of Common Stock of the Company
which may be made subject to stock options and other awards authorized by the
1992 Plan.

28
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6. CAPITAL STOCK--(CONTINUED)

The Company had reserved 1,721,180 shares of Common Stock at October 31,
1997 for future issuances under the Whittaker Corporation Long-Term Stock
Incentive Plan (1989) and the 1992 Plan. The Company also had reserved 618,557
shares of Common Stock at October 31, 1997 for possible conversion of the 7%
convertible subordinated note at the option of the holders. Options to
purchase Common Stock generally are conditioned upon continued employment,
expire from five to ten years after the grant date, and become exercisable in
whole or in part either commencing with the seventh month or upon the
attainment of certain predetermined goals, or both. The exercise price for
options granted is equal to the average market price on the date of grant. The
following information for the three years ended October 31, 1997 relates to
options granted from 1981 through 1997 under the Company's plans.

<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
OUTSTANDING PRICE RANGE EXERCISE PRICE
-------------- -------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, October 31, 1994.... 1,367 2.41 to 16.37 7.50
Options granted............ 544 18.00 to 22.50 20.57
Options canceled or
expired................... (35) 15.06 to 22.25 17.44
Options exercised.......... (154) 3.82 to 18.63 5.47
------
Balance, October 31, 1995.... 1,722 2.41 to 22.50 11.56
Options granted............ 1,201 13.44 to 26.25 20.20
Options canceled or
expired................... (1,150) 13.44 to 26.25 20.16
Options exercised.......... (660) 2.41 to 22.50 3.63
------
Balance, October 31, 1996.... 1,113 4.10 to 26.25 16.65
Options granted............ 361 9.44 to 14.12 12.10
Options canceled or
expired................... (640) 10.31 to 26.25 17.97
Options exercised.......... (176) 4.10 to 12.44 7.07
------
Balance, October 31, 1997.... 658 5.24 to 26.25 15.42
======
</TABLE>

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for the 1997 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant using
an option pricing model. As permitted under SFAS No. 123, the Company may
either adopt the new pronouncement or continue to follow the accounting
methods as prescribed under APB No. 25. The Company has elected to continue to
recognize compensation expense in accordance with APB No. 25.

29
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6. CAPITAL STOCK--(CONTINUED)

At October 31, 1997, options outstanding and options exercisable were as
follows:

<TABLE>
<CAPTION>
NUMBER OF RANGE OF WEIGHTED WEIGHTED AVERAGE
OPTIONS EXERCISE AVERAGE REMAINING
OUTSTANDING PRICES EXERCISE PRICE CONTRACTUAL LIFE
------------ -------------- -------------- ----------------
<S> <C> <C> <C>
9,247.................... 5.24 5.24 2.81 Years
363,276.................... 9.63 to 13.56 12.59 9.12 Years
263,033.................... 15.06 to 22.25 18.76 7.95 Years
22,500.................... 26.25 26.25 8.31 Years
---------
658,056
=========
<CAPTION>
NUMBER OF RANGE OF WEIGHTED WEIGHTED AVERAGE
OPTIONS EXERCISE AVERAGE REMAINING
EXERCISABLE PRICES EXERCISE PRICE CONTRACTUAL LIFE
----------- -------------- -------------- ----------------
<S> <C> <C> <C>
9,247.................... 5.24 5.24 2.81 Years
76,777.................... 9.63 to 13.56 11.19 9.12 Years
100,138.................... 15.06 to 22.25 18.90 7.95 Years
883.................... 26.25 26.25 8.31 Years
---------
187,045
=========
</TABLE>

At October 31, 1996 and October 31, 1995 options for 380,040 and 1,143,777
shares, respectively, were exercisable.

In the Integration Services segment, the 1997 Stock Option Plan of Aviant
Information, Inc. (the "Aviant Plan") was adopted as of October 14, 1997. The
plan provides for the granting of options to purchase the common stock of
Aviant Information, Inc. ("Aviant") a wholly owned subsidiary of the Company.
The term of each option may be five or ten years and become exercisable, with
respect to an individual, in annual installments of at least 25 percent of the
total number of options granted to that individual commencing one year from
the grant date and in full upon the consummation of an initial public offering
of the common shares of Aviant or the transfer of more than fifty percent of
the common stock of Aviant to a non-affiliate of Aviant, the Company or the
shareholders of the Company. The exercise price of an option shall be at least
the fair market value of the common stock of Aviant on the grant date of the
option. During 1997 there were 450,500 options granted under the Aviant Plan
all of which were outstanding at October 31, 1997. At October 31, 1997 there
were no common shares of Aviant which were publicly traded or quoted and
therefore, per the terms of the Aviant Plan, the exercise price was
established by the Board of Directors of Aviant at $0.50 per share. At October
31, 1997 the weighted average remaining contractual life of options under the
Aviant Plan was 9.96 years and there were 1,549,500 shares reserved for future
grants under the Aviant Plan.

In the discontinued Communications segment, the 1997 Stock Option Plan of
Whittaker Xyplex, Inc. (the "WXI Plan") was adopted on January 24, 1997. The
WXI Plan provides for the granting of options to purchase the common stock of
Whittaker Xyplex, Inc. ("WXI") a wholly owned subsidiary of the Company. The
term of each option may be five or ten years and the option becomes
exercisable, with respect to an individual, in annual installments of at least
20 percent of the total number of options granted to that individual
commencing one year from the grant date and upon the consummation of an
initial public offering of the common shares of WXI or the transfer of more
than fifty percent of the common stock of WXI to a non-affiliate of WXI, the
Company or the shareholders of the Company. The option exercise price shall be
at least the fair market value of the common

30
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6. CAPITAL STOCK--(CONTINUED)

stock of WXI on the grant date of the option. During 1997 there were 2,764,400
options granted under the WXI Plan of which 443,900 were canceled and of which
2,230,500 were outstanding at October 31, 1997. At October 31, 1997 there were
no common shares of WXI which were publicly traded or quoted and therefore,
per the terms of the WXI Plan, the exercise price was established by the Board
of Directors of WXI at $3.25 per share. At October 31, 1997 the weighted
average remaining contractual life of options under the WXI Plan was 9.41
years and there were 969,500 shares reserved for future grants under the WXI
Plan.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
No 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rates of approximately
5.71%; dividend yields of 0.0%, volatility factors of the expected market
price of the Company's common stock of .33 and weighted-average expected life
of the option of 3.25 years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Pro forma net loss..................................... $(164,753) $(17,871)
Pro forma primary loss per share....................... $ (14.78) $ (1.69)
</TABLE>

The Company's Stockholder Rights Plan gives each holder of the Company's
Common Stock one right for each share of Common Stock held. Each right
entitles the holder to purchase from the Company 1/100 of a share of a new
series of the Company's preferred stock (Series A Participating Cumulative
Preferred Stock) at an exercise price of $125 per 1/100 of a share. The rights
will become exercisable and will detach from the Common Stock 10 days after
any person or group acquires 25% or more of the Company's Common Stock, or 10
business days after any person or group commences a tender or exchange offer
which, if consummated, would result in that person or group owning at least
25% of the Company's Common Stock.

If any person acquires 25% or more of the Company's Common Stock, each right
will entitle the holder, other than the acquiring person, to purchase for the
exercise price Common Stock of the Company with a value of twice the exercise
price. In addition, if following an acquisition by any person or group of 25%
or more of the Company's Common Stock, the Company is involved in a merger or
other business combination transaction, or sells more than 50% of its assets
or earning power to any person, each right will entitle the holder, other than
the acquiring person, to purchase for the exercise price Common Stock of the
acquiring person with a value of twice the exercise price.

The Company may redeem the rights at $.01 per right at any time until the
tenth day after any person or group has acquired 25% or more of its Common
Stock. The rights will expire November 29, 1998, unless earlier

31
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6. CAPITAL STOCK--(CONTINUED)

redeemed. The Stockholder Rights Plan may be supplemented or amended at the
direction of the Company without the approval of the holders of rights, except
as otherwise set forth in the Stockholder Rights Plan. At October 31, 1997,
150,000 preferred shares were reserved for these rights.

NOTE 7. INCOME TAXES

Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------
1997 1996 1995
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Total provision--
Continuing operations........................ $(4,207) $ 4,933 $3,988
Discontinued operations and other............ (3,195) (14,022) 1,173
------- -------- ------
$(7,402) $ (9,089) $5,161
======= ======== ======
Components of the provision--
Federal...................................... $(4,902) $ (8,149) $4,480
State........................................ (2,500) (940) 681
------- -------- ------
$(7,402) $ (9,089) $5,161
======= ======== ======
Classification of the provision--
Current...................................... $(5,398) $ (5,048) $ (627)
Deferred..................................... (2,004) (4,041) 5,788
------- -------- ------
$(7,402) $ (9,089) $5,161
======= ======== ======
</TABLE>

Foreign income taxes were not material.

The tax expense (benefit) is different than the amount computed by applying
the U.S. federal income tax rate to income (loss) before income taxes. The
reasons for the differences are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
--------------------
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
U.S. federal statutory
rate................... (34.0)% (34.0)% 34.2%
State taxes, net of U.S.
federal income tax
benefit................ (0.2)% (2.4)% 3.4%
Goodwill amortization... 15.4 % 3.5 % 1.8%
Valuation allowance..... 16.0 % 0.0 % 0.0%
Other items............. (1.5)% (1.8)% 0.2%
----- ----- ----
Effective tax rate...... (4.3)% (34.7)% 39.6%
===== ===== ====
</TABLE>

32
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7. INCOME TAXES--(CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the reported amounts of assets and liabilities in the financial
statements and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at October 31
are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Receivables valuation....................... $ 1,280 $ 858 $ 1,416
Inventory valuation......................... 6,770 8,397 4,033
Self-insurance reserves..................... 1,367 1,384 1,737
Pending refund from federal tax audit....... -- -- 5,160
Reserves for discontinued operations........ 2,380 1,163 848
Benefits from net operating loss
carryforward............................... 13,293 -- --
Other....................................... 14,905 12,553 7,160
-------- ------- -------
Total before valuation allowance.............. 39,995 24,355 20,354
Valuation allowance........................... (29,372) (390) (490)
-------- ------- -------
Net deferred tax assets....................... $ 10,623 $23,965 $19,864
======== ======= =======
Deferred tax liabilities:
Excess of tax over book depreciation........ $ (884) $ 1,487 $ 3,450
Assets held for sale or development......... 2,088 7,919 6,148
Intangible assets........................... 7,890 15,667 1,977
Pension costs............................... 1,671 1,904 1,822
Other....................................... 2,556 2,745 7,589
-------- ------- -------
$ 13,321 $29,722 $20,986
======== ======= =======
</TABLE>

In March 1996 the Company received a net tax refund of $5.2 million under an
agreement reached with the Internal Revenue Service closing the audit of the
1987 and 1988 income tax returns.

The Company in 1997, in compliance with FASB 109, has established a full
allowance against its net operating loss carryforward and deferred tax assets.
At October 31, 1997 the Company has $50.6 million total net operating loss
carryforward that will expire in 2011 and 2012.

NOTE 8. EMPLOYEE BENEFIT PLANS

Prior to October 31, 1994, most of the Company's domestic employees were
covered by the Whittaker Corporation Employees' Pension Plan (the "Pension
Plan"), its noncontributory defined benefit pension plan. The benefits are
based on years of service and the employee's highest compensation for five
consecutive years during the last ten years of credited service.

Effective October 31, 1994, the Company amended the Pension Plan to "freeze"
benefits for all participants. Adjustments for changes in credited years of
service ceased on October 31, 1994 and adjustments for changes in remuneration
ceased on December 31, 1994. The effect of the amendment was to reduce the
Pension Plan's projected benefit obligation at October 31, 1994 by $3.9
million. The amount was fully absorbed by unrecognized net losses at October
31, 1994 related to the Pension Plan and accordingly, no curtailment gain was
recognized. Vested service continues to accrue in accordance with applicable
Pension Plan provisions, and Pension Plan funding will continue until such
time that the Pension Plan is terminated and all benefit obligations are
satisfied. The Company funds the Pension Plan in accordance with the Employee
Retirement Income Security Act of 1974, as amended (ERISA).

33
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8. EMPLOYEE BENEFIT PLANS--(CONTINUED)

The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated balance sheet:

<TABLE>
<CAPTION>
OCTOBER 31
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $112,811 in 1997 and $118,782 in 1996.. $(122,373) $(119,525)
========= =========
Projected benefit obligation for service rendered
through October 31, 1994........................... (122,373) (119,525)
Plan assets at fair value, primarily government,
government agency and fixed income securities ....... 122,635 119,892
--------- ---------
Plan assets in excess of projected benefit obligation
..................................................... 262 367
Items not yet recognized in earnings:
Prior service cost.................................. 192 293
Unrecognized net loss............................... 3,770 4,153
--------- ---------
Net prepaid pension cost recorded in the consolidated
balance sheet........................................ $ 4,224 $ 4,813
========= =========
</TABLE>

The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation were 7.15% and 7.5%, respectively, at
October 31, 1997 and 1996. The expected long-term rate of return on plan assets
was 7.5% for the years ended October 31, 1997 and 1996, and 8.75% for the year
ended October 31, 1995. As a result of the amendment described above, there are
no projected increases in future compensation levels.

The Company also sponsors unfunded supplemental nonqualified executive and
director plans. At October 31, 1997, the projected benefit obligation for those
plans totaled $5.8 million, of which $0.8 million is subject to later
amortization. The remaining $5.0 million is accrued as a liability in the
consolidated balance sheet.

Effective November 1, 1994, the Company amended its defined contribution
401(k) plan and renamed it the Whittaker Corporation Partnership Plan
("Partnership Plan"). The amendment provided for new investment alternatives,
added a profit sharing component to Company contributions to the Partnership
Plan, and allowed certain rollover contributions from other qualified plans.
The Partnership Plan contains a matched savings provision that permits pretax
employee contributions. Participants can contribute from 1% to 12% of
compensation and receive a maximum matching employer contribution of 50% on up
to 6% of their annual compensation.

In addition to matching of employee contributions, beginning with fiscal
1995, the Company has recorded as expense profit-sharing contributions to the
Partnership Plan which may range from 0% to 7.5% of eligible employee
compensation, based on the attainment of specified financial goals by
participating divisions of the Company. The Partnership Plan covers most of the
Company's employees, excluding those employed by Xyplex and Whittaker
Communications, Inc. ("WCI"), which comprise the discontinued Communications
segment. Xyplex and WCI sponsor defined contribution 401(k) plans covering a
majority of their domestic employees under which participants can make pretax
contributions of up to 15% of eligible compensation and receive a matching
contribution of 75% on up to 6% of their eligible compensation.

34
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8. EMPLOYEE BENEFIT PLANS--(CONTINUED)

Total pension and retirement expense was as follows:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost components of funded defined benefit
plan:
Service cost--benefits earned during the
period.................................... $ 516 $ 540 $ 490
Interest cost on projected benefit
obligation................................ 8,603 8,500 8,658
Actual return on plan assets............... (12,724) (15,892) (20,204)
Net amortization and deferral.............. 4,194 6,647 8,336
-------- -------- --------
Net periodic pension (income) for funded
defined benefit plan........................ 589 (205) (2,720)
Cost for unfunded defined benefit plans...... 658 703 549
Cost for special termination benefit......... 440 -- --
Cost for defined contribution plans.......... 2,293 1,589 2,983
-------- -------- --------
Total pension and retirement plan
expense................................. $ 3,980 $ 2,087 $ 812
======== ======== ========
</TABLE>

NOTE 9. LEASED ASSETS AND LEASE COMMITMENTS

Whittaker has various leases covering real property and equipment.

Property, Plant and Equipment includes $360,000 at October 31, 1997 and
$500,000 at October 31, 1996 for leases that have been capitalized. The
amortization of these assets is included in depreciation expense.

Future minimum payments under capital leases and under noncancellable
operating leases, net of rentals to be received from existing noncancellable
operating subleases, as of October 31, 1997, were as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDED OCTOBER 31, LEASES LEASES
----------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998................................................ $224 $ 2,356
1999................................................ 112 2,037
2000................................................ 62 1,820
2001................................................ -- 1,855
2002................................................ -- 1,855
2003 and subsequent................................. -- 19,398
---- -------
Total commitments...................................... 398 $29,321
=======
Amounts representing interest.......................... 34
----
Present value of net minimum lease payments............ $364
====
</TABLE>

Rental expense for operating leases, net of rental income from subleases,
was as follows:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, (IN THOUSANDS)
----------------------- -------------
<S> <C>
1997................................................... $1,621
1996................................................... 272
1995................................................... 937
</TABLE>

35
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10. COMMITMENTS AND CONTINGENCIES

In certain years, after evaluating the availability and cost of insurance,
the Company did not purchase insurance for certain risks, including workers'
compensation and product liability. Consequently, the Company is without
insurance for various risks, including product liability for certain products
it manufactured. The Company currently has workers' compensation insurance and
product liability insurance. The Company's insurance carriers have taken the
position that in certain cases the Company is uninsured for environmental
matters, a position that the Company disputes in certain instances.

As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law
enacted to address public health and environmental concerns arising with
respect to the past treatment and disposal of hazardous substances. The
Company is also a potentially responsible party in a number of other actions
brought under state laws patterned after CERCLA. In nearly all of these
matters, the Company contributed a small amount (generally less than 1%) of
the total treated or disposed of waste. In addition to the CERCLA and similar
actions described above, the Company also, from time to time, conducts or
participates in remedial investigations and cleanup activities at facilities
currently or formerly occupied by its operating units. There are also various
other claims and suits pending against the Company.

At October 31, 1997, the Company had provided for its aggregate liability
related to various claims, including uninsured risks and potential claims in
connection with the environmental matters noted above, excluding the
environmental remediation activities related to the property located in the
City of Santa Clarita, California. The amounts provided on the Company's books
for contingencies, including environmental matters, are recorded at gross
amounts. Because of the uncertainty with respect to the amount of probable
insurance recoveries, these potential insurance recoveries are not taken into
account as a reduction of those amounts provided unless an insurance carrier
has agreed to such coverage. The Company does not anticipate that these
matters will have a material adverse effect on the Company's financial
position or on its ability to meet its working capital and capital expenditure
needs. Although the Company has recorded estimated liabilities for contingent
losses, including uninsured risks and claims in connection with environmental
matters, in accordance with generally accepted accounting principles, the
absence of or denial of various insurance coverages and the filing of future
environmental claims which are unknown to the Company at this time represent a
potential exposure for the Company, and the net income of the Company in
future periods could be adversely affected if uninsured losses in excess of
amounts recorded were to be incurred.

In connection with the discontinuance of various businesses, the Company
remains liable for certain retained obligations and for certain future claims,
principally environmental and product liability. The noncurrent portion of
such items is included in "Other Noncurrent Liabilities" in the consolidated
balance sheet.

The Company periodically assesses the adequacy of its accruals for these and
other liabilities, as well as the carrying value of assets, related to former
operations and programs and makes adjustments as required. During 1996,
certain of these adjustments were offset, in part, by the reversal of tax
related reserves arising from operations prior to 1990 which were determined
to be excess.

36
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1997 and 1996 follow (in millions of
dollars except for per share amounts):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
1997
Sales........................ $ 19.7 $ 22.9 $ 24.0 $ 28.5 $ 95.1
Cost of sales................ 12.3 14.9 19.8 20.3 67.3
Loss--continuing operations.. (2.5) (4.7) (7.9) (17.8) (32.9)
Loss--discontinued
operations.................. (15.6) (29.7) (19.2) (62.7) (127.2)
Extraordinary item........... -- -- -- (3.4) (3.4)
Net loss..................... (18.1) (34.4) (27.1) (83.9) (163.5)
Loss per share*
Continuing operations...... $ (.23) $ (.42) $ (.71) $(1.60) $ (2.95)
Discontinued operations.... (1.40) (2.67) (1.72) (5.61) (11.42)
Extraordinary item......... -- -- -- (.31) (.31)
Net loss................... (1.63) (3.09) (2.43) (7.52) (14.68)
1996
Sales........................ $ 21.9 $ 24.8 $ 23.8 $ 28.1 $ 98.6
Cost of sales................ 10.8 13.1 12.2 14.2 50.3
Income--continuing
operations.................. 2.4 5.7 0.8 0.9 9.8
Loss--discontinued
operations.................. (0.5) (10.6) (6.7) (9.1) (26.9)
Net income (loss)............ 1.9 (4.9) (5.9) (8.2) 17.1
Earnings (loss) per share*
Continuing operations...... $ .26 $ .55 $ .07 $ .08 $ .93
Discontinued operations.... (.06) (1.03) (.58) (.79) (2.55)
Net income (loss)**........ .20 (.48) (.51) (.71) (1.62)
</TABLE>
- --------
* The sums of quarterly per share amounts do not equal the annual amounts
reported since per share calculations are made independently for each
quarter and the full year based upon respective average shares outstanding.

** The financial statements for prior periods have been restated to reflect
the segregation of continuing and discontinued operations. This restatement
resulted in the reduction of net loss per share for the second, third and
fourth quarters of 1996 of $0.04, $0.03 and $0.03, respectively.

NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Long-term debt: The carrying amounts of the Company's borrowings approximate
their fair value. The Company's bank credit facility is a variable rate
facility that reprices frequently.

Notes receivable: The carrying amounts of the Company's notes receivable
approximate their fair value.

NOTE 13. BUSINESS SEGMENTS

The Company develops and provides specialized aerospace and data network
services to create products and customer solutions for aircraft, defense and
industrial markets and hospitals and other enterprises. The

37
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13. BUSINESS SEGMENTS--(CONTINUED)

Company operates in two business segments: Aerospace, which designs,
manufactures, and distributes a wide variety of fluid control devices and fire
detection systems, and Integration Services, which provides professional
services for the integration of data networks for hospitals and other
enterprises. Prior to fiscal year 1997, the Company's Integration Services
operation did not exist.

Operating profit is total revenue less operating expenses. General corporate
expenses have not been allocated to the business segments and are shown as a
separate expense element of operating profit to reconcile to consolidated
operating income or loss. Identifiable assets are those assets used in the
Company's operations in each industry. Corporate assets are principally cash,
notes receivable, deferred income taxes, and assets held for sale.

Information about Whittaker's operations by business segment at October 31,
1997, 1996, and 1995 and for the years then ended follows (dollars in
millions):
<TABLE>
<CAPTION>
DEPRECIATION AND
OPERATING IDENTIFIABLE AMORTIZATION CAPITAL
SALES PROFIT (LOSS) ASSETS EXPENSE EXPENDITURES
----- ------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
1997
Aerospace............... $89.8 $ 15.6 $ 81.2 $2.3 $2.1
Integration Services.... 5.3 (4.9) 4.1 0.2 0.1
Corporate............... -- (10.8) 82.1 0.3 0.1
----- ------ ------ ---- ----
Consolidated............ $95.1 $ (0.1) $167.4 $2.8 $2.3
===== ====== ====== ==== ====
1996
Aerospace............... $98.6 $ 30.5 $ 79.7 $2.4 $1.6
Corporate............... -- (10.4) 260.7 0.2 0.1
----- ------ ------ ---- ----
Consolidated............ $98.6 $ 20.1 $340.4 $2.6 $1.7
===== ====== ====== ==== ====
1995
Aerospace............... $81.3 $ 23.5 $ 77.7 $2.2 $1.1
Corporate............... -- (7.4) 149.4 0.2 0.9
----- ------ ------ ---- ----
Consolidated............ $81.3 $ 16.1 $227.1 $2.4 $2.0
===== ====== ====== ==== ====
</TABLE>

The financial statements for prior periods have been restated to reflect the
segregation of continuing and discontinued operations. The information
presented above for 1996 and 1995, reflects the removal from the Aerospace
segment of amounts relating to the discontinued defense electronics business
and the removal of the discontinued Communications segment. The net assets of
discontinued businesses are included in the Corporate Identifiable Assets for
each year.

In fiscal 1997, 1996, and 1995 approximately 17.8%, 27.0% and 27.8%,
respectively, of Whittaker's sales from continuing operations were directly or
indirectly to the United States Government. Substantially all of those sales
were attributable to the Aerospace segment. In fiscal 1997, 1996, and 1995
approximately 19.7%, 24.0% and 22.1% respectively, of Whittaker's sales from
continuing operations arose from exports to customers outside the United
States, primarily in Europe. Approximately 8% of the Company's accounts
receivable are from the U.S. Government, and the balance is primarily from
commercial customers, prime defense contractors with the U.S. Government, and
foreign customers.

In connection with the formation of Aviant, the Integration Services segment
incurred costs in 1997 which may not be representative of costs in future
periods.

38
<PAGE>

WHITTAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14. EXTRAORDINARY ITEM

In connection with the Company obtaining, during 1997, certain of the
waivers of default for non-compliance with the financial ratio covenants under
the terms of its bank credit agreement, there has been a significant increase
in the interest rate at which the Company can borrow under the terms of that
agreement. This increase represents a substantial modification of the credit
agreement. Accordingly, the Company during the fourth quarter of 1997 recorded
a charge of $3.4 million (net of $0.2 million of tax benefit) representing the
write off of the unamortized portion of debt issuance costs incurred in
connection with obtaining that credit agreement. This charge has been
reflected in the Company's consolidated statements of income as an
extraordinary item.

NOTE 15. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS
(UNAUDITED)

ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

39
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by Item 10 is incorporated by reference to the
information under the following captions in the Proxy Statement:

CAPTION

Election of Directors--Directors
Compliance with Section 16(a) of the Securities Exchange Act

Certain of the information called for by Item 10 with respect to executive
officers of the Registrant appears as Item 4A in Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION.

The information called for by Item 11 is incorporated by reference to the
information under the following caption in the Proxy Statement:

CAPTION

Election of Directors--Executive Compensation and Other Information

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information called for by Item 12 is incorporated by reference to the
information under the following caption in the Proxy Statement:

CAPTION

Equity Securities and Principal Holders Thereof

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by Item 13 is incorporated by reference to the
information under the following caption in the Proxy Statement:

CAPTION

Election of Directors--Directors

40
<PAGE>

PART IV

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

The following documents are filed as part of this report:

(a-1) Financial Statements:
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
FORM 10-K
<S> <C>
Report of Independent Auditors.................................... 16
Consolidated Statements of Income for the three years ended
October 31, 1997................................................. 17
Consolidated Balance Sheets as of October 31, 1997 and 1996....... 19
Consolidated Statements of Cash Flows for the three years ended
October 31, 1997................................................. 20
Consolidated Statements of Stockholders' Equity for the three
years ended October 31, 1997..................................... 21
Notes to Consolidated Financial Statements........................ 22
</TABLE>

(a-2) Financial Statement Schedules:

All supplemental schedules are omitted as inapplicable or because the
required information is included in the Consolidated Financial Statements or
the Notes to Consolidated Financial Statements.

(a-3) Exhibits:*

<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation (Exhibit 3.1 to Form 10-K for
fiscal year ended October 31, 1989), as amended on March 16, 1990
(Exhibit 3.1 to Form 10-K for fiscal year ended October 31, 1995).
3.2 Restated Bylaws (Exhibit 3.2 to Form 10-K for fiscal year ended October
31, 1989), as amended on September 30, 1994 (Exhibit 3.2 to Form 10-K
for fiscal year ended October 31, 1994), and on December 16, 1996
(Exhibit 3.2 to Form 10-K for fiscal year ended October 31, 1996).
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3 Rights Agreement dated as of November 18, 1988 between Registrant and
Manufacturers Hanover Trust Company (currently being performed by
Mellon Bank N.A. as rights agent) concerning Series A Participating
Cumulative Preferred Stock Purchase Rights (Exhibits 1 and 2 to
Form 8-A filed on November 23, 1988), as amended as of June 28, 1989
(Exhibit 4.4 to Form 10-K for fiscal year ended October 31, 1989).
4.4 Certificate of Designation of Series D Participating Convertible
Preferred Stock (Exhibit 4.2 to Form S-4, Registration No. 33-29028),
as amended on March 16, 1990 (Exhibit 4.4 to Form 10-K for fiscal year
ended October 31, 1995).
4.5 7% Convertible Subordinated Note dated April 24, 1995 (Exhibit 10.1 to
Form 8-K dated May 8, 1995).
4.6 Registration Rights Agreement dated April 24, 1995 between Registrant
and Hughes Electronics Corporation (Exhibit 10.1 to Form 8-K dated May
8, 1995).
4.7 Stockholder's Agreement dated April 10, 1996 between Registrant and
Raytheon Company (Exhibit 4.1 to Form 8-K dated April 24, 1996).
4.8 Term Note dated April 10, 1996 by the Registrant in favor of
NationsBank of Texas, N.A. (Exhibit 4.2 to Form 8-K dated April 24,
1996).
</TABLE>

41
<PAGE>

<TABLE>
<C> <S>
4.9 Revolving Note dated April 10, 1996 by the Registrant in favor of
NationsBank of Texas, N.A. (Exhibit 4.3 to Form 8-K dated April 24,
1996).
(Other instruments defining the rights of holders of long-term debt
are not filed because the total amount of securities authorized under
any such instrument does not exceed 10% of the consolidated total
assets of Registrant. Registrant hereby agrees to furnish a copy of
any such instrument to the Commission upon request.)
10.1 Amended and Restated Whittaker Corporation 1992 Stock Option Plan for
Non-Employee Directors (Exhibit 10.3 to Form 10-K for fiscal year
ended October 31, 1996).**
10.2 Restated Directors' Retirement Plan effective as of August 2, 1985 as
amended on January 24, 1991 (Exhibit 10.10 to Form 10-K for fiscal
year ended October 31, 1990), as amended on December 16, 1996
(Exhibit 10.6 to Form 10-K for fiscal year ended October 31, 1996).**
10.3 Amended and Restated Whittaker Corporation Long-Term Stock Incentive
Plan (1989) (Exhibit 10.7 to Form 10-K for fiscal year ended October
31, 1996).**
10.4 Whittaker Corporation Supplemental Benefit Plan dated November 23,
1988, as amended June 12, 1990 and as amended July 12, 1991 (Exhibit
10.8 to Form 10-K for fiscal year ended October 31, 1996).**
10.5 Whittaker Corporation Excess Benefit Plan dated November 23, 1988, as
amended June 21, 1990 (Exhibit 10.9 to Form 10-K for fiscal year
ended October 31, 1996).**
10.6 Whittaker Corporation Supplemental Disability Benefit Plan dated
November 23, 1988 (Exhibit 10.10 to Form 10-K for fiscal year ended
October 31, 1996).**
10.7 Whittaker Corporation Supplemental Retirement and Disability Trust
Agreement dated November 23, 1988 (Exhibit 10.13 to Form 10-K for
fiscal year ended October 31, 1988).**
10.8 Amended and Restated Whittaker Corporation Supplemental Executive
Retirement Plan, dated as of January 1, 1996, as amended January 24,
1997 (Exhibit 10.12 to Form 10-K for fiscal year ended October 31,
1996).**
10.9 Amendment and Restatement of Whittaker Corporation Employees' Pension
Plan dated December 22, 1994, as amended December 15, 1995 (Exhibit
10.10 to Form 10-K for fiscal year ended October 31, 1995), and as
amended effective October 1, 1996 (Exhibit 10.13 to Form 10-K for
fiscal year ended October 31, 1996).**
10.10 Whittaker Corporation Partnership Plan (formerly the Whittaker
Corporation Savings and Stock Investment Plan), as amended and
restated effective November 1, 1994 (Exhibit 10.11 to Form 10-K for
fiscal year ended October 31, 1995), as amended June 21, 1996
(Exhibit 10.2 to Form 10-Q dated September 13, 1996) and as amended
December 12, 1997.**
10.11 Amended and Restated Credit Agreement dated as of April 10, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.2 to Form
8-K dated April 24, 1996).
10.12 First Amendment and Waiver dated as of September 9, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.1 to Form
10-Q dated September 13, 1996).
10.13 Second Amendment and Waiver dated as of October 30, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.17 to Form
10-K for fiscal year ended October 31, 1996).
10.14 Third Amendment and Waiver dated as of December 17, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.18 to Form
10-K for fiscal year ended October 31, 1996).
</TABLE>

42
<PAGE>

<TABLE>
<C> <S>
10.15 Fourth Amendment and Waiver dated as of February 26, 1997 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.1 to Form
10-Q dated January 31, 1997).
10.16 Fifth Amendment and Waiver dated as of April 29, 1997 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.1 to Form
10-Q dated April 30, 1997).
10.17 Sixth Amendment and Waiver dated as of May 30, 1997 among Registrant,
NationsBank of Texas, N.A., as Agent, and certain other financial
institutions as signatories thereto (Exhibit 10.2 to Form 10-Q dated
April 30, 1997).
10.18 Seventh Amendment and Waiver dated as of June 30, 1997 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.1 to Form
10-Q dated July 31, 1997).
10.19 Eighth Amendment and Waiver dated as of July 31, 1997 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto (Exhibit 10.2 to Form
10-Q dated July 31, 1997).
10.20 Ninth Amendment and Waiver dated as of December 31, 1997 among
Registrant, NationsBank of Texas, N.A., as Agent, and certain other
financial institutions as signatories thereto.
10.21 Stock Purchase Agreement dated as of March 23, 1995 between Registrant
and Hughes Aircraft Company, as amended on April 24, 1995 (Exhibit
10.1 to Form 8-K dated May 8, 1995).
10.22 Stock Purchase Agreement dated as of March 2, 1996, between Registrant
and Raytheon Company (Exhibit 10.1 to Form 8-K dated April 24, 1996).
10.23 Stock Purchase Agreement dated as of January 19, 1998, between
Registrant and MRV Communications, Inc.
11. Calculation of earnings per share for the three years ended October
31, 1997.
21. Subsidiaries of the Registrant
23. Consent of Independent Auditors.
27. Financial Data Schedule
</TABLE>
- --------
* Exhibits followed by a parenthetical reference are incorporated by reference
to the document described therein. Upon written request to the Secretary of
the Company, a copy of any exhibit referred to above will be furnished
without charge.

** Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.

(b) Reports on Form 8-K:

During the quarter ended October 31, 1997, the Company did not file any
reports on Form 8-K.

43
<PAGE>

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.

WHITTAKER CORPORATION

Date: January 28, 1998 /s/ John K. Otto
By __________________________________
John K. Otto
Vice President, Chief Financial
Officer and Treasurer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

S-1
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. PAGE
------- ------------
<C> <S> <C>
10.10 Plan Amendment II to Whittaker Corporation Partnership
Plan, dated December 12, 1997.
10.20 Ninth Amendment and Waiver dated as of December 31,
1997 among Registrant, NationsBank of Texas, N.A., as
Agent, and certain other financial institutions as
signatories thereto.
10.23 Stock Purchase Agreement dated as of January 19, 1998,
between Registrant and MRV Communications, Inc.
Calculation of earnings per share for the three years
11. ended October 31, 1997.
21. Subsidiaries of the Registrant
23 Consent of Independent Auditors.
27. Financial Data Schedule
</TABLE>

<PAGE>

EXHIBIT 10.10

WHITTAKER CORPORATION PARTNERSHIP PLAN

PLAN AMENDMENT II

WHEREAS, Whittaker Corporation (hereafter the "Employer"), a Delaware
corporation, maintains the Whittaker Corporation Partnership Plan as amended
and restated effective November 1, 1994 (hereafter, the "Plan"); and

WHEREAS, the Plan was amended by Plan Amendment No. I, effective as of
the dates provided therein; and

WHEREAS, pursuant to Article IX of the Plan, the Employer may amend the
Plan from time to time; and

WHEREAS, the Employer's Board of Directors wishes to amend the Plan; and

WHEREAS, the Employer intends that all amendments described below be
deemed effective as of January 1, 1998 or such earlier date as provided
herein.

RESOLVED, that the Plan be amended, effective as the dates provided
herein, as follows:

1. Effective July 1, 1996, Section 2.02 shall be amended in its entirety
as follows:

2.02 PERIOD OF ELIGIBILITY SERVICE. Through June 30, 1996, a
Period of Eligibility Service shall mean a period of ninety (90)
Days of Service commencing on an Employee's date of employment.
Effective July 1, 1996, no Period of Eligibility Service shall be
required.

2. Effective January 1, 1998, the last paragraph of Section 3.01, as
added by Plan Amendment No. I, shall be amended in its entirety as follows:

Effective January 1, 1998, any Eligible Employee shall be eligible
to participate in the Plan on the first day of the calendar month
immediately following the commencement of the Eligible Employee's
employment.
<PAGE>

3. Effective January 1, 1997, Section 6.02 shall be amended to add the
following paragraph (e):

(e) Notwithstanding anything to the contrary above, the interest in
the Employer Profit Sharing Account of each Participant who was
employed during 1997 by Whittaker Electronics Systems or Whittaker
Safety Systems, each a division of the Employer, and whose
employment was terminated by the Employer other than for cause,
shall be one hundred percent (100%) vested and nonforfeitable as of
the date of the Participant's termination of employment.

IN WITNESS WHEREOF, this Plan Amendment II has been adopted and approved as
of December 12, 1997.

WHITTAKER CORPORATION

By: /s/ Joseph F. Alibrandi
--------------------------------------
Joseph F. Alibrandi
President and Chief Executive Officer

By: /s/ Lynne M. O. Brickner
--------------------------------------
Lynne M. O. Brickner
Vice President and General Counsel

<PAGE>

EXHIBIT 10.20

NINTH AMENDMENT AND WAIVER
TO WHITTAKER CORPORATION
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1997

This NINTH AMENDMENT AND WAIVER (the "Amendment") is among WHITTAKER
CORPORATION, a Delaware corporation (the "Borrower"), the Financial Institutions
party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK
OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder.

PRELIMINARY STATEMENTS:

1. The Borrower, the Lenders, CIBC Inc., as co-agent, and the Agent
entered into an Amended and Restated Credit Agreement dated as of April 10, 1996
(as amended to date, the "Credit Agreement"; capitalized terms used and not
otherwise defined herein have the meanings assigned to such terms in the Credit
Agreement).

2. The Borrower has requested that the Lenders, among other things,
waive, during the period starting on and including December 31, 1997 to (but not
including) January 31, 1998 (the "Waiver Period"), any Default arising as a
result of non-compliance with Section 6.04(a), (b), (c) or (d) of the Credit
Agreement.

3. The Lenders are, on the terms and conditions stated below, willing
to grant the request of the Borrower.

NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. Effective as of the date
------------------------------
hereof and subject to the satisfaction of the conditions precedent set forth in
Section 4 hereof, the Credit Agreement is hereby amended as follows:

(a) During the Waiver Period, the definition of "Applicable Margin" is
amended and restated in its entirety as follows:

"APPLICABLE MARGIN" means 4.25% per annum.
-----------------

(b) During the Waiver Period, the third sentence of Section 2.01(b) of
the Credit Agreement is hereby amended and restated in its entirety as
follows:

"Each Revolving Borrowing shall be in an aggregate amount of
$500,000 or an integral multiple of $500,000 in excess thereof unless
such Revolving Borrowing is in the amount of the aggregate Unused
Revolving Commitment of each Revolving Lender and shall consist of
Revolving Advances made by the Revolving Lenders ratably according to
their respective Revolving Commitments."
<PAGE>

"provided, however, that each partial prepayment of Revolving
Advances shall be in the aggregate principal amount of $500,000 or any
multiple of $500,000 in excess thereof."

(d) During the Waiver Period, notwithstanding anything to the contrary
in the Credit Agreement, the aggregate outstanding amount of Revolving
Advances plus Letter of Credit Obligations shall not exceed $83,000,000.

(e) During the Waiver Period, Section 3.05(a) of the Credit Agreement
is hereby amended and restated in its entirety as follows:

"SECTION 3.05. LETTER OF CREDIT COMPENSATION.
-----------------------------

(a) The Borrower shall pay to the Agent:

(i) for the account of the Issuing Bank which Issues a
Letter of Credit, an issuance fee in an amount equal to 1/8 of 1%
per annum of the average daily Available Amount of such Letter of
Credit outstanding from time to time; and

(ii) for the account of each Revolving Lender, a letter
of credit fee with respect to each Letter of Credit, in each case
in an amount equal to

(A) with respect to each Financial Standby Letter
of Credit, a percentage per annum equal to the Applicable
Margin plus 1%, times the amount of such Lender's Revolving
Pro Rata Share of the average daily Available Amount of such
Letter of Credit outstanding from time to time;

(B) with respect to each Performance Standby
Letter of Credit, a percentage per annum equal to the
Applicable Margin plus 1/2%, times the amount of such
Lender's Revolving Pro Rata Share of the average daily
Available Amount of such Letter of Credit outstanding from
time to time; and

(C) with respect to each Commercial Letter of
Credit, 0.25% of the amount of such Lender's Revolving Pro
Rata Share of the Available Amount of such Letter of Credit
as of the date of Issuance thereof.

The letter of credit and issuance fees payable under this Section
3.05(a) shall be payable monthly on the last Business Day of each
month, commencing December 31, 1997, and on the Revolving
Commitment Termination Date except that the letter of credit fee
payable under Section 3.05(a)(ii)(C) shall be payable upon
issuance of the applicable Letter of Credit. For purposes of
computing any fees under this Section 3.05(a), the determination
of the maximum amount

2
<PAGE>

available to be drawn under a Letter of Credit at any time shall
assume strict compliance with all conditions for drawing. Any
fees paid pursuant to this Section 3.05(a) are nonrefundable."

SECTION 2. WAIVER. (a) Subject to the terms and conditions hereof,
------
Lenders hereby waive, but only during the Waiver Period, the Specified Defaults
(hereinafter defined); provided, however, that Lenders' waiver of the Specified
-------- -------
Defaults and their rights and remedies as a result of the occurrence thereof
shall not constitute and shall not be deemed to constitute a waiver of any other
Event of Default, whether arising as a result of further violations of any
provision of the Credit Agreement previously violated by the Borrower, or a
waiver of any rights and remedies arising as a result of such other Events of
Default. As used herein, "Specified Defaults" shall mean the failure of the
------------------
Borrower to comply with Sections 6.04(a), (b), (c) and (d) of the Credit
Agreement. At the end of the Waiver Period, the waiver of the Specified
Defaults will automatically terminate.

(b) In consideration of Lenders' waiver of the Specified Defaults and
certain other good and valuable consideration, the Borrower hereby expressly
acknowledges and agrees that neither it nor any Guarantor or Grantor has any
setoffs, counterclaims, adjustments, recoupments, defenses, claims or actions of
any character, whether contingent, non-contingent, liquidated, unliquidated,
fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, known or unknown, against any Lender or Agent or any grounds or cause
for reduction, modification or subordination of the Obligations under the Loan
Documents or any liens or security interests of any Lender or the Agent. To the
extent the Borrower or any Guarantor or Grantor may possess any such setoffs,
counterclaims, adjustments, recoupments, claims, actions, grounds or causes, the
Borrower and each Guarantor and Grantor hereby waive, and hereby release each
Lender and Agent from, any and all such setoffs, counterclaims, adjustments,
recoupments, claims, actions, grounds and causes, such waiver and release being
with full knowledge and understanding of the circumstances and effects of such
waiver and release and after having consulted counsel with respect thereto.

SECTION 3. AMENDMENT AND WAIVER FEE. In consideration of the
------------------------
execution by and agreement to this Amendment by the Lenders, the Borrower shall
pay to the Agent for the account of each Lender such Lender's Revolving Pro Rata
Share of 1/4% of its Revolving Commitment outstanding on December 31, 1997, and
1/4% of its Term Advances outstanding on December 31, 1997.

SECTION 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall not be
---------------------------
effective until all proceedings of the Borrower taken in connection herewith and
the transactions contemplated hereby shall be satisfactory in form and substance
to Agent and Required Lenders, and each of the following conditions precedent
shall have been satisfied:

(a) The Agent has received counterparts of this Amendment executed by
the Borrower and Required Lenders and counterparts of the Consent appended
hereto (the "Consent") executed by each of the Guarantors and Grantors (as
defined in the Security Agreement) listed therein (such Guarantors and
Grantors, together with the Borrower, each a "Loan Party" and,
collectively, the "Loan Parties");

(b) The Agent shall have received for the account of the Lenders the
fee described in Section 3 above.

(c) All fees and expenses, including legal and other professional fees
and expenses incurred, payable on or prior to the date of this Amendment to
Agent, including, without

3
<PAGE>

limitation, the fees and expenses of its counsel, shall have been paid to
the extent that same had been billed prior to the date of this Amendment;
and

(d) Agent and each Lender shall have received each of the following:

(1) a certificate of the Borrower certifying (i) as to the
accuracy, after giving effect to this Amendment, of the
representations and warranties set forth in Article V of the Credit
Agreement, the other Loan Documents and in this Amendment, and (ii)
that there exists no Default or Event of Default, after giving effect
to this Amendment and the execution, delivery and performance of this
Amendment will not cause a Default or Event of Default; and

(2) such other documents, instruments, and certificates, as Agent
or Required Lenders shall deem necessary or appropriate in connection
with this Amendment and the transactions contemplated hereby,
including without limitation copies of resolutions of the board of
directors of the Borrower authorizing the transactions contemplated by
this Amendment.

SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower represents
------------------------------
and warrants as follows:

(a) AUTHORITY. The Borrower and each other Loan Party has the
---------
requisite corporate power and authority to execute and deliver this
Amendment or the Consent, as applicable, and to perform its obligations
hereunder and under the Loan Documents (as modified hereby) to which it is
a party. The execution, delivery and performance by the Borrower of this
Amendment and by each other Loan Party of the Consent, and the performance
by each Loan Party of each Loan Document to which it is a party have been
duly approved by all necessary corporate action of such Loan Party and no
other corporate proceedings on the part of such Loan Party are necessary to
consummate such transactions.

(b) ENFORCEABILITY. This Amendment has been duly executed and
--------------
delivered by the Borrower. The Consent has been duly executed and
delivered by each Guarantor and Grantor. This Amendment and each Loan
Document (as modified hereby) is the legal, valid and binding obligation of
each Loan Party hereto or thereto, enforceable against such Loan Party in
accordance with its terms, and is in full force and effect.

(c) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.

(d) NO DEFAULT. After giving effect to this Amendment, no event has
----------
occurred and is continuing that constitutes a Default or Event of Default.

SECTION 6. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon
---------------------------------------------
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified hereby.

4
<PAGE>

(b) Except as specifically modified above, the Credit Agreement and
all other Loan Documents are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Collateral Documents and all of the Collateral
described therein do and shall continue to secure the payment of all Secured
Obligations under and as defined therein, in each case as amended hereby.

(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as an amendment of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute an amendment of any provision of any of the Loan Documents.

SECTION 7. FURTHER ASSURANCES. The Borrower shall execute and
------------------
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to Agent, as Agent or any Lender may deem
necessary or appropriate in connection with this Amendment.

SECTION 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed counterpart of a signature page to this
Amendment or the Consent by telefacsimile shall be effective as delivery of a
manually executed counterpart of this Amendment or such Consent.

SECTION 9. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
--------------------
LAW, EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES
ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN
TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY RELATED MATTERS, AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

SECTION 10. GOVERNING LAW. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW.]

5
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

WHITTAKER CORPORATION,
a Delaware corporation

By:/s/ John K. Otto
------------------------------------
John K. Otto
Treasurer

NATIONSBANK OF TEXAS, N.A.,
as Agent

By:/s/ William E. Livingstone, IV
------------------------------------
William E. Livingstone, IV
Senior Vice President

Lenders:
-------

NATIONSBANK OF TEXAS, N.A.

By:/s/ William E. Livingstone, IV
------------------------------------
William E. Livingstone, IV
Senior Vice President

BT HOLDINGS (NEW YORK), INC.

By:/s/ Robert W. Hevner
------------------------------------
Robert W. Hevner, Vice President

DK ACQUISITION PARTNERS, L.P.

By: M.H. DAVIDSON & CO., its general partner

By:/s/ Michael J. Leffell
------------------------------------
Michael J. Leffell, General Partner

6
<PAGE>

GOLDMAN SACHS CREDIT PARTNERS L.P.

By:/s/ Edward C. Forst
------------------------------------------
Edward C. Forst, Authorized Signatory

MERRILL LYNCH, PIERCE, FENNER, & SMITH
INCORPORATED

By:/s/ Neil Brisson
------------------------------------------
Neil Brisson, Director

MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.

By:/s/ R. Douglas Henderson
------------------------------------------
R. Douglas Henderson, Authorized Signatory

MERRILL LYNCH SENIOR HIGH INCOME
PORTFOLIO, INC.

By:/s/ R. Douglas Henderson
------------------------------------------
R. Douglas Henderson, Authorized Signatory

MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO

By: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor

By:/s/ R. Douglas Henderson
------------------------------------------
R. Douglas Henderson, Authorized Signatory

CANPARTNERS INVESTMENTS IV, LLC

By:
------------------------------------------
Title:

7
<PAGE>

CONSENT

Each of the undersigned, as Guarantors under the "Guaranty" and as grantors
under the "Security Agreement" (as such terms are defined in the Credit
Agreement referred to in the foregoing Amendment), each hereby consents and
agrees to the foregoing Amendment and to be bound by the terms and provisions
thereof, and agrees that (i) the Guaranty and the Security Agreement are and
shall continue to be in full force and effect and are hereby ratified and
confirmed in all respects except that, upon the effectiveness of and on and
after the date of such Amendment each reference to the Credit Agreement,
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
such Amendment, and (ii) the collateral described in the Security Agreement
shall continue to secure the payment of the indebtedness therein described.

AVIANT INFORMATION, INC. (formerly BLUE BELL LEASE,
INC.), a California corporation, METROPOLITAN FINANCIAL
SERVICES CORPORATION, a Colorado corporation, PARK
CHEMICAL COMPANY, a Michigan corporation, WHITTAKER
COMMUNICATIONS, INC., a California corporation,
WHITTAKER CONTROLS, INC., a California corporation,
WHITTAKER CORP., a Maine corporation, WHITTAKER
ORDNANCE, INC., a Delaware corporation, WHITTAKER PORTA
BELLA DEVELOPMENT, INC., a California corporation,
WHITTAKER SERVICES CORPORATION, a California
corporation, WHITTAKER TECHNICAL PRODUCTS, INC., a
Colorado corporation, WHITTAKER DEVELOPMENT CO., a
Delaware corporation, WHITTAKER XYPLEX, INC., a
Delaware corporation, and XYPLEX, INC., a Massachusetts
corporation

By:/s/ John K. Otto
-----------------------------------------------
John K. Otto
Treasurer of each of the foregoing Loan Parties

<PAGE>

EXHIBIT 10.23

STOCK PURCHASE AGREEMENT

THIS AGREEMENT IS ENTERED INTO AS OF JANUARY 19, 1998, BY AND BETWEEN
WHITTAKER CORPORATION, A DELAWARE CORPORATION (THE "SELLER"), AND MRV
------
COMMUNICATIONS, INC. (THE "BUYER"). THE BUYER AND THE SELLER ARE REFERRED TO
-----
COLLECTIVELY HEREIN AS THE "PARTIES."
--------

THE SELLER OWNS ALL OF THE OUTSTANDING CAPITAL STOCK OF WHITTAKER XYPLEX,
INC., A DELAWARE CORPORATION (THE "TARGET"). THE TARGET OWNS ALL OF THE
------
OUTSTANDING CAPITAL STOCK OF XYPLEX, INC., A MASSACHUSETTS CORPORATION (THE

"SUBSIDIARY").
- -----------

THIS AGREEMENT CONTEMPLATES A TRANSACTION IN WHICH THE BUYER WILL PURCHASE
FROM THE SELLER, AND THE SELLER WILL SELL TO THE BUYER, ALL OF THE OUTSTANDING
CAPITAL STOCK OF THE TARGET IN RETURN FOR THE CONSIDERATION SET FORTH HEREIN.

NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL PROMISES
HEREIN MADE, AND IN CONSIDERATION OF THE REPRESENTATIONS, WARRANTIES, AND
COVENANTS HEREIN CONTAINED, THE PARTIES AGREE AS FOLLOWS.

1. Definitions.
------------

"Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.

"Acquisition Agreement" has the meaning set forth in Section 6(i) below.
---------------------

"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.

"Affiliated Group" means any affiliated group within the meaning of Code
----------------
Section 1504(a).

"Basis" means any past or present fact, situation, circumstance, status,
-----
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.

"Brokers Contract" has the meaning set forth in Section 3(a)(iv).
----------------

"Buyer" has the meaning set forth in the preface above.
-----

"Buyer's Stock" has the meaning set forth in Section 2(b) below.
-------------

"Closing" has the meaning set forth in Section 2(c) below.
-------
<PAGE>

"Closing Date" has the meaning set forth in Section 2(c) below.
------------

"Code" means the Internal Revenue Code of 1986, as amended.
----

"Confidential Information" means any information concerning the business
------------------------
and affairs of the Target that is not already generally available to the public.

"Controlled Group of Corporations" has the meaning set forth in Code
--------------------------------
(S)1563.

"Deferred Intercompany Transaction" has the meaning set forth in Reg.
---------------------------------
(S)1.1502-13.

"Disclosure Schedule" has the meaning set forth in Sections 3 and 4 below.
-------------------

"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.

"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------

"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-----------------------------

"Environmental, Health and Safety Laws" means the Comprehensive
-------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes, as in effect on the date hereof.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.

"Excess Loss Account" has the meaning set forth in Reg. (S)1.1502-19.
-------------------

"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-----------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.

"Fiduciary" has the meaning set forth in ERISA (S)3(21).
---------

"Financial Statement" has the meaning set forth in Section 4(f) below.
-------------------

2
<PAGE>

"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.

"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
---------------------
Act of 1976, as amended.

"Indemnified Party" has the meaning set forth in Section 8(d) below.
-----------------

"Indemnifying Party" has the meaning set forth in Section 8(d) below.
------------------

"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).

"Knowledge" means actual knowledge after reasonable investigation.
---------

"Liability" means any liability (whether known or unknown, whether asserted
---------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.

"Most Recent Balance Sheet" means the balance sheet contained within the
-------------------------
Most Recent Financial Statements.

"Most Recent Financial Statements" has the meaning set forth in Section
--------------------------------
4(f) below.

"Most Recent Fiscal Month End" has the meaning set forth in Section 4(f)
----------------------------
below.

"Most Recent Fiscal Year End" means October 31, 1997.
---------------------------

"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
------------------

"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).

"Party" has the meaning set forth in the preface above.
-----

3
<PAGE>

"PBGC" means the Pension Benefit Guaranty Corporation.
----

"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).

"Prohibited Transaction" has the meaning set forth in ERISA (S)406 and Code
----------------------
(S)4975.

"Purchase Price" has the meaning set forth in Section 2(b) below.
--------------

"Raytheon" has the meaning set forth in Section 6(i) below.
--------

"Raytheon Obligations" has the meaning set forth in Section 6(i) below.
--------------------

"Reportable Event" has the meaning set forth in ERISA (S)4043.
----------------

"Securities Act" means the Securities Act of 1933, as amended.
--------------

"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.

"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.

"Seller" has the meaning set forth in the preface above.
------

"Subsidiary" has the meaning set forth in the preface above.
----------

"Subsidiary Share" means any share of Common Stock of the Subsidiary.
----------------

"S-X" has the meaning set forth in Section 6(g).
---

"Target" has the meaning set forth in the preface above.
------

"Target Share" means any share of the Common Stock, par value $.01 per
------------
share, of the Target.

"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.

4
<PAGE>

"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

"Third Party Claim" has the meaning set forth in Section 8(d) below.
-----------------

"Warrants" means the warrants to purchase shares of Buyer's Stock, issued
--------
in accordance with the Warrant Agreement attached as Exhibit A hereto, which
comprise a portion of the Purchase Price.

2. Purchase and Sale of Target Shares.
-----------------------------------

(a) Basic Transaction. On and subject to the terms and conditions of this
------------------
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of the Target Shares for the consideration specified
below in this Section 2.

(b) Purchase Price. The Buyer agrees to deliver to the Seller at the
---------------
Closing $35,000,000 in cash and warrants to purchase 421,402 shares of common
stock of the Buyer ("Buyer's Stock"), such warrants to be issued pursuant to the
-------------
Warrant Agreement, a form of which is attached as Exhibit A hereto, (such cash
and Warrant, together with the Warrant for 78,598 shares of Buyer's Stock to be
issued pursuant to Section 6(g) hereof, if any, the "Purchase Price").
--------------

(c) The Closing. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place at the offices of Freshman, Marantz,
-------
Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8 East, Beverly Hills,
California, commencing at 9:00 a.m. local time on the fifth business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Buyer and the Seller may mutually
determine (the "Closing Date").
------------

(d) Deliveries at the Closing. At the Closing, (i) the Seller will
--------------------------
deliver to the Buyer stock certificates representing all of the Target Shares,
endorsed in blank or accompanied by duly executed assignment documents and a
standard investment representation letter with respect to the Warrants, and (ii)
the Buyer will deliver to the Seller the consideration specified in Section 2(b)
above.

(e) Other Actions. At or immediately prior to the Closing, (i) the
-------------
Subsidiary, the Target and the Seller shall release and cancel any intercompany
loans, guaranties, liens and other intercompany obligations (except for that
certain License Agreement dated as of January 24, 1997 between the Subsidiary,
on one hand, and Seller and Whittaker Communications, Inc., on the other), and
(ii) the Seller will require its lenders to release any liens on the Target
Shares, the Subsidiary Shares or the assets of the Subsidiary in favor of
Seller's lenders.

3. Representations and Warranties Concerning the Transaction.
----------------------------------------------------------

(a) Representations and Warranties of the Seller. The Seller represents
---------------------------------------------
and warrants to the Buyer that the statements contained in this Section 3(a) are
correct and complete as of the date of this Agreement, except as set forth in
Schedule 3(a) attached hereto.

5
<PAGE>

(i) Organization of Seller. The Seller is duly organized, validly
-----------------------
existing, and in good standing under the laws of the jurisdiction of its
incorporation.

(ii) Authorization of Transaction. The Seller has full corporate
-----------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions. The Seller need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement,
other than filings required by the Hart-Scott-Rodino Act.

(iii) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach of or constitute
a default under any material contract to which the Seller is a party, including
any agreement to merge the Target or the Subsidiary, sell or transfer the Target
Shares or the Subsidiary Shares, or sell all or substantially all of the
Subsidiary's assets.

(iv) Brokers' Fees. The Seller has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated, other than fees and expenses owed to Dillon, Read & Co.,
Inc. pursuant to the Sellers contract with Dillon, Read & Co., Inc. dated as of
February 7, 1997 (the "Broker's Contract").
-----------------

(v) Target Shares. The Seller holds of record and owns beneficially
--------------
all of the outstanding Target Shares, and as of the Closing Date such Shares
shall be free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the Target (other
than this Agreement). The Seller is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any capital stock
of the Target.

(vi) Guaranties. At the Closing, the Seller will not be the guarantor
----------
for any obligations or Liabilities of the Target or the Subsidiary.

(vii) Investment. The Seller is not acquiring the Warrants with a view
----------
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act.

(b) Representations and Warranties of the Buyer. The Buyer represents and
--------------------------------------------
warrants to the Seller that the statements contained in this Section 3(b) are
correct and complete as of the date of this Agreement, except as set forth in
Schedule 3(b) attached hereto.

6
<PAGE>

(i) Organization of the Buyer. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.

(ii) Authorization of Transaction. The Buyer has full power and
-----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions. The Buyer need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement other than the filing of a Notice under
Regulation D of the Securities Act and filings required by the Hart-Scott-Rodino
Act.

(iii) Noncontravention. Neither the execution and the delivery of
-----------------
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach of or constitute
a default under any material contract to which the Buyer is a party.

(iv) Brokers' Fees. The Buyer has no Liability or obligation to
--------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.

(v) Investment. The Buyer is not acquiring the Target Shares with a
----------
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.

(vi) Capitalization. The entire authorized capital stock of the Buyer
--------------
consists of 40,000,000 Shares. The Buyer has, and at all times during which the
Warrants are exercisable shall reserve and keep available, free from preemptive
rights, out of its authorized but unissued common stock or its authorized and
issued common stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Buyer's Shares upon the exercise of Warrants.

4. Representations and Warranties Concerning the Target and the Subsidiary.
-----------------------------------------------------------------------
The Seller represents and warrants to the Buyer that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement, except
as set forth in the disclosure schedules delivered by the Seller to the Buyer on
the date hereof (the "Disclosure Schedule"). The Disclosure Schedule will be
-------------------
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.

(a) Organization, Qualification, and Corporate Power. Each of the Target
-------------------------------------------------
and the Subsidiary is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and the Subsidiary is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required. The Subsidiary has full corporate power and authority and all material
licenses, permits, and

7
<PAGE>

authorizations necessary to carry on the business in which it is engaged and to
own and use the properties owned and used by it. Section 4(a) of the Disclosure
Schedule lists the directors and officers of the Target and the Subsidiary. The
Seller has delivered to the Buyer correct and complete copies of the charter and
bylaws of the Target and the Subsidiary (as amended to date). Neither the Target
nor the Subsidiary is in default under or in violation of any provision of its
charter or bylaws. The Target has no equity interest in any Person, except for
the Subsidiary. The Subsidiary has no equity interest in any other Person.

(b) Capitalization.
---------------

(i) The entire authorized capital stock of the Target consists of
40,000,000 Target Shares, 36,800,000 of which are issued and outstanding. All of
the outstanding Target Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and are beneficially owned
by the Seller. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Target to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Target. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Target.

(ii) The entire authorized capital stock of the Subsidiary consists
of 1,000 Subsidiary Shares, all of which are issued and outstanding, and there
are no Subsidiary Shares held in the treasury of Subsidiary. All of the
outstanding Subsidiary Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record and are beneficially owned
by the Target. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Subsidiary to issue, sell,
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Subsidiary. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Subsidiary.

(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target or the Subsidiary is subject
or any provision of the charter or bylaws of the Target or the Subsidiary or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any material agreement, contract,
lease, license, instrument, or other arrangement to which the Subsidiary is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets). The
Subsidiary does not need to give any notice to, make any filing with, or obtain
the authorization, consent, or approval of any government or governmental agency
in order for the Parties

8
<PAGE>

to consummate the transactions contemplated by this Agreement other than filings
required by the Hart-Scott-Rodino Act.

(d) Brokers' Fees. Neither the Target nor the Subsidiary has any
--------------
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.

(e) Title to Assets. The Subsidiary has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, and as of the Closing Date will be free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.

(f) Financial Statements. Attached hereto as Schedule 4(f) are the
---------------------
following financial statements (collectively the "Financial Statements"):
--------------------
(i) unaudited balance sheet and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal year ended October 31, 1997 for
the Subsidiary; (ii) unaudited balance sheet and statements of income, changes
in stockholders' equity, and cash flow (the "Most Recent Financial Statements")
---------------------------------
as of and for the two months ended January 4, 1998 (the "Most Recent Fiscal
------------------
Month End") for the Subsidiary; and (iii) unaudited balance sheet and statements
- ---------
of income, changes in stockholders' equity and cash flow for the period from
April 10, 1996 to October 31, 1996. The Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Subsidiary as of such dates and the results of
operations of the Subsidiary for such periods, are correct and complete, and are
consistent with the books and records of the Subsidiary (which books and records
are correct and complete); provided, however, that the Most Recent Financial
-------- -------
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.

(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
-------------------------------------------------
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations or results of operations of the
Subsidiary. Without limiting the generality of the foregoing, since that date:

(i) the Subsidiary has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, outside the Ordinary Course of
Business;

(ii) the Subsidiary has not entered into any material agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) outside the Ordinary Course of Business;

(iii) no party (including the Subsidiary) has accelerated,
terminated, modified, or canceled any material agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses) to
which the Subsidiary is a party or by which it is bound;

9
<PAGE>

(iv) the Subsidiary has not imposed any Security Interest upon any
of its assets, tangible or intangible outside the Ordinary Course of Business;

(v) the Subsidiary has not made any material capital expenditures
outside the Ordinary Course of Business;

(vi) the Subsidiary has not made any material capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person outside the Ordinary Course of Business;

(vii) the Subsidiary has not accelerated the collection of
outstanding accounts receivable, through the offer of discounts or otherwise,
outside the Ordinary Course of Business;

(viii) the Subsidiary has not created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease obligation
either involving more than $200,000 singly or $1.5 million in the aggregate;

(ix) the Subsidiary has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;

(x) the Subsidiary has not canceled, compromised, waived, or
released any material right or claim outside the Ordinary Course of Business;

(xi) the Subsidiary has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property outside the
Ordinary Course of Business;

(xii) the Subsidiary has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;

(xiii) there has been no change made or authorized in the charter or
bylaws of the Subsidiary;

(xiv) the Subsidiary has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;

(xv) the Subsidiary has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;

(xvi) the Subsidiary has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;

10
<PAGE>

(xvii) the Subsidiary has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement outside the Ordinary Course of Business;

(xviii) the Subsidiary has not granted any increase in the base
compensation of any of its directors, officers or employees outside the Ordinary
Course of Business;

(xix) the Subsidiary has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);

(xx) the Subsidiary has not made any other material change in
employment terms for any of its directors, officers, or employees outside the
Ordinary Course of Business;

(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Subsidiary; and

(xxii) the Subsidiary has not committed to any of the foregoing.

(h) Undisclosed Liabilities. The Subsidiary does not have any Liability
------------------------
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against it giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).

(i) Legal Compliance. The Subsidiary, and its predecessors and Affiliates,
-----------------
has complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
other than where noncompliance with such laws would not have a material adverse
effect on the Subsidiary, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply.

(j) Tax Matters.
------------

(i) The Subsidiary has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Subsidiary (whether or not shown on any Tax
Return) have been paid. The Subsidiary currently is not the beneficiary of
any extension of time within which to file any Tax Return. No claim has
been made since April 10, 1996 by an authority in a jurisdiction where the
Subsidiary does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.

11
<PAGE>

There are no Security Interests on any of the assets of the Subsidiary that
arose in connection with any failure (or alleged failure) to pay any Tax.

(ii) The Subsidiary has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.

(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Subsidiary expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Subsidiary
either (A) claimed or raised by any authority in writing or (B) as to which
any of the Seller and the directors and officers (and employees responsible
for Tax matters) of the Subsidiary has Knowledge based upon personal
contact with any agent of such authority. Schedule 4(j) lists all federal,
state, local, and foreign income Tax Returns filed with respect to the
Subsidiary for taxable periods ended on or after October 31, 1996,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Seller has delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Subsidiary since October 31, 1996.

(iv) The Subsidiary has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.

(v) The Subsidiary has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Subsidiary has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code (S)280G. The Subsidiary has
not been a United States real property holding corporation within the
meaning of Code (S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Subsidiary is not a party to any Tax allocation or
sharing agreement. The Subsidiary (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Subsidiary) and (B) does
not have any Liability for the Taxes of any Person (other than the
Subsidiary) under Reg. (S)1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.

(vi) The unpaid Taxes of the Subsidiary (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Subsidiary in filing
its Tax Returns.

(k) Real Property. Schedule 4(k) lists and describes briefly all real
--------------
property leased or subleased to the Subsidiary. The Seller has delivered
to the Buyer correct and complete copies of the

12
<PAGE>

leases and subleases listed in Schedule 4(k) (as amended to date). With respect
to each lease and sublease listed in Schedule 4(k):

(A) the lease or sublease is legal, valid, binding and enforceable
against the Subsidiary, and in full force and effect;

(B) as to each lease and sublease, the Subsidiary is not in default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;

(D) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;

(E) the Subsidiary has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or subleasehold;
and

(F) to the Knowledge of the Subsidiary, all facilities leased or
subleased thereunder have received all approvals of governmental authorities
(including licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with applicable
laws, rules, and regulations.

(l) Intellectual Property.
----------------------

(i) The Subsidiary has not interfered with, infringed upon,
misappropriated, or violated any material Intellectual Property rights of third
parties in any material respect, and neither the Seller nor the directors and
officers of the Subsidiary have received any charge, complaint, claim, demand,
or notice alleging any such interference, infringement, misappropriation, or
violation by the Subsidiary (including any claim that the Subsidiary must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of the Subsidiary, no third party has interfered with,
infringed upon, misappropriated, or violated any material Intellectual Property
rights of the Subsidiary in any material respect.

(ii) The Subsidiary owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary for the
operation of the business of the Subsidiary as presently conducted. Each item of
Intellectual Property owned or used by the Subsidiary immediately prior to the
Closing hereunder will be owned or available for use by the Subsidiary on
identical terms and conditions immediately subsequent to the Closing hereunder.
The Subsidiary has taken all necessary action to maintain and protect each item
of Intellectual Property that it owns or uses.

(iii) Schedule 4(l)(iii) identifies each patent or registration which
has been issued to the Subsidiary with respect to any of its Intellectual
Property, identifies each pending patent

13
<PAGE>

application or application for registration which the Subsidiary has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Subsidiary has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). The Seller has delivered to the Buyer correct and complete copies
of all such patents, registrations, applications, licenses, agreements, and
permissions (as amended to date). Schedule 4(l)(iii) also identifies each trade
name or unregistered trademark used by the Subsidiary in connection with its
business. With respect to each item of Intellectual Property identified in
Schedule 4(l)(iii):

(A) the Subsidiary possesses all right, title, and interest in and to
the item, free and clear of any Security Interest, license, or other
restriction;

(B) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;

(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Subsidiary, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and

(D) the Subsidiary has no existing contracts or indemnification
agreements whereby it is obligated to indemnify any Person for or against
any interference, infringement or misappropriation with respect to the
items.

(iv) Schedule 4(l)(iv) identifies each material item of Intellectual
Property that any third party owns and that the Subsidiary uses pursuant to
license, sublicense, agreement, or permission. With respect to each item of
Intellectual Property required to be identified in Schedule 4(l)(iv):

(A) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;

(B) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby (including the assignments and assumptions referred to in Section 2
above);

(C) no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;

(D) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;

14
<PAGE>

(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;

(F) to the Knowledge of the Subsidiary the underlying item of
Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;

(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Subsidiary, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and

(H) the Subsidiary has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.

(v) To the Knowledge of the Subsidiary, the Subsidiary will not, prior to
the Closing, knowingly interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its business as presently
conducted.

(m) Tangible Assets. The Subsidiary owns or leases all buildings, machinery,
----------------
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.

(n) Inventory. The inventory of the Subsidiary consists of raw materials
----------
and supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth in
the Most Recent Balance Sheet, as adjusted for the passage of time through the
Closing Date, in accordance with the past custom and practice of the Subsidiary
and in accordance with GAAP.

(o) Contracts. Schedule 4(o) lists the following contracts and other
----------
agreements to which the Subsidiary is a party:

(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $300,000 per annum;

(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a material loss to the Subsidiary, or involve consideration in
excess of $1.6 million;

15
<PAGE>

(iii) any agreement concerning a partnership or joint venture;

(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $1.6 million or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;

(v) any agreement concerning confidentiality or noncompetition;

(vi) any agreement with any of the Seller and its Affiliates (other
than the Subsidiary);

(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;

(viii) any collective bargaining agreement;

(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing annual compensation
in excess of $100,000 or providing severance benefits in excess of
$100,000;

(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;

(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations or results of operations of the Subsidiary; or

(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1.6 million.

The Seller has provided Buyer with access to a correct and complete copy of
each written agreement listed in Schedule 4(o) and a written summary setting
forth the material terms and conditions of each oral agreement referred to in
Schedule 4(o).

With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (C) no party has repudiated any provision
of the agreement.

(p) Notes and Accounts Receivable. All notes and accounts receivable of
------------------------------
the Subsidiary are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims and are current and
collectible at their recorded amounts, subject only to the reserve for bad debts
set forth in the Most Recent Balance Sheet as adjusted for the passage of time
through the

16
<PAGE>

Closing Date in accordance with the past custom and practice of the Subsidiary
and in accordance with GAAP.

(q) Powers of Attorney. There are no outstanding powers of attorney
-------------------
executed on behalf of the Target or the Subsidiary.

(r) Insurance. Schedule 4(r) sets forth the following information with
----------
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Subsidiary has been a party, a named insured, or
otherwise the beneficiary of coverage at any time since April 10, 1996:

(i) the name, addresses and phone numbers of the agents;

(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;

(iii) the policy number and the period of coverage;

(iv) the type and amount (including deductible and ceiling amounts)
of coverage; and

(v) the description of any retroactive premium adjustments or other
material loss-sharing arrangements.

With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the Subsidiary is not in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (C) no party to the policy
has repudiated any provision thereof. Schedule 4(r) describes any self-insurance
arrangements affecting the Subsidiary.

(s) Litigation. Schedule 4(s) sets forth each instance in which the
-----------
Subsidiary (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or, to the Knowledge of the
Subsidiary, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Schedule 4(s) could result in any material adverse
change in the business, financial condition, operations or results of operations
of the Subsidiary. The Subsidiary has no reason to believe that any such action,
suit, proceeding, hearing, or investigation will be brought or threatened
against the Subsidiary.

(t) Product Warranty. Each product manufactured, sold, leased, or
-----------------
delivered by the Subsidiary has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the
Subsidiary does not have any Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against it giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith,

17
<PAGE>

subject only to the reserve for product warranty claims set forth in Most Recent
Balance Sheet as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Subsidiary and in accordance
with GAAP. No product manufactured, sold, leased, or delivered by the Subsidiary
is subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Schedule 4(t) includes copies of
the standard terms and conditions of sale or lease for the Subsidiary
(containing applicable guaranty, warranty, and indemnity provisions).

(u) Product Liability. The Subsidiary does not have any Liability (and
------------------
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product sold, leased or delivered by
the Subsidiary prior to the Closing Date.

(v) Employees. To the Knowledge of any of the Seller and the directors and
----------
officers of the Subsidiary, no executive, key employee, or significant group of
employees plans to terminate employment with the Subsidiary during the next 12
months. The Subsidiary is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes since April 10, 1996.
The Subsidiary has not committed any unfair labor practice since April 10, 1996.
The Subsidiary does not have Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Subsidiary.

(w) Employee Benefits.
------------------

(i) Schedule 4(w) lists each Employee Benefit Plan that the
Subsidiary maintains or to which the Subsidiary contributes.

(ii) With respect to each Employee Benefit Plan that the Subsidiary
maintains or to which the Subsidiary contributes, except for such matters as,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the financial condition of the Subsidiary:

(A) Each such Employee Benefit Plan (other than any
Multiemployer Plan) (and each related trust, insurance contract, or fund),
complies in form and in operation in all material respects with the
applicable requirements of ERISA, the Code, and other applicable laws.

(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each such Employee Benefit Plan (other than any Multiemployer Plan). The
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
(S)4980B have been met in all material respects with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.

18
<PAGE>

(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension Benefit
Plan or accrued in accordance with the past custom and practice of the
Subsidiary. All premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.

(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) meets the requirements of
a "qualified plan" under Code (S)401(a) and has received, within the last
two years, a favorable determination letter from the Internal Revenue
Service.

(E) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension Benefit
Plan terminating on the date for determination.

(F) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan (other than any Multiemployer Plan).

(iii) With respect to each Employee Benefit Plan that the Subsidiary, or
the Controlled Group of Corporations which includes the Subsidiary, has
maintained since April 10, 1996 for the benefit of the Subsidiary or to which
any of them has contributed since April 10, 1996 for the benefit of the
Subsidiary:

(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or, to the Knowledge of the
Subsidiary, threatened.

(B) To the Knowledge of the Seller, there have been no Prohibited
Transactions with respect to any such Employee Benefit Plan (other than any
Multiemployer Plan). To the Knowledge of the Seller, no Fiduciary has any
Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of
any such Employee Benefit Plan (other than any Multiemployer Plan). No
action, suit, proceeding, hearing, or investigation

19
<PAGE>

with respect to the administration or the investment of the assets of any
such Employee Benefit Plan (other than any Multiemployer Plan) (other than
routine claims for benefits) is pending or, to the Knowledge of the
Subsidiary, threatened. The Subsidiary has no Knowledge of any Basis for
any such action, suit, proceeding, hearing, or investigation.

(C) The Subsidiary has not incurred, and the Subsidiary has no
reason to expect that the Subsidiary will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to any
such Employee Benefit Plan which is an Employee Pension Benefit Plan (other
than any Multiemployer Plan).

(iv) The Subsidiary, or the Controlled Group of Corporations that includes
the Subsidiary, has not since April 10, 1996 contributed to any Multiemployer
Plan for the benefit of the Subsidiary, and does not have any Liability
(including withdrawal Liability) under any Multiemployer Plan.

(v) The Subsidiary does not maintain or contribute, or is required to
contribute, to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code (S)4980B, Title I of ERISA, or any applicable state
statute).

(x) Guaranties. Neither the Target nor the Subsidiary is a guarantor or is
-----------
otherwise liable for any Liability or obligation (including indebtedness) of any
other Person.

(y) Environmental, Health, and Safety Laws.
---------------------------------------

(i) The Subsidiary has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure so to comply other than failure to
comply which would not have a material adverse effect on the Subsidiary.
Without limiting the generality of the preceding sentence, the Subsidiary
has obtained and been in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are required under,
and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety
Laws.

(ii) The Subsidiary does not have any material Liability under any
Environmental Law.

(z) Target Operations. The Target has no material business or operations,
-----------------
except for its ownership of the stock of the Subsidiary and maintenance of a
stock option plan for the benefit of officers, directors and employees of the
Subsidiary.

20
<PAGE>

(aa) Disclosure. representations and warranties contained in this Section 4
----------
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 4 not misleading.

5. Pre-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period between the execution of this Agreement and the Closing.

(a) General. Each of the Parties will use its best efforts to take all
--------
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).

(b) Notices and Consents. The Seller will cause the Subsidiary to give any
---------------------
notices to third parties, and will cause the Subsidiary to use its best efforts
to obtain any third party consents, that the Buyer reasonably may request in
connection with the matters referred to in Section 4(c) above. Each of the
Parties will (and the Seller will cause the Subsidiary to) give any notices to,
make any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Sections 3(a)(ii), 3(b)(ii), and 4(c) above.
Without limiting the generality of the foregoing, each of the Parties will file
any Notification and Report Forms and related material that he or it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Act no later
than five business days after the date hereof, will use its best efforts to
obtain an early termination of the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.

(c) Operation of Business. The Seller will not cause or permit the
----------------------
Subsidiary to engage in any practice or take any action outside the Ordinary
Course of Business of the Subsidiary or which results in a material adverse
change in the business, financial condition, operations or results of operations
of the Subsidiary, except for actions to which Buyer has given its prior
consent.

(d) Preservation of Business. The Seller will cause the Subsidiary to keep
-------------------------
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.

(e) Full Access. The Seller will permit, and the Seller will cause the
------------
Subsidiary to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Subsidiary, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Subsidiary; provided, however, that the Seller and the
-------- -------
Subsidiary shall not be required to allow Buyer access to competitively
sensitive information, such as that relating to prices or customers.

(f) Notice of Developments. The Seller will give prompt written notice to
-----------------------
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of its own representations and warranties in Section 3 above.

21
<PAGE>

(g) Exclusivity. Seller will not (and Seller will not cause or permit the
------------
Subsidiary or the Target to) solicit, initiate, or encourage the submission of
any proposal or offer from any other Person relating to the acquisition of any
capital stock or other voting securities, or any substantial portion of the
assets, of the Subsidiary (including any acquisition structured as a merger,
consolidation or share exchange).

6. Post-Closing Covenants. Parties agree as follows with respect to
-----------------------
the period following the Closing.

(a) General. In case at any time after the Closing any further action is
--------
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Seller acknowledges and agrees that from and after the Closing the Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Subsidiary.

(b) Litigation Support. In the event and for so long as any Party actively
-------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Subsidiary, each of the other Parties will cooperate with him or
it and its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).

(c) Transition. The Seller will not take any action that is designed or
-----------
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Subsidiary from maintaining the
same business relationships with the Subsidiary after the Closing as it
maintained with the Subsidiary prior to the Closing. the Seller will refer all
customer inquiries relating to the business of the Subsidiary to the Buyer from
and after the Closing.

(d) Confidentiality. The Seller will treat and hold as such all of the
----------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in its possession. In the
event that any of the Seller is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this Section 6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, the Seller
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, that Seller may disclose the

22
<PAGE>

Confidential Information to the tribunal; provided, however, that the Seller
-------- -------
shall use its best efforts to obtain, at the reasonable request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure (other than as a result of a disclosure directly or
indirectly by Seller or its agents or representatives in violation of this
Section 6(d)).

(e) Covenant Not to Compete. For a period of three years from and after
------------------------
the Closing Date, the Seller will not engage directly or indirectly in any
business that the Subsidiary conducts as of the Closing Date in any geographic
area in which the Subsidiary conducts that business as of the Closing Date;
provided, however, that no owner of less than 10% of the outstanding stock of
- -------- -------
any publicly-traded corporation shall be deemed to engage in such business by
virtue of such stock ownership. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6(e) is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provisions, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.

(f) Name Change. Seller will, within 30 days after the Closing Date,
------------
change the name of the Target to a name which does not include the word
"Whittaker."

(g) Delivery of Audited Financial Statements. As soon as reasonably
-----------------------------------------
practical following the Closing and in any event within 60 days thereafter,
Seller shall deliver to Buyer the balance sheets and statements of operations,
changes in stockholders' equity, and cash flow covering the periods either (i)
(A) for the fiscal year ended October 31, 1997, (B) for the period from April
10, 1996 to October 31, 1996, (C) for the period from January 1, 1996 through
April 9, 1996, and (D) from January 1, 1995 through December 31, 1995, or (ii)
(A) for the period from April 1, 1996 to December 31, 1996, and (B) for the
period from January 1, 1997 to December 31, 1997, in either case prepared in
accordance with Regulation S-X promulgated by the Securities and Exchange
Commission ("S-X"), audited by a nationally recognized accounting firm, and
together with a manually signed accountant's report thereon that complies with
Rule 2-02 of S-X. If Seller delivers such audited financial statements to Buyer
within 60 days of the Closing Date, Buyer shall deliver to Seller a warrant to
purchase 78,598 shares of the Buyer's common stock exercisable from the date of
delivery of such financial statements to the third anniversary of the Closing
Date, pursuant to the Warrant Agreement attached as Exhibit A hereto.

(h) Auditors' Consents. Each of the parties shall use its best efforts to
------------------
obtain consents of the accounting firm performing such audits to the use of the
accountant's reports described in Section 6(g) above in any registration
statement of Buyer within three business days of any request for such a consent;

provided that Buyer shall have the sole responsibility for payment of any fees
- --------
in connection with such consents.

23
<PAGE>

(i) Rights Against Raytheon. Seller and Buyer acknowledge that Seller
-----------------------
acquired the capital stock of Subsidiary from Raytheon Company ("Raytheon")
pursuant to that certain Stock Purchase Agreement, dated as of March 2, 1996
between Raytheon and Seller (the "Acquisition Agreement") under which Raytheon
made certain representations, warranties and agreements (collectively the
"Raytheon Obligations") to Seller relative to Subsidiary and that the Raytheon
Obligations may overlap or cover matters in addition to the representations,
warranties and agreements of Seller to Buyer under this Agreement. Seller
agrees to use its best efforts to obtain the consent of Raytheon to its
assignment of the Raytheon obligations to Buyer and upon obtaining such consent,
shall assign the Raytheon Obligations to Buyer. In the event that Seller is
unable to obtain Raytheon's consent to such assignment and a matter or event
occurs or a liability is discovered for which Seller could pursue a claim or
action under the Raytheon Obligations or for indemnity, Seller agrees to
cooperate with Buyer and at Buyer's request to diligently prosecute such claim
or action in Seller's name on behalf and for the benefit of Buyer. Any such
claim or action shall be prosecuted at Buyer's sole cost and expense using
counsel of Buyer's choice and any recovery obtained shall be allocated between
Buyer and Seller in accordance with each Party's claim. Nothing herein shall
preclude Seller from bringing an action against Raytheon on its own behalf and
at its own expense.

7. Conditions to Obligation to Close.
----------------------------------

(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
--------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:

(i) (A) the representations and warranties set forth in Sections
2(e), 3(a)(i), 3(a)(iii)(A), 3(a)(v), 4(b) and 5(c) (except as the
Disclosure Schedule sets forth exceptions to such Sections) above shall be
true and correct in all material respects as of the Closing Date, (B) the
Seller shall have full corporate power and authority to execute and deliver
this Agreement and perform its obligations hereunder, (C) neither the
execution and the delivery of this Agreement nor the consummation of the
transactions contemplated hereby will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge or
other restriction of any government, governmental agency or court to which
any of the Seller, the Target or the Subsidiary is a party or any provision
of their respective charters or bylaws, and (D) each of the Target and the
Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation;

(ii) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated;
and

(iii) the Buyer shall have received the resignations, effective as of
the Closing, of each director on the board of directors of the Target.

The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.

24
<PAGE>

(b) Conditions to Obligation of the Seller. The obligation of the Seller
---------------------------------------
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:

(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all material respects as of the Closing
Date; and

(ii) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated.

The Seller may waive any condition specified in this Section 7(b) if it executes
a writing so stating at or prior to the Closing.

8. Remedies for Breaches of This Agreement.
----------------------------------------

(a) Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties of the Seller contained in Section 4 above, other than the
representations contained in Sections 4(j) and 4(y), shall survive the Closing
hereunder (even if the Buyer knew or had reason to know of any misrepresentation
or breach of warranty at the time of Closing) and continue in full force and
effect for a period of two years thereafter; provided, however, that the
-------- -------
representations and warranties contained in Sections 4(j) and 4(y) above
relating to Tax Matters and Environmental, Health, and Safety Laws,
respectively, shall survive the Closing hereunder (even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for the relevant statute of
limitations periods; provided further, that the representations and warranties
----------------
contained in Section 4(l)(v) shall not survive the Closing. All of the other
representations and warranties of the Parties contained in this Agreement
(including the representations and warranties of the Parties contained in
Section 3 above) shall survive the Closing (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for two years thereafter (subject
to any applicable statutes of limitations).

(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------

(i) In the event the Seller breaches any of its representations,
warranties, and covenants contained herein (other than the covenants in
Section 2(a) above and the representations and warranties in Section 3(a)
above), and, if there is an applicable survival period pursuant to Section
8(a) above, provided that the Buyer makes a written claim for
--------
indemnification against the Seller pursuant to Section 11(g) below within
such survival period, then the Seller agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach; provided, however, that the Seller shall not
-------- -------
have any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach of any representation or warranty of the Seller

25
<PAGE>

contained in Section 4 above until the Buyer has suffered Adverse
Consequences by reason of all such breaches in excess of a $500,000
aggregate threshold (at which point the Seller will be obligated to
indemnify the Buyer from and against all such Adverse Consequences relating
back to the first dollar).

(ii) In the event Seller breaches any of its covenants in Section 2(a)
above or any of its representations and warranties in Section 3(a) above,
and, if there is an applicable survival period pursuant to Section 8(a)
above, provided that the Buyer makes a written claim for indemnification
--------
against the Seller pursuant to Section 11(g) below within such survival
period, then the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and after
the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach.

(c) Indemnification Provisions for Benefit of the Seller. In the event the
-----------------------------------------------------
Buyer breaches any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to Section 8(a)
above, provided that any of the Seller makes a written claim for indemnification
--------
against the Buyer pursuant to Section 11(g) below within such survival period,
then the Buyer agrees to indemnify the Seller from and against the entirety of
any Adverse Consequences the Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Seller may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach.

(d) Matters Involving Third Parties.
--------------------------------

(i) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which may give
----- -----------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
--------
however, that no delay on the part of the Indemnified Party in notifying
--------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.

(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement

26
<PAGE>

of, or an adverse judgment with respect to, the Third Party Claim is not,
in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.

(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party, and (C) the Indemnifying Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of
the Indemnified Party.

(iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and expenses), and
(C) the Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 8.

9. Tax Matters. The following provisions shall govern the allocation of
------------
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:

(a) Seller will include the income of the Subsidiary on Seller's Returns
for all periods through the Closing Date in which the Subsidiary was included in
such Returns and account for and pay any federal income taxes attributable to
such income on such returns. Seller shall deliver to Buyer copies of such
Returns and any Returns relating to the Subsidiary for the period prior to the
Closing Date within 10 days of the filing of such Returns with the appropriate
Tax Authority. The Subsidiary shall be responsible for and shall pay to Seller
the portion of the consolidated tax liability for such periods chargeable to the
Subsidiary under the principles of Treas. Reg. 1.1552-1(a)(2) and applicable
state and local laws and regulations. The Subsidiary will furnish tax
information to Seller for inclusion in Seller's Returns for the period which
includes the Closing Date in accordance with the Subsidiary's past custom and
practice. The income of the Subsidiary will be apportioned between the period up
to and including the Closing Date and the period after the Closing Date by
closing the books of the Subsidiary as of the end of the Closing Date.

(b) At Seller's request, Buyer will cause the Subsidiary to make or join
with Seller in making any election if the making of such election does not have
a material adverse impact on Buyer (or the Subsidiary) for any tax period
beginning on or after the Closing Date.

27
<PAGE>

(c) It is agreed and understood that the parties shall not make an
election under Section 338(h)(10) of the Code in respect of the purchase and
sale of the Target Shares pursuant to this Stock Purchase Agreement.

(d) Seller will elect to retain any net operating loss carryovers or
capital loss carryovers of the Subsidiary or the Target under Treasury
Regulation (S) 1.1502-20(g), or have any such losses reattributed to Seller
prior to the Closing.

(e) Any refunds received after the Closing Date by Seller attributable to
any Tax losses or Tax credits of the Subsidiary arising after the Closing Date
shall be remitted promptly to Buyer.

(f) Each of Seller and Buyer shall (i) make available for inspection and
copying upon the reasonable request of the other party all working papers, books
of account and records relating to the periods before and after, respectively,
the Closing Date, and (ii) shall cooperate with each other in the event of any
Tax audit, dispute or protest.

10. Termination.
------------

(a) Termination of Agreement. Certain of the Parties may terminate this
-------------------------
Agreement as provided below:

(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing; and

(ii) either the Buyer or the Seller may terminate this Agreement by
giving written notice to the other party if the Closing shall not have occurred
on or before March 31, 1998.

(b) Effect of Termination. If any Party terminates this Agreement pursuant
----------------------
to Section 10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).

11. Miscellaneous.
-------------

(a) Press Releases and Public Announcements. No Party shall issue any
----------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
-------- --------
disclosure it believes in good faith is required by applicable law or any
listing or trading requirement concerning its publicly-traded securities (in
which case the disclosing Party will notify the other Parties of such disclosure
48 hours prior to making the disclosure).

(b) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.

(c) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings,

28
<PAGE>

agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.

(d) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Buyer and the Seller; provided, however, that the Buyer may (i) assign
-------- -------
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).

(e) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

(f) Headings. The section headings contained in this Agreement are
---------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

(g) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing and shall be deemed effectively
given (i) upon personal delivery to the party notified, (ii) five days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, (iii) one business day after deposit
with a nationally recognized air courier service such as DHL or Federal Express
for next day delivery, or (iv) on the day of facsimile transmission, with
confirmed transmission, to the facsimile number shown below (or to such other
facsimile number as the party to be notified may indicate by ten days advance
written notice to the other party in the manner herein provided), provided that
--------
notice is also given under clauses (i), (ii) or (iii) above; in any such case
addressed to the party to be notified at the address indicated below for that
party, or at such other address as that party may indicate by ten days advance
written notice to the other party in the manner herein provided:

If to the Seller:
-----------------

John K. Otto
Chief Financial Officer
Whittaker Corporation
1955 N. Surveyor Avenue
Simi Valley, CA 93063
Fax: (805) 584-4148

with a copy to:
---------------

John R. Light, Esq.
Latham & Watkins
633 W. 5th Street, Suite 4000
Los Angeles, CA 90071
Fax: (213) 891-8763

29
<PAGE>

If to the Buyer:
----------------

Noam Lotan
President and Chief Executive Officer
MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Fax: (818) 407-5656

with a copy to:
---------------

Mark A. Klein, Esq.
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Boulevard
Eight Floor East Tower
Beverly Hills, CA 90212-3480
Fax: (310) 274-8357

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
------------- ----------------------------------------------------
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
- --------------------------------------------------------------------------------
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
- ---------------------------------------------------------------------------
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
- --------------------------------------------------------------------------------
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
- ----------------------------------------------------

(i) Amendments and Waivers No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

(j) Severability Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

30
<PAGE>

(k) Expenses. Each of the Parties shall bear its own costs and expenses
---------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller agrees that the Subsidiary
has not borne or will bear any of the Seller' costs and expenses (including any
of their legal fees and expenses) in connection with this Agreement or any of
the transactions contemplated hereby.

(l) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.

(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.

(n) Specific Performance. Each of the Parties acknowledges and agrees
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that,
subject to Section 11(p), the other Parties shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 11(o) below), in addition to any other remedy to which they may
be entitled, at law or in equity.

(o) Submission to Jurisdiction. Subject to the provisions of Section 11
---------------------------
(p) below, each of the Parties submits to the jurisdiction of any state or
federal court sitting in Delaware, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court. Each Party further
agrees not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 11(g)
above. Nothing in this Section 11(o), however, shall affect the right of any
Party to serve legal process in any other manner permitted by law or at equity.
Each Party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any other
manner provided by law or at equity.

31
<PAGE>

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.

MRV COMMUNICATIONS, INC.

/s/ Zeev Rav Noy
-----------------------------------
By: Zeev Rav Noy
Title: Chief Operating Officer

/s/ Edmund Glazer
-----------------------------------
By: Edmund Glazer
Title: Vice President of Finance and
Administration, and Chief Financial Officer

WHITTAKER CORPORATION

/s/ Joseph F. Alibrandi
-----------------------------------
By: Joseph F. Alibrandi
Title: President and Chief Executive Officer

/s/ John K. Otto
-----------------------------------
By: John K. Otto
Title: Vice President, Chief Financial Officer
and Treasurer

<PAGE>

EXHIBIT 11

WHITTAKER CORPORATION

CALCULATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE

EARNINGS ($ in 000)

Net Income (Loss)........................................... $(163,582) $(17,127) $7,865

Deduct:
Dividends on $5.00 Cumulative
Convertible Preferred Stock.......................... - - (4)
--------- -------- -------

Net income (loss) used in primary earnings
per share calculations................................... $(163,582) $(17,127) $7,861
========= ======== =======

AVERAGE COMMON AND COMMON EQUIVALENT SHARES (IN 000)

Weighted average number of common
shares outstanding....................................... 11,144 10,065 8,531

Common equivalent shares:
Series D Participating Convertible
Preferred Stock.................................... - 213 292

Stock options included under
treasury stock method.............................. - 291 802
---------- -------- --------
Total....................................................... 11,144 10,569 9,625
========== ======== =======
Primary Earnings (Loss) Per Share........................... $(14.68) $(1.62) $0.82
========== ======== =======
</TABLE>

<PAGE>

WHITTAKER CORPORATION

CALCULATION OF EARNINGS PER SHARE (Continued)

<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
1997 1996 1995
--------- --------- -----------
FULLY DILUTED EARNINGS PER SHARE
<S> <C> <C> <C>
Earnings ($ in 000)

Net income used in primary earnings
per share calculations.................................. $(163,582) $(17,127) $7,861

Adjustments.................................................. - - -

Net income (loss) used in fully diluted
earnings per share calculations......................... $(163,582) $(17,127) $7,861
========== ======== ======

Average Shares Used to Calculate Fully Diluted
Earnings Per Share (in 000)

Average common and common equivalent
shares, above........................................... 11,144 10,569 9,625

Add:
Additional stock options included under
treasury stock method................................ - 3 -
---------- -------- ------
Total........................................................ 11,144 10,572 9,625
========== ======== ======

Fully Diluted Earnings (Loss) Per Share...................... $ (14.68) $ (1.62) $ 0.82
========== ======== ======
</TABLE>

<PAGE>

WHITTAKER CORPORATION

CALCULATION OF EARNINGS PER SHARE (CONTINUED)

NOTES

Earnings per share have been computed based on the weighted average number of
common and common equivalent shares outstanding during the periods, after
deducting from net income for 1995 the dividend requirements on the then
outstanding $5.00 Cumulative Convertible Preferred Stock. Common Stock
equivalents include Series D Participating Preferred Stock and dilutive employee
stock options calculated using the treasury stock method.

Common equivalent shares have been excluded from the 1997 calculations and
additional shares assuming conversion of subordinated convertible debt have been
excluded from the calculations in all years as inclusion of such shares would
have been antidilutive.

<PAGE>

EXHIBIT 21
SUBSIDIARIES OF

WHITTAKER CORPORATION

a Delaware corporation

as of January 29, 1998

<TABLE>
<CAPTION>
PLACE OF
--------
NAME OF COMPANY INCORPORATION
- --------------- ----------------------
<S> <C>
U.S. SUBSIDIARIES
- -----------------

Aviant Information, Inc. California

Metropolitan Financial Services Corporation Colorado

Park Chemical Company Michigan

Whittaker Communications, Inc. California

Whittaker Controls, Inc. California

Whittaker Corp. Maine

Whittaker Development Co. Delaware

Whittaker Ordnance, Inc. Delaware

Whittaker Political Action Committee, Inc. California

Whittaker Porta Bella Development, Inc. California

Whittaker Services Corporation California

Whittaker Technical Products, Inc. Colorado

Whittaker Xyplex, Inc. California

FOREIGN SUBSIDIARIES
- --------------------

Whittaker Communications Limited England
</TABLE>

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Post-Effective Amendment
Number 2 to Registration Statement Number 2-74481 on Form S-8 dated January
28, 1983, as amended and supplemented to date, Post-Effective Amendment Number
3 to Registration Statement Number 2-74481 on Form S-8 dated October 10, 1983,
Post-Effective Amendment Number 1 to Registration Statement Number 2-97149 on
Form S-8 dated September 30, 1985, Post Effective Amendment Number 3 to
Registration Statement Number 2-76480 on Form S-8 dated April 22, 1985, Post-
Effective Amendment Number 2 to Registration Statement Number 2-70806 on Form
S-8 dated May 20, 1981, Post-Effective Amendment Numbers 2, 1-A and 1-B to
Registration Statement Number 33-04320 on Form S-4 dated March 26, 1986, as
supplemented and amended to date, Post-Effective Amendment Numbers 2-A and 2-B
to Registration Statement Number 33-04320 on Form S-8 to Form S-4 dated June
1, 1987, Registration Statement Numbers 33-35762 and 33-35763 on Form S-8
dated July 6, 1990, Registration Statement Number 33-52295 on Form S-8 dated
February 16, 1994, Registration Statement Number 33-58323 on Form S-8 dated
March 31, 1995, and Registration Statement Number 333-03753 on Form S-3 dated
May 15, 1996, as amended to date, of our report dated December 12, 1997, with
respect to the consolidated financial statements of Whittaker Corporation
included in the Annual Report on Form 10-K for the year ended October 31,
1997. We also consent to the reference to our firm under the caption "Experts"
in the aforementioned Registration Statements insofar as that reference
relates to our report for the year ended October 31, 1996.

ERNST & YOUNG LLP

Los Angeles, California
January 28, 1998

<PAGE>

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 2,363
<SECURITIES> 4,003
<RECEIVABLES> 30,709
<ALLOWANCES> 3,372
<INVENTORY> 37,032
<CURRENT-ASSETS> 93,897
<PP&E> 31,381
<DEPRECIATION> 21,550
<TOTAL-ASSETS> 167,442
<CURRENT-LIABILITIES> 170,263
<BONDS> 222
0
1
<COMMON> 112
<OTHER-SE> (30,836)
<TOTAL-LIABILITY-AND-EQUITY> 167,442
<SALES> 95,133
<TOTAL-REVENUES> 95,133
<CGS> 67,308
<TOTAL-COSTS> 67,308
<OTHER-EXPENSES> 965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,299
<INCOME-PRETAX> (37,137)
<INCOME-TAX> (4,207)
<INCOME-CONTINUING> (32,930)
<DISCONTINUED> (127,243)
<EXTRAORDINARY> (3,409)
<CHANGES> 0
<NET-INCOME> (163,582)
<EPS-PRIMARY> (14.68)
<EPS-DILUTED> 0

</TABLE>