TRACOR INC /DE, S-3, 1996-06-07

TRACOR INC /DE
S-3, 1996-06-07
SEARCH, DETECTION, NAVAGATION, GUIDANCE, AERONAUTICAL SYS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996.

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM S-3
REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
---------------------

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

<TABLE>
<S> <C>
DELAWARE 74-2618088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

6500 TRACOR LANE
AUSTIN, TEXAS 78725
(512) 926-2800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JAMES B. SKAGGS
TRACOR, INC.
6500 TRACOR LANE
AUSTIN, TEXAS 78725
(512) 926-2800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:

<TABLE>
<S> <C>
DARREL A. RICE, ESQ. JOSEPH A. COCO, ESQ.
WINSTEAD SECHREST & MINICK P.C. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
1201 ELM STREET 919 THIRD AVENUE
5400 RENAISSANCE TOWER NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75270 (212) 735-3000
(214) 745-5255
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / /_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......................... 2,975,000(2)(3) $20.94 $62,296,500.00 $21,481.55
=================================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee, based
on the average of the high and low sales prices reported on the Nasdaq
National Market on June 4, 1996.
(2) This registration statement includes a combined prospectus relating to the
offering of up to 7,475,000 shares of the Registrant's common stock. Of
these shares, 2,975,000 shares are registered hereby and 4,500,000 shares
were previously registered on Registration Statement No. 333-03330, filed
with the Commission on April 10, 1996. A filing fee of $40,074.08 was
previously paid with such earlier registration statement.
(3) Includes up to 975,000 shares of the Registrant's common stock which may be
purchased by the U.S. Underwriters in respect of an over-allotment option
granted to them.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

THIS REGISTRATION STATEMENT INCLUDES A COMBINED PROSPECTUS WHICH ALSO
RELATES TO REGISTRATION STATEMENT NO. 333-03330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

The Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada of an aggregate of 4,264,784 shares of
Common Stock, par value $.01 per share, of the Company (the "United States
Offering"), together with a separate prospectus cover page relating to a
concurrent offering outside the United States and Canada of an aggregate of
1,066,196 shares of Common Stock, par value $.01 per share, of the Company (the
"International Offering"). The complete prospectus for the United States
Offering follows immediately. Following such prospectus is the alternate cover
page for the prospectus for the International Offering. The front cover page of
the prospectus for the International Offering will appear in lieu of the front
cover page of the prospectus for the United States Offering. All other pages of
the prospectus for the United States Offering are to be used for both the United
States Offering and the International Offering.

Ten copies of the complete Prospectus for each of the United States
Offering and the International Offering in the exact forms in which they are to
be used after effectiveness will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b) of the General Rules and Regulations under
the Securities Act of 1933, as amended.
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN, NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE , 1996

5,330,980 SHARES

TRACOR

COMMON STOCK
------------------------
Of the 5,330,980 Shares of Common Stock being offered hereby, 4,264,784 Shares
are being offered initially in the United States and Canada by the U.S.
Underwriters and 1,066,196 Shares are being offered initially outside the
United States and Canada by the International Underwriters. See
"Underwriters." Of the 5,330,980 Shares of Common Stock being offered
hereby, 2,000,000 Shares are being sold by the Company and 3,330,980
Shares are being sold by the Selling Stockholders. See "Selling
Stockholders." The Company will not receive any of the proceeds
from the sale of the Shares being sold by the Selling
Stockholders. The Common Stock is quoted on the Nasdaq
National Market under the symbol "TTRR." On June , 1996,
the reported last sale price of the Common Stock on the
Nasdaq National Market was $ .
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

PRICE $ A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
------------------------------------------------ ----------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total(3)........................ $ $ $ $
</TABLE>

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

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."

(2) The Company has agreed to pay the expenses of the offering, estimated at
$ .

(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares at the price to public less underwriting
discounts and commissions, for the purpose of covering over-allotments, if
any. If the U.S. Underwriters exercise such option in full, the total Price
to Public, Underwriting Discounts and Commissions, Proceeds to the Company
and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriters."

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Skadden,
Arps, Slate, Meagher & Flom, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1996, at the
offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
MORGAN STANLEY & CO.
INCORPORATED
BEAR, STEARNS & CO. INC.
BT SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
, 1996
<PAGE> 4

IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITERS."

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7 AND 10B-8 UNDER THE EXCHANGE ACT.

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING
STOCKHOLDERS OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------

For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company, by the Selling Stockholders or by any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, by the
Selling Stockholders and by the Underwriters to inform themselves about and to
observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.

In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 3
Risk Factors.......................................................................... 9
Westmark Acquisition.................................................................. 10
Use of Proceeds....................................................................... 11
Price Range of Common Stock and Series A Warrants..................................... 11
Dividend Policy....................................................................... 12
Capitalization........................................................................ 13
Selected Historical and Pro Forma Financial Data...................................... 14
Selected Historical Sales Percentages................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 17
Business.............................................................................. 21
Management............................................................................ 33
Selling Stockholders.................................................................. 36
Shares Eligible for Future Sale....................................................... 38
Description of Capital Stock.......................................................... 39
Underwriters.......................................................................... 40
Legal Matters......................................................................... 42
Experts............................................................................... 43
Available Information................................................................. 43
Incorporation of Certain Documents By Reference....................................... 44
Index to Financial Statements......................................................... F-1
</TABLE>

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto included elsewhere or
incorporated by reference in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the U.S. Underwriters'
over-allotment option and no exercise of outstanding options. See
"Underwriters." Certain capitalized terms which are used but not defined in this
summary are defined elsewhere in this Prospectus.

THE COMPANY

Tracor, Inc. (collectively with its subsidiaries, "Tracor" or the
"Company") provides sophisticated electronic products, systems and services for
the U.S. Department of Defense ("DOD"), other U.S. government agencies, foreign
governments and commercial customers. The Company's business units operate
primarily in the U.S. and foreign defense electronics markets and largely
support existing high-priority DOD weapons, platforms and systems. The Company's
products and services enable defense customers to enhance the operational
performance and readiness of existing weapons as well as extend their useful
lives and survivability. As a result, the Company believes it is well positioned
to benefit from fundamental changes in national defense strategy precipitated by
the end of the Cold War. Since August 1993, the Company has made three
substantial acquisitions as part of its strategy to take advantage of a
consolidating defense industry. Largely as a result of such acquisitions,
Tracor's revenues and net income have increased from $261.8 million and $4.5
million, respectively, in 1992 to $998.1 million and $26.7 million,
respectively, on a pro forma basis in 1995.

A key component of the Company's strategy has been establishing itself as
an industry leader in several high-priority DOD program areas, including:

- Navy Systems Engineering and Integration: Tracor is a major
provider of systems engineering and integration services to the U.S.
Navy and is the principal systems integrator for certain key
programs, including both the radio communications suite for cruisers
and destroyers equipped with the AEGIS weapon system and the
submarine ballistic missile program. The Company has a similar
position in other key programs, including shipboard anti-air warfare
guided missile systems (including AEGIS) and the Tomahawk cruise
missile.

- Imagery Exploitation and Mission Planning: Tracor develops enhanced
image interpretation and mission planning systems for the DOD and
provides these high-priority systems to several critical areas
within the defense and intelligence markets.

- Countermeasures Dispensers: The Company designed, and currently is
the only manufacturer of, the most advanced and widely used
countermeasures dispenser systems in the U.S. and is a major
supplier of countermeasures expendables in the domestic and
international defense markets. These systems provide an important,
cost-effective means of protecting combat aircraft and crews.

- Drones: Tracor designs, modifies and converts military aircraft
into remotely controlled aerial targets ("drones") and produces
sub-scale drones, both of which are critical elements of weapons
testing and evaluation. To date, the Company has produced more
full-scale target drones than any other DOD contractor.

- Automatic Test Systems: The Company supplies avionics automatic
test equipment to the U.S. Air Force which substantially improves
the readiness of advanced military aircraft, including the F-16
fighter. Tracor also is supplying test equipment for the new
Japanese F-2 fighter.

The Company believes its established positions in high-priority program
areas are due, in part, to its longstanding, consistently high-quality
performance under existing contracts. Tracor has won substantially all material
contract recompetitions in which it has been involved in the last several years
and is the recipient of numerous performance awards, including more than 20 Blue
Ribbon awards, placing the Company among the approximately top one percent of
contractors who received the award based on their individual records for on-
schedule deliveries with no quality defects. For the high-priority AEGIS
program, Tracor provides primary

3
<PAGE> 6

support for a U.S. Navy unit which won an unprecedented thirteenth AEGIS
Excellence Award. All Tracor units emphasize continuous improvement to increase
efficiencies and enhance competitiveness. Two operations recently achieved ISO
9001 certification and a third achieved ISO 9002, enabling the Company to reduce
costs associated with military specifications and to comply with foreign
customer requirements. One of Tracor's major subsidiaries also achieved the
Software Engineering Institute ("SEI") Level 3 certification, placing it in the
elite class of the 10 percent of software companies which have adopted a
standard software process for both management and engineering activities. The
Company's competitive performance and cost structure have allowed it to develop
strong, long-lasting relationships with its major customers. The Company has
been the prime contractor for services and products for many of the U.S.
government's key existing programs for periods ranging from 15 to 40 years, and
in many cases has been involved in the evolution of a program or weapons class
since its inception. The Company currently is performing under approximately 740
contracts with approximately 105 separate agencies of the U.S. government. This
existing business base led to a firm backlog of $966 million on April 30, 1996.

The two other primary components of Tracor's business strategy are (i)
strategic acquisitions of companies with complementary business areas where
significant consolidation and cost reduction opportunities exist and (ii) the
expansion into new business areas which complement existing technological
expertise. The Company's recent acquisitions have broadened and strengthened the
Company's position in core business areas and have created significant
opportunities for cost savings. The acquisition of Vitro Corporation and its
subsidiaries (individually and collectively, "Vitro") in August 1993 established
the Company as a major provider of engineering and management support to the
U.S. Navy. The acquisition of GDE Holdings, Inc. and its subsidiaries
(individually and collectively, "GDE") in November 1994 established Tracor as a
major provider of advanced digital imagery and mission planning technology and
has made it the largest supplier of avionics automatic test equipment to the
U.S. Air Force. The acquisitions of Vitro and GDE also established Tracor as a
key supplier to the civilian and defense intelligence organizations of the U.S.
government. The acquisition of AEL Industries, Inc. ("AEL") in February 1996
strengthened Tracor's position in long-term electronic warfare production
programs and added key capabilities in radio frequency, antenna and microwave
technologies. The Company has a large employee base with special high-level
security clearances, which are critical for building a presence in the
intelligence market. The Company is also actively developing commercial and
other nondefense applications for its technology in a number of diverse markets.

The largest portion of Tracor's business is in the operations and
maintenance segment of the U.S. defense budget. Operations and maintenance now
exceeds procurement as the largest segment of the DOD budget. DOD operations and
maintenance expenditures emphasize maintaining the readiness of armed forces and
are concentrated on upgrading the effectiveness of existing combat systems and
on extending their useful lives. Because the Company is a major supplier of
systems and services which improve effectiveness, prolong the life of existing
weapons platforms and enhance the survivability of combat systems at a
relatively low cost, management believes the Company will benefit from these
priorities in the DOD budget. A modest increase in the procurement portion is
expected, and Tracor is well positioned to benefit from this upturn.

Tracor is organized under the laws of Delaware with principal executive
offices located at 6500 Tracor Lane, Austin, Texas 78725 (telephone number:
(512) 926-2800).

4
<PAGE> 7

MAJOR ACQUISITIONS

In recent years the Company has completed three important acquisitions in
connection with the implementation of its broader business strategy. In August
1993, Tracor acquired Vitro for approximately $92 million. This acquisition more
than doubled Company revenues and made the combined entity a major provider of
systems engineering and integration support to the U.S. Navy. In November 1994,
the Company purchased GDE for approximately $102 million (the "GDE
Acquisition"), which established the Company as a major provider of advanced
digital imagery technology to both the DOD and the intelligence community. In
February 1996, the Company purchased AEL for approximately $103 million (the
"AEL Acquisition") which strengthened Tracor's position in long-term electronic
warfare production programs and added key capabilities in radio frequency,
antenna and microwave technologies.

The acquisitions of Vitro, GDE and AEL have strengthened the Company's core
businesses and enhanced the Company's ability to compete in non-traditional
business areas. In particular, the Company expects to have an increased ability
to bid on contracts in new business areas which draw upon complementary
capabilities or customer relationships of any or all of the acquired companies.
In addition, since the acquisition of Vitro, significant cost savings have been
realized resulting from the consolidation of facilities, staff reductions,
process improvements and elimination of other duplicative costs. While a
substantial portion of such savings will also result in reductions in sales
under cost-reimbursement contracts, the Company's cost competitiveness should be
enhanced. The Company has also realized significant net cost savings in
connection with the GDE Acquisition and has identified substantial savings in
connection with the AEL Acquisition. Management believes the continuing
consolidation within the defense industry will result in additional
opportunities for the Company to make attractive acquisitions.

WESTMARK ACQUISITION

On June , 1996, the Company consummated the acquisition (the "Westmark
Acquisition") of substantially all of the assets of Westmark Systems, Inc.
("Westmark"). The purchase consideration paid by Tracor to Westmark in the
Westmark Acquisition included 8,267,435 shares of Common Stock. The principal
assets of Westmark acquired by Tracor in the Westmark Acquisition were 978,458
shares of Class A Common Stock, a Series B Warrant to purchase 5,249,428 shares
of Common Stock (the "Series B Warrant"), and a Series C Warrant to purchase
5,455,000 shares of Common Stock (the "Series C Warrant" and, together with the
Series B Warrant, the "Tracor Warrants"). The shares of the Class A Common Stock
and the Tracor Warrants were cancelled and will not be reissued. See "Westmark
Acquisition."

RISK FACTORS

An investment in the Common Stock involves certain risks that a prospective
investor should carefully consider, including risks associated with the
Company's high degree of leverage and reliance on acquisitions for growth, as
well as industry related risks associated with potential reductions or changes
in military expenditures and risks associated with government contracts.
Prospective investors should also consider the potential adverse effects of
substantial future sales of Common Stock, an issuance of preferred stock by the
Company and the application of certain provisions of state law which may
discourage parties from seeking to acquire the Company. See "Risk Factors."

5
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered(1):
Common Stock Offered by the Company........ 2,000,000 shares
Common Stock Offered by the Selling
Stockholders............................ 3,330,980 shares
Total Common Stock Offered......... 5,330,980 shares
U.S. Offering.............................. 4,264,784 shares
International Offering..................... 1,066,196 shares
Common Stock to be outstanding after the
Offering................................... 23,586,280 shares
Common Stock and Common Stock
Equivalents to be outstanding after the
Offering(2)................................ 26,575,878 shares
Use of proceeds by the Company............... To reduce indebtedness, which will provide the
Company with more financial flexibility to
pursue its ongoing strategies, including
appropriate acquisitions. The Company will not
receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders.
Nasdaq National Market symbol................ TTRR
</TABLE>

- ---------------
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option. See
"Underwriters."

(2) Includes 1,753,410 shares of Common Stock issuable upon exercise of employee
stock options outstanding as of March 31, 1996, of which 615,550 were
exercisable as of March 31, 1996 and an additional 162,500 will become
exercisable on or before September 30, 1996. Also includes 1,236,188 shares
deliverable upon exercise of warrants. See "Shares Eligible for Future
Sale."

6
<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following summary financial data should be read in conjunction with the
historical consolidated financial statements of Tracor, Inc. and the Unaudited
Pro Forma Condensed Combined Financial Information of Tracor, Inc. and AEL
Industries, Inc. and the related notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all of which are
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- -------------------------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- -------------------- ---------- ------------------------------------------
1996(1)(2) 1996 1995 1995(1) 1995 1994(3) 1993(3) 1992
--------- --------- --------- ---------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $245,900 $ 229,047 $ 211,241 $ 998,110 $ 886,920 $ 694,037 $ 407,495 $ 261,835
Cost of sales..................... 204,884 181,993 168,627 796,792 713,802 568,020 333,852 214,070
Selling, administrative, and
general expenses................ 30,849 27,607 26,239 125,709 104,928 78,201 49,889 36,639
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before interest and
income taxes.................... 10,167 19,447 16,375 75,609 68,190 47,816 23,754 11,126
Interest expense.................. 6,461 5,683 5,398 27,380 19,496 16,771 8,277 3,746
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes........ 3,706 13,764 10,977 48,229 48,694 31,045 15,477 7,380
Income taxes...................... 2,115 6,103 4,727 21,556 20,831 12,498 6,200 2,850
-------- -------- -------- -------- -------- -------- -------- --------
Net income........................ $ 1,591 $ 7,661 $ 6,250 $ 26,673 $ 27,863 $ 18,547 $ 9,277 $ 4,530
======== ======== ======== ======== ======== ======== ======== ========
SHARE DATA:
Historical and pro forma(4):
Net income per common and common
equivalent share:
Primary....................... $ .08 $ .32 $ .30 $ 1.18 $ 1.23 $ .96 $ .56 $ .32
Fully diluted................. $ .08 $ .32 $ .30 $ 1.18 $ 1.23 $ .93 $ .54 $ .32
Weighted average common and
common equivalent shares...... 24,878 24,878 23,138 24,168 24,168 22,113 22,069 21,953
As adjusted(5):
Net income per common and common
equivalent share:
Primary....................... $ .07 $ 1.18
Fully diluted................. $ .07 $ 1.18
Weighted average common and
common equivalent shares...... 23,418 22,645
OPERATING AND OTHER DATA:
EBITDA(6)......................... $ 17,685 $ 25,786 $ 22,018 $ 105,770 $ 91,044 $ 62,562 $ 33,368 $ 17,940
Capital expenditures.............. 3,884 2,754 1,721 18,890 13,676 11,007 8,435 7,360
Firm backlog...................... 995,960 995,960 785,163 1,001,378 923,978 806,228 590,366 301,502
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
AS ADJUSTED
FOR THE
WESTMARK
ACQUISITION
AND THE
HISTORICAL OFFERING(5)(7)
---------- --------------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $152,976 $151,476
Total assets............................ 616,370 615,034
Total long-term debt.................... 306,699 266,874
Shareholders' equity.................... 144,671 183,094
</TABLE>

- ---------------
(1) The pro forma income statement data, share data and operating and other data
have been derived from the Unaudited Pro Forma Condensed Combined Financial
Information of Tracor, Inc. and AEL Industries, Inc. and give effect to the
AEL Acquisition (consummated February 22, 1996), the financing thereof and
the payment of fees and expenses in connection therewith, as if the
acquisition and related financing thereof had occurred as of January 1,
1995.

7
<PAGE> 10

(2) Reflects charges to net income by AEL prior to the AEL Acquisition as
follows:

<TABLE>
<S> <C>
Charges to income before income taxes:
Provision for loss on fixed price contracts.............................. $ 8,403
Lower of cost or market inventory reserve................................ 800
Non-recurring compensation expense related to the sale of AEL............ 819
Other non-recurring costs related to the sale of AEL..................... 1,500
-------
Total charges to income before income taxes................................ 11,522
Tax effect of the above charges............................................ (4,109)
-------
Total charges to net income................................................ $ 7,413
=======
</TABLE>

(3) Reflects the acquisition of GDE on November 17, 1994 and the acquisition of
Vitro on August 25, 1993.

(4) Both primary and fully diluted net income per share amounts are computed in
accordance with the modified treasury stock method using the weighted
average common shares outstanding and equivalents assuming the exercise of
all outstanding warrants and options for common shares. The modified
treasury stock method of calculating earnings per share is used whenever the
number of shares of common stock obtainable upon the exercise of outstanding
options and warrants in the aggregate exceeds 20% of the number of common
shares outstanding at the end of the period. The modified treasury stock
method limits the Company's assumed purchase of common stock acquired to
satisfy option and warrant exercises to 20% of the outstanding common
shares. The balance of proceeds is assumed to be used to retire debt and any
remaining balances of funds are assumed to be reinvested in U.S. government
securities or commercial paper.

(5) In addition to giving effect to the AEL Acquisition, reflects the
cancellation of the Class A Common Stock, the Series B Warrant and the
Series C Warrant and the issuance of 8,267,435 shares of Common Stock in the
Westmark Acquisition, as if such shares had been issued on January 1, 1995.
Both primary and fully diluted net income per share amounts are computed in
accordance with the treasury stock method. The treasury stock method is used
rather than the modified treasury stock method discussed in footnote (4)
above, because the Company's outstanding options and warrants in the
aggregate after the Westmark Acquisition do not exceed 20% of the number of
common shares outstanding at the end of the period. Unlike the modified
treasury stock method, the treasury stock method does not limit the
Company's assumed purchase of common stock acquired to satisfy option and
warrant exercises.

(6) "EBITDA" represents, for any relevant period, earnings before interest and
income taxes, plus depreciation of property, plant and equipment and
amortization of intangible assets. EBITDA is not a measure of performance or
financial condition under generally accepted accounting principles, but is
presented to provide additional information related to debt service
capability. EBITDA should not be considered in isolation or as a substitute
for other measures of financial performance or liquidity under generally
accepted accounting principles.

(7) As adjusted to reflect the receipt of the estimated net proceeds from the
sale of 2,000,000 shares of Common Stock offered by the Company hereby,
after deducting underwriting discounts and commissions and other estimated
offering expenses. This excludes net proceeds to the Company from the sale
of shares of Common Stock pursuant to the exercise of the Underwriters'
over-allotment option.

8
<PAGE> 11

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors prior to making an
investment in the Common Stock offered hereby.

HIGH LEVERAGE

The Company is highly leveraged. The Company's leverage could have the
following consequences for holders of the Common Stock: (a) additional financing
for working capital, capital expenditures, acquisitions, or other purposes may
be difficult to obtain; (b) a substantial portion of cash flow from operations
must be dedicated to the payment of principal and interest on indebtedness; and
(c) the Company may be more vulnerable to defense industry or general economic
downturns which may limit its ability to withstand competitive pressures.

As of March 31, 1996, the Company's total indebtedness and stockholders'
equity were $283.8 million and $144.7 million, respectively. See
"Capitalization." The Company's ability to meet debt service obligations and to
reduce total debt will be dependent upon its future performance, which, in turn,
will be subject to general conditions in the defense industry and to financial,
business and other factors affecting the operations of the Company, many of
which are beyond its control.

RELIANCE ON ACQUISITIONS FOR GROWTH

Expansion through acquisitions is an important component of the Company's
growth strategy. However, the Company's continued ability to grow by acquisition
is dependent upon, and may be limited by, the availability of acquisition
candidates at reasonable prices, limitations in the Company's existing debt
agreements and the Company's ability to obtain acquisition financing on
acceptable terms. Competition in making acquisitions may come from larger
companies with significantly greater resources. Without additional acquisitions
and successful expansions and diversifications, the Company's ability to
continue to grow successfully could be adversely affected. To the extent that
the Company issues shares of Common Stock to finance any acquisition, existing
stockholders may experience dilution. Further, there can be no assurance that
the Company's management will be able to maintain or enhance the profitability
of any acquired business or consolidate its operations to achieve cost savings.
See "-- High Leverage," "-- Risks of Reductions or Changes in Military
Expenditures" and "Business -- Company Strategy."

RISKS OF REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES

The primary customers of the Company are the U.S. Navy, Air Force, Army and
other agencies of the DOD. Sales under contracts with the DOD or under
subcontracts that identified the DOD as the ultimate purchaser represented
approximately 81% of the Company's 1995 sales. The U.S. defense budget has been
declining in real terms since the mid-1980s, resulting in some delays in new
program starts, program stretch-outs and program cancellations. The U.S. defense
budget has begun to stabilize and, for the first time since the mid-1980s,
increased in 1996, excluding inflation. Approximately 70% of the Company's DOD
business is funded by the operations and maintenance portion of the defense
budget, which has declined less than any other segment and is expected to
comprise approximately one-third of the defense budget over the next decade. A
further significant decline in U.S. military expenditures, particularly in the
operations and maintenance portion of the defense budget, or a reapportioning of
such expenditures reducing the operations and maintenance segment, might
materially and adversely affect the Company's sales and earnings. The loss or
significant curtailment of the Company's material U.S. military contracts would
materially and adversely affect the Company's future sales and earnings. See
"Business -- Major Customers."

UNCERTAINTY ASSOCIATED WITH GOVERNMENT CONTRACTS

The Company's contracts with the U.S. government and its prime contractors
are subject to termination either upon default by the Company or at the
convenience of the U.S. government. Termination for convenience provisions
generally entitle the Company to recover costs incurred, settlement expenses and
profit on work completed prior to termination. In addition to the right of the
U.S. government to terminate, U.S.

9
<PAGE> 12

government contracts are conditioned upon the continuing availability of
congressional appropriations. Congress usually appropriates funds for a given
program on a fiscal year basis even though contract performance may take more
than one year. Consequently, at the outset of a major program, the contract is
usually partially funded, and additional monies are normally, incrementally,
committed to the contract by the procuring agency from appropriations made by
Congress for future fiscal years. See "Business -- Government Contracts."

The Company in the ordinary course of its business occasionally performs
under contracts for which funding authorization from the U.S. government has
either expired or not been obtained. No assurance can be given that the Company
will realize the revenue expected from performing under such contracts.

Because the Company contracts to supply goods and services to the U.S.
government, it is also subject to other risks, including contract suspensions
and changes in government policies or regulations. See "Business -- Government
Contracts."

SHARES ELIGIBLE FOR FUTURE SALE

The 8,267,435 shares of Common Stock issued in the Westmark Acquisition are
eligible for sale in the public market, subject to certain limitations under the
Securities Act of 1933, as amended (the "Securities Act"), applicable to
affiliates of Westmark and certain agreements entered into among certain
affiliates of Westmark which limit the number of shares available to be sold by
such affiliates of Westmark to approximately one-half of the amount received by
them in the Westmark Acquisition during the two years following the consummation
of the Westmark Acquisition. Former shareholders of Westmark have two demand
registration rights and unlimited incidental and piggy-back registration rights.
Sales of substantial amounts of Common Stock (including shares that may be
issued upon the exercise of employee stock options or shares deliverable upon
exercise of warrants), or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. In addition, the
timing and amount of sales of any additional shares of Common Stock by
stockholders may have an adverse effect on the Company's ability to raise
additional equity capital. See "Shares Eligible for Future Sale."

ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK

The Certificate of Incorporation of the Company authorizes the Board of
Directors to issue preferred stock without stockholder approval. The Board of
Directors could use the preferred stock as a means to delay, defer or prevent a
takeover attempt that a stockholder might consider in the Company's best
interest. In addition, certain provisions of Delaware law and the Company's
Certificate of Incorporation and Bylaws might impede a merger, consolidation,
takeover or other business combination involving the Company, as well as
specified transactions with an interested stockholder. See "Description of
Capital Stock."

WESTMARK ACQUISITION

On June , 1996, the Company consummated the Westmark Acquisition. The
purchase consideration paid by Tracor to Westmark in the Westmark Acquisition
included 8,267,435 shares of Common Stock. The principal assets of Westmark
acquired by Tracor in the Westmark Acquisition were 978,458 shares of Class A
Common Stock and the Tracor Warrants. The shares of the Class A Common Stock and
the Tracor Warrants were cancelled and will not be reissued.

The Company's management believes the benefits of the Westmark Acquisition
include the following:

- - Simplified Capital Structure: The shares of Class A Common Stock and Tracor
Warrants acquired in the Westmark Acquisition have been cancelled and will not
be reissued, resulting in a simplified capital structure. In addition, the
cancellation of the Tracor Warrants will eliminate the requirement, for future
financial reporting periods, that the Company utilize the "modified treasury
method" of calculating earnings per share, a complex method not widely used or
understood.

10
<PAGE> 13

- - Orderly Distribution of Shares: The resale of shares by Selling Stockholders
pursuant to this Prospectus and pursuant to other registration rights granted
to holders of Common Stock received in connection with the Westmark
Acquisition will provide for an orderly distribution of shares of Common
Stock. Of the 8,267,435 shares of Common Stock issued to Westmark in the
Westmark Acquisition, approximately 4,130,000 shares of Common Stock
(approximately 50% of the total issued to Westmark) are subject to resale
restrictions contained in agreements among certain affiliates of Westmark that
restrict sales during the two-year period following consummation of the
transaction. Of the shares of Common Stock not subject to such resale
restrictions, approximately 3,330,980 shares of Common Stock are being offered
for sale pursuant to this Prospectus and the remaining approximately 800,000
shares may be sold from time to time in accordance with applicable law.

- - Broader Stockholder Base: As a result of the liquidation of Westmark in
connection with the Westmark Acquisition, the shares of Common Stock issued in
the Westmark Acquisition are now held by approximately 58 stockholders rather
than one stockholder. Additionally, as a result of the sale of shares of
Common Stock by Selling Stockholders pursuant to this Prospectus, the
Company's stockholder base will be further broadened.

See "Selected Historical and Pro Forma Financial Data."

USE OF PROCEEDS

The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $39.8 million
($ if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.

The net proceeds to be received by the Company will be used to retire a
portion of its indebtedness under its amended and restated credit agreement (the
"Amended Credit Agreement"), which will provide the Company with more financial
flexibility to pursue its ongoing strategies, including appropriate
acquisitions. The Amended Credit Agreement provides for three term loan
facilities and the net proceeds to be received by the Company from the Offering
will be applied proportionately to partial repayment of these facilities. Such
loan facilities bear interest at the Eurodollar rate plus 2 1/2%, 3% and 3 1/4%,
respectively, resulting in a weighted average interest rate of 8.3%. The loan
facilities mature on October 31, 1999, October 31, 2000, and April 30, 2001,
respectively. On February 22, 1996, the indebtedness under the Amended Credit
Agreement was increased by $135 million, primarily to finance the AEL
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

PRICE RANGE OF COMMON STOCK AND SERIES A WARRANTS

The Common Stock and Series A Warrants are listed on the Nasdaq National
Market where they have traded since late 1992 under the symbols "TTRR" and
"TTRRW," respectively. Prior thereto, the Common Stock and Series A Warrants had
a limited trading market and were not listed on a national securities exchange.
The following table sets forth the high and low closing sales price of the
Common Stock and Series A Warrants reported by the Nasdaq National Market for
the periods indicated:

<TABLE>
<CAPTION>
SERIES A
COMMON STOCK WARRANTS
-------------- --------------
1996
-----------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.............................................. $17 7/16 $14 $15 $11 7/8
Second Quarter (through June 5, 1996)...................... 21 17 1/8 18 1/2 14 5/8
</TABLE>

<TABLE>
<CAPTION>
1995
-----------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.............................................. $14 $10 $11 3/8 $ 7 1/2
Second Quarter............................................. 14 1/4 11 3/8 11 3/4 8 7/8
Third Quarter.............................................. 18 1/8 13 5/8 15 5/8 11 1/8
Fourth Quarter............................................. 16 7/8 14 1/2 14 5/8 11 7/8
</TABLE>

11
<PAGE> 14

<TABLE>
<CAPTION>
1994
-----------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.............................................. $10 1/8 $ 7 7/8 $ 7 1/2 $ 5 5/8
Second Quarter............................................. 8 1/2 6 15/16 6 1/8 5
Third Quarter.............................................. 8 3/4 7 1/8 7 1/8 5 1/4
Fourth Quarter............................................. 12 5/8 7 1/2 10 5 1/2
</TABLE>

On June 5, 1996, the last reported sales prices of the Company's Common
Stock and Series A Warrants on the Nasdaq National Market were $20 7/8 per share
and $18 1/4 per warrant, respectively. As of May 2, 1996, the Company had
approximately 7,000 holders of the Common Stock, of which 262 were stockholders
of record. As of May 2, 1996, the Company had 3 holders of record for the Series
A Warrants.

DIVIDEND POLICY

The Company has never paid a cash dividend on its Common Stock, although
Tracor's predecessor company ("Old Tracor") paid dividends in certain years
prior to 1989. The Company currently intends to retain its earnings for the
foreseeable future to provide funds for the expansion of its business. The
payment of dividends in the future will be at the sole discretion of the Board
of Directors and will depend upon the Company's profitability, financial
condition, capital needs, future prospects, contractual restrictions and other
factors deemed relevant by the Board of Directors. The Amended Credit Agreement
and the indentures pursuant to which the Company's 10 7/8% Senior Subordinated
Notes due 2001 (the "Senior Subordinated Notes") and the 10 7/8% Senior
Subordinated Series A Notes due 2001 (the "Series A Notes") were issued,
currently impose certain limitations on the payment of dividends. See Note G to
the Consolidated Financial Statements of Tracor, Inc.

12
<PAGE> 15

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at March 31, 1996: (i) on a historical basis, (ii) as adjusted for the
Westmark Acquisition and (iii) as adjusted for the Westmark Acquisition and the
sale of shares by the Company offered hereby. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the historical consolidated financial statements and
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
AS ADJUSTED
FOR THE
AS ADJUSTED WESTMARK
FOR THE ACQUISITION
WESTMARK AND THE
HISTORICAL ACQUISITION OFFERING
---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Revolving loan......................................... $ -- $ -- $ --
Term loans............................................. 180,000 180,000 140,175
Senior Subordinated Notes.............................. 105,000 105,000 105,000
Series A Notes......................................... 10,947 10,947 10,947
Other.................................................. 10,752 10,752 10,752
-------- -------- --------
Total long-term debt................................ 306,699 306,699 266,874
Less current portion of long-term debt................. 22,921 22,921 22,921
-------- -------- --------
Long-term debt, net of current maturities........... 283,778 283,778 243,953
Shareholders' equity:
Preferred stock........................................ -- -- --
Common stock........................................... 132 211 235
Class A common stock................................... 10 -- --
Additional paid-in capital............................. 76,651 75,180 114,981
Retained earnings...................................... 67,878 67,878 67,878
-------- -------- --------
Total shareholders' equity.......................... 144,671 143,269 183,094
-------- -------- --------
Total capitalization..................................... $ 428,449 $ 427,047 $427,047
======== ======== ========
</TABLE>

- ---------------
Excludes net proceeds to the Company from the sale of shares of Common Stock
pursuant to the exercise of the U.S. Underwriters' over-allotment option.

At March 31, 1996, the Company had $40 million available under its revolving
loans facility.

13
<PAGE> 16

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table sets forth certain selected historical and pro forma
financial data of Tracor. The historical data as of December 31, 1995, 1994,
1993 and 1992 has been derived from the consolidated financial statements of the
Company. The historical data as of December 31, 1991 has been derived from the
combined financial statements of the Company's predecessor. The historical
financial data for the three months ended March 31, 1996 and 1995 are derived
from unaudited financial statements. The unaudited financial statements include
all adjustments consisting of normal recurring accruals, which management
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. The pro forma data has been derived
from the Unaudited Pro Forma Condensed Combined Statements of Income of Tracor
and AEL which are included elsewhere herein and reflects the acquisition of AEL
as if it had occurred on January 1, 1995. The information below should be read
in conjunction with the consolidated financial statements of the Company, the
pro forma condensed combined financial statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of GDE and AEL and the notes related thereto, all of which
are included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------------------------------------
OLD TRACOR
HISTORICAL
PRE-REORGA-
HISTORICAL HISTORICAL NIZATION(4)
PRO FORMA ------------------- PRO FORMA ----------------------------------------- ------------
1996(1)(2) 1996 1995 1995(1) 1995 1994(3) 1993(3) 1992 1991
--------- -------- -------- ---------- -------- -------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $245,900 $229,047 $211,241 $ 998,110 $886,920 $694,037 $407,495 $261,835 $253,610
Cost of sales......... 204,884 181,993 168,627 796,792 713,802 568,020 333,852 214,070 215,710
Selling,
administrative, and
general expenses.... 30,849 27,607 26,239 125,709 104,928 78,201 49,889 36,639 35,592
-------- -------- -------- --------- -------- -------- -------- -------- --------
Earnings before
interest and income
taxes............... 10,167 19,447 16,375 75,609 68,190 47,816 23,754 11,126 2,308
Reorganization
costs............... -- -- -- -- -- -- -- -- 13,803
Fresh start
adjustments......... -- -- -- -- -- -- -- -- 16,211
Interest expense...... 6,461 5,683 5,398 27,380 19,496 16,771 8,277 3,746 9,129
-------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary
gain................ 3,706 13,764 10,977 48,229 48,694 31,045 15,477 7,380 (36,835)
Income taxes.......... 2,115 6,103 4,727 21,556 20,831 12,498 6,200 2,850 2,941
-------- -------- -------- --------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary
gain................ 1,591 7,661 6,250 26,673 27,863 18,547 9,277 4,530 (39,776)
Extraordinary gain
from forgiveness of
debt................ -- -- -- -- -- -- -- -- 428,427
-------- -------- -------- --------- -------- -------- -------- -------- --------
Net income............ $ 1,591 $ 7,661 $ 6,250 $ 26,673 $ 27,863 $ 18,547 $ 9,277 $ 4,530 $388,651
======== ======== ======== ========= ======== ======== ======== ======== ========
SHARE DATA:
Historical and pro
forma:
Net income per
share:
Primary........... $ .08 $ .32 $ .30 $ 1.18 $ 1.23 $ .96 $ .56 $ .32 --(5)
Fully diluted..... $ .08 $ .32 $ .30 $ 1.18 $ 1.23 $ .93 $ .54 $ .32 --(5)
Weighted average
common and common
equivalent
shares............ 24,878 24,878 23,138 24,168 24,168 22,113 22,069 21,953 --(5)
As adjusted(6):
Net income per
share:
Primary........... $ .07 $ 1.18
Fully diluted..... $ .07 $ 1.18
Weighted average
common and common
equivalent
shares............ 23,418 22,645
OPERATING AND OTHER
DATA:
Capital
expenditures........ $ 3,884 $ 2,754 $ 1,721 $ 18,890 $ 13,676 $ 11,007 $ 8,435 $ 7,360 $ 3,769
Depreciation and
amortization........ 7,518 6,339 5,643 30,161 22,854 14,746 9,614 6,814 10,495
Firm backlog.......... 995,960 995,960 785,163 1,001,378 923,978 806,228 590,366 301,502 286,901
</TABLE>

14
<PAGE> 17

<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------------------------------------
1996 1995 1994(3) 1993(3) 1992 1991
--------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.................................. $152,976 $129,129 $ 95,392 $ 87,140 $ 45,977 $ 41,828
Total assets..................................... 616,370 467,456 444,086 305,733 139,771 135,921
Total long-term debt............................. 306,699 191,175 205,738 144,302 50,194 62,113
Shareholders' equity............................. 144,671 136,965 90,592 63,167 52,345 41,542
</TABLE>

(2) Reflects charges to net income by AEL prior to the AEL Acquisition as
follows:

Charges to income before income taxes:
Provision for loss on fixed price contracts..................................................... $ 8,403
Lower of cost or market inventory reserve....................................................... 800
Non-recurring compensation expense related to the sale of AEL................................... 819
Other non-recurring costs related to the sale of AEL............................................ 1,500
-------
Total charges to income before income taxes....................................................... 11,522
Tax effect of the above charges................................................................... (4,109)
-------
Total charges to net income....................................................................... $ 7,413
=======
</TABLE>

(3) Reflects the acquisition of Vitro on August 25, 1993, and the acquisition of
GDE on November 17, 1994.

(4) Commission regulations require the presentation of pre-reorganization
(predecessor) data, which represents a different reporting entity and is
prepared on a different basis of accounting and, accordingly, has been
separated from post-reorganization data by vertical double lines.

(5) The combined entities shown in the pre-reorganization history did not have a
defined capital structure, and, accordingly, share data is not provided.

(6) In addition to giving effect to the AEL Acquisition, reflects the
cancellation of the Class A Common Stock, the Series B Warrant and the
Series C Warrant and the issuance of 8,267,435 shares of Common Stock in the
Westmark Acquisition, as if such shares had been issued on January 1, 1995.

15
<PAGE> 18

SELECTED HISTORICAL SALES PERCENTAGES

The following table presents certain income statement data as a percentage
of net sales for the three months ended March 31, 1996 and 1995 and for the
years ended December 31, 1995, 1994, 1993 and 1992.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------------------
1996 1995 1995 1994 1993 1992
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 79.5 79.8 80.5 81.8 81.9 81.8
------ ------ ------ ------ ------ ------
Gross profit.............................. 20.5 20.2 19.5 18.2 18.1 18.2
Operating expenses.......................... 11.0 11.4 10.8 10.9 11.9 14.0
Intangible amortization..................... 1.1 1.0 1.0 0.4 0.3 --
------ ------ ------ ------ ------ ------
Total selling, administrative, and general
expenses............................... 12.1 12.4 11.8 11.3 12.2 14.0
------ ------ ------ ------ ------ ------
Earnings before interest and income taxes... 8.5 7.8 7.7 6.9 5.8 4.2
Interest expense............................ 2.5 2.6 2.2 2.4 2.0 1.4
------ ------ ------ ------ ------ ------
Income before taxes......................... 6.0 5.2 5.5 4.5 3.8 2.8
Income taxes................................ 2.7 2.2 2.3 1.8 1.5 1.1
------ ------ ------ ------ ------ ------
Net income.................................. 3.3% 3.0% 3.1% 2.7% 2.3% 1.7%
====== ====== ====== ====== ====== ======
</TABLE>

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS ENVIRONMENT

Approximately 88% of the products, systems, and services of Tracor, Inc.
and its subsidiaries ("Tracor" or the "Company") are sold to the U.S. government
through direct contracts, primarily with agencies of the U.S. Department of
Defense ("DOD"), or through subcontracts with other U.S. government contractors.
Beginning in the mid-1980s, the defense industry in general was negatively
impacted by the perceived reduction of threats from the former Soviet Union and
eastern European countries and, more recently, by competing demands upon the
federal budget. While this has resulted in a U.S. defense budget that has
decreased in real dollars, adjusted for inflation, over the last decade, it
recently began to stabilize. For the first time in many years, the total U.S.
defense budget increased in 1996, excluding inflation. Approximately 70% of the
Company's DOD sales are funded by the operations and maintenance segment of the
defense budget in areas which are among today's top DOD priorities. This segment
has declined less than other segments of the budget as readiness priorities have
emerged. It is now the largest segment of the defense budget and it is projected
to comprise about one-third of the defense budget over the next decade. The
procurement portion of the budget is expected to experience a modest increase
over this same time frame, and Tracor is also well positioned to benefit from
this upturn.

The contraction of the defense budget in recent years and the attendant
excess capacity and increase in competition for contracts among defense
companies has resulted in a significant consolidation in the industry.
Principally through several acquisitions, the Company has substantially
increased its revenue base and reduced combined overhead costs through staff
reductions, facilities consolidations, process improvements, and the elimination
of certain other duplicative costs. These efficiencies and increased revenue
base have enhanced Tracor's cost competitiveness in bidding on new contracts and
recompetes of existing contracts. Management is continuing to pursue its
acquisition strategy and believes the continuing consolidation within the
defense industry will result in opportunities to pursue additional selected
acquisitions, both large and small, which should allow the Company to continue
to expand its revenue base and further improve its cost-competitive position.

While the long-term impact of changes in the defense budget and the
industry consolidation cannot be predicted with certainty, management believes
the Company is well positioned to continue to leverage its strengths and
successes in the U.S. defense and intelligence marketplaces and increase its
ongoing diversification efforts into foreign defense markets, nondefense U.S.
government markets, and selected commercial markets.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1996, Versus Three Months Ended March 31, 1995

The results of operations for the three months ended March 31, 1996,
include the operating results of AEL since the date of acquisition, February 22,
1996. AEL's results are not included in the comparative prior period of 1995.

Sales and operating profits increased approximately 8% and 19%,
respectively, due to improved operating results throughout the Company and the
acquisition of AEL. Sales increased approximately 4% as a result of the
acquisition of AEL. Other sales increases were due primarily to deliveries of
mission planning workstations and increased revenues from QF-4 drone production
and MQM-107E sub-scale drone development contracts. Operating profits increased
approximately 3% from the acquisition of AEL. Other operating profit increases
were the result of increased sales and slightly higher profit margins on those
sales.

Interest expense increased 5% compared to the first quarter of 1995 due
primarily to the additional term debt borrowed in conjunction with the AEL
Acquisition. This increase was reduced by lower interest expense on Series A
Notes due to a payment of $3.8 million in March 1995 and by increased investment
interest income.

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<PAGE> 20

The effective tax rate increased from 43% to 44% due to an increase in
combined federal and state income tax rates.

The Company's results of operations were significantly affected by major
acquisitions completed in 1994 and 1993. The results of operations of the
acquired companies are included only from their respective dates of acquisition.
(See Note A to the Consolidated Financial Statements of Tracor, Inc.)

Year Ended December 31, 1995, Versus Year Ended December 31, 1994

On November 17, 1994, Tracor purchased all of the outstanding common stock
of GDE Holdings, Inc., including its wholly owned subsidiaries (individually and
collectively referred to as "GDE"). GDE designs, develops, manufactures, and
supports automatic test systems, imagery and information systems, and mission
planning systems. The acquisition was accounted for using the purchase method,
and, accordingly, the purchase price ($102 million) and the liabilities assumed
($76 million) were allocated to the assets acquired ($104 million) based on
their respective fair values at the date of the acquisition. The resulting
excess of the purchase price over the fair value of the net assets acquired ($74
million) is being amortized over 30 years.

Sales increased 28% for the year due to the acquisition of GDE, while
Tracor's sales from its preacquisition business remained relatively constant.
Increased revenues from a new contract for the production of sub-scale drones
and the production of drones under the QF-4 contract were offset by reductions
in existing and newly awarded engineering contracts.

Selling, general, and administrative expenses were 11.8% of sales in 1995,
up from 11.3% of sales in 1994. While total operating expenses included in
selling, general, and administrative expenses remained constant at 10.9% of
sales in 1995 and 1994, the operating expenses from Tracor's preacquisition
business decreased as a percent of sales from 10.7% in 1994 to 10.0% in 1995.
Amortization expense, also included in selling, general, and administrative
expenses, increased from less than .5% of sales in 1994 to 1% of sales in 1995
due to additional intangible assets arising from the acquisition of GDE. The
Company's operating profits increased 51% due primarily to the acquisition of
GDE. Excluding GDE's results, earnings increased 3% due to higher profit margins
on engineering contracts and electronic countermeasures systems.

Fully diluted earnings per share increased from $.93 in 1994 to $1.23 in
1995. A $1.2 million pretax gain on the sale of real estate contributed $.03 to
earnings per share in the third quarter of 1995. Weighted average common and
common equivalent shares used in the computations increased from 22.1 million in
1994 to 24.2 million in 1995 due primarily to a public offering of common stock
completed in May 1995.

Interest expense increased $4.4 million as a result of the issuance of
$10.9 million of 10 7/8% Senior Subordinated Series A Notes and $55 million
additional senior term debt borrowed in conjunction with the GDE Acquisition.
This increase was offset by a slight reduction in interest rates on the senior
term debt and by increased investment interest income of $1.7 million.

Income taxes were incurred at statutory federal, state, and foreign rates,
with an increase in the effective tax rate of 40% in 1994 to 42.7% in 1995. Such
increase is primarily the result of increased nondeductible amortization expense
of goodwill. At December 31, 1995, Tracor had a net deferred income tax asset of
$8.6 million, primarily arising from acquisitions. Based on the Company's prior
operating earnings and its forecast of future income, management believes it is
more likely than not that all net deferred income tax assets will be realized.
The realization of deferred tax assets will be evaluated periodically.

Year Ended December 31, 1994, Versus Year Ended December 31, 1993

On August 25, 1993, the Company purchased all of the outstanding common
stock of Vitro Corporation, including its wholly owned subsidiaries
(individually and collectively referred to as "Vitro"). Vitro provides
management and engineering expertise for the design, development, acquisition,
production, test, operation, maintenance, and modernization of ships,
submarines, missiles, aircraft, and complex computer systems. The acquisition
was accounted for using the purchase method, and, accordingly, the purchase
price ($92 million) and the liabilities assumed ($62 million) were allocated to
the assets acquired ($130 million) based on their

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<PAGE> 21

respective fair values at the date of acquisition. The resulting excess of the
purchase price over the fair value of the net assets acquired ($24 million) is
being amortized over 25 years.

Sales increased 70%, consisting of an increase of 74% due to the
acquisitions of Vitro and GDE (previously discussed), offset partially by a
decrease of 4% in the operations of Tracor's pre-acquisition businesses.

Earnings before interest and income taxes increased a total of 101%
primarily resulting from an increase of 77% due to the acquisitions of Vitro and
GDE. Other increases of approximately 24% resulted primarily from higher profits
on deliveries of electronic countermeasures systems and, in general, from
reductions of combined overhead costs resulting from staff reductions,
facilities consolidation, process improvements, and the elimination of other
duplicative costs.

Fully diluted earnings per share, which increased from $.54 for 1993 to
$.93 for 1994, were based on the weighted average common and common equivalent
shares in both years of 22.1 million. Weighted average common and common
equivalent shares decreased during the year due to treasury purchases of 975,000
shares and increased with the issuance of approximately 1.9 million common
shares in conjunction with the acquisition of GDE. The net effect of these
changes in common shares outstanding had no material effect on fully diluted
earnings per share for the year of 1994.

Interest expense increased substantially with the full-year effect of the
issuance of $105 million of Senior Subordinated Notes in conjunction with the
Vitro acquisition, the issuance of $14.8 million of Series A Notes and
additional senior term debt borrowed in conjunction with the GDE Acquisition,
and higher average term debt interest rates for the year.

Income taxes were incurred at the statutory federal, state, and foreign
rates, with effective tax rates of 40% in both 1994 and 1993. The federal income
tax legislation enacted in 1993 is not expected to have a material impact on
liquidity, financial condition, or results of operations.

FINANCIAL CONDITION AND LIQUIDITY

Working capital increased to $153.2 million at March 31, 1996, compared to
$129.1 million at December 31, 1995, due primarily to the AEL Acquisition. The
ratio of current assets to current liabilities was 2.1 at March 31, 1996,
compared to 2.3 at December 31, 1995. Cash provided by operating activities
decreased in the first quarter of 1996 compared to the first quarter of 1995
primarily due to the timing of changes in accounts receivable, inventories, and
accounts payable. Accounts receivable decreased in the prior period due to the
accelerated collection of billings related to contract deliveries. Inventories
increased in the first quarter of 1996 in support of various programs and spare
parts inventories. Accounts payable decreased during the current quarter due to
the timing of subcontractor progress payments and the funding of insurance
programs. In addition to these working capital changes, cash increased in the
first quarter of 1995 due to the receipt of an income tax refund related to the
preacquisition period of an acquired company. Normal capital expenditures of
$2.8 million and scheduled long-term debt payments of $2.6 million were incurred
in the quarter. The proceeds from the Amended Credit Agreement and cash on hand
were used to finance the AEL Acquisition, to retire approximately $10 million of
debt assumed in the acquisition, and to pay approximately $5 million of
financing costs.

No borrowings were made from the Company's $40 million revolving loans
facility during the quarter. At March 31, 1996, the Company had outstanding
letters of credit of approximately $38.2 million, leaving $11.8 million
available under its $50 million letters of credit facility. If the $50 million
letters of credit facility should become fully utilized, $20 million of the
revolving loans facility, to the extent then available, can be used for issuance
of additional letters of credit. Existing letters of credit secure performance
commitments on certain contracts with foreign customers and serve as collateral
for certain insurance policies.

At March 31, 1996, the Company had firm backlog, which includes funded and
unfunded contractual commitments, of $996 million, as compared to $924 million
at December 31, 1995. Included in firm backlog at March 31, 1996, is $76.7
million of backlog attributable to AEL. Approximately 79% of firm backlog
represents contracts with agencies of the U.S. government or its prime
contractors, and about 78% is expected

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<PAGE> 22

to be earned within one year. In addition, the Company's backlog of unexercised
contract options on U.S. government contracts was $1.1 billion at March 31,
1996, compared to $948.9 million at December 31, 1995.

The Company's operations typically do not require large capital
expenditures, and there were no material capital commitments at March 31, 1996.

Except for available amounts under the Amended Credit Agreement's revolving
loans and letters of credit facilities, the Company's present debt position
limits its ability to obtain substantial additional debt for operational
purposes in the near future. However, management believes the net proceeds from
the sale of Common Stock offered hereby, existing cash, funds generated by
continuing operations, and the Amended Credit Agreement will provide sufficient
resources to allow the Company to meet its obligations, fund capital
requirements, and continue to pursue its business strategy. Management also
believes it can obtain the necessary resources to pursue further acquisitions in
the ongoing U.S. defense industry consolidation.

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<PAGE> 23

BUSINESS

GENERAL

Tracor provides a variety of sophisticated electronic products, systems and
services for the DOD, other U.S. government agencies, foreign governments and
commercial customers. The Company's business units operate primarily in the U.S.
and foreign defense electronics markets and have developed recognized
proficiency in designing, developing, producing and supporting high-priority
defense systems. The Company's products and services enable defense customers to
enhance the operational performance and readiness of existing systems and
platforms, as well as extend their useful lives and survivability.

INDUSTRY OVERVIEW

Beginning in the mid-1980s, the U.S. defense industry in general was
negatively impacted by the perceived reduction of threats from the former Soviet
Union and eastern European countries and, more recently, by competing demands
upon the federal budget. This has resulted in a U.S. defense budget that has
decreased in real dollars, adjusted for inflation, since the mid-1980s. For many
defense contractors, the defense budget decrease and the related DOD procurement
strategies have resulted in program cancellations, scope reductions, delays in
contract funding or awards and significant predatory pricing pressures
associated with increased competition and reduced funding. The defense budget
has begun to stabilize and, for the first time in many years, has increased in
1996, excluding inflation.

The U.S. defense budget may generally be divided into four major areas:
military personnel, operations and maintenance, procurement and research and
development. The Company's activities are primarily funded by the operations and
maintenance segment, relating primarily to systems, products and services which
support the readiness, improved performance and increased life expectancy of
existing platforms, weapons systems and military forces. Despite the sharp
overall decline in the defense budget, the operations and maintenance segment
has declined less sharply, as existing weapons platforms are upgraded and
maintained to provide a cost-effective means of supporting a smaller military
force. As a result, the operations and maintenance segment has become the
largest segment of the DOD budget. Management estimates the current DOD
operations and maintenance market to be approximately $92 billion per year, or
approximately one-third of the U.S. defense budget. Defense procurement relates
primarily to the development, production and acquisition of weapons platforms
such as aircraft, land vehicles and naval vessels. Until the last few years, the
procurement budget was the largest segment of the DOD budget. Over the past
decade, the declining U.S. defense budget has resulted in a significant decrease
in the military procurement budget as new generation weapons platforms have been
cancelled or delayed. DOD budget priorities over the next several years are
likely to emphasize the readiness (operations and maintenance) of a smaller
force structure and the need to extend the lives of existing weapons platforms
by incrementally upgrading their capabilities, while the procurement portion is
expected to experience a modest increase. Management believes Tracor is also
well positioned to benefit from this procurement upturn.

Declining defense budgets and increasing pressures for cost reductions have
precipitated a major consolidation in the defense industry. The Company believes
large diversified companies are likely to continue to make the decision to
divest non-strategic defense assets, as uncompetitive cost structures and lack
of critical mass and long-term commitment to the industry put such diversified
companies at a relative competitive disadvantage. In addition, smaller,
independent businesses may find it more difficult to compete effectively in the
changing defense environment and may become available for acquisition. The
Company believes this industry condition will continue for the next several
years and that businesses and product lines will become available for
acquisition on acceptable financial terms.

COMPANY STRATEGY

The Company's strategy in the evolving defense market consists of three key
elements: (i) protect and strengthen core businesses; (ii) expand and diversify
into new markets complementary to current operations; and (iii) make strategic
acquisitions of well-positioned companies which complement the existing business

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<PAGE> 24

strategy. Key elements in support of this strategy are continued high-quality
performance and continued improvements in efficiency to remain highly
competitive.

PROTECT AND STRENGTHEN CORE BUSINESSES. The Company's strategy for
protecting and strengthening its core businesses is comprised of a number of key
elements.

Support high-priority programs. The foundations for Tracor's core
businesses are high-priority, long-term, stable programs in which Tracor
has performed for many years. Many of Tracor's systems, products and
services support key weapons platforms and systems which are expected to
continue their important roles in the U.S. defense strategy. These
platforms include the AEGIS cruisers and destroyers, the Trident
submarines, the Tomahawk missile and key aircraft including the F-16,
F/A-18, C-17, C-130, B-1, B-2 and most helicopters. In addition, Tracor has
been a long-term incumbent contractor in producing a large percentage of
the nation's full-scale target drones, in producing a variety of range
instrumentation systems for more than 20 years, in supplying high-quality
image exploitation and mission planning systems and in providing important
information systems expertise to a number of customers including national
intelligence agencies.

Tracor's strategy is to continue its excellent performance record in
its core business areas by supplying high-quality products, systems and
services at competitive prices. Because of the Company's long-term
established presence, experience and knowledge, quality performance and
cost competitiveness, management believes the Company is well positioned to
continue to support these stable, high-priority DOD programs.

Maintain the readiness of existing forces. The Company will continue
to compete for contracts to provide products, systems and services which
are suited to supporting the readiness of the military force, a major
thrust of the DOD's current defense strategy. A substantial portion of the
Company's operations are focused on extending the useful lives of existing
weapons systems through upgrades and modifications rather than the
procurement of costly new systems and providing a wide range of
capabilities which enhance the combat effectiveness and readiness of
military personnel and equipment.

Enhance survivability of weapons platforms and crews. The Company's
electronic warfare systems enhance the survivability of weapons platforms
and related personnel at a relatively low cost. Management expects demand
for these products to remain strong as customers seek effective,
cost-efficient means for protecting crews and high-value assets.

EXPAND AND DIVERSIFY INTO NEW MARKETS. The Company is experiencing success
in transferring its core technologies and competencies to new customers and
markets. The expansion of the Company's core businesses and its diversification
to new businesses generally require several years of planning, development and
marketing. The Company's diversification and expansion efforts have focused on
the following areas:

Nondefense U.S. Government. The Company has established an important
presence in the U.S. government nondefense market. Its information systems
specialists are providing advanced information systems capabilities to an
expanding set of U.S. intelligence customers. In 1993 and 1995, the Company
was awarded contracts from the Federal Aviation Administration (the "FAA")
to perform system engineering and integration for its new radar systems.
The Company has also received contracts from NASA.

International. The Company sells a wide range of products and
services to numerous friendly foreign governments. Products sold
internationally include countermeasures systems and expendables, radar and
electronic tracking systems, target drones, imagery systems and automatic
test equipment for F-16 aircraft acquired by foreign governments. In
addition, Tracor's aircraft avionics test equipment was expanded in 1995
with the win of a test equipment program for the new Japanese F-2 fighter.
International business accounted for 10% of total 1995 revenues.

New DOD Business. Tracor is constantly evaluating its technology to
identify areas of potential new business within the DOD. During 1995, the
Company won contracts with a total value of more than $270 million,
including unexercised options that represent new DOD business. Examples
include a program in

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<PAGE> 25

support of the U.S. Army's battlefield digitization initiatives, a new
flare development program and a program to develop a minefield breaching
system. Tracor also won a key contract to upgrade an important Defense
Mapping Agency system and a contract from the Naval Air Warfare Center to
provide design engineering and software services for a variety of defense
systems.

Commercial. The Company has developed a number of commercial
applications of its technology in areas as diverse as automotive laser
detectors, artificial heart valve testing, digital photogrammetry, direct
broadcast television antenna materials and laser transmitters for fiber
optics communications. In addition, the Company has several contracts for
applying a range of sophisticated information systems capabilities to
commercial and state government customers.

ACQUIRE COMPLEMENTARY BUSINESSES. The Company's acquisition strategy is a
key component of its overall business strategy. Tracor management believes the
continuing consolidation within the defense industry will result in additional
opportunities for the Company to make attractive acquisitions.

Vitro Acquisition. On August 25, 1993, Tracor purchased all of the
outstanding common stock of Vitro, a provider of high-technology systems
engineering and integration, software engineering, and various other
services, from The Penn Central Corporation for approximately $92 million.
Tracor financed the Vitro acquisition and refinanced existing indebtedness
through the issuance of $105 million of Senior Subordinated Notes and a new
$78 million credit facility. As a result of the Vitro acquisition, the
Company is one of the major providers of systems and software engineering
support to the Navy and is one of the few companies capable of providing
the U.S. Navy with the expertise necessary for its most technologically
advanced communications and guided missile systems, including those for the
AEGIS cruisers and destroyers and the submarine ballistic missile programs.
The acquisition of Vitro also strengthened Tracor's position with key
nondefense U.S. government customers such as national intelligence
organizations and the FAA.

GDE Acquisition. On November 17, 1994, Tracor purchased all of the
outstanding common stock of GDE, which has a major presence in the
application of advanced digital imagery technology to key DOD and
intelligence systems and programs, from its shareholders for approximately
$102 million, including the effect of a post-closing amendment to the
acquisition that was finalized in March 1995. Tracor financed the GDE
Acquisition by borrowing $55 million in additional term loans under its
Amended Credit Agreement, issuing approximately $10.9 million of Series A
Notes, issuing 1,928,050 shares of Common Stock and using approximately
$19.9 million of the Company's cash on hand. As a result of the GDE
Acquisition, the Company has strengthened its position as a provider of
products and services to both the DOD and non-DOD intelligence communities.
GDE produces advanced digital technology products for imagery information
systems, mission planning and automatic ground test equipment.

AEL Acquisition. On February 22, 1996, Tracor purchased all of the
outstanding common shares of AEL, which designs and manufactures
sophisticated countermeasures, simulation and radar-warning receiver
systems, installs and integrates electronic avionics equipment in military
and commercial aircraft and provides state-of-the-art antenna, microwave
and integrated circuit components. The consideration paid to AEL
shareholders was approximately $99 million cash for the common shares.
AEL's long-term indebtedness prior to the acquisition totaled approximately
$20 million, of which approximately $10 million was retired and
approximately $10 million was assumed by Tracor. The financing of the
transaction and related expenses was obtained through an increase of the
Company's existing bank term credit facility and from cash on hand.

Cost Reductions. Historically, Tracor has identified substantial cost
savings following the integration of acquired businesses. Since the
acquisitions of Vitro and GDE, significant cost savings have been realized
resulting from the consolidation of facilities, staff reductions, process
improvements and elimination of other duplicative costs. A substantial
portion of these annualized cost reductions are shared with customers in
the form of reduced rates on cost-reimbursement contracts. These
efficiencies have enhanced the Company's profit and cost competitiveness in
bidding on new contracts and recompetes of existing contracts. While the
integration of the operations of AEL has just begun, and there can be no

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<PAGE> 26

assurances as to the magnitude of cost reductions, management has
identified and implemented numerous cost reduction measures it believes
will result in significant cost reductions.

CORE BUSINESSES

The Company's core businesses are primarily in the U.S. and international
defense electronics markets. Approximately 70% of Tracor's DOD business is
funded by the operations and maintenance segment of the defense budget which
supports the operational readiness, effectiveness and the survivability,
upgrading and long-term viability of DOD defense systems. The many agencies of
the U.S. Navy are Tracor's largest customers within the operations and
maintenance segment of the budget. The major electronic products, systems and
services comprising the Company's core businesses are described below and the
approximate pro forma revenue and percentage of total pro forma revenue for 1995
and the approximate historical revenue and percentage of total revenue for 1995,
1994, 1993 and 1992 represented by each are as follows:

<TABLE>
<CAPTION>
1995 PRO
FORMA(1) 1995 1994 1993 1992
-------------- -------------- ---------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weapons and Combat Systems
Integration and Support..... $293,040 29% $293,040 33% $317,661 46% $158,988(3) 39% $ 78,173 30%
Electronic Warfare Systems.... 196,974 20 102,626 12 98,981 14 96,968 24 88,819 34
Weapons Testing Systems and
Support..................... 143,414 14 126,572 14 123,210 18 68,803(3) 17 29,171 11
Communications Systems........ 81,934 8 81,934 9 76,698 11 67,817 16 65,672 25
Intelligence Information
Systems..................... 58,139 6 58,139 7 50,362 7 14,919(3) 4 -- --
Imagery and Information
Systems..................... 66,210 7 66,210 7 7,667(2) 1 -- -- -- --
Mission Planning Systems...... 78,265 8 78,265 9 12,241(2) 2 -- -- -- --
Automatic Test Systems........ 80,134 8 80,134 9 7,217(2) 1 -- -- -- --
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Tracor Net Revenue............ $998,110 100% $886,920 100% $694,037 100% $407,495 100% $261,835 100%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>

- ---------------
(1) Assumes acquisition of AEL as of January 1, 1995.
(2) Reflects approximately 6 weeks of GDE revenue in 1994.
(3) Reflects approximately 4 months of Vitro revenue in 1993.

WEAPONS AND COMBAT SYSTEMS INTEGRATION AND SUPPORT. The Company provides
systems engineering and integration, software engineering and management and
technical capabilities for the operation, testing, maintenance, upgrade,
protection and extension of the lives of high-priority weapons and combat
systems including:

Submarine Ballistic Missile Weapon Systems. The Company has been the
systems integration contractor for submarine ballistic missile programs
since the mid-1950s. Tracor's role includes systems engineering, testing,
data analysis and logistics for the Polaris, Poseidon and TRIDENT weapon
systems. As the weapon systems integration contractor for the United States
and United Kingdom TRIDENT II system, Tracor ensures the major subsystems,
including missile, launcher, navigation and fire control, are fully
integrated and tested to perform as specified.

U.S. Navy Surface Combatant Systems. Tracor is the systems
engineering and integration contractor for shipboard anti-air warfare
guided missile systems such as the Terrier New Threat Upgrade, Tartar,
AEGIS, NATO SeaSparrow and Tomahawk. The Company has performed systems
engineering for every guided missile system installed on U.S. Navy ships
since World War II. The Company develops software for track control of the
Tomahawk missile and performs combat systems integration for the Tartar
system. Tracor also operates a remotely controlled quarter-scale submarine
used to test and evaluate various submarine component designs.

Anti-Submarine Warfare Systems. The Company has provided engineering,
software and testing capabilities for the U.S. Navy's anti-submarine
warfare ("ASW") systems since 1948. Complex systems engineering and
integration are provided for development, operation, quality control and
life cycle maintenance of the newest ASW systems. The Company performs
software engineering and systems

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<PAGE> 27

integration for surface ship sonars; tests ASW weapons and combat systems;
develops acoustic signal processing software and test instrumentation and
conducts research and development in ASW sonar systems and related
oceanography. The Company also provides project management, engineering and
system assessment and evaluation for both the U.S. Navy's lightweight and
heavyweight torpedo programs.

U.S. Navy Aircraft. Tracor's systems engineering expertise is being
utilized with a new U.S. Navy customer to provide support for the U.S.
Navy's fighter and attack aircraft, helicopters, maritime
patrol/reconnaissance planes and weapons avionics systems. In this area,
the Company is developing software to support the common airborne
instrumentation system, which is the DOD's standard test and evaluation
data collection system. Tracor won a new design engineering and software
contract in 1995, supporting the entire acquisition life cycle of various
U.S. Navy avionics and electronic systems.

ELECTRONIC WARFARE SYSTEMS. Tracor designed, and is currently the only
manufacturer of, the most advanced and widely used countermeasures dispenser
systems in the U.S. and is a major supplier of expendables, which create false
targets for hostile radar-guided and heat-seeking missiles to protect aircraft,
land vehicles, naval vessels and personnel. The acquisition of AEL greatly
expanded the Company's electronic warfare capabilities. Tracor's primary
products in this market include:

Countermeasures Dispensers. The Company has a long history of
developing and producing aircraft countermeasures dispenser systems. Tracor
has developed and manufactured several generations of these systems during
the past 30 years, including the newest system, the AN/ALE-47. Tracor is
the sole producer of the AN/ALE-47 which is an advanced, automatic and
integrated dispenser system for use aboard U.S. Air Force, Navy and Army
tactical and transport aircraft and helicopters, as well as aircraft of
other governments. The Company's systems dispense chaff and flares as
decoys against hostile missiles. These systems are also designed to
dispense certain active radio-frequency decoys to counter advanced
anti-aircraft threats.

Countermeasures Expendables. Tracor develops and manufactures chaff
and flare decoys, which are ejected from countermeasures dispenser systems
and provide protection for aircraft, ships and personnel when operating in
a missile threat environment. In 1995, Tracor acquired the chaff
manufacturing business of its only U.S. chaff-producing competitor, the
Lundy Division of TransTechnology Corporation. The Company is the leading
developer of infrared flares in the U.S. and won a program in 1995 to
develop next-generation flare expendables which decoy infrared-seeking
missiles incorporating the latest counter-countermeasures features.

Mine Neutralization and Detection Systems. The Company is developing
an Explosive Standoff Minefield Breacher (ESMB) system prototype for the
U.S. Army and Marine Corps. The prototype features a Tracor-designed
rocket-deployed net which expands to detonate and neutralize a large area
of surface or buried mines, clearing the way for rapid, safe vehicle and
personnel passage. In support of this area, the Company acquired the
shaped-charge munitions business unit of The Titan Corporation in 1995,
which provides the explosive shaped-charges used in the ESMB system and in
smaller systems for deactivating mines. Tracor is also under contract to
develop hand-held and vehicular platform mounted mine detection systems
which illuminate the ground with electromagnetic energy to measure field
disturbances, determining mine presence and location. In addition, Tracor
personnel have created products which work with standard ship navigation
devices and use sonar to identify the presence of mines at sea.

Communications and Electronic Countermeasures. Through its recent
acquisition of AEL, the Company continues its long and extensive experience
in the development and fielding of electronic countermeasures systems. The
TACJAM-A system provides the DOD with a common, modular, multiplatform
communication electronic attack capability into the 21st century. AEL's
Band 1, Band 2 and Band 9/10 transmitters are key components of the jamming
capability on the U.S. Navy's EA-6B and the U.S. Air Force's EF-111A
tactical countermeasures aircraft. Their reliability and effectiveness have
been dramatically demonstrated in operational service.

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<PAGE> 28

Radar Warning Systems. Tracor's systems seek, identify and counter
radar systems across the spectrum of frequency and application. The
Company's integrated front-end technology provides expanded frequency
coverage, improved direction finding accuracy and dual polarization
detection for Radar Warning Receivers (RWR) and Electronic Warfare Support
Measures (ESM) systems, which detect, identify and locate hostile radar and
communication transmitters.

Head-up Displays. The ANVIS Head-up Display provides a
high-resolution, programmable display of critical flight data to the pilot
through night vision goggles, allowing the pilot to concentrate on the
outside environment while maintaining cognizance of the flight instruments.
The system is being installed in the U.S. Army UH-60A/L Blackhawk and the
CH-47D Chinook; the U.S. Marine Corps UH-1N Huey, CH-46E Sea Knight,
KC-130T Hercules and the CH-53E Sea King; and the U.S. Navy HH-60H Seahawk.
It is planned for installation in the UH-1H/V Huey, OH-58A/C Kiowa Warrior
and the AH-1F Cobra.

WEAPONS TESTING SUPPORT. The DOD is committed to sustaining the readiness
of weapons and adapting current weapons to counter future threats. Tracor
manufactures products for testing and evaluating weapons systems and supports
weapons testing operations to achieve these objectives. The Company's work in
this area includes:

Drones. The Company has been a major producer of target drones for
the DOD for more than 25 years and is the sole provider of the current
drone (the QF-4) for the U.S. Armed Forces. The Company designs,
manufactures and modifies retired military aircraft into full-scale drones
for use as targets in weapons system testing and evaluation and personnel
training. Tracor also won a contract to produce sub-scale target drones
with options through the year 2000, making the Company the largest target
drone supplier for the DOD. The Company also performs major upgrades and
modifications for military and commercial aircraft, including electronics
installation and systems integration.

Range Operations and Instrumentation. For more than 21 years, Tracor
has been a worldwide supplier of precision tracking radars, optical
tracking systems, radar-threat simulators and range instrumentation control
systems. This diverse array of capabilities for weapons systems test ranges
includes logistics support, on-site depot level maintenance, repair of
components and engineering design and fabrication. For more than 40 years,
the Company has performed operations and maintenance on high-technology
equipment and has supplied logistics and engineering support for research
and development programs for more than 146 radar systems at 28 test ranges.

Flight Testing and Training. Tracor performs a variety of flight
testing using both military and civilian aircraft. The Company uses its
tactical aircraft, equipped to launch guided and unguided weapons, to test
and evaluate weapons systems and tows targets for U.S. and foreign tactical
air forces to support air-to-air combat training. The Company's pilots also
fly aircraft for training naval aviation navigators.

Electronic Warfare Simulators. Tracor designs, develops and certifies
a variety of airborne radar threat emitters, simulators and jammers, both
pod and internally mounted. The Company also develops advanced signal
threat generators for laboratory testing of the defensive avionics systems
aboard a variety of U.S. military aircraft.

COMMUNICATIONS SYSTEMS. Tracor provides radio communications products,
systems and services to the DOD and other government customers. The Company
performs systems and design engineering, subsystem procurement, systems
integration, testing and installation for these systems. It also provides
logistics support, maintenance and technology upgrades for these high-priority
systems to maintain their operational readiness throughout their service life.
The Company's key systems include:

AEGIS Communications Systems. Tracor is the primary contractor of
turnkey radio communications systems for the U.S. Navy's newest class of
destroyers and cruisers which are equipped with AEGIS weapons systems.
Tracor's cost-effective performance has contributed to its winning every
recompetition for its AEGIS work over the past 20 years. The most recent
award covers all AEGIS ships to be constructed through 2001.

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<PAGE> 29

Special Forces Communications Systems. The Company has designed,
produced, installed and maintained, for more than 13 years, communications
systems used by U.S. Navy Special Warfare and Joint Special Operations
Forces and national intelligence agencies. Systems range in size from
hand-held communications devices to full-scale communications suites for
special-purpose boats, planes and vans.

Command and Control Systems. For more than 20 years, the Company has
provided systems engineering and test and evaluation in connection with the
modernization and upgrading of the U.S. Navy's command and control systems
communications equipment and for the U.S. Navy's worldwide center for
airborne ASW flight planning and post-mission analyses. In addition, Tracor
provides engineering and technical communications support for the U.S. Army
worldwide military command and control systems. The Company also provides
software and systems engineering, signals intelligence and electronic
warfare engineering, and technical communications support services for U.S.
Army military command and control systems. In addition, Tracor won a
program in 1995 to provide engineering development and technical support
services to the U.S. Army Communications-Electronics Command Space and
Terrestrial Communications Directorate.

U.S. Navy Landing Systems. The Company has provided management,
engineering and research and development for the U.S. Navy's automatic
carrier landing systems and U.S. Marine air traffic control and landing
systems for 23 years. These systems assist naval and marine aviators in
achieving safe landings aboard aircraft carriers, shore stations and
expeditionary fields.

Identification Systems. For more than 21 years, the Company has
provided hardware and software design engineering and technical support for
shipboard and shore-based identification systems used by the U.S. Navy,
Marines and Coast Guard.

INTELLIGENCE INFORMATION SYSTEMS. An important component of the Company's
acquisition strategy has been to build a strong presence in the intelligence
information systems market. The acquisition of Quality Systems, Inc. ("QSI"), a
subsidiary of Vitro, was a major penetration into the intelligence market, and
the acquisition of GDE substantially expanded the Company's presence in a wide
range of intelligence areas. Tracor now has a large employee base with special
high-level security clearances, which are crucial for doing business in this
sector. Since the early 1980s, Tracor has provided systems engineering, software
engineering, systems management and training under numerous classified contracts
with U.S. intelligence community customers. The Company uses state-of-the-art
software engineering methods and has reengineered specialized intelligence
systems to provide customers with the tools required for on-demand, dynamic and
highly reliable data access and analysis.

IMAGERY AND INFORMATION SYSTEMS. The Company develops and integrates
systems which extract and analyze information from various types of imagery.
Tracor's expertise in the automation of information extraction satisfies the
sophisticated image-processing requirements of both government and commercial
customers worldwide. Applications for the Company's software, systems and
products include mapping, charting and geodesy (MC&G), image-processing
groundstations, interpretation and analysis centers, and other information
systems in which digital image processing is an essential technology. Currently,
Tracor has an installed base of more than 450 MC&G workstations, and its
software is employed in more than 100 interpretation and analysis centers
worldwide. In 1995, the Defense Mapping Agency selected Tracor as its prime
contractor for its front-end processing environment program, which will permit
the agency to efficiently use data from a wide variety of imaging sources. Other
projects include continued development of a digital photo interpretation ground
station system for a foreign customer and a multisource intelligence analysis
software package for use by operational forces, as well as maintenance and
enhancement of an entire digital production system at three production centers.

MISSION PLANNING SYSTEMS. The Company provides mission planning systems
for the U.S. Navy, Air Force and Strategic Command. Products include specialized
software used to plan and coordinate military aircraft and weapons, imagery
systems in support of targeting, planning and rehearsing military operations,
and government information systems. The Company provides imagery-based mission
planning systems for stealth aircraft and cruise missiles, which are expected to
continue to represent the U.S. Armed Forces' primary strike capability for the
foreseeable future. Management believes these products and services will benefit
from the

27
<PAGE> 30

DOD's increasing need for tactical intelligence in diverse areas of the world in
order to efficiently utilize and coordinate its increasingly sophisticated and
costly weapons systems. In 1995, the Company's Digital Imagery Workstation
Suite -- Afloat ("DIWS/A"), an important component of the Tomahawk cruise
missile planning system, was installed on two U.S. Navy aircraft carriers. These
systems are expected to be installed on all Navy aircraft carriers and
amphibious assault ships by the year 2000. A major new program win during 1995
has placed Tracor in a key role in the development of the U.S. Air Force's new
Theater Battle Management Core System. As a subcontractor to Loral Command and
Control Systems, Tracor will provide the mission planning and imagery
exploitation technologies and will supply other software integration
capabilities to support the U.S. Air Force's improvements to its command and
control infrastructure. The Company is also gaining prominence in the emerging
field of information warfare (IW) by winning contracts to develop mission
planning systems for the military's new family of high-altitude long-endurance
reconnaissance unmanned aerial vehicles. Tracor not only supports the collection
of IW information, but also offers state-of-the-art large screen display
systems. The first system was delivered to the U.S. Marine Corps in 1995, and
seven more are planned for 1996.

AUTOMATIC TEST SYSTEMS. The Company has designed and built automatic test
systems ("ATS") for more than 30 years and is a major supplier of ATS to the
U.S. Air Force. Principal ATS products include testers for U.S. and other air
forces for use with the F-16 fighter avionics and for the C-17 and C-5B
transport and B-1B and B-2 bomber avionics systems. The Company produces a new
generation of downsized, mobile testers, including the F-16 midlife update
program and the advanced support equipment portable, ruggedized test set. The
Company also provides diagnostic systems, test program sets and operations and
logistics for ATS products. Deliveries of the Company's core F-16 test systems
have declined during recent years due to reduced production of F-16 aircraft.
However, the F-16 remains the primary U.S. Air Force tactical fighter, and the
Company expects to continue to receive significant orders for program
maintenance and upgrades. Expanding this product line and the Company's
international presence, Tracor was awarded two contracts in 1995 to supply
avionics test equipment for the new Japanese F-2 fighter (formerly designated as
FS-X). The Company also supplies ATS equipment used with missile guidance and
control systems, including various air-to-surface precision guided weapons, and
builds avionics subsystems for Lockheed Martin's Atlas Launch Vehicle.

EXPANSION AND DIVERSIFICATION

Tracor has increased its sales to both established and new customers. The
Company has been successful in translating its technologies and products to
other military customers, other governmental agencies, the foreign marketplace
and select commercial customers. See "-- Core Businesses" and "-- Company
Strategy." Tracor's other expansion and diversification initiatives are
described below.

U.S. Army Programs. Over the past eight years, Tracor has expanded
its systems, software and technical capabilities to various U.S. Army areas
including the Global Command and Control System, signals
intelligence/electronic warfare, Communications-Electronics Command and
C(4)I support.

Camouflage, Concealment and Deception. In an extension of its
countermeasures technology, Tracor has developed coatings and camouflage
materials to conceal aircraft, ground-based installations and ships from
detection by radar, infrared scanners and other sensing systems.

Air Transportation Systems. The Company won a $66 million contract
with the FAA in 1993 to provide systems, hardware and software engineering
for the development, testing and operation of new air traffic control and
surveillance systems across the U.S. This seven-year contract emphasizes
Tracor's ability to transfer its radar engineering expertise to non-DOD
governmental agencies. In 1995, Tracor won an FAA contract to provide test
and evaluation engineering services for surveillance and weather radar
systems.

NASA Programs. Since 1988 the Company has provided engineering for
safety, reliability, maintainability and quality assurance for NASA's
manned and unmanned space flights.

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<PAGE> 31

Public Information Systems. The Company has successfully translated
certain capabilities into new business in the public sector. For example,
signal processing expertise developed under U.S. Navy sonar programs and
advanced database systems are the foundation for a statewide regulatory and
compliance system, client server based order fulfillment system for
Hewlett-Packard, as well as for aircraft noise monitoring systems sold to
18 major U.S. airports.

Commercial. The Company has successfully applied its technologies to
a number of commercial products and services and continues to seek new
opportunities. Current commercial diversifications include:

Photogrammetry. Through its subsidiary, Helava, the Company
provides integrated digital stereo software which operates on commercial
computer hardware, principally in the commercial photogrammetry market.
Helava provides photogrammetric workstations and high-quality scanners
for map compilation, engineering regional planning, orthophoto
production, digital terrain collection and environmental management.
Through a distributorship agreement with Leica, Inc., a world leader in
surveying and photogrammetric systems, Tracor's systems are being sold
in 34 countries.

Remote Sensing. Tracor has entered the growing new market of
commercial remote sensing systems, having joined the Boeing-led
Resource21 team which is evaluating a business to offer a sophisticated
satellite imaging system to collect multispectral pictures of farmlands
and provide information to substantially improve crop yields. Employing
technologies developed in national security applications, Tracor will be
responsible for the ground data processing, image assessment, archiving
and product generation for this system. With the Company's proprietary
technologies in image processing and manipulation, coupled with the
leading edge satellite technologies provided by its teammates, Tracor
management believes it is well positioned in this emerging market.

Chaff. Tracor is under contract with the leading manufacturer of
direct broadcast satellite antennae, supplying its aluminum-coated glass
fibers (chaff) as an integral part of that firm's molded antennae. The
proprietary nature of Tracor's manufacturing process of chaff, typically
used in military applications, positions the Company to benefit from the
increasing popularity of direct broadcast television.

MAJOR CUSTOMERS

The net sales of Tracor are predominantly derived from contracts with
agencies of, and prime contractors to, the U.S. government. The various U.S.
government customers exercise independent purchasing decisions, and sales to the
U.S. government are generally not regarded as constituting sales to one
customer, but instead, each contracting entity is considered to be a separate
customer. As of March 31, 1996, Tracor was performing under approximately 740
contracts with approximately 105 customers within various U.S. government
agencies. Sales to all such agencies are subject to conditions unique to sales
to the U.S. government. See "Risk Factors -- Uncertainty Associated with
Government Contracts."

RESEARCH AND DEVELOPMENT

Tracor employs scientific, engineering and other personnel to improve
existing product lines and to develop new products in the same or related fields
under programs funded by the respective companies or, in the case of Tracor,
under customer contracts through which Tracor is reimbursed directly for its
efforts. Customer-sponsored programs sometimes lead to the development of
products which Tracor has the opportunity to produce for others.

During the past three fiscal years, Tracor has expended the following
amounts on Company-sponsored and customer-sponsored research and development
activities:

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Customer-sponsored........................................ $132.3 $104.9 $71.8
Tracor-sponsored.......................................... 5.4 4.7 3.5
</TABLE>

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<PAGE> 32

A significant portion of the increase in Tracor's customer-sponsored
research and development costs in 1994 and 1995 is attributable to the inclusion
of Vitro and GDE expenditures following their acquisition by the Company in
August 1993 and November 1994, respectively, the award of several new contracts,
and increased research and development efforts under several existing contracts.

COMPETITION

The Company experiences vigorous competition from industrial firms and U.S.
government agencies, some of which have substantially greater resources. A
majority of the sales of the Company is derived from contracts with the U.S.
government and its prime contractors, and such contracts are awarded on the
basis of negotiations or competitive bids. Management does not believe any one
competitor or a small number of competitors is dominant in any of the business
areas of the Company. Management believes the Company will continue to be able
to compete successfully based upon the quality and cost competitiveness of its
products and services.

GOVERNMENT CONTRACTS

Substantially all of the Company's revenues result from contracts with the
U.S. government and its prime contractors. System engineering and integration,
software engineering and other engineering and management support contracts are
generally cost-reimbursement fixed-fee type contracts. Product engineering and
development contracts are either cost-reimbursement fixed-fee type or
fixed-price type contracts. Contracts for the manufacture of products are
usually fixed-price type contracts. Cost-reimbursement type contracts provide
for the payment of actual allowable costs, plus a fee. Under fixed-price type
contracts, the contractor benefits from or shares in cost savings but generally
bears or shares the risk of cost overruns. Cost-reimbursement type contracts are
normally priced to realize lower margins than fixed-price type contracts. For
the year ended December 31, 1995, approximately 60% of the Company's revenues
were derived from cost-reimbursement type contracts, and approximately 40% of
the Company's revenues were derived from fixed-price contracts. For the year
ended December 31, 1995, approximately 78% of AEL's revenues were derived from
fixed-price contracts, and approximately 22% of AEL's revenues were derived from
cost-reimbursement type contracts.

Contracts with the U.S. government and its prime contractors contain
standard provisions for termination at the convenience of the U.S. government or
such prime contractor, pursuant to which the Company and AEL are generally
entitled to recover costs incurred, settlement expenses and profit on work
completed prior to termination. Contracts with the U.S. government do not
provide for renegotiation of profits.

Companies supplying products and services directly or indirectly to the
U.S. government are subject to other risks such as contract suspensions, changes
in policies or regulations and availability of funds. Any of these factors could
adversely affect the Company's and AEL's businesses with the U.S. government in
the future. See "Risk Factors -- Uncertainty Associated with Government
Contracts."

SALES TO FOREIGN CUSTOMERS

For 1995, 1994 and 1993, approximately $87.0 million, $63.6 million and
$47.8 million (representing 10%, 9% and 12%, respectively) of the net sales of
the Company were attributable to sales and services provided to foreign
customers. The percentage of net sales of the Company attributable to foreign
customers in 1994 decreased, primarily due to the acquisition of Vitro, even
though the total dollar amount of sales attributable to foreign customers
increased in 1994. Only $3.7 million of these sales in 1993 were attributable to
Vitro. The principal customers are governments of those countries in Western
Europe, the Middle East and the Pacific Rim region which are generally deemed to
be friendly to the government of the United States and to have relatively stable
governments. Each of the contracts with these customers is subject to the risks
inherent in dealing with foreign governments (e.g., changes of administration or
governmental form, economic problems). Although the loss of all of the Company's
foreign business could have a materially adverse impact on the Company's results
of operations and financial condition, it is management's opinion that this risk
is remote and that the loss of any single contract with a foreign government
would not be material.

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<PAGE> 33

For 1995, 1994 and 1993, approximately 7%, 17% and 11%, respectively, of
the net sales of AEL were attributable to sales and services provided to foreign
customers. The principal customers are certain governments which are generally
deemed to be friendly to the government of the United States and to have
relatively stable governments. Each of the contracts with these customers is
subject to the risks inherent in dealing with foreign governments (e.g., changes
of administration or governmental form, economic problems). The loss of any
single contract with a foreign government would not be material to AEL.

EMPLOYEES

As of April 30, 1996, the Company had approximately 10,500 employees. Of
this number, approximately 4,200 employees held advanced or bachelor's degrees
in a number of scientific disciplines. Approximately 100 of the Company's
employees are located outside of the United States. Less than three percent of
the Company's U.S. employees are covered by collective bargaining agreements
with labor unions. The Company considers relations with its employees to be
excellent.

BACKLOG

In each of its major lines of business, the Company has significant firm
backlog and unexercised contract options which may be exercised by the customer.
Firm backlog represents the amount of revenue expected to be recognized for
contractually authorized performance of awarded firm contractual commitments.
Firm backlog may include amounts yet to be fully funded by the customer or
amounts for performance yet to be fully definitized. Unexercised contract
options represent the amount of revenue which would be recognized from the
performance of contract options that may be exercised by customers under
existing contracts and from task orders to be issued under indefinite quantity
contracts or basic ordering agreements. Amounts included in both firm backlog
and unexercised contract options are based on the contract's total awarded value
and the Company's estimates regarding the amount of the award that will
ultimately result in the recognition of revenue. These estimates are based on
the Company's experience with similar awards and similar customers. Estimates
are reviewed periodically and appropriate adjustments are made to the amounts
included in firm backlog and unexercised contract options. Historically, these
adjustments have not been significant.

The Company's firm backlog at April 30, 1996 was $966.2 million, compared
with $924.0 million as of December 31, 1995. The Company's unexercised contract
options as of April 30, 1996 were $1 billion, compared with $948.9 million at
December 31, 1995. Management does not believe that the Company's firm backlog
is seasonal in any material respect. Approximately 78% of firm backlog as of
April 30, 1996, is expected to be realized as sales within one year.
Approximately 79% of firm backlog as of April 30, 1996, was comprised of
contracts with agencies of the U.S. government or its prime contractors. See
"-- Major Customers" and "-- Government Contracts."

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company's manufacturing operations require a wide variety of electronic
and mechanical components for which the Company has multiple commercial sources.
The Company's manufacturing operations also require raw materials which are
purchased in the open market and are normally available from a number of
suppliers. The Company has not experienced any significant delays in obtaining
timely deliveries of essential materials.

COMPLIANCE WITH ENVIRONMENTAL CONTROLS

There have not been, and the Company does not anticipate, any materially
adverse effects upon the capital expenditures, earnings or competitive position
of the Company resulting from compliance with federal, state and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment.

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<PAGE> 34

PATENTS

As of March 14, 1996, the Company owned 110 patents and had 33 patent
applications pending (including 34 patents and 16 pending patent applications
obtained in the AEL Acquisition). The Company does not believe that existing
patents and licenses are material in the conduct of its business as a whole and
believes that research, development and engineering skills are more significant.
The U.S. government typically receives royalty-free licenses on inventions
arising from government contracts, with each company retaining all commercial
rights with respect to such inventions. While patents are not material to the
operation of the business, proprietary information of the Company is adequately
protected through the requirement that employees execute confidentiality
agreements as a condition of employment.

LEGAL PROCEEDINGS

Tracor is involved in various lawsuits and is subject to certain
contingencies incidental to its business. While the ultimate results of these
matters cannot be predicted with certainty, management does not expect them to
have a material adverse effect on the consolidated financial position of Tracor.

PROPERTIES

The Company's facilities are located primarily in the United States. The
Company's corporate offices and certain administrative, manufacturing and
engineering facilities are located in Austin, Texas on a 140 acre campus owned
by the Company and contain approximately 612,000 square feet of offices and
engineering and manufacturing facilities. The Company occupies approximately
1,218,000 square feet of administrative and engineering facilities in the
Washington, D.C. area consisting of multiple facilities leased by the Company
under leases with differing expiration dates, the latest of which expires in
2020. The Company also owns approximately 230,000 square feet of administrative
and engineering facilities located in the Washington, D.C. area and California,
Maryland. The Company leases approximately 40,000 square feet of administrative
and engineering facilities in Silverdale, Washington.

The Company owns approximately 122,000 square feet of administrative,
manufacturing and engineering facilities located in Ft. Walton Beach, Florida.
The Company leases (under a lease expiring in 1998) or owns engineering
facilities in Groton and New London, Connecticut, containing approximately
78,000 square feet of space. The Company leases 48,000 square feet of
administrative and engineering facilities in Bloomington, Indiana. The Company
owns approximately 40,000 square feet of administrative, manufacturing and
engineering facilities in Alpharetta, Georgia and owns approximately 10,000
square feet of administrative and manufacturing facilities in Butler, Georgia.

The Company occupies approximately 220,000 square feet of administrative,
manufacturing, engineering and aircraft hangar facilities in Mojave, California,
some of which is owned and some of which is leased under a lease expiring in
2035. This site also includes ramp space associated with the aircraft hangars.
The Company owns approximately 134,000 square feet of administrative,
manufacturing, engineering and aircraft hangar facilities in East Alton,
Illinois.

The Company occupies approximately 123,000 square feet of leased space
located in East Camden, Arkansas utilized for administrative and manufacturing
purposes under a lease expiring in 2005, with an additional 10 year term under
option, and approximately 117,000 square feet of owned space located in San
Ramon, California and utilized for administrative, manufacturing and
engineering. The Company also utilizes leased space for administrative,
engineering and manufacturing in Lillington, North Carolina (75,000 square feet)
and Jerusalem, Israel (23,000 square feet), under leases expiring in 2000 and
2003, respectively.

The Company leases approximately 472,000 square feet of administrative,
manufacturing and engineering facilities in various locations in San Diego,
California. The Company owns approximately 454,000 square feet of
administrative, manufacturing and engineering facilities located in Montgomery
Township, Pennsylvania.

The Company's facilities also include certain other leased facilities at
miscellaneous locations, having no more than 20,000 square feet at any location
and aggregating approximately 213,000 square feet, under leases expiring on
various dates.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

Pursuant to the Delaware General Corporation Law, as implemented by
Tracor's Certificate of Incorporation and Bylaws, all corporate powers are
exercised by or under the direction of the Board of Directors. The Board of
Directors has created committees with responsibility for audits, compensation
and ethical issues. Each director who is not an employee of Tracor serves on one
or more committees. Officers of the Company serve at the discretion of the Board
of Directors. The Board of Directors and executive officers of the Company
consist of the persons named in the table below. Additional information with
respect to those persons who serve as directors and executive officers is set
forth below the table.

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
James B. Skaggs........................... 58 Chairman of the Board and President
Robert K. Floyd........................... 60 Vice President and Chief Financial Officer
Barry G. Campbell......................... 54 Vice President; President of Vitro
Corporation
Donald L. Fagan........................... 66 Vice President; President of Tracor Flight
Systems, Inc.
K. Bruce Hamilton......................... 54 Vice President; President of Tracor
Applied Sciences, Inc.
George R. Melton.......................... 49 Vice President; President of Tracor
Aerospace, Inc.
Dr. Terry A. Straeter..................... 53 Vice President; President of GDE Systems,
Inc.
Woody Endsley............................. 43 Vice President and Treasurer
Robert J. Fitch........................... 48 Vice President -- Government Relations
Leroy J. Kana............................. 63 Vice President -- Quality, Safety and
Environmental Programs
Russell E. Painton........................ 55 Vice President, General Counsel and
Corporate Secretary
John M. Rock, III......................... 56 Vice President -- Technology and
Information Systems
Roger W. Sadler........................... 59 Vice President -- Business Development
Murray Shaw............................... 64 Vice President -- Human Resources
Thomas V. Talbott......................... 59 Vice President and Controller
Elvis L. Mason............................ 62 Director
William E. Conway, Jr..................... 46 Director
Dr. Julian Davidson....................... 68 Director
Anthony Grillo............................ 40 Director
Bob Marbut................................ 60 Director
Lt. Gen. Thomas P. Stafford (Ret.)........ 65 Director
</TABLE>

JAMES B. SKAGGS has been a director of the Company since November 1991 and
was a director of Old Tracor from March 1990 to December 1991. He has also
served as the President of the Company since November 1991. Mr. Skaggs also
served as President and a director of Westmark from March 1990 through December
1991 and as President of Old Tracor from December 1990 until December 1991.

ROBERT K. FLOYD has been Vice President and Chief Financial Officer of the
Company since December 1990.

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<PAGE> 36

BARRY G. CAMPBELL has been Vice President of the Company and President and
Chief Executive Officer of Vitro Corporation since October 1993. He has held
various positions with Vitro Corporation since 1970.

DONALD L. FAGAN has been Vice President of the Company since September 1991
and President of Tracor Flight Systems, Inc. since 1990.

K. BRUCE HAMILTON has been Vice President of the Company and President of
Tracor Applied Sciences, Inc. since 1989.

GEORGE R. MELTON has been Vice President of the Company since March 1990
and President of Tracor Aerospace, Inc. since September 1990.

DR. TERRY A. STRAETER has been Vice President of the Company since December
1994 and President and Chief Executive Officer of GDE since November 1992. From
February 1991 until November 1992, he served as Corporate Vice President and
General Manager of the Electronics Division of General Dynamics Corporation.

WOODY ENDSLEY has been Vice President and Treasurer of the Company since
April 1991. He served as Corporate Controller of the Company from January 1988
through April 1991.

ROBERT J. FITCH has been Vice President -- Government Relations since
August 1995. From April 1993 to July 1995, he served as Vice President,
Corporate Strategic Development for GDE. Between 1984 and 1993, he was the
senior staff member of the Program and Budget Authorization staff of the House
Permanent Select Committee on Intelligence.

LEROY J. KANA has been Vice President -- Quality, Safety and Environmental
Programs of the Company since December 1992 and has been associated with the
Company and its subsidiaries in various capacities since 1969.

RUSSELL E. PAINTON has been Vice President and General Counsel of the
Company since April 1983. He has also been Secretary of the Company since
January 1991.

JOHN M. ROCK, III has been Vice President -- Technology and Information
Systems of the Company since September 1991. From January 1990 through September
1991, he was President of Eagle GT, Inc.

ROGER W. SADLER has been Vice President -- Business Development of the
Company since August 1991. From 1988 through August 1991, he worked as a private
consultant.

MURRAY SHAW has been Vice President -- Human Resources of the Company since
May 1983.

THOMAS V. TALBOTT has been Vice President and Controller of the Company
since April 1991.

ELVIS L. MASON has been a director of the Company since November 1991. He
is a member of the Compensation/Stock Option Committee. Since August 1984, he
has served as managing partner of Mason Best Company, L.P. ("Mason Best"), a
merchant banking firm, and on the boards of several privately held companies in
which Mason Best was a significant shareholder. He also has served, since
December 1991, as a director and, since February 1992, as Chairman of the Board
and CEO of Safeguard Business Systems, Inc., a supplier of office management
products and services for small businesses, and its parent, San Jacinto
Holdings. Mr. Mason also serves as a director of United Meridian Corporation and
American Eagle Group, Inc.

WILLIAM E. CONWAY, JR. has been a director of the Company since April 1995.
He is a member of the Audit and Ethics Committee. Mr. Conway is the person
designated by Carlyle, as the Holder Representative, to serve on the Tracor
Board. See "-- Certain Agreements Relating to the Nomination of Directors." Mr.
Conway joined Carlyle in August 1987 and is a Managing Director. He serves on
the boards of directors of BDM International, Inc. (October 1990 to present),
GTS Duratek, Inc. (January 1995 to present), and Highwaymaster, Inc. (June 1994
to present). Mr. Conway also serves on the boards of several private companies
in which Carlyle has invested. Prior to Tracor's acquisition of GDE, he served
as Chairman of the Board of GDE.

34
<PAGE> 37

DR. JULIAN DAVIDSON has been a director of the Company since November 1991.
He is Chairman of the Compensation/Stock Option Committee. Dr. Davidson is
President and Chief Executive Officer of Davidson Enterprises, LLC, a commercial
and defense consulting firm since April 1, 1996. Prior thereto, he was a senior
vice president of Booz, Allen and Hamilton from May 1984 to April 1996. He also
serves as a director on the boards of several privately held companies.

ANTHONY GRILLO has been a director of the Company since December 1991. He
is Chairman of the Audit/Ethics Committee. Mr. Grillo is a Senior Managing
Director of The Blackstone Group, L.P., an investment banking firm. Prior to May
1991, he was a Managing Director with the corporate finance division,
Restructuring and Reorganization Group of Chemical Bank (November 1989 through
May 1991). Mr. Grillo currently serves as a member of the board of directors of
Littelfuse, Inc. (since November 1991), a successor to OTC Littelfuse, Inc., a
former affiliate of Old Tracor, and of Joule, Inc., as well as a member of the
board of directors of several privately held companies. He is also a Trustee of
the Academy of Political Science.

BOB MARBUT has been a director of the Company since November 1991. He is a
member of the Compensation/Stock Option Committee. Mr. Marbut is Chairman, CEO
and co-founder of Argyle Television, Inc., which he helped found in 1994 and
which now owns and operates television stations in the United States. He is also
Chairman and CEO of Argyle Communications, Inc. (founded in January 1992), which
is the managing general partner of Argyle Communications Partners, L.P., a
limited partnership involved in the acquisition and operation of television
stations, and successor to The Argyle Group, of which he has been Chairman and
CEO since January 1992. Mr. Marbut founded Argyle Television Holdings, Inc., a
television station group, in 1993 and was its Chief Executive Officer until it
was sold in April 1995. He serves on the boards of directors of Premark
International, Inc. (1986 to present); Diamond Shamrock, Inc. (March 1990 to
present); Argyle Communications, Inc. (January 1992 to present); Argyle
Television, Inc. (August 1994 to present); and Katz Media Group, Inc. (August
1994 to present).

LT. GEN. THOMAS P. STAFFORD (RETIRED) has been a director of the Company
since April 1994. He is a member of the Audit and Ethics Committee. Lt. Gen.
Stafford is a co-founder of the technical consulting firm of Stafford, Burke,
and Hecker, Inc. (1983). He serves on the boards of directors of AlliedSignal
Corporation (March 1981 to present), CMI, Inc. (1983 to present), Fisher
Scientific, Inc. (December 1991 to present), Pacific Scientific, Inc. (February
1987 to present), Seagate Technologies, Inc. (March 1988 to present), Tremont,
Inc. (October 1990 to present), Wackenhut, Inc. (October 1991 to present), and
Wheelabrator Technologies, Inc. (September 1987 to present); all of which are
listed on the New York Stock Exchange. Lt. Gen. Stafford also served on the
board of directors for Gulf USA, Inc. (NYSE) from 1992 to 1993.

CERTAIN AGREEMENTS RELATING TO THE NOMINATION OF DIRECTORS

In connection with the GDE Acquisition, Tracor entered into a Holders
Agreement relating to the nomination of a Carlyle director to its Board of
Directors. The GDE Holders Agreement permits Carlyle, as the Holder
Representative, to designate a nominee for director of Tracor, which nominee
must be reasonably satisfactory to the Board of Directors, to be voted on at
each meeting of stockholders held for the purpose of electing directors. The
Holder Representative may designate one nominee for director of Tracor so long
as certain former stockholders of GDE hold in the aggregate at least 800,000
shares of Common Stock acquired in the GDE Acquisition.

In connection with the Westmark Acquisition and the resulting elimination
of the Class A Common Stock, the Company's Certificate of Incorporation was
amended to eliminate the right of holders of Class A Common Stock to nominate a
director to the Board of Directors. Elvis L. Mason had served as the Class A
Director prior to the consummation of the Westmark Acquisition. Immediately
following the consummation of the Westmark Acquisition and as required by the
related acquisition agreement, the Company increased the size of the Board of
Directors by one member and appointed Elvis L. Mason to fill the new
directorship for a three-year term.

35
<PAGE> 38

SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of Common Stock by the Selling Stockholders as of the date of this
Prospectus and as adjusted to reflect the sale of the shares of Common Stock
offered by the Selling Stockholders. Unless otherwise indicated, each of the
Selling Stockholders has sole voting and investment power with respect to the
shares beneficially owned. The Selling Stockholders received the shares of
Common Stock set forth below in connection with the liquidation of Westmark
following the Westmark Acquisition. Except for Elvis L. Mason, who is a director
of the Company, no Selling Stockholder has had any material relationship with
the Company within the past three years other than through its ownership of
shares of Common Stock received in the liquidation of Westmark.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER AFTER OFFERING(1)
------------------------ OF SHARES ------------------------
SELLING STOCKHOLDERS NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- ----------------------------------------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>

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

* less than 1%

( (1) Assumes no exercise by the U.S. Underwriters of their over-allotment
option.
( (2) The percentage for each Selling Stockholder is determined based upon
shares of Common Stock outstanding.

36
<PAGE> 39

SHARES ELIGIBLE FOR FUTURE SALE

As of June 5, 1996, there were 13,318,845 shares of Common Stock
outstanding. In addition, there are 734,288 unissued shares reserved for
issuance upon exercise of Series A Warrants (exercisable at $2.54 per share)
outstanding as of such date. As of March 31, 1996, options to purchase 615,550
shares were exercisable and options to purchase an additional 162,500 shares
will become exercisable on or before September 30, 1996. Upon exercise of such
options, all underlying shares will be freely tradeable.

In connection with the GDE Acquisition, the Company filed a shelf
registration statement covering 1,928,050 shares of Common Stock issued to
former GDE shareholders. Holders of certain shares of the Common Stock
outstanding have certain demand and "piggyback" registration rights granted
pursuant to a Registration Rights Agreement dated as of December 20, 1991.
Certain holders of Series A Warrants have demand and "piggyback" registration
rights pursuant to the Series A Warrant Agreement dated as of December 20, 1991.
Holders of shares of the Common Stock outstanding have certain demand and
"piggyback" registration rights granted pursuant to a Registration Rights
Agreement dated as of , 1996.

The Company and the Selling Stockholders (holding in the aggregate
approximately % of the shares of Common Stock outstanding after completion of
this Offering) have agreed, subject to certain limited exceptions, not to offer,
contract to sell or otherwise dispose of any shares of Common Stock, or any
interests therein, or any securities convertible into or exercisable or
exchangeable for, shares of Common Stock, or rights to acquire the same, for a
period of 90 days after the date of this Prospectus, without the prior written
consent of the Representatives, except pursuant to the Underwriting Agreement.
Following such period, except for 1,236,188 shares deliverable upon the exercise
of certain of the warrants, these shares will be freely tradeable without
restriction or further registration under the Securities Act unless such shares
are owned by "affiliates" of the Company as that term is defined under Rule 144
under the Securities Act or unless such shares are "restricted securities" as
that term is defined under Rule 144 and were acquired within the past three
years from the Company or from an affiliate of the Company. Management believes
that substantially all of the shares of Common Stock outstanding are freely
tradeable except for shares of Common Stock and 1,236,188 shares of Common
Stock deliverable upon the exercise of warrants. See "Selling Stockholders."

In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from the
issuer or from an "affiliate" of the issuer, as that term is defined under the
Securities Act, the acquirer or subsequent holder would be entitled to sell
within any three-month period a number of those shares that does not exceed the
greater of one percent of the number of shares of such class of stock then
outstanding or the average weekly trading volume of the shares of such class of
stock during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 also are subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the issuer. In addition, if three years have elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquirer or subsequent
holder thereof is deemed not to have been an affiliate of the issuer of such
restricted securities at any time during the 90 days preceding a sale, such
person would be entitled to sell such restricted securities under Rule 144(k)
without regard to the requirements described above.

On December 11, 1992, the Company filed a registration statement that is
effective and that covers 500,000 of the shares issuable upon exercise of stock
options. A second registration statement was filed on March 28, 1994 to include
an additional 500,000 of such shares. Accordingly, upon exercise of such
options, all underlying shares issued will be freely tradeable.

37
<PAGE> 40

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 53,000,000 shares
of Common Stock, $.01 par value per share and 1,000,000 shares of Preferred
Stock, $.01 par value per share.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. Holders
of Common Stock are not entitled to cumulate their votes. Each share of Common
Stock is entitled to participate equally in dividends with each other share of
Common Stock if, as and when declared by the Board of Directors, subject to
prior rights of Preferred Stock. The holders of Common Stock also share ratably
in any distribution upon liquidation or dissolution, subject to the prior rights
of any holders of Preferred Stock. Holders of Common Stock have no conversion,
redemption or preemptive rights. At May 2, 1996, there were approximately 7,000
holders of Common Stock, of which 262 were stockholders of record.

PREFERRED STOCK

The Board of Directors has the authority, without further action of the
stockholders of the Company, to issue up to an aggregate of 1,000,000 shares of
Preferred Stock in one or more series and to fix the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such series. At December 31, 1995, no shares of Preferred Stock had been issued
by the Company. At the discretion of the Board of Directors of the Company, and
subject to its fiduciary duties, the Preferred Stock could be used to deter any
takeover attempt, by tender offer or otherwise. In addition, Preferred Stock
could be issued with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. The issuance of Preferred Stock
could also result in a series of securities outstanding that would have
preferences over the Common Stock with respect to dividends and in liquidation.

BUSINESS COMBINATIONS UNDER DELAWARE LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior thereto, did own) 15% or more of the corporation's
voting stock.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation and Bylaws provide broadly for
indemnification of the officers and directors of the Company. In addition, the
Certificate of Incorporation provides that, to the fullest extent permitted by
Delaware law, no director shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such
director in his or her capacity as a director.

The Company has entered into indemnification agreements with its directors
and certain officers. These agreements provide that the Company will fully
indemnify such person against all costs and expenses incurred in connection with
legal proceedings that arise by reason of the fact that such person is or was an
officer or a director of the Company. The agreements continue until the
conclusion of all legal proceedings brought within ten years after such
individual has ceased to be a director or officer of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is Society
National Bank, Dallas, Texas 75270.

38
<PAGE> 41

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co.
Inc., BT Securities Corporation and Oppenheimer & Co., Inc. are serving as U.S.
Representatives, have severally agreed to purchase, and the Company and Selling
Stockholders have agreed to sell to them, and the International Underwriters
named below, for whom Morgan Stanley & Co. International Limited, Bear, Stearns
International Limited, Bankers Trust International PLC and Oppenheimer & Co.,
Inc., are serving as International Representatives, have severally agreed to
purchase, and the Company and Selling Stockholders have agreed to sell to them,
the respective number of shares of the Common Stock set forth opposite the names
of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- -------------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................................
Bear, Stearns & Co. Inc.......................................................
BT Securities Corporation.....................................................
Oppenheimer & Co., Inc........................................................
---------
Subtotal......................................................................
========
International Underwriters:
Morgan Stanley & Co. International Limited....................................
Bear, Stearns International Limited...........................................
Bankers Trust International PLC...............................................
Oppenheimer & Co., Inc........................................................
Subtotal......................................................................
---------
Total...........................................................................
========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be

39
<PAGE> 42

purchased by the U.S. Underwriters and the International Underwriters under the
Underwriting Agreement are referred to herein as the U.S. Shares and the
International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the price to public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer or sale of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any shares of Common Stock a notice stating in substance that, by purchasing
such Common Stock, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Common
Stock in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made, and that such dealer will deliver to any other dealer to whom it sells any
of such Common Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Common Stock, will not offer or sell any shares of Common Stock in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document in
connection with the issue or sale of the shares of Common Stock to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1996
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom such
document may otherwise lawfully be issued or passed on.

The Underwriters initially propose to offer part of the Common Stock
directly to the public at the price to public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ per share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain other dealers. After the initial
offering of the Common Stock the offering price and other selling terms may from
time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to additional shares of Common Stock at the
price to public set forth on the cover page hereof, less underwriting discounts
and commissions. The U.S. Underwriters may exercise such an option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the shares of Common Stock hereby. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the U.S. Underwriters hereby.

40
<PAGE> 43

The Company and the Selling Stockholders have agreed that, without the
prior written consent of Morgan Stanley on behalf of the Underwriters, they will
not, during the period commencing on the date hereof and ending 90 days after
the date of this Prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the Company or the Selling Stockholders or are
hereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
sale of any Shares to the Underwriters pursuant to this Offering. In addition,
the Selling Stockholders agree that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the Prospectus, make any
demand for or exercise any right with respect to the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.

In connection with the offering of Common Stock hereby, the Underwriters
and selling group members, if any, may engage in passive market making
transactions in the Company's Common Stock on the Nasdaq National Market
immediately prior to the commencement of the sale of shares in this offering, in
accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on the Nasdaq National Market limited by the bid
prices of market makers not connected with this offering and purchases limited
by such prices and effected in response to order flow. Net purchases by a
passive market maker on each day are limited in amount to 30% of the passive
market maker's average daily trading volume in the Common Stock during the
period of the two full consecutive calendar months prior to the filing with the
Commission of the Registration Statement of which this Prospectus is a part and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.

BT Securities Corporation is an affiliate of Bankers Trust Company, the
administrative agent and one of the bank lenders under the Amended Credit
Agreement. BT Securities Corporation acted as sole underwriter in connection
with the offerings of the Senior Subordinated Notes and Series A Notes, for
which it received customary underwriting compensation. The Company also agreed
to indemnify BT Securities Corporation against certain liabilities and expenses
in connection with the offerings of the Senior Subordinated Notes and Series A
Notes, including certain liabilities under the federal securities laws.

Certain of the Underwriters and their affiliates have from time to time
performed, and continue to perform, various investment banking and commercial
banking services for the Company and its subsidiaries on a fee-for-services
basis.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon by Winstead Sechrest & Minick P.C., Dallas, Texas. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, New York, New York and for the Selling
Stockholders by Akin, Gump, Strauss, Hauer & Feld, L.L.P. Dallas, Texas.

41
<PAGE> 44

EXPERTS

The consolidated financial statements of Tracor, Inc. and subsidiaries as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, appearing in this Registration Statement on Form S-3
and related prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

The consolidated balance sheets of AEL Industries, Inc. as of February 24,
1995 and February 25, 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years then
ended, appearing in this Registration Statement on Form S-3 and related
prospectus have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

The consolidated statements of operations of GDE Holdings, Inc. and
subsidiaries for the forty-six weeks ended November 17, 1994 and the twelve
months ended December 31, 1993 included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy statements and other information filed
by the Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at its New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048 and at its Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
public reference section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
certain material filed by the Company can be inspected at the NASD Public
Reference Room of the National Association of Securities Dealers Automated
Quotation System, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1506,
through which the Common Stock is quoted.

The Company has filed with the Commission Registration Statements (which
term shall encompass any amendment thereto) on Forms S-4/S-3 and on Form S-3
under the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statements, does not
contain all of the information set forth in the Registration Statements and the
exhibits thereto, to which reference is hereby made. With respect to each
contract, agreement or other document filed as an exhibit to the Registration
Statements, reference is made to the exhibit for a detailed description of the
matter involved.

42
<PAGE> 45

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference into this Prospectus: (i) the
reports listed below (which include all reports filed by the Company with the
Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act since
December 31, 1995); and (ii) the description of the Common Stock contained in
the Company's registration statement on Form 8-A under the Exchange Act
(Registration No. ) filed by the Company with the Commission, including any
amendments or reports filed for the purpose of updating such description:

REPORTS INCORPORATED BY REFERENCE

1. Tracor's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, as amended by the Form 10-K/A filed with the Commission on
April 10, 1996;

2. The description of Tracor Common Stock contained in its Registration
Statement on Form 8-A dated August 9, 1984;

3. Tracor's Current Report on Form 8-K dated February 22, 1996 and filed
with the Commission on March 7, 1996; as amended by the Form 8-K/A filed
with the Commission on April 10, 1996;

4. Tracor's Current Report on Form 8-K dated March 9, 1996 and filed with
the Commission on March 22, 1996; and

5. Tracor's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.

In addition, all documents filed by the Company subsequent to the date
hereof pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act but
prior to the termination of the Offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any and all of
the information incorporated herein by reference (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such copies should be directed to: Russell E.
Painton, Esq., Secretary, Tracor, Inc., 6500 Tracor Lane, Austin, Texas 78725,
telephone number (512) 929-2253.

43
<PAGE> 46

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
TRACOR, INC. AND AEL INDUSTRIES, INC.
Unaudited Pro Forma Condensed Combined Financial Information........................ F-2
Unaudited Pro Forma Condensed Combined Statement of Income, three months ended March
31, 1996......................................................................... F-3
Notes to Unaudited Pro Forma Condensed Combined Statement of Income, three months
ended March 31, 1996............................................................. F-4
Unaudited Pro Forma Condensed Combined Statement of Income, year ended December 31,
1995............................................................................. F-6
Note to Unaudited Pro Forma Condensed Combined Statement of Income, year ended
December 31, 1995................................................................ F-7
HISTORICAL FINANCIAL INFORMATION
TRACOR, INC.
Unaudited Interim Financial Statements
Condensed Consolidated Balance Sheet at March 31, 1996 (Unaudited).................. F-9
Condensed Consolidated Statements of Income, three months ended March 31, 1996 and
1995 (Unaudited)................................................................. F-10
Condensed Consolidated Statements of Cash Flows, three months ended March 31, 1996
and 1995 (Unaudited)............................................................. F-11
Notes to Condensed Consolidated Financial Statements (Unaudited).................... F-12
Audited Financial Statements
Report of Independent Auditors...................................................... F-15
Consolidated Income Statements, years ended December 31, 1995, 1994 and 1993........ F-16
Consolidated Balance Sheets at December 31, 1995 and 1994........................... F-17
Consolidated Statements of Shareholders' Equity, years ended December 31, 1995, 1994
and 1993......................................................................... F-18
Consolidated Statements of Cash Flows, years ended December 31, 1995, 1994 and
1993............................................................................. F-19
Notes to Consolidated Financial Statements.......................................... F-20
AEL INDUSTRIES, INC.
Report of Independent Auditors...................................................... F-35
Consolidated Balance Sheets at February 24, 1995 and February 25, 1994.............. F-36
Consolidated Statements of Operations, Two years ended February 24, 1995............ F-37
Consolidated Statements of Cash Flows, Two years ended February 24, 1995............ F-38
Consolidated Statements of Shareholders' Equity, Two years ended February 24,
1995............................................................................. F-39
Notes to Consolidated Financial Statements.......................................... F-40
GDE HOLDINGS, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................................ F-47
Consolidated Statements of Operations, Forty-six weeks ended November 17, 1994 and
twelve months ended December 31, 1993............................................ F-48
Notes to Consolidated Financial Statements.......................................... F-49
</TABLE>

F-1
<PAGE> 47

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined statements of income of Tracor
and AEL for the three months ended March 31, 1996 and for the year ended
December 31, 1995, reflects adjustments as if the acquisition of AEL by Tracor
("AEL Acquisition") and the related financing (the "Transactions") had occurred
on January 1, 1995. The AEL Acquisition actually occurred on February 22, 1996
and has been accounted for using the purchase method.

Because Tracor and AEL have very similar U.S. government contracting
operations, the management of Tracor has identified duplicative activities and
costs which will be eliminated or reduced subsequent to the AEL Acquisition. The
purchase price of the AEL Acquisition was negotiated, in part, based upon these
factors. Redundant costs have been reflected as adjustments in the unaudited pro
forma condensed combined statements of income to the extent Tracor management
has formulated a plan to eliminate or reduce such costs. Reductions due to lower
levels of reimbursable costs incurred under cost-type contracts have been
reflected as adjustments to cost of sales or selling, administrative, and
general expenses in the unaudited pro forma condensed combined statements of
income.

In connection with the AEL Acquisition, management of Tracor expects that
the Company will incur certain transition costs, associated with the revision,
consolidation and administration of the organizational structures (including
personnel), operations and facilities. These costs are not expected to be
significant, and because such costs are non-recurring, are not reflected in the
unaudited pro forma condensed combined statements of income.

The unaudited pro forma condensed combined statements of income should be
read in conjunction with the separate historical financial statements of Tracor
and AEL, related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus. The
pro forma information is not necessarily indicative of the results that would
have been reported had such events actually occurred on the dates specified, nor
is it necessarily indicative of the future results of the Company.

F-2
<PAGE> 48

TRACOR, INC. AND AEL INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
TRACOR AEL HISTORICAL
HISTORICAL PERIOD FROM PRO FORMA
FOR THE JANUARY 1, 1996 COMBINED FOR THE
THREE MONTHS THROUGH THREE MONTHS
ENDED FEBRUARY 21, PRO FORMA ENDED
MARCH 31, 1996 ADJUSTMENTS MARCH 31,
1996 (NOTES 1 AND 2) (NOTE 3) 1996
------------ --------------- ----------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales............................ $229,047 $18,373 $(1,520)(d) $245,900
Cost of sales........................ 181,993 24,311 (193)(a) 204,884
(140)(c)
(1,087)(d)
-------- -------- ------- --------
Gross profit....................... 47,054 (5,938) (100) 41,016
Selling, administrative, and general
expenses........................... 25,124 6,223 (831)(a) 28,037
(1,882)(b)
(491)(c)
(106)(d)
Amortization of intangible assets.... 2,483 80 249 (e) 2,812
-------- -------- ------- --------
Earnings (loss) before interest and
income taxes.................... 19,447 (12,241) 2,961 10,167
Interest expense:
Senior bank debt................... 2,496 157 249 (f) 2,902
Senior Subordinated Notes.......... 2,855 2,855
Series A Notes..................... 297 297
Other interest..................... 129 109 (88)(g) 150
Interest income.................... (723) (4) 250 (i) (477)
Amortization of debt issuance
costs........................... 629 30 75 (h) 734
-------- -------- ------- --------
5,683 292 486 6,461
-------- -------- ------- --------
Income (loss) before income
taxes........................... 13,764 (12,533) 2,475 3,706
Income taxes (benefit)............... 6,103 (3,284) (704)(j) 2,115
-------- -------- ------- --------
Net income (loss).................... $ 7,661 $(9,249) $ 3,179 $ 1,591
======== ======== ======= ========
Net income per share:
Primary............................ $0.32 $0.08
======== ========
Fully diluted...................... $0.32 $0.08
======== ========
</TABLE>

See notes to unaudited pro forma condensed combined statement of income.

F-3
<PAGE> 49

TRACOR, INC. AND AEL INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996

NOTE 1 -- RECLASSIFICATIONS

For comparative purposes, certain reclassifications have been made to
conform AEL's statement of income to Tracor's presentation.

NOTE 2 -- AEL INDUSTRIES, INC. JANUARY 1, 1996 THROUGH FEBRUARY 21, 1996 RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)

During the period ended February 21, 1996, AEL incurred the following
significant charges to income:

NOTE 3 -- PRO FORMA ADJUSTMENTS (DOLLARS IN THOUSANDS)

The following pro forma adjustments to the condensed Tracor historical
statement of income for the three months ended March 31, 1996 and the condensed
AEL historical statement of income for the period January 1, through February
21, 1996 assume the Transactions had been consummated on January 1, 1995.

(a) Eliminate compensation and benefits incurred by AEL for certain personnel
who will not be retained after the AEL Acquisition and for planned
reductions in professional fees, travel and other duplicative operating and
administrative costs.

(b) Eliminate non-recurring compensation expense, outside professional fees, and
printing costs incurred by AEL associated with the sale of AEL.

(c) Eliminate lease and operating costs associated with duplicate facility
locations that Tracor management has identified for consolidation with
other existing Tracor facilities within several months of completing the
AEL Acquisition.

(d) Eliminate net sales, gross profit, and selling, administrative, and general
expenses recognized by AEL related to a line of business that Tracor
management has identified for disposal.

(e) Eliminate amortization of goodwill of $61 and amortization of other
intangible assets of $19 that was previously recorded by AEL and record
amortization of goodwill as a result of the AEL Acquisition as follows:

<TABLE>
<S> <C>
Goodwill........................................................... $59,813
Divide by amortization life........................................ 30
-------
Pro forma annual amortization...................................... $ 1,994
=======
Pro forma quarterly amortization................................... $ 498
Less amount already recorded..................................... (169)
-------
Additional pro forma quarterly amortization........................ $ 329
=======
</TABLE>

F-4
<PAGE> 50

TRACOR, INC. AND AEL INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME -- (CONTINUED)

(f) Eliminate historical interest expense of $97 on debt of AEL and record
interest expense of $696 on the additional borrowings of $95,000 under the
Amended Credit Agreement as if the borrowings occurred on January 1, 1995.
The adjustment for incremental interest expense has been reduced by $350
for the impact of debt reductions from proceeds from the sale of AEL
assets. The net after tax proceeds are calculated as if the asset sales
occurred on January 1, 1995.

(g) Record commitment fees of 1/2 of 1% on the additional letters of credit
facility of $20,000 and the additional revolving loans facility of $10,000
and eliminate historical interest expense of $109 on other debt of AEL.

(h) Record the amortization ($105) of debt issuance costs incurred in
connection with the Transactions using the level-yield interest method
and eliminate the historical amortization of debt issuance costs of $30
of AEL.

(i) Reduce Tracor's interest income as a result of the cash portion of the
consideration given in the Transactions.

(j) Adjust income tax expense for the pro forma combined entities to a combined
state and federal effective tax rate.

F-5
<PAGE> 51

TRACOR, INC. AND AEL INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
TRACOR AEL HISTORICAL
HISTORICAL PERIOD FROM PRO FORMA
FOR NOVEMBER 25, COMBINED FOR
THE YEAR 1994 THROUGH THE YEAR
ENDED NOVEMBER 24, PRO FORMA ENDED
DECEMBER 31, 1995 ADJUSTMENTS DECEMBER 31,
1995 (NOTES 1 AND 2) (NOTE 3) 1995
------------ --------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................. $886,920 $ 120,606 $(8,658)(e) $998,110
(758)(f)
Cost of sales............................. 713,802 93,471 (1,275)(a) 796,792
(1,855)(d)
(7,351)(e)
-------- --------- ------- --------
Gross profit............................ 173,118 27,135 1,065 201,318
Selling, administrative, and general
expenses................................ 95,782 24,613 (2,578)(a) 114,569
(740)(b)
(98)(c)
(1,874)(d)
(536)(e)
Amortization of intangible assets......... 9,146 477 1,517 (g) 11,140
-------- --------- ------- --------
Earnings before interest and income
taxes................................ 68,190 2,045 5,374 75,609
Interest expense:
Senior bank debt........................ 7,130 1,205 4,715 (h) 13,050
Senior Subordinated Notes............... 11,419 11,419
Series A Notes.......................... 1,282 1,282
Other interest.......................... 555 358 (208)(i) 705
Interest income......................... (2,944) (125) 1,001 (k) (2,068)
Amortization of debt issuance costs..... 2,054 44 894 (j) 2,992
-------- --------- ------- --------
19,496 1,482 6,402 27,380
-------- --------- ------- --------
Income before income taxes.............. 48,694 563 (1,028) 48,229
Income taxes.............................. 20,831 185 540 (1) 21,556
-------- --------- ------- --------
Net income................................ $ 27,863 $ 378 $(1,568) $ 26,673
======== ========= ======= ========
Net income per share:
Primary................................. $1.23 $1.18
======== ========
Fully diluted........................... $1.23 $1.18
======== ========
</TABLE>

See notes to unaudited pro forma condensed combined statement of income.

F-6
<PAGE> 52

TRACOR, INC. AND AEL INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995

NOTE 1 -- RECLASSIFICATIONS

For comparative purposes, certain reclassifications have been made to
conform AEL's statement of income to Tracor's presentation.

NOTE 2 -- AEL INDUSTRIES, INC. 1995 RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)

During the twelve month period ended November 24, 1995, AEL Industries,
Inc. incurred the following significant charges to income:

<TABLE>
<S> <C>
Charges to income before income taxes:
Provision for loss on fixed price development contracts.................. $ 6,613
Non-recurring compensation expense related to the sale of AEL............ 215
Other non-recurring costs related to the sale of AEL..................... 525
-------
Total charges to income before income taxes................................ 7,353
Tax effect of the above charges............................................ (2,731)
-------
Total charge to net income................................................. $ 4,622
=======
</TABLE>

NOTE 3 -- PRO FORMA ADJUSTMENTS (DOLLARS IN THOUSANDS)

The following pro forma adjustments to the condensed Tracor historical
statement of income for the year ended December 31, 1995 and the condensed AEL
historical statement of income for the twelve month period ended November 24,
1995 assume the Transactions had been consummated on January 1, 1995.

(b) Eliminate non-recurring compensation expense, outside professional fees,
and printing costs incurred by AEL associated with the sale of AEL.

(d) Eliminate AEL lease and operating costs associated with duplicate facility
locations that Tracor management has identified for consolidation with
other existing Tracor facilities within several months of completing the
AEL Acquisition.

(e) Eliminate net sales, gross profit, and selling, administrative, and general
expenses recognized by AEL related to a line of business that Tracor
management has identified for disposal.

(f) Reduce revenues previously recognized by AEL for the recovery of certain
contract costs. This adjustment is necessary to conform AEL's treatment of
such contract costs to Tracor's accounting method.

F-7
<PAGE> 53

TRACOR, INC. AND AEL INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME -- (CONTINUED)

(g) Eliminate amortization of goodwill of $363 and amortization of other
intangible assets of $114 that was previously recorded by AEL and record
amortization of goodwill as a result of the AEL Acquisition as follows:

(h) Eliminate historical interest expense of $776 on debt of AEL and record
interest expense of $6,890 on the additional borrowings of $95,000 under
the Amended Credit Agreement as if the borrowings occurred on January 1,
1995. The adjustment for incremental interest expense has been reduced by
$1,399 for the impact of debt reductions from proceeds from the sale of AEL
assets. The net after tax proceeds are calculated as if the asset sales
occurred on January 1, 1995.

(i) Record commitment fees of 1/2 of 1% on the additional letters of credit
facility of $20,000 and the additional revolving loans facility of $10,000
and eliminate historical interest expense of $358 on other debt of AEL.

(j) Record the amortization ($938) of debt issuance costs incurred in
connection with the Transactions using the level-yield interest method
and eliminate the historical amortization of debt issuance costs of $44
of AEL.

(k) Reduce Tracor's interest income as a result of the cash portion of the
consideration given in the Transactions.

(l) Adjust income tax expense for the pro forma combined entities to a combined
state and federal effective tax rate.

F-8
<PAGE> 54

TRACOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
1996
--------------
(IN THOUSANDS,
EXCEPT
SHARE DATA)
<S> <C>
Current assets:
Cash and cash equivalents..................................................... $ 44,192
Accounts receivable........................................................... 182,213
Inventories................................................................... 10,812
Assets held for sale.......................................................... 18,535
Prepaid expenses and other.................................................... 11,990
Deferred income taxes......................................................... 24,669
--------
Total current assets.................................................. 292,411
Property, plant, and equipment, net............................................. 112,319
Goodwill, net................................................................... 158,638
Other intangibles, net.......................................................... 16,975
Prepaid pension costs........................................................... 20,869
Deferred charges and other assets............................................... 15,158
--------
Total assets.................................................................... $616,370
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................................... $116,514
Current portion of long-term debt............................................. 22,921
--------
Total current liabilities............................................. 139,435
Long-term debt, less current portion............................................ 283,778
Deferred revenue................................................................ 21,514
Other long-term liabilities..................................................... 26,972
Shareholders' equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized; no
shares issued or outstanding............................................... --
Common stock, par value $.01 per share: 53,000,000 shares authorized; issued
and outstanding 13,192,188, net of 1,553 shares in treasury................ 132
Class A common stock, par value $.01 per share: 1,000,000 shares authorized;
978,458 shares issued and outstanding...................................... 10
Additional capital paid in.................................................... 76,651
Retained earnings............................................................. 67,878
--------
Total shareholders' equity............................................ 144,671
--------
Total liabilities and shareholders' equity...................................... $616,370
========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

F-9
<PAGE> 55

TRACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $229,047 $211,241
Cost of sales.......................................................... 181,993 168,627
-------- --------
Gross profit................................................. 47,054 42,614
Selling, administrative, and general expenses.......................... 27,607 26,239
-------- --------
Earnings before interest and income taxes.................... 19,447 16,375
Interest expense, net.................................................. 5,683 5,398
-------- --------
Income before income taxes................................... 13,764 10,977
Income taxes........................................................... 6,103 4,727
-------- --------
Net income............................................................. $ 7,661 $ 6,250
======== ========
Net income per common and common equivalent share...................... $ .32 $ .30
======== ========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

F-10
<PAGE> 56

TRACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income.......................................................... $ 7,661 $ 6,250
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation of property, plant, and equipment................... 3,807 3,390
Amortization of goodwill......................................... 1,122 843
Amortization of other intangibles................................ 1,410 1,410
Decrease in prepaid pension costs................................ 2,238 2,785
Decrease in debt issuance costs.................................. 629 511
Decrease in deferred revenue..................................... (2,238) (2,785)
Changes in operating assets and liabilities:
Decrease in accounts receivable................................ 137 12,266
Increase in inventories and prepaid expenses................... (6,398) (1,562)
Decrease in recoverable income taxes........................... 68 2,067
Decrease in accounts payable and accrued expenses.............. (8,312) (3,776)
Increase in other, net......................................... (270) (1,385)
--------- --------
Net cash provided by (used in) operating activities.............. (146) 20,014
Investing activities:
Purchases of property, plant, and equipment......................... (2,754) (1,721)
Acquisition of business, net of cash acquired....................... (103,058) (12,102)
--------- --------
Net cash used in investing activities............................ (105,812) (13,823)
Financing activities:
Payments of long-term debt.......................................... (84,287) (2,631)
Proceeds from issuance of long-term debt............................ 180,000 --
Payment of debt issuance costs...................................... (5,041) --
--------- --------
Net cash provided by (used in) financing activities.............. 90,672 (2,631)
--------- --------
Increase (decrease) in cash and cash equivalents................. (15,286) 3,560
Cash and cash equivalents at beginning of period...................... 59,478 24,152
--------- --------
Cash and cash equivalents at end of period............................ $ 44,192 $ 27,712
========= ========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

F-11
<PAGE> 57

TRACOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Tracor, Inc. ("Tracor" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the Company's consolidated financial
statements and notes thereto as of December 31, 1995.

NOTE B -- INCOME TAXES

The effective income tax rate for the three months ended March 31, 1996, is
based on the expected annual rate for federal, state, and foreign income taxes.

NOTE C -- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Primary and fully diluted net income per share amounts are computed in
accordance with the modified treasury stock method using the weighted average
common shares outstanding and equivalents assuming the exercise of all
outstanding warrants and options for common shares. The weighted average common
and common equivalent shares used in this calculation were 24,878,000 and
23,138,000 for the three months ended March 31, 1996 and 1995, respectively. For
purposes of net income per share computations, net income is adjusted for the
pro forma reduction of interest expense, net of income taxes, resulting from the
assumed use of warrants and options exercise proceeds to reduce outstanding
debt. For the first quarter of 1996 and 1995, the primary and fully diluted net
income per share calculations yielded the same amount.

NOTE D -- ACQUISITIONS

AEL Acquisition

On February 22, 1996, Tracor purchased all of the approximately 4.1 million
common shares of AEL Industries, Inc. ("AEL"). AEL designs and manufactures
sophisticated countermeasures, simulation, and radar-warning receiver systems;
installs and integrates electronic avionics equipment in military and commercial
aircraft; and provides state-of-the-art antenna, microwave, and integrated
circuit components.

The purchase price, including acquisition expenses, was approximately $103
million. AEL's long-term indebtedness prior to the acquisition totaled
approximately $20 million, of which approximately $10 million was retired and
approximately $10 million was assumed by Tracor. The financing for the
transaction and related expenses was obtained through an increase of the
Company's existing bank term credit facility and from cash on hand.

The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price ($103 million) and the liabilities assumed ($59
million) have been allocated to the assets acquired ($102 million) based on a
preliminary estimate of their respective fair values at the date of acquisition.
This preliminary estimate is subject to change based on finalization of certain
fair value determinations. Such fair value determinations are not expected to
have a material effect on the consolidated financial position or results of
operations of Tracor. The resulting excess of the purchase price over the
preliminary estimate of the fair value of the net assets acquired ($60 million)
is being amortized over 30 years.

F-12
<PAGE> 58

TRACOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

AEL's results of operations have been included in the Company's
consolidated statements of income from February 22, 1996, the date of
acquisition, through March 31, 1996. The following net sales, net income, and
net income per share are presented on a pro forma basis, assuming the
acquisition had occurred on January 1, 1995 (in thousands, except per share
data):

<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales...................................................... $245,900 $243,045
Net income..................................................... 1,591 6,366
Net income per share fully diluted............................. .08 .30
</TABLE>

The pro forma results are not necessarily indicative of the actual results
of operations that would have occurred had the acquisition of AEL occurred on
January 1, 1995, nor of future results.

Westmark Acquisition

On March 12, 1996, Tracor reached agreement with Westmark Systems, Inc.
("Westmark") to acquire substantially all of Westmark's assets, which primarily
consist of Tracor stock and warrants, as well as certain real estate holdings.
Westmark, the former parent company of Tracor, holds all of Tracor's Class A
stock (978,458 shares), a Series B warrant to purchase 5,249,428 shares of
Tracor common stock with an exercise price of $4.42 per share, and a Series C
warrant to purchase 5,455,000 shares of Tracor common stock with an exercise
price of $7.36 per share. Under the agreement, which is subject to shareholder
approval by both companies, Tracor would exchange approximately 8 million shares
of common stock for the assets. The number of shares is subject to certain
adjustments based on Tracor's average stock price during a 20-day period ending
three days before the earliest shareholder meeting held. Westmark will liquidate
concurrently with the closing by distributing the Tracor shares to its
shareholders. The agreement provides for a distribution of the Tracor shares
through underwritten secondary offerings of a maximum of one-half of the shares
during the first two years after the closing.

NOTE E -- LONG-TERM DEBT

Concurrent with the AEL Acquisition, Tracor amended and restated its
existing credit agreement ("Amended Credit Agreement") increasing the total
credit available thereunder from $135 million to $270 million. The Amended
Credit Agreement consists of a $180 million term loan facility, a $40 million
revolving loan facility, and a $50 million letters of credit facility.
Substantially all assets of Tracor and certain domestic, wholly owned
subsidiaries are pledged or mortgaged under the Amended Credit Agreement, and
all borrowings are guaranteed by such subsidiaries.

The term loans are comprised of an $80 million A Term Loan, a $50 million B
Term Loan, and a $50 million C Term Loan. The A Term Loan facility is evidenced
by promissory notes maturing October 31, 1999, and requiring quarterly principle
payments of approximately $5.3 million. The B Term Loan facility is evidenced by
promissory notes maturing October 31, 2000, requiring quarterly payments of
$133,333 through and including October 31, 1999, and quarterly payments of $12
million from January 31, 2000, through October 31, 2000. The C Term Loan
facility is evidenced by promissory notes maturing April 30, 2001, requiring
quarterly payments of $131,578 through October 31, 2000, and two payments of
$23,750,000 on January 31 and April 30, 2001. The revolving loans facility is
evidenced by promissory notes maturing December 31, 2000. The letters of credit
facility provides for the issuance of letters of credit with expiration dates
generally 18 months or less from the date of issuance (automatically renewable
unless a default exists at the expiration date) but in any event not later than
December 31, 2000.

F-13
<PAGE> 59

TRACOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Certain mandatory prepayments are also required, including the prepayment
of amounts equal to 100% of the net proceeds from any asset sales, subject to
certain exceptions, and 50% of annual excess cash flow. Such mandatory
repayments are to be applied to equally and ratably prepay the A, B, and C Term
Loans based on the relative principal amounts outstanding.

Term loans under the A Term Loan facility and the revolving loans bear
interest at Tracor's option at either the lender's base rate plus 1 1/2% or the
eurodollar rate plus 2 1/2%. Loans under the B Term Loan facility bear interest
at Tracor's option at either the lender's base rate plus 2% or the eurodollar
rate plus 3%. Loans under the C Term Loan facility bear interest at Tracor's
option at either the lender's base rate plus 2 1/4% or the eurodollar rate plus
3 1/4%. Interest on base rate loans is payable quarterly, and interest on
eurodollar loans is payable at the end of the applicable interest period or
every three months in the case of interest periods in excess of three months. A
commitment fee of .5% per annum is charged on the unused revolving loans and
letters of credit facility and is payable quarterly in arrears. Each letter of
credit bears a total fee of 2 3/8% per annum plus customary administrative
charges. At March 31, 1996, the Company had outstanding letters of credit
totaling $38.2 million relating to commitments for performance on certain
contracts with foreign customers and as collateral on certain insurance
policies.

The Amended Credit Agreement contains covenants which, among other things,
impose limitations and restrictions on the incurrence of additional
indebtedness, capital expenditures, future mergers and acquisitions, sales of
assets, payment of dividends (limited to 30% of net income for the prior year),
and changes in control, as defined. In addition, Tracor is required to satisfy
certain financial covenants and tests relating to, among other matters, interest
coverage, working capital, leverage, and net worth.

F-14
<PAGE> 60

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Tracor, Inc.

We have audited the consolidated balance sheets of Tracor, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
income statements and statements of shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of Tracor'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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tracor, Inc.
and subsidiaries at December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Austin, Texas
January 26, 1996,
except for Note N, as to which
the date is March 12, 1996

F-15
<PAGE> 61

TRACOR, INC.

CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales................................................ $886,920 $694,037 $407,495
Cost of sales............................................ 713,802 568,020 333,852
-------- -------- --------
Gross profit................................... 173,118 126,017 73,643
Selling, administrative, and general expenses............ 104,928 78,201 49,889
-------- -------- --------
Earnings before interest and income taxes...... 68,190 47,816 23,754
Interest expense......................................... 19,496 16,771 8,277
-------- -------- --------
Income before income taxes..................... 48,694 31,045 15,477
Income taxes............................................. 20,831 12,498 6,200
-------- -------- --------
Net income............................................... $ 27,863 $ 18,547 $ 9,277
======== ======== ========
Net income per common and common equivalent share:
Primary................................................ $ 1.23 $ .96 $ .56
======== ======== ========
Fully diluted.......................................... $ 1.23 $ .93 $ .54
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-16
<PAGE> 62

TRACOR, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

ASSETS

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 59,478 $ 24,152
Accounts receivable.................................................. 141,657 135,678
Inventories.......................................................... 4,695 5,089
Prepaid expenses and other........................................... 7,988 10,490
Deferred income taxes................................................ 15,916 17,005
-------- --------
Total current assets......................................... 229,734 192,414
Property, plant, and equipment......................................... 120,333 110,968
Less allowances for depreciation and amortization.................... 34,573 24,933
-------- --------
Net property, plant, and equipment........................... 85,760 86,035
Goodwill, net of accumulated amortization of $5,219 in 1995 and $1,553
in 1994.............................................................. 99,813 94,695
Other intangibles, net of accumulated amortization of $7,870 in 1995
and $2,206 in 1994................................................... 18,385 24,025
Prepaid pension costs.................................................. 23,107 34,793
Deferred charges and other assets...................................... 10,657 12,124
-------- --------
Total assets........................................................... $467,456 $444,086
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 22,981 $ 15,584
Accrued liabilities.................................................. 66,889 70,709
Current portion of long-term debt.................................... 10,735 10,729
-------- --------
Total current liabilities.................................... 100,605 97,022
Long-term debt, less current portion................................... 180,440 195,009
Deferred revenue....................................................... 23,752 35,438
Other long-term liabilities............................................ 25,694 26,025
Shareholders' equity:
Preferred stock, par value $.01 per share: 1,000,000 shares
authorized; no shares issued or outstanding....................... -- --
Common stock, par value $.01 per share: 53,000,000 shares authorized;
issued and outstanding: 13,172,754 in 1995, 10,678,726 in 1994,
net of 977,803 shares in treasury in 1994......................... 132 106
Class A common stock, par value $.01 per share: 1,000,000 shares
authorized; 978,458 shares issued and outstanding................. 10 10
Additional capital paid in........................................... 76,606 58,122
Retained earnings.................................................... 60,217 32,354
-------- --------
Total shareholders' equity................................... 136,965 90,592
-------- --------
Total liabilities and shareholders' equity............................. $467,456 $444,086
======== ========
</TABLE>

See notes to consolidated financial statements.

F-17
<PAGE> 63

TRACOR, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL
PAR CAPITAL RETAINED
SHARES VALUE PAID IN EARNINGS TOTAL
------ ----- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993...................... 10,000 $ 100 $ 47,715 $ 4,530 $ 52,345
Exercise of stock options and Series A
Warrants................................... 612 6 1,539 1,545
Net income.................................... 9,277 9,277
------ ----- -------- -------- --------
Balance at December 31, 1993.................... 10,612 106 49,254 13,807 63,167
Issuance of common stock...................... 1,928 19 16,345 16,364
Exercise of stock options and Series A
Warrants................................... 92 1 309 310
Purchase of common stock, at cost............. (975) (10) (7,786) (7,796)
Net income.................................... 18,547 18,547
------ ----- -------- -------- --------
Balance at December 31, 1994.................... 11,657 116 58,122 32,354 90,592
Issuance of common stock...................... 2,217 22 18,891 18,913
Stock issuance costs.......................... (1,034) (1,034)
Exercise of stock options and Series A
Warrants................................... 282 4 659 663
Purchase of common stock, at cost............. (5) (32) (32)
Net income.................................... 27,863 27,863
------ ---- -------- -------- --------
Balance at December 31, 1995.................... 14,151 $ 142 $ 76,606 $ 60,217 $136,965
====== ===== ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-18
<PAGE> 64

TRACOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income.............................................. $ 27,863 $ 18,547 $ 9,277
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of property, plant, and equipment....... 13,524 12,236 8,365
Amortization of goodwill............................. 3,666 1,204 349
Amortization of other intangibles.................... 5,664 1,306 900
Decrease in prepaid pension costs.................... 11,686 3,489 1,958
Decrease in debt issuance costs...................... 2,054 2,577 937
Provision for deferred income taxes.................. 2,796 2,067 823
Decrease in deferred revenue......................... (11,686) (3,489) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (4,085) 9,616 12,569
(Increase) decrease in inventories and prepaids.... 3,220 (771) 2,119
Increase (decrease) in accounts payable............ 6,869 (8,326) 2,548
Increase (decrease) in advanced payments........... (2,368) (4,788) 5,215
Due to Vitro's former parent....................... -- (7,197) (1,306)
Decrease in accrued expenses....................... (4,696) (639) (3,515)
Increase in other, net............................. (545) (43) (124)
-------- -------- ---------
Net adjustments to income.......................... 26,099 7,242 30,838
Proceeds from predecessor claim......................... -- -- 5,373
-------- -------- ---------
Net cash provided by operating activities.......... 53,962 25,789 45,488
Investing activities:
Purchases of property, plant, and equipment............. (13,676) (11,007) (8,435)
Proceeds from sale of property, plant, and equipment.... 2,382 897 271
Acquisition of businesses, net of cash acquired......... (15,120) (61,048) (92,792)
-------- -------- ---------
Net cash used in investing activities.............. (26,414) (71,158) (100,956)
Financing activities:
Payments of long-term debt.............................. (10,732) (38,342) (48,892)
Purchase of treasury stock.............................. (32) (7,796) --
Proceeds from stock offering, net of stock issuance
costs................................................ 17,879 -- --
Proceeds from issuance of long-term debt................ -- 85,000 143,000
Payment of debt issuance costs.......................... -- (3,229) (9,544)
Exercise of stock options and warrants.................. 663 310 1,545
-------- -------- ---------
Net cash provided by financing activities.......... 7,778 35,943 86,109
-------- -------- ---------
Increase (decrease) in cash and cash equivalents... 35,326 (9,426) 30,641
Cash and cash equivalents at beginning of period.......... 24,152 33,578 2,937
-------- -------- ---------
Cash and cash equivalents at end of period................ $ 59,478 $ 24,152 $ 33,578
======== ======== =========
</TABLE>

See notes to consolidated financial statements.

F-19
<PAGE> 65

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

NOTE A -- BUSINESS AND ACQUISITIONS

Business

Tracor, Inc. and its subsidiaries (individually and collectively referred
to as Tracor or the Company) operate in one business segment, providing a broad
range of sophisticated electronic products, systems, and services to its
customers in the U.S. Department of Defense (DOD) as well as in nondefense U.S.
government agencies, other governments, and the commercial marketplace. Tracor
primarily markets and sells its own products, systems and services. When
marketing and selling to foreign customers, Tracor frequently engages the
assistance of in-country representatives, distributors, or trading companies.

Sales to agencies of the U.S. government totaled $773 million in 1995, $611
million in 1994, and $341 million in 1993. The U.S. government, through
approximately 570 contracts with 100 separate government agencies, was the only
customer accounting for more than 10% of consolidated net sales. Sales to the
DOD were $717 million in 1995, $563 million in 1994, and $318 million in 1993.

Export sales, principally to Pacific Rim, European, and Middle Eastern
customers, totaled $81 million in 1995, $59 million in 1994, and $44 million in
1993. Income before income taxes from foreign-based operations was not
significant.

Acquisitions

GDE Acquisition

On November 17, 1994, Tracor purchased all of the outstanding common stock
of GDE Holdings, Inc., including its wholly owned subsidiaries (individually and
collectively referred to as "GDE"). GDE designs, develops, manufactures, and
supports automatic test systems, imagery and information systems, and mission
planning systems. The purchase price, including the effect of a post-closing
amendment to the acquisition that was finalized in March 1995, and related
acquisition expenses were $102 million. The purchase price was financed by the
issuance of approximately 1.9 million shares of Tracor's common stock (recorded
at $8.50 per share), the issuance of approximately $10.9 million of Series A
Notes (see Note G), the borrowing of $55 million under the Company's amended and
restated credit agreement (Amended Credit Agreement) (see Note G), and
approximately $19.9 million of the Company's cash on hand.

The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price and the liabilities assumed ($76 million) have
been allocated to the assets acquired ($104 million) based on their respective
fair values at the date of acquisition. The resulting excess of the purchase
price over the fair value of the net assets acquired ($74 million) is being
amortized over 30 years.

Vitro Acquisition

On August 25, 1993, Tracor purchased all of the outstanding common stock of
Vitro Corporation, including its wholly owned subsidiaries (individually and
collectively referred to as "Vitro"). Vitro provides management and engineering
expertise for the design, development, acquisition, production, test, operation,
maintenance, and modernization of ships, submarines, missiles, aircraft, and
complex computer systems. The purchase price including acquisition expenses was
$92 million in cash. The purchase price was financed by the net proceeds of the
issuance of $105 million of Senior Subordinated Notes (see Note G).

The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price and the liabilities assumed ($62 million) have
been allocated to the assets acquired ($130 million) based on their respective
fair values at the date of acquisition. The resulting excess of the purchase
price over the fair value of the net assets acquired ($24 million) is being
amortized over 25 years.

F-20
<PAGE> 66

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Lundy Acquisition

In March 1995, Tracor acquired certain assets and assumed certain
liabilities of Lundy Technical Center, a division of TransTechnology Corporation
(Lundy), for a cash price of $6.2 million. Lundy produces various chaff products
for the U.S. government and foreign customers.

The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price and the liabilities assumed ($3.7 million) have
been allocated to the assets acquired ($4.8 million) based on their respective
fair values at the date of acquisition. The resulting excess of the purchase
price over the fair value of the net assets acquired ($5.1 million) is being
amortized over 20 years.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Tracor, Inc.
and its subsidiaries, substantially all of which are wholly owned. All
significant intercompany accounts have been eliminated.

Cash Equivalents

All highly liquid investments, with a maturity of three months or less when
purchased, are considered to be cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in particular estimates of anticipated contract costs and revenues
utilized in the earnings recognition process, that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.

Long-term Contracts

Long-term contracts are accounted for under the percentage of completion
method, wherein revenue is recognized based on cumulative costs incurred and the
estimated cost to complete as such relates to total contract price. All costs
are expensed as incurred, and losses on contracts are estimated and recognized
when it becomes apparent a loss is to be incurred. The revenue impact of pension
costs is recognized as the pension costs are recognized for generally accepted
accounting principles (GAAP) purposes. This results in the deferral of revenue
where allowable pension costs under government accounting regulations exceed
pension costs as prescribed by GAAP. The entire amount of deferred revenue in
the accompanying consolidated balance sheets results from this accounting
methodology.

The progress payment provisions of certain contracts permit Tracor to bill
for a percentage of costs incurred. The remainder of costs incurred and profit
are included in unbilled costs and fees and are billed at the completion of the
contract or upon delivery of the product.

Inventories

Inventories, consisting principally of raw materials, are stated at the
lower of cost (generally first-in, first-out method) or market.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost, and depreciation is
calculated on both the straight-line and accelerated methods over the useful
lives of the related assets.

F-21
<PAGE> 67

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill, Other Intangibles, and Deferred Charges and Other Assets

Goodwill, the excess cost over the fair value of net assets acquired, is
amortized using the straight-line method over 10 to 30 years. Other intangibles
are recorded at cost and amortized using the straight-line method over their
economic lives. Deferred debt issuance costs, included in deferred charges and
other assets, are capitalized and amortized to interest expense using the
interest method.

It is Tracor's policy to value goodwill and other intangible assets at the
lower of unamortized cost or fair value. Management reviews the valuation and
amortization of intangible assets on a periodic basis, taking into consideration
any events or circumstances which might result in diminished fair value. If this
review indicates goodwill will not be recoverable, as determined by the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the carrying value of the goodwill is reduced by the estimated shortfall
of cash flows.

Research and Development Costs

Tracor-funded research and development costs are expensed as incurred. Such
costs were $5.4 million in 1995, $4.7 million in 1994, and $3.5 million in 1993.

Income Taxes

In accordance with Financial Accounting Standards Board (FASB) Statement
No. 109, Accounting for Income Taxes, deferred income taxes are provided for
temporary differences between the basis of assets and liabilities for financial
reporting purposes and for income tax return purposes.

Recently Issued Accounting Standards

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are held for disposition. Tracor will adopt Statement No. 121 in
1996 and, based on current circumstances, does not expect a material impact to
the Company's results of operations or financial position.

Reclassifications

For comparative purposes, certain reclassifications have been made to
amounts previously reported.

F-22
<PAGE> 68

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- ACCOUNTS RECEIVABLE

The following table shows the components of accounts receivable (in
thousands), which include unbilled costs and fees under fixed-price and
cost-reimbursement type contracts. Billed accounts receivable are shown net of
allowances for doubtful accounts.

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Billed:
U.S. government, including Foreign Military Sales (FMS).... $ 72,338 $ 73,296
Foreign.................................................... 6,591 8,861
Domestic commercial........................................ 13,238 17,384
-------- --------
92,167 99,541
Unbilled costs and fees:
U.S. government, including FMS............................. 41,599 23,143
Foreign.................................................... 5,266 8,364
Domestic commercial........................................ 2,625 4,630
-------- --------
49,490 36,137
-------- --------
$141,657 $135,678
======== ========
</TABLE>

Amounts included in unbilled costs and fees comprise contract amounts for
which billings have not been presented. The requirements for billing are those
commonly found in contracting situations, such as meeting contractual milestones
and fulfilling retainage provisions. Substantially all amounts not billed at
December 31, 1995, will be billed during 1996. It is also anticipated that
substantially all billed accounts receivable and unbilled costs and fees will be
collected within one year.

The following table summarizes the changes in the allowance for doubtful
accounts for 1993, 1994, and 1995 (in thousands):

<TABLE>
<S> <C>
Balance at January 1, 1993................................................... $ 79
Additions charged to costs and expenses.................................... --
Write-off of uncollectible accounts........................................ (1)
-----
Balance at December 31, 1993................................................. 78
Additions charged to costs and expenses.................................... 2
Additions due to GDE acquisition........................................... 804
Write-off of uncollectible accounts........................................ (16)
-----
Balance at December 31, 1994................................................. 868
Additions charged to costs and expenses.................................... 285
Write-off of uncollectible accounts........................................ (195)
Reduction in allowance..................................................... (492)
-----
Balance at December 31, 1995................................................. $ 466
=====
</TABLE>

Although Tracor has a concentration of credit risk with the U.S.
government, Tracor has not historically experienced significant collection
losses on U.S. government contracts. Also, Tracor's foreign receivables are not
concentrated within any one geographic region, nor are they subject to economic
conditions that would subject Tracor to unusual risk.

F-23
<PAGE> 69

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- INVENTORIES

The components of inventories are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Raw materials...................................................... $2,824 $3,228
Work in process.................................................... 1,651 1,253
Finished goods..................................................... 220 608
------ ------
$4,695 $5,089
====== ======
</TABLE>

NOTE E -- PROPERTY, PLANT, AND EQUIPMENT

The components of property, plant, and equipment are as follows (in
thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land........................................................... $ 8,942 $ 9,212
Buildings...................................................... 34,394 33,377
Equipment...................................................... 71,179 62,213
Leasehold improvements......................................... 5,818 6,166
-------- --------
$120,333 $110,968
======== ========
</TABLE>

NOTE F -- ACCRUED LIABILITIES

The components of accrued liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Payroll and related items...................................... $ 44,493 $ 42,806
Advance payments from customers................................ 3,324 5,692
Interest....................................................... 4,997 5,627
Other.......................................................... 14,075 16,584
-------- --------
$ 66,889 $ 70,709
======== ========
</TABLE>

NOTE G -- LONG-TERM DEBT

The components of long-term debt are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revolving loan................................................. $ -- $ --
Term loans..................................................... 74,550 85,000
Senior Subordinated Notes...................................... 105,000 105,000
Series A Notes................................................. 10,947 14,778
Other.......................................................... 678 960
-------- --------
191,175 205,738
Less current maturities........................................ 10,735 10,729
-------- --------
$180,440 $195,009
======== ========
</TABLE>

Interest paid totaled $20.6 million in 1995, $13.8 million in 1994, and
$3.1 million in 1993. Interest expense is presented net of interest income of
$2.9 million in 1995, $1.2 million in 1994, and $230,000 in 1993.

F-24
<PAGE> 70

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amended and Restated Credit Agreement

Concurrent with the acquisition of GDE, Tracor amended and restated its
existing credit agreement, increasing the total credit available thereunder from
$70 million to $145 million by increasing the term loans facility from $30
million to $85 million, increasing the available revolving loans from $20
million to $30 million, and increasing the letters of credit facility from $20
million to $30 million. Substantially all assets of Tracor and certain domestic,
wholly owned subsidiaries are pledged or mortgaged under the Amended Credit
Agreement, and all borrowings are guaranteed by such subsidiaries.

The term loans are comprised of a $30 million Tranche A facility and a
$44.6 million Tranche B facility. The Tranche A facility is evidenced by
promissory notes maturing October 31, 1998, and requiring quarterly principal
payments of $2.5 million. The Tranche B facility is evidenced by promissory
notes maturing February 28, 2001, requiring quarterly principal payments of
$112,500 through and including October 31, 1998, and quarterly principal
payments of $3.6 million from January 31, 1999, through October 31, 2000, plus a
payment of $14.4 million on the final maturity date of February 28, 2001. The
revolving loans are evidenced by promissory notes maturing March 31, 1998. The
letters of credit facility provides for the issuance of letters of credit with
expiration dates generally one year or less from the date of issuance
(automatically renewable unless a default exists at the expiration date) but in
any event not later than March 31, 1998. The final maturity date of the
revolving loans and the letters of credit facility may be extended to October
31, 1999, if requested by Tracor, providing no default exists.

Certain mandatory prepayments are also required including the prepayment of
amounts equal to 100% of the net proceeds from the issuance of any additional
debt and a percentage of the net proceeds from the sale of Tracor equity, 100%
of the net proceeds from any asset sales, subject to certain exceptions, and 50%
of annual excess cash flow. Such mandatory repayments are to be applied first to
repay the term loans in inverse order of maturity and second to repay revolving
loans (and reduce the commitments accordingly).

Term loans under the Tranche A facility and revolving loans bear interest
at Tracor's option at either the lender's base rate plus 1 1/2% or the
eurodollar rate plus 2 1/2% (8.25% at December 31, 1995). Term loans under the
Tranche B facility bear interest at Tracor's option at either the lender's base
rate plus 2% or the eurodollar rate plus 3% (8.75% at December 31, 1995).
Interest on base rate loans is payable quarterly, and interest on eurodollar
loans is payable at the end of the applicable interest period or every three
months in the case of interest periods in excess of three months. A commitment
fee of .5% per annum is charged on the unused revolving loan and letters of
credit facility and is payable quarterly in arrears. Each letter of credit bears
a total fee of 2 1/2% per annum plus customary administrative charges. Available
credit under the revolving loans facility was $30 million at December 31, 1995
and 1994. Tracor had $20.8 million at December 31, 1995, and $17.6 million at
December 31, 1994, outstanding under its letters of credit facility relating to
commitments for performance on certain contracts and as collateral on certain
insurance policies.

The Amended Credit Agreement was further amended and restated on February
22, 1996. See Note N.

Senior Subordinated Notes

The acquisition of Vitro was financed by the issuance of $105 million
aggregate principal amount of Senior Subordinated Notes due August 15, 2001 (the
Notes). The Notes bear interest at an annual rate of 10 7/8%, payable
semiannually on February 15 and August 15. There is no sinking fund requirement.

F-25
<PAGE> 71

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisition of GDE was financed in part by the issuance of $10.9
million (as adjusted by a post-closing amendment to the acquisition that was
finalized in March 1995) aggregate principal amount of Series A Notes due August
15, 2001 (Series A Notes) in a private placement in November 1994. The Series A
Notes rank on the same level as, and are a part of the same series of securities
as, the Company's existing Notes discussed above. The Series A Notes bear
interest at an annual rate of 10 7/8%, payable semiannually on February 15 and
August 15. There is no sinking fund requirement.

The Notes and Series A Notes are redeemable, in whole or in part, at the
option of Tracor, on or after August 15, 1997, at the redemption prices of
104.661% in 1997, 103.107% in 1998, 101.554% in 1999, and 100% thereafter. In
the event of a change of control, as defined in the Indenture, each holder may
require Tracor to repurchase such holder's Notes or Series A Notes, as
applicable, at 101% plus accrued and unpaid interest. Tracor is also required to
offer to repurchase a specified portion of the Notes and Series A Notes in the
event of certain asset sales.

The Notes and Series A Notes are subordinated to all senior debt,
subordinated on an equal basis with any future senior subordinated indebtedness,
and senior to all other subordinated debt of Tracor. Substantially all of
Tracor's wholly owned subsidiaries have guaranteed the Notes and Series A Notes
on a senior subordinated basis.

The indentures pertaining to the Notes and Series A Notes contain
restrictions on the incurrence of additional indebtedness, dividends on and
redemptions of capital stock, redemptions of certain subordinated obligations,
the making of certain investments, transactions with affiliates, sales of
assets, and mergers or consolidations with or transfers of assets to other
persons.

Aggregate annual long-term debt maturities for each of the next five years
are as follows (in thousands):

<TABLE>
<S> <C>
1996.............................................. $ 10,735
1997.............................................. 10,769
1998.............................................. 10,484
1999.............................................. 14,436
2000.............................................. 14,404
2001 and thereafter............................... 130,347
--------
Total................................... $191,175
========
</TABLE>

Fair Value

The fair value of Tracor's outstanding debt under the Amended Credit
Agreement approximates its carrying value. This assessment is based on the fact
the debt has a variable interest rate. Based on the market prices for the Notes,
the fair values of Tracor's Notes and Series A Notes are $108.4 million and
$11.3 million, respectively, at December 31, 1995, and $101.9 million and $14.3
million, respectively, at December 31, 1994.

NOTE H -- RETIREMENT BENEFIT PLANS

Tracor provides retirement benefits through contributory and
noncontributory defined benefit and defined contribution plans.

Defined Benefit Pension Plan

Tracor's defined benefit pension plan (Pension Plan) covers most of its
employees. Retirement benefits are generally based on years of service and final
average compensation. Tracor's contributions are made in amounts sufficient to
satisfy ERISA funding requirements.

F-26
<PAGE> 72

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the acquisition of GDE in 1994, certain actuarial
assumptions of GDE's defined benefit plan were revised to conform to Tracor's
own plan assumptions. Accordingly, the pension assets for GDE's plan exceeded
benefit obligations, resulting in the recording of prepaid pension costs for GDE
of approximately $35 million.

GDE's defined benefit pension plan was merged with the Pension Plan on
December 31, 1994. As a result, Pension Plan assets increased $162 million, and
the actuarial present value of the projected benefit obligation increased $135
million.

Assumptions used in accounting for the Pension Plan were:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate:
January 1...................................................... 8.75% 7.50% 8.75%
December 31.................................................... 7.25% 8.75% 7.50%
Rate of increase in compensation levels:
January 1...................................................... 5.00% 4.00% 5.00%
December 31.................................................... 4.00% 5.00% 4.00%
Expected long-term rate of return on assets...................... 9.50% 9.50% 9.50%
</TABLE>

Substantially all Pension Plan assets are invested in publicly traded
stocks and bonds. The funded status and the amount recognized in the
consolidated balance sheets are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................... $304,687 $236,050
======== ========
Accumulated benefit obligation............................... $315,351 $245,227
======== ========
Projected benefit obligation................................... $365,648 $289,755
Pension Plan assets at fair value.............................. 350,570 301,209
-------- --------
Pension Plan assets in excess of (less than) the projected
benefit obligation........................................... (15,078) 11,454
Unrecognized prior service cost................................ 7,394 (21)
Unrecognized net loss.......................................... 30,791 23,360
-------- --------
Net prepaid pension costs recognized and included in other
assets....................................................... $ 23,107 $ 34,793
======== ========
</TABLE>

The components of pension expense are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Service cost, benefits earned during the year......... $ 12,458 $ 7,877 $ 3,971
Interest cost on projected benefit obligation......... 25,891 13,221 6,349
Actual return on Pension Plan assets.................. (73,856) 7,200 (3,069)
Net amortization and deferral......................... 47,193 (24,367) (4,336)
-------- -------- -------
$ 11,686 $ 3,931 $ 2,915
======== ======== =======
</TABLE>

Defined Contribution Retirement Plans

Tracor's contributions under its defined contribution plans, which together
cover substantially all employees, are generally based upon a percentage of an
eligible employee's covered compensation or employee

F-27
<PAGE> 73

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions. Expenses recorded under defined contribution plans were $9.2
million in 1995, $7.2 million in 1994, and $2.5 million in 1993.

Postretirement Health Care Plans

Tracor, principally through Vitro and GDE, provides postretirement health
care and life insurance benefits to certain retired employees who meet minimum
age and service requirements. The health care and life insurance plans are
contributory and contain other cost-sharing features such as deductibles and
coinsurance. Tracor's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management.

Upon Tracor's acquisition of Vitro, the postretirement health care plans
that previously existed for Vitro employees were discontinued, leaving only the
obligation that existed at the acquisition date for eligible employees and
retirees. Accordingly, the cost of providing these benefits under the Tracor and
Vitro plans is not significant to the consolidated financial statements, and
information regarding actuarial methods and assumptions, health care cost
assumptions, and components of the obligation and annual expense is not
provided. Other long-term liabilities include $5.5 million at December 31, 1995,
and $6.7 million at December 31, 1994, for such benefits.

The defined benefit health care and life insurance plans sponsored by GDE
currently provide postretirement benefits; however, the salaried retiree medical
plans will terminate effective July 1, 2008. The current GDE retiree plans will
continue until that time with the premium capped at the rate in effect July 1,
1993, plus an escalation of 5% per year through 1997.

The following table (in thousands) presents the GDE plans' funded status
and the amounts recognized in the consolidated balance sheets:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 8,149 $ 8,141
Fully eligible active plan participants........................ 1,596 1,729
Other active plan participants................................. 842 968
------- -------
10,587 10,838
Plan assets at fair value...................................... -- --
------- -------
Accrued postretirement obligation, included in other long-term
liabilities.................................................... $10,587 $10,838
======= =======
</TABLE>

Net periodic postretirement benefit cost for the GDE plans was
approximately $961,000 in 1995 and $116,000 in 1994.

For measurement of the GDE plans, 9% to 11% annual rates of increase,
depending on participant criteria, in the per capita cost of covered benefits
(i.e., health care cost trend rate), were assumed for 1995 and 1994. The rates
were assumed to decrease gradually to 6% for most participants by the year 2001
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example, increasing the
assumed health care trend rate by one percentage point would increase the
accumulated postretirement benefit obligation at December 31, 1995, by $137,000
and the net periodic postretirement benefit cost for 1995 by $8,000.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation for the GDE plans was 7.25% at December 31,
1995, and 8.75% at December 31, 1994.

F-28
<PAGE> 74

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- SHAREHOLDERS' EQUITY

Common Stock

The holders of both classes of common stock share all the rights and
privileges normally associated with such equity securities. However, solely for
the purpose of electing Tracor's board of directors, holders of Class A common
stock are entitled to vote as a class to elect one director and shall have no
voting rights with respect to the election of the other directors.

Under certain conditions, as set forth in a registration rights agreement,
the initial holders of both classes of common stock may request Tracor to
register its securities with the Securities and Exchange Commission (SEC) for
resale. This registration right is generally not transferable to subsequent
shareholders. Tracor must bear the cost of any registration, except for
underwriting commissions, sellers' counsel fees, and other selling expenses.
Tracor may include in any registration shares of common stock to be sold for its
own account, subject to certain limitations.

Generally, upon the sale, transfer, or other ownership change of any share
of Class A common stock, such share shall be converted into a share of common
stock. In the event and at such time as the number of outstanding shares of
Class A common stock becomes less than 500,000, each outstanding share shall be
converted into a share of common stock and the director position on the board of
directors elected by the holders of the Class A common stock shall be
eliminated.

On May 2, 1995, Tracor concluded a public offering of 4,600,000 shares of
common stock at a price of $11.50 per share. Of the 4,600,000 shares, Tracor
sold 1,600,000 shares and a selling stockholder sold 3,000,000 shares. Included
in shares sold by the stockholder were approximately 617,000 shares obtained
upon the exercise of Series A Warrants. The net proceeds to Tracor from the
exercise of Series A Warrants and the primary shares sold in the offering
totaled approximately $18 million.

During 1994, Tracor purchased from a major shareholder 975,000 shares of
its common stock for $7.8 million. These shares were classified as treasury
shares. In November 1995, Tracor's board of directors retired all 982,653 shares
of common stock held as treasury stock. The shares returned to the status of
authorized but unissued shares.

Common Stock Purchase Warrants

Tracor has issued three series of warrants that entitle the holders to
purchase shares of common stock. The warrants are exercisable at the option of
the holder at any time prior to December 27, 2001, and are not callable by
Tracor. Under certain conditions, as defined in the warrant agreements for each
series, the number of shares purchasable and the exercise price may be adjusted.
The holders may also request Tracor to register the underlying securities with
the SEC under substantially the same terms described above for holders of common
stock, except that the registration rights are generally transferable to
subsequent warrant holders. Series A Warrants exercised totaled 829,175 shares
in 1995, 46,472 shares in 1994, and 593,665 shares in 1993. Outstanding warrants
at December 31, 1995, are as follows:

<TABLE>
<CAPTION>
EXERCISE
SERIES SHARES PRICE
- ------ ---------- --------
<S> <C> <C>
A 1,350,688 $ 2.54
B 5,249,428 $ 4.42
C 5,455,000 $ 7.36
</TABLE>

Common Stock Option Plan

Tracor's stock option plans provide for the grant of restricted stock,
stock appreciation rights, and both incentive and non-qualified options to
employees. The exercise price of each currently outstanding option is

F-29
<PAGE> 75

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the fair market value of a share of Tracor's common stock on the date of grant.
Up to 30% of each option is exercisable one year after the grant, up to an
additional 30% is exercisable two years after the grant, and the remainder is
exercisable three years after the grant. The term of each option is 10 years
from the date of grant.

A summary of changes in common stock options during 1993, 1994, and 1995 is
as follows:

<TABLE>
<CAPTION>
SHARES PER SHARE($)
--------- -------------
<S> <C> <C>
Options outstanding, January 1, 1993...................... 459,500 1.75 - 3.63
Granted................................................. 480,000 3.13 - 8.13
Exercised............................................... (18,300) 2.00
Surrendered............................................. (7,000) 2.00
---------
Options outstanding, December 31, 1993.................... 914,200 1.75 - 8.13
Granted................................................. 71,700 7.88 - 12.25
Exercised............................................... (48,500) 1.75 - 3.63
Surrendered............................................. (4,200) 3.13
---------
Options outstanding, December 31, 1994.................... 933,200 1.75 - 12.25
Granted................................................. 487,500 13.00 - 15.25
Exercised............................................... (69,703) 1.75 - 8.13
---------
Options outstanding, December 31, 1995.................... 1,350,997 1.75 - 15.25
=========
Options exercisable, December 31,
1995.................................................... 653,400 1.75 - 12.25
1994.................................................... 376,600 1.75 - 8.13
1993.................................................... 129,550 1.75 - 3.63
Available for grant, December 31,
1995.................................................... 512,500
1994.................................................... --
1993.................................................... 67,500
</TABLE>

Reserved Common Shares

Common stock reserved at December 31, 1995, consists of the following:

<TABLE>
<S> <C>
For conversion of Class A common stock................................... 978,458
For exercise of outstanding warrants..................................... 12,055,116
For exercise of stock options............................................ 1,863,497
----------
14,897,071
==========
</TABLE>

NOTE J -- INCOME TAXES

Income before income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $48,212 $31,111 $15,836
Foreign............................................... 482 (66) (359)
------- ------- -------
$48,694 $31,045 $15,477
======= ======= =======
</TABLE>

F-30
<PAGE> 76

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $14,887 $ 8,708 $ 4,424
State.............................................. 3,308 1,723 1,008
Foreign............................................ (160) -- (55)
------- ------- --------
18,035 10,431 5,377
Deferred:
Federal............................................ 2,309 1,978 1,071
State.............................................. 487 218 (94)
Foreign............................................ -- (129) (154)
------- ------- --------
2,796 2,067 823
------- ------- --------
$20,831 $12,498 $ 6,200
======= ======= ========
</TABLE>

A reconciliation between income taxes computed on income before taxes at
the statutory federal rate (35% in 1995, 1994, and 1993) and the provision for
income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income taxes at the statutory federal rate............ $17,043 $10,866 $ 5,417
Goodwill.............................................. 1,240 553 178
State income taxes, net of federal tax benefits....... 2,467 1,262 594
Other................................................. 81 (183) 11
------- ------- -------
$20,831 $12,498 $ 6,200
======= ======= =======
</TABLE>

A summary of the tax effects of temporary differences comprising deferred
income tax assets and liabilities is as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred income tax assets:
Contracts.................................................... $ 6,509 $ 7,364
Postretirement medical obligation............................ 1,982 1,381
Accrued vacation............................................. 8,332 8,277
Expense accruals not yet deductible.......................... 820 1,359
Deferred compensation........................................ 3,426 1,982
Pension...................................................... 9,243 13,569
Other........................................................ 783 1,109
------- -------
Total deferred tax assets................................. 31,095 35,041
Valuation allowance for deferred tax assets............. -- (500)
------- -------
Net deferred tax assets.............................. 31,095 34,541
Deferred income tax liabilities:
Depreciation................................................. 11,083 9,520
Pension...................................................... 9,501 13,821
Other........................................................ 1,921 847
------- -------
Total deferred tax liabilities............................ 22,505 24,188
------- -------
Net deferred income taxes...................................... $ 8,590 $10,353
======= =======
</TABLE>

F-31
<PAGE> 77

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net deferred income taxes are reflected on the consolidated balance sheet
as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current deferred income taxes.................................... $15,916 $17,005
Other long-term liabilities...................................... (7,326) (6,652)
------- -------
Net deferred income taxes........................................ $ 8,590 $10,353
======= =======
</TABLE>

Based on Tracor's taxable income in prior carryback years and forecast of
future income, management believes it is more likely than not that all net
deferred tax assets will be realized. The valuation allowance for capital losses
was eliminated in 1995 as a result of realized capital gains, and the related
tax benefit reduced the goodwill of GDE.

For tax purposes, the acquisitions of Vitro and GDE were accounted for
using their carryover tax basis, which resulted in the recording of significant
deferred income tax assets.

Income taxes paid, net of refunds, totaled $20.0 million in 1995, $8.6
million in 1994, and $7.4 million in 1993.

NOTE K -- LEASE COMMITMENTS

Tracor leases office space under various operating leases, which generally
contain renewal options and are subject to increases based on formulas such as
changes in the Consumer Price Index. Future minimum payments at December 31,
1995, for all noncancelable operating leases with initial terms of one year or
more are as follows (in thousands):

<TABLE>
<S> <C>
1996............................................... $13,983
1997............................................... 9,601
1998............................................... 6,685
1999............................................... 4,899
2000............................................... 3,046
2001 and thereafter................................ 12,324
-------
$50,538
=======
</TABLE>

Rental expense for all operating leases was $17.4 million in 1995, $15.8
million in 1994, and $8.0 million in 1993.

NOTE L -- CONTINGENCIES

NOTE M -- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Both primary and fully diluted net income per share amounts are computed in
accordance with the modified treasury stock method using the weighted average
common shares outstanding and equivalents assuming the exercise of all
outstanding warrants and options for common shares. The weighted average common
and common equivalent shares used in this calculation were 24,168,000 in 1995;
22,113,000 in 1994; and 22,069,000 in 1993. For purposes of net income per share
computations, net income is adjusted for the pro forma reduction of interest
expense, net of investment income (where applicable) and income taxes, resulting
from the assumed use of warrant and option exercise proceeds to reduce
outstanding debt.

F-32
<PAGE> 78

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- SUBSEQUENT EVENTS

AEL Acquisition

On February 22, 1996, Tracor purchased all of the approximately 4.1 million
common shares of AEL Industries, Inc. (AEL). AEL designs and manufactures
sophisticated countermeasures, simulation, and radar-warning receiver systems,
installs and integrates electronic avionics equipment in military and commercial
aircraft, and provides state-of-the-art antenna, microwave, and integrated
circuit components.

The consideration paid to AEL shareholders was approximately $98.8 million
cash for the common shares. AEL's long-term indebtedness prior to the
acquisition totaled approximately $20 million, of which approximately $10
million was retired and approximately $10 million was assumed by Tracor. The
financing for the transaction and related expenses was obtained through an
increase of the Company's existing bank term credit facility and from cash on
hand.

Concurrent with the AEL acquisition, Tracor amended and restated its
existing credit agreement increasing the total credit available thereunder from
$135 million to $270 million. The amended and restated credit agreement consists
of a $180 million term loan facility, a $40 million revolving loan facility, and
a $50 million letters of credit facility. Substantially all assets of Tracor and
certain domestic, wholly owned subsidiaries are pledged or mortgaged under the
amended and restated credit agreement, and all borrowings are guaranteed by such
subsidiaries.

Certain mandatory prepayments are also required including the prepayment of
amounts equal to 100% of the net proceeds from any asset sales, subject to
certain exceptions, and 50% of annual excess cash flow. Such mandatory
repayments are to be applied to equally and ratably prepay the A, B, and C Term
Loans based on the relative principal amounts outstanding.

The amended and restated credit agreement contains covenants which, among
other things, impose limitations and restrictions on the incurrence of
additional indebtedness, capital expenditures, future mergers and acquisitions,
sales of assets, payment of dividends (limited to 30% of net income for the
prior year), and

F-33
<PAGE> 79

TRACOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

changes in control, as defined. In addition, Tracor is required to satisfy
certain financial covenants and tests relating to, among other matters, interest
coverage, working capital, leverage, and net worth.

Westmark Acquisition

On March 12, 1996, Tracor reached agreement with Westmark Systems, Inc.
(Westmark) to acquire substantially all of Westmark's assets, which primarily
consist of Tracor stock and warrants, as well as certain real estate holdings.
Westmark, the former parent company of Tracor, holds all of Tracor's Class A
stock (978,458 shares), a Series B warrant to purchase 5,249,428 shares of
Tracor common stock with an exercise price of $4.42 per share, and a Series C
warrant to purchase 5,455,000 shares of Tracor common stock with an exercise
price of $7.36 per share. Under the agreement, which is subject to shareholder
approval by both companies, Tracor would exchange approximately 8 million shares
of common stock for the assets. The number of shares is subject to certain
adjustments based on Tracor's average stock price during a 20-day period ending
three days before the earliest shareholder meeting held. Westmark will liquidate
concurrently with the closing by distributing the Tracor shares to its
shareholders. The agreement provides for a distribution of the Tracor shares
through underwritten secondary offerings of a maximum of one-half of the shares
during the first two years after the closing.

F-34
<PAGE> 80

REPORT OF INDEPENDENT AUDITORS

To The Board of Directors and Shareholders of AEL Industries, Inc.

We have audited the accompanying consolidated balance sheets of AEL
Industries, Inc. as of February 24, 1995, and February 25, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AEL Industries,
Inc. at February 24, 1995, and February 25, 1994, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.

As discussed in the last paragraph of Note 8 to the consolidated financial
statements, the outcome of a U.S. Government investigation associated with a
fixed-price contract is presently not determinable. No provision for any
liability that may result from this matter has been made in the accompanying
financial statements.

ERNST & YOUNG LLP

Philadelphia, Pennsylvania
March 24, 1995

F-35
<PAGE> 81

AEL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS
FEBRUARY 24, 1995 AND FEBRUARY 25, 1994

ASSETS

<TABLE>
<CAPTION>
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and equivalents................................................. $ 3,140 $ 10,414
Marketable securities................................................ 724 1,428
Receivables, including unbilled amounts of $29,244 at February 24,
1995, and $28,313 at February 25, 1994:
U.S. Government................................................... 40,695 37,045
Other............................................................. 5,273 4,202
-------- --------
45,968 41,247
Inventories.......................................................... 1,312 3,047
Deferred income taxes................................................ 1,928 2,646
Other current assets................................................. 208 238
-------- --------
Total current assets................................................... 53,280 59,020
Property, plant and equipment, at cost:
Land................................................................. 1,860 1,897
Buildings and improvements........................................... 39,555 40,256
Machinery and equipment.............................................. 41,414 39,327
Office furniture and equipment....................................... 16,751 15,218
-------- --------
99,580 96,698
Less accumulated depreciation........................................ 56,941 52,375
-------- --------
Net property, plant and equipment.................................... 42,639 44,323
Other assets........................................................... 5,499 5,813
-------- --------
$101,418 $109,156
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 7,732 $ 4,795
Accrued salaries, wages and employee benefits........................ 5,062 5,811
Other current liabilities............................................ 7,039 13,631
Current portion of long-term debt.................................... 3,857 5,542
-------- --------
Total current liabilities.............................................. 23,690 29,779
Long-term debt, net of current portion................................. 15,742 19,599
Other liabilities...................................................... 1,764 1,713
Commitments and contingent liabilities -- Note 8
Shareholders' equity:
Class A common stock (nonvoting), $1 par value; 20,000,000 shares
authorized; shares issued and outstanding, 1995 -- 3,369,000;
1994 -- 3,333,000................................................. 3,369 3,333
Class B common stock (voting), $1 par value; 440,000 shares
authorized; shares issued and outstanding, 1995 and
1994 -- 435,000................................................... 435 435
Capital in excess of par value....................................... 2,923 2,557
Retained earnings.................................................... 53,303 51,740
Unrealized gain on marketable securities, net of tax................. 192 --
-------- --------
Total shareholders' equity............................................. 60,222 58,065
-------- --------
$101,418 $109,156
======== ========
</TABLE>

See accompanying notes.

F-36
<PAGE> 82

AEL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
TWO YEARS ENDED FEBRUARY 24, 1995

<TABLE>
<CAPTION>
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales........................................................... $ 126,537 $ 123,632
Cost of sales....................................................... 97,448 94,164
---------- ----------
Gross profit.............................................. 29,089 29,468
Selling, administrative, and general expenses....................... 25,486 25,893
---------- ----------
Earnings before interest and income taxes................. 3,603 3,575
Interest expense.................................................... 1,075 1,264
---------- ----------
Income before income taxes................................ 2,528 2,311
Income taxes........................................................ 759 694
---------- ----------
Net income.......................................................... $ 1,769 $ 1,617
========== ==========
Earnings per share.................................................. $ .46 $ .43
========== ==========
Weighted average shares outstanding................................. 3,826,000 3,780,000
========== ==========
</TABLE>

See accompanying notes.

F-37
<PAGE> 83

AEL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
TWO YEARS ENDED FEBRUARY 24, 1995

<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 1,769 $ 1,617
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................ 6,240 6,519
Amortization of other assets........................................ 419 407
Deferred income taxes............................................... 695 274
Accrued retirement benefits......................................... 51 (294)
Other............................................................... 11 (131)
Increase in receivables................................................ (4,721) (1,610)
Decrease in inventories and other current assets....................... 1,765 1,521
(Decrease) increase in accounts payable, accrued liabilities and other
current liabilities................................................. (4,404) 513
------- -------
Net cash provided by operating activities...................... 1,825 8,816
Cash flows from investing activities:
Additions to property, plant and equipment............................. (5,281) (6,386)
Proceeds from sales of property, plant and equipment................... 683 --
Liquidations of marketable securities.................................. 979 10,687
Other.................................................................. (60) 29
------- -------
Net cash (absorbed) provided by investing activities........... (3,679) 4,330
Cash flows from financing activities:
Reductions in long-term debt........................................... (5,542) (6,978)
Stock option exercises................................................. 352 302
Repurchases of common stock............................................ (230) (224)
------- -------
Net cash absorbed by financing activities...................... (5,420) (6,900)
------- -------
(Decrease) increase in cash and equivalents.............................. (7,274) 6,246
Cash and equivalents at beginning of period.............................. 10,414 4,168
------- -------
Cash and equivalents at end of period.................................... $ 3,140 $10,414
======= =======
</TABLE>

See accompanying notes.

F-38
<PAGE> 84

AEL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TWO YEARS ENDED FEBRUARY 24, 1995

<TABLE>
<CAPTION>
CAPITAL UNREALIZED TOTAL
COMMON STOCK IN GAIN ON CLASS A SHARE-
----------------- EXCESS OF RETAINED MARKETABLE TREASURY HOLDERS'
CLASS A CLASS B PAR VALUE EARNINGS SECURITIES SHARES EQUITY
------- ------- --------- -------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 26, 1993.................... $ 3,305 $ 436 $ 2,257 $ 50,322 $ -- $ -- $56,320
Conversion of Class B to Class A.............. 1 (1) --
Stock option exercises........................ 52 250 302
Tax benefit from stock option exercises....... 50 50
Purchases of common stock for treasury........ (224) (224)
Retirement of treasury stock.................. (25) (199) 224 --
Net income for the year....................... 1,617 1,617
------- ----- ------- -------- ---- ---- -------
Balance at February 25, 1994.................... 3,333 435 2,557 51,740 -- -- 58,065
Stock option exercises........................ 60 292 352
Tax benefit from stock option exercises....... 74 74
Purchases of common stock for treasury........ (230) (230)
Retirement of treasury stock.................. (24) (206) 230 --
Change in unrealized gain on securities
available for sale, net of tax............. 192 192
Net income for the year....................... 1,769 1,769
------- ----- ------- -------- ---- ---- -------
Balance at February 24, 1995.................... $ 3,369 $ 435 $ 2,923 $ 53,303 $192 $ -- $60,222
======= ===== ======= ======== ==== ==== =======
</TABLE>

See accompanying notes.

F-39
<PAGE> 85

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year. The Company's fiscal year ends on the last Friday in February.
Fiscal years in the two-year period ended February 24, 1995, each contain
fifty-two weeks.

Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.

Revenue Recognition. Contract revenue is recognized principally on the
percentage-of-completion method in the ratio that cost incurred bears to
estimated cost at completion. Other revenue is recorded on the basis of shipment
of products or performance of services.

Contract Provisions. Under fixed price contracts, the Company may
encounter, and on certain programs from time to time has encountered, cost
overruns caused by increased material, labor, or overhead costs, design or
production difficulties and various other factors such as technical and
manufacturing complexity, which must be, and in such cases have been, borne by
the Company. Adjustments to contract cost estimates are made in the periods in
which the facts requiring such revisions become known. When the revised estimate
indicates a loss, such loss is provided for currently in its entirety. In
addition, the Company from time to time commits to invest its own funds,
particularly in the case of high-technology seed programs. The estimated costs
of such investments in excess of the related contract values are provided for
currently in their entirety upon receipt of such contracts by the Company.

Cash and Equivalents. Cash and equivalents include all highly liquid
investments with original maturities of three months or less.

Marketable Securities. In fiscal year 1995, the Company adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Accordingly, on February 24, 1995, the Company's
marketable securities are classified as available-for-sale securities and
carried at market value as determined based on quoted market prices, and the
unrealized gain is reported net of tax as a separate component of shareholders'
equity. The cost basis of the marketable securities at February 24, 1995, is
$449,000. Prior year financial statements have not been restated to reflect the
change in accounting method. At February 25, 1994, marketable securities were
carried at cost and the aggregate market value was $1,697,000.

Receivables. Unbilled receivables represent costs and profits in excess of
billed amounts on contracts accounted for on the percentage-of-completion method
and are billable upon shipment of the product or performance of the service,
achievement of milestones or completion of the contract. Such amounts are
generally billed and collected within one year. However, approximately
$4,000,000 of unbilled receivables at February 24, 1995, are expected to be
billed and collected after one year, including $2,200,000 for costs subject to
future negotiations with the U.S. Government.

Inventories. Inventories are stated at the lower of cost or market and
consist primarily of raw materials and work-in-process. Raw materials are valued
generally at an average cost; work-in-process and finished goods are valued
generally on a first-in, first-out basis.

Plant and Equipment. Depreciation of plant and equipment is computed on the
straight-line method based upon the following estimated useful lives:

<TABLE>
<S> <C>
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 10 years
Office furniture and equipment 5 to 8 years
</TABLE>

F-40
<PAGE> 86

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Assets. Other assets include $7,300,000 representing the excess of
the purchase price over the fair value of the assets acquired and liabilities
assumed in connection with an acquisition in 1987. Such amount is being
amortized on a straight-line basis over 20 years. Accumulated amortization was
$2,768,000 and $2,403,000 at February 24, 1995, and February 25, 1994,
respectively.

Income Taxes. The Company uses the asset and liability method of accounting
for income taxes. Accordingly, deferred tax assets and liabilities are
recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities.

Interest. The Company capitalizes interest costs associated with the cost
of constructing major new facilities. Interest of $88,000 incurred in fiscal
year 1994 has been capitalized.

Earnings Per Share. Per share data are based on the weighted average number
of shares of stock outstanding each year including the dilutive effect of stock
options. Per share computations on a fully diluted basis are the same as those
reported.

Reclassifications. Certain financial statement items for fiscal year 1994
have been reclassified in order to conform with the current year's presentation.

2. POSSIBLE SALE OF THE COMPANY

On February 28, 1995, the Company's controlling shareholders, Dr. Leon
Riebman and Claire E. Riebman, transferred all of their class A nonvoting and
class B voting common stock into a voting trust controlled by four independent
directors of the Company to provide the Company's Board of Directors with
increased flexibility in exploring the possible sale of the Company. The voting
trust has an initial term of nine months with an extension period of up to one
additional year, subject to certain conditions. The voting trustees have full
power to vote the Riebmans' stock with regard to any proposed transaction for
the sale of the Company. Such stock constitutes approximately 7% of all
outstanding shares, before issuance of the 180,947 class A shares described
below, and 55% of the class B voting shares at February 24, 1995. Any proposal
for the sale of the Company, and the agreements with the Riebmans referred to
below, are subject to ratification by the class A and class B shareholders, each
voting as a separate class. Ratification of a proposal for the sale of the
Company and ratification of the agreements with the Riebmans must be voted upon
by the shareholders as a single proposition.

In consideration of the controlling shareholders entering the voting trust
agreement, transferring their shares to the voting trust, and agreeing to accept
the same per share price for their voting stock as other shareholders receive
for their stock in the event of a sale of the Company, the Company issued
180,947 shares of class A nonvoting stock to the Riebmans on February 28, 1995.
These shares have also been transferred into the voting trust and will be
returned to the Company for cancellation without any payment to the Riebmans if
a sale of the Company does not occur while the voting trust is in effect. If a
sale does occur, the issuance of 180,947 shares will result in a charge against
income for an amount equal to market value of the shares at the time the Company
is sold.

Under separate agreements also entered into on February 28, 1995, the
Company has agreed to make the following payments to Dr. Riebman if the Company
is sold while the voting trust is in effect: payments totalling $675,000 for
consulting services to be provided by Dr. Riebman for a three-year period
commencing with his employment termination; a change-in-control payment of
$500,000 if Dr. Riebman's employment terminates after the sale of the Company;
and a noncompetition payment of up to $1,900,000.

The Company also has agreements with seven other officers which could
result in severance payments to those officers if their employment were to
terminate during a two-year period following a change in control of

F-41
<PAGE> 87

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company. Aggregate severance payments under such agreements could range up
to approximately $2,500,000 depending on the number of officers terminated and
the timing of the terminations.

The Company expensed costs of approximately $675,000 in fiscal year 1995
related to the possible sale of the Company.

3. LINE OF CREDIT AND LETTERS OF CREDIT

The Company has a line of credit agreement expiring June 30, 1995, which
provides for unsecured borrowings of up to $8,000,000 at the prime rate. The
Company had only nominal temporary borrowings under the line of credit agreement
during the year ended February 24, 1995, and did not borrow during the year
ended February 25, 1994. The terms of the line of credit agreement contain,
among other provisions, requirements for maintaining defined levels of working
capital, net worth, annual capital expenditures and a debt-to-equity ratio. The
agreement also requires an annual commitment fee of approximately $50,000.

At February 24, 1995, standby letters of credit of approximately
$12,800,000 have been issued under an agreement expiring June 30, 1995, which is
being maintained as security for performance and advances received on long-term
contracts, and as security for debt service payments under industrial revenue
bond loan agreements. The agreement provides a maximum commitment for letters of
credit of $14,500,000 and requires an annual commitment fee of approximately
$73,000.

4. LONG-TERM BORROWINGS

Long-term borrowings consist of:

<TABLE>
<CAPTION>
FEBRUARY 24, FEBRUARY 25,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
10.03% senior unsecured note payable, principal due annually
through April 1997........................................ $ 8,400 $ 13,400
Industrial revenue bonds, interest is variable, (4.4% at
February 24, 1995, and 2.8% at February 25, 1994),
principal due annually through 2010. (Bonds are
collateralized by certain property and equipment at the
Company's St. Louis Regional Airport facility.)........... 6,295 6,500
Industrial revenue bonds, interest is variable, (4.4% at
February 24, 1995, and 2.8% at February 25, 1994),
principal due April 2009. (Bonds are collateralized by
certain property and equipment of the Company's Cross
Systems Division.)........................................ 4,000 4,000
Obligation under capital lease, interest at prime plus 1%,
principal due quarterly through December 1996. (Lease is
collateralized by data processing equipment.)............. 519 779
Other....................................................... 385 462
-------- --------
19,599 25,141
Less current portion........................................ 3,857 5,542
-------- --------
$ 15,742 $ 19,599
======== ========
</TABLE>

Aggregate maturities of long-term borrowings over the next five fiscal
years are as follows: 1996 -- $3,857,000; 1997 -- $3,872,000;
1998 -- $2,127,000; 1999 -- $342,000; and 2000 -- $362,000.

The terms of certain financing agreements contain, among other provisions,
requirements for maintaining defined levels of working capital, net worth,
capital expenditures and various financial ratios, including debt-to-equity.

F-42
<PAGE> 88

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company paid interest of $1,511,000 and $1,965,000 during fiscal years
1995 and 1994, respectively. Interest expense is reported net of interest income
of $259,000 and $455,000 in fiscal years 1995 and 1994, respectively.

5. INCOME TAXES

The income tax provisions for the two years ended February 24, 1995, are
comprised of the following:

<TABLE>
<CAPTION>
1995 1994
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current:
Federal......................................................... $(26) $420
State........................................................... 90 --
---- ----
64 420
Deferred:
Federal......................................................... 600 177
State........................................................... 95 97
---- ----
695 274
---- ----
Total provision......................................... $759 $694
==== ====
</TABLE>

The provisions for income taxes for the two years ended February 24, 1995,
differ from the provisions computed by applying the statutory federal income tax
rate due to the following:

<TABLE>
<CAPTION>
1995 1994
----- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Statutory federal income tax...................................... $ 860 $ 786
Increase (decrease) resulting from:
Tax exempt investment income.................................... (21) (79)
Amortization of intangible assets............................... 124 124
State income taxes.............................................. 185 97
Tax credits..................................................... (364) (303)
Foreign income.................................................. 32 42
Costs related to possible sale of the Company................... 229 --
Reversal of tax liabilities..................................... (350) --
Other........................................................... 64 27
----- -----
$ 759 $ 694
===== =====
</TABLE>

The Company's federal income tax returns for fiscal years prior to 1992
have been closed to assessments by the Internal Revenue Service. Accordingly,
the Company reversed related tax liabilities, reducing its income tax provision
in fiscal year 1995 by $350,000.

F-43
<PAGE> 89

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of the deferred tax liabilities and assets are
as follows:

<TABLE>
<CAPTION>
FEBRUARY 24, FEBRUARY 25,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ (1,219) $ (1,197)
Other..................................................... (144) (7)
-------- --------
(1,363) (1,204)
Deferred tax assets:
Employee benefits......................................... 1,595 1,437
Inventory and contract loss allowances.................... 2,147 2,304
Provision for claims settlement........................... -- 440
Tax credit carryforwards.................................. 707 768
Other..................................................... 212 331
-------- --------
4,661 5,280
Valuation allowance......................................... (1,180) (1,180)
-------- --------
Net deferred tax asset...................................... $ 2,118 $ 2,896
======== ========
</TABLE>

At February 24, 1995, the Company has general business credit carryforwards
of approximately $390,000 which expire in the years 2008 through 2010. The
Company also has alternative minimum tax credit carryforwards of approximately
$317,000 that do not expire.

The Company paid income taxes, net of refunds, of $315,000 and $380,000 in
fiscal years 1995 and 1994, respectively.

6. EMPLOYEE BENEFIT PLANS

Under the Company's Retirement Savings Plan which covers all eligible
employees, the Company makes a matching contribution not exceeding three percent
of an employee's annual compensation, but otherwise equivalent to one-half of
the employee's contribution. Starting from January 1994, the Company is also
making additional contributions to the plan, for all eligible employees, equal
to 1% of their compensation, until compensation exceeds the Federal Insurance
Contributions Act maximum taxable wage base, at which point the Company doubles
its additional contribution. The Company's aggregate contributions to the
Retirement Savings Plan for fiscal years 1995 and 1994 were $1,437,000 and
$1,139,000, respectively.

The Company also maintains individual unfunded supplemental retirement
benefit plans for two current executive officers and one former executive
officer. Supplemental retirement benefits are based on the officers' final
average annual earnings from the Company and are payable in installments over
ten years upon retirement, disability, death, or, if no longer employed by the
Company, at age 62. Expense recognized for the benefits accrued under the plans
was $91,000 and $95,000 in fiscal years 1995 and 1994, respectively. In
addition, the resignation of an executive resulted in a curtailment gain of
$381,000 recognized in fiscal year 1994. Other liabilities on the consolidated
balance sheets as of February 24, 1995, and February 25, 1994, include amounts
of $1,716,000 and $1,625,000, respectively, for the supplemental retirement
benefit plans.

7. OTHER CURRENT LIABILITIES

Other current liabilities at February 24, 1995, and February 25, 1994,
include allowances for contract losses and other contract allowances aggregating
$3,600,000 and $3,900,000, respectively. Other current liabilities at February
25, 1994, also include billings in excess of revenues recognized on uncompleted
contracts of approximately $4,600,000.

F-44
<PAGE> 90

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In fiscal year 1993, the Company established an allowance of $2,200,000
based on an agreement to settle civil claims pertaining to the pricing of a 1985
fixed-price contract modification. The Company paid $1,100,000 in each fiscal
year 1995 and 1994.

8. COMMITMENTS AND CONTINGENCIES

Rent expense under operating leases was $858,000 and $735,000 for fiscal
years 1995 and 1994, respectively. Fiscal year minimum lease payments under
noncancellable operating leases are as follows: 1996 -- $400,000;
1997 -- $373,000; 1998 -- $220,000; 1999 -- $90,000; 2000 -- $62,000 and 2001
and beyond -- $348,000.

From time to time, the Company may be involved in lawsuits, investigations
and other legal proceedings arising from the ordinary conduct of its business
with the U.S. Government and others. One such action relates to the U.S.
Environmental Protection Agency (EPA) which, in 1989, placed a site that
includes the Company's Richardson Road property on the National Priorities List
for detailed study and cleanup of alleged environmental contamination. The
Company continues to cooperate with the EPA in the study of this site. In the
opinion of management, except for the matter described below, these legal
proceedings will not have a material adverse effect on the consolidated
financial position.

The Company continues to cooperate with the Department of Defense in an
investigation which commenced in 1992 regarding the AN/MLQ-T4 Ground Jammer
program. At this time, management is unable to determine when the Government
will complete its inquiry or whether it will seek any remedies.

9. COMMON STOCK AND STOCK OPTION PLANS

At February 24, 1995, shares of class A common stock were reserved as
follows: 926,000 shares for the exercise of stock options and 435,000 shares for
the conversion of class B common stock. Class B common shares are convertible
into class A common shares on a one-for-one basis. If, at any time, a majority
of class B common shareholders vote in favor of conversion or if less than
50,000 class B common shares remain outstanding, all class B common shares will
automatically be deemed converted into class A common shares, which will then
assume voting rights.

At February 24, 1995, options were exercisable for 76,000 class A shares at
prices ranging from $4.75 to $10.00 per share. Changes in the number of shares
of class A common stock subject to outstanding but unexercised options for the
two years ended February 24, 1995, are as follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period.......................................... 202 298
Options granted at prices of $6.63 to $10.25 per share................ 62 53
Options exercised at prices of $4.56 to $8.81 per share............... (60) (52)
Options cancelled and terminated...................................... (21) (97)
--- ---
Balance, end of period................................................ 183 202
=== ===
</TABLE>

Generally, options granted are fully exercisable two years from the date
granted and all unexercised options terminate five years after the date granted,
upon the resignation of the optionee, or three months after the termination of
employment if by other than resignation. No charges to income have been made in
accounting for options. Options are granted at a price equal to the fair market
value of class A common stock on the date of grant.

F-45
<PAGE> 91

AEL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. SEGMENT REPORTING

The Company's principal business is electronic defense products and
services, which consists primarily of the design and manufacture of electronic
countermeasures systems, simulation systems, radars and receivers. The Company
is also engaged in the installation and integration design of avionics and
electronic warfare systems.
2
The Company provides other products such as antennas, microwave integrated
circuits and hybrid microcircuits, and services such as calibration, product
testing and technical publication.

Presented below are the sources of revenues for each segment by type of
customer for the two years ended February 24, 1995:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Sales and service revenues:
Domestic:
U.S. Government:
Electronic Defense Products and Services................ $ 96,357 $ 98,282
Other Products and Services............................. 69 50
Commercial:
Electronic Defense Products and Services.................. 2,227 1,160
Other Products and Services............................... 9,082 7,772
-------- --------
107,735 107,264
International:
Electronic Defense Products and Services.................. 18,802 16,368
-------- --------
$126,537 $123,632
======== ========
</TABLE>

Sales and service revenues from the U.S. Government include sales and
service revenues recognized under contracts with suppliers to the U.S.
Government.

F-46
<PAGE> 92

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
GDE Holdings, Inc.:

We have audited the accompanying consolidated statements of operations of
GDE Holdings, Inc. and subsidiaries for the forty-six weeks ended November 17,
1994 and the twelve months ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of GDE
Holdings, Inc. and subsidiaries for the forty-six weeks ended November 17, 1994
and the twelve months ended December 31, 1993, in conformity with generally
accepted accounting principles.

KPMG PEAT MARWICK LLP

San Diego, California
December 16, 1994

F-47
<PAGE> 93

GDE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FORTY-SIX WEEKS ENDED NOVEMBER 17, 1994 AND
THE TWELVE MONTHS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Net sales............................................................ $ 227,774 $ 268,690
Cost of sales........................................................ (175,163) (207,405)
--------- ---------
Gross profit............................................... 52,611 61,285
Selling, administrative, and general expenses........................ (50,304) (48,507)
--------- ---------
Earnings before interest and income taxes.................. 2,307 12,778
Interest expense..................................................... (993) (2,530)
--------- ---------
Earnings before income taxes............................... 1,314 10,248
Income taxes......................................................... (3,769) (4,256)
--------- ---------
Net earnings (loss)........................................ $ (2,455) $ 5,992
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-48
<PAGE> 94

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 17, 1994 AND DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)

1. ORGANIZATION AND BASIS OF PRESENTATION

Business Acquisition:

On November 17, 1994, Tracor, Inc. ("Tracor") acquired all of the
outstanding stock of GDE Holdings, Inc., a Delaware Corporation ("GDE"). The
consideration paid for the acquisition consisted of a combination of 1,928,050
shares of Tracor Common Stock (the actual agreed amount being adjusted for
fractional shares which were paid in cash pursuant to the GDE Acquisition
Agreement). Tracor's 10 7/8% Senior Subordinated Notes due 2001 in the aggregate
principal amount of $14,778 (the "Tracor Notes"), and cash in the approximate
sum of $58 million (which is to be finally arrived at by deducting from $67,538
the amount of the indebtedness of GDE as of the close of business on the date of
closing, adding back thereto the amount of cash and cash equivalents of GDE as
of the close of business on the closing date, and deducting therefrom certain
allowed amounts for specified expenses of the transaction). The Tracor Notes
distributed at closing were net of $3,831 which was held back for any purchase
price adjustments and a $3,000 escrow subject to payment of indemnification
claims, if any.

As a result of the transaction, the existing stock options and stock
warrants were converted to a right to receive consideration and the option and
warrant holders received consideration from Tracor based on the per share price
defined in the purchase agreement (See note 3b, 11). The Stock Appreciation
Rights (SAR) plan has been terminated due to the purchase and all obligations of
the SAR plan have been satisfied. The Company incurred a cost associated with
retiring the SARs of $874 (See note 12). In addition, a portion of the proceeds
was advanced by the investor group to retire the subordinated note (See note
3b).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation:

The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

(b) Sales and Earnings Under Long-term Contracts:

Major fixed price and all cost type defense contracts are accounted for
using the percentage-of-completion method of accounting. Short-term fixed price
contracts are accounted for using the delivery method. The estimated profit
rates are determined on an individual contract basis. Rates are adjusted
periodically as a result of revisions in projected contract revenue and
estimated costs to complete. Any anticipated losses on contracts are charged to
earnings when identified. For defense contracts, such losses encompass all
costs, including general and administrative expenses, allocable to the
contracts. Revenue arising from the claims process is not recognized either as
income or as an offset against a potential loss until it can be reliably
estimated and its realization is probable.

Consistent with industry practice, contracts in process relating to
long-term contracts are classified as current assets although a portion of these
amounts is not expected to be realized within one year. Contracts in process for
cost type contracts are stated at cost incurred, less payments received.
Contracts in process for fixed price contracts are stated at cost incurred, less
progress payments and cost allocated to delivered units. Incurred costs include
direct contract costs and related overhead. Revenue which has not yet been
billed is included in contracts in process.

F-49
<PAGE> 95

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Property, Plant and Equipment:

Depreciation expense is recorded over the expected useful lives of the
respective assets, ranging from 2 to 11 years. The Company uses straight-line
and accelerated methods of depreciation for its depreciable assets.

(e) Investments:

Investments are carried at the lower of cost of market. On February 23,
1994, the Company acquired, as an investment, 1,000,000 shares of (EPS)
Essential Planning Systems, Ltd. for $934. As of November 17, 1994, this
investment is fully reserved.

(f) Reclassifications:

Certain reclassifications have been made to the 1993 financial statements
to conform to the 1994 presentation.

(g) Research and Development Costs:

Customer-sponsored research and development costs are accounted for as
direct contract costs. Costs specifically reimbursable under contract terms are
allocated to contracts in process and included in cost of sales at the time of
sales recognition. Commercial research and development costs are recognized in
the period incurred.

(h) Income Taxes:

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109).
Statement 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Management believes that it is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the net deferred tax assets.

State and local income taxes are charged to prepaid expense when paid.
These amounts are amortized the subsequent year to contracts in process and
included in cost of sales as related revenues are recognized.

(i) Intangible Assets:

Intangible assets purchased by the Company as a result of the Acquisition,
including product software, interest in leaseholds, covenant not-to-compete, and
debt issuance costs have been capitalized and are being amortized using the
straight-line method over the estimated economic life of the assets ranging from
three to five years. Amortization of these costs for the forty-six weeks ended
November 17, 1994, and the twelve months ended December 31, 1993, totaled
$10,874 and $7,342, respectively. Included in the amount recorded for the
forty-six weeks ended November 17, 1994 is $1,867 of leasehold interest written
off due to a relocation of the Company and $2,391 of debt issuance costs written
off due to the pay-down of the long-term debt and the subordinated debt.
Approximately $289 and $687 of amortization is included in operating costs for
the forty-six weeks ended November 17, 1994, and the twelve months ended
December 31, 1993, respectively.

F-50
<PAGE> 96

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(j) Goodwill:

The excess of the purchase price over net assets acquired as a result of an
acquisition is being amortized on a straight-line basis over forty years.
Amortization of these costs for the forty-six weeks ended November 17, 1994, and
the twelve months ended December 31, 1993, totaled $81 and $89, respectively.

(k) Credit Risk:

The Company's credit risk consists of billed accounts receivable and
unreimbursed costs and fees under contracts. Accounts receivable and
unreimbursed costs and fees result primarily from contracts with the U.S. and
non-U.S. governments and from subcontracts with prime contractors to the U.S.
Government. Historically, the Company has not incurred significant credit
related losses.

3. CREDIT FACILITIES

(a) Senior Debt Facility:

GDE Systems, Inc. entered into a credit agreement, dated November 20, 1992
(the Credit Agreement), with Citibank, N.A. (Citibank). Under the Credit
Agreement, GDE Systems obtained credit of up to $53,250, consisting of a term
loan of $38,250 and a working capital facility in an amount of $15,000.
Aggregate commitments under the working capital facility are subject to
mandatory annual reductions of $5,000 in December 31, 1995, 1996, and 1997.
There were no amounts outstanding under the working capital facility as of
November 17, 1994 and December 31, 1993. Letters of credit outstanding against
the working capital facility as of November 17, 1994 and December 31, 1993 were
$3,210 and $102, respectively.

The borrowings are collateralized by a senior security interest in all of
the outstanding capital stock of Holdings, including present and future
subsidiaries of Holdings, and by substantially all of the assets of Holdings.

The outstanding principal of the term loan is required to be paid in
quarterly installments of $1,913. In addition, the term loan is required to be
reduced by the amount of net cash proceeds (as defined in the Credit Agreement),
from certain transactions and 85% of excess cash flow (as defined in the Credit
Agreement).

The term loan and the working capital facility borrowings bear interest at
the option of the Company at either Citibank's adjusted base rate or the
adjusted Eurodollar rate (as defined in the Credit Agreement). The annual
weighted average interest rate on the borrowings at December 31, 1993 was 6.26%.

The Credit Agreement contains restrictive financial covenants. Such
restrictive covenants include (a) maintenance of certain net worth levels, (b)
minimum fixed charge coverage ratios and interest coverage ratios, (c) minimum
average quarterly consolidated earnings before interest, taxes, depreciation,
and amortization, and (d) maximum ratios of funded debt to net worth. The Credit
Agreement contains certain other restrictive covenants, including limitations on
paying dividends.

The Company has agreed to pay to Citibank, the administrative agent,
quarterly, in arrears, a commitment fee on the average daily unused portion of
the working capital facility at the rate of .5% per annum. The Company has also
agreed to pay Citibank an annual agency fee in the amount of $213.

(b) Subordinated Promissory Note:

In connection with a prior acquisition, Holdings issued to Union Labor Life
Insurance Company a subordinated promissory note with a face value of $5,000 and
stock warrants evidencing rights to purchase 68,421 shares of common stock at an
initial exercise price of $.01 per share. These warrants were assigned no value
in the accompanying consolidated financial statements. The Company repurchased
15,000 of these warrants for $180,000 in 1993. The remainder of the warrants
were canceled on November 17, 1994 pursuant to the Company's acquisition by
Tracor. The note is payable in two equal installments on November 20, 1998

F-51
<PAGE> 97

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and November 20, 1999. The note bears interest at a rate of 13%, payable
semi-annually commencing May 20, 1993. The subordinated promissory note contains
certain restrictive covenants similar to those in the senior debt facility. On
November 17, 1994, the Company paid the $5,000 balance of the subordinated debt.
(See note 1).

4. INCOME TAXES

Income taxes for the forty-six weeks ended November 17, 1994 and for the
twelve months ended December 31, 1993:

<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Federal -- current................................................ $4,541 $ 5,411
Federal -- deferred............................................... (772) (1,155)
------ -------
$3,769 $ 4,256
====== =======
</TABLE>

The effective rate of the provisions for federal income taxes reconciles to
the statutory rate as follows:

<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Statutory U.S. federal income tax rate................................ 35.0% 35.0%
Increase (reduction) in rate resulting from:
Effect of temporary difference...................................... 101.2 --
Increase in valuation allowance..................................... 42.5 --
Prior year tax adjustment........................................... 111.1 --
Other............................................................... (3.0) 6.5
----- ----
Actual income tax rate.............................................. 286.8% 41.5%
===== ====
</TABLE>

5. TRANSACTION WITH RELATED PARTIES

During the Acquisition, and the formation and incorporation of Holdings,
the Company paid certain executive, administrative, financial, legal and other
service fees to The Carlyle Group (Carlyle). Amounts paid by the Company related
to those services for the forty-six weeks ended November 17, 1994 and the twelve
months ended December 31, 1993 were $0 and $500, respectively. The Company
issued stock warrants to The Carlyle Group evidencing rights to purchase 97,849
shares of common stock. The exercise price associated with these warrants was
$10 per share (See note 1).

The Company retained Carlyle to provide investor relations services, to
identify and assist in the development of business opportunities, to assist
management in evaluating financial strategies, and to provide other similar
services. Amounts included in expense related to these services for the
forty-six weeks ended November 17, 1994 and the twelve months ended December 31,
1993 were $442 and $1,000, respectively.

F-52
<PAGE> 98

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. RENTAL EXPENSE AND LEASE COMMITMENTS

Rental expense, substantially all of which is minimum rentals, under
noncancelable operating leases for the forty-six weeks ended November 17, 1994
and the twelve months ended December 31, 1993 was $5,692 and $5,760,
respectively. The leases require the Company to pay taxes, maintenance,
insurance and certain other expenses. Future minimum lease payments under
existing noncancelable operating leases at November 17, 1994 are as follows:

<TABLE>
<S> <C>
1995............................................... $ 3,518
1996............................................... 3,057
1997............................................... 1,434
1998............................................... 1,200
1999............................................... 900
-------
Total minimum lease commitments.......... $10,109
=======
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

The Company is, from time to time, subject to claims arising from the
conduct of its business with the U.S. government. While the extent of
remediation and of the Company's liability in these matters is difficult to
estimate, management believes the aggregate of these proceedings and matters are
not material to the Company's consolidated financial position.

In addition, the Company is, from time to time, subject to legal actions
which arise out of the normal course of business. In the opinion of management,
based in part upon the advice of outside counsel, the ultimate disposition of
these matters will not have a material adverse affect to the Company's
consolidated financial position.

8. RETIREMENT SAVINGS AND DEFERRED COMPENSATION PLANS

The Company maintains a noncontributory defined benefit retirement plan
covering substantially all of its employees. Under the plan, retirement benefits
are based primarily on the employee's years of service and level of
compensation. It is the Company's policy to periodically fund the retirement
plan between the ERISA minimum requirements and the maximum amount deductible
under existing federal income tax regulations.

Assumptions used in accounting for the plan at November 17, 1994 and
December 31, 1993 are as follows:

<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Discount rate................................................ 8.0% 7.0%
Rates of increase in compensation levels based on age........ 4.5 - 10.0% 4.5 - 10.0%
Expected long-term rate of return on assets.................. 8.0% 8.0%
</TABLE>

Net pension cost included the following components for the forty-six weeks
ended November 17, 1994 and the twelve months ended December 31, 1993:

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Service costs -- benefits earned during year................... $ 4,994 $ 7,147
Interest costs on projected benefit obligation................. 9,005 11,584
Return on plan assets.......................................... (10,441) (11,456)
Net amortization and deferral.................................. (31) (1,629)
-------- --------
Net pension cost..................................... $ 3,527 $ 5,646
======== ========
</TABLE>

F-53
<PAGE> 99

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Increases in prior service cost resulting from plan amendments are
amortized on a straight-line basis over the average remaining service period of
employees expected to receive benefits under the plan. If the unrecognized gain
or loss at the beginning of the year exceeds 10% of the greater of the projected
benefit obligation or the market related value of plan assets, the excess is
amortized on a straight-line basis over the average remaining service period of
employees expected to receive benefits under the plan.

In the event the Company terminates the plan with plan assets in excess of
accumulated benefits, the U.S. government may be entitled to receive an
equitable interest in those assets.

In addition to the retirement plan, the Company offers a savings plan. GDE
Systems, Inc. Savings Plan ("Savings Plan") is organized under Section 401(K) of
the Internal Revenue Code, and approximately 1,515 employees were eligible at
November 17, 1994. Approximately 1,343 employees participated in the Savings
Plan as of November 17, 1994. The Savings Plan provides that participants may
contribute (a) 2% to 10% of annual salary up to $25,000 and 2% to 6% of annual
salary over $25,000, which contributions are matched by the Company at a rate of
50%, and (b) up to an additional 4% of annual salary, which contribution is not
matched by the Company. The Company recorded expense for the forty-six weeks
ended November 17, 1994 and the twelve months ended December 31, 1993 of $2,478
and $2,927, respectively, related to this plan.

The Company also offers senior management a deferred compensation plan. The
plan is not qualified under Section 401 of the Internal Revenue Code. The salary
deferred pursuant to this plan for the forty-six weeks ended November 17, 1994
and the twelve months ended December 31, 1993 was $2,100 and $2,362,
respectively.

9. POST-RETIREMENT MEDICAL PLAN AND LIFE INSURANCE BENEFITS

In addition to the Company's defined benefit pension plan (note 8), the
Company sponsors defined benefit health care and life insurance plans that
provide post-retirement benefits to certain employees who meet minimum age and
service requirements. The plans are contributory and contain other cost-sharing
features such as deductibles and coinsurance. The Company's policy is to fund
the cost of medial benefits in amounts determined at the discretion of
management.

The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
effective November 20, 1992. As a result of escalating health care costs, and
their impact on the Company's financial viability, in March 1993 the Company
announced its intention to terminate its salaried retiree medical plans
effective July 1, 2008. The current retiree plans will continue until that time
with the premium capped at the rate in effect July 1, 1993 plus an escalation of
5% per year through 1997. Additionally, the terms of company-sponsored life
insurance for retirees was amended, reducing the amount of Company paid life
insurance for certain active employees. Post-retirement benefit obligations as
of November 17, 1994 and December 31, 1993 were $15,657 and $15,505,
respectively.

Net periodic post-retirement benefit cost for the forty-six weeks ended
November 17, 1994 and the twelve months ended December 31, 1993 include the
following components:

<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Service cost....................................................... $ 237 $ 277
Interest cost...................................................... 817 1,059
------ ------
$1,054 $1,336
====== ======
</TABLE>

For measurement purposes, 11.0% to 13.0% annual rates of increase,
depending on participant criteria, in the per capita cost of covered benefits
(i.e., health care cost trend rate) were assumed for 1994; the rate was assumed
to decrease gradually to 5.5% for all participants by the year 2000 and remain
at that level thereafter.

F-54
<PAGE> 100

GDE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care trend rates by
one percentage point would increase the accumulated post-retirement benefit
obligation (post plan changes) as of November 17, 1994 by $190 and the aggregate
of the service and interest cost components of the net periodic post-retirement
benefit cost for the period January 1, 1994 through November 17, 1994 by $42.

The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 8.0% at November 17, 1994 and 7.0% at
December 31, 1993.

10. MANAGEMENT EQUITY PARTICIPATION

Effective March 1, 1993, the Company allowed certain senior members of
management to acquire an equity position through the purchase of stock at the
issue price of $10 per share. To date, members of management have purchased
201,250 shares. As a result of the Tracor acquisition, all shares owned by
management were acquired (See note 1).

11. STOCK OPTION PLAN

The Board of Directors and the shareholders of the Company have adopted a
stock option plan effective January 14, 1993. The options were offered to
outside board members and senior management of the Company and have two distinct
components. One half of the options ("time options") vest at a rate of 20% per
year on the last day of each calendar year beginning in 1993. The other half
("performance options") vest at a rate of 20% per year based on achievement by
the Company of specific earnings goals which have been established for the next
five years. The total number of options authorized under the plan is 152,444.
There were 152,272 options issued and outstanding at November 17, 1994. The
exercise price of all outstanding options is $10 which the Company believes to
have been the fair market value at the time the options were granted. As a
result of the Tracor acquisition, the existing stock options were canceled and
the option holders received consideration from Tracor based on the per share
price defined in the purchase agreement. (See Note 1)

12. STOCK APPRECIATION RIGHTS

The Board of Directors and the shareholders of the Company have adopted a
stock appreciation right plan effective July 1, 1993. All active full-time
Company employees have been issued ten Stock Appreciation Rights (SARs) at an
issue price of $10 per SAR as specified in the SAR plan. As a result of the
Tracor acquisition, the SAR plan was terminated and all active employees were
paid for the appreciation according to the plan document. The cost associated
with the plan as of November 17, 1994 and December 31, 1993 was $874 and $69
respectively (See note 1).

F-55
<PAGE> 101

***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* THE SECURITIES DESCRIBED HEREIN, NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR *
* SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER *
* THE SECURITIES LAWS OF ANY SUCH JURISDICTION. *
* *
***************************************************************************

PROSPECTUS (SUBJECT TO COMPLETION) ALTERNATE COVER PAGE
ISSUED JUNE , 1996 (INTERNATIONAL PROSPECTUS)

TRACOR
COMMON STOCK
------------------------
Of the Shares of Common Stock being offered hereby, Shares
are being offered initially outside the United States and Canada by the
International Underwriters and Shares are being offered in the
United States and Canada by the U.S. Underwriters. See "Underwriters." Of
the Shares of Common Stock being offered hereby,
Shares are being sold by the Company and Shares are being
sold by the Selling Stockholders. See "Selling Stockholders." The
Company will not receive any of the proceeds from the sale of the
Shares being sold by the Selling Stockholders. The Common Stock
is quoted on the Nasdaq National Market under the symbol
"TTRR." On June , 1996, the reported last sale price of
the Common Stock on the Nasdaq National Market was $ .
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE HEREOF FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

PRICE $ A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
-------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total(3)........................ $ $ $ $
</TABLE>

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

(2) The Company has agreed to pay the expenses of the offering, estimated at
$ .

MORGAN STANLEY & CO.
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
BANKERS TRUST INTERNATIONAL PLC
OPPENHEIMER & CO., INC.
, 1996
<PAGE> 102

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered:

<TABLE>
<S> <C>
Registration fee............................................................. $21,481.55
NASD filing fee.............................................................. 17,500.00
Printing and engraving expenses.............................................. *
Blue sky fees and expenses (including legal fees and expenses)............... *
Legal fees and expenses...................................................... *
Accounting fees and expenses................................................. 10,000.00
Miscellaneous................................................................ 15,000.00
----------
Total.............................................................. $ *
</TABLE>

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

* To be supplied by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, the Company has the power to indemnify anyone made or
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company) because such person is
or was a director or officer of the Company against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit, or
proceeding, provided that (i) such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest and
(ii) in the case of a criminal proceeding such person had no reasonable cause to
believe his conduct was unlawful.

With respect to an action or suit by or in the right of the Company to
procure a judgment in its favor, Section 145(b) of the Delaware General
Corporation Law provides that the Company shall have the power to indemnify
anyone who was, is, or is threatened to be made a party to any threatened,
pending, or completed action or suit brought by or in the right of the Company
to procure a judgment in its favor because such person is or was a director or
officer of the Company against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interests,
except that no indemnification shall be made in a case in which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall have determined upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses.

Indemnification as described above shall be granted in a specific case only
upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of a
quorum of directors who were not parties to such proceeding, (b) independent
legal counsel in a written opinion if such quorum cannot be obtained or if a
quorum of disinterested directors so directs, or (c) the shareholders of the
Company.

Section 145(g) of the Delaware General Corporation Law permits the purchase
and maintenance of insurance to indemnify directors and officers against any
liability asserted against or incurred by them in any such capacity, whether or
not the Company itself would have the power to indemnify any such director or
officer against such liability. The Company has such insurance.

II-1
<PAGE> 103

The Certificate of Incorporation of the Company provides for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
may be amended or supplemented. The Certificate of Incorporation further
provides that the indemnification provided for therein shall not be exclusive of
any rights to which those indemnified may be entitled under any bylaw,
agreement, vote of shareholders, or disinterested directors, or otherwise.
Reference is hereby made to the relevant provisions of the Certificate of
Incorporation of the Company which has previously been filed. Any such provision
of the Certificate of Incorporation is valid only to the extent it is consistent
with Section 145 of the Delaware General Corporation Law.

The Certificate of Incorporation also contains a provision that eliminates
the personal liability of the Company's directors to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith, involving intentional misconduct or involving knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the director received an improper personal benefit.
Depending on judicial interpretation, the provision may not affect liability for
violations of the federal securities laws.

The Company maintains insurance for its officers and directors which
provides for indemnification of directors and officers. The premiums for such
insurance are paid by the Company.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
1.1 Underwriting Agreement dated , 1996 among the Company, the Selling
Stockholders, and the Underwriters.**
3.1 Certificate of Incorporation of the Company -- Exhibit 3.1 to Form 10, File Number
0-20227, filed July 17, 1992, is incorporated herein by reference.
3.2 Bylaws of the Company -- Exhibit 3.2 to Form 10, File Number 0-20227, filed July
17, 1992, is incorporated herein by reference.
3.3 Certificate of Incorporation of Tracor Aerospace, Inc. (1)
3.4 Bylaws of Tracor Aerospace, Inc. (1)
3.5 Certificate of Incorporation of Tracor Applied Sciences, Inc. (1)
3.6 Bylaws of Tracor Applied Sciences, Inc. (1)
3.7 Certificate of Incorporation of Tracor Flight Systems, Inc. (1)
3.8 Bylaws of Tracor Flight Systems, Inc. (1)
3.9 Certificate of Incorporation of Vitro Corporation, together with Certificate of
Amendment to Certificate of Incorporation (1)
3.10 Bylaws of Vitro Corporation (1)
3.11 Certificate of Incorporation of Vitro Service Corporation (1)
3.12 Bylaws of Vitro Services Corporation (1)
3.13 Articles of Incorporation of Quality Systems, Inc. (1)
3.14 Bylaws of Quality Systems, Inc. (1)
3.15 Certificate of Incorporation of Vitro Technical Services, Inc. (1)
3.16 Bylaws of Vitro Technical Services, Inc. (1)
3.17 Certificate of Incorporation of Vitro Systems International Corporation, together
with Certificate of Amendment of Certificate of Incorporation (1)
3.18 Bylaws of Vitro Systems International Corporation (1)
3.19 Restated Certificate of Incorporation of GDE Holdings, Inc. (4)
3.20 Bylaws of GDE Holdings, Inc. (4)
3.21 Certificate of Incorporation of GDE Systems, Inc. (4)
3.22 Bylaws of GDE Systems, Inc. (4)
</TABLE>

II-2
<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.23 Certificate of Incorporation of GDE Systems Imaging, Inc. (4)
3.24 Bylaws of GDE Systems Imaging, Inc. (4)
3.25 Restated Certificate of Incorporation of HealthCom, Inc. (4)
3.26 Bylaws of HealthCom, Inc. (4)
3.27 Certificate of Incorporation of Helava Associates, Inc. (4)
3.28 Bylaws of Helava Associates, Inc. (4)
3.29 Articles of Incorporation of AEL Industries, Inc.(9)
3.30 Bylaws of AEL Industries, Inc.(9)
4.1 Registration Rights Agreement, dated as of November 17, 1994, among the Company and
each of the holders of registerable securities that executed a counterpart
signature page thereto (4)
4.2 Holders Agreement, dated November 17, 1994, among the Company, Carlyle and the
Holders party thereto (4)
4.3 Amendment to Holders Agreement, dated November 17, 1994, among Tracor and Carlyle
(4)
4.4 Series A Indenture, dated as of November 17, 1994, among the Company, each
Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee, relating
to the Series A Notes (4)
4.5 First Supplemental Indenture, dated as of April 11, 1995, to Indenture dated as of
November 17, 1994, among the Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the Series A Notes(9)
4.6 Second Supplemental Indenture, dated as of February 22, 1996, to Indenture dated as
of November 17, 1994, among the Company, each Subsidiary Guarantor, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the Series A Notes(9)
4.7 Specimen Series A Note (4)
4.8 Indenture, dated as of August 15, 1993, among the Company, each Subsidiary
Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee, relating to the
Existing Notes (2)
4.9 First Supplemental Indenture, dated as of November 17, 1994, among the Company,
each Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee
relating to the Existing Notes (4)
4.10 Second Supplemental Indenture, dated as of February 22, 1996, among the Company,
each Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee
relating to the Existing Notes(9)
4.11 Registration Rights Agreement dated as of December 20, 1991 by and among the
Company, Westmark Systems, Inc. and certain other parties thereto (1)
4.12 Credit Agreement among Tracor, the lending institutions party to the Credit
Agreement, Credit Lyonais, Cayman Island Branch, as Co-Agent and Bankers Trust
Company, as Agent, dated as of August 25, 1993, amended and restated as of November
17, 1994 and further amended and restated as of February 22, 1996(9)
4.13 1995 Stock Plan for Employees of Tracor, Inc. and Subsidiaries (6)
4.14 Specimen Certificate representing Common Stock of Tracor, Inc. (7)
5.1 Opinion of Winstead Sechrest & Minick P.C. **
10.1 Form of Employment and Non-Competition Agreement (Form One) (4)
10.2 Form of Employment and Non-Competition Agreement (Form Two) (4)
10.3 Form of Employment and Non-Competition Agreement (Form One-A) (4)
10.4 Form of Employment and Non-Competition Agreement (Form Two-A) (4)
10.5 Employment Agreement and Executive Stock Agreement, dated November 20, 1992 between
GDE Systems and Dr. Terry A. Straeter (4)
10.6 Amendment to Employment Agreement and Executive Stock Agreement, dated November 17,
1994 between GDE Systems and Dr. Terry A. Straeter (4)
10.7 Acquisition Agreement dated as of March 9, 1996, and First Amendment thereto, by
and among the Company and Westmark Systems, Inc.(9)
</TABLE>

II-3
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.8 Form of Registration Rights Agreement to be entered into by and between the Company
and the stockholders signatory thereto(9)
11.1 Statement regarding computation of income per share -- Tracor*
11.2 Statement regarding computation of income per share -- Pro Forma Tracor and AEL*
21.1 Subsidiaries of the Registrant(9)
23.1 Consent of Ernst & Young LLP*
23.2 Consent of KPMG Peat Marwick LLP*
23.3 Consent of Ernst & Young LLP*
23.4 Consent of Winstead Sechrest & Minick P.C. (contained in their opinion filed as
Exhibit 5.1 to the Registration Statement)**
24.1 Powers of Attorney (included on page II-6)*
</TABLE>

- ---------------
* Filed herewith.

** To be filed by amendment.

(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-65448) on July 2, 1993 and
incorporated herein by reference.

(2) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-67562) on August 18, 1993 and
incorporated herein by reference.

(3) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89886) on March 2, 1995 and
incorporated herein by reference.

(4) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and
incorporated herein by reference.

(5) Previously filed with the Commission as an exhibit to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (No. 33-89578) on April 12,
1995 and incorporated herein by reference.

(6) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-8 (No. 33-93186) on June 2, 1995 and
incorporated herein by reference.

(7) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-10 (No. 0-20227) on July 17, 1992 and
incorporated herein by reference.

(8) Previously filed with the Commission as an exhibit to the Registrant's
Current Report on Form 8-K dated March 9, 1996 and incorporated herein by
reference.

(9) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996 and
incorporated herein by reference.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.

II-4
<PAGE> 106

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-5
<PAGE> 107

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin, State of Texas, on June 6, 1996.

TRACOR, INC.

By: /s/ JAMES B. SKAGGS
--------------------------------
James B. Skaggs
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes and appoints James B. Skaggs and Robert K. Floyd, and each of
them, any one of whom may act without the joinder of the other, as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below, all amendments and post-effective amendments to this Registration
Statement as such attorney-in-fact may deem necessary or appropriate.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ----------------------------------- -------------
<C> <S> <C>
By: /s/ JAMES B. SKAGGS Director, President and Chief June 6, 1996
- ------------------------------------------- Executive Officer (Principal
James B. Skaggs Executive Officer)

By: /s/ ROBERT K. FLOYD Vice President, (Principal June 6 1996
- ------------------------------------------- Financial and Accounting Officer
Robert K. Floyd of Registrant)

By: /s/ JULIAN DAVIDSON Director June 6, 1996
- -------------------------------------------
Julian Davidson

By: /s/ ANTHONY GRILLO Director June 6, 1996
- -------------------------------------------
Anthony Grillo

By: /s/ BOB MARBUT Director June 6, 1996
- -------------------------------------------
Bob Marbut

By: /s/ ELVIS L. MASON Director June 6, 1996
- -------------------------------------------
Elvis L. Mason

By: /s/ WILLIAM E. CONWAY Director June 6, 1996
- -------------------------------------------
William E. Conway

By: /s/ THOMAS P. STAFFORD Director June 6, 1996
- -------------------------------------------
Thomas P. Stafford
</TABLE>

II-6
<PAGE> 108

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
------- ----------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Underwriting Agreement dated , 1996 among the Company, the
Selling Stockholders, and the Underwriters.**
3.1 Certificate of Incorporation of the Company -- Exhibit 3.1 to Form 10,
File Number 0-20227, filed July 17, 1992, is incorporated herein by
reference.
3.2 Bylaws of the Company -- Exhibit 3.2 to Form 10, File Number 0-20227,
filed July 17, 1992, is incorporated herein by reference.
3.3 Certificate of Incorporation of Tracor Aerospace, Inc. (1)
3.4 Bylaws of Tracor Aerospace, Inc. (1)
3.5 Certificate of Incorporation of Tracor Applied Sciences, Inc. (1)
3.6 Bylaws of Tracor Applied Sciences, Inc. (1)
3.7 Certificate of Incorporation of Tracor Flight Systems, Inc. (1)
3.8 Bylaws of Tracor Flight Systems, Inc. (1)
3.9 Certificate of Incorporation of Vitro Corporation, together with
Certificate of Amendment to Certificate of Incorporation (1)
3.10 Bylaws of Vitro Corporation (1)
3.11 Certificate of Incorporation of Vitro Service Corporation (1)
3.12 Bylaws of Vitro Services Corporation (1)
3.13 Articles of Incorporation of Quality Systems, Inc. (1)
3.14 Bylaws of Quality Systems, Inc. (1)
3.15 Certificate of Incorporation of Vitro Technical Services, Inc. (1)
3.16 Bylaws of Vitro Technical Services, Inc. (1)
3.17 Certificate of Incorporation of Vitro Systems International
Corporation, together with Certificate of Amendment of Certificate of
Incorporation (1)
3.18 Bylaws of Vitro Systems International Corporation (1)
3.19 Restated Certificate of Incorporation of GDE Holdings, Inc. (4)
3.20 Bylaws of GDE Holdings, Inc. (4)
3.21 Certificate of Incorporation of GDE Systems, Inc. (4)
3.22 Bylaws of GDE Systems, Inc. (4)
3.23 Certificate of Incorporation of GDE Systems Imaging, Inc. (4)
3.24 Bylaws of GDE Systems Imaging, Inc. (4)
3.25 Restated Certificate of Incorporation of HealthCom, Inc. (4)
3.26 Bylaws of HealthCom, Inc. (4)
3.27 Certificate of Incorporation of Helava Associates, Inc. (4)
3.28 Bylaws of Helava Associates, Inc. (4)
3.29 Articles of Incorporation of AEL Industries, Inc.(9)
3.30 Bylaws of AEL Industries, Inc.(9)
4.1 Registration Rights Agreement, dated as of November 17, 1994, among the
Company and each of the holders of registerable securities that
executed a counterpart signature page thereto (4)
4.2 Holders Agreement, dated November 17, 1994, among the Company, Carlyle
and the Holders party thereto (4)
4.3 Amendment to Holders Agreement, dated November 17, 1994, among Tracor
and Carlyle (4)
4.4 Series A Indenture, dated as of November 17, 1994, among the Company,
each Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as
Trustee, relating to the Series A Notes (4)
</TABLE>
<PAGE> 109

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
------- ----------------------------------------------------------------------- -----------
<C> <S> <C>
4.5 First Supplemental Indenture, dated as of April 11, 1995, to Indenture
dated as of November 17, 1994, among the Company, each Subsidiary
Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee, relating
to the Series A Notes(9)
4.6 Second Supplemental Indenture, dated as of February 22, 1996, to
Indenture dated as of November 17, 1994, among the Company, each
Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as
Trustee, relating to the Series A Notes(9)
4.7 Specimen Series A Note (4)
4.8 Indenture, dated as of August 15, 1993, among the Company, each
Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as
Trustee, relating to the Existing Notes (2)
4.9 First Supplemental Indenture, dated as of November 17, 1994, among the
Company, each Subsidiary Guarantor, and U.S. Trust Company of Texas,
N.A., as Trustee relating to the Existing Notes (4)
4.10 Second Supplemental Indenture, dated as of February 22, 1996, among the
Company, each Subsidiary Guarantor, and U.S. Trust Company of Texas,
N.A., as Trustee relating to the Existing Notes(9)
4.11 Registration Rights Agreement dated as of December 20, 1991 by and
among the Company, Westmark Systems, Inc. and certain other parties
thereto (1)
4.12 Credit Agreement among Tracor, the lending institutions party to the
Credit Agreement, Credit Lyonais, Cayman Island Branch, as Co-Agent and
Bankers Trust Company, as Agent, dated as of August 25, 1993, amended
and restated as of November 17, 1994 and further amended and restated
as of February 22, 1996(9)
4.13 1995 Stock Plan for Employees of Tracor, Inc. and Subsidiaries (6)
4.14 Specimen Certificate representing Common Stock of Tracor, Inc. (7)
5.1 Opinion of Winstead Sechrest & Minick P.C. **
10.1 Form of Employment and Non-Competition Agreement (Form One) (4)
10.2 Form of Employment and Non-Competition Agreement (Form Two) (4)
10.3 Form of Employment and Non-Competition Agreement (Form One-A) (4)
10.4 Form of Employment and Non-Competition Agreement (Form Two-A) (4)
10.5 Employment Agreement and Executive Stock Agreement, dated November 20,
1992 between GDE Systems and Dr. Terry A. Straeter (4)
10.6 Amendment to Employment Agreement and Executive Stock Agreement, dated
November 17, 1994 between GDE Systems and Dr. Terry A. Straeter (4)
10.7 Acquisition Agreement dated as of March 9, 1996, and First Amendment
thereto, by and among the Company and Westmark Systems, Inc.(9)
10.8 Form of Registration Rights Agreement to be entered into by and between
the Company and the stockholders signatory thereto(9)
11.1 Statement regarding computation of income per share -- Tracor*
11.2 Statement regarding computation of income per share -- Pro Forma Tracor
and AEL*
21.1 Subsidiaries of the Registrant(9)
23.1 Consent of Ernst & Young LLP*
23.2 Consent of KPMG Peat Marwick LLP*
23.3 Consent of Ernst & Young LLP*
</TABLE>
<PAGE> 110

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
------- ----------------------------------------------------------------------- -----------
<C> <S> <C>
23.4 Consent of Winstead Sechrest & Minick P.C. (contained in their opinion
filed as Exhibit 5.1 to the Registration Statement)**
24.1 Powers of Attorney (included on page II-6)*
</TABLE>