-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DkaSzqcdVSI38G2P5q774FHOoU9YC5FdgTdyH2dNFy56dvUI7jlfCpNUkRo/9e4b 7CjhKp6wLnW3uLnuYnk9XA== 0000950136-99-000032.txt : 19990121 0000950136-99-000032.hdr.sgml : 19990121 ACCESSION NUMBER: 0000950136-99-000032 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19990120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L 3 COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001039101 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133937436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199 FILM NUMBER: 99508343 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L 3 COMMUNICATIONS ILEX SYSTEMS INC CENTRAL INDEX KEY: 0001059160 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133992952 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-01 FILM NUMBER: 99508344 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYGIENETICS ENVIRONMENTAL SERVICES CENTRAL INDEX KEY: 0001059161 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133992505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-02 FILM NUMBER: 99508345 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CALIFORNIA MICROWAVE INC CENTRAL INDEX KEY: 0001059162 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 130478540 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-03 FILM NUMBER: 99508346 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L-3 COMMUNICATIONS DBS MICROWAVE INC CENTRAL INDEX KEY: 0001076368 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 680281617 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-04 FILM NUMBER: 99508347 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L-3 COMMUNICATIONS ESSCO INC CENTRAL INDEX KEY: 0001076369 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 042281486 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-05 FILM NUMBER: 99508348 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L-3 COMMUNICATIONS STORM CONTROL SYSTEMS INC CENTRAL INDEX KEY: 0001076370 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770268547 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-06 FILM NUMBER: 99508349 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HENSCHEL INC CENTRAL INDEX KEY: 0001076371 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232554418 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-07 FILM NUMBER: 99508350 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAC ORD INC CENTRAL INDEX KEY: 0001076372 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232523436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-08 FILM NUMBER: 99508351 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POWER PARAGON INC CENTRAL INDEX KEY: 0001076373 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232523436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-09 FILM NUMBER: 99508352 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPD ELECTRICAL SYSTEMS INC CENTRAL INDEX KEY: 0001076374 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232457758 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-10 FILM NUMBER: 99508353 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPD HOLDINGS INC CENTRAL INDEX KEY: 0001076375 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232977238 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-11 FILM NUMBER: 99508354 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPD SWITCHGEAR INC CENTRAL INDEX KEY: 0001076376 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232510039 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-12 FILM NUMBER: 99508355 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: L-3 COMMUNICATIONS SPD TECHNOLOGIES INC CENTRAL INDEX KEY: 0001076377 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 232457758 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-70199-13 FILM NUMBER: 99508356 BUSINESS ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 1216971111 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE STREET 2: 34TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 S-4/A 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 1999 REGISTRATION NO. 333-70199 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -----------------
L-3 COMMUNICATIONS HYGIENETICS ENVIRONMENTAL CORPORATION SERVICES, INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) DELAWARE DELAWARE (State of incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 13-3937436 13-3992505 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices) SOUTHERN CALIFORNIA L-3 COMMUNICATIONS MICROWAVE, INC. SPD TECHNOLOGIES, INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) CALIFORNIA DELAWARE (State of incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 13-0478540 23-2457758 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices) L-3 COMMUNICATIONS L-3 COMMUNICATIONS STORM CONTROL SYSTEMS, INC. DBS MICROWAVE, INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) CALIFORNIA CALIFORNIA (State of Incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 77-0268547 68-0281617 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices) L-3 COMMUNICATIONS L-3 COMMUNICATIONS ILEX SYSTEMS, INC. ESSCO, INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) DELAWARE DELAWARE (State of Incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 13-3992952 04-2281486 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices) SPD ELECTRICAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State of Incorporation) 3812, 3663, 3679 (Primary Standard Industrial Classification Code Number) 23-2457758 (I.R.S. Employer Identification Number) 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 (212) 697-1111 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
SPD SWITCHGEAR INC. PAC ORD INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) DELAWARE DELAWARE (State of Incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 23-2510039 23-2523436 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices) HENSCHEL INC. POWER PARAGON, INC. (Exact name of registrant (Exact name of registrant as specified in its charter) as specified in its charter) DELAWARE DELAWARE (State of Incorporation) (State of Incorporation) 3812, 3663, 3679 3812, 3663, 3679 (Primary Standard Industrial (Primary Standard Industrial Classification Code Number) Classification Code Number) 23-2554418 33-0638510 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 THIRD AVENUE 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 NEW YORK, NEW YORK, 10016 (212) 697-1111 (212) 697-1111 (Address, including zip code, (Address, including zip code, and telephone number, and telephone number, including area code, of registrant's principal including area code, of registrant's principal executive offices) executive offices)
SPD HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State of Incorporation) 3812, 3663, 3679 (Primary Standard Industrial Classification Code Number) 23-2977238 (I.R.S. Employer Identification Number) 600 THIRD AVENUE NEW YORK, NEW YORK, 10016 (212) 697-1111 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
CHRISTOPHER C. CAMBRIA L-3 COMMUNICATIONS CORPORATION 600 THIRD AVENUE NEW YORK, NEW YORK 10016 (212) 697-1111 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- COPIES TO: VINCENT PAGANO JR. KIRK A. DAVENPORT SIMPSON THACHER & BARTLETT LATHAM & WATKINS 425 LEXINGTON AVENUE 885 THIRD AVENUE NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022 (212) 455-2000 (212) 906-1200
----------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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(d) 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. [ ] ----------------- 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 SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement covers the registration of an aggregate principal amount of $200,000,000 of 8% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") of L-3 Communications Corporation that may be exchanged for equal principal amounts of the company's outstanding 8% Senior Subordinated Notes due 2008 (the "Old Notes") (the "Exchange Offer"). This Registration Statement also covers the registration of the Exchange Notes for resale by Lehman Brothers Inc. in market-making transactions. The complete prospectus relating to the Exchange Offer (the "Exchange Offer Prospectus") follows immediately after this explanatory note. Following the Exchange Offer Prospectus are certain pages of the prospectus relating solely to such market-making transactions (the "Market-Making Prospectus"), including alternate front and back cover pages, a section entitled "Risk Factors -- Trading Market for the Exchange Notes") to be used in lieu of the section entitled "Risk Factors -- You Cannot be Sure That an Active Trading Market Will Develop for the Exchange Notes," alternate sections entitled "Use of Proceeds" and "Plan of Distribution". In addition, the Market-Making Prospectus will not include the following captions (or the information set forth under such captions) in the Exchange Offer Prospectus: "Prospectus Summary -- the Note Offering" and "-- the Exchange Offer", "Risk Factors -- Old Notes Outstanding After the Exchange Offer Will not Have Registration Rights and we Expect the Market for Such Old Notes to be Illiquid", "The Exchange Offer" and "Certain United States Federal Income Tax Consequences of the Exchange". All other sections of the Exchange Offer Prospectus will be included in the Market-Making Prospectus. PROSPECTUS [GRAPHIC OMITTED] L-3 COMMUNICATIONS CORPORATION OFFER TO EXCHANGE 8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008. TERMS OF EXCHANGE OFFER o Expires 5:00 p.m., New York City time, February 19, 1999, unless extended o Subject to certain customary conditions, which we may waive o All outstanding notes that are validly tendered and not withdrawn will be exchanged o Tenders of outstanding notes may be withdrawn any time prior to the expiration of the Exchange Offer o The exchange of notes will not be a taxable exchange for U.S. Federal income tax purposes o We will not receive any proceeds from the Exchange Offer o The terms of the notes we will issue in the Exchange Offer are substantially identical to the outstanding notes, except that certain transfer restrictions and registration rights relating to the outstanding notes will not apply to the exchange notes Each broker-dealer that receives registered notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers may use this prospectus in connection with resales of notes received in exchange for the outstanding notes where such notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. L-3 has agreed that, for a period of 180 days after the expiration of the Exchange Offer or until such broker-dealers have sold all registered notes held by them, it will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution". FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" COMMENCING ON PAGE 13. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS JANUARY 20, 1999. TABLE OF CONTENTS
PAGE ----- Where You Can Find More Information ............ i Prospectus Summary ............................. 1 Risk Factors ................................... 13 Use of Proceeds ................................ 22 Capitalization ................................. 23 Unaudited Pro Forma Condensed Consolidated Financial Information .......... 24 Selected Financial Information ................. 34 Management's Discussion and Analysis of Results of Operations and Financial Condition ................................... 36 Business ....................................... 49 Certain Relationships and Related Transactions ................................ 71
PAGE ----- Management ..................................... 73 Ownership of Capital Stock ..................... 82 Description of Certain Indebtedness ............ 83 The Exchange Offer ............................. 87 Description of the Exchange Notes .............. 98 Certain United States Federal Income Tax Consequences of the Exchange ................ 136 Plan of Distribution ........................... 136 Legal Matters .................................. 137 Experts ........................................ 137 Index to Financial Statements .................. F-1
---------------- This prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are predictive in nature, that depend upon or refer to future events or conditions, including the statements under "Prospectus Summary", "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business" and located elsewhere regarding industry prospects and our financial position are forward-looking statements. We believe that the expectations reflected in such forward-looking statements are reasonable, but we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations are disclosed in this prospectus, including in conjunction with the forward-looking statements included in this prospectus under "Risk Factors". All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission (the "SEC" or the "Commission") a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Exchange Notes. This prospectus, which is a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. For further information about us and the Exchange Notes, you should refer to the Registration Statement. This prospectus summarizes material provisions of contracts and other documents to which we refer you. Since this prospectus may not contain all of the information that you may find important, you should review the full text of these documents. We have included copies of these documents as exhibits to our Registration Statement. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as a consequence we file reports and other information with the Commission. The Registration Statement and our other SEC filings can be inspected and copied at the Public Reference Section of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at regional public reference facilities maintained by the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven i World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials, including copies of all or any portion of the Registration Statement, can be obtained from the Public Reference Section of the Commission at prescribed rates. Such materials are also available on the Commission's home page on the Internet (http://www.sec.gov). For so long as any Old Notes remain outstanding and are required to bear the transfer restriction legend, we will make available to any prospective purchaser of the Old Notes or beneficial owner of the Old Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until we have either exchanged the Old Notes for the Exchange Notes or until the holders have disposed of the Old Notes pursuant to an effective registration statement filed by us. ii PROSPECTUS SUMMARY This summary highlights selected information from this document and does not contain all of the information you may need to consider. You should carefully read this entire prospectus. In this prospectus, "the Company", "L-3", "L-3 Communications", "we", "us" and "our" refer to L-3 Communications Corporation and its subsidiaries. References to pro forma statement of operations data reflect: (1) our acquisitions of the Ocean Systems business of AlliedSignal Inc., the business of ILEX Systems, the Satellite Transmission Systems division of California Microwave, Inc. and SPD Technologies, Inc. (collectively, the "1998 Acquisitions"); (2) our purchase of our ten initial business units (the "Predecessor Company") from Lockheed Martin Corporation in 1997 (the "L-3 Acquisition"); (3) our May 1998 debt offering, the contribution by L-3 Communications Holdings, Inc. ("Holdings") to us of the net proceeds of Holdings' initial public offering (the "IPO") and the amendment of our bank credit facilities to increase available borrowings (collectively, the "Financing Transactions"); and (4) our offering of the Old Notes and the application of its net proceeds (the "Old Notes Offering"), as if they had occurred on January 1, 1997. The pro forma balance sheet data reflect the Old Notes Offering as if it had occurred on September 30, 1998. The pro forma data do not give effect to the Proposed Equity Offering (as defined later in this prospectus) or to any of the Company's other acquisitions, including the acquisition of Microdyne Corporation. THE COMPANY L-3 Communications is a leading merchant supplier of sophisticated secure communication systems and specialized communication products. We produce secure, high data rate communication systems, microwave components, avionics and ocean systems and telemetry, instrumentation and space products. These systems and products are critical elements of virtually all major communication, command and control, intelligence gathering and space systems. Our systems and specialized products are used to connect a variety of airborne, space, ground- and sea-based communication systems and are used in the transmission, processing, recording, monitoring and dissemination functions of these communication systems. Our customers include the U.S. department of defense, certain U.S. government intelligence agencies, major aerospace and defense contractors, foreign governments and commercial customers. For the twelve-month period ended September 30, 1998, we had pro forma sales of $1,139.7 million and pro forma EBITDA (as defined in footnote 8 under "Selected Financial Information") of $148.4 million. Our funded backlog as of September 30, 1998 was $813.8 million. These results reflect internal growth and the execution of our strategy of acquiring businesses that complement or extend our product lines. Our business areas employ proprietary technologies and capabilities and have leading positions in their respective primary markets. We have organized our operations into two primary business areas: Secure Communication Systems and Specialized Communication Products. For the twelve-month period ended September 30, 1998, the Secure Communication Systems business area generated approximately $481.5 million of pro forma sales and $61.2 million of pro forma EBITDA, and the Specialized Communication Products business area generated $658.2 million of pro forma sales and $87.2 million of pro forma EBITDA. In addition, we are seeking to expand our products and technologies in commercial markets as we discuss under "--Emerging Commercial Products" below. SECURE COMMUNICATION SYSTEMS. We are the established leader in secure, high data rate communications for military and other U.S. government reconnaissance and surveillance applications. Our Secure Communication Systems operations are located in Salt Lake City, Utah, Camden, New Jersey and Shrewsbury, New Jersey. These operations are predominantly cost plus, sole source contractors supporting long-term programs for the U.S. armed forces and classified customers. 1 Our major secure communication programs and systems include: o secure data links for airborne, satellite, ground- and sea-based remote platforms for information collection, command and control and dissemination to users in real time; o strategic and tactical signal intelligence systems that detect, collect, identify, analyze and disseminate information and related support contracts for military and intelligence efforts; o secure telephone, fax and network equipment and encryption management; o communication software support services to military and related government intelligence markets; and o communications systems for surface and undersea platforms and manned space flights. We believe that we have developed virtually every high bandwidth data link that is currently used by the military for surveillance and reconnaissance. We are also a leading supplier of communication software support services to military and related government intelligence markets. In addition to these core government programs, we are capitalizing on our technology base by expanding into related commercial communication equipment markets. For instance, we are applying our high data rate communications and archiving technology to the medical image archiving market and our wireless communication expertise to develop local wireless loop telecommunications equipment for the last mile interconnect. SPECIALIZED COMMUNICATION PRODUCTS. This business area encompasses three product categories: Microwave Components. We are the preeminent worldwide supplier of commercial off-the-shelf, high-performance microwave components and frequency monitoring equipment. Our microwave products are sold under the industry-recognized Narda brand name through a standard catalog to wireless, industrial and military communication markets. We also provide state-of-the-art, space-qualified communication components including channel amplifiers and frequency filters for the commercial communications satellite market serving major military and commercial frequencies, including Ka band. Approximately 79% of Microwave Components sales for the nine-month period ended September 30, 1998 were made to commercial customers, including Loral Space & Communications, Ltd., Motorola, Inc., Lucent Technologies Inc., AT&T Corp. and Lockheed Martin Corporation ("Lockheed Martin"). Avionics and Ocean Products. Avionics and Ocean Products include our aviation recorders, display systems, antenna systems, acoustic undersea warfare systems and naval power distribution, conditioning, switching and protection equipment for naval ships and submarines. We are the world's leading manufacturer of commercial cockpit voice and flight data recorders (known as "black boxes"). These recorders are sold under the Fairchild brand name both to aircraft manufacturers and to the world's major airlines for their existing fleets of aircraft. Our aviation recorders are also installed on military transport aircraft throughout the world. We provide military and high-end commercial displays for use in military aircraft. We also manufacture high performance surveillance and precision millimeter wave antennas and related equipment for U.S. Air Force, U.S. Army and U.S. Navy aircraft and are the leading supplier of ground-based radomes. We are one of the world's leading product suppliers of acoustic undersea warfare systems and airborne dipping sonar systems to the U.S. and over 20 foreign navies. We are the only fully integrated, full-line provider of qualified turnkey electrical power delivery and management systems for U.S. Navy surface ships and submarines. Telemetry, Instrumentation and Space Products. Our Telemetry, Instrumentation and Space Products operations develop and manufacture commercial off-the-shelf, real-time data collection and transmission products and components for missile, aircraft and space-based electronic systems. These products are used to gather flight data and other critical information and transmit it from air or space to the ground. Telemetry products are also used for range safety and training applications to simulate battlefield situations. We are also a leading global satellite communications systems provider offering 2 systems and services used in the satellite transmission of voice, video and data through earth stations for uplink and downlink terminals. We provide global satellite communications systems and services to customers that include foreign post, telephone and telegraph administrations, domestic and international prime communications infrastructure contractors, telecommunications and satellite service providers, broadcasters and media-related companies, government agencies and large corporations. We also provide commercial, off-the-shelf satellite control software, telemetry, tracking and control ("TT&C"), mission processors and software engineering services to the worldwide military, civilian and commercial satellite markets. EMERGING COMMERCIAL PRODUCTS. Building upon our core technical expertise and capabilities, we are seeking to expand into several closely aligned commercial business areas and applications. Emerging Commercial Products currently include the following four niche markets: o medical archiving and simulation systems; o local wireless loop telecommunications equipment; o airport security equipment; and o information network security. A majority of these commercial products were developed based on technology used in our military businesses with relatively small additional expense. We are applying our technical capabilities in high data rate communications and archiving technology developed in our Secure Communication Systems business area to the medical image archiving market together with the General Electric Company's medical systems business. Based on secure, high data rate communication technology also developed in our Secure Communication Systems business area, we have developed local wireless loop telecommunications equipment that is primarily designed for emerging market countries and rural areas where voice and data communication infrastructure is inadequate or does not exist. We have completed the development phase for the local wireless loop telecommunications equipment and have begun deliveries. In addition, the Federal Aviation Administration awarded us a development contract for next generation airport security equipment for explosive detection. On November 23, 1998, we received FAA certification for our eXaminer 3DX (Trade Mark) 6000 system which is the only second-generation system to receive certification and the only system to generate full, three-dimensional images of all objects in a piece of baggage. To capitalize on commercial opportunities for the information security technologies we developed in our Secure Communication Systems business area, we have also created a new subsidiary focusing on developing and marketing secure information and communication systems for commercial clients. This subsidiary acquired a network security software product through a majority-owned joint venture. We released the third generation of this network security software, ExpertTM 3.0, on November 9, 1998. Taken together, revenues generated from our Emerging Commercial Products have not yet been material to us. BUSINESS STRATEGY We have successfully integrated the business units we acquired from Lockheed Martin and enhanced our operating efficiency by reducing overhead expenses and reorganizing our facilities. These efforts resulted in improvements in sales, profitability and obtaining competitive contracts. We have used and intend to continue to use our market position, diverse program base and favorable mix of cost plus to fixed price contracts to enhance our profitability and to establish L-3 as the premier merchant supplier of communication systems and products to the major prime contractors in the aerospace/defense industry as well as the U.S. government. Our strategy to continue to achieve our objectives includes: o EXPAND MERCHANT SUPPLIER RELATIONSHIPS. Due to our strong relationships with prime contractors and our independent status, we intend to grow by expanding our share of current programs, by participating in new programs and by positioning L-3 Communications as the desired merchant supplier to more than one bidder on prime contract bids. 3 o SUPPORT CUSTOMER REQUIREMENTS. We will continue to align our research and development, manufacturing and new business efforts to complement our customers' requirements, and we will provide state-of-the-art products in order to maintain and expand current customer relationships as well as to create new ones. o ENHANCE OPERATING MARGINS. We intend to continue to enhance our operating margins by reducing overhead expenses and increasing productivity. o LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. Our proprietary technical capabilities have placed us at or near the top market position in most of our key business areas. We intend to use these capabilities and make substantial investments in research and development, technical and manufacturing resources to strengthen our market positions as well as to pursue commercial opportunities in other areas. o MAINTAIN DIVERSIFIED BUSINESS MIX. We will maintain our favorable mix of predictable profitability (typical of cost plus contracts) and higher margin (typical of fixed price contracts) businesses together with our significant sole source follow-on business and attractive customer profile. o CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. We intend to continue to selectively acquire businesses which (1) have significant market position in their business areas, (2) offer products that complement and/or extend our existing products, (3) demonstrate positive future growth prospects and (4) are accretive to our earnings in the first year of our ownership. ACQUISITION STRATEGY Since our formation in April 1997, we have actively pursued our acquisition strategy. Since completing the L-3 Acquisition, we have purchased twelve additional businesses for an aggregate cash purchase price including assumed debt and expenses, net of cash acquired, of approximately $534.0 million, subject to certain post-closing adjustments, and in certain cases additional consideration based on post-closing performance. We consider and execute strategic acquisitions on an ongoing basis and may be evaluating acquisitions or engaged in acquisition negotiations at any given time. We have reached agreement on or are in discussions regarding a number of potential acquisition opportunities and expect to use our bank credit facilities to fund these transactions if we proceed with them. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". RECENT DEVELOPMENTS SPD Technologies, Inc. On August 13, 1998, we acquired all of the outstanding common stock of SPD Technologies, Inc. ("SPD") for $230.0 million in cash, subject to certain post-closing adjustments. SPD is the leading supplier to the U.S. Navy for subsystems that manage, control, distribute, protect and condition electrical power in surface ships and submarines. SPD's major products include electronic solid state protection products, switchgear, high-speed transfer switches, fault isolation units, frequency converters and inverters, voltage transformers and uninterruptible power supply systems. SPD's products are installed in every nuclear submarine, aircraft carrier and surface platform operated by the U.S. Navy. SPD also provides shipboard communications and control as well as support service for installed products. This acquisition was financed using cash from operations and borrowings under our bank credit facilities. Microdyne Corporation. On December 3, 1998, we signed an agreement to acquire all of the outstanding common stock of Microdyne Corporation ("Microdyne") for approximately $90.0 million in cash, including the repayment of Microdyne's debt. For the fiscal year ended September 30, 1998, Microdyne reported actual revenues of $58.3 million, operating income of $1.3 million and net income of $0.3 million. On a pro forma basis, including acquisitions Microdyne made during its 1998 fiscal year as if they had occurred at the beginning of its fiscal year, Microdyne's revenues would have been 4 $73.5 million, operating income would have been $3.6 million and net income would have been $0.9 million. Microdyne's actual earnings before interest, taxes, depreciation and amortization for the recent fiscal year was $2.9 million. Pro forma earnings before interest, taxes, depreciation and amortization would have been $11.1 million before non-recurring charges of $5.1 million primarily for the write-off of acquired in-process research and development costs. Pursuant to the acquisition agreement, one of our subsidiaries has purchased 91.9% of the common stock of Microdyne in a cash tender offer. We expect to complete the merger of Microdyne with this subsidiary in early 1999. Microdyne is a leading global developer and manufacturer of aerospace telemetry receivers, secure communications and technical support services, including specialized telemetry high-frequency radios used in aerospace and satellite communications for data gathering and analysis. Microdyne also provides products for the government and commercial signal intelligence markets and support and repair services for electronic products companies. Microdyne's aerospace telemetry products will enable us to provide integrated solutions to our space customers' requirements for command, control, telemetry and tracking. The purchase of shares of Microdyne common stock was financed using cash and borrowings under our bank credit facilities. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". Proposed Equity Offering. Holdings and certain selling stockholders are currently contemplating a public offering in the United States and internationally of 9,250,000 shares (excluding the underwriters' over-allotment option) of the common stock of Holdings (the "Proposed Equity Offering"). Holdings intends to use the net proceeds of the Proposed Equity Offering to repay any existing indebtedness under the Senior Credit Facilities (as defined later in this prospectus) and for general corporate purposes, including potential acquisitions. On January 5, 1999, Holdings filed a Registration Statement on Form S-1 (File No. 333-70125) with the SEC in connection with the Proposed Equity Offering. HISTORY Holdings, which owns all of our common stock, was formed in April 1997 by Mr. Frank C. Lanza, the former President and Chief Operating Officer of Loral Corporation ("Loral"), Mr. Robert V. LaPenta, the former Senior Vice President and Controller of Loral, Lehman Brothers Capital Partners III, L.P. and its affiliates (the "Lehman Partnership") and Lockheed Martin to acquire (1) nine business units previously purchased by Lockheed Martin as part of its acquisition of Loral in April 1996 and (2) one business unit, Communication Systems -- East (formerly known as Communication Systems -- Camden), purchased by Lockheed Martin as part of its acquisition of the aerospace business of General Electric Company in April 1993. In May 1998, Holdings successfully completed the IPO, raising net proceeds of $139.5 million which Holdings contributed to us. We raised net proceeds of $173.8 million in a concurrent debt offering. In December 1998, we raised net proceeds of $193.7 million in the Old Notes Offering. The Company's executive offices are located at 600 Third Avenue, New York, New York, 10016, and the telephone number at that address is 212-697-1111. 5 SUMMARY OF THE EXCHANGE OFFER The Exchange Offer.......... We are offering to exchange up to $200,000,000 aggregate principal amount of our new 8% Series B Senior Subordinated Notes due 2008 which have been registered under the Securities Act (the "Exchange Notes") for a like amount of our outstanding 8% Senior Subordinated Notes due 2008 which were issued in December 1998 in a private offering (the "Old Notes" and together with the Exchange Notes, the "Notes"). The Exchange Notes are substantially identical to the Old Notes, except that the Exchange Notes are freely transferrable by their holders (other than as provided herein), and are not subject to any covenant regarding registration under the Securities Act. Interest Payments........... Interest on the Exchange Notes will accrue from the last interest payment date (February 1 or August 1) on which interest was paid on the Old Notes or, if no interest was paid on the Old Notes, from December 11, 1998 (the "Interest Payment Date"). Minimum Condition........... We are not conditioning the Exchange Offer on any minimum aggregate principal amount of Old Notes being tendered for exchange. Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New York City time, on February 19, 1999, unless we decide to extend the Exchange Offer. Withdrawal Rights........... You may withdraw your tender at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Exchange Date............... The date of acceptance for exchange of the Old Notes will be the four business days after the Expiration Date. Conditions to the Exchange Offer.............. The Exchange Offer is subject to certain customary conditions, which we may waive. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer--Certain Conditions to the Exchange Offer". We reserve the right to terminate or amend the Exchange Offer at any time before the Expiration Date if any such condition occurs. Procedures for Tendering Old Notes.................... If you are a holder of Old Notes who wishes to accept the Exchange Offer, you must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, or arrange for The Depository Trust Company ("DTC") to transmit certain required information to the Exchange Agent in connection with a book-entry transfer or mail or otherwise deliver such documentation, together with your Old Notes, to the Exchange Agent at the address set forth under "The Exchange Offer--Exchange Agent". 6 By tendering your Old Notes in this manner, you will be representing among other things, that: o the Exchange Notes you acquire pursuant to the Exchange Offer are being acquired in the ordinary course of your business; o you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes issued to you in the Exchange Offer; and o you are not an "affiliate" of ours. Use of Proceeds............. We will not receive any proceeds from the issuance of Exchange Notes pursuant to the Exchange Offer. We will pay all our expenses incident to the Exchange Offer. Certain United States Federal Income Tax Consequences... The exchange of notes pursuant to the Exchange Offer will not be a taxable event for federal income tax purposes. See "Certain United States Federal Income Tax Consequences of the Exchange". Special Procedures for Beneficial Owners......... If you beneficially own Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Old Notes in the Exchange Offer, you should contact such registered holder promptly and instruct it to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the Letter of Transmittal and delivering your Old Notes, either arrange to have your Notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures.................. If you wish to tender your Old Notes and time will not permit your required documents to reach the Exchange Agent by the Expiration Date, or the procedure for book-entry transfer cannot be completed on time, you may tender your Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes". Acceptance of Old Notes and Delivery of Exchange Notes..................... We will accept for exchange all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Acceptance of Old Notes for Exchange; Delivery of Exchange Notes". 7 Effect on Holders of Old Notes................... As a result of this Exchange Offer, we will have fulfilled a covenant contained in the Registration Rights Agreement (the "Registration Rights Agreement") dated as of December 11, 1998 among L-3 Communications Corporation, each of the subsidiary guarantors named therein and Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC (the "Initial Purchasers") and, accordingly, there will be no increase in the interest rate on the Old Notes. If you do not tender your Old Notes in the Exchange Offer, you will continue to hold such Old Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture dated as of December 11, 1998 among L-3 Communications Corporation, the subsidiary guarantors named therein and The Bank of New York relating to the Old Notes and the Exchange Notes (the "Indenture"), except for any rights under the Registration Rights Agreement that terminate as a result of the acceptance for exchange of validly tendered Old Notes pursuant to the Exchange Offer. If you do not tender your Old Notes, you will not have any further registration or exchange rights and your Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the trading market for untendered Old Notes could be adversely affected. Exchange Agent.............. The Bank of New York is serving as Exchange Agent in connection with the Exchange Offer. SUMMARY OF TERMS OF THE EXCHANGE NOTES Capitalized terms used under this heading "Summary of Terms of the Exchange Notes" have been defined under the heading "Description of the Exchange Notes -- Certain Definitions". Securities Offered.......... $200,000,000 in principal amount of 8% Senior Subordinated Notes due 2008. Maturity.................... August 1, 2008. Interest Payment Dates...... Annual rate--8%. Payment frequency--every six months on February 1 and August 1. First payment--February 1, 1999. Subsidiary Guarantors....... Each guarantor is our wholly owned subsidiary. Substantially all of our wholly owned subsidiaries are guarantors of the Exchange Notes. If we cannot make payments on the Exchange Notes when they are due, the guarantor subsidiaries must make them instead. 8 Optional Redemption......... On or after August 1, 2003, we may redeem some or all of the Exchange Notes at any time at the redemption prices listed in the section "Description of the Exchange Notes" under the heading "Optional Redemption". Before August 1, 2001, we may redeem up to 35% of the Exchange Notes with the proceeds of certain offerings of equity in our Company or Holdings at the price listed in the "Description of the Exchange Notes" section under the heading "Optional Redemption". Mandatory Offer to Repurchase............... If we sell certain assets or experience specific kinds of changes of control, we must offer to repurchase the Exchange Notes at the prices listed in the section "Description of the Exchange Notes". Ranking..................... The Exchange Notes and the subsidiary guarantees are senior subordinated debts. They rank behind all of our and our guarantor subsidiaries' current and future indebtedness (other than trade payables), except indebtedness that expressly provides that it is not senior to these notes and the subsidiary guarantees. Assuming we had completed the offering of the Old Notes and the exchange of the Exchange Notes on September 30, 1998 and applied the proceeds as intended, the Exchange Notes and the subsidiary guarantees: o would not have been subordinated to any senior debt (excluding outstanding letters of credit); and o would have ranked equally with $405.0 million of other senior subordinated debt. Basic Covenants of Indenture................ We will issue the Exchange Notes under an indenture among us, the subsidiary guarantors and The Bank of New York, as trustee. The indenture will, among other things, restrict our ability and the ability of our restricted subsidiaries o borrow money; o pay dividends on or purchase our stock or our restricted subsidiaries' stock; o make investments; o use assets as security in other transactions; o sell certain assets or merge with or into other companies; and o enter into transactions with affiliates. Certain of our subsidiaries will not be subject to the covenants in the indenture. For more details, see the section "Description of the Exchange Notes" under the heading "Certain Covenants". 9 Taxation.................... For a discussion of the tax consequences of an investment in the notes, see "Certain United States Federal Income Tax Consequences of the Exchange". Use of Proceeds............. There will be no cash proceeds to us from the Exchange Offer. You should read "Risk Factors" for a discussion of the risk factors that you should consider before investing in the Notes. 10 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA AND HISTORICAL FINANCIAL DATA The summary unaudited pro forma data as of September 30, 1998, for the nine months ended September 30, 1998 and 1997 and for the year ended December 31, 1997 have been derived from, and should be read in conjunction with, the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed statement of operations and other data reflect the L-3 Acquisition, the 1998 Acquisitions, the Financing Transactions and the Old Notes Offering as if such transactions had occurred on January 1, 1997. The unaudited pro forma condensed balance sheet data reflect the Old Notes Offering as if it had occurred on September 30, 1998. The summary historical consolidated (combined) financial data as of and for the nine months ended December 31, 1997 and the years ended December 31, 1996, 1995 and 1994 and the three months ended March 31, 1997 have been derived from the audited financial statements for the respective periods. The summary historical consolidated (combined) financial data as of and for the nine months ended September 30, 1998 have been derived from the unaudited condensed consolidated financial statements of the Company. In the opinion of the Company's management, such unaudited financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and financial position as of the date of and for the period presented. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of results for the full year. The unaudited pro forma condensed financial information may not be indicative of the financial position and results of operations of the Company that actually would have occurred had the Transactions (as defined later in this prospectus) been in effect on the dates indicated or the financial position and results of operations that may be obtained in the future. The summary financial data should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated (Combined) Financial Statements of the Company (Predecessor Company (as defined later in this prospectus)) and the Combined Financial Statements of the Loral Acquired Businesses (as defined later in this prospectus) and the unaudited pro forma condensed consolidated financial information included elsewhere herein. Prior to April 1, 1996, the Predecessor Company was only comprised of Communication Systems -- East.
COMPANY ------------------------------------------------------------------------- PRO FORMA NINE NINE NINE MONTHS ENDED PRO FORMA MONTHS MONTHS SEPTEMBER 30, YEAR ENDED ENDED ENDED ------------------------- DECEMBER 31, SEPTEMBER 30, DEC. 31, 1998 1997 1997 1998(1) 1997(2) ------------- ----------- -------------- --------------- ---------------- (in millions) STATEMENT OF OPERATIONS DATA: Sales ...................................... $ 834.5 $ 758.7 $ 1,063.9 $ 708.3 $ 546.5 Operating income ........................... 70.0 49.1 82.0 63.6 51.5(5) Interest expense, net(6) ................... 44.8 44.8 59.8 32.9 28.5 Provision (benefit) for income taxes(6) 10.1 (0.6) 5.8 12.0 10.7 Net income (loss) .......................... 15.1 4.9 16.4 18.7 12.3(5) BALANCE SHEET DATA (AT PERIOD END): Working capital ............................ $ 178.8 $ 141.0 $ 131.8 Total assets ............................... 1,241.3 1,196.3 703.4 Long-term debt ............................. 605.0 560.0 392.0 Invested equity ............................ Shareholders' equity ....................... 294.8 294.8 132.7 OTHER DATA: EBITDA(7) .................................. $ 102.5 $ 80.4 $ 126.3 $ 90.3 $ 78.1 Net cash from (used in) operating activities ................................ 48.2 73.9 Net cash (used in) investing activities..... (417.8) (457.8) Net cash from (used in) financing activities ................................ 297.9 461.4 Depreciation expense ....................... 17.7 17.7 24.0 15.6 13.3 Amortization expense ....................... 14.8 13.6 20.3 11.1 8.9 Capital expenditures ....................... 14.8 15.6 23.0 12.7 11.9 Ratio of: Earnings to fixed charges(8) .............. 1.5x 1.1x 1.3x 1.7x 1.7x EBITDA to cash interest expense(10)(11) .......................... 2.6x 2.3x Net debt to EBITDA(11)(12) ................ 3.8x 4.4x PREDECESSOR COMPANY ------------------------------------------------- THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------------------------- 1997 1996(3) 1995(4) 1994(4) ------------- ----------- ----------- ----------- (in millions) STATEMENT OF OPERATIONS DATA: Sales ...................................... $ 158.9 $ 543.1 $ 166.8 $ 218.9 Operating income ........................... 7.9 43.7 4.7 8.4 Interest expense, net(6) ................... 8.4 24.2 4.5 5.5 Provision (benefit) for income taxes(6) (0.2) 7.8 1.2 2.3 Net income (loss) .......................... (0.3) 11.7 (1.0) 0.6 BALANCE SHEET DATA (AT PERIOD END): Working capital ............................ $ 98.8 $ 21.1 $ 19.3 Total assets ............................... 593.3 228.5 233.3 Long-term debt ............................. Invested equity ............................ 473.6 194.7 199.5 Shareholders' equity ....................... OTHER DATA: EBITDA(7) .................................. $ 15.7 $ 71.8 $ 16.3 $ 19.9 Net cash from (used in) operating activities ................................ (16.3) 30.7 9.3 21.8 Net cash (used in) investing activities..... (4.3) (298.0) (5.5) (3.7) Net cash from (used in) financing activities ................................ 20.6 267.3 (3.8) (18.1) Depreciation expense ....................... 4.5 14.9 5.5 5.4 Amortization expense ....................... 3.3 13.2 6.1 6.1 Capital expenditures ....................... 4.3 13.5 5.5 3.7 Ratio of: Earnings to fixed charges(8) .............. --(9) 1.7x 1.0x 1.4x EBITDA to cash interest expense(10)(11) .......................... Net debt to EBITDA(11)(12) ................
(Footnotes on the following page) 11 - --------- (1) Includes the results of operations of the 1998 Acquisitions from their respective effective dates of acquisition. (2) Reflects the L-3 Acquisition effective April 1, 1997. (3) Reflects ownership of Loral's Communication Systems -- West and Specialized Communication Products businesses commencing April 1, 1996. (4) Reflects ownership of Communication Systems -- East by Lockheed Martin effective April 1, 1993. (5) Includes a nonrecurring, noncash compensation charge of $4.4 million related to the initial capitalization of the Company, effective April 1, 1997. (6) For periods prior to April 1, 1997, interest expense and income tax (benefit) provision were allocated from Lockheed Martin. (7) EBITDA is defined as operating income plus depreciation expense and amortization expense (excluding the amortization of deferred debt issuance costs) and the nonrecurring, noncash compensation charge of $4.4 million recorded effective April 1, 1997. EBITDA is not a substitute for operating income, net income and cash flow from operating activities as determined in accordance with generally accepted accounting principles as a measure of profitability or liquidity. EBITDA is presented as additional information because management believes it to be a useful indicator of the Company's ability to meet debt service and capital expenditure requirements. (8) For purposes of this computation, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest on indebtedness plus the amortization of deferred debt issuance costs and that portion of lease rental expense representative of the interest element. (9) Earnings were insufficient to cover fixed charges by $0.5 million for the three months ended March 31, 1997. (10) For purposes of this computation, cash interest expense consists of pro forma interest expense less amortization of deferred debt issuance costs. (11) The ratios at September 30, 1998 are based on the results of operations for the twelve-month period ended September 30, 1998. The pro forma ratios at September 30, 1998 have been calculated by adding the pro forma EBITDA and pro forma cash interest expense for the nine months ended September 30, 1998 and the three months ended December 31, 1997. For purposes of computing pro forma EBITDA for the three months ended December 31, 1997, pro forma operating income, depreciation expense and amortization expense would have been $32.9 million, $6.3 million and $6.7 million, respectively. Pro forma cash interest expense for the twelve-month period ended September 30, 1998 and the year ended December 31, 1997 would have been $56.1 million. (12) Net debt is defined as long-term debt plus current portion of long-term debt less cash and cash equivalents. 12 RISK FACTORS You should carefully consider the following risks as well as the other information contained or incorporated by reference in this prospectus before deciding to tender Old Notes in the Exchange Offer. The risk factors set forth below are generally applicable to the Old Notes as well as the Exchange Notes. OLD NOTES OUTSTANDING AFTER THE EXCHANGE OFFER WILL NOT HAVE REGISTRATION RIGHTS AND WE EXPECT THE MARKET FOR SUCH OLD NOTES TO BE ILLIQUID If you do not exchange your Old Notes for Exchange Notes pursuant to the Exchange Offer, you will continue to be subject to the restrictions on transfer of such Old Notes. In general, you may not offer or sell Old Notes unless they are registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We do not currently intend to register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission, we believe that Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by their holders (unless such holder is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, so long as the Old Notes were acquired in the ordinary course of the holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes will be adversely affected. YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE NOTES We are offering the Exchange Notes to the holders of the Old Notes. The Old Notes were offered and sold in December 1998 to a small number of institutional investors and are eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages (PORTAL) Market. We do not intend to apply for a listing of the Exchange Notes on a securities exchange or on any automated dealer quotation system. There is currently no established market for the Exchange Notes and we cannot assure you as to the liquidity of markets that may develop for the Exchange Notes, your ability to sell the Exchange Notes or the price at which you would be able to sell the Exchange Notes. If such markets were to exist, the Exchange Notes could trade at prices that may be lower than their principal amount or purchase price depending on many factors, including prevailing interest rates and the markets for similar securities. We expect that the Exchange Notes will be designated for trading in the PORTAL market. The Initial Purchasers have advised us that they currently intend to make a market with respect to the Exchange Notes. However, the Initial Purchasers are not obligated to do so, and any market making with respect to the Exchange Notes may be discontinued at any time without notice. In addition, such market making activity may be limited during the pendency of the Exchange Offer or the effectiveness of a shelf registration statement in lieu thereof. Because Lehman Brothers Inc. is our affiliate, following consummation of the Exchange Offer, Lehman Brothers Inc. will be required to deliver a current "market-maker" prospectus and otherwise comply with the registration requirements of the Securities Act in connection with any secondary market sale of the Exchange Notes, which may affect its ability to continue market-making activities. The liquidity of, and trading market for, the Exchange Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading markets independent of our financial performance and prospects. WE HAVE A SIGNIFICANT AMOUNT OF DEBT We incurred substantial indebtedness in connection with our acquisitions. If the Old Notes Offering had occurred on September 30, 1998, we would have had $605.0 million of indebtedness 13 outstanding, none of which would have been senior debt (excluding outstanding letters of credit), and our ratio of pro forma earnings to pro forma fixed charges would have been 1.5 to 1.0. In the future we may borrow more money, subject to limitations imposed by our debt agreements. Based upon our current level of operations and anticipated improvements, we believe that our cash flow from operations, together with proceeds from the Old Notes Offering and amounts we are able to borrow under our bank credit facilities, will be adequate to meet our anticipated requirements for working capital, capital expenditures, research and development expenditures, program and other discretionary investments, interest payments and scheduled principal payments for the foreseeable future, at least for the next three years. Our ability to make scheduled payments of principal and interest on our indebtedness and to refinance our indebtedness depends on our future performance. We do not have complete control over our future performance because it is subject to economic, financial, competitive, regulatory and other factors affecting the defense industry. It is possible that in the future our business may not generate sufficient cash flow from operations to allow us to service our debt and make necessary capital expenditures. If this situation occurs, we may have to sell assets, restructure debt or obtain additional equity capital. We cannot be sure that we would be able to do so or do so without additional expense. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". Our level of indebtedness may have important consequences on your investment in the Notes. These consequences include: o requiring a substantial portion of our cash flow from operations to be used to pay interest and principal on our debt and therefore be unavailable for other purposes including capital expenditures, research and development and other investments; o limiting our ability to obtain additional financing in the future; o incurring higher interest expense in the event of increases in interest rates on our borrowings which have variable interest rates; o heightening our vulnerability to downturns in our business or in the general economy and restricting us from making acquisitions, introducing new technologies and products or exploiting business opportunities; and o limiting our ability to borrow additional funds, dispose of assets or pay cash dividends. Failure to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our financial position and results of operations due to financial and restrictive covenants. See "Description of Certain Indebtedness". OUR ACQUISITION STRATEGY INVOLVES CERTAIN RISKS We intend to acquire companies which complement our business. We cannot assure you, however, that we will be able to identify acquisition candidates on commercially reasonable terms or at all. If we make additional acquisitions, we also cannot be sure that any anticipated benefits will actually be realized. Likewise, we cannot be sure that we will be able to obtain additional financing for acquisitions. Such additional financing could be restricted by the terms of our debt agreements. The process of integrating acquired operations, including our recent acquisitions, into our existing operations may result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Possible future acquisitions by L-3 could result in the incurrence of additional debt, contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could materially adversely affect our financial condition and operating results. We consider and execute strategic acquisitions on an ongoing basis and may be evaluating acquisitions or engaged in acquisition negotiations at any given time. We have reached agreement or are in discussions regarding a number of potential acquisition opportunities and expect to use borrowings 14 under our bank credit facilities to fund these transactions if we proceed with them. If all of these potential acquisitions were consummated, they would require us to use all or substantially all of our currently available borrowing capacity in 1999 and perhaps seek additional borrowing capacity. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". WE RELY ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS Our sales come mainly from contracts with agencies of, and contractors to, the U.S. government. For the nine-month period ended September 30, 1998, we had approximately 300 contracts each with value exceeding $1.0 million for the U.S. government. Pro forma sales for the nine-month period ended September 30, 1998 to the U.S. government, including sales through prime contractors, were $608.1 million, representing approximately 73% of our corresponding sales. Our largest U.S. government program, a cost plus, sole source contract for support of the U-2 program of the defense department, contributed approximately 7% of pro forma sales for the nine-month period ended September 30, 1998. No other program represented more than 5% of our pro forma sales for the nine-month period ended September 30, 1998. The loss of all or a substantial portion of sales to the U.S. government would have a material adverse effect on our income and cash flow. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business -- Government Contracts". Our sales for the nine-month period ended September 30, 1998 to Lockheed Martin were $51.1 million or approximately 7% of our total sales. The loss of all or a substantial portion of such sales to Lockheed Martin would have a material adverse effect on our income and cash flow. OUR GOVERNMENT CONTRACTS ENTAIL CERTAIN RISKS The reduction in the U.S. defense budget in the early 1990s has caused most defense-related government contractors to experience declining revenues, increased pressure on operating margins and, in certain cases, net losses. Our businesses taken as a whole have experienced a substantial decline in sales during this period. A significant decline in U.S. military expenditures in the future could materially adversely affect our sales and earnings. The loss or significant cutback of a large program in which we participate could also materially adversely affect our future sales and earnings and thus our ability to meet our financial obligations. Companies engaged primarily in supplying defense-related equipment and services to government agencies are subject to certain business risks peculiar to the defense industry. These risks include the ability of the U.S. government to: o suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations; o terminate existing contracts; o audit our contract-related costs and fees, including allocated indirect costs; and o control and potentially prohibit the export of our products. 15 All of our U.S. government contracts are subject to termination by the U.S. government either for its convenience or if the contractor defaults. Termination for convenience provisions provide only for our recovery of costs incurred or committed, settlement expenses and profit on work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. government in procuring undelivered items from another source. In addition to the right of the U.S. government to terminate, U.S. government contracts are conditioned upon the continuing approval by Congress of the necessary spending. 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 beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract only if, as and when appropriations are made by Congress for future fiscal years. Foreign defense contracts generally contain similar provisions relating to termination at the convenience of the government. The U.S. government may review our costs and performance on their contracts, as well as our accounting and general business practices. Based on the results of such audits, the U.S. government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S. government purchasing regulations, some of our costs, including certain financing costs, goodwill, portions of research and development costs, and certain marketing expenses may not be reimbursable under U.S. government contracts. Further, as a government contractor, we are subject to investigation, legal action and/or liability that would not apply to a commercial company. We are also subject to risks associated with the following: o the frequent need to bid on programs in advance of the completion of their design (which may result in unforeseen technological difficulties and/or cost overruns); o the substantial time and effort required for relatively unproductive design and development; o design complexity and rapid obsolescence; and o the constant need for design improvement. We obtain many of our U.S. government contracts through a competitive bidding process. We cannot assure you that we will continue to win competitively awarded contracts or that awarded contracts will generate sufficient sales to result in profitability for L-3. See "Business -- Major Customers" and "-- Government Contracts". In addition to these U.S. government contract risks, many of our products and systems require licenses from U.S. government agencies for export from the United States, and some of our products are not permitted to be exported. We cannot be sure of our ability to gain any licenses required to export our products, and failure to receive required licenses could materially reduce our ability to sell our products outside the United States. OUR FIXED PRICE CONTRACTS ENTAIL CERTAIN RISKS We provide our products and services primarily through fixed price or cost plus contracts. Fixed price contracts constituted approximately 71% of our pro forma sales for the nine-month period ended September 30, 1998. We record sales and profits on our long-term fixed price contracts by using the percentage-of-completion methods of accounting. As a result, revisions made to our estimates of revenues and profits are reflected in the period in which the conditions that require such revisions become known and can be estimated. The risks of long-term fixed price contracts include the difficulty of forecasting costs and schedules, contract revenues that are related to performance in accordance with contract specifications and the possibility of obsolescence in connection with long-term procurements. Failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed price contract may reduce our profitability or cause a loss. Although we believe that adequate provisions for losses for our fixed price contracts are reflected in our financial statements, as required under U.S. generally accepted accounting principles, we cannot assure you that these estimates and provisions are adequate or that losses on fixed price contracts will not occur in the future. 16 OUR OPERATIONS INVOLVE RAPIDLY EVOLVING PRODUCTS AND TECHNOLOGICAL CHANGE The rapid change of technology is a key feature of the communication equipment industry for defense applications and in general. To succeed in the future, we will need to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. Historically, our technology has been developed through customer-sponsored research and development as well as from internally-funded research and development. We cannot guarantee that we will continue to maintain comparable levels of research and development. See "Business -- Research and Development". In the past we have allocated substantial funds to capital expenditures and programs and other investments. This practice will continue to be required in the future. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". Even so, we cannot assure you that we will successfully identify new opportunities and continue to have the needed financial resources to develop new products in a timely or cost-effective manner. At the same time, products and technologies developed by others may render our products and systems obsolete or non-competitive. OUR ENTRY INTO COMMERCIAL BUSINESS IS RISKY Our revenues mainly have come from business with the U.S. defense department and other government agencies. In addition to continuing to pursue this major market area, we will continue applying our technical capabilities and expertise to related commercial markets. Some of our commercial products, such as local wireless loop telecommunications equipment, medical image archiving equipment, airport security equipment and commercial information security products, have only recently been introduced. As such, these new products are subject to certain risks and may require us to: o develop and maintain marketing, sales and customer support capabilities; o secure sales and customer support capabilities; o obtain certification; o respond to rapid technological advances; and o obtain customer acceptance of these products and product performance. Our efforts to expand our presence in the commercial market may require significant resources including capital and management time. We cannot assure our success in addressing these risks or in developing these commercial business opportunities. WE OPERATE IN A COMPETITIVE INDUSTRY The communications equipment industry for defense applications and as a whole is highly competitive. The defense industry has experienced substantial consolidation due to declining defense budgets and increasing pressures for cost reductions. We expect that the U.S. defense department's increased use of commercial off-the-shelf products and components in military equipment will encourage new competitors to enter the market. In addition, the consolidation of the industry has resulted in delays in contract funding and awards and significant pricing pressures. We also expect that competition for original equipment manufacturer business will increase due to the emergence of merchant suppliers. Our ability to compete for defense contracts largely depends on the following factors: o the effectiveness and innovations of our research and development programs; o our ability to offer better performance than our competitors at a lower cost to the U.S. government; and o the readiness of our facilities, equipment and personnel to undertake the programs for which we compete. 17 In some instances, programs are sole source or work directed by the U.S. government to a single supplier. In such cases, other suppliers who may be able to compete for the programs involved can only enter or reenter the market if the U.S. government chooses to reopen the particular program to competition. Many of our competitors are larger than us and have substantially greater financial and other resources than we have. See "Business -- Competition". WE DEPEND ON KEY PERSONNEL Our future success depends to a significant degree upon the continued contributions of our management, including Messrs. Lanza and LaPenta, and our ability to attract and retain other highly qualified management and technical personnel. We do not maintain any key person life insurance policies for members of our management. Messrs. Lanza and LaPenta have invested approximately $18.0 million and currently own approximately 12.4% of the capital stock of L-3. We have entered into employment agreements with Messrs. Lanza and LaPenta. See "Management -- Employment Agreements". We face competition for management and technical personnel from other companies and organizations. Failure to attract and retain such personnel would damage our prospects. See "Management -- Directors and Executive Officers". OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATION Our operations are subject to various federal, state and local environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations. We continually assess our obligations and compliance with these requirements. We believe that our operations are in substantial compliance with all applicable environmental laws and permits. We do not expect any material unbudgeted expenditures to remain in compliance with applicable environmental laws and regulations. In connection with the purchase of the Company from Lockheed Martin, we assumed certain environmental liabilities related to events or activities occurring prior to the purchase. Lockheed Martin has agreed to retain all environmental liabilities for all facilities no longer used by us and to indemnify us fully for such liabilities. Lockheed Martin has also agreed, for the first eight years following April 1997, to pay 50% of all costs incurred by us above those reserved for our balance sheet at April 1997 relating to certain environmental liabilities assumed by us. For the seven years thereafter, Lockheed Martin has agreed to pay 40% of certain reasonable operation and maintenance costs relating to any environmental remediation projects undertaken in the first eight years. Two of the facilities acquired from Lockheed Martin will require ongoing remediation due to environmental contamination. In November 1997, we sold one such facility located in Sarasota, Florida, while retaining a leasehold interest in a portion of that facility, to Dames & Moore/Brookhill LLC, which agreed to assume responsibility for further remediation of the Sarasota site. We believe that we have established adequate reserves for the potential costs associated with the assumed environmental liabilities. However, we cannot assure you that any costs incurred will be reimbursable from the U.S. government or covered by Lockheed Martin under the terms of the acquisition agreement or that our environmental reserves will be sufficient. OUR BACKLOG OF ORDERS COULD BE TERMINATED We currently have a backlog of orders, mainly under contracts with the U.S. government. The U.S. government may unilaterally modify or terminate these contracts. Accordingly, most of our backlog could be modified or terminated by the U.S. government. We cannot assure you that our backlog will result in revenues. Further, we cannot be sure that the margins on any contract included in backlog that does become revenue will be profitable. WE HAVE PENSION PLAN LIABILITIES We have assumed certain liabilities relating to defined benefit pension plans for present and former employees and retirees of certain businesses which we acquired. Prior to the L-3 Acquisition, 18 Lockheed Martin received a letter from the Pension Benefit Guaranty Corporation (the "PBGC"), which requested information regarding the transfer of these pension plans and indicated that the PBGC believed certain of these pension plans were underfunded using the PBGC's actuarial assumptions. These assumptions resulted in a larger liability for accrued benefits than the assumptions used for financial reporting under Statement of Financial Accounting Standards No. 87 ("FASB 87"). The PBGC underfunding is related to the Communication Systems -- West and Aviation Recorders pension plans (the "Subject Plans"). As of September 30, 1998 we calculated the net funding position of these plans and believe them to be: o overfunded by approximately $4.8 million under the assumptions set forth in the Employee Retirement Income Security Act of 1974, as amended; o underfunded by approximately $28.4 million under FASB 87 assumptions; and o underfunded by as much as $70.4 million under PBGC assumptions. L-3, Lockheed Martin and the PBGC entered into certain agreements dated as of April 30, 1997 in which Lockheed Martin gave a commitment to the PBGC with regard to the Subject Plans and L-3 gave certain assurances to Lockheed Martin regarding these plans. In connection with these agreements, Lockheed Martin has the option, upon 45 days prior written notice after the occurrence of certain triggering events, to cause us to transfer sponsorship of the Subject Plans to it if Lockheed Martin has concluded that the liabilities of the Subject Plans would increase unreasonably. We have funded and acted in accordance with the terms of our agreement with Lockheed Martin. As a result of a decrease in the PBGC-mandated discount rate and the resulting increase in the underlying liability, a triggering event has occurred. We have notified Lockheed Martin of this fact. Lockheed Martin has informed us that it has no present intention to exercise its right to cause us to transfer sponsorship of the Subject Plans. If Lockheed Martin did assume sponsorship of the Subject Plans, it would be primarily liable for the costs associated with funding these plans or any costs associated with the termination of the Subject Plans, but we would be required to reimburse Lockheed Martin for these costs. See "Business -- Pension Plans". To date, the impact on pension expense and funding requirements resulting from this arrangement has not been significant. However, should Lockheed Martin assume sponsorship of the Subject Plans or if these were terminated, the impact of any increased pension expenses or funding requirements could be material to us. WE HAVE DISCRETION OVER THE USE OF FUNDS RAISED IN THE OLD NOTES OFFERING We used the net proceeds of the Old Notes Offering to repay a substantial portion of our debt under our bank credit facilities. Our borrowing capacity has been restored and we have wide discretion over the use of any funds subsequently reborrowed under our bank credit facilities. We have borrowed approximately $50.0 million under our bank credit facilities to fund the acquisition of Microdyne. OUR DEBT AGREEMENTS CONTAIN RESTRICTIONS Our debt agreements contain a number of significant provisions that, among other things, restrict our ability to: o sell assets; o incur more indebtedness; o repay certain indebtedness; o pay dividends; o make certain investments or acquisitions; o repurchase or redeem capital stock; o engage in mergers or consolidations; and o engage in certain transactions with subsidiaries and affiliates. 19 These restrictions could hurt our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest. In addition, certain of our debt agreements also require us to maintain compliance with certain financial ratios, including total consolidated earnings before interest, taxes, depreciation and amortization to total consolidated cash interest expense and net debt to total consolidated earnings before interest, taxes, depreciation and amortization, and to limit our capital expenditures. Our ability to comply with these ratios and limits may be affected by events beyond our control. A breach of any of these agreements or our inability to comply with the required financial ratios or limits could result in a default under those debt agreements. In the event of any such default, the lenders under those debt agreements could elect to: o declare all debt outstanding, accrued interest and fees to be due and payable; o require us to apply all of our available cash to repay the debt; and o prevent us from making debt service payments on other debt. If we were unable to repay any such borrowings when due, the lenders under our bank credit facilities could proceed against their collateral, which includes a first priority lien on substantially all of our assets and a first priority security interest in all of our capital stock and the capital stock of our subsidiaries. If the indebtedness under the existing debt agreements were to be accelerated, we cannot assure you that our assets would be sufficient to repay such indebtedness in full. See "Description of Certain Indebtedness". NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS Most but not all of our subsidiaries will guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. Assuming we had completed the Old Notes Offering and the exchange of the Exchange Notes on September 30, 1998, these Notes would have been effectively junior to $9.6 million of indebtedness and other liabilities (including trade payables) of these non-guarantor subsidiaries. The non-guarantor subsidiaries generated less than one percent of each of our historical consolidated revenues, net income and cash from operating activities for the twelve-month period ended September 30, 1998, and held 2% of our consolidated assets as of September 30, 1998. WE ARE REQUIRED TO TAKE CERTAIN ACTIONS UPON A CHANGE OF CONTROL Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding Notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of Notes or that restrictions in our bank credit facilities will not allow such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the indenture governing the Notes. See "Description of the Exchange Notes--Repurchase at the Option of Holders". THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS Certain of the matters discussed concerning our operations, economic performance and financial condition, including in particular, the likelihood of our success in developing and expanding our business and the realization of sales from backlog, include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" and similar expressions are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that their goals will be achieved. 20 OUR YEAR 2000 COMPLIANCE EFFORTS WILL REQUIRE SUBSTANTIAL RESOURCES AND FAILURE BY US OR CERTAIN THIRD PARTIES TO BE YEAR 2000 COMPLIANT POSES CERTAIN RISKS The inability of business processes to continue to function correctly after the beginning of the Year 2000 could have serious adverse effects on companies and entities throughout the world. Because our business units operate autonomously, each business unit has undertaken an effort to identify and mitigate Year 2000 issues in their information systems, products, facilities, suppliers and customers. Our Year 2000 compliance efforts are a composite of our business units' individual Year 2000 compliance efforts coordinated through a company-wide program instituted to oversee, guide and track our business units' individual Year 2000 compliance efforts and to facilitate communications between business units regarding Year 2000 compliance methods. Our business operations are also dependent on the Year 2000 readiness of our customers and infrastructure suppliers in areas such as utilities, communications, transportation and other services. Each business unit has appointed a Year 2000 project manager who oversees a team responsible for performing its Year 2000 efforts in four phases: o first, to define, identify and list possible sources of Year 2000 issues, including internal systems and products and services sold to customers; o second, to analyze and determine the nature and extent of Year 2000 issues and to develop project plans to address those issues; o third, to implement and execute project plans to fix or replace non-compliant items, as appropriate, based upon the anticipated risk and its importance; and o fourth, to commence and complete testing, continue monitoring readiness and prepare necessary contingency plans. The progress of this program is monitored at each business unit with oversight by management. This oversight includes periodic reviews as well as visits to each business unit to monitor progress with the plans. Management plans to have completed the first three phases of the program for a substantial majority of mission-critical systems within L-3 by the end of March 1999 and to have nearly all significant information systems, products and facilities in the final phase of the program by mid-1999. Our total costs associated with our internal Year 2000 compliance efforts are estimated to be $16.2 million, including $7.1 million of costs which may be capitalized with the remaining costs expensed as incurred. We have incurred approximately $6.6 million of such costs to date. Substantially all of the remaining estimated costs are expected to be incurred in 1999. We cannot assure you that our Year 2000 compliance efforts will be successful or that we will not incur substantial costs as a result of failure of our customers or suppliers to be Year 2000 compliant or as a result of failures of installed products produced by us or for any other reason. 21 USE OF PROCEEDS There will be no proceeds to the Company from the exchange of Notes pursuant to the Exchange Offer. The net proceeds to the Company from the Old Notes Offering, approximately $193.7 million, after deducting the bond discount, underwriting discounts and commissions and other estimated offering expenses which aggregated $7.2 million, were used to repay the outstanding borrowings under the Senior Credit Facilities (as defined later in this prospectus) and increase the Company's cash balance. 22 CAPITALIZATION The following table sets forth the capitalization of the Company at September 30, 1998 and as adjusted to give effect to the Old Notes Offering as if it had occurred on September 30, 1998. See "Use of Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial Information".
SEPTEMBER 30, 1998 ---------------------- AS ACTUAL ADJUSTED ---------- --------- (in millions) Cash and cash equivalents ................................ $ 5.7 $ 43.5 ====== ====== Current portion of long-term debt ........................ $ -- $ -- Senior Credit Facilities(1) .............................. 155.0 -- 103/8% Senior Subordinated Notes due May 1, 2007 ......... 225.0 225.0 81/2% Senior Subordinated Notes due May 15, 2008 ......... 180.0 180.0 8% Senior Subordinated Notes due August 1, 2008 .......... -- 200.0 ------ ------ Total debt ............................................. $560.0 $605.0 ------ ------ Shareholder's equity Additional paid-in-capital .............................. $272.5 $272.5 Retained earnings ....................................... 31.0 31.0 Equity adjustments ...................................... (8.7) (8.7) ------ ------ Total shareholders' equity ............................. 294.8 294.8 ------ ------ Total capitalization ................................... $854.8 $899.8 ====== ======
- ---------- (1) Borrowings under the Senior Credit Facilities outstanding as of September 30, 1998 were repaid with the proceeds of the Notes Offering. Availability under the Senior Credit Facilities at any given time is $385.0 million (subject to compliance with covenants), less the amount of outstanding borrowings and outstanding letters of credit (which amounted to $58.0 million at December 31, 1998). PROPOSED EQUITY OFFERING Holdings and certain selling stockholders are currently contemplating the Proposed Equity Offering. It is intended that Holdings would use the net proceeds of the Proposed Equity Offering to repay the existing indebtedness under the Senior Credit Facilities and for general corporate purposes, including potential acquisitions. On January 5, 1999, Holdings filed a Registration Statement on Form S-1 (File No. 333--70125) with the SEC in connection with the Proposed Equity Offering. 23 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma statement of operations data gives effect to the following transactions (collectively, the "Transactions") as if they had occurred on January 1, 1997: (i) the Old Notes Offering; (ii) the Company's purchase of all of the outstanding stock of SPD and the acquisitions by the Company of the assets of the Ocean Systems business ("Ocean Systems") of Allied Signal, Inc., the assets of ILEX Systems ("ILEX") and the assets of the Satellite Transmission Systems division ("STS") of California Microwave, Inc. (collectively, the "1998 Acquisitions"); (iii) the L-3 Acquisition; and (iv) the contribution by Holdings to the Company of the net proceeds from its common stock initial public offering which amounted to $139.5 million and the sale by the Company of $180.0 million of 81/2% Senior Subordinated Notes due May 15, 2008 whose net proceeds amounted to $173.8 million after debt issuance costs, and the amendment of the Company's Senior Credit Facilities to increase the available borrowings under the bank credit facilities to $385.0 million (collectively, the "Financing Transactions"). The pro forma balance sheet data gives effect to the Old Notes Offering as if it had occurred on September 30, 1998. The pro forma financial information is based on (i) the unaudited condensed consolidated financial statements of the Company as of September 30, 1998 and for the nine months then ended and the six months ended September 30, 1997, (ii) the consolidated statement of operations of the Company for the nine months ended December 31, 1997, (iii) the combined statement of operations of the Predecessor Company for the three months ended March 31, 1997 and (iv) the statements of operations of the 1998 Acquisitions for the year ended December 31, 1997 and the nine months ended September 30, 1997 and for the periods from January 1, 1998 to the respective dates of acquisition, using the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the unaudited pro forma condensed consolidated financial statements. The pro forma results do not give effect to the Proposed Equity Offering or to any of the Company's other acquisitions, including the acquisition of Microdyne. The pro forma adjustments are based upon preliminary estimates of purchase prices and the related purchase price allocations for the 1998 Acquisitions. Actual adjustments will be based on final appraisals and other analyses of fair values which are in process. Management does not expect that differences between the preliminary and final allocations will have a material impact on the Company's pro forma financial position or results of operations. The pro forma statement of operations does not reflect any cost savings that management of the Company believes would have resulted had the Transactions occurred on January 1, 1997. The pro forma financial information should be read in conjunction with (i) the unaudited condensed (combined) consolidated financial statements of the Company as of September 30, 1998, for the nine months ended September 30, 1998 and the six months ended September 30, 1997, (ii) the audited consolidated financial statements of SPD for the year ended December 31, 1997, (iii) the unaudited condensed consolidated statements of operations of SPD for the six months ended June 30, 1998, (iv) the audited consolidated (combined) financial statements of the Company and the Predecessor Company as of December 31, 1997 and for the nine months ended December 31, 1997 and the three months ended March 31, 1997, (v) the audited financial statements of STS for the year ended June 30, 1997, (vi) the unaudited condensed financial statements of STS as of December 31, 1997 and for the six months ended December 31, 1997 and 1996, (vii) the audited consolidated financial statements of ILEX for the year ended December 31, 1997, and (viii) the audited combined financial statements of Ocean Systems for the year ended December 31, 1997 all of which are included elsewhere herein in this prospectus. The unaudited pro forma condensed financial information may not be indicative of the financial position and results of operations of the Company that actually would have occurred had the Transactions been in effect on the dates indicated or the financial position and results of operations that may be obtained in the future. 24 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 ------------------------------------------- PRO FORMA COMPANY ADJUSTMENTS(9) PRO FORMA ----------- ---------------- ---------- (in millions) ASSETS Currents assets: Cash and cash equivalents ................. $ 5.7 $37.8 $ 43.5 Contracts in process ...................... 345.8 -- 345.8 Other current assets ...................... 24.9 -- 24.9 -------- ----- -------- Total current assets .................... 376.4 37.8 414.2 -------- ----- -------- Property, plant and equipment, net ......... 117.2 -- 117.2 Intangibles, primarily cost in excess of net assets acquired, net of amortization .............................. 608.4 -- 608.4 Other assets ............................... 94.3 7.2 101.5 -------- ----- -------- Total assets ............................. $1,196.3 $45.0 $1,241.3 ======== ===== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ......... $ -- $ -- $ -- Accounts payable and accrued expenses ................................ 128.2 -- 128.2 Customer advances and amounts in excess of costs incurred ................ 58.6 -- 58.6 ----- Other current liabilities ................. 48.6 -- 48.6 -------- ----- -------- Total current liabilities ............... 235.4 -- 235.4 -------- ----- -------- Pension, postretirement benefits and other liabilities ....................... 106.1 -- 106.1 Long-term debt ............................ 560.0 45.0 605.0 Shareholder's equity ...................... 294.8 294.8 -------- -------- Total liabilities and shareholders' equity ................................. $1,196.3 $45.0 $1,241.3 ======== ===== ========
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 25 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998
1998 ACQUISITIONS 1998 PRO FORMA COMPANY ACQUISITIONS(2)(3) ADJUSTMENTS(4) --------- -------------------- ---------------- (in millions) STATEMENT OF OPERATIONS: Sales ................................ $708.3 $126.2 $ -- Costs and expenses ................... 644.7 117.6 2.2 ------ ------ --------- Operating income (loss) ............ 63.6 8.6 (2.2) Interest and investment income (expense). .......................... 2.3 -- -- Interest expense ..................... 35.2 5.1 -- ------ ------ --------- Income (loss) before income taxes ............................ 30.7 3.5 (2.2) Income tax expense (benefit) ......... 12.0 1.6 (0.9)(10) ------ ------ --------- Net income (loss) .................. $ 18.7 $ 1.9 $ (1.3) ====== ====== ========= FINANCING OLD NOTES TRANSACTIONS(6)(7) OFFERING(8) PRO FORMA -------------------- ----------------- ---------- (in millions) STATEMENT OF OPERATIONS: Sales ............................... $ -- $ -- . $834.5 Costs and expenses .................. -- -- . 764.5 --------- --------- ------ Operating income (loss) ........... -- -- . 70.0 Interest and investment income (expense). ......................... (2.3) -- . -- Interest expense .................... 0.8 3.7 . 44.8 --------- --------- ------ Income (loss) before income taxes ........................... (3.1) (3.7) . 25.2 Income tax expense (benefit) ........ (1.2)(10) (1.4)(10) . 10.1 --------- --------- ------ Net income (loss) ................. $ (1.9) $ (2.3) . $ 15.1 ========= ========= ======
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997
PREDECESSOR COMPANY COMPANY THREE SIX MONTHS MONTHS PRO FORMA ENDED ENDED ADJUSTMENTS PRO FORMA SEPTEMBER 31, MARCH 31, L-3 L-3 1997 1997(1) ACQUISITION(1) ACQUISITION --------------- ------------ ---------------- ------------- (in millions) STATEMENT OF OPERATIONS: Sales ......................... $342.8 $158.9 $ (1.8) $499.9 Costs and expenses ............ 314.2 151.0 (7.6) 457.6 ------ ------ ------- ------ Operating income (loss)...... 28.6 7.9 5.8 42.3 Interest and investment income (expense) ............. 0.5 -- -- 0.5 Interest expense .............. 19.7 8.4 1.5 29.6 ------ ------ ------- ------ Income (loss) before income taxes ............... 9.4 (0.5) 4.3 13.2 Income tax expense (benefit)... 5.4 (0.2) -- 5.2 ------ ------ ------- ------ Net income (loss) ........... $ 4.0 $ (0.3) $ 4.3 $ 8.0 ====== ====== ======= ====== 1998 ACQUISITIONS 1998 PRO FORMA FINANCING OLD NOTES PRO ACQUISITIONS(2)(3)(5) ADJUSTMENTS(4) TRANSACTIONS(6)(7) OFFERING(8) FORMA ----------------------- ---------------- -------------------- ----------------- --------- (in millions) STATEMENT OF OPERATIONS: Sales ......................... $ 258.8 $ -- $ -- $ -- $758.7 Costs and expenses ............ 248.5 3.5 -- -- 709.6 ------- --------- --------- --------- ------ Operating income (loss)...... 10.3 (3.5) -- -- 49.1 Interest and investment income (expense) ............. 0.1 -- (0.6) -- -- Interest expense .............. 3.0 -- 8.5 3.7 44.8 ------- --------- --------- --------- ------ Income (loss) before income taxes ............... 7.4 (3.5) (9.1) (3.7) 4.3 Income tax expense (benefit)... 0.5(10) (1.4)(10) (3.5)(10) (1.4)(10) (0.6) ---------- --------- --------- --------- ------ Net income (loss) ........... $ 6.9 $ (2.1) $ (5.6) $ (2.3) $ 4.9 ========== ========= ========= ========= ======
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 27 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
PREDECESSOR COMPANY COMPANY THREE NINE MONTHS MONTHS PRO FORMA ENDED ENDED ADJUSTMENTS PRO FORMA DECEMBER 31, MARCH 31, L-3 L-3 1997 1997(1) ACQUISITION(1) ACQUISITION -------------- ------------ ---------------- ------------- (in millions) STATEMENT OF OPERATIONS: Sales ......................... $546.5 $158.9 $ (1.8) $703.6 Costs and expenses ............ 495.0 151.0 (7.6) 638.4 ------ ------ ------- ------ Operating income (loss)...... 51.5 7.9 5.8 65.2 Interest and investment income (expense) ............. 1.4 -- -- 1.4 Interest expense .............. 29.9 8.4 1.5 39.8 ------ ------ ------- ------ Income (loss) before income taxes ............... 23.0 (0.5) 4.3 26.8 Income tax expense (benefit)... 10.7 (0.2) -- 10.5 ------ ------ ------- ------ Net income (loss) ........... $ 12.3 $ (0.3) $ 4.3 $ 16.3 ====== ====== ======= ====== 1998 ACQUISITIONS 1998 PRO FORMA FINANCING OLD NOTES PRO ACQUISITIONS(2)(3)(5) ADJUSTMENTS(4) TRANSACTIONS(6)(7) OFFERING(8) FORMA ----------------------- ---------------- -------------------- ----------------- ----------- (in millions) STATEMENT OF OPERATIONS: Sales ......................... $360.3 $ -- $ -- $ -- $1,063.9 Costs and expenses ............ 338.5 5.0 (4) -- -- 981.9 ------ --------- --------- --------- -------- Operating income (loss)...... 21.8 (5.0) -- -- 82.0 Interest and investment income (expense) ............. (0.1) -- (1.3) -- -- Interest expense .............. 5.4 -- 9.7 4.9 59.8 ------ --------- --------- --------- -------- Income (loss) before income taxes ............... 16.3 (5.0) (11.0) (4.9) 22.2 Income tax expense (benefit)... 3.4 (1.9)(10) (4.3)(10) (1.9)(10) 5.8 ------ --------- --------- --------- -------- Net income (loss) ........... $ 12.9 $ (3.1) $ (6.7) $ (3.0) $ 16.4 ====== ========= ========= ========= ========
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 28 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following facts and assumptions were used in determining the pro forma effect of the Transactions. 1. The Company's historical financial statements reflect the results of operations of the Company since the effective date of the L-3 Acquisition, April 1, 1997, and the Predecessor Company's historical financial statements reflect the results of operations of the Predecessor Company for the three months ended March 31, 1997. The adjustments made to the pro forma statement of operations for the six months ended September 30, 1997 and for the year ended December 31, 1997, relating to the L-3 Acquisition are: (a) the elimination of $1.8 million of sales and $1.8 million of costs and expenses related to the Hycor business which was acquired as part of the L-3 Acquisition and which has been accounted for as "net assets of acquired business held for sale"; (b) a reduction to costs and expenses of $0.8 million to record amortization expenses on the excess of the L-3 Acquisition purchase price over net assets acquired of $303.2 million over 40 years, net of the reversal of amortization expenses of intangibles included in the Predecessor Company historical financial statements; (c) a reduction to costs and expenses of $0.6 million to record estimated pension cost on a separate company basis net of the reversal of the allocated pension cost included in the Predecessor Company historical financial statements; (d) a net increase to interest expense of $1.5 million, comprised of a $0.2 million allocated interest expense reduction related to the Hycor business and a net $1.7 million increase, reflecting pro forma interest expense of $10.2 million based on actual borrowings of $400.0 million and the effective cost of borrowing rate incurred by the Company to finance the L-3 Acquisition less interest expense of approximately $8.5 million included in the historical financial statements of the Predecessor Company; and (e) the reversal of a $4.4 million noncash compensation charge related to the initial capitalization of the Company included in the Company's historical results of operations effective April 1, 1997 which was nonrecurring in nature. A statutory (federal, state and foreign) tax rate of 39.0% was assumed on these pro forma adjustments except for adjustment (e), where no tax effect has been reflected. 2. On August 13, 1998, the Company acquired 100% of the stock of SPD for $230.0 million of cash, subject to adjustment based on closing adjusted net assets, as defined. For purposes of the pro forma financial information an estimated purchase price of $241.1 million, including expenses (net of cash acquired of $0.2 million) was assumed reflecting the contract price of $230.0 million and an estimated purchase price adjustment of $11.0 million based on the estimated closing adjusted net assets of SPD. On February 5, 1998, the Company purchased the assets of STS for $27.0 million of cash subject to adjustment based on final closing net assets. For purposes of the pro forma financial information an estimated purchase price of $26.2 million including expenses (net of cash acquired of $0.5 million) was assumed reflecting the contract price of $27.0 million and an estimated purchase price reduction of $1.0 million based on the estimated closing net assets of STS. On March 4, 1998, the Company purchased substantially all the assets of ILEX for $51.9 million of cash, subject to adjustment based on closing net assets plus additional consideration contingent upon post-acquisition performance of ILEX. For purposes of the pro forma financial information an estimated purchase price of $51.5 million, including expenses (net of cash acquired of $2.4 million) was assumed reflecting the contract price of $51.9 million and a purchase price adjustment of $1.2 million based on final closing net assets, On March 30, 1998, the Company purchased the assets of Ocean Systems for $68.6 million of cash including expenses. The aggregate purchase prices including expenses, net of cash acquired, for the 1998 Acquisitions of $387.4 million were financed with $142.3 million of the net proceeds from the Financing Transactions (see Note 6 below), $155.0 million of borrowings under the Senior Credit Facilities and $90.1 million of cash from operations. The 1998 Acquisitions are all included in the Company's historical balance sheet as of September 30, 1998. 29 3. The pro forma statements of operations include the following historical financial data for the 1998 Acquisitions: The pro forma statement of operations for the nine months ended September 30, 1998 includes the following historical data for the 1998 Acquisitions.
OCEAN 1998 SPD(a) STS(b) ILEX(b) SYSTEMS(c) ACQUISITIONS -------- ---------- --------- ------------ ------------- (in millions) Sales ............................................ $105.5 $ 2.3 $4.5 $13.9 $126.2 Costs and expenses ............................... 94.4 5.9 4.4 12.9 117.6 ------ ------ ---- ----- ------ Operating income (loss) ......................... 11.1 (3.6) 0.1 1.0 8.6 Interest and investment income (expense) ......... -- -- -- -- -- Interest expense ................................. 5.0 -- -- 0.1 5.1 ------ ------ ---- ----- ------ Income (loss) before income taxes . ............. 6.1 (3.6) 0.1 0.9 3.5 Income tax (benefit) provision . ................. 2.2 (1.0) -- 0.4 1.6 ------ ------ ---- ----- ------ Net income (loss) ............................... $ 3.9 $ (2.6) $0.1 $ 0.5 $ 1.9 ====== ====== ==== ===== ======
- ---------- (a) Represents historical results of operations for the six-month period ended June 30, 1998. These results of operations exclude a pretax nonrecurring noncash compensation charge of approximately $22.1 million related to the acceleration of the vesting date for all outstanding stock options of SPD caused by the Company's acquisition of SPD. (b) Represents historical results of operations for the one-month period ended January 31, 1998. (c) Represents historical results of operations for the three-month period ended March 31, 1998. The pro forma statement of operations for the nine months ended September 30, 1997 includes the following historical data for the 1998 Acquisitions.
OCEAN 1998 SPD(a) STS ILEX SYSTEMS ACQUISITIONS -------- ---------- -------- --------- ------------- (in millions) Sales ............................................ $125.2 $ 39.9 $46.6 $ 47.1 $258.8 Costs and expenses ............................... 106.8 45.0 40.6 56.1 248.5 ------ ------ ----- ------ ------ Operating income (loss) ......................... 18.4 (5.1) 6.0 (9.0) 10.3 Interest and investment income (expense) ......... -- -- -- 0.1 0.1 Interest expense ................................. 2.7 -- -- 0.3 3.0 ------ ------ ----- ------ ------ Income (loss) before income taxes ............... 15.7 (5.1) 6.0 (9.2) 7.4 Income tax (benefit) provision . ................. 4.9 (1.4) 0.6 (3.6) 0.5 ------ ------ ----- ------ ------ Net income (loss) ............................... $ 10.8 $ (3.7) $ 5.4 $ (5.6) $ 6.9 ====== ====== ===== ====== ======
- ---------- (a) Represents the historical results of operations of SPD for the nine months ended September 30, 1997 plus the historical results of operations of Power Paragon Inc. ("PPI") for the six months ended June 30, 1997. See Note 5. 30 The pro forma statement of operations for the year ended December 31, 1997 includes the following historical data for the 1998 Acquisitions. Such data have been derived from each entity's historical financial statements included elsewhere herein.
OCEAN 1998 SPD(a) STS(b) ILEX SYSTEMS ACQUISITIONS -------- ---------- -------- --------- ------------- (in millions) Sales ............................................ $169.9 $ 53.9 $ 63.5 $ 73.0 $360.3 Costs and expenses ............................... 142.2 61.7 55.9 78.7 338.5 ------ ------ ------ ------ ------ Operating income (loss) ........................ 27.7 (7.8) 7.6 (5.7) 21.8 Interest and investment income (expense) ......... -- -- (0.2) 0.1 (0.1) Interest expense ................................. 4.9 -- -- 0.5 5.4 ------ ------ ------ ------ ------ Income (loss) before income taxes .............. 22.8 (7.8) 7.4 (6.1) 16.3 Income tax (benefit) provision . ................. 7.4 (2.1) 0.5 (2.4) 3.4 ------ ------ ------ ------ ------ Net income (loss) .............................. $ 15.4 $ (5.7) $ 6.9 $ (3.7) $ 12.9 ====== ====== ====== ====== ======
- ---------- (a) Represents the historical results of operations of SPD for the year ended December 31, 1997 plus the historical results of operations of PPI for the six months ended June 30, 1997. See Note 5. (b) Represents the historical results of operations for the fiscal year ended June 30, 1997 plus the six-month period ended December 31, 1997 minus the six-month period ended December 31, 1996. 4. The aggregate estimated excess of purchase price, including expenses, over the estimated fair value of net assets acquired related to the 1998 Acquisitions of $302.7 million is comprised of $205.1 million, $38.6 million and $59.0 million, respectively, for SPD, ILEX and Ocean Systems, and is being amortized over 40 years resulting in a charge of $7.6 million per annum. Based upon preliminary estimates of fair value, the acquisition of STS resulted in no goodwill being recorded since the purchase price was equal to the fair value of net assets acquired. The preliminary purchase price allocation for SPD also includes an adjustment of $5.0 million to intangible assets to reflect the estimated value of acquired identifiable intangibles which are being amortized over 15 years resulting in a change of $0.3 million per annum. Adjustments to costs and expenses in the pro forma statements of operations relating to the 1998 Acquisitions were comprised of the following:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED --------------------- DECEMBER 31, 1998 1997 1997 --------- --------- ------------- (in millions) (a) Amortization expense of estimated intangibles, primarily purchase cost in excess of net assets acquired ............................................. $ 3.4 $ 5.9 $ 7.9 (b) Elimination of goodwill amortization expense included in the historical financial statements for the 1998 Acquisitions ......................................... (1.4) (3.0) (3.7) (c) Estimated rent expense on the Sylmar facility of Ocean Systems which was not acquired by L-3 Communications ....................................... 0.3 0.9 1.1 (d) Elimination of depreciation expense on buildings and improvements on the Sylmar facility of Ocean Systems which was not acquired by L-3 Communications ......... (0.1) (0.3) (0.3) ------ ------ ------ Total increase to costs and expenses ................. $ 2.2 $ 3.5 $ 5.0 ====== ====== ======
The preliminary purchase price allocations for SPD and Ocean Systems include estimated increases to contracts in process of $2.0 million and $3.4 million, respectively, related to valuing certain work-in-process and finished goods inventory at their fair values. In addition, the preliminary purchase price allocation for Ocean Systems includes an estimated $5.1 million adjustment relating to a reduction of contracts in process resulting from valuing acquired contracts in process at contract price, less the estimated cost to complete and an allowance for normal profit margin on the Company's effort to complete such contracts. The non-recurring charges to income resulting from the above mentioned contracts in process adjustment are not material to the pro forma statement of operations. The effects on the balance sheet of these adjustments are included in the historical balance sheet of the Company as of September 30, 1998. 31 5. On June 30, 1997, SPD acquired all of the outstanding stock of PPI and subsidiaries. The PPI acquisition was financed principally by SPD bank borrowings. SPD accounted for the PPI acquisition as a purchase and the results of operations of PPI are included in the consolidated SPD historical financial statements from the date of acquisition. The adjustments related to SPD's financing of its PPI acquisition and the related purchase price allocation are included in the pro forma adjustments discussed in Notes 4 and 6. The pro forma statement of operations for the nine months ended September 30, 1997 includes the following data for SPD and PPI.
PPI SPD SIX MONTHS NINE MONTHS SPD ENDED ENDED HISTORICAL JUNE 30, 1997 SEPTEMBER 30, 1997 ------------ --------------- ------------------- (in millions) Sales ............................................ $85.3 $39.9 $125.2 Costs and expenses ............................... 71.5 35.3 106.8 ----- ----- ------ Operating income. ............................... 13.8 4.6 18.4 Interest and investment income (expense) ......... -- -- -- Interest expense ................................. 2.6 0.1 2.7 ----- ----- ------ Income before income taxes . .................... 11.2 4.5 15.7 Income tax provision . ........................... 3.9 1.0 4.9 ----- ----- ------ Net income ...................................... $ 7.3 $ 3.5 $ 10.8 ===== ===== ======
The pro forma statement of operations for the year ended December 31, 1997 includes the following data for SPD and PPI.
PPI SIX MONTHS SPD SPD ENDED YEAR ENDED HISTORICAL JUNE 30, 1997 DECEMBER 31, 1997 ------------ --------------- ------------------ (in millions) Sales ............................................ $130.0 $39.9 $169.9 Costs and expenses ............................... 106.9 35.3 142.2 ------ ----- ------ Operating income. ............................... 23.1 4.6 27.7 Interest and investment income (expense) ......... -- -- -- Interest expense ................................. 4.8 0.1 4.9 ------ ----- ------ Income before income taxes . .................... 18.3 4.5 22.8 Income tax provision . ........................... 6.4 1.0 7.4 ------ ----- ------ Net income ...................................... $ 11.9 $ 3.5 $ 15.4 ====== ===== ======
6. The Financing Transactions included (i) the contribution by Holdings to the Company of the proceeds from its sale of 6.9 million shares of common stock in the IPO for $22 per share or $139.5 million, after underwriting discounts and commissions and expenses of $12.3 million, (ii) the sale by the Company of $180.0 million aggregate principal amount of 8 1/2% Senior Subordinated Notes due May 15, 2008 (the "May 1998 Notes"), whose proceeds amounted to $173.8 million after debt issuance costs of $6.2 million and (iii) the amendment of the Company's Senior Credit Facilities to increase the borrowings available thereunder to $385.0 million from $200.0 million. The net proceeds from the Financing Transactions of $313.3 million have been used to (i) prepay all $171.0 million of borrowings outstanding under the term loan facilities and (ii) finance $142.3 million of the aggregate purchase prices of the 1998 Acquisitions (see Note 2 above). The Holdings IPO and the sale of the May 1998 Notes were completed on May 22, 1998 and the amendment to the Senior Credit Facilities was completed on August 19, 1998. The effect of the Financing Transactions is included in the Company's historical balance sheet as of September 30, 1998. 7. Adjustments to the pro forma statements of operations for the Financing Transactions include the elimination of historical interest income of $2.3 million, $0.6 million and $1.3 million for the nine months ended September 30, 1998 and 1997 and the year ended December 31, 1997, respectively, to reflect the use of cash on hand to partially finance the aggregate purchase price of the 1998 Acquisitions. 32 Assuming the Financing Transactions were completed on January 1, 1997, pro forma interest expense for the nine months ended September 30, 1998 and 1997 and the year ended December 31, 1997 would have increased by $0.8 million, $8.5 million and $9.7 million, respectively. The details of interest expense, after the Financing Transactions follow:
NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1997 ------------------- ------------------- ------------- (in millions) Interest on the 1997 Notes (as defined later in this prospectus) (10.375% on $225.0 million)........ $17.5 $17.5 $23.3 Interest on the May 1998 Notes (8.50% on $180.0 million)..................................... 11.5 11.5 15.3 Interest on borrowings under Senior Credit Facilities (8.0% on $155.0 million)................. 9.3 9.3 12.4 Commitment fee of 0.4% on unused portion of Senior Credit Facilities (0.4% on $203.3 million)..................................... 0.6 0.6 0.9 Amortization of deferred debt issuance costs ........ 2.2 2.2 3.0 ----- ----- ----- Total pro forma interest expense .................... $41.1 $41.1 $54.9 ===== ===== =====
8. Assuming the Old Notes Offering was completed on January 1, 1997, pro forma interest expense after the Financing Transactions for the nine months ended September 30, 1998 and 1997 and the year ended December 31, 1997 would have increased by $3.7 million, $3.7 million and $4.9 million, respectively. The details of pro forma interest expense, after the Old Notes Offering follow:
NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1997 ------------------- ------------------- ------------- (in millions) Interest on the 1997 Notes (10.375% on $225.0 million)..................................... $17.5 $17.5 $23.3 Interest on the May 1998 Notes (8.50% on $180.0 million)..................................... 11.5 11.5 15.3 Interest on the Notes (8.0% on $200.0 million)..................................... 12.0 12.0 16.0 Commitment fee of 0.4% on unused portion of Senior Credit Facilities (0.4% on $358.3 million)..................................... 1.0 1.0 1.5 Amortization of deferred debt issuance costs ........ 2.8 2.8 3.7 ----- ----- ----- Total pro forma interest expense .................... $44.8 $44.8 $59.8 ===== ===== =====
The pro forma statements of operations do not reflect interest income on the $43.5 million pro forma cash balance at September 30, 1998. 9. The pro forma adjustments for the Old Notes Offering to the balance sheet as of September 30, 1998, include (i) a net increase to long-term debt of $45.0 million reflecting the proceeds from the sale of the Notes of $200.0 million in the Old Notes Offering and the repayment of $155.0 million of borrowings outstanding under the Senior Credit Facilities with the net proceeds of the Old Notes, (ii) an increase of $7.2 million to other assets representing the bond discount of $0.6 million and underwriting discounts and commissions and other estimated expenses associated with the Old Notes Offering of $6.6 million which will be deferred and amortized to interest expense over the term of the Notes and (iii) an increase to cash and cash equivalents of $37.8 million representing the remaining net proceeds after the repayment of the borrowings outstanding under the Senior Credit Facilities and the payment of the bond discount, underwriting discounts and commissions and other estimated expenses associated with the Old Notes Offering. 10. The pro forma adjustments were tax-effected, as appropriate, using a statutory (federal, state and foreign) tax rate of 39.0%. 33 SELECTED FINANCIAL INFORMATION The selected unaudited pro forma data as of September 30, 1998, for the nine months ended September 30, 1998 and 1997 and for the year ended December 31, 1997 have been derived from, and should be read in conjunction with, the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed statement of operations and other data reflect the L-3 Acquisition, the 1998 Acquisitions, the Financing Transactions and the Old Notes Offering as if such transactions had occurred on January 1, 1997. The unaudited pro forma condensed balance sheet data reflect the Old Notes Offering as if it had occurred on September 30, 1998. The selected consolidated (combined) financial data as of December 31, 1997, 1996 and 1995 and for the nine months ended December 31, 1997, the three months ended March 31, 1997 and the years ended December 31, 1996, 1995 and 1994 have been derived from the audited financial statements for the respective periods. The selected historical consolidated (combined) financial data as of and for the periods ended September 30, 1998, December 31, 1993 and March 31, 1993 have been derived from the unaudited financial statements of the Company (Predecessor Company). In the opinion of management, such unaudited financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and financial position as of the date of and for the period presented. The results of operations for the nine months ended September 30, 1998 may not be indicative of results for the full year. The unaudited pro forma condensed financial information may not be indicative of the financial position and results of operations of the Company that actually would have occurred had the Transactions been in effect on the dates indicated or the financial position and results of operations that may be obtained in the future. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated (Combined) Financial Statements of the Company (Predecessor Company) and the Loral Acquired Businesses and the unaudited pro forma condensed consolidated financial information included elsewhere herein. Prior to April 1, 1996, the Predecessor Company was only comprised of Communication Systems -- East.
COMPANY ------------------------------------------------------------------- PRO FORMA NINE NINE NINE MONTHS ENDED PRO FORMA MONTHS MONTHS SEPTEMBER 30, YEAR ENDED ENDED ENDED ---------------------- DECEMBER 31, SEPTEMBER 30, DEC. 31, 1998 1997 1997 1998(1) 1997(2) ------------ --------- -------------- --------------- ------------- (in millions) STATEMENT OF OPERATIONS DATA: Sales ........................... $ 834.5 $758.7 $ 1,063.9 $ 708.3 $ 546.5 Operating income ................ 70.0 49.1 82.0 63.6 51.5(6) Interest expense, net(7) . ..... 44.8 44.8 59.8 32.9 28.5 Provision (benefit) for income taxes(7) ................ 10.1 (0.6) 5.8 12.0 10.7 Net income (loss) ............... 15.1 4.9 16.4 18.7 12.3(6) BALANCE SHEET DATA (AT PERIOD END): Working capital ................. $ 178.8 $ 141.0 $ 131.8 Total assets .................... 1,241.3 1,196.3 703.4 Long-term debt .................. 605.0 560.0 392.0 Invested equity ................. Shareholders' equity ............ 294.8 294.8 132.7 OTHER DATA: EBITDA(8) ....................... $ 102.5 $ 80.4 $ 126.3 $ 90.3 $ 78.1 Net cash from (used in) operating activities ..................... 48.2 73.9 Net cash (used in) investing activities ........... (417.8) (457.8) Net cash from (used in) financing activities ..................... 297.9 461.4 Depreciation expense ............ 17.7 17.7 24.0 15.6 13.3 Amortization expense ............ 14.8 13.6 20.3 11.1 8.9 Capital expenditures ............ 14.8 15.6 23.0 12.7 11.9 Ratio of: Earnings to fixed charges(9) .................... 1.5x 1.1x 1.3x 1.7x 1.7x EBITDA to cash interest expense(11)(12) ............... 2.6x 2.3x Net debt to EBITDA(12)(13) ................ 3.8x 4.4x PREDECESSOR COMPANY -------------------------------------------------------------------- THREE NINE THREE MONTHS MONTHS MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED ENDED MARCH 31, ------------------------------- DEC.31, MARCH 31, 1997 1996(3) 1995(4) 1994(4) 1993(4) 1993(5) ------------- ----------- --------- --------- ----------- ---------- (in millions) STATEMENT OF OPERATIONS DATA: Sales ........................... $158.9 $ 543.1 $166.8 $ 218.9 $ 200.0 $67.8 Operating income ................ 7.9 43.7 4.7 8.4 12.4 5.1 Interest expense, net(7) . ..... 8.4 24.2 4.5 5.5 4.1 Provision (benefit) for income taxes(7) ................ (0.2) 7.8 1.2 2.3 3.8 2.0 Net income (loss) ............... (0.3) 11.7 (1.0) 0.6 4.5 3.1 BALANCE SHEET DATA (AT PERIOD END): Working capital ................. $ 98.8 $ 21.1 $ 19.3 $ 24.7 $22.8 Total assets .................... 593.3 228.5 233.3 241.7 93.5 Long-term debt .................. Invested equity ................. 473.6 194.7 199.5 202.0 59.9 Shareholders' equity ............ OTHER DATA: EBITDA(8) ....................... $15.7 $ 71.8 $ 16.3 $ 19.9 $ 23.4 $ 7.0 Net cash from (used in) operating activities ..................... (16.3) 30.7 9.3 21.8 Net cash (used in) investing activities ........... (4.3) (298.0) (5.5) (3.7) Net cash from (used in) financing activities ..................... 20.6 267.3 (3.8) (18.1) Depreciation expense ............ 4.5 14.9 5.5 5.4 6.1 1.8 Amortization expense ............ 3.3 13.2 6.1 6.1 4.9 0.1 Capital expenditures ............ 4.3 13.5 5.5 3.7 2.6 0.8 Ratio of: Earnings to fixed charges(9) .................... --(10) 1.7x 1.0x 1.4x 2.5x -- EBITDA to cash interest expense(11)(12) ............... Net debt to EBITDA(12)(13) ................
(Footnotes on following page) 34 - ---------- (1) Includes the results of operations of the 1998 Acquisitions from their respective effective dates of acquisition. (2) Reflects the L-3 Acquisition effective April 1, 1997. (3) Reflects ownership of Loral's Communication Systems -- West and Specialized Communication Products businesses commencing April 1, 1996. (4) Reflects ownership of Communication Systems -- East by Lockheed Martin effective April 1, 1993. (5) Reflects ownership of Communications Systems -- East by GE Aerospace. The amounts shown herein include only those amounts as reflected in the financial records of Communications Systems -- East. (6) Includes a nonrecurring, noncash compensation charge of $4.4 million related to the initial capitalization of the Company, effective April 1, 1997. (7) For periods prior to April 1, 1997, interest expense and income tax (benefit) provision were allocated from Lockheed Martin. (8) EBITDA is defined as operating income plus depreciation expense and amortization expense (excluding the amortization of deferred debt issuance costs) and the nonrecurring, noncash compensation charge of $4.4 million recorded on April 1, 1997. EBITDA is not a substitute for operating income, net income and cash flow from operating activities as determined in accordance with generally accepted accounting principles as a measure of profitability or liquidity. EBITDA is presented as additional information because management believes it to be a useful indicator of the Company's ability to meet debt service and capital expenditure requirements. (9) For purposes of this computation, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest on indebtedness plus the amortization of deferred debt issuance costs and that portion of lease rental expense representative of the interest element. (10) Earnings were insufficient to cover fixed charges by $0.5 million for the three months ended March 31, 1997. (11) For purposes of this computation, cash interest expense consists of pro forma interest expense excluding amortization of deferred debt issuance costs. (12) The ratios at September 30, 1998 are based on the results of operations for the twelve-month period ended September, 1998. The pro forma ratios at September 30, 1998 have been calculated by adding the pro forma EBITDA and pro forma cash interest expense for the nine months ended September 30, 1998 and the three months ended December 31, 1997. For purposes of computing pro forma EBITDA for the three months ended December 31, 1997, pro forma operating income, depreciation expense and amortization expense would have been $32.9 million, $6.3 million and $6.7 million, respectively. Pro forma cash interest expense for the twelve-month period ended September 30, 1998 and the year ended December 31, 1997 both would have been $56.1 million. (13) Net debt is defined as long-term debt plus current portion of long-term debt less cash and cash equivalents. 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL The Company is a leading merchant supplier of sophisticated secure communication systems and specialized communication products including secure, high data rate communication systems, microwave components, avionics and ocean systems, telemetry, instrumentation and space products. These systems and products are critical elements of virtually all major communication, command and control, intelligence gathering and space systems. The Company's systems and specialized products are used to connect a variety of airborne, space, ground-and sea-based communication systems and are incorporated into the transmission, processing, recording, monitoring and dissemination functions of these communication systems. The Company's customers include the United States department of defense (the "DoD"), selected United States government (the "Government") intelligence agencies, major aerospace/defense prime contractors, foreign governments and commercial customers. All domestic government contracts and subcontracts of the Company are subject to audit and various cost controls, and include standard provisions for termination for the convenience of the Government. Multi-year Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the relevant foreign government. The defense industry has undergone significant changes precipitated by ongoing federal budget pressures and new roles and missions to reflect changing strategic and tactical threats. Since the mid-1980's, the overall U.S. defense budget has declined in real dollars. In response, the DoD has focused its resources on enhancing its military readiness, joint operations and the value-added capability of digital command and control communications by incorporating advanced electronics to improve the performance, reduce operating costs and extend the life expectancy of its existing and future platforms. The emphasis on system interoperability, force multipliers and providing battlefield commanders with real-time data is increasing the electronics content of nearly all of the major military procurement and research programs. As a result, the DoD's budget for communications and defense electronics is expected to grow. ACQUISITION HISTORY/RECENT DEVELOPMENTS The Company was formed to acquire substantially all of the assets of (i) nine business units previously purchased by Lockheed Martin as part of its acquisition of Loral in April 1996 (the "Loral Acquired Businesses") which include eight business units of Loral ("Specialized Communications Products") and one business unit purchased by Loral as part of its acquisition of the Defense Systems business of Unisys Corporation ("Unisys") in May 1995 ("Communications System -- West"), and (ii) one business unit purchased by Lockheed Martin as part of its acquisition of the aerospace business of General Electric Company in April 1993 ("Communication Systems -- East"). Collectively, the Loral Acquired Businesses and Communications Systems -- East comprise the "Predecessor Company" or "Businesses". During the first quarter of 1998, the Company purchased the assets of Ocean Systems for $67.5 million of cash, the assets of ILEX for $51.9 million of cash, subject to adjustment based on closing net assets and additional consideration based on post-acquisition performance of ILEX, and the assets of STS for $27.0 million in cash, subject to adjustment based upon closing net assets. SPD Technologies, Inc. On August 13, 1998, the Company acquired all of the outstanding common stock of SPD for $230.0 million in cash, subject to certain post-closing adjustments. SPD is the major supplier to the United States Navy for subsystems that manage, control, distribute, protect and condition electrical power in surface ships and submarines. SPD's major products include electronic solid state protection products, switchgear, high-speed transfer switches, fault isolation units, frequency converters and inverters, voltage transformers and uninterruptible power supply systems. 36 SPD's products are installed in every nuclear submarine, aircraft carrier and surface platform operated by the United States Navy. SPD also provides shipboard communications and control as well as support service for installed products. The acquisition was financed using cash from operations and borrowings under the Senior Credit Facilities. Other Acquisitions. Additionally, during the nine months ended September 30, 1998, the Company purchased five other companies for an aggregate purchase price of $24.8 million of cash, before adjustments, as appropriate, based on closing date net assets and additional consideration based on post-acquisition performance. The historical impact of these five other acquisitions individually or in the aggregate was not material to the results of operations or financial position of the Company. On November 12, 1998, L-3 Communications acquired all of the outstanding stock of DBS Microwave, Inc. ("DBS") for $13.0 million of cash, of which $3.0 million was paid prior to September 30, 1998 subject to adjustment based on closing net assets, as defined. The acquisition was financed with borrowings under the Senior Credit Facilities. On December 17, 1998, the Company acquired all of the outstanding stock of Electrodynamics Inc. from Carpenter Technology Corporation for $21.5 million in cash, subject to adjustment based on closing net assets, as defined. The acquisition was financed by cash on hand and with borrowings under the Senior Credit Facilities. Microdyne Corporation. On December 3, 1998, the Company signed an agreement to acquire all of the outstanding common stock of Microdyne for approximately $90.0 million in cash, including the repayment of Microdyne's debt. Pursuant to the acquisition agreement, a subsidiary of L-3 Communications has purchased 91.9% of the common stock of Microdyne in a cash tender offer. We expect to complete the merger of Microdyne with this subsidiary in early 1999. Microdyne is a leading global developer and manufacturer of aerospace telemetry receivers, secure communications and technical support services, including specialized telemetry high-frequency radios used in aerospace and satellite communications for data gathering and analysis. Microdyne also provides products for the government and commercial signal intelligence markets and support and repair services for electronic products companies. Microdyne's aerospace telemetry products will enable us to provide integrated solutions to our space customers' requirements for command, control, telemetry and tracking. The purchase of shares of Microdyne common stock was financed using available cash and borrowings under the Senior Credit Facilities. See "--Liquidity and Capital Resources". RESULTS OF OPERATIONS The following information should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Consolidated (Combined) Financial Statements and the notes thereto included in this prospectus, which reflect the Company's results of operations from the effective date of the L-3 Acquisition, April 1, 1997, and also include the results of operations of SPD, Ocean Systems, ILEX and STS from the respective effective dates of each of those acquisitions. Accordingly, the results of operations presented below exclude the results of operations of the 1998 Acquisitions for periods prior to their effective dates. The financial statements also reflect the results of operations of the Predecessor Company for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, which include the results of operations of the Loral Acquired Businesses beginning on April 1, 1996, the effective date of that acquisition by the Predecessor Company. The results of operations for the year ended December 31, 1996 include the results of operations of the Loral Acquired Businesses for the nine months from April 1, 1996 to December 31, 1996. The results of operations for the year ended December 31, 1995 and the period from January 1 to March 31, 1996 only comprise the results of operations of Communications Systems -- East. Accordingly, changes between (i) the nine months ended September 30, 1998 and the nine months ended September 30, 1997, (ii) the year ended December 31, 1997 and the year ended December 31, 1996 and (iii) the year ended December 31, 1996 and the year ended December 31, 1995 are significantly affected by the timings of the 1998 37 Acquisitions, L-3 Acquisition and Loral Acquired Businesses acquisition. Furthermore, operating income of the Company and the Predecessor Company are not directly comparable between periods indicated as a result of the effects of valuation of assets and liabilities recorded in accordance with Accounting Principles Board Opinion No. 16 ("APB 16") by the Company and the Predecessor Company for the purchase accounting of the L-3 Acquisition and Loral Acquired Businesses acquisition. Interest expense and income taxes expense for the periods are also not comparable and the impact of interest expense and income tax expense on the Company is discussed below. The results of operations of the Predecessor Company for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, include certain costs and expenses allocated by Lockheed Martin for corporate office expenses based primarily on the allocation methodology prescribed by government regulations pertaining to government contractors. Interest expense was allocated based on Lockheed Martin's actual weighted average consolidated interest rate applied to the portion of the beginning of the year invested equity deemed to be financed by consolidated debt based on Lockheed Martin's debt to equity ratio on such date. The provision (benefit) for income taxes was allocated to the Predecessor Company as if it were a separate taxpayer, calculated by applying statutory rates to reported pre-tax income after considering items that do not enter into the determination of taxable income and tax credits related to the Predecessor Company. Also, pension and post-employment benefit costs were allocated based on employee headcount. Accordingly, the results of operations and financial position hereinafter of the Predecessor Company may not be the same as would have occurred had the Predecessor Company been an independent entity. NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997 The results of operations for the nine months ended September 30, 1997 (the "1997 Nine-Month Period") were obtained by combining, without adjustment, the historical results of operations of the Predecessor Company for the three months ended March 31, 1997 with the historical results of operations of the Company for the six-month period ended September 30, 1997. Changes between periods for the nine months ended September 30, 1998 (the "1998 Nine-Month Period") and the 1997 Nine-Month Period are affected by the timing of the L-3 Acquisition and the 1998 Acquisitions. The following table sets forth selected income statement data for the Company and the Predecessor Company for the periods indicated.
NINE MONTHS ENDED SEPTEMBER 30, 1997 --------------------------------------- PREDECESSOR COMPANY COMPANY COMPANY NINE MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, MARCH 31, 1998 1997 1997 COMBINED --------------- --------------- ------------- --------- (in millions) Sales ............................................ $ 708.3 $ 342.8 $ 158.9 $ 501.7 ------- ------- ------- ------- Operating income ................................. 63.6 28.6 7.9 36.5 Interest expense, net ............................ 32.9 19.2 8.4 27.6 Income tax expense (benefit) ..................... 12.0 5.4 (0.2) 5.2 ------- ------- ------- ------- Net income (loss) ................................ $ 18.7 $ 4.0 $ (0.3) $ 3.7 ======= ======= ======= ======= Depreciation and amortization expenses included in operating income ................................ $ 26.7 $ 17.5 $ 7.8 $ 25.3 EBITDA(1) ........................................ $ 90.3 $ 46.1 $ 15.7 $ 61.8
- ---------- (1) EBITDA is defined as operating income plus depreciation expense and amortization expense (excluding the amortization of debt issuance costs) and the nonrecurring, noncash compensation charge. EBITDA is not a substitute for operating income, net income or cash flows from operating activities as determined in accordance with generally accepted accounting principles as a measure of profitability or liquidity. EBITDA is presented as additional information because the Company believes it to be a useful indicator of the Company's ability to meet debt service and capital expenditure requirements. Sales increased by $206.6 million to $708.3 million for the 1998 Nine-Month Period from $501.7 million for the 1997 Nine-Month Period. Operating income for the 1998 Nine-Month Period increased by $27.1 million to $63.6 million from $36.5 million in the 1997 Nine-Month Period. Net income increased by $15.0 million to $18.7 million from $3.7 million in the 1997 Nine-Month Period. 38 The 1998 Acquisitions contributed sales of $166.1 million to the 1998 Nine-Month Period. The remaining increase during the 1998 Nine-Month Period was primarily attributable to an increase in production and shipments on the CHBDL, Raptor and UAV programs and increased sales volumes on STE, aviation recorders, display systems and RF safety and monitoring products, partially offset by lower sales volume on commercial telecommunications products. Sales for the 1997 Nine-Month Period also included $1.8 million of sales from the Hycor business which was sold in 1997 (see Note 6 to the Consolidated (Combined) Financial Statements as of December 31, 1997). Operating income as a percentage of sales ("operating margin") increased to 9.0% for the 1998 Nine-Month Period from 7.3% for the 1997 Nine-Month Period. The increase in operating income for the 1998 Nine-Month Period is principally attributable to (i) improved margins on sales of space communications and military communication systems, aviation recorders and display systems and increased sales volume on higher margin RF safety and monitoring products, partially offset by lower sales volume on commercial telecommunications products and lower margins from the STS acquired business, (ii) the negative impact on operating income for the 1997 Nine-Month Period from the non-recurring, noncash compensation charge of $4.4 million recorded effective April 1, 1997, related to the initial capitalization of the Company and (iii) losses incurred during the 1997 Nine-Month Period by the Predecessor Company on three programs at Communication Systems -- East. The 1998 Acquisitions contributed $10.1 million of operating income to the 1998 Nine-Month Period. Excluding the non-recurring, noncash compensation charge, operating margin for the 1997 Nine-Month Period was 8.2%. EBITDA for the 1998 Nine-Month Period increased by $28.5 million to $90.3 million from $61.8 million in the 1997 Nine-Month Period. EBITDA as a percentage of sales ("EBITDA margin") increased to 12.7% for the 1998 Nine-Month Period from 12.3% for the 1997 Nine-Month Period. The increases in EBITDA and EBITDA margin were primarily attributable to the items affecting the trends in operating income between the 1998 Nine-Month Period and the 1997 Nine-Month Period discussed above, excluding the non-recurring, noncash compensation charge which is not included in EBITDA. Interest expense, net for the Company for the 1998 Nine-Month Period was $32.9 million, compared to $27.6 million in the 1997 Nine-Month Period for the Company and the Predecessor Company combined. The increase was attributable to higher average outstanding debt balances during the 1998 Nine-Month Period, partially offset by higher interest income for the 1998 Nine-Month Period. The effective income tax rate of the Company for the 1998 Nine-Month Period was 39.1%, reflecting the estimated effective income tax rate for the year ended December 31, 1998. The effective tax rate for the 1997 Nine-Month Period for the Company and the Predecessor Company combined was 58.0%, and was significantly impacted by the $4.4 million non-recurring, noncash compensation charge recorded effective April 1, 1997 and the Predecessor Company's amortization of costs in excess of net assets acquired for the three months ended March 31, 1997, both of which were not deductible for income tax purposes. 39 YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 The following table sets forth selected statement of operations data for the Company and the Predecessor Company for the periods indicated.
COMPANY PREDECESSOR COMPANY -------------- ---------------------------------------------------------------- NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, 1997 1996 1997 1996 1996 -------------- -------------- -------------- -------------- ------------- (in millions) Sales ................................. $546.5 $501.9 $158.9 $ 41.2 $543.1 Costs and expenses .................... 490.6 459.9 151.0 39.5 499.4 Noncash compensation charge ........... 4.4 -- -- -- -- Operating income ...................... 51.5 42.0 7.9 1.7 43.7 Interest expense, net ................. 28.5 22.2 8.4 2.0 24.2 Income (loss) before income taxes ..... 23.0 19.8 (0.5) (0.3) 19.5 Income tax provision (benefit) ........ 10.7 7.6 (0.2) 0.2 7.8 Net income (loss) ..................... 12.3 12.2 (0.3) (0.5) 11.7
Sales for the nine months ended December 31, 1997 as compared to the corresponding period in 1996 increased by $44.6 million, of which $30.5 million is attributable to the Loral Acquired Businesses and $14.1 million to Communication Systems -- East. The increase in sales is attributable to increased volume in sales of microwave components, CHBDL, UAV programs, F-14 display system contract, power supplies and P3-C Repair Depot. Operating income for the nine months ended December 31, 1997 as compared to the corresponding period in 1996 increased by $9.5 million. The net increase was comprised of increases of $5.8 million attributable to the Loral Acquired Businesses and $8.1 million to Communication Systems -- East, partially offset by a nonrecurring, noncash compensation charge of $4.4 million recorded effective April 1, 1997, related to the initial capitalization of L-3. The increase in operating income for the nine months ended December 31, 1997 is attributable to increased sales, improved operating performance on sales of aviation recorders, passive microwave components and display systems, the GEMnet product-line and P3-C Repair Depot sales, partially offset by $3.3 million of cost of sales related to ongoing certification efforts for the Company's Explosive Detection System ("EDS") contract and lower sales volume on the U-2 Program. Sales and operating income for the three months ended March 31, 1997 increased by $117.7 million and $6.2 million, respectively, as compared to the corresponding period in 1996. The increases are attributable to the acquisition of the Loral Acquired Businesses, offset by losses incurred on three programs by Communication Systems -- East. Sales and operating income of the Hycor business which was sold in 1997 for the three months ended March 31, 1997 and the year ended December 31, 1996 were $1.8 million and $0.0 million and $7.5 million and $0.3 million, respectively (see Note 6 to the Consolidated (Combined) Financial Statements). Interest expense, net for the nine months ended December 31, 1997 was $28.5 million representing interest expense on the Company's outstanding borrowings (see Note 8 to Consolidated (Combined) Financial Statements as of December 31, 1997), and amortization of debt issuance costs, less interest income of $1.4 million. Interest expense for the three months ended March 31, 1997 and the prior period was $8.4 million and $24.2 million, respectively, and was allocated to the Predecessor Company by applying Lockheed Martin's weighted average consolidated interest rate to the portion of the Predecessor Company's invested equity account deemed to be financed by Lockheed Martin's consolidated debt. The increase in interest expense reflects the Company's higher interest rates on its third party debt, as compared to the interest rate utilized to calculate interest expense by the Predecessor Company. The income tax provision for the nine months ended December 31, 1997 reflects the Company's effective income tax rate of 46.5%, which was significantly impacted by the noncash compensation charge of $4.4 million which is not deductible for income tax purposes. For the three months ended March 31, 1997 and in the prior period, income taxes were allocated to the Predecessor Company by 40 Lockheed Martin and the effective income tax rate was significantly impacted by amortization of costs in excess of net assets acquired, which were not deductible for income tax purposes. See Note 11 to Consolidated (Combined) Financial Statements as of December 31, 1997. SUPPLEMENTAL ANALYSIS OF ANNUAL RESULTS OF OPERATIONS OF THE COMPANY AND THE PREDECESSOR COMPANY As noted above, the Company's financial statements reflect operations since the effective date of the L-3 Acquisition, April 1, 1997, and the results of operations for the year ended December 31, 1996 represent the results of operations of the Predecessor Company, and include the results of operations of the Loral Acquired Businesses beginning on April 1, 1996, the effective date of that acquisition. Accordingly, changes between periods for the year ended December 31, 1997 to the year ended December 31, 1996 of the Predecessor Company are significantly affected by the timing of these acquisitions. To enable investors to better assess the trends in the results of operations and to facilitate comparisons, the following presentation of results of operations for the year ended December 31, 1997 were obtained by aggregating, without adjustment, the historical results of operations of the Predecessor Company for the period from January 1, 1997 through March 31, 1997 with the historical results of operations of the Company for the nine months period from April 1, 1997 through December 31, 1997 (together the "1997 period"), and the results of operations for the year ended December 31, 1996 were obtained by aggregating, without adjustments, the historical results of operations of the Predecessor Company for the year ended December 31, 1996 with the historical results of operations of the Loral Acquired Businesses for the period from January 1, 1996 through March 31, 1996 (together the "1996 period"). All the historical results were derived from the audited financial statements for respective periods included herein. The following table sets forth historical selected statement of operations data for the Company, Predecessor Company and the Loral Acquired Businesses for the periods indicated and the related calendar year results of operation data derived therefrom.
PREDECESSOR PREDECESSOR LORAL ACQUIRED COMPANY COMPANY COMPANY BUSINESSES -------------- -------------- ------------- --------------- NINE MONTHS THREE MONTHS YEAR THREE MONTHS ENDED ENDED ENDED ENDED DECEMBER 31, MARCH 31, 1997 DECEMBER 31, MARCH 31, 1996 1997 1997 PERIOD 1996 1996 PERIOD -------------- -------------- --------- ------------- --------------- --------- (in millions) Sales ...................... $546.5 $158.9 $705.4 $543.1 $132.2 $675.3 Costs and expenses ......... 490.6 151.0 641.6 499.4 124.4 623.8 Noncash compensation charge .................... 4.4 -- 4.4 -- -- -- ------ ------ ------ ------ ------ ------ Operating income ........... $ 51.5 $ 7.9 $ 59.4 $ 43.7 $ 7.8 $ 51.5 ====== ====== ====== ====== ====== ====== EBITDA ..................... $ 78.1 $ 15.7 $ 93.8 $ 71.8 $ 12.8 $ 84.6 ====== ====== ====== ====== ====== ======
Sales for the 1997 period increased to $705.4 million from $675.3 million for the 1996 period. Operating income increased to $59.4 million in the 1997 period from $51.5 million in the 1996 period. Operating income is not directly comparable between the periods as a result of the effects of valuation of assets and liabilities in accordance with Accounting Principles Opinion No. 16. The sales increase in the 1997 period was primarily attributable to sales of the Loral Acquired Businesses which increased by $18.1 million to $531.4 million in the 1997 period as compared to $513.3 million in the 1996 period. This sales increase was primarily attributable to increased sales volume on E2-C antenna program, the E2-C and F-14 display systems and passive microwave components, additional production and shipments on CHBDL and UAV programs, and partially offset by lower sales volume on the U-2 Program. Additionally, sales of Communication Systems -- East increased by $12.0 million to $174.0 million in the current period from $162.0 million in the 1996 period, and were primarily attributable to increased sales of power supplies, the GEMnet product line and the P3-C Repair Depot. Operating income increased by $7.9 million or 15.3% to $59.4 million in the 1997 period from $51.5 million in the 1996 period. Operating margin increased to 8.4% in the 1997 period as compared 41 to 7.6% in the 1996 period. The increase in operating income was largely attributable to cost reductions, increased sales volume of the Loral Acquired Businesses and operating improvements at Communications Systems -- East. Operating income for the 1997 period also included (i) a nonrecurring, noncash compensation charge of $4.4 million recorded effective April 1, 1997, related to the initial capitalization of L-3 and (ii) fourth quarter cost of sales of $3.3 million related to on-going certification efforts for the Company's EDS contract. Excluding the noncash compensation charge and the EDS costs, operating income would have been $67.1 million for the 1997 period and operating margin would have been 9.5%. EBITDA for the 1997 period increased by $9.2 million to $93.8 million from $84.6 million for the 1996 period. EBITDA margin increased to 13.3% for the 1997 period from 12.5% for the 1996 period. The increases in EBITDA and EBITDA margin were attributable to the items affecting the trends in operating income between the 1997 period and 1996 period discussed above. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 The following table sets forth selected statement of operations data for the Predecessor Company for the periods indicated.
PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, --------------------- 1996 1995 --------- --------- (in millions) Sales .............................. $543.1 $166.8 Costs and expenses ................. 499.4 162.1 Operating income ................... 43.7 4.7 Net interest expense ............... 24.2 4.5 Income before income taxes ......... 19.5 0.2 Income tax provision ............... 7.8 1.2 Net income (loss) .................. 11.7 (1.0)
The results of operations of the Loral Acquired Businesses are reflected in the results of operations of the Predecessor Company beginning on April 1, 1996, the effective date of that acquisition by Lockheed Martin. During 1996, sales increased to $543.1 million from $166.8 million in 1995. Operating income increased to $43.7 million compared with $4.7 million in 1995. Net income increased to $11.7 million as compared to a net loss of $1.0 million in 1995. The Loral Acquired Businesses contributed $13.6 million to net income for the year ended December 31, 1996. The sales increase in 1996 was attributable to the sales of the Loral Acquired Businesses which contributed $381.1 million of the increase. Sales of Communication Systems -- East decreased in 1996 by $4.8 million as compared to 1995 primarily due to lower volume on Aegis power supplies and SIGINT system production, partially offset by Local Management Device/Key Processor ("LMD/KP") production startup. The increase in 1996 operating income was largely attributable to the Loral Acquired Businesses, which contributed $36.9 million of the increase. Communication Systems -- East operating income in 1996 increased $2.2 million primarily due to improved operating performance on the Shipboard Telephone Communications ("STC-2") program partially offset by increased costs on the Space Station contract. Operating margin increased to 8.0% from 2.8%. This increase is attributable to the improvement in Communication Systems -- East noted above, higher contract margins and operating improvements in the Loral Acquired Businesses. Allocated interest expense increased to $24.2 million in 1996 from $4.5 million in 1995 due primarily to the acquisition of the Loral Acquired Businesses, which was assumed to be fully financed by debt, coupled with a higher debt-to-equity ratio used in the allocation for Communication Systems -- East. See Note 9 to Consolidated (Combined) Financial Statements. The effective income tax rate declined to 40% in 1996 as compared to 681% in 1995. The 1995 effective rate was significantly impacted by non-deductible amortization of costs in excess of net assets acquired. As a percentage of income subject to tax, such amortization declined significantly in 1996. 42 LIQUIDITY AND CAPITAL RESOURCES During the third quarter of 1998, the Senior Credit Facilities were amended to add the Revolving 364 Day Credit Facility (as defined later in this prospectus) of $185.0 million to the existing Revolving Credit Facility (as defined later in this prospectus) of $200.0 million. The Revolving 364 Day Credit Facility expires 364 days after the closing of the amendment, at which time the Company may (i) request that the creditors extend it for one additional 364-day period or (ii) exercise an option to convert any or all of the borrowings outstanding thereunder into term loans which amortize over a two-year period beginning March 31, 2001, and must be paid in full no later than March 31, 2003. The Revolving 364 Day Credit Facility together with the Company's Revolving Credit Facility, increased borrowings available to the Company, before reductions for outstanding letters of credit, to $385.0 million. At September 30, 1998, available borrowings under the Revolving Credit Facility and Revolving 364 Day Credit Facility were $28.3 million and $175.0 million, respectively, after reductions for outstanding borrowings of $145.0 and $10.0 million, respectively, and outstanding letters of credit drawn against the Revolving Credit Facility of approximately $26.7 million. After giving effect to the Old Notes Offering, available borrowings under the Senior Credit Facilities at September 30, 1998 on a pro forma basis would have been $385.0 million, before reductions for outstanding letters of credit. The Senior Credit Facilities, the Notes, the May 1998 Notes and the 1997 Notes contain financial covenants, which remain in effect so long as any amount is owed or any commitment to lend exists thereunder by L-3 Communications. The financial covenants under the Senior Credit Facilities require that (i) L-3 Communications' debt ratio, as defined therein, be less than or equal to 5.00 for the quarter ended September 30, 1998, and that the maximum allowable debt ratio thereafter decline over time to less than or equal to 3.25 for the quarters ending September 30, 2002 and thereafter and (ii) L-3 Communications' interest coverage ratio, as defined therein, be at least 2.00 for the quarter ended September 30, 1998 and that the interest coverage ratio thereafter increase over time to at least 3.00 for any fiscal quarters ending September 30, 2002 and thereafter. As of September 30, 1998, L-3 Communications had been in compliance with these covenants at all times. The Company has a substantial amount of indebtedness. Based upon the current level of operations, management believes that the Company's cash flow from operations, together with available borrowings under the Senior Credit Facilities, will be adequate to meet its anticipated requirements for working capital, capital expenditures, research and development expenditures, program and other discretionary investments, interest payments and scheduled principal payments for the foreseeable future including at least the next three years. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that currently anticipated improvements will be achieved. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt or obtain additional financing. The Company's ability to make scheduled principal payments, to pay interest on or to refinance its indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond its control. There can be no assurance that sufficient funds will be available to enable the Company to service its indebtedness, including the Notes, the 1997 Notes and the May 1998 Notes, or make necessary capital expenditures and program and discretionary investments. The Company has reached agreement or is in discussions regarding a number of potential acquisition opportunities and expects to use the Senior Credit Facilities to fund these transactions if the Company proceeds with them. If all of these potential acquisitions were consummated, they would require the Company to use all or substantially all of its currently available borrowing capacity, and perhaps seek additional borrowing capacity, in 1999. See "Risk Factors--Our Acquisition Strategy Involves Certain Risks" and "--We Have Discretion Over the use of Funds Raised in the Old Notes Offering". 43 The indebtedness under the Senior Credit Facilities is guaranteed by Holdings and by many of the Company's subsidiaries. The payment of principal and premium, if any, and interest on the 1997 Notes and May 1998 Notes and principal and premium or liquidated damages, if any, and interest on the Notes is unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally, by many of the Company's subsidiaries, all of which are wholly-owned subsidiaries. To mitigate risks associated with changing interest rates on certain of its debt, the Company entered into interest rate cap and floor contracts (the "interest rate agreements"). The Company manages exposure to counterparty credit risk by entering into the interest rate agreements only with major financial institutions that are expected to perform fully under the terms of such agreements. Cash payments to (from) the Company and the counterparties are made at the end of the quarter to the extent due under the terms of the interest rate agreements. Such payments are recorded as adjustments to interest expense. The initial costs of the interest rate agreements are capitalized as deferred debt issuance costs and amortized into interest expense. The impact of the interest rate agreements on interest expense was not material for the nine months ended September 30, 1998 or for the nine months ended December 31, 1997. See Note 10 to the Consolidated (Combined) Financial Statements. BALANCE SHEET The increases from December 31, 1997 to September 30, 1998 in contracts in process, other current assets, property, plant and equipment, net of accumulated depreciation and amortization, intangibles, customer advances, other current liabilities, and pension and post-retirement benefits of $178.6 million, $13.7 million, $34.2 million, $310.9 million, $24.1 million, $21.1 million, and $56.3 million, respectively, are principally related to the acquired businesses. The increase in other assets of $9.1 million is primarily attributable to debt issuance costs incurred in connection with the May 1998 Notes and amendments to the Senior Credit Facilities which have been deferred and are being amortized over the terms of underlying debt. Working capital increased by $9.2 million to $141.0 million at September 30, 1998 from $131.8 million at December 31, 1997. Working capital, adjusted to exclude cash and the current portion of long term debt, increased by $76.0 million from December 31, 1997 to September 30, 1998 and was primarily attributable to the working capital of the acquired businesses. The Company's current ratio at September 30, 1998 decreased to 1.6:1 compared with 2.0:1 at December 31, 1997. The Company's current ratio at December 31, 1997 remained constant at 2.0:1 as compared to the Predecessor Company's current ratio at December 31, 1996. STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997 The following table sets forth selected cash flow statement data for the Company and the Predecessor Company for the Periods indicated:
NINE MONTHS ENDED SEPTEMBER 30, 1997 ----------------------------------------------------- PREDECESSOR COMPANY COMPANY COMPANY NINE MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 MARCH 31, 1997 COMBINED -------------------- -------------------- ---------------- ----------- (in millions) Net cash from (used in) operating activities ..................................... $ 48.2 $ 56.4 $ (16.3) $ 40.1 Net cash (used in) investing activities ......... (417.8) (479.0) (4.3) (483.3) Net cash from financing activities .............. 297.9 462.4 20.6 483.0
NET CASH FROM (USED IN) OPERATING ACTIVITIES: Cash from operating activities of the Company for the nine months ended September 30, 1998 was $48.2 million. Earnings after adjustment for non-cash items and deferred income taxes provided $58.8 million and uses of cash for net changes in operating assets and liabilities, net of amounts acquired was $10.6 million. 44 Net cash from operating activities for the nine months ended September 30, 1997 was $40.1 million. Earnings after adjustment for noncash items and deferred income taxes provided $35.3 million. Changes in operating assets and liabilities, consisting primarily of increases in accrued employment costs and accrued interest and decreases in accounts payable and other current liabilities, all attributable to timings of payments contributed $4.8 million. NET CASH (USED IN) INVESTING ACTIVITIES: Cash used in investing activities for the nine months ended September 30, 1998 was $417.8 million and consisted primarily of $412.5 million, net of cash acquired, paid by the Company for acquisitions of businesses. The Company typically makes capital expenditures related primarily to improvement of manufacturing facilities and equipment. The Company expects that its capital expenditures for 1998 will be approximately $27.0 million. Cash used in investing activities for the nine months ended September 30, 1997 was $483.3 million and consisted primarily of $470.7 million paid by the Company for the L-3 Acquisition. NET CASH FROM FINANCING ACTIVITIES: For the nine months ended September 30, 1998, the Company's cash from financing activities was $297.9 million. On May 19, 1998, Holdings sold 6.9 million shares of its common stock in the IPO representing 25.2% of Holdings' common stock. The net proceeds from the IPO amounted to $139.5 million after underwriting discounts and commissions and expenses of $12.3 million and were contributed by Holdings to the Company. Concurrent with the Holdings IPO, the Company sold $180.0 million in aggregate principal amount of the May 1998 Notes, whose net proceeds amounted to $173.8 million after debt issuance costs of $6.2 million. The combined net proceeds from the contribution of the Holdings IPO and the May 1998 Notes of $313.3 million were used to (i) prepay all $171.0 million of borrowings outstanding under the Term Loan Facilities (as defined), (ii) repay $67.8 million of then outstanding borrowings under the Revolving Credit Facility which were primarily made to finance the Ocean Systems acquisition and (iii) partially finance the SPD acquisition. During the third quarter of 1998, the Company also made borrowings, net of repayments, under the Senior Credit Facilities of $155.0 million primarily to partially finance the SPD acquisition. Cash from financing activities of the Company was $483.0 million for the nine months ended September 30, 1997, and was primarily due to the debt incurred and proceeds from the issuance of common stock related to the initial capitalization of the Company and the financing of the L-3 Acquisition. Cash from financing activities also included $20.6 million of advances from Lockheed Martin to the Predecessor Company. Prior to the L-3 Acquisition, the Predecessor Company participated in the Lockheed Martin cash management system, under which all cash was received and all payments were made by Lockheed Martin. For purposes of the statement of cash flows, all transactions with Lockheed Martin were deemed to have been settled in cash at the time they were recorded by the Predecessor Company. YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEARS ENDED DECEMBER 31, 1996 AND 1995 The following table sets forth selected cash flow statement data for the Company and the Predecessor Company for the periods indicated:
PREDECESSOR PREDECESSOR COMPANY COMPANY COMPANY -------------- -------------- --------------------- YEAR NINE MONTHS THREE MONTHS COMBINED ENDED ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, --------------------- 1997 1997 1997 1996 1995 -------------- -------------- ------------- ----------- -------- (in millions) Net cash from (used in) operating activities ......... $ 73.9 $ (16.3) $ 57.6 $ 30.7 $ 9.3 Net cash (used in) investing activities .............. (457.8) (4.3) (462.1) (298.0) (5.5) Net cash from (used in) financing activities ......... 461.4 20.6 482.0 267.3 (3.8)
NET CASH FROM (USED IN) OPERATING ACTIVITIES: Cash provided by operating activities for the year ended December 31, 1997 was $57.6 million. Earnings after adjustment for non-cash items and deferred income taxes provided $57.9 million, and uses of cash for net changes in operating assets and liabilities was $0.3 million. 45 Cash provided by operating activities of the Predecessor Company was $30.7 million in 1996 and $9.3 million in 1995. The increase of $21.4 million in 1996 was due primarily to the impact of the Loral Acquired Businesses which were acquired by Lockheed Martin effective April 1, 1996. Earnings after adjustment for non-cash items provided $36.7 million, offset by changes in other operating assets and liabilities. Without the Loral Acquired Businesses, cash provided by operating activities for Communication Systems--East increased to $13.7 million in 1996, 46% over 1995. NET CASH (USED IN) INVESTING ACTIVITIES: Cash used in investing activities for the year ended December 31, 1997 was $462.1 million and consisted primarily of $466.3 million paid by the Company for the L-3 Acquisition and capital expenditures of $16.2 million, partially offset by proceeds from the sale of the Company's Sarasota, Florida property of approximately $9.5 million and cash received from Lockheed Martin of $12.2 million in connection with the Company's assumption of obligations under the contract for the U.S. Army's Command and Control Vehicle ("C2V") Mission Module Systems ("MMS"). During the year ended December 31, 1996, $287.8 million was paid by the Predecessor Company for the acquisition of the Loral Acquired Businesses. See Note 4 to the Consolidated (Combined) Financial Statements. All transactions between the Businesses and Lockheed Martin have been accounted as settled in cash at the time such transactions were recorded by the Businesses. Accordingly, in 1996, cash flows reflect the purchase of the Loral Acquired Businesses. NET CASH FROM (USED IN) FINANCING ACTIVITIES: Cash from financing activities was $482.0 million for the year ended December 31, 1997, and was primarily from the debt incurred and proceeds from the issuance of common stock which were issued to finance the L-3 Acquisition. The Company was initially capitalized and the related L-3 Acquisition was funded by a combination of equity of $125.0 million and debt of $400.0 million aggregating $525.0 million. The $125.0 million of equity was contributed by Holdings to the Company. The Holdings equity of $125.0 million was comprised of $80.0 million in cash contributed to Holdings by the Lehman Partnership and Senior Management and a $45.0 million retained interest in Holdings by Lockheed Martin representing partial consideration to Lockheed Martin for its sale of the Predecessor Company to the Company. In connection with the L-3 Acquisition, the Company entered into a $275.0 million credit facility consisting of $175.0 million of term loans (the "Term Loan Facilities") and a $100.0 million revolving credit facility (initially, and as amended, the "Revolving Credit Facility"). The initial debt balance of $400.0 million consisted of $175.0 million of borrowings under the Term Loan Facilities and the sale of $225.0 million of 103/8% Senior Subordinated Notes (the "1997 Notes") due May 1, 2007. Prior to the L-3 Acquisition, the Predecessor Company participated in the Lockheed Martin cash management system, under which all cash was received and all payments were made by Lockheed Martin. For purposes of the statements of cash flows, all transactions with Lockheed Martin were deemed to have been settled in cash at the time they were recorded by the Predecessor Company. Net cash from (used in) financing activities of the Predecessor Company for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, were approximately $20.6 million, $267.3 million and ($3.8) million, respectively, and represent advances from (repayments to) Lockheed Martin, the Predecessor Company's parent company. BACKLOG The Company's funded backlog September 30, 1998 was $813.8 million, compared with $516.9 million at December 31, 1997 and the Predecessor Company's funded backlog at December 31, 1996 of $542.5 million. Funded orders, on a pro forma basis, for the Company for 1997 were $711.5 million. The Predecessor Company's funded orders for 1996 were $619.5 million. It is expected that approximately 72% of the backlog at September 30, 1998 will be recorded as sales over the next twelve-month period. However, there can be no assurance that the Company's backlog will become revenues in any particular period, if at all. See "Risk Factors -- Our Backlog of Orders Could be Terminated". Approximately 70% of the total backlog at September 30, 1998 was directly or indirectly for defense contracts for end use by the Government. Approximately $687.7 million of total backlog 46 at September 30, 1998 was directly or indirectly for U.S. and foreign government defense contracts, and approximately $15.0 million of total backlog was directly or indirectly for U.S. and foreign government non-defense contracts. Foreign customers accounted for approximately $176.3 million of the total backlog. RESEARCH AND DEVELOPMENT Research and development, including bid and proposal costs ("R&D costs"), sponsored by the Company on a pro forma basis for the nine-month period ended September 30, 1998 was $43.5 million. Pro forma R&D costs sponsored by the Company were $53.0 million for the year ended December 31, 1997, and $53.7 million for the year ended December 31, 1996. R&D costs sponsored by the Predecessor Company were $12.0 million, $36.5 million and $9.8 million for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, respectively. The Loral Acquired Businesses sponsored R&D costs of $5.6 million for the three months ended March 31, 1996 and $21.4 million for the year ended December 31, 1995. Accordingly, the Company, Predecessor Company and the Loral Acquired Businesses, in the aggregate, sponsored R&D costs of $40.9 million, $42.1 million and $31.2 million, respectively, for the years ended December 31, 1997, 1996 and 1995. Customer-funded research and development was $117.1 million in 1997, as compared with $153.5 million for 1996. The decrease in customer-funded research and development in 1997 is due primarily to research and development programs existing in 1996 which moved into the production phase during 1997. CONTINGENCIES See Note 9 to the Unaudited Condensed Consolidated (Combined) Financial Statements as of September 30, 1998 and Note 13 to the Consolidated (Combined) Financial Statements as of December 31, 1997. RECENT ACCOUNTING PRONOUNCEMENTS In September 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 131 establishes accounting standards for the way that public enterprises report information about operating segments and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132 revises employers' disclosures about pension and other postretirement benefits plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirements benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits" and SFAS No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" were issued. SFAS 132 suggests combined formats for presentation of pension and other postretirement benefits disclosures. The Company is currently evaluating the impact, if any, of SFAS No. 131 and SFAS No. 132. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which provides guidance on the financial reporting of start-up and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company is currently evaluating the impact, if any, of SOP 98-5. In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative 47 instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is currently evaluating the impact, if any, of SFAS No. 133 which is effective for all quarters of fiscal years beginning after September 15, 1999. INFLATION The effect of inflation on the Company's sales and earnings has not been significant. Although a majority of the Company's sales are made under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to be incurred in these future periods. In addition, some contracts provide for price adjustments through escalation clauses. YEAR 2000 COMPLIANCE The inability of business processes to continue to function correctly after the beginning of the Year 2000 could have serious adverse effects on companies and entities throughout the world. Because the Company's business units operate autonomously, each business unit has undertaken an effort to identify and mitigate Year 2000 issues in their information systems, products, facilities, suppliers and customers. The Company's Year 2000 compliance efforts are a composite of its business units' individual Year 2000 compliance efforts, coordinated through a company-wide program instituted to oversee, guide and track its business units' Year 2000 compliance efforts and to facilitate company-wide communications regarding Year 2000 compliance methods. Each business unit has appointed a Year 2000 project manager who oversees a team responsible for performing its Year 2000 efforts in four phases: (i) define, identify and inventory possible sources of Year 2000 issues, including internal systems and products and services sold to customers; (ii) analyze and determine the nature and extent of Year 2000 issues and develop project plans to address those issues; (iii) implement and execute project plans to remediate or replace non-compliant items, as appropriate, based upon assessed risk and priority; and (iv) commence and complete testing, continue monitoring readiness and prepare necessary contingency plans. The progress of this program is monitored at each business unit with oversight by Corporate Management. This oversight includes periodic reviews as well as visits to each business unit to monitor progress with the plans. Management plans to complete the first three phases of the program for a substantial majority of critical systems within the Company by the end of March 1999 and to have nearly all significant information systems, products and facilities in the final phase of the program by mid-1999. The total costs associated with the Company's Year 2000 efforts are estimated to be $16.2 million, including $7.1 million of capitalizable costs with the remaining costs expensed as incurred. The Company has incurred approximately $6.6 million of such costs to date. Substantially all of the remaining estimated costs are expected to be incurred in 1999. The Company believes that the decentralized nature of its systems and its Year 2000 efforts reduce the risk that its operations will be interrupted by the failure of any individual internal critical system to be Year 2000 compliant by the end of 1999. The Company's business operations are also dependent on the Year 2000 readiness of its customers and infrastructure suppliers in areas such as utilities, communications, transportation and other services. In those environments, there could be instances of failure that could cause disruptions in business transaction processes of the Company. The likelihood and effects of failures in infrastructure systems and in the customer and supply chains cannot be estimated, but such a failure could potentially result in a material adverse impact on results of operations, liquidity or financial position of the Company. The Company continues to attempt to assess the Year 2000 compliance and readiness of its material third-party suppliers and customers. Such attempts include written inquiries as to their Year 2000 certification of compliance. As indicated above, contingency plans for suppliers, customers and critical systems impacted by Year 2000 issues will be developed in the fourth quarter. These estimates and projections could change as work progresses. 48 BUSINESS References to pro forma financial data reflect the 1998 Acquisitions, the L-3 Acqusition, the Financing Transactions and the Old Notes Offering as if they had occurred on January 1, 1997. The pro forma data do not give effect to the Proposed Equity Offering or to any of the Company's other acquisitions, including the acquisition of Microdyne Corporation. COMPANY OVERVIEW L-3 Communications is a leading merchant supplier of sophisticated secure communication systems and specialized communication products. We produce secure, high data rate communication systems, microwave components, avionics and ocean systems and telemetry, instrumentation and space products. These systems and products are critical elements of virtually all major communication, command and control, intelligence gathering and space systems. Our systems and specialized products are used to connect a variety of airborne, space, ground- and sea-based communication systems and are used in the transmission, processing, recording, monitoring and dissemination functions of these communication systems. Our customers include the U.S. department of defense, certain U.S. government intelligence agencies, major aerospace and defense contractors, foreign governments and commercial customers. For the twelve-month period ended September 30, 1998, we had pro forma sales of $1,139.7 million and pro forma EBITDA of $148.4 million. Our funded backlog as of September 30, 1998 was $813.8 million. These results reflect internal growth and the execution of our strategy of acquiring businesses that complement or extend our product lines. Our business areas employ proprietary technologies and capabilities and have leading positions in their respective primary markets. We have organized our operations into two primary business areas: Secure Communication Systems and Specialized Communication Products. For the twelve-month period ended September 30, 1998, the Secure Communication Systems business area generated approximately $481.5 million of pro forma sales and $61.2 million of pro forma EBITDA, and the Specialized Communication Products business area generated $658.2 million of pro forma sales and $87.2 million of pro forma EBITDA. In addition, we are seeking to expand our products and technologies in commercial markets as we discuss under "--Emerging Commercial Products" below. SECURE COMMUNICATION SYSTEMS. We are the established leader in secure, high data rate communications for military and other U.S. government reconnaissance and surveillance applications. Our Secure Communication Systems operations are located in Salt Lake City, Utah, Camden, New Jersey and Shrewsbury, New Jersey. These operations are predominantly cost plus, sole source contractors supporting long-term programs for the U.S. armed forces and classified customers. Our major secure communication programs and systems include: o secure data links for airborne, satellite, ground- and sea-based remote platforms for information collection, command and control and dissemination to users in real time; o strategic and tactical signal intelligence systems that detect, collect, identify, analyze and disseminate information and related support contracts for military and intelligence efforts; o secure telephone, fax and network equipment and encryption management; o communication software support services to military and related government intelligence markets; and o communications systems for surface and undersea platforms and manned space flights. We believe that we have developed virtually every high bandwidth data link that is currently used by the military for surveillance and reconnaissance. We are also a leading supplier of communication software support services to military and related government intelligence markets. In addition to these core government programs, we are capitalizing on our technology base by expanding into related commercial communication equipment markets. For instance, we are applying our high data rate communications and archiving technology to the medical image archiving market and our wireless communication expertise to develop local wireless loop telecommunications equipment for the last mile interconnect. 49 SPECIALIZED COMMUNICATION PRODUCTS. This business area encompasses three product categories: Microwave Components. We are the preeminent worldwide supplier of commercial off-the-shelf, high-performance microwave components and frequency monitoring equipment. Our microwave products are sold under the industry-recognized Narda brand name through a standard catalog to wireless, industrial and military communication markets. We also provide state-of-the-art, space-qualified communication components including channel amplifiers and frequency filters for the commercial communications satellite market serving all frequencies, including Ka band. Approximately 79% of Microwave Components sales for the nine-month period ended September 30, 1998 were made to commercial customers, including Loral Space & Communications, Ltd., Motorola, Inc., Lucent Technologies Inc., AT&T Corp. and Lockheed Martin. Avionics and Ocean Products. Avionics and Ocean Products include our aviation recorders, display systems, antenna systems, acoustic undersea warfare systems and naval power distribution, conditioning, switching and protection equipment for naval ships and submarines. We are the world's leading manufacturer of commercial cockpit voice and flight data recorders (known as "black boxes"). These recorders are sold under the Fairchild brand name both to aircraft manufacturers and to the world's major airlines for their existing fleets of aircraft. Our aviation recorders are also installed on military transport aircraft throughout the world. We provide military and high-end commercial displays for use in military aircraft. We also manufacture high performance surveillance and precision millimeter wave antennas and related equipment for U.S. Air Force, U.S. Army and U.S. Navy aircraft and are the leading supplier of ground-based radomes. We are one of the world's leading product suppliers of acoustic undersea warfare systems and airborne dipping sonar systems to the U.S. and over 20 foreign navies. We are the only fully integrated, full-line provider of qualified turnkey electrical power delivery and management systems for U.S. Navy surface ships and submarines. Telemetry, Instrumentation and Space Products. Our Telemetry, Instrumentation and Space Products operations develop and manufacture commercial off-the-shelf, real-time data collection and transmission products and components for missile, aircraft and space-based electronic systems. These products are used to gather flight data and other critical information and transmit it from air or space to the ground. Telemetry products are also used for range safety and training applications to simulate battlefield situations. We are also a leading global satellite communications systems provider offering systems and services used in the satellite transmission of voice, video and data through earth stations for uplink and downlink terminals. We provide global satellite communications systems and services to customers that include foreign post, telephone and telegraph administrations, domestic and international prime communications infrastructure contractors, telecommunications and satellite service providers, broadcasters and media-related companies, government agencies and large corporations. We also provide commercial, off-the-shelf satellite control software, TT&C, mission processors and software engineering services to the worldwide military, civilian and commercial satellite markets. EMERGING COMMERCIAL PRODUCTS. Building upon our core technical expertise and capabilities, we are seeking to expand into several closely aligned commercial business areas and applications. Emerging Commercial Products currently include the following four niche markets: o medical archiving and simulation systems; o local wireless loop telecommunications equipment; o airport security equipment; and o information network security. A majority of these commercial products were developed based on technology used in our military businesses with relatively small additional expense. We are applying our technical capabilities in high data rate communications and archiving technology developed in our Secure Communication Systems business area to the medical image archiving market together with the General Electric Company's medical systems business. Based on secure, high data rate communication technology also 50 developed in our Secure Communication Systems business area, we have developed local wireless loop telecommunications equipment that is primarily designed for emerging market countries and rural areas where voice and data communication infrastructure is inadequate or does not exist. We have completed the development phase for the local wireless loop telecommunications equipment and have begun deliveries. In addition, the Federal Aviation Administration (the "FAA") awarded us a development contract for next generation airport security equipment for explosive detection. On November 23, 1998, we received FAA certification for our eXaminer 3DX (Trade Mark) 6000 system which is the only second generation system to receive certification and the only system to generate full, three-dimensional images of all objects in a piece of baggage. To capitalize on commercial opportunities for the information security technologies we developed in our Secure Communications Systems business area, we have also created a new subsidiary focusing on developing and marketing secure information and communication systems for commercial clients. This subsidiary acquired a network security software product through a majority-owned joint venture. We released the third generation of this network security software, ExpertTM 3.0, on November 9, 1998. Taken together, revenues generated from our Emerging Commercial Products have not yet been material to us. 51 The Company's systems and products are summarized in the following tables: SECURE COMMUNICATION SYSTEMS (PRO FORMA SALES FOR THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1998: $481.5 MILLION)
SYSTEMS SELECTED APPLICATIONS SELECTED PLATFORMS/END USES - -------------------------------------- --------------------------------------- ---------------------------------------- HIGH DATA RATE COMMUNICATIONS o Wideband data links and ground o High performance, wideband o Used on aircraft, naval ships, and terminals secure communication links for unmanned aerial vehicles and interoperable tactical battlefield satellites for relaying of data communication and intelligence and reconnaissance reconnaissance information SATELLITE COMMUNICATION TERMINALS o Ground-based satellite o Interoperable, transportable o Provide remote personnel with communication terminals and ground terminals for remote data communication links to distant payloads links to distant segments via forces commercial or military satellites SPACE COMMUNICATION AND SATELLITE CONTROL o Satellite communication and o On-board satellite external o International Space Station; tracking systems communications, video systems, Earth Observing Satellite; solid state recorders and ground Landsat-7; Space Shuttle; and support equipment National Oceanic and Atmospheric Administration weather satellites o Satellite command and control o Software integration, test and o Air Force satellite control sustainment and support maintenance support for Air network and Titan IV launch Force satellite control network; system engineering support for satellite launch systems MILITARY COMMUNICATIONS o Shipboard communication o Internal and external o Shipboard voice communications systems communications (radio room) for systems for Aegis cruisers and ships and submarines destroyers and fully automated Integrated Radio Room (IRR) for ship-to-ship communications on Trident submarines o Digital battlefield o Communications on the move for o Communication systems for U.S. communications tactical battlefield Army C2V o Communication software support o Value-added, critical software o ASAS, JSTARS, and services support for C3I systems GUARDRAIL INFORMATION SECURITY SYSTEMS o Secure Telephone Unit (STU o Secure and non-secure voice, o Office and battlefield secure and III)/Secure Terminal Equipment data and video communication non-secure communication for (STE) utilizing ISDN and ATM armed services, intelligence and commercial network technologies security agencies o Local management device/key o Provides electronic key material o User authorization and processor (LMD/KP) accounting, system management recognition and message and audit support functions for encryption for secure secure data communication communication encryption o Information processing systems o Custom designed strategic and o Classified military and national tactical signal intelligence agency intelligence efforts systems that detect, collect, identify, analyze and disseminate information and related support contracts
52 SPECIALIZED COMMUNICATION PRODUCTS (PRO FORMA SALES FOR THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1998: $658.2 MILLION)
PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USES - ------------------------------------------- -------------------------------------- --------------------------------------- MICROWAVE COMPONENTS (CATALOG) o Passive components, mechanical o Radio transmission, switching o Broad-band and narrow-band switches and wireless assemblies and conditioning; antenna and commercial applications (PCS, base station testing and cellular, SMR, and paging monitoring infrastructure) sold under the Narda brand name; and broad- band military applications o Safety products o Radio frequency (RF) o Monitor cellular base station and monitoring and measurement for industrial RF emissions safety frequency monitoring o Semiconductors (diodes, o Radio frequency switches, o Various industrial and military capacitors) limiters, voltage control, end uses, including commercial oscillators, harmonic generators satellites, avionics and specialty communication products o Satellite and wireless components o Satellite transponder control, o China Sat, PanAmSat, Telstar, (channel amplifiers, transceivers, channel and frequency separation Sirius, Tempo, Tiros, Milstar, converters, filters and GPS and LandSat multiplexers) o Amplifiers and amplifier based o Automatic Test Equipment o LEO satellites, ground stations, components (amplifiers, up/down (ATE), military EW, ground and LMDS, MMDS, military EW and converters and Ka assemblies) space communications ATE AVIONICS AND OCEAN PRODUCTS Aviation Recorders o Solid state crash resistant cockpit o Voice recorders continuously o Installed on business and voice and flight data recorders record most recent 30-120 commercial aircraft and certain minutes of voice and sounds military transport aircraft; sold to from cockpit and aircraft both aircraft OEMs and airlines inter-communications. Flight data under the Fairchild brand name recorders record the last 25 hours of flight parameters o Solid state video recorders o Reconnaissance platforms o New product Antenna Products o Ultra-wide frequency and o Surveillance; radar detection o F-15, F-16, F-18, E-2C, P-3, advanced radar antenna systems C-130, B-2, AWACS, Apache, and rotary joints Cobra, Mirage (France), Maritime Patrol (U.K.) and Tornado (U.K.) o Precision antenna systems o Antennas for high frequency, o Various military and commercial serving major military and millimeter satellite customers commercial frequencies, communications programs and including Ka band scientific astronomy o Ground based radomes o Protective shields for antennas o FAA, weather radar and military against weather applications
53 SPECIALIZED COMMUNICATION PRODUCTS (CONTINUED)
PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USES - ---------------------------------------- ----------------------------------------- -------------------------------------- Display Products o Cockpit and mission display o High performance, ruggedized o E-2C, V-22, F-14, F-117, E-6B, systems and controls flat panel and cathode ray tube C-130, AWACS, JSTARS S-3 and displays and processors AH-64 Ocean Products o Airborne dipping sonar systems o Submarine detection and o SH-60, SH-2/3, AB-212, EH-101 localization and Lynx Helicopters o Submarine and surface ship o Submarine and surface ship o SSN, SSBN, DDG-963, and towed arrays detection and localization FFG-7 o Torpedo defense systems o Torpedo detection and jamming o SSN, SSBN and DDG-963 o Mine countermeasure systems o Coastal and route survey o MCDV (Canada) o Naval and commercial power o Switching, distribution and o All naval combatants; delivery and switching products protection, as well as frequency submarines, surface ships and and voltage conversion aircraft carriers--Trident, 688, NSSN, DDG51, CG49, DD963 and Nimitz--class CVN o Commercial transfer switches, o Production and maintenance of o FAA, financial institutions and UPS systems and power products systems and high-speed switches rail transportation for power interruption prevention for computer systems o Shipboard communications and o Design, develop and manufacture o CVN, NSSN controls of ship control and interior communications equipment o Ship electrical repair and o Repair, installation, overhaul and o All naval combatants overhaul testing services for USN shipboard electrical, electronic and ordinance systems TELEMETRY, INSTRUMENTATION AND SPACE PRODUCTS Airborne, Ground and Space Telemetry o Aircraft, missile and satellite o Real time data acquisition, o JSF, F-15, F-18, F-22, Comanche, telemetry and instrumentation measurement, processing, Nimrod (U.K.), Tactical Hellfire, systems simulation, distribution, display Titan, EELV, A2100, ATHENA, and storage for flight testing ARTEMIS and ICO o Training range telemetry systems o Training ranges and test ranges o Combat simulation and tests Space Products o Global satellite communications o Satellite transmission of voice, o Rural telephony or private systems supplier video and data networks, direct to home uplinks, satellite news gathering and wideband applications o Safe and arms processor o Weapons o Hellfire, Javeline
54 INDUSTRY OVERVIEW The defense industry has undergone significant changes precipitated by ongoing federal budget pressures and new roles and missions to reflect changing strategic and tactical threats. Since the mid-1980's, the overall U.S. defense budget has declined in real dollars. In response, the DoD had focused its resources on enhancing its military readiness, joint operations and digital command and control communications capabilities by incorporating advanced electronics to improve the performance, reduce operating cost and extend the life expectancy of its existing and future platforms. The emphasis on system interoperability, force multipliers and providing battlefield commanders with real-time data is increasing the electronics content of nearly all of the major military procurement and research programs. As a result, the DoD's budget for communications and defense electronics is expected to grow. The industry has also undergone dramatic consolidation resulting in the emergence of three dominant prime system contractors (The Boeing Company ("Boeing"), Lockheed Martin and Raytheon Company ("Raytheon")). One outgrowth of this consolidation among the remaining major prime contractors is their desire to limit purchases of products and sub-systems from one another. However, there are numerous essential products, components and systems that are not economical for the major prime contractors to design, develop or manufacture for their own internal use which creates opportunities for merchant suppliers such as L-3. As the prime contractors continue to evaluate their core competencies and competitive position, focusing their resources on larger programs and platforms, the Company expects the prime contractors to continue to exit non-strategic business areas and procure these needed elements on more favorable terms from independent, commercially oriented merchant suppliers. Recent examples of this trend include divestitures of certain non-core defense-related businesses by AlliedSignal Inc. ("AlliedSignal"), Lockheed Martin and Raytheon. The prime contractors' focus on cost control is also driving increased use of commercial off-the-shelf products for upgrades of existing systems and in new systems. The Company believes the prime contractors will continue to be under pressure to reduce their costs and will increasingly seek to focus their resources and capabilities on major systems, turning to commercially oriented merchant suppliers to produce sub-systems, components and products. Going forward, successful merchant suppliers will use their resources to complement and support, rather than compete with the prime contractors. L-3 anticipates the relationship between the major prime contractors and their primary suppliers will, as in the automotive and commercial aircraft industry, develop into critical partnerships encompassing increasingly greater outsourcing of non-core products and systems by the prime contractors to their key merchant suppliers and increasing supplier participation in the development of future programs. Early involvement in the upgrading of existing systems and the design and engineering of new systems incorporating these outsourced products will provide merchant suppliers, including the Company, with a competitive advantage in securing new business and provide the prime contractors with significant cost reduction opportunities through coordination of the design, development and manufacturing processes. BUSINESS STRATEGY Management has successfully integrated the business units of Lockheed Martin it acquired in the L-3 Acquisition and enhanced the Company's operating efficiency through reduced overhead expenses and facility rationalization. These efforts resulted in improvements in sales, profitability and competitive contract award win rates. Going forward, L-3 intends to leverage its market position, diverse program base and favorable mix of cost plus to fixed price contracts to enhance its profitability and to establish itself as the premier merchant supplier of communication systems and products to the major prime contractors in the aerospace/defense industry as well as the Government. The Company's strategy to continue to achieve its objectives includes: 55 o EXPAND MERCHANT SUPPLIER RELATIONSHIPS. Management has developed strong relationships with virtually all of the prime contractors, the DoD and other major government agencies, enabling L-3 to identify business opportunities and anticipate customer needs. As an independent merchant supplier, the Company anticipates its growth will be driven by expanding its share of existing programs and by participating in new programs. Management identifies opportunities where it believes it will be able to use its strong relationships to increase its business presence and allow its customers to reduce their costs. The Company also expects to benefit from increased outsourcing by prime contractors who in the past may have limited their purchases to captive suppliers and who are now expected to view L-3's capabilities on a more favorable basis given its status as an independent company. L-3's independent status positions it to be the desired merchant supplier to multiple bidders on prime contract bids. As an example of the Company's merchant supplier strategy, L-3 equipment is included in all three prime contractor bids for the Airborne Standoff Radar ("ASTOR") program in the United Kingdom and both prime contractor bids for the DoD's Joint Air Surface Standoff Missile ("JASSM") program. o SUPPORT CUSTOMER REQUIREMENTS. A significant portion of L-3's sales are derived from high-priority, long-term programs and from programs for which the Company has been the incumbent supplier, and in many cases acted as the sole provider, over many years. Approximately 60% of the Company's total pro forma sales of $834.5 million for the nine-month period ended September 30, 1998 were generated from sole source contracts. L-3's customer satisfaction and excellent performance record are evidenced by its performance-based award fees exceeding 89% on average over the past two years. Management believes prime contractors will increasingly award long-term, sole source, outsourcing contracts to the merchant supplier they believe is most capable on the basis of quality, responsiveness, design, engineering and program management support as well as cost. Reflecting L-3's strong competitive position, the Company has experienced a contract award win rate on a pro forma basis for the nine-month period ended September 30, 1998 in excess of 59% on new competitive contracts for which it competes and in excess of 90% on contracts for which it is the incumbent. The Company intends to continue to align its research and development, manufacturing and new business efforts to complement its customers' requirements and provide state-of-the-art products. o ENHANCE OPERATING MARGINS. Since the L-3 Acquisition in April 1997, management has reduced corporate administrative expenses and facilities costs, increased sales and improved competitive contract award win rates. Enhancement of operating margins was primarily due to efficient management and elimination of significant corporate expense allocations which existed prior to the L-3 Acquisition. Pro forma EBITDA (excluding the 1998 Acquisitions) as a percentage of sales improved from 12.5% in 1996 to 13.4% in 1997. Management intends to continue to enhance its operating performance by reducing overhead expenses, continuing consolidation and increasing productivity. o LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. L-3 has developed strong, proprietary technical capabilities that have enabled it to capture a number one or two market position in most of its key business areas, including secure, high data rate communications systems, solid state aviation recorders, telemetry, instrumentation and space products, advanced antenna systems and high performance microwave components. For the period from January 1, 1996 to September 30, 1998, the Company, on a pro forma basis, has invested over $150.0 million in Company-sponsored independent research and development, including bid and proposal costs, in addition to making substantial investments in its technical and manufacturing resources. Further, the Company has a highly skilled workforce including approximately 2,500 engineers. Management is applying the Company's technical expertise and capabilities into several closely aligned commercial business areas and applications, such as medical imaging archive management, wireless telephony and airport security equipment and will continue to explore other similar commercial opportunities. 56 o MAINTAIN DIVERSIFIED BUSINESS MIX. The Company enjoys a diverse business mix with a limited program exposure, a favorable balance of cost plus and fixed price contracts, a significant sole source follow-on business and an attractive customer profile. The Company's largest program, representing approximately 7% of $834.5 million pro forma sales for the nine-month period ended September 30, 1998, is a long-term, sole source, cost plus contract for the U-2 Program. No other program represented more than 5% of pro forma sales for the nine-month period ended September 30, 1998. Further, the Company's pro forma sales mix of contracts for the nine-month period ended September 30, 1998 was 29% cost plus and 71% fixed price, providing the Company with a favorable mix of predictable profitability (cost plus) and higher margin (fixed price) business. L-3 also enjoys an attractive customer mix of defense and commercial business, with DoD related sales accounting for 68% and commercial and federal (non-DoD) sales accounting for approximately 32% of pro forma sales of $834.5 million for the nine-month period ended September 30, 1998. The Company intends to leverage this favorable business profile to expand its merchant supplier business base. o CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. Recent industry consolidation has essentially eliminated traditional middle-tier aerospace/defense companies. This level of consolidation is now beginning to draw the concern of the DoD and federal anti-trust regulators. In 1997 and 1998, a number of merchant supplier companies were sold: the Computing Devices International division of Ceridian to General Dynamics Corp. ("General Dynamics"), Kaman Sciences Corp. ("Kaman Sciences") to ITT Industries, Inc. ("ITT"), BDM International, Inc. ("BDM") to TRW Inc. ("TRW"), TASC Inc., a subsidiary of Primark Corporation, to Litton Industries, Inc. ("Litton") and Tracor, Inc. to GEC Marconi, a unit of The General Electric Company, p.l.c. As a result, the Company anticipates that the consolidation of the smaller participants in the defense industry will create attractive complementary acquisition candidates for L-3 in the future as these companies continue to evaluate their core competencies and competitive position. L-3 intends to enhance its existing product base through internal research and development efforts as well as selective acquisitions and add new products to its product base through acquisitions in areas synergistic with L-3's present technology. The Company seeks to acquire potential targets with the following criteria: (i) significant market position in its business area, (ii) product offerings which complement and/or extend those of L-3 and (iii) positive future growth and earnings prospects. ACQUISITION STRATEGY Since L-3's formation in April 1997, the Company has actively pursued its acquisition strategy. Since completing the L-3 Acquisition, the Company has purchased twelve additional businesses for an aggregate cash purchase price including assumed debt and expenses, net of cash acquired, of approximately $534.0 million, subject to certain post-closing adjustments, and in certain cases additional consideration based on post-closing performance. The Company considers and executes strategic acquisitions on an ongoing basis and may be evaluating acquisitions or engaged in acquisition negotiations at any given time. The Company has reached agreement on or is in discussions regarding a number of potential acquisition opportunities and expects to use its bank credit facilities to fund these transactions if it proceeds with them. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". RECENT DEVELOPMENTS SPD Technologies, Inc. On August 13, 1998, the Company acquired all of the outstanding common stock of SPD for $230.0 million in cash, subject to certain post-closing adjustments. SPD is the leading supplier to the U.S. Navy for subsystems that manage, control, distribute, protect and condition electrical power in surface ships and submarines. SPD's major products include electronic solid state protection products, switchgear, high-speed transfer switches, fault isolation units, frequency converters and inverters, voltage transformers and uninterruptible power supply systems. SPD's 57 products are installed in every nuclear submarine, aircraft carrier and surface platform operated by the U.S. Navy. SPD also provides shipboard communications and control as well as support service for installed products. This acquisition was financed using cash from operations and borrowings under the Company's bank credit facilities. Microdyne Corporation. On December 3, 1998, the Company signed an agreement to acquire all of the outstanding common stock of Microdyne for approximately $90.0 million in cash, including the repayment of Microdyne's debt. For the fiscal year ended September 30, 1998, Microdyne reported actual revenues of $58.3 million, operating income of $1.3 million and net income of $0.3 million. On a pro forma basis, including acquisitions Microdyne made during its 1998 fiscal year as if they had occurred at the beginning of its fiscal year, Microdyne's revenues would have been $73.5 million, operating income was $3.6 million and net income was $0.9 million. Microdyne's actual earnings before interest, taxes, depreciation and amortization for the recent fiscal year was $2.9 million. Pro forma earnings before interest, taxes, depreciation and amortization would have been $11.1 million before non-recurring charges of $5.1 million primarily for the write-off of acquired in-process research and development costs. Pursuant to the acquisition agreement, one of the Company's subsidiaries has purchased 91.9% of the common stock of Microdyne in a cash tender offer. We expect to complete the merger of Microdyne with this subsidiary in early 1999. Microdyne is a leading global developer and manufacturer of aerospace telemetry receivers, secure communications and technical support services, including specialized telemetry high-frequency radios used in aerospace and satellite communications for data gathering and analysis. Microdyne also provides products for the government and commercial signal intelligence markets and support and repair services for electronic products companies. Microdyne's aerospace telemetry products will enable us to provide integrated solutions to our space customers' requirements for command, control, telemetry and tracking. The purchase of shares of Microdyne common stock was financed using available cash and borrowings under the Senior Credit Facilities. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". HISTORY Holdings, which owns all of the Company's common stock, was formed in April 1997 by Mr. Frank C. Lanza, the former President and Chief Operating Officer of Loral, Mr. Robert V. LaPenta, the former Senior Vice President and Controller of Loral (collectively, "Senior Management"), the Lehman Partnership and Lockheed Martin to carry-out the L-3 Acquisition. In May 1998, Holdings successfully completed the IPO, raising net proceeds of $139.5 million which Holdings contributed to L-3. The Company raised net proceeds of $173.8 million in a concurrent debt offering. In December 1998, the Company raised net proceeds of $193.7 million in the Old Notes Offering. PRODUCTS AND SERVICES SECURE COMMUNICATION SYSTEMS L-3 is a leader in communication systems for high performance intelligence collection, imagery processing and ground, air, sea and satellite communications for the DoD and other government agencies. The Salt Lake City operation provides secure, high data rate, real-time communication systems for surveillance, reconnaissance and other intelligence collection systems. The Camden operation designs, develops, produces and integrates communication systems and support equipment for space, ground and naval applications. The Shrewsbury operation provides communication software support services to military and related government intelligence markets. Product lines of the Secure Communication Systems business include high data rate communications links, satellite communications ("SATCOM") terminals, Navy vessel communication systems, space communications and satellite control systems, signal intelligence information processing systems, information security systems, tactical battlefield sensor systems and commercial communication systems. o HIGH DATA RATE COMMUNICATIONS The Company is a technology leader in high data rate, covert, jam-resistant microwave communications in support of military and other national agency reconnaissance and surveillance 58 applications. L-3's product line covers a full range of tactical and strategic secure point-to-point and relay data transmission systems, products and support services that conform to military and intelligence specifications. The Company's systems and products are capable of providing battlefield commanders with real time, secure surveillance and targeting information and were used extensively by U.S. armed forces in the Persian Gulf war. During the 1980s, largely based on its prior experience with command and control guidance systems for remotely-piloted vehicles, L-3 developed its current family of strategic and tactical data links, including its Modular Interoperable Data Link ("MIDL") systems and Modular Interoperable Surface Terminals ("MIST"). MIDL and MIST technologies are considered virtual DoD standards in terms of data link hardware. The Company's primary focus is spread spectrum communication (based on CDMA technology), which involves transmitting a data signal with a high rate noise signal so as to make it difficult to detect by others, and then re-capturing the signal and removing the noise. The Company's data links are capable of providing information at over 200 Mb/s. L-3 provides these secure high band width products to the U.S. Air Force, Navy, Army and various Government agencies, many through long-term sole source programs. The scope of these programs include air-to-ground, air-to-air, ground-to-air and satellite communications. Government programs include: U-2 Support Program, Common High-Band Width Data Link ("CHBDL"), Battle Group Passive Horizon Extension System ("BGPHES"), Light Airborne Multi-Purpose System ("LAMPS"), TriBand SATCOM Subsystem ("TSS"), major unmanned aerial vehicle ("UAV") programs and Direct Air-Satellite Relay ("DASR"). o SATELLITE COMMUNICATION TERMINALS L-3 provides ground-to-satellite, high availability, real-time global communications capability through a family of transportable field terminals to communicate with commercial, military and international satellites. These terminals provide remote personnel with anywhere, anytime effective communication capability and provide communications links to distant forces. The Company's TriBand SATCOM Subsystem ("TSS") employs a 6.25 meter tactical dish with a single point feed that provides C, Ku and X band communication to support the U.S. Army. The Company also offers an 11.3 meter dish which is transportable on two C-130 aircraft. The SHF Portable Terminal System ("PTS") is a lightweight (28 lbs.), manportable terminal, which communicates through DSCS, NATO or SKYNET satellites and brings unprecedented connectivity to small military tactical units and mobile command posts. L-3 delivered 14 of these terminals for use by NATO forces in Bosnia. o SPACE COMMUNICATIONS AND SATELLITE CONTROL Continuing L-3's tradition of providing communications for every manned U.S. space flight since Mercury, the Company is currently designing and testing three communication subsystems for the International Space Station ("ISS"). These systems will control all ISS radio frequency ("RF") communications and external video activities. The Company also provides solid-state recorders and memory units for data capture, storage, transfer and retrieval for space applications. The standard NASA tape recorder, which was developed and produced by the Company, has completed over four million hours of service without a mission failure. Current programs include recorders for the National Oceanic & Atmospheric Administration ("NOAA") weather satellites, the Earth Observing Satellite ("EOS"), AM spacecraft and Landsat-7 Earth-monitoring spacecraft. The Company also provides space and satellite system simulation, satellite operations and computer system training, depot support, network engineering, resource scheduling, launch system engineering, support, software integration and test through cost-plus contracts with the U.S. Air Force. o MILITARY COMMUNICATIONS The Company provides integrated, computer controlled switching systems for the interior and exterior voice and data needs of today's Navy military vessels. The Company's products include Integrated Voice Communication Systems ("IVCS") for Aegis cruisers and destroyers and the 59 Integrated Radio Room ("IRR") for Trident class submarines, the first computer controlled communications center in a submarine. These products integrate the intercom, tactical and administrative communications network into one system accessing various types of communication terminals throughout the ship. The Company's MarCom 2000 secure digital switching system is in development for the Los Angeles class attack submarine and provides an integrated approach to the specialized voice and data communications needs of a shipboard environment for internal and external communications, command and control and air traffic control. The Company also offers on-board, high data rate communications systems which provide a data link for carrier battle groups which are interoperable with the U.S. Air Force's surveillance/ reconnaissance terminal platforms. The Company provides the US Army's Command and Control Vehicle ("C2V") Mission Module Systems ("MMS"). MMS provides the "communications on the move" capability needed for the digital battlefield by packaging advanced communications into a modified Bradley Fighting Vehicle. The Company is a proven supplier of superior technological expertise to the DoD, including its contractors and related government intelligence agencies. o INFORMATION SECURITY SYSTEMS The Company has produced more than 100,000 secure telephone units ("STU III") which are in use today by the U.S. Armed Forces to provide secure telephone capabilities for classified confidential communication over public commercial telephone networks. The Company has begun producing the next-generation digital, ISDN-compatible STE. STE provides clearer voice and thirteen-times faster data/fax transmission capabilities than the STU III. STE also supports secure conference calls and secure video teleconferencing. STE uses a CryptoCard security system which consists of a small, portable, cryptographic module mounted on a PCMCIA card holding the algorithms, keys and personalized credentials to identify its user for secure communications access. The Company also provides LMD/KP which is the workstation component of the Government's Electronic Key Management System ("EKMS"), the next generation of information security systems. EKMS is the Government system to replace current "paper" secret keys used to secure government communications with "electronic" secret keys. LMD/KP is the component of the EKMS which produces and distributes the electronic keys. L-3 also develops specialized strategic and tactical SIGINT systems to detect, acquire, collect, and process information derived from electronic sources. These systems are used by classified customers for intelligence gathering and require high speed digital signal processing and high density custom hardware designs. SPECIALIZED COMMUNICATION PRODUCTS MICROWAVE COMPONENTS L-3 is the preeminent worldwide supplier of commercial off-the-shelf, high performance RF microwave components, assemblies and instruments supplying the wireless communications, industrial and military markets. The Company is also a leading provider of state-of-the-art space-qualified commercial satellite and strategic military RF products and millimeter amplifier based products. L-3 sells many of these components under the well-recognized Narda brand name and through a comprehensive catalog of standard, stocked hardware. L-3 also sells its products through a direct sales force and an extensive network of premier market representatives. Specific catalog offerings include wireless products, electro-mechanical switches, power dividers and hybrids, couplers/detectors, attenuators, terminations and phase shifters, isolators and circulators, adapters, control products, sources, mixers, waveguide components, RF safety products, power meters/monitors and custom passive products. The Company operates from three principal sites, one in Hauppauge, New York ("Narda East") and two in Sacramento, California ("Narda West" and "DBS"). Narda East represents approximately 60% of L-3's microwave sales volume, offering high performance microwave components, networks and instruments to the wireless, industrial and military communications markets. Narda East's products can be divided into three major categories: passive components, higher level wireless assemblies/monitoring systems and safety instruments. 60 Passive components are generally purchased in narrow frequency configurations by wireless original equipment manufacturers and service providers. Similar components are purchased in wide frequency configurations by first-tier military equipment suppliers. Commercial applications for Narda components are primarily in cellular or PCS base stations. Narda also manufactures higher level assemblies for wireless base stations and the paging industry. These products include communication antenna test sets, devices that monitor reflected power to determine if a cellular base station antenna is working and whether the base station radios are operating at peak power levels. Military applications include general procurement for test equipment or electronic surveillance and countermeasure systems. Safety products are instruments which are used to measure the level of non-ionizing radiation in a given area, i.e., from an antenna, test set or other emitting source, and determine whether human exposure limits are within federal standards. Narda West designs and manufactures state-of-the-art space-qualified and wireless components. Space qualified components include channel amplifiers, linearizers and diplexers/multiplexers, which are used to separate various signals and direct them to the appropriate other sections of the payload. Narda West's primary areas of focus are communications satellite payload products. Channel amplifiers and linearizers constitute Narda West's main satellite products. Channel amplifiers amplify the weak signals received from earth stations by a factor of 1 million, and then drive the power amplifier tubes that broadcast the signal back to earth. These products are sold to satellite manufacturers and offer lower cost, lower weight and improved performance as compared to in-house alternatives. On a typical satellite, for which there are 20 to 50 channel amplifiers, Narda West's channel amplifiers offer cost savings of up to 60% (up to $1 million per satellite) and decrease launch weight by up to 25 kilograms. Linearizers, used either in conjunction with a channel amplifier or by themselves, pre-distort a signal to be transmitted back to earth before it enters a Traveling Wave Tube ("TWT") for amplification. This pre-distortion is exactly the opposite of the distortion created at peak power by the TWT and, consequently, has a cancellation effect that keeps the signal linear over a much larger power band of the tube. This sigificantly increases the useful output power of the TWT and consequent terrestrial coverage from the satellite. Narda West products include wireless microwave components for cellular and PCS base station applications. These products include filters used to transmit and receive channel separation as well as ferrite components which isolate certain microwave functions, thereby preventing undesired signal interaction. Other products include a wide variety of high reliability power splitters, combiners and filters for spacecraft and launch vehicles, such as LLV, Tiros, THAAD, Mars Surveyor, Peacekeeper, Galileo, Skynet, Cassini, Milstar, Space Shuttle, LandSat, FltSatCom, GPS, GPS Block IIR, IUS, ACE, SMEX and certain classified programs. The balance of the operation's business involves wideband filters used for electronic warfare applications. DBS designs and manufactures both broad and narrow band amplifiers and amplifier-based products in the microwave and millimeter wave frequencies. These amplifiers are used as low-noise, high-gain components in defense and communications applications. These devices can be narrow band for communication needs or broadband for electronic warfare. DBS has an extensive offering of amplifier designs allowing it to rapidly respond to unique requirements from its marketplace. DBS offers standard packaged amplifiers for use in various automated test equipment and system applications. It is also developing higher-level assemblies for specific military applications in which the amplifier serves as the cornerstone component. For future growth, DBS is at the forefront of technology in both the design and manufacturing of millimeter range (-20GHz) amplifier products for use in emerging communication applications such as back haul radios, LMDS and ground terminals for LEOS. Further, DBS is starting to penetrate the space qualified communications market with designs applicable to many LEO communication satellite needs. AVIONICS AND OCEAN PRODUCTS o AVIATION RECORDERS L-3 manufactures commercial solid-state crash-protected aviation recorders ("black boxes") under the Fairchild brand name, and has delivered over 40,000 flight recorders to airplane manufacturers 61 and airlines around the world. Recorders are mandated and regulated by various worldwide agencies for commercial airlines and a large portion of business aviation aircraft. Management anticipates growth opportunities in Aviation Recorders as a result of the current high level of orders for new commercial aircraft. Expansion into the military market shows continued growth opportunities. L-3 Recorders were recently selected for installation on the fleet of the Royal Australian Air Force and Royal Australian Army transport aircraft and are currently being installed on the U.S. Navy C-9 aircraft. There are two types of recorders: (i) the Cockpit Voice Recorder ("CVR") which records the last 30 to 120 minutes of crew conversation and ambient sounds from the cockpit and (ii) the Flight Data Recorder ("FDR") which records the last 25 hours of aircraft flight parameters such as speed, altitude, acceleration, thrust from each engine and direction of the flight in its final moments. Recorders are highly ruggedized instruments, designed to absorb the shock equivalent to that of an object traveling at 268 knots stopping in 18 inches, fire resistant to 1,100 degrees centigrade and pressure resistant to 20,000 feet undersea for 30 days. Management believes that the Company has the leading worldwide market position for CVR's and FDR's. o ANTENNA PRODUCTS Under the Randtron brand name, L-3 produces high performance antennas designed for surveillance, high-resolution, ultra-wide frequency bands, detection of low radar cross section ("LRCS") targets, LRCS installations, severe environmental applications and polarization diversity. L-3's main antenna product is a sophisticated 24-foot diameter antenna operational on all E-2C aircraft. This airborne antenna consists of a 24-foot rotating aerodynamic radome containing a UHF surveillance radar antenna, IFF antenna and forward and aft auxiliary antennas. Production of this antenna began in the early 1980s, and production is planned beyond 2000 for the E-2C, P-3 and C-130 AEW aircraft. The replacement for this antenna is a very adaptive radar currently under development for introduction early in the next decade. L-3 also produces broad-band antennas for a variety of tactical aircraft and rotary joints for the AWAC's and E-2C's antenna. Randtron has delivered over 2,000 aircraft sets of antennas and has a current backlog through 1999. L-3 is a leading supplier of ground-based radomes. Radomes are designed to enclose an antenna system as a protective shield against the environment as well as to accentuate the performance of an antenna system. Radomes are used to enclose antenna systems used for air traffic control, weather radar, defense and scientific purposes. o DISPLAY PRODUCTS L-3 specializes in the design, development and manufacture of ruggedized display system solutions for military and high-end commercial applications. L-3's current product lines include cathode ray tubes ("CRTs"), the Actiview family of active matrix liquid crystal displays ("AMLCD"), and a family of high performance Display Processing systems. L-3 manufactures flat-panel displays that are used on platforms such as E-2C, F-117, and the LCAC (Landing Craft Air Cushion) vehicle. Recent new contracts for flat-panel displays include the SH-60J helicopter and the C-130 Senior Scout. L-3 also manufactures CRT displays for the E-2C Hawkeye, V-22 Osprey, and F-14 Tomcat and electronics used in aircraft anti-lock braking systems. o OCEAN PRODUCTS The Company is one of the world's leading suppliers of acoustic undersea warfare systems, having designed, manufactured and supported a broad range of compact, lightweight, high performance acoustic systems for navies around the world for over forty years. This experience spans a wide range of platforms, including helicopters, submarines and surface ships, that employ the Company's sonar systems and countermeasures. SPD is the world's leading provider of state-of-the-art, mission-critical electronics and electrical power delivery products, systems and subsystems, as well as communications and control systems for the U.S. Navy and many domestic and international customers. In addition, SPD provides communications subsystems and electrical products for transportation and utilities businesses. SPD's 62 four business units are: SPD Electrical Systems, which is the leading U.S. manufacturer of military power delivery systems and components focused on switching, distribution and protection providing engineering design and development, manufacturing and overhaul and repair services; Power Paragon, which is one of the world's leading providers of high technology electrical power distribution, control and conversion systems focused on frequency and voltage conversion for military and commercial applications; Henschel, which is the leading designer, developer, and manufacturer of ship control and interior communications equipment; and Pac Ord, which is the only combat systems overhaul and repair contractor, which services the U.S. Naval Fleet on a national basis with locations in San Diego, Norfolk and Jacksonville. TELEMETRY, INSTRUMENTATION AND SPACE PRODUCTS The Company is a leader in component products and systems used in telemetry and instrumentation for airborne applications such as satellites, aircraft, UAVs, launch vehicles, guided missiles, projectiles and targets. Telemetry involves the collection of data from these platforms, its transmission to ground stations for analysis, and its further dissemination or transportation to another platform. A principal use of this telemetry data is to measure as many as 1,000 different parameters of the platform's operation (in much the same way as a flight data recorder on an airplane measures various flight parameters) and transmit this data to the ground. Additionally, for satellite platforms, the equipment also acquires the command uplink that controls the satellite and transmits the necessary data for ground processing. In these applications, high reliability of components is crucial because of the high cost of satellite repair and the length of uninterrupted service required. Telemetry also provides the data to terminate the flight of missiles and rockets under errant conditions and/or at the end of a mission. Telemetry and command/control products are currently provided on missile programs such as AMRAAM, ASRAAM, AIM-9X, JASSM, JDAM, FOTT, ATACMS and PAC-3, as well as satellite programs such as GPS BLK IIF, GLOBALSTAR, EARTHWATCH, SBIRS, LUNAR PROSPECTOR, MTSAT, ARTEMIS and Hughes ICO. o AIRBORNE, GROUND AND SPACE TELEMETRY The Company provides airborne equipment and data link systems to gather critical information and to process, format and transmit it to the ground through communication data links from a communications satellite, spacecraft, aircraft and/or missile. These products are available in both COTS and custom configurations and include software and software engineering services. Major customers are the major defense contractors who manufacture aircraft, missiles, warheads, launch vehicles, munitions and bombs. Ground instrumentation activity occurs at the ground station where the serial stream of combined data is received and decoded in real-time, as it is received from the airborne platform. Data can be encrypted and decrypted during this process, an additional expertise that the Company offers. The Company recently introduced the NeTstar satellite ground station, which collapses racks of satellite RF receivers, demodulators and related units into a PC. o SPACE PRODUCTS L-3 offers value-added solutions that require complex product integration, rich software content and comprehensive support to its customers. The Company focuses on the following niches within the satellite ground segment equipment market: telephony, video broadcasting and multimedia. The Company's customers include foreign PTT's, domestic and international prime communications infrastructure contractors, telecommunications or satellite service providers, broadcasters and media-related companies. EMERGING COMMERCIAL PRODUCTS o MEDICAL ARCHIVING AND SIMULATION SYSTEMS The Company markets jointly with GE Medical Systems GEMnet (Trade Mark) , a cardiac image management and archive system through an exclusive reseller arrangement with GE Medical Systems. 63 GEMnet (Trade Mark) eliminates the use of cinefilm in a cardiac catheterization laboratory by providing a direct digital connection to the laboratory. The system provides for acquisition, display, analysis and short- and long-term archive of cardiac patient studies, providing significant cost savings and process improvements to the hospital. The Company is an exclusive reseller of EchoNet (Trade Mark) pursuant to a reseller arrangement with Heartlab, Inc. EchoNet (Trade Mark) is a digital archive management and review system designed specifically for the echocardiology profession. The system accepts digital echocardiology studies from a variety of currently available ultrasound systems, manages the studies, making them available on a network, and allows the physicians and technicians to become more productive. EchoNet (Trade Mark) is a trademark of Heartlab, Inc. GEMnet (Trade Mark) is a trademark of GE. The Company has approximately a one-third equity ownership interest in Medical Education Technologies, Inc. ("METI"). METI is a medical technology company engaged in the development, manufacture and sale of Human Patient Simulators ("HPS"). The HPS is a computerized system with a life-like mannequin that reacts to medical treatments and interventions similar to a human being. Originally oriented to the anesthesiology training and education domain, METI has expanded into cardiology, critical care, trauma care, allied health care, military medicine and continuing medical education. METI's target customers for its HPS include medical schools throughout the world, colleges with registered nursing programs, community colleges and state, local and volunteer emergency medical service organizations. o WIRELESS LOOP TELECOMMUNICATIONS EQUIPMENT The Company is applying its wireless communication expertise to introduce local wireless loop telecommunications equipment using a synchronous Code Division Multiple Access technology ("CDMA") supporting terrestrial and space based, fixed and mobile communication services. The system's principal targeted customer base is emerging market countries and rural areas where existing telecommunications infrastructure is inadequate or non-existent. The Company's system will have the potential to interface with low earth orbit ("LEO") PCS systems such as Globalstar, Iridium and/or any local public telephone network. The Company expects to manufacture for sale certain of the infrastructure equipment. The Company intends to pursue joint ventures with third parties for service and distribution capabilities. The Company has entered into product distribution agreements with Granger Telecom Ltd. for distribution in parts of Africa, the Middle East and the United Kingdom, and with Unisys for distribution in parts of Mexico and South America. This same technology is also being introduced into the Ellipso "big LEO" program to provide the key communications capability in the ground and user segments. In this program, the Company will provide the CDMA processing equipment in the Ground Control Segment and the Ellipso user terminals, both fixed and mobile. o AIRPORT SECURITY EQUIPMENT The FAA has awarded the Company a development contract for next generation airport security equipment for explosive detection. L-3 has teamed with Analogic Corporation and GE to design and produce an explosive detection system ("EDS") utilizing a dual energy computer tomography ("CT") X-ray system. L-3's EDS system, the eXaminer 3DX (Trade Mark) 6000, will analyze the contents of checked baggage at airports for a wide-range of explosive material as specified by the FAA. On November 23, 1998, L-3 received FAA certification for its eXaminer 3DX (Trade Mark) 6000 system which is the only second- generation system to receive certification and the only system to generate full, three-dimensional images of all objects in a piece of baggage. The eXaminer 3DX (Trade Mark) 6000 has been certified at 500 bags per hour but eventually will be capable of inspecting baggage at an average of 675 bags per hour, which will allow screening of passenger-checked baggage for a large body aircraft, such as a Boeing 747, in approximately 40 minutes. It can be installed as a stand-alone unit in a conveyor system or in a mobile van. o INFORMATION NETWORK SECURITY The Company is applying its information security capabilites developed at Communication Systems--East to the commercial markets through the formation of a new subsidiary, L-3 Communications Secure Information Technology, Inc. ("L-3 Secure Information Technology"). 64 Through a majority-owned joint venture ("L-3 Network Security"), L-3 Secure Information Technology acquired a network security software business from Trident Data Systems, which retained a minority interest in L-3 Network Security. In early November 1998, L-3 Network Security announced the release of its third-generation network security software, Expert (Trade Mark) 3.0, which automates the sophisticated network risk analysis process. This software was first developed for the U.S. Air Force and is now used by leading corporations, consulting firms and government agencies. Expert (Trade Mark) 3.0 allows network administrators and business managers to measure and manage information risk by first automatically mapping a user's network, compiling a database of all systems, applications and services -- including unauthorized modems. Expert (Trade Mark) 3.0's risk algorithms then quantify the amount of risk present in all parts of the network and analyze the likelihood of various insider and outsider threats, linking these threats to actual vulnerabilities present on the network. Expert (Trade Mark) 3.0's databases contain virtually all publicly known computer vulnerabilities, researched and verified by L-3's full-time security team. A comprehensive vulnerability report is provided by Expert (Trade Mark) 3.0, which permits users to quantify risk measures and to formulate a basis for information security policy. MAJOR CUSTOMERS The Company's sales are predominantly derived from contracts with agencies of, and prime contractors to, the Government. Various Government customers exercise independent purchasing decisions. Sales to the Government generally are not regarded as constituting sales to one customer. Instead, each contracting entity is considered to be a separate customer. On a pro forma basis, for the nine-month period ended September 30, 1998 the Company had approximately 300 contracts with a value exceeding $1 million. Pro forma sales to the Government for the nine-month period ended September 30, 1998, including sales through prime contractors, were $608.1 million. The Company's largest program is a long-term, sole source cost plus support contract for the U-2 program which contributed pro forma sales for the nine-month period ended September 30, 1998 of approximately 7%. No other program represented more than 5% of such pro forma sales for the nine-month period ended September 30, 1998. Sales to Lockheed Martin for the nine-month period ended September 30, 1998 were $51.1 million or approximately 7% of total sales. RESEARCH AND DEVELOPMENT The Company employs scientific, engineering and other personnel to improve its existing product lines and to develop new products and technologies in the same or related fields. As of September 30, 1998, the Company employed approximately 2,500 engineers (of whom more than 18% hold advanced degrees). The pro forma amounts of research and development performed under customer-funded contracts and Company-sponsored research projects, including bid and proposal costs, for the nine-month period ended September 30, 1998 were $166.8 million. COMPETITION The Company's ability to compete for defense contracts depends to a large extent on the effectiveness and innovativeness of its research and development programs, its ability to offer better program performance than its competitors at a lower cost to the Government customer, and its readiness in facilities, equipment and personnel to undertake the programs for which it competes. In some instances, programs are sole source or work directed by the Government to a single supplier. In such cases, there may be other suppliers who have the capability to compete for the programs involved, but they can only enter or reenter the market if the Government should choose to reopen the particular program to competition. Approximately 60% of the Company's $834.5 million pro forma sales for the nine-month period ended September 30, 1998 were related to sole source contracts. The Company experiences competition from industrial firms and U.S. government agencies, some of which have substantially greater resources than the Company. These competitors include: AlliedSignal, Cubic Corporation, Eaton Corporation, Globecomm Systems Inc., Harris Corporation, Hughes, Motorola, Scientific-Atlanta, Inc., Thomson Marconi Sonar Ltd., Titan Corporation and 65 TRW Inc. A majority of the sales of the Company is derived from contracts with the 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. PATENTS AND LICENSES Although the Company owns some patents and has filed applications for additional patents, it does not believe that its operations depend upon its patents. In addition, the Company's Government contracts generally license it to use patents owned by others. Similar provisions in the Government contracts awarded to other companies make it impossible for the Company to prevent the use by other companies of its patents in most domestic work. BACKLOG As of September 30, 1998, the Company's pro forma funded backlog was approximately $813.8 million. This backlog provides management with a useful tool to project sales and plan its business on an on-going basis; however, no assurance can be given that the Company's backlog will become revenues in any particular period or at all. Funded backlog does not include the total contract value of multi-year, cost-plus reimbursable contracts, which are funded as costs are incurred by the Company. Funded backlog also does not include unexercised contract options which 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 purchase orders to be issued under indefinite quantity contracts or basic ordering agreements. Overall, approximately 72% of the Company's September 30, 1998 funded backlog is expected to be shipped over the next twelve-month period. Our funded backlog as of September 30, 1998 was made up of the following:
(in millions) Secure Communication Systems ................ $275.8 Specialized Communication Products .......... 538.0 ------ Total ..................................... $813.8 ======
GOVERNMENT CONTRACTS Approximately 68% of the Company's pro forma sales for the nine-month period ended September 30, 1998 were made to agencies of the Government or to prime contractors or subcontractors of the Government. Approximately 71% of the Company's pro forma sales mix of contracts for the nine-month period ended September 30, 1998 were firm fixed price contracts under which the Company agrees to perform for a predetermined price. Although the Company's fixed price contracts generally permit the Company to keep profits if costs are less than projected, the Company does bear the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. Generally, firm fixed price contracts offer higher margin than cost plus type contracts. All domestic defense contracts and subcontracts to which the Company is a party are subject to audit, various profit and cost controls and standard provisions for termination at the convenience of the Government. Upon termination, other than for a contractor's default, the contractor will normally be entitled to reimbursement for allowable costs and to an allowance for profit. Foreign defense contracts generally contain comparable provisions relating to termination at the convenience of the government. To date, no significant fixed price contract of the Company has been terminated. Companies supplying defense-related equipment to the Government are subject to certain additional business risks peculiar to that industry. Among these risks are the ability of the Government to unilaterally suspend the Company from new contracts pending resolution of alleged violations of procurement laws or regulations. Other risks include a dependence on appropriations by the Government, changes in the Government's procurement policies (such as greater emphasis on 66 competitive procurements) and the need to bid on programs in advance of design completion. A reduction in expenditures by the Government for products of the type manufactured by the Company, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts or subcontracts awarded to the Company or substantial cost overruns would have an adverse effect on the Company's cash flow. PROPERTIES The table below sets forth certain information with respect to manufacturing facilities and properties of the Company, excluding non-operating properties held for sale.
LOCATION OWNED LEASED - -------------------------------------------------- ------- ------- (thousands of square feet) L-3 Headquarters, NY ............................. -- 29.7 L-3 Washington Operations, Arlington, VA ......... -- 4.6 SECURE COMMUNICATION SYSTEMS: Camden, NJ ...................................... -- 580.6 Salt Lake City, UT .............................. -- 487.7 SPECIALIZED COMMUNICATION PRODUCTS: Anaheim, CA ..................................... -- 165.3 Folsom, CA ...................................... -- 57.5 Menlo Park, CA .................................. -- 93.1 San Diego, CA ................................... 196.0 68.9 Sylmar, CA ...................................... -- 273.0 Englewood, CO ................................... -- 7.6 Sarasota, FL .................................... -- 143.7 Alpharetta, GA .................................. 93.0 -- Concord, MA ..................................... -- 60.0 Lowell, MA ...................................... -- 47.0 Newburyport, MA ................................. -- 81.2 Hauppauge, NY ................................... 240.1 -- Philadelphia, PA ................................ -- 230.0 Warminster, PA .................................. 40.9 -- Kiel, Germany ................................... -- 302.7 Leer, Germany ................................... -- 60.9
In total, the Company owns approximately 600,000 square feet and leases approximately 3.0 million square feet of manufacturing facilities and properties. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings arising in the ordinary course of its business. Management believes it is adequately reserved for these liabilities and that there is no litigation pending that could have a material adverse effect on the Company's results of operations and financial condition. ENVIRONMENTAL MATTERS The Company's operations are subject to various federal, state and local environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in its operations. The Company continually assesses its obligations and compliance with respect to these requirements. Management believes that the Company's current operations are in substantial compliance with all existing applicable environmental laws and permits. The Company does not currently project the need for any material unbudgeted expenditures to remain in compliance with applicable environmental laws and regulations. 67 Pursuant to the L-3 Acquisition agreement, the Company has agreed to assume certain on-site and off-site environmental liabilities related to events or activities occurring prior to the L-3 Acquisition. Lockheed Martin has agreed to retain all environmental liabilities for all facilities no longer used by the Businesses and to indemnify fully the Company for such prior site environmental liabilities. Lockheed Martin has also agreed, for the first eight years following April 1997, to pay 50% of all costs incurred by the Company above those reserved for on the Company's balance sheet at April 1997 relating to certain Company-assumed environmental liabilities and, for the seven years thereafter, to pay 40% of certain reasonable operation and maintenance costs relating to any environmental remediation projects undertaken in the first eight years. The Company is aware of environmental contamination at two of the facilities acquired from Lockheed Martin that will require ongoing remediation. In November 1997, the Company sold one such facility located in Sarasota, Florida, while retaining a leasehold interest in a portion of that facility, to DMB in a transaction in which DMB contractually agreed to assume responsibility for further remediation of the Sarasota site. Management believes that the Company has established adequate reserves for the potential costs associated with the assumed environmental liabilities. However, there can be no assurance that any costs incurred will be reimbursable from the Government or covered by Lockheed Martin under the terms of the L-3 Acquisition agreement or that the Company's environmental reserves will be sufficient. In connection with the acquisition of Ocean Systems, the Company has acquired the stock of ELAC. In November 1998, the Company exercised its option to purchase the ELAC property. The premises leased by ELAC at the time of the acquisition have environmental contamination consisting of chlorinated solvents in the groundwater beneath and adjoining the site. However, Honeywell Inc. ("Honeywell"), the previous owner of ELAC and the owner of the property at the time of the acquisition, has retained the liability for remediating the ELAC site and has contractually agreed to indemnify AlliedSignal and ELAC. Management believes that any necessary remediation will be covered by the Honeywell indemnification. In connection with the acquisition of STS, the Company acquired certain facilities located in Hauppauge, New York. As part of the acquisition, California Microwave agreed to retain liability for environmental contamination occurring prior to the closing date. Subsequent to the acquisition, the Company performed an environmental assessment of the ground water beneath the site and determined that the ground water contained chlorinated solvents used by STS only prior to the closing of the STS acquisition. The Company has tendered the defense of this matter to California Microwave, which is performing a further investigation of the ground water contamination. Management believes that any necessary remediation will be covered by an indemnification from California Microwave. PENSION PLANS Pursuant to the L-3 Acquisition agreement, Holdings and L-3 Communications assumed certain liabilities relating to defined benefit pension plans for present and former employees and retirees of certain businesses which were transferred from Lockheed Martin to Holdings and L-3 Communications. Prior to the consummation of the L-3 Acquisition, Lockheed Martin received a letter from the PBGC which requested information regarding the transfer of such pension plans and indicated that the PBGC believed certain of such pension plans were underfunded using the PBGC's actuarial assumptions (which assumptions result in a larger liability for accrued benefits than the assumptions used for financial reporting under FASB 87.) The PBGC underfunding is related to the Subject Plans. As of September 30, 1998, the Company calculated the net funding position of the Subject Plans and believes them to be overfunded by approximately $4.8 million under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") assumptions, underfunded by approximately $28.4 million under FASB 87 assumptions and, on a termination basis, underfunded by as much as $70.4 million under PBGC assumptions. With respect to the Subject Plans, Lockheed Martin entered into an agreement (the "Lockheed Martin Commitment Agreement") among Lockheed Martin, L-3 and the PBGC dated as of April 30, 1997. The material terms and conditions of the Lockheed Martin Commitment Agreement include a 68 commitment by Lockheed Martin to the PBGC to, under certain circumstances, assume sponsorship of the Subject Plans or provide another form of financial support for the Subject Plans. The Lockheed Martin Commitment Agreement will continue with respect to any Subject Plan until such time as such Subject Plan is no longer underfunded on a PBGC basis for two consecutive years or, at any time after May 31, 2002, the Company achieves investment grade credit ratings. Pursuant to the Lockheed Martin Commitment Agreement, the PBGC agreed that it would take no further action in connection with the L-3 Acquisition. In return for the Lockheed Martin Commitment, the Company entered into an agreement with Lockheed Martin, dated as of April 30, 1997, pursuant to which the Company provided certain assurances to Lockheed Martin including, but not necessarily limited to, (i) continuing to fund the Subject Plans consistent with prior practices and to the extent deductible for tax purposes and, where appropriate, recoverable under Government contracts, (ii) agreeing to not increase benefits under the Subject Plans without the consent of Lockheed Martin, (iii) restricting the Company from a sale of any businesses employing individuals covered by the Subject Plans if such sale would not result in reduction or elimination of the Lockheed Martin Commitment with regard to the specific plan and (iv) if the Subject Plans were returned to Lockheed Martin, granting Lockheed Martin the right to seek recovery from the Company of those amounts actually paid, if any, by Lockheed Martin with regard to the Subject Plans after their return. In addition, upon the occurrence of certain events, Lockheed Martin, at its option, has the right to decide whether to cause the Company to transfer sponsorship of any or all of the Subject Plans to Lockheed Martin, even if the PBGC has not sought to terminate the Subject Plans. Lockheed Martin may exercise this right by giving 45 days prior written notice to the Company after the occurrence of such triggering events if it has concluded that the liabilities of the Subject Plans would increase unreasonably. As a result of a decrease in the PBGC-mandated discount rate and the resulting decrease in the underlying liability, one of such triggering events has occurred. The Company has notified Lockheed Martin of this fact. Lockheed Martin has informed the Company that it has no present intention to exercise its right to cause the Company to transfer sponsorship of the Subject Plans. If Lockheed Martin did assume sponsorship of these plans, it would be primarily liable for the costs associated with funding the Subject plans or any costs associated with the termination of the Subject Plans but the Company would be required to reimburse Lockheed Martin for these costs. To date, the impact on pension expense and funding requirements resulting from this arrangement has not been significant. However, should Lockheed Martin resume sponsorship of the Subject Plans or if these plans were terminated, the impact of any increased pension expenses or funding requirements could be material to the Company. The Company has performed its obligations under the letter agreement with Lockheed Martin and the Lockheed Martin Commitment and has not received any communications from the PBGC concerning actions which the PBGC contemplates taking in respect of the Subject Plans. EMPLOYEES As of December 31, 1998, the Company employed approximately 8,000 full-time and part-time employees. The Company believes that its relations with its employees are good. Approximately 540 of the Company's employees at its Communication Systems--East operation in Camden, New Jersey are represented by four unions, the Association of Scientists and Professional Engineering Personnel, the International Federation of Professional and Technical Engineers, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers and an affiliate of the International Brotherhood of Teamsters. The collective bargaining agreements for these four unions were successfully renegotiated in mid-1998 without any disruptions to operations. Three of the collective bargaining agreements will expire in 2002, and the other agreement will expire in 2001. Approximately 200 employees of Ocean Systems are represented by the United Auto Workers. The collective bargaining agreement expires in mid-1999. Approximately 140 of the employees at Ocean Systems' ELAC subsidiary in Kiel, Germany are represented by the Metal Trade Industrial Workers of the Hamburg Region and ELAC is represented by the Association of Metal Industry Employers for Schleswig-Holstein. While the Company has not yet initiated discussions with representatives of the United Auto Workers, management believes it will be able to negotiate, without 69 material disruption to its business, a satisfactory new labor contract with these employees. However, there can be no assurance that a satisfactory agreement will be reached with the covered employees or that a material disruption to operations of Ocean Systems will not occur. Approximately 350 of SPD's employees located in Philadelphia, Pennsylvania are represented by the United Automobile Aerospace and Agricultural Implement Workers of America, Local 1612 Amalgamated. The four collective bargaining agreements covering these employees expire in early April 1999, following a six year labor agreement. While the Company has not yet initiated discussions with representatives of the union, management believes that it will be able to negotiate, without material disruption to its business, satisfactory new collective bargaining agreements. However, there can be no assurance that a satisfactory agreement will be reached with the covered employees or that a material disruption to the Company's Philadelphia operations will not occur. Approximately 20 of SPD's employees located in Anaheim and National City, California are represented by the International Brotherhood of Electrical Workers, Local 569, whose collective bargaining agreement expires in late May 2000 and approximately 20 employees are represented by the International Association of Machinists and Aerospace Workers, Local 389 whose collective bargaining agreement expires in early February 2000. 70 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Under the L-3 Acquisition agreement, Lockheed Martin has agreed to indemnify L-3, subject to certain limitations, for Lockheed Martin's breach of representations and warranties and L-3 has assumed certain obligations relating to environmental matters and benefits plans. These obligations include certain on-site and off-site environmental liabilities related to events or activities of the Businesses occurring prior to the L-3 Acquisition. Lockheed Martin has agreed to indemnify Holdings, subject to certain limitations, for its breach of (i) non-environmental representations and warranties up to $50 million (subject to a $5 million threshold) and (ii) for the first eight years following April 1997, to pay 50% of all costs incurred by the Company above those reserved for on the Company's balance sheet at April 1997 relating to certain Company-assumed environmental liabilities and, for the seven years thereafter, 40% of certain reasonable operation and maintenance costs relating to any environmental remediation projects undertaken in the first eight years (subject to a $6 million threshold). Lockheed Martin provides to certain divisions of the Company certain management information systems services at Lockheed Martin's fully-burdened cost but without profit. Holdings, L-3 Communications and Lockheed Martin have entered into certain subleases of real property and cross-licenses of intellectual property. In addition, Holdings and Lockheed Martin have entered into a Limited Noncompetition Agreement (the "Noncompetition Agreement") which, for up to three years from April 1997, in certain circumstances, precludes Lockheed Martin from engaging in the sale of any products that compete with the products of the Company that are set forth in the Noncompetition Agreement for specifically identified application of the products. Under the Noncompetition Agreement, Lockheed Martin is prohibited, with certain exceptions, from acquiring any business engaged in the sale of the specified products referred to in the preceding sentence, although Lockheed Martin may acquire such a business under circumstances where the exceptions do not apply provided that it offers to sell such business to L-3 within 90 days of its acquisition. The Noncompetition Agreement does not, among other exceptions, (i) apply to businesses operated and managed by Lockheed Martin on behalf of the Government, (ii) prohibit Lockheed Martin from engaging in any existing businesses and planned businesses as of the closing of the L-3 Acquisition or businesses that are reasonably related to existing or planned businesses or (iii) apply to selling competing products where such products are part of a larger system sold by Lockheed Martin. In the ordinary course of business L-3 sells products to Lockheed Martin and its affiliates. Sales to Lockheed Martin were $51.1 million, $81.6 million, $70.7 million and $25.9 million for the nine-month period ended September 30, 1998 and the years ended December 31, 1997, 1996 and 1995, respectively. See Note 19 to the Consolidated (Combined) Financial Statements. Sales of products to Lockheed Martin, excluding those under existing intercompany work transfer agreements, are made on terms no less favorable than those which would be available from non-affiliated third party customers. A significant portion of L-3's sales to Lockheed Martin are either based on competitive bidding or catalog prices. STOCKHOLDERS AGREEMENT Holdings, Lockheed Martin, the Lehman Partnership and Messrs. Lanza and LaPenta entered into a stockholders agreement (the "Stockholders Agreement") which, except for the terms relating to (i) the registration rights, (ii) provision of services by Lehman Brothers and (iii) the standstill agreement by Lockheed Martin, terminated upon the completion of the IPO. Pursuant to the Stockholders Agreement, Messrs. Lanza and LaPenta, Lockheed Martin and the Lehman Partnership have the right, from time to time and subject to certain conditions, to require Holdings to register under the Securities Act shares of common stock held by them. Lockheed Martin, the Lehman Partnership and each of the Senior Management has three, four and one demand registration rights, respectively. In addition, the Stockholders Agreement also provides certain existing stockholders with certain piggyback registration rights. The Stockholders Agreement provides, among 71 other things, that the Company will pay expenses in connection with (i) up to two demand registrations requested by Lockheed Martin, up to three demand registrations requested by the Lehman Partnership and the two demand registrations requested by the Senior Management and (ii) any registration in which the existing stockholders participate through piggyback registration rights granted under such agreement. The Stockholders Agreement also provides that Lehman Brothers Inc. has the exclusive right to provide investment banking services to Holdings for the five-year period after the closing of the L-3 Acquisition (except that the exclusivity period is three years as to cash acquisitions undertaken by L-3) so long as the Lehman Partnership owns at least 10% of Holdings' outstanding common stock. In the event that Lehman Brothers Inc. agrees to provide any investment banking services to L-3, it will be paid fees that are mutually agreed upon based on similar transactions and practices in the investment banking industry. Under the Stockholders Agreement Lockheed Martin is subject to a standstill arrangement which generally prohibits any increase in its share ownership percentage over 34.9%. 72 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table provides information concerning the directors and executive officers of Holdings and L-3 Communications.
NAME AGE POSITION - ----------------------------------- ----- ------------------------------------------------- Frank C. Lanza .................... 67 Chairman, Chief Executive Officer and Director Robert V. LaPenta ................. 53 President, Chief Financial Officer and Director Michael T. Strianese .............. 42 Vice President--Finance and Controller Christopher C. Cambria ............ 40 Vice President--General Counsel and Secretary Robert F. Mehmel .................. 36 Vice President--Planning and Assistant Secretary Lawrence W. O'Brien ............... 49 Vice President--Treasurer Joseph S. Paresi .................. 43 Vice President--Product Development Lawrence H. Schwartz .............. 61 Vice President--Business Development Jimmie V. Adams ................... 62 Vice President--Washington D.C. Operations Robert RisCassi ................... 62 Vice President--Washington D.C. Operations David J. Brand(1) ................. 37 Director Thomas A. Corcoran ................ 53 Director Alberto M. Finali ................. 44 Director Eliot M. Fried(1) ................. 65 Director Frank H. Menaker, Jr.(1) .......... 57 Director Robert B. Millard(2) .............. 48 Director John E. Montague(2) ............... 44 Director John M. Shalikashvili ............. 62 Director Alan H. Washkowitz(2) ............. 58 Director
- ---------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Frank C. Lanza, Chairman and CEO. Mr. Lanza joined the Company in April 1997. From April 1996, when Loral was acquired by Lockheed Martin, until April 1997, Mr. Lanza was Executive Vice President of Lockheed Martin, a member of Lockheed Martin's Executive Council and Board of Directors and President and COO of Lockheed Martin's command, control, communications and intelligence ("C3I") and Systems Integration Sector, which comprised many of the businesses acquired by Lockheed Martin from Loral. Prior to the April 1996 acquisition of Loral, Mr. Lanza was President and COO of Loral, a position he held since 1981. He joined Loral in 1972 as President of its largest division, Electronic Systems. His earlier experience was with Dalmo Victor and Philco Western Development Laboratory. Robert V. LaPenta, President and Chief Financial Officer. Mr. LaPenta joined the Company in April 1997. From April 1996, when Loral was acquired by Lockheed Martin, until April 1997, Mr. LaPenta was a Vice President of Lockheed Martin and was Vice President and Chief Financial Officer of Lockheed Martin's C3I and Systems Integration Sector. Prior to the April 1996 acquisition of Loral, he was Loral's Senior Vice President and Controller, a position he held since 1981. He joined Loral in 1972 and was named Vice President and Controller of its largest division in 1974. He became Corporate Controller in 1978 and was named Vice President in 1979. Michael T. Strianese, Vice President-Finance and Controller. Mr. Strianese joined the Company in April 1997. From April 1996, when Loral was acquired by Lockheed Martin, until April 1997, Mr. Strianese was Vice President and Controller of Lockheed Martin's C3I and Systems Integration Sector. From 1991 to the April 1996 acquisition of Loral, he was Director of Special Projects at Loral. Prior to joining Loral, he spent 11 years with Ernst & Young. Mr. Strianese is a Certified Public Accountant. 73 Christopher C. Cambria, Vice President-General Counsel and Secretary. Mr. Cambria joined the Company in June 1997. From 1994 until joining the Company, Mr. Cambria was an associate with Fried, Frank, Harris, Shriver & Jacobson. From 1986 until 1993, he was an associate with Cravath, Swaine & Moore. Robert F. Mehmel, Vice President-Planning and Assistant Secretary. Mr. Mehmel joined the Company in April 1997. From April 1996, when Loral was acquired by Lockheed Martin, until April 1997, Mr. Mehmel was the Director of Financial Planning and Capital Review for Lockheed Martin's C3I and Systems Integration Sector. From 1984 to 1996, Mr. Mehmel held several accounting and financial analysis positions at Loral Electronic Systems and Loral. At the time of Lockheed Martin's acquisition of Loral, he was Corporate Manager of Business Analysis. Lawrence W. O'Brien, Vice President--Treasurer. Mr. O'Brien joined the Company in June 1997. Prior to joining the Company, he was the Vice President and Treasurer of Pechiney Corporation, the North American arm of the Pechiney Group of France, where he held a number of financial positions since 1981. Joseph S. Paresi, Vice President--Product Development. Mr. Paresi joined the Company in April 1997. From April 1996 until April 1997, Mr. Paresi was Corporate Director of Technology for Lockheed Martin's C3I and System Integration Sector. Prior to the April 1996 acquisition of Loral, Mr. Paresi was Corporate Director of Technology for Loral, a position he held since 1993. From 1978 to 1993, Mr. Paresi was a Systems Engineer, Director of Marketing and Director of International Programs at Loral Electronic Systems. Lawrence H. Schwartz, Vice President--Business Development. Mr. Schwartz joined the Company in May 1997. From April 1996 until May 1997, Mr. Schwartz was Vice President of Technology for the C3I and System Integration Sector of Lockheed Martin. Prior to the April 1996 acquisition of Loral, he was Corporate Vice President of Technology for Loral, a position he held since 1987. Between 1976 and 1987, Mr. Schwartz was Vice President of Engineering, Senior Vice President of Business Development, Senior Vice President of the Rapport Program and Senior Vice President of Development Programs at Loral Electronic Systems. Jimmie V. Adams, Vice President-Washington, D.C. Operations. General Jimmie V. Adams (U.S.A.F.-ret.) joined the Company in April 1997. From April 1996 until April 1997, he was Vice President of Lockheed Martin's Washington Operations for the C3I and Systems Integration Sector. Prior to the April 1996 acquisition of Loral, he had held the same position at Loral since 1993. Before joining Loral in 1993, he was Commander in Chief, Pacific Air Forces, Hickam Air Force Base, Hawaii, capping a 35-year career with the U.S. Air Force. He was also Deputy Chief of Staff for plans and operation for U.S. Air Force headquarters and Vice Commander of Headquarters Tactical Air Command and Vice Commander in Chief of the U.S. Air Forces Atlantic at Langley Air Force Base. He is a command pilot with more than 141 combat missions. Robert RisCassi, Vice President-Washington, D.C. Operations. General Robert W. RisCassi (U.S. Army-ret.) joined the Company in April 1997. From April 1996 until April 1997, he was Vice President of Land Systems for Lockheed Martin's C3I and Systems Integration Sector. Prior to the April 1996 acquisition of Loral, he had held the same position for Loral since 1993. He joined Loral in 1993 after retiring as U.S. Army Commander in Chief, United Nations Command/Korea. His 35-year military career included posts as Army Vice Chief of Staff; Director, Joint Staff, Joint Chiefs of Staff; Deputy Chief of Staff for Operations and Plans; and Commander of the Combined Arms Center. David J. Brand, Director. Mr. Brand has served as a director since April 1997 and is a Managing Director of Lehman Brothers and a principal in the Global Mergers & Acquisitions Group, leading Lehman Brothers' Technology Mergers and Acquisitions business. Mr. Brand joined Lehman Brothers in 1987 and has been responsible for merger and corporate finance advisory services for many of Lehman Brothers' technology and defense industry clients. Mr. Brand is currently a director of K&F Industries, Inc. Mr. Brand holds an M.B.A. from Stanford University's Graduate School of Business and a B.S. in Mechanical Engineering from Boston University. 74 Thomas A. Corcoran, Director. Mr. Corcoran has served as a director since July 1997 and has been the President and Chief Operating Officer of the Electronic Systems Sector of Lockheed Martin Corporation since March 1995. From 1993 to 1995, Mr. Corcoran was President of the Electronics Group of Martin Marietta Corporation. Prior to that he worked for General Electric for 26 years and from 1983 to 1993 he held various management positions with GE Aerospace; he was a company officer from 1990 to 1993. Mr. Corcoran is a member of the Board of Trustees of Worcester Polytechnic Institute, the Board of Trustees of Stevens Institute of Technology, the Board of Governors of the Electronic Industries Association, a Director of the U.S. Navy Submarine League and a Director of REMEC Corporation. Alberto M. Finali, Director. Mr. Finali has served as a director since April 1997 and is a Managing Director of Lehman Brothers and principal of the Merchant Banking Group, based in New York. Prior to joining the Merchant Banking Group, Mr. Finali spent four years in Lehman Brothers' London office as a senior member of the M&A Group. Mr. Finali joined Lehman Brothers in 1987 as a member of the M&A Group in New York and became a Managing Director in 1997. Prior to joining Lehman Brothers, Mr. Finali worked in the Pipelines and Production Technology Group of Bechtel, Inc. in San Francisco. Mr. Finali holds an M. Eng. and an M.B.A. from the University of California at Berkeley, and a Laurea Degree in Civil Engineering from the Polytechnic School in Milan, Italy. Eliot M. Fried, Director. Mr. Fried has served as a director since April 1997 and is a Managing Director of Lehman Brothers. Mr. Fried joined Shearson, Hayden Stone, a predecessor firm, in 1976 and became a Managing Director in 1982. Mr. Fried is currently a director of Bridgeport Machines, Inc. and Axsys Technologies, Inc. Mr. Fried holds an M.B.A. from Columbia University and a B.A. from Hobart College. Frank H. Menaker, Jr., Director. Mr. Menaker has served as a director since April 1997 and has served as Senior Vice President and General Counsel of Lockheed Martin since July 1996. He served as Vice President and General Counsel of Lockheed Martin from March 1995 to July 1996, as Vice President of Martin Marietta Corporation from 1982 until 1995 and as General Counsel of Martin Marietta Corporation from 1981 until 1995. He is a director of Martin Marietta Materials, Inc., a member of the American Bar Association and has been admitted to practice before the United States Supreme Court. Mr. Menaker is a graduate of Wilkes University and the Washington College of Law at American University. Robert B. Millard, Director. Mr. Millard has served as a director since April 1997 and is a Managing Director of Lehman Brothers, Head of Lehman Brothers' Principal Trading & Investments Group and principal of the Merchant Banking Group. Mr. Millard joined Kuhn Loeb & Co. in 1976 and became a Managing Director of Lehman Brothers in 1983. Mr. Millard is currently a director of GulfMark Offshore, Inc. and Weatherford International, Inc. Mr. Millard holds an M.B.A. from Harvard University and a B.S. from the Massachusetts Institute of Technology. John E. Montague, Director. Mr. Montague has served as a director since April 1997 and has been Vice President and Chief Financial Officer of Lockheed Martin Global Telecommunications, Inc., a wholly owned subsidiary of Lockheed Martin, since August 1998. He served as Vice President, Financial Strategies at Lockheed Martin responsible for mergers, acquisitions and divestiture activities and shareholder value strategies from March 1995 until August 1998. Previously, he was Vice President, Corporate Development and Investor Relations at Martin Marietta Corporation from 1991 to 1995. From 1988 to 1991, he was Director of Corporate Development at Martin Marietta Corporation, which he joined in 1977 as a member of the engineering staff. Mr. Montague is a director of Rational Software Corporation. Mr. Montague received his B.S. from the Georgia Institute of Technology and an M.S. in engineering from the University of Colorado. John M. Shalikashvili, Director. General Shalikashvili (U.S. Army-ret.) has served as a director since August 1998. Prior to his appointment, he was the senior officer of the United States military and principal military advisor to the President of the United States, the Secretary of Defense and National Security Council by serving as the thirteenth Chairman of the Joint Chiefs of Staff, Department of Defense, for two terms from 1993 to 1997. Prior to his tenure as Chairman of the Joint 75 Chiefs of Staff, he served as the Commander in Chief of all United States forces in Europe and as NATO's tenth Supreme Allied Commander, Europe (SACEUR). He has also served in a variety of command and staff positions in the continental United States, Alaska, Belgium, Germany, Italy, Korea, Turkey and Vietnam. General Shalikashvili is currently a director of United Defense Industries Inc. Alan H. Washkowitz, Director. Mr. Washkowitz has served as a director since April 1997 and is a Managing Director of Lehman Brothers and head of the Merchant Banking Group, and is responsible for the oversight of Lehman Brothers Merchant Banking Portfolio Partnership L.P. Mr. Washkowitz joined Lehman Brothers in 1978 when Kuhn Loeb & Co. was acquired by Lehman Brothers. Mr. Washkowitz is currently a director of Illinois Central Corporation, K&F Industries, Inc., McBride plc. and Peabody Coal Co. Mr. Washkowitz holds an M.B.A. from Harvard University, a J.D. from Columbia University and an A.B. from Brooklyn College. The Board of Directors intends to appoint one additional director who is not affiliated with the Company, Lehman Brothers Inc. or Lockheed Martin by May 18, 1999. The additional director has not yet been identified. The Company's certificate of incorporation provides for a classified Board of Directors divided into three classes. Class I will expire at the annual meeting of the stockholders to be held in 1999; Class II will expire at the annual meeting of the stockholders to be held in 2000; and Class III will expire at the annual meeting of the stockholders to be held in 2001. At each annual meeting of the stockholders, beginning with the 1999 annual meeting, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election and until their successors have been duly elected and qualified, or until their earlier resignation or removal, if any. To the extent there is an increase or reduction in the number of directors, increase or decrease in directorships resulting therefrom will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. Each executive officer and key employee serves at the discretion of the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has two standing committees: an Audit Committee and a Compensation Committee. Currently, the Audit Committee consists of Messrs. Brand, Fried and Menaker. The Company intends to appoint to the Audit Committee only persons who qualify as an "independent" director for purposes of the rules and regulations of the NYSE. The Audit Committee selects and engages, on behalf of the Company, the independent public accountants to audit the Company's annual financial statements, and reviews and approves the planned scope of the annual audit. Currently, Messrs. Millard, Montague and Washkowitz serve as members of the Compensation Committee. The Compensation Committee establishes remuneration levels for certain officers of the Company, performs such functions as provided under the Company's employee benefit programs and executive compensation programs and administers the 1997 Option Plan for Key Employees of Holdings. COMPENSATION OF DIRECTORS The affiliated directors of the Company do not receive compensation for their services as directors. The non-affiliated directors will receive annual compensation of $25,000 in cash, $5,000 of Holdings' common stock, and a grant of stock options to 1,500 shares of Holdings common stock. The non-affiliated directors are entitled to reimbursement for their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees thereof. In addition, the non-affiliated directors will be compensated $1,000 per meeting attended, including committee meetings, up to a maximum of $2,000 per day. 76 LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS The Company's certificate of incorporation provides that to the fullest extent permitted by the Delaware General Corporation Law (the "DGCL"), a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Under the DGCL, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of the provisions of the Company's certificate of incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior), except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's bylaws provide that the Company shall indemnify its directors, officers, employees and agents against losses incurred by any such person by reason of the fact that such person was acting in such capacity. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. EXECUTIVE COMPENSATION Summary Compensation Table. The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers") during the nine months ended December 31, 1997: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ----------------------------- ANNUAL SECURITIES COMPENSATION UNDERLYING ---------------------- RESTRICTED HOLDINGS ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS STOCK OPTIONS COMPENSATION(1) - ----------------------------------------------- ----------- ---------- -------------- -------------- ---------------- Frank C. Lanza (Chairman and Chief Executive Officer)(2) ........................ $542,654 -- -- 1,142,857 -- Robert V. LaPenta (President and Chief Financial Officer)(2) ........................ 356,538 -- -- 1,142,857 -- Lawrence H. Schwartz (Vice President) ......... 145,327 $80,000 -- 17,000 -- Jimmie V. Adams (Vice President) .............. 157,854 70,000 -- 15,000 $ 61 Robert RisCassi (Vice President) .............. 125,704 60,000 -- 15,000 611
- ---------- (1) Represents amounts matched by the Company under its savings plan. (2) On March 2, 1998, each of Mr. Lanza and Mr. LaPenta exercised 228,571 options to purchase Holdings common stock. 77 Stock Options Granted in 1997. The following table sets forth information concerning individual grants of stock options to purchase Holdings' common stock made in 1997 to each of the Named Executive Officers. OPTION GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS -------------------------------------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT-DATE NAME AND PRINCIPAL POSITION GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE(1) - -------------------------------------- ------------------ -------------- --------- ---------------- ------------- Frank C. Lanza (Chairman and Chief Executive Officer) .................. 1,142,857(2) 38.2% $6.47 April 30, 2007 $2,326,731 Robert V. LaPenta (President and Chief Financial Officer) .................. 1,142,857(2) 38.2% $6.47 April 30, 2007 $2,326,731 Lawrence H. Schwartz (Vice President) 17,000 0.6% $6.47 July 1, 2007 $ 17,571 Jimmie V. Adams (Vice President) ..... 15,000 0.5% $6.47 July 1, 2007 $ 15,504 Robert RisCassi (Vice President) ..... 15,000 0.5% $6.47 July 1, 2007 $ 15,504
- ---------- (1) The grant-date valuation of the options was calculated using the minimum value method described in SFAS No. 123. The minimum value is computed as the current price of stock at grant date reduced to exclude the present value of any expected dividends during the option's expected life minus the present value of the exercise price, and does not consider the expected volatility of the price of the stock underlying the option. The material assumptions underlying the computations are: an average discount rate of 6.3%; a dividend yield of 0% and a weighted average expected option life of 5.49 years, with the option lives ranging from 2 years to 10 years. (2) Half of the options granted consists of Time Options and half consists of Performance Options. See "-- Employment Agreements" for description of the terms of these options. AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FY-END OPTION VALUES
VALUE OF NUMBER OF UNEXERCISED SECURITIES UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS OPTIONS AT SHARES VALUE AT FY-END(1) FY-END(1) ACQUIRED ON REALIZED ----------------------------- ---------------------------- NAME AND PRINCIPAL POSITION EXERCISES (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------- -------------- ----------- ------------- --------------- ------------- -------------- Frank C. Lanza (Chairman and Chief Executive Officer)(3) ........ 228,571 $578,285 -- 914,286 -- $36,656,011 Robert V. LaPenta (President and Chief Financial Officer)(3)..... 228,571 578,285 -- 914,286 -- 36,656,011 Lawrence H. Schwartz (Vice President) ................... -- -- 5,950 11,050 $238,550 443,022 Jimmie V. Adams (Vice President) ................... -- -- 5,250 9,750 210,486 390,902 Robert RisCassi (Vice President)..... -- -- 5,250 9,750 210,486 390,902
- ---------- (1) The value of unexercised in-the-money options at fiscal year end was calculated based on the December 31, 1998 closing stock price of Holdings' common stock of $46.5625 less the exercise prices of the options. PENSION PLAN The following table shows the estimated annual pension benefits payable under the L-3 Communications Corporation Pension Plan and Supplemental Employee Retirement Plan to a covered participant upon retirement at normal retirement age, based on the career average compensation (salary and bonus) and years of credited service with the Company. 78
CAREER AVERAGE COMPENSATION YEARS OF CREDITED SERVICE - ----------------------------- -------------------------------------------------------------- 15 20 25 30 35 ---------- ---------- ---------- ---------- ---------- $125,000..................... $ 18,981 $ 24,937 $ 29,833 $ 33,856 $ 37,164 150,000..................... 23,172 30,408 36,355 41,243 45,260 175,000..................... 27,364 35,879 42,877 48,629 53,357 200,000..................... 31,556 41,349 49,399 56,015 61,454 225,000..................... 35,747 46,820 55,921 63,402 69,550 250,000..................... 39,939 52,291 62,444 70,788 77,647 300,000..................... 48,322 63,233 75,488 85,561 93,840 400,000..................... 65,089 85,116 101,577 115,106 126,226 450,000..................... 73,472 96,057 114,621 129,879 142,420 500,000..................... 81,855 106,999 127,665 144,651 158,613 750,000..................... 123,772 161,707 192,887 218,515 239,579
As of December 31, 1997, the current annual compensation and current years of credited service (including for Messrs. LaPenta, Adams and RisCassi, years of credited service as an employee of Loral and Lockheed Martin) for each of the following persons were: Mr. Lanza, $750,000 and one year; Mr. LaPenta, $500,000 and 26 years; Mr. Adams, $216,011 and 5 years; Mr. RisCassi, $172,016 and 4 years; and Mr. Schwartz, $229,000 and one year. Compensation covered under the pension plans includes amounts reported as salary and bonus in the Summary Compensation Table. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of Holdings established a Compensation Committee in June 1997. During the 1997 fiscal year, Messrs. Robert Millard, Steven Berger and John Montague served as members of the Compensation Committee. None of these individuals has served at any time as an officer or employee of Holdings or L-3 Communications. Mr. Berger resigned from Holdings' Board of Directors and the Compensation Committee in January 1998 and Mr. Washkowitz was appointed to the Compensation Committee in March 1998. Prior to the establishment of the Compensation Committee, all decisions relating to executive compensation were made by Holdings' Board of Directors. Messrs. Millard and Washkowitz are affiliated with the Lehman Partnership which holds 36.6% of the Holdings common stock (prior to the Proposed Equity Offering) and is a party to the Stockholders Agreement. Pursuant to the Stockholders Agreement, the Lehman Partnership has the right, from time to time subject to certain conditions, to require Holdings to register under the Securities Act shares of its common stock held by them. The Lehman Partnership has the right to request up to four demand registrations and also has piggyback registration rights. Holdings has agreed in the Stockholders Agreement to pay expenses in connection with, among other things, (i) up to three demand registrations requested by the Lehman Partnership and (ii) any registration in which the existing stockholders participate through piggyback registration rights granted under such agreement. The Stockholders Agreement also provides that Lehman Brothers Inc. has the exclusive right to provide investment banking services to Holdings for the five-year period after the closing of the L-3 Acquisition (except that the exclusivity period is three years as to cash acquisitions undertaken by L-3) so long as the Lehman Partnership owns at least 10% of the outstanding Holdings common stock. In the event that Lehman Brothers Inc. agrees to provide any investment banking services to L-3, it will be paid fees that are mutually agreed upon based on similar transactions and practices in the investment banking industry. No executive officer of Holdings or L-3 Communications serves as a member of the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of Holdings' Board of Directors or Compensation Committee. 1997 STOCK OPTION PLAN In April 1997, Holdings adopted the 1997 Option Plan for Key Employees of Holdings (the "1997 Stock Option Plan") which authorizes the Compensation Committee to grant options to key employees of Holdings and its subsidiaries. On March 10, 1998, the 1997 Stock Option Plan was amended to increase the shares available for option grants to 4,255,815 shares of common stock, of 79 which 3,400,794 had been granted and were outstanding as of December 31, 1998. The Compensation Committee of the Board of Directors of Holdings, in its sole discretion, determines the terms of option agreements, including without limitation the treatment of option grants in the event of a change of control. The 1997 Stock Option Plan remains in effect for 10 years following the date of approval. On April 30, 1997, Holdings granted each of Messrs. Lanza and LaPenta options to purchase 1,142,857 shares of common stock. See "-- Employment Agreements" for a description of the terms of these grants. On July 1, 1997 and November 11, 1997, the Compensation Committee authorized grants of options to employees of Holdings and its subsidiaries, other than Messrs. Lanza and LaPenta, to acquire an aggregate of 689,500 shares of common stock at an exercise price of $6.47 per share (the "Employee Options"). Each Employee Option was granted pursuant to an individual agreement that provides (i) 20% of shares underlying the option will become exercisable on the first anniversary of the grant date, 50% will become exercisable on the second anniversary of the grant date and 30% will become exercisable on the third anniversary of the grant date; provided that, after the IPO 15% of the shares underlying the option (which would otherwise become exercisable on the second anniversary of the grant date) became exercisable; (ii) all shares underlying the option will become exercisable upon certain events constituting a change of control; and (iii) the option will expire upon the earliest to occur of (A) the tenth anniversary of the grant date, (B) one year after termination of employment due to the optionee's death or permanent disability, (C) immediately upon termination of the optionee's employment for cause and (D) three months after termination of optionee's employment for any other reason. On March 2, 1998, each of Mr. Lanza and Mr. LaPenta exercised options to acquire 228,571 shares of common stock. On May 1, 1998, Holdings granted options to employees of Holdings and its subsidiaries, other than Messrs. Lanza and LaPenta, to purchase 282,880 shares of common stock at an exercise price of $22.00 per share and on terms substantially similar to the Employee Options. On August 13, 1998, Holdings granted options to purchase 142,200 shares of common stock at an exercise price of $32.75 per share primarily to employees of recently acquired companies. The terms of such stock options were substantially similar to the Employee Options except that such options vest in equal installments over a period of three years. EMPLOYMENT AGREEMENTS Holdings entered into an employment agreement (the "Employment Agreements") effective on April 30, 1997 with each of Mr. Lanza, Chairman and Chief Executive Officer of Holdings and L-3 Communications, who will receive a base salary of $750,000 per annum and appropriate executive level benefits, and Mr. LaPenta, President and Chief Financial Officer of Holdings and L-3 Communications, who will receive a base salary of $500,000 per annum and appropriate executive level benefits. The Employment Agreements provide for an initial term of five years, which will automatically renew for one-year periods thereafter, unless a party thereto gives notice of its intent to terminate at least 90 days prior to the expiration of the term. Upon a termination without cause or resignation for good reason, Holdings will be obligated, through the end of the term, to (i) continue to pay the base salary and (ii) continue to provide life insurance and medical and hospitalization benefits comparable to those provided to other senior executives; provided, however, that any such coverage shall terminate to the extent that Mr. Lanza or Mr. LaPenta, as the case may be, is offered or obtains comparable benefits coverage from any other employer. The Employment Agreements provide for confidentiality during employment and at all times thereafter. There is also a noncompetition and non-solicitation covenant which is effective during the employment term and for one year thereafter; provided, however, that if the employment terminates following the expiration of the initial term, the noncompetition covenant will only be effective during the period, if any, that Holdings pays the severance described above. Holdings has granted each of Messrs. Lanza and LaPenta (together, the "Equity Executives") nonqualified options to purchase, at $6.47 per share of Holdings' common stock, 1,142,857 shares of Holdings' initial fully-diluted common stock. In each case, half of the options will be "Time Options" and half will be "Performance Options" (collectively, the "Options"). The Time Options became 80 exercisable with respect to 20% of the shares subject to the Time Options on March 2, 1998 and will become exercisable each of the second through fifth anniversaries of the closing of the L-3 Acquisition (the "Closing") if employment continues through and including such date. The Performance Options will become exercisable nine years after the Closing, but became exercisable with respect to up to 20% of the shares subject to the Performance Options on March 2, 1998 and will become exercisable each of the second through fifth anniversaries of the Closing, to the extent certain EBITDA targets are achieved. The Options will become fully exercisable under certain circumstances, including a change in control. The Option term is ten years from the Closing; except that if (i) the Equity Executive is fired for cause or resigns without good reason, the Options will expire upon termination of employment or (ii) the Equity Executive is fired without cause, resigns for good reason, dies, becomes disabled or retires, the Options will expire one year after termination of employment. Unexercisable Options will terminate upon termination of employment, unless acceleration is expressly provided for. Upon a change of control, Holdings may terminate the Options, so long as the Equity Executives are cashed out or permitted to exercise their Options prior to such change of control. 81 OWNERSHIP OF CAPITAL STOCK All outstanding capital stock of L-3 Communications is owned by Holdings. As of December 31, 1998, there were 27,402,429 shares of Holdings common stock outstanding. The following table sets forth certain information regarding the beneficial ownership of the shares of the common stock of Holdings, as of December 31, 1998, by each person who beneficially owns more than five percent of the outstanding shares of common stock of Holdings and by the directors and certain executive officers of Holdings, individually and as a group. The following table does not give effect to the Proposed Equity Offering.
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE OWNERSHIP - ----------------------------------------------------------------------- ------------------ --------------------- Lehman Brothers Capital Partners III, L.P. and affiliates(1) c/o Lehman Brothers Holdings Inc. Three World Financial Center New York, New York 10285 ............................................. 10,020,000 36.6% Lockheed Martin Corporation 6801 Rockledge Drive Bethesda, Maryland 20817-1877 ........................................ 6,800,000 24.8 Frank C. Lanza(2) c/o L-3 Communications Holdings, Inc. 600 Third Avenue, 34th Floor New York, New York 10016 ............................................. 1,700,571(3) 6.2 Robert V. LaPenta(2) c/o L-3 Communications Holdings, Inc. 600 Third Avenue, 34th Floor New York, New York 10016 ............................................. 1,700,571 6.2 All directors and executive officers as group (19 persons)(1) ......... 3,534,142 12.9
- ---------- (1) David J. Brand, Alberto M. Finali, Eliot M. Fried, Robert B. Millard and Alan H. Washkowitz, each of whom is director of the Company, are each Managing Directors of Lehman Brothers Inc. As limited partners of Lehman Brothers Capital Partners III, L.P. or other affiliated partnerships sponsored by Lehman Brothers, all such individuals may be deemed to have shared beneficial ownership of shares of common stock held by Lehman Brothers Capital Partners III, L.P. and such affiliated partnerships. Such individuals disclaim any such beneficial ownership. (2) As of December 31, 1998, Messrs. Lanza and LaPenta each hold options to purchase an additional 914,286 shares of Holdings common stock. (3) Includes 75,000 shares held by Mr. Lanza on behalf of his sons, Anthony Lanza, James Lanza and Louis Lanza. Mr. Lanza disclaims beneficial ownership of such shares. 82 DESCRIPTION OF CERTAIN INDEBTEDNESS SENIOR CREDIT FACILITIES The Senior Credit Facilities have been provided by a syndicate of banks led by Bank of America National Trust & Savings Association, as administrative agent. The Senior Credit Facilities provide for (A) $200 million in revolving credit loans which must be repaid by March 31, 2003 (the "Revolving Credit Facility") and (B) $185 million in revolving credit loans which must be repaid by August 12, 1999 (the "Revolving 364 Day Facility" and together with the Revolving Credit Facility, the "Senior Credit Facilities"); provided that all or a portion of the Revolving 364 Day Facility may be extended for a period of 364 days following August 12, 1999 with the consent of lenders holding not less than 50% of the commitments to make 364-day loans (August 12, 1999 or the date 364 days thereafter, the "364 Day Termination Date"); and provided further that L-3 Communications may convert the outstanding principal amount of any or all of the loans outstanding under the Revolving 364 Day Facility to term loans on the 364 Day Termination Date. The Revolving Credit Facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice (the "Swingline Loans"). All borrowings under the Senior Credit Facilities bear interest, at L-3 Communications' option, at either: (A) a "base rate" equal to, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America National Trust & Savings Association in San Francisco, California, at its "reference rate" plus a spread ranging from 0.875% to 0.0% per annum depending on the Company's ratio of debt to EBITDA (as defined in the Senior Credit Facilities ("Bank EBITDA")) at the time of determination or (B) a "LIBOR rate" equal to, for any Interest Period (as defined in the Senior Credit Facilities), the London interbank offered rate of interest per annum for such Interest Period as determined by the administrative agent, plus a spread ranging from 1.875% to 0.625% per annum, depending on the Company's ratio of debt to Bank EBITDA at the time of determination, provided that Swingline Loans can only bear interest at a "base rate" plus the applicable spread. L-3 Communications will pay commitment fees calculated at a rate (A) ranging from 0.50% to 0.25% per annum on the daily amount of the available unused commitment under the Revolving Credit Facility and (B) ranging from 0.30% to 0.125% per annum on the daily amount of the available unused commitment under the Revolving 364 Day Facility, in each case depending on the Company's ratio of debt to Bank EBITDA in effect on each day. Such commitment fees will be payable quarterly in arrears and upon termination of the Senior Credit Facilities. L-3 Communications will pay a letter of credit fee calculated at a rate ranging from (A) 0.9375% to 0.3125% per annum in the case of performance letters of credit and (B) 1.875% to 0.625% in the case of all other letters of credit, in each case depending on the Company's ratio of debt to Bank EBITDA at the time of determination. L-3 Communications will also pay a fronting fee equal to 0.1250% per annum on the aggregate face amount of all outstanding letters of credit. Such fees will be payable quarterly in arrears and upon the termination of the Senior Credit Facilities. In addition, L-3 Communications will pay customary transaction charges in connection with any letters of credit. The Senior Credit Facilities provide for the issuance of letters of credit in currencies other than United States dollars. The foregoing debt to Bank EBITDA-dependent rates range from the highest rate specified if the ratio of debt to Bank EBITDA is greater than 4.75 to 1.0 and the lowest rate specified if such ratio is less than 2.75 to 1.0. In the event that the 364 Day loans are converted into term loans, such term loans shall be repaid by the Borrower in nine (9) consecutive quarterly installment commencing on March 31, 2001, by funding on each amortization payment date set forth below an amount necessary to cause the aggregate principal amount of term loans outstanding on such date to not exceed an amount equal to the product of (x) the "Applicable Percentage" set forth opposite such amortization payment date 83 multiplied by (y) the aggregate amount of commitments of lenders to make loans under the Revolving 364 Day Facility on the 364 Day Termination Date (the "Applicable Converted Commitment"):
APPLICABLE PERCENTAGE OF THE AMORTIZATION PAYMENT DATE APPLICABLE CONVERTED COMMITMENT - --------------------------- -------------------------------- 3/31/01 90.0% 6/30/01 80.0% 9/30/01 70.0% 12/31/01 60.0% 3/31/02 50.0% 6/30/02 40.0% 9/30/02 30.0% 12/31/02 20.0% 3/31/03 0.0%
Borrowings under the Senior Credit Facilities are subject to mandatory prepayment (i) with the net proceeds of any incurrence of indebtedness and (ii) with the proceeds of asset sales, in both cases subject to certain exceptions. L-3 Communications' obligations under the Senior Credit Facilities are secured by (i) a pledge by Holdings of the stock of L-3 Communications and (ii) a pledge by L-3 Communications and its material direct and indirect subsidiaries of all of the stock of their respective material domestic subsidiaries and 65% of the stock of L-3 Communications' material first-tier foreign subsidiaries. In addition, indebtedness under the Senior Credit Facilities is guaranteed by Holdings and by all of L-3 Communications' direct and indirect material domestic subsidiaries. The Senior Credit Facilities contain customary covenants and restrictions on L-3 Communications' ability to engage in certain activities. In addition, the Senior Credit Facilities provide that L-3 Communications must meet or exceed an interest coverage ratio and must not exceed a leverage ratio. The Senior Credit Facilities also include customary events of default. 10 3/8% SENIOR SUBORDINATED NOTES DUE 2007 L-3 Communications has outstanding $225.0 million in aggregate principal amount of its 1997 Notes. The 1997 Notes are subject to the terms and conditions of an Indenture (the "1997 Indenture") dated as of April 30, 1997 between L-3 Communications and The Bank of New York, as trustee. The 1997 Notes are subject to all of the terms and conditions of the 1997 Indenture. The following summary of the material provisions of the 1997 Indenture does not purport to be complete, and is subject to, and qualified in its entirety by reference to, all of the provisions of the 1997 Indenture and those terms made a part of the 1997 Indenture by the Trust Indenture Act of 1939, as amended. All terms defined in the 1997 Indenture and not otherwise defined herein are used below with the meanings set forth in the 1997 Indenture. General. The 1997 Notes will mature on May 1, 2007 and bear interest at 103/8% per annum, payable semi-annually on May 1 and November 1 of each year. The 1997 Notes are general unsecured obligations of L-3 Communications and are subordinated in right of payment to all existing and future senior debt of L-3 Communications and rank pari passu with the May 1998 Notes and the Notes. The 1997 Notes are unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally, by all of L-3 Communications' Restricted Subsidiaries other than Foreign Subsidiaries. Optional Redemption. The 1997 Notes are subject to redemption at any time, at the option of L-3 Communications, in whole or in part, on or after May 1, 2002 at redemption prices (plus accrued and unpaid interest) starting at 105.188% of principal (plus accrued and unpaid interest) during the 12-month period beginning May 1, 2002 and declining annually to 100% of principal (plus accrued and unpaid interest) on May 1, 2005 and thereafter. In addition, prior to May 1, 2000, L-3 Communications may redeem up to 35% of the aggregate principal amount of the 1997 Notes with the net proceeds of one or more Equity Offerings to the 84 extent such proceeds are contributed (within 120 days of any such offering) to L-3 Communications as common equity, at a price equal to 109.375% of the principal (plus accrued and unpaid interest) provided that at least 65% of the original aggregate principal amount of the 1997 Notes remains outstanding thereafter. Change of Control. Upon the occurrence of a Change of Control, each holder of the 1997 Notes may require L-3 Communications to repurchase all or a portion of such holder's 1997 Notes at a purchase price equal to 101% of the principal amount thereof (plus accrued and unpaid interest). Generally, a Change of Control means the occurrence of any of the following: (i) the disposition of all or substantially all of L-3 Communications' assets to any person, (ii) the adoption of a plan relating to the liquidation or dissolution of L-3 Communications, (iii) the consummation of any transaction in which a person other than the Principals and their Related Parties becomes the beneficial owner of more than 50% of the voting stock of L-3 Communications, or (iv) the first day on which a majority of the members of the Board of Directors of L-3 Communications are not Continuing Directors. Subordination. The 1997 Notes are general unsecured obligations of L-3 Communications and are subordinate to all existing and future senior debt of L-3 Communications. The 1997 Notes will rank senior in right of payment to all subordinated Indebtedness of L-3 Communications. The Subsidiary Guarantees are general unsecured obligations of the Guarantors and are subordinated to the senior debt and to the guarantees of senior debt of such Guarantors. The Subsidiary Guarantees rank senior in right of payment to all subordinated Indebtedness of the Guarantors. Certain Covenants. The 1997 Indenture contains a number of covenants restricting the operations of L-3 Communications, which, among other things, limit the ability of L-3 Communications to incur additional Indebtedness, pay dividends or make distributions, sell assets, issue subsidiary stock, restrict distributions from Subsidiaries, create certain liens, enter into certain consolidations or mergers and enter into certain transactions with affiliates. Events of Default. Events of Default under the 1997 Indenture include the following: (i) a default for 30 days in the payment when due of interest on the 1997 Notes; (ii) default in payment when due of the principal of or premium, if any, on the 1997 Notes; (iii) failure by L-3 Communications to comply with certain provisions of the 1997 Indenture (subject, in some but not all cases, to notice and cure periods); (iv) default under Indebtedness for money borrowed by L-3 Communications or any of its Restricted Subsidiaries in excess of $10.0 million; (v) failure by L-3 Communications or any Restricted Subsidiary that would be a Significant Subsidiary to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; or (vii) certain events of bankruptcy or insolvency with respect to L-3 Communications or any of its Restricted Subsidiaries. Upon the occurrence of an Event of Default, with certain exceptions, the Trustee or the holders of at least 25% in principal amount of the then outstanding 1997 Notes may accelerate the maturity of all the 1997 Notes as provided in the 1997 Indenture. 8 1/2% SENIOR SUBORDINATED NOTES DUE 2008 L-3 Communications has outstanding $180.0 million in aggregate principal amount of 81/2% Senior Subordinated Notes due 2008. The May 1998 Notes are subject to the terms and conditions of an Indenture (the "May 1998 Indenture") dated as of May 22, 1998, between L-3 Communications and The Bank of New York as trustee. The May 1998 Notes are subject to all of the terms and conditions of the May 1998 Indenture. The following summary of the material provisions of the May 1998 Indenture does not purport to be complete, and is subject to, and qualified in its entirety by reference to, all of the provisions of the May 1998 Indenture and those terms made a part of the May 1998 Indenture by the Trust Indenture Act of 1939, as amended. All terms defined in the May 1998 Indenture and not otherwise defined herein are used below with the meanings set forth in the May 1998 Indenture. 85 General. The May 1998 Notes will mature on May 15, 2008 and bear interest at 81/2% per annum, payable semi-annually on May 15 and November 15 of each year. The May 1998 Notes are general unsecured obligations of L-3 Communications and are subordinated in right of payment to all existing and future senior debt of L-3 Communications and rank pari passu with the 1997 Notes and the Notes. The May 1998 Notes are unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by all of L-3 Communications' Restricted Subsidiaries other than Foreign Subsidiaries. Optional Redemption. The May 1998 Notes are subject to redemption at any time, at the option of L-3 Communications, in whole or in part, on or after May 15, 2003 at redemption prices (plus accrued and unpaid interest) starting at 104.250% of principal (plus accrued and unpaid interest) during the 12-month period beginning May 15, 2003 and declining annually to 100% of principal (plus accrued and unpaid interest) on May 15, 2006 and thereafter. In addition, prior to May 15, 2001, L-3 Communications may redeem up to 35% of the aggregate principal amount of May 1998 Notes with the net proceeds of one or more Equity Offerings, to the extent such proceeds are contributed (within 120 days of any such offering) to L-3 Communications as common equity, at a price equal to 108.5000% of the principal (plus accrued and unpaid interest) provided that at least 65% of the original aggregate principal amount of the May 1998 Notes remains outstanding thereafter. Change of Control. Upon the occurrence of a Change of Control, each holder of the May 1998 Notes may require L-3 Communications to repurchase all or a portion of such holder's May 1998 Notes at a purchase price equal to 101% of the principal amount thereof (plus accrued and unpaid interest). Generally, a Change of Control, means the occurrence of any of the following: (i) the disposition of all or substantially all of L-3 Communications' assets to any person; (ii) the adoption of a plan relating to the liquidation or dissolution of L-3 Communications; (iii) the consummation of any transaction in which a person other than the Principals and their Related Parties becomes the beneficial owner of more than 50% of the voting stock of L-3 Communications; or (iv) the first day on which a majority of the members of the Board of Directors of L-3 Communications are not Continuing Directors. Subordination. The May 1998 Notes are general unsecured obligations of L-3 Communications and are subordinate to all existing and future senior debt of L-3 Communications. The May 1998 Notes will rank senior in right of payment to all subordinated Indebtedness of L-3 Communications. The Subsidiary Guarantees are general unsecured obligations of the Guarantors and are subordinated to the senior debt and to the guarantees of senior debt of such Guarantors. The Subsidiary Guarantees rank senior in right of payment to all subordinated Indebtedness of the Guarantors. Certain Covenants. The May 1998 Indenture contains a number of covenants restricting the operations of L-3 Communications, which, among other things, limit the ability of L-3 Communications to incur additional Indebtedness, pay dividends or make distributions, sell assets, issue subsidiary stock, restrict distributions from Subsidiaries, create certain liens, enter into certain consolidations or mergers and enter into certain transactions with affiliates. Events of Default. Events of Default under the May 1998 Indenture include the following: (i) a default for 30 days in the payment when due of interest on the May 1998 Notes; (ii) default in payment when due of the principal of or premium, if any, on the May 1998 Notes; (iii) failure by L-3 Communications to comply with certain provision of the May 1998 Indenture (subject, in some but not all cases, to notice and cure periods); (iv) default under Indebtedness for money borrowed by L-3 Communications or any of its Restricted Subsidiaries in excess of $10.0 million; (v) failure by L-3 Communications or any Restricted Subsidiary that would be a Significant Subsidiary to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vi) except as permitted by the May 1998 Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; or (vii) certain events of bankruptcy or insolvency with respect to L-3 Communications or any of its Restricted Subsidiaries. Upon the occurrence of an Event of Default, with certain exceptions, the Trustee or the holders of at least 25% in principal amount of the then outstanding May 1998 Notes may accelerate the maturity of all the May 1998 Notes as provided in the May 1998 Indenture. 86 THE EXCHANGE OFFER GENERAL The Company hereby offers, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), to exchange up to $200 million aggregate principal amount of Exchange Notes for a like aggregate principal amount of Old Notes properly tendered on or prior to the Expiration Date and not withdrawn as permitted pursuant to the procedures described below. The Exchange Offer is being made with respect to all of the Old Notes. As of the date of this prospectus, $200 million aggregate principal amount of the Old Notes is outstanding. This prospectus, together with the Letter of Transmittal, is first being sent on or about January 20, 1999, to all holders of Old Notes known to the Company. The Company's obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions set forth under "Certain Conditions to the Exchange Offer" below. The Company currently expects that each of the conditions will be satisfied and that no waivers will be necessary. PURPOSE OF THE EXCHANGE OFFER The Old Notes were issued on December 11, 1998 (the "Issuance Date") in a transaction exempt from the registration requirements of the Securities Act. Accordingly, the Old Notes may not be reoffered, resold, or otherwise transferred unless so registered or unless an applicable exemption from the registration and prospectus delivery requirements of the Securities Act is available. In connection with the issuance and sale of the Old Notes, the Company entered into the Registration Rights Agreement, which requires the Company to file with the Commission a registration statement relating to the Exchange Offer not later than 90 days after the date of issuance of the Old Notes, and to use its best efforts to cause the registration statement relating to the Exchange Offer to become effective under the Securities Act not later than 150 days after the date of issuance of the Old Notes and the Exchange Offer to be consummated not later than 30 days after the date of the effectiveness of the Registration Statement (or, if obligated to file a shelf registration statement, to use its best efforts to file the shelf registration statement with the Commission within 30 days after such filing obligation arises and to cause the shelf registration statement to be declared effective within 90 days after such obligation arises). A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Exchange Offer is being made by the Company to satisfy its obligations with respect to the Registration Rights Agreement. The term "holder," with respect to the Exchange Offer, means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder, or any person whose Old Notes are held of record by The Depository Trust Company. Other than pursuant to the Registration Rights Agreement, the Company is not required to file any registration statement to register any outstanding Old Notes. Holders of Old Notes who do not tender their Old Notes or whose Old Notes are tendered but not accepted would have to rely on exemptions to registration requirements under the securities laws, including the Securities Act, if they wish to sell their Old Notes. The Company is making the Exchange Offer in reliance on the position of the staff of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Company has not sought its own interpretive letter and there can be no assurance that the staff would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the Staff, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a Holder (other than any Holder who is a broker-dealer or an "affiliate" of the Company within the meaning of Rule 405 of the Securities Act) without further compliance with the registration and prospectus delivery requirements of the 87 Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such Holder's business and that such Holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Notes. See "-- Resale of Exchange Notes". Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". TERMS OF THE EXCHANGE The Company hereby offers to exchange, subject to the conditions set forth herein and in the Letter of Transmittal accompanying this prospectus, $1,000 in principal amount of Exchange Notes for each $1,000 in principal amount of the Old Notes. The terms of the Exchange Notes are identical in all material respects to the terms of the Old Notes for which they may be exchanged pursuant to this Exchange Offer, except that the Exchange Notes will generally be freely transferable by holders thereof and will not be subject to any covenant regarding registration. The Exchange Notes will evidence the same indebtedness as the Old Notes and will be entitled to the benefits of the Indenture. See "Description of the Exchange Notes". The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Old Notes being tendered for exchange. The Company has not requested, and does not intend to request, an interpretation by the staff of the Commission with respect to whether the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Instead, based on an interpretation by the staff of the Commission set forth in a series of no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for sale, resold and otherwise transferred by any holder of such Exchange Notes (other than any such holder that is a broker-dealer or is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes and neither such holder nor any other such person is engaging in or intends to engage in a distribution of such Exchange Notes. Since the Commission has not considered the Exchange Offer in the context of a no-action letter, there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer. Any holder who is an affiliate of the Company or who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes cannot rely on such interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". Interest on the Exchange Notes will accrue from the last Interest Payment Date on which interest was paid on the Old Notes so surrendered or, if no interest has been paid on such Notes, from December 11, 1998. Tendering holders of the Old Notes shall not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Old Notes pursuant to the Exchange Offer. 88 EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT The Exchange Offer will expire at 5:00 p.m., New York City time, on February 19, 1999, unless the Company, in its sole discretion, has extended the period of time for which the Exchange Offer is open (such date, as it may be extended, is referred to herein as the "Expiration Date"). The Expiration Date will be at least 20 business days after the commencement of the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice to the Exchange Agent and by timely public announcement no later than 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer unless properly withdrawn. The Company expressly reserves the right to (i) terminate or amend the Exchange Offer and not to accept for exchange any Old Notes not theretofore accepted for exchange upon the occurrence of any of the events specified below under "Certain Conditions to the Exchange Offer" which have not been waived by the Company and (ii) amend the terms of the Exchange Offer in any manner which, in its good faith judgment, is advantageous to the holders of the Old Notes, whether before or after any tender of the Notes. If any such termination or amendment occurs, the Company will notify the Exchange Agent and will either issue a press release or give oral or written notice to the holders of the Old Notes as promptly as practicable. For purposes of the Exchange Offer, a "business day" means any day other than Saturday, Sunday or a date on which banking institutions are required or authorized by New York State law to be closed, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the Company will exchange the Exchange Notes for the Old Notes on the Exchange Date. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this prospectus and in the accompanying Letter of Transmittal. A holder of Old Notes may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Old Notes being tendered and any required signature guarantees and any other documents required by the Letter of Transmittal, to the Exchange Agent at its address set forth below on or prior to the Expiration Date (or complying with the procedure for book-entry transfer described below) or (ii) complying with the guaranteed delivery procedures described below. The method of delivery of Old Notes, Letters of Transmittal and all other required documents is at the election and risk of the holders. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to insure timely delivery. No Old Notes or Letters of Transmittal should be sent to the Company. If tendered Old Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Old Notes are to be reissued) in the name of the registered holder (which term, for the purposes described herein, shall include any participant in The Depository Trust Company (also referred to as a "book-entry transfer facility") whose name appears on a security listing as the owner of Old Notes), the signature of such signer need not be guaranteed. In any other case, the tendered Old Notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Company and duly executed by the registered holder, and the signature on the endorsement or instrument of 89 transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution (each an "Eligible Institution") that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Old Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Old Notes, the signature in the Letter of Transmittal must be guaranteed by an Eligible Institution. The Exchange Agent will make a request within two business days after the date of receipt of this prospectus to establish accounts with respect to the Old Notes at the book-entry transfer facility for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of Old Notes by causing such book-entry transfer facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the book-entry transfer facility, an appropriate Letter of Transmittal with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received at its address set forth below on or prior to the Expiration Date, a letter, telegram or facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) from an Eligible Institution setting forth the name and address of the tendering holder, the names in which the Old Notes are registered and, if possible, the certificate numbers of the Old Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date, the Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the book-entry transfer facility), will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Old Notes being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at its option, reject the tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may be used by Eligible Institutions for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when (i) the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the book-entry transfer facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) from an Eligible Institution is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Old Notes. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or not to accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the 90 Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company, or if it is an affiliate it will comply with the registration and prospectus requirements of the Securities Act to the extent applicable. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, the following terms and conditions, which are part of the Exchange Offer. The party tendering Notes for exchange (the "Transferor") exchanges, assigns and transfers the Old Notes to the Company and irrevocably constitutes and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the Old Notes to be assigned, transferred and exchanged. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Old Notes or transfer ownership of such Old Notes on the account books maintained by a book-entry transfer facility. The Transferor further agrees that acceptance of any tendered Old Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of certain of its obligations under the Registration Rights Agreement. All authority conferred by the Transferor will survive the death or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. 91 The Transferor certifies that it is not an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act and that it is acquiring the Exchange Notes offered hereby in the ordinary course of such Transferor's business and that such Transferor has no arrangement with any person to participate in the distribution of such Exchange Notes. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. Each Transferor which is a broker-dealer receiving Exchange Notes for its own account must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. In connection with the offering of the Old Notes, the Company agreed to file and maintain, subject to certain limitations, a registration statement that would allow Lehman Brothers Inc. to engage in market-making transactions with respect to the Notes. The Company has agreed to bear registration expenses incurred under such agreement. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal sent by telegram, facsimile transmission (receipt confirmed by telephone) or letter must be received by the Exchange Agent at the address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (iii) specify the principal amount of Notes to be withdrawn, (iv) include a statement that such holder is withdrawing his election to have such Old Notes exchanged, (v) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered or as otherwise described above (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee under the Indenture register the transfer of such Old Notes into the name of the person withdrawing the tender and (vi) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. The Exchange Agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Old Notes or otherwise comply with the book-entry transfer facility procedure. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company and such determination will be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account with such book-entry transfer facility specified by the holder) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly on the Exchange Date, all Old Notes properly tendered and will issue the Exchange Notes promptly after such acceptance. See "Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent. 92 For each Old Note accepted for exchange, the holder of such Old Note will receive an Exchange Note having a principal amount equal to that of the surrendered Old Note. In all cases, issuance of Exchange Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely book-entry confirmation of such Old Notes into the Exchange Agent's account at the book-entry transfer facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such non-exchanged Old Notes will be credited to an account maintained with such book-entry transfer facility) as promptly as practicable after the expiration of the Exchange Offer. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, or any extension of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer (by oral or written notice to the Exchange Agent or by a timely press release) if at any time before the acceptance of such Old Notes for exchange or the exchange of the Exchange Notes for such Old Notes, any of the following conditions exist: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency or regulatory authority or any injunction, order or decree is issued with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or have a material adverse effect on the contemplated benefits of the Exchange Offer to the Company; or (b) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Company that is or may be adverse to the Company, or the Company shall have become aware of facts that have or may have adverse significance with respect to the value of the Old Notes or the Exchange Notes or that may materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any law, rule or regulation or applicable interpretations of the staff of the Commission is issued or promulgated which, in the good faith determination of the Company, do not permit the Company to effect the Exchange Offer; or (d) any governmental approval has not been obtained, which approval the Company, in its sole discretion, deems necessary for the consummation of the Exchange Offer; or (e) there shall have been proposed, adopted or enacted any law, statute, rule or regulation (or an amendment to any existing law statute, rule or regulation) which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or have a material adverse effect on the contemplated benefits of the Exchange Offer to the Company; or (f) there shall occur a change in the current interpretation by the staff of the Commission which permits the Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes; or 93 (g) there shall have occurred (i) any general suspension of, shortening of hours for, or limitation on prices for, trading in securities on any national securities exchange or in the over-the-counter market (whether or not mandatory), (ii) any limitation by any governmental agency or authority which may adversely affect the ability of the Company to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks by Federal or state authorities in the United States (whether or not mandatory), (iv) a commencement of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States, (v) any limitation (whether or not mandatory) by any governmental authority on, or other event having a reasonable likelihood of affecting, the extension of credit by banks or other leading institutions in the United States, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof. The Company expressly reserves the right to terminate the Exchange Offer and not accept for exchange any Old Notes upon the occurrence of any of the foregoing conditions (which represent all of the material conditions to the acceptance by the Company of properly tendered Old Notes). In addition, the Company may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set forth above occur. Moreover, regardless of whether any of such conditions has occurred, the Company may amend the Exchange Offer in any manner which, in its good faith judgment, is advantageous to holders of the Old Notes. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. If the Company waives or amends the foregoing conditions, it will, if required by law, extend the Exchange Offer for a minimum of five business days from the date that the Company first gives notice, by public announcement or otherwise, of such waiver or amendment, if the Exchange Offer would otherwise expire within such five business-day period. Any determination by the Company concerning the events described above will be final and binding upon all parties. In addition, the Company will not accept for exchange any Old Notes tendered, and no Exchange Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. In any such event the Company is required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. 94 EXCHANGE AGENT The Bank of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below: By Hand/Overnight Courier: By Mail: The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window Corporate Trust Services Window New York, New York 10286 New York, New York 10286 Attn: Reorganization Section Attn: Reorganization Section By Facsimile: (212) 815-6339 Attn.: Reorganization Section Telephone:(212) 815-4444
Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent at the address and telephone number set forth in the Letter of Transmittal. DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY. SOLICITATION OF TENDERS; FEES AND EXPENSES The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this and other related documents to the beneficial owners of the Old Notes and in handling or forwarding tenders for their customers. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $250,000, which includes fees and expenses of the Exchange Agent, Trustee, registration fees, accounting, legal, printing and related fees and expenses. No person has been authorized to give any information or to make any representations in connection with the Exchange Offer other than those contained in this prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Company. Neither the delivery of this prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Old Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Company may, at its discretion, take such action as it may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Old Notes in such jurisdiction. In any jurisdiction in which the securities laws or blue sky laws of which require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is being made on behalf of the Company by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. TRANSFER TAXES The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for 95 principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the carrying value of the Old Notes as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in connection with the issuance of the Exchange Notes will be amortized over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon. Old Notes not exchanged pursuant to the Exchange Offer will continue to remain outstanding in accordance with their terms. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. Participation in the Exchange Offer is voluntary, and holders of Old Notes should carefully consider whether to participate. Holders of Old Notes are urged to consult their financial and tax advisors in making their own decision on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the Company will have fulfilled a covenant contained in the Registration Rights Agreement. Holders of Old Notes who do not tender their Old Notes in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture, except for any such rights under the Registration Rights Agreement that by their terms terminate or cease to have further effectiveness as a result of the making of this Exchange Offer. All untendered Old Notes will continue to be subject to the restrictions on transfer set forth in the Indenture. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Old Notes could be adversely affected. The Company may in the future seek to acquire, subject to the terms of the Indenture, untendered Old Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company has no present plan to acquire any Old Notes which are not tendered in the Exchange Offer. RESALE OF EXCHANGE NOTES The Company is making the Exchange Offer in reliance on the position of the staff of the Commission as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Company has not sought its own interpretive letter and there can be no assurance that the Staff would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a Holder (other than any Holder who is a broker-dealer or an "affiliate" of the Company within the meaning of Rule 405 of the Securities Act) 96 without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such Holder's business and that such Holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such Exchange Notes. However, any holder who is an "affiliate" of the Company or who has an arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act (i) could not rely on the applicable interpretations of the staff and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act. A broker-dealer who holds Old Notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes. Each such broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the Exchange Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the Exchange Notes reasonably requests. Such registration or qualification may require the imposition of restrictions or conditions (including suitability requirements for offerees or purchasers) in connection with the offer or sale of any Exchange Notes. 97 DESCRIPTION OF THE EXCHANGE NOTES GENERAL The Old Notes were issued and the Exchange Notes offered hereby will be issued under an indenture dated as of December 11, 1998 (the "Indenture") among the Company, as issuer, the Guarantors named therein and The Bank of New York, as trustee (the "Trustee"). The terms of the Exchange Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange Notes are subject to all such terms, and holders of the Exchange Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture describes the material terms of the Indenture but does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act. For definitions of certain capitalized terms used in the following summary, see "-- Certain Definitions". The Indenture is an exhibit to the Registration Statement of which this prospectus is a part. For purposes of this summary, the term "Company" refers only to L-3 Communications Corporation and not to any of its Subsidiaries. On December 11, 1998, the Company issued $200.0 million aggregate principal amount of Old Notes under the Indenture. The terms of the Exchange Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions and registration and other rights relating to the exchange of the Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange Notes for original issue only in exchange for a like principal amount of Old Notes. Any Old Notes that remain outstanding after the consummation of the Exchange Offer, together with the Exchange Notes, will be treated as a single class of securities under the Indenture. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Exchange Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentage in aggregate principal amount of the Old Notes and Exchange Notes then outstanding. The Exchange Notes will be general unsecured obligations of the Company and will rank pari passu in right of payment with the 1997 Notes and the May 1998 Notes and are subordinated in right of payment to all current and future Senior Debt. At September 30, 1998, on a pro forma basis giving effect to the Old Notes Offering, the Company would not have had any Senior Debt outstanding (excluding letters of credit). The Indenture permits the incurrence of additional Senior Debt in the future. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock". The Indenture provides that the Company's payment obligations under the Notes are jointly and severally guaranteed (the "Subsidiary Guarantees") by all of the Company's present and future Restricted Subsidiaries, other than Foreign Subsidiaries (collectively, the "Guarantors"). The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor, which would include the guarantees of amounts borrowed under the Senior Credit Facilities. As of the date of the Indenture, not all of the Company's subsidiaries were "Restricted Subsidiaries." Cardiovascular Computer Systems, Ltd., L-3 Secure Information Technology and L-3 Network Security are currently Unrestricted Subsidiaries. In addition, under the circumstances described below under the subheading "Certain Covenants -- Restricted Payments", the Company is permitted to designate certain of the Company's subsidiaries as "Unrestricted Subsidiaries". Unrestricted Subsidiaries are not subject to many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries do not guarantee these Notes. PRINCIPAL, MATURITY AND INTEREST The Exchange Notes will be limited in aggregate principal amount to $200.0 million and will mature on August 1, 2008. Interest on the Exchange Notes will accrue at the rate of 8% per annum 98 and will be payable semi-annually in arrears on February 1 and August 1, commencing on February 1, 1999, to Holders of record on the immediately preceding January 15 and July 15. The Company may issue Additional Notes (the "Additional Notes") from time to time after the offering of the Exchange Notes. Any offering of Additional Notes is subject to the covenant described below under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock". The Notes and any Additional Notes subsequently issued under the Indenture would be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Interest on the Exchange Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium and Liquidated Damages, if any, and interest on the Exchange Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Exchange Notes at their respective addresses set forth in the register of Holders of Exchange Notes; provided that all payments of principal, premium, interest and Liquidated Damages with respect to Exchange Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof if such Holders shall be registered Holders of at least $250,000 in principal amount of Exchange Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Exchange Notes will be issued in denominations of $1,000 and integral multiples thereof. OPTIONAL REDEMPTION The Exchange Notes will not be redeemable at the Company's option prior to August 1, 2003. Thereafter, the Exchange Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE - --------------------------------------- ----------- 2003 ................................ 104.000% 2004 ................................ 102.667% 2005 ................................ 101.333% 2006 and thereafter ................. 100.000%
Notwithstanding the foregoing, during the first 36 months after the Issue Date, the Company may on any one or more occasions redeem up to an aggregate of 35% of the Exchange Notes originally issued at a redemption price of 108.000% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings by the Company or the net cash proceeds of one or more Equity Offerings by Holdings that are contributed to the Company as common equity capital; provided that at least 65% of the Exchange Notes originally issued remain outstanding immediately after the occurrence of each such redemption; and provided, further, that any such redemption must occur within 120 days of the date of the closing of such Equity Offering. SUBORDINATION The payment of principal of, premium and Liquidated Damages, if any, and interest on the Exchange Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Debt, whether outstanding on the Issue Date or thereafter incurred. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the 99 Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not an allowable claim in any such proceeding) before the Holders of Exchange Notes will be entitled to receive any payment with respect to the Exchange Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Exchange Notes would be entitled shall be made to the holders of Senior Debt (except, in each case, that Holders of Exchange Notes may receive Permitted Junior Securities and payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment upon or in respect of the Exchange Notes (except from the trust described under "-- Legal Defeasance and Covenant Defeasance") if: (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing; or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity (or that would permit such holders to accelerate with the giving of notice or the passage of time or both) and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Exchange Notes may and shall be resumed: (A) in the case of a payment default, upon the date on which such default is cured or waived; and (B) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until: (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice; and (ii) all scheduled payments of principal, premium and Liquidated Damages, if any, and interest on the Exchange Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Exchange Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Exchange Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Old Notes Offering, there would not have been any Senior Debt outstanding at September 30, 1998. SELECTION AND NOTICE If less than all of the Exchange Notes are to be redeemed at any time, selection of Exchange Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Exchange Notes are listed, or, if the Exchange Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Exchange Notes to be redeemed at its registered 100 address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Exchange Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Exchange Notes or portions of them called for redemption. MANDATORY REDEMPTION Except as set forth below under "-- Repurchase at the Option of Holders", the Company is not required to make mandatory redemption or sinking fund payments with respect to the Exchange Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Exchange Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Exchange Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful: (i) accept for payment all Exchange Notes or portions thereof properly tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Exchange Notes or portions thereof so tendered; and (iii) deliver or cause to be delivered to the Trustee the Exchange Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Exchange Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Exchange Notes so tendered the Change of Control Payment for such Exchange Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Exchange Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Exchange Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture provides that, prior to mailing a Change of Control Offer, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or offer to repay all Senior Debt and terminate all commitments thereunder of each lender who has accepted such offer or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Exchange Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of 101 Control, the Indenture does not contain provisions that permit the Holders of the Exchange Notes to require that the Company repurchase or redeem the Exchange Notes in the event of a takeover, recapitalization or similar transaction. The Senior Credit Facilities will prohibit the Company from purchasing any Exchange Notes, and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Exchange Notes, the Company could seek the consent of its lenders to the purchase of Exchange Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Exchange Notes. In such case, the Company's failure to purchase tendered Exchange Notes would constitute an Event of Default under the Indenture, the May 1998 Indenture and 1997 Indenture which would, in turn, constitute a default under the Senior Credit Facilities. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Exchange Notes. See "Risk Factors -- We are Required to Take Certain Actions Upon a Change of Control". Finally, the Company's ability to pay cash to the holders of Exchange Notes upon a purchase may be limited by the Company's then-existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required purchases. Even if sufficient funds were otherwise available, the terms of the Senior Credit Facilities will prohibit, subject to certain exceptions, the Company's prepayment of Exchange Notes prior to their scheduled maturity. Consequently, if the Company is not able to prepay indebtedness outstanding under the Senior Credit Facilities and any other Senior Debt containing similar restrictions or obtain requisite consents, the Company will be unable to fulfill its repurchase obligations if holders of Exchange Notes exercise their purchase rights following a Change of Control, thereby resulting in a default under the Indenture, the May 1998 Indenture and 1997 Indenture. Furthermore, the Change of Control provisions of the Indenture, the May 1998 Indenture and 1997 Indenture may in certain circumstances make more difficult or discourage a takeover of the Company. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Exchange Notes validly tendered and not withdrawn under such Change of Control Offer. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Principals or their Related Parties (as defined below); (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares); or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: 102 (i) was a member of such Board of Directors on May 22, 1998; or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Principals" means any Lehman Investor, Lockheed Martin Corporation, Frank C. Lanza and Robert V. LaPenta. "Related Party" with respect to any Principal means: (i) any controlling stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal; or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a more than 50% controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. With respect to the disposition of assets, the phrase "all or substantially all" as used in the Indenture varies according to the facts and circumstances of the subject transaction and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of the Company, and therefore it may be unclear as to whether a Change of Control has occurred and whether the holders have the right to require the Company to purchase the Notes. In the event that the Company were to determine that a Change of Control did not occur because not "all or substantially all" of the assets of the Company and its Restricted Subsidiaries had been sold and the holders of the Notes disagreed with such determination, the holders and/or the Trustee would need to seek a judicial determination of the issue. ASSET SALES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by an Officers' Certificate delivered to the Trustee which will include a resolution of the Board of Directors with respect to such fair market value in the event such Asset Sale involves aggregate consideration in excess of $5.0 million) of the assets or Equity Interests issued or sold or otherwise disposed of; and (ii) at least 80% of the consideration therefor received by the Company or such Restricted Subsidiary, as the case may be, consists of cash, Cash Equivalents and/or Marketable Securities; provided, however, that: (A) the amount of any Senior Debt of the Company or such Restricted Subsidiary that is assumed by the transferee in any such transaction; and (B) any consideration received by the Company or such Restricted Subsidiary, as the case may be, that consists of (1) all or substantially all of the assets of one or more Similar Businesses, (2) other long-term assets that are used or useful in one or more Similar Businesses and (3) Permitted Securities shall be deemed to be cash for purposes of this provision. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option: 103 (i) to repay Indebtedness under a Credit Facility; or (ii) to the acquisition of Permitted Securities, all or substantially all of the assets of one or more Similar Businesses, or the making of a capital expenditure or the acquisition of other long-term assets in a Similar Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under a Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds exceeds $10.0 million, the 1997 Indenture provides that the Company will be required to make an offer to all holders of 1997 Notes (an "Asset Sale Offer") to purchase the maximum principal amount of 1997 Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the 1997 Indenture. To the extent that the aggregate amount of 1997 Notes tendered pursuant to an Asset Sale Offer is less than the remaining Excess Proceeds ("Remaining Excess Proceeds") and the sum of: (A) such amount of Remaining Excess Proceeds; and (B) the Remaining Excess Proceeds from any subsequent Asset Sale Offers exceeds $3.0 million, the Company will be required to make an offer to all Holders of Exchange Notes and any other Indebtedness that ranks pari passu with the Exchange Notes (including the May 1998 Notes) that, by its terms, requires the Company to offer to repurchase such Indebtedness with such Remaining Excess Proceeds (a "Secondary Asset Sale Offer") to purchase the maximum principal amount of Notes and pari passu Indebtedness that may be purchased out of such Remaining Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Exchange Notes or pari passu Indebtedness tendered pursuant to a Secondary Asset Sale Offer is less than the Remaining Excess Proceeds, the Company may use any Remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Exchange Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the amount of Remaining Excess Proceeds in a Secondary Asset Sale Offer, the Company shall repurchase such Indebtedness on a pro rata basis and the Trustee shall select the Exchange Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. The Senior Credit Facilities will substantially limit the Company's ability to purchase subordinated Indebtedness, including the Exchange Notes. Any future credit agreements relating to Senior Debt may contain similar restrictions. See "Description of Certain Indebtedness -- Senior Credit Facilities". CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than (A) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or (B) dividends or distributions by a Restricted 104 Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Exchange Notes except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under caption "Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since April 30, 1997 (excluding Restricted Payments permitted by clauses (ii) through (vii) of the next succeeding paragraph or of the kind contemplated by such clauses that were made prior to the date of the Indenture), is less than the sum of: (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from July 1, 1997 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus (ii) 100% of the aggregate net cash proceeds received by the Company since April 30, 1997 from a contribution to its common equity capital or the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock); plus (iii) to the extent that any Restricted Investment that was made after April 30, 1997 is sold for cash or otherwise liquidated or repaid for cash, the amount of cash received in connection therewith (or from the sale of Marketable Securities received in connection therewith); plus (iv) to the extent not already included in such Consolidated Net Income of the Company for such period and without duplication; (A) 100% of the aggregate amount of cash received as a dividend from an Unrestricted Subsidiary; 105 (B) 100% of the cash received upon the sale of Marketable Securities received as a dividend from an Unrestricted Subsidiary; and (C) 100% of the net assets of any Unrestricted Subsidiary on the date that it becomes a Restricted Subsidiary. As of September 30, 1998, the amount that would have been available to the Company for Restricted Payments pursuant to this paragraph (c) would have been $158.7 million. The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness (other than intercompany Indebtedness) in exchange for, or with the net cash proceeds from an incurrence of, Permitted Refinancing Indebtedness; (iv) the repurchase, retirement or other acquisition or retirement for value of common Equity Interests of the Company or Holdings held by any future, present or former employee, director or consultant of the Company or any Subsidiary or Holdings issued pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement; provided, however, that the aggregate amount of Restricted Payments made under this clause (iv) does not exceed $1.5 million in any calendar year and provided further that cancellation of Indebtedness owing to the Company from members of management of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Company will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture; (v) repurchases of Equity Interests deemed to occur upon exercise of stock options upon surrender of Equity Interests to pay the exercise price of such options; (vi) payments to Holdings (A) in amounts equal to the amounts required for Holdings to pay franchise taxes and other fees required to maintain its legal existence and provide for other operating costs of up to $500,000 per fiscal year and (B) in amounts equal to amounts required for Holdings to pay federal, state and local income taxes to the extent such income taxes are actually due and owing; provided that the aggregate amount paid under this clause (B) does not exceed the amount that the Company would be required to pay in respect of the income of the Company and its Subsidiaries if the Company were a stand alone entity that was not owned by Holdings; and (vii) other Restricted Payments in an aggregate amount since May 22, 1998 not to exceed $20.0 million. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute 106 Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or issue shares of preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such preferred stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The foregoing limitation will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of additional Indebtedness under Credit Facilities (and the guarantee thereof by the Guarantors) in an aggregate principal amount outstanding pursuant to this clause (i) at any one time (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder), including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (i), not to exceed $375.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant to the covenant described above under the caption "--Asset Sales"; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company and the Guarantors of $200.0 million in aggregate principal amount of each of the Old Notes and the Exchange Notes and the Subsidiary Guarantees thereof; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (iv), not to exceed $30.0 million at any time outstanding; 107 (v) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Restricted Subsidiaries; and provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (v), does not exceed $10.0 million; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness that was permitted by the Indenture to be incurred (other than intercompany Indebtedness or Indebtedness incurred pursuant to clause (i) above); (vii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence; (viii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that: (A) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)); and (B) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that: (A) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Exchange Notes; and (B)(1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or one of its Restricted Subsidiaries and (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or one of its Restricted Subsidiaries shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (x) the incurrence by the Company or any of the Guarantors of Hedging Obligations that are incurred for the purpose of: (A) fixing, hedging or capping interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; or 108 (B) protecting the Company and its Restricted Subsidiaries against changes in currency exchange rates; (xi) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (xii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (xii), and the issuance of preferred stock by Unrestricted Subsidiaries; (xiii) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiaries in the ordinary course of business; and (xiv) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (xiv), not to exceed $50.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify, or later reclassify, such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. LIENS The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. ANTILAYERING PROVISION The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Exchange Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of a Guarantor and senior in any respect in right of payment to any of the Subsidiary Guarantees. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (i)(A) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (B) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii) make loans or advances to the Company or any of its Restricted Subsidiaries; or 109 (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (A) the provisions of security agreements that restrict the transfer of assets that are subject to a Lien created by such security agreements; (B) the provisions of agreements governing Indebtedness incurred pursuant to clause (v) of the second paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; (C) the Indenture, the Notes, the May 1998 Indenture, the May 1998 Notes, the 1997 Indenture and the 1997 Notes; (D) applicable law; (E) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (F) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (G) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired; (H) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced; (I) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (J) agreements relating to secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under "Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock" and "Liens" that limit the right of the debtor to dispose of the assets securing such Indebtedness; (K) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; or (L) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business. MERGER, CONSOLIDATION OR SALE OF ASSETS The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; 110 (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Exchange Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made, after giving pro forma effect to such transaction as if such transaction had occurred at the beginning of the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such transaction either: (A) would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; or (B) would have a pro forma Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge Coverage Ratio for the same four-quarter period without giving pro forma effect to such transaction. Notwithstanding the foregoing clause (iv): (i) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company; and (ii) the Company may merge with an Affiliate that has no significant assets or liabilities and was incorporated solely for the purpose of reincorporating the Company in another State of the United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. TRANSACTIONS WITH AFFILIATES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless: (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (ii) the Company delivers to the Trustee: (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions will not prohibit: 111 (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (ii) any transaction with a Lehman Investor; (iii) any transaction between or among the Company and/or its Restricted Subsidiaries; (iv) transactions between the Company or any of its Restricted Subsidiaries, on the one hand, and Lockheed Martin or any of its Subsidiaries or a Permitted Joint Venture, on the other hand, on terms that are not materially less favorable to the Company or the applicable Restricted Subsidiary of the Company than those that could have been obtained from an unaffiliated third party; provided that (A) in the case of any such transaction or series of related transactions pursuant to this clause (iv) involving aggregate consideration in excess of $5.0 million but less than $25.0 million, such transaction or series of transactions (or the agreement pursuant to which the transactions were executed) was approved by the Company's Chief Executive Officer or Chief Financial Officer and (B) in the case of any such transaction or series of related transactions pursuant to this clause (iv) involving aggregate consideration equal to or in excess of $25.0 million, such transaction or series of related transactions (or the agreement pursuant to which the transactions were executed) was approved by a majority of the disinterested members of the Board of Directors; (v) any transaction pursuant to and in accordance with the provisions of the Transaction Documents as the same are in effect on the Issue Date; and (vi) any Restricted Payment that is permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments". PAYMENTS FOR CONSENT The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Exchange Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Exchange Notes unless such consideration is offered to be paid or is paid to all Holders of the Exchange Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Indenture requires the Company to file with the Commission (and provide the Trustee and Holders with copies thereof, without cost to each Holder, within 15 days after it files them with the Commission): (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form); (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form); (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form); and (d) any other information, documents and other reports which the Company would be required to file with the Commission if it were subject to Section 13 or 15(d) of the Exchange Act; 112 provided, however, the Company shall not be so obligated to file such reports with the Commission if the Commission does not permit such filing, in which event the Company will make available such information to prospective purchasers of Exchange Notes, in addition to providing such information to the Trustee and the Holders, in each case within 15 days after the time the Company would be required to file such information with the Commission, if it were subject to Sections 13 or 15(d) of the Exchange Act. FUTURE SUBSIDIARY GUARANTEES The Company's payment obligations under the Exchange Notes is jointly and severally guaranteed by all of the Company's existing and future Restricted Subsidiaries, other than Foreign Subsidiaries. The Indenture provides that if the Company or any of its Subsidiaries shall acquire or create a Subsidiary (other than a Foreign Subsidiary or an Unrestricted Subsidiary) after the Issue Date, then such Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of the Indenture. The Subsidiary Guarantee of each Guarantor ranks pari passu with the guarantees of the May 1998 Notes and the 1997 Notes and is subordinated to the prior payment in full of all Senior Debt of such Guarantor, which would include the guarantees of amounts borrowed under the Senior Credit Facilities. The obligations of each Guarantor under its Subsidiary Guarantee is limited so as not to constitute a fraudulent conveyance under applicable law. The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person (except the Company or another Guarantor) unless: (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) the Company: (A) would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; or (B) would have a pro forma Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge Coverage Ratio for the same four-quarter period without giving pro forma effect to such transaction. Notwithstanding the foregoing paragraph: (i) any Guarantor may consolidate with, merge into or transfer all or part of its properties and assets to the Company; and (ii) any Guarantor may merge with an Affiliate that has no significant assets or liabilities and was incorporated solely for the purpose of reincorporating such Guarantor in another State of the United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. The Indenture provides that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of 113 such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "-- Repurchase at Option of Holders -- Asset Sales". EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Exchange Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Exchange Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the provisions described under the captions "-- Change of Control", "-- Asset Sales" or "-- Merger, Consolidation or Sale of Assets"; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Exchange Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $10.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Exchange Notes may declare all the Exchange Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, such declaration shall not become effective until the earlier of: (i) the day which is five Business Days after receipt by the Representatives of Designated Senior Debt of such notice of acceleration; or (ii) the date of acceleration of any Designated Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Restricted Subsidiary, all outstanding Exchange Notes will become due and payable without further action or notice. Holders of the Exchange Notes may not enforce the Indenture or the Exchange Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Exchange Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Exchange Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the 114 premium that the Company would have had to pay if the Company then had elected to redeem the Exchange Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. If an Event of Default occurs prior to August 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Exchange Notes prior to August 1, 2003, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. The Holders of a majority in aggregate principal amount of the Exchange Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Exchange Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Exchange Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Exchange Notes and the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Exchange Notes by accepting an Exchange Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Exchange Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Exchange Notes ("Legal Defeasance") except for: (i) the rights of Holders of outstanding Exchange Notes to receive payments in respect of the principal of, premium and Liquidated Damages, if any, and interest on such Exchange Notes when such payments are due from the trust referred to below; (ii) the Company's obligations with respect to the Exchange Notes concerning issuing temporary Exchange Notes, registration of Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an office or agency for payment and money for security payments held in trust; (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Exchange Notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Exchange Notes, cash in U.S. dollars, non-callable Government Securities, or a 115 combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Exchange Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Exchange Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Exchange Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Exchange Notes to be redeemed. 116 The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Exchange Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Exchange Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Exchange Notes), and any existing default or compliance with any provision of the Indenture or the Exchange Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Exchange Notes (including consents obtained in connection with a tender offer or exchange offer for Exchange Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Exchange Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Exchange Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of or change the time for payment of interest on any Note; (iv) waive a Default or Event of Default in the payment of principal of or premium and Liquidated Damages, if any, or interest on the Exchange Notes (except a rescission of acceleration of the Exchange Notes by the Holders of at least a majority in aggregate principal amount of the Exchange Notes and a waiver of the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Exchange Notes; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Exchange Notes to receive payments of principal of or premium and Liquidated Damages, if any, or interest on the Exchange Notes; (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders"); or (viii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relates to subordination) requires the consent of the Holders of at least 75% in aggregate principal amount of the Exchange Notes then outstanding if such amendment would adversely affect the rights of Holders of Exchange Notes. Notwithstanding the foregoing, without the consent of any Holder of Exchange Notes, the Company and the Trustee may amend or supplement the Indenture or the Exchange Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Exchange Notes, to provide for the assumption of the Company's obligations to Holders of Exchange Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Exchange Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain 117 property received in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Exchange Notes have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Exchange Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to L-3 Communications Corporation, 600 Third Avenue, New York, New York 10016, Attention: Vice President -- Finance. BOOK-ENTRY, DELIVERY AND FORM The certificates representing the Exchange Notes will be issued in fully registered form and will be deposited with the Trustee as custodian for the Depository Trust Company, New York, New York (the "Depository") and registered in the name of a nominee of the Depository. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITORY PROCEDURES The Depository has advised the Company that the Depository is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of the Depository only through the Participants or Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of the Depository are recorded on the records of the Participants and Indirect Participants. The Depository has also advised the Company that pursuant to procedures established by it, (i) upon deposit of the Global Exchange Notes, the Depository will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of Global Exchange Notes and (ii) ownership of such interests in the Global Exchange Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to Participants) or by Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Exchange Notes). Investors in the Global Note may hold their interests therein directly through the Depository, if they are Participants in such system, or indirectly through organizations (including Euroclear and CEDEL) that are Participants in such system. Investors in the Regulation S Global Note must initially hold their interests therein through Euroclear or CEDEL, if they are participants in such systems, or indirectly through organizations that are participants in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Note 118 through organizations other than Euroclear and CEDEL that are Participants in the Depository system. Euroclear and CEDEL will hold interests in the Regulation S Global Note on behalf of their Participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A. as operator of CEDEL. The depositories, in turn, will hold such interests in the Regulation S Global Note in customers' securities accounts in the depositories' names on the books of the Depository. All interests in a Global Note, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of the Depository. Those interests held by Euroclear or CEDEL may be also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interest in a Global Note to such persons may be limited to that extent. Because the Depository can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such interests, may be affected by the lack of physical certificate evidencing such interests. For certain other restrictions on the transferability of the Notes see, "-- Exchange of Book-Entry Notes for Certificated Notes". EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE NOTES WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal and premium and Liquidated Damages, if any, and interest on a Global Note registered in the name of the Depository or its nominee will be payable by the Trustee to the Depository or its nominee in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Exchange Notes, including the Global Exchange Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of the Depository's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Exchange Notes, or for maintaining, supervising or reviewing any of the Depository's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Exchange Notes or (ii) any other matter relating to the actions and practices of the Depository or any of its Participants or Indirect Participants. The Depository has advised the Company that its current practices, upon receipt of any payment in respect of securities such as the Exchange Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security such as the Global Exchange Notes as shown on the records of the Depository. Payments by Participants and the Indirect Participants to the beneficial owners of Exchange Notes will be governed by standing instructions and customary practices and will not be the responsibility of the Depository, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by the Depository or its Participants in identifying the beneficial owners of the Exchange Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from the Depository or its nominee as the registered owner of the Exchange Notes for all purposes. Except for trades involving only Euroclear and CEDEL participants, interests in the Global Exchange Notes will trade in the Depository's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of the Depository and its participants. 119 Transfers between Participants in the Depository will be effected in accordance with the Depository's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Exchange Notes described herein, crossmarket transfers between Participants in the Depository, on the one hand, and Euroclear or CEDEL participants, on the other hand, will be effected through the Depository in accordance with the Depository's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Exchange Note in the Depository, and making or receiving payment in accordance with normal procedures for same-day fund settlement applicable to the Depository. Euroclear participants and CEDEL participants may not deliver instructions directly to the Depositaries for Euroclear or CEDEL. Because of time zone differences, the securities accounts of a Euroclear or CEDEL participant purchasing an interest in a Global Exchange Note from a Participant in the Depository will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear or CEDEL) immediately following the settlement date of the Depository. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Exchange Note by or through a Euroclear or CEDEL participant to a Participant in the Depository will be received with value on the settlement date of the Depository but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following the Depository's settlement date. The Depository has advised the Company that it will take any action permitted to be taken by a Holder of Exchange Notes only at the direction of one or more Participants to whose account the Depository interests in the Global Exchange Notes are credited and only in respect of such portion of the aggregate principal amount of the Exchange Notes as to which such Participant or Participants has or have given direction. However, if there is an Event of Default under the Exchange Notes, the Depository reserves the right to exchange Exchange Global Notes for legended Exchange Notes in certificated form, and to distribute such Exchange Notes to its Participants. The information in this section concerning the Depository, Euroclear and CEDEL and their book-entry systems has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Although the Depository, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interests in the Global Note among participants in the Depository, Euroclear and CEDEL, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchasers or the Trustee will have any responsibility for the performance by the Depository, Euroclear or CEDEL or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for definitive Exchange Notes in registered certificated form if (i) the Depository (A) notifies the Company that it is unwilling or unable to continue as depository for the Global Note and the Company thereupon fails to appoint a successor depository or (B) has ceased to be a clearing agency registered under the Exchange Act or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause issuance of the Exchange Notes in certificated form. In addition, beneficial interests in a Global Note may be exchanged for certificated Exchange Notes upon 120 request but only upon at least 20 days prior written notice given to the Trustee by or on behalf of the Depository in accordance with customary procedures. In all cases, certificated Exchange Notes delivered in exchange for any Global Note or beneficial interest therein will be registered in names, and issued in any approved denominations, requested by or on behalf of the Depository (in accordance with its customary procedures). CERTIFICATED EXCHANGE NOTES Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Exchange Notes in the form of certificated Notes. Upon any such issuance, the Trustee is required to register such certificated Exchange Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Exchange Notes in the form of certificated Exchange Notes under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Exchange Notes in such form will be issued to each person that the Global Note Holder and the Depository identify as being the beneficial owner of the related Exchange Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note Holder or the Depository in identifying the beneficial owners of Exchange Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depository for all purposes. SAME DAY SETTLEMENT AND PAYMENT The Indenture requires that payments in respect of the Exchange Notes represented by the Global Note (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to certificated Exchange Notes, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Company expects that secondary trading in the certificated Exchange Notes will also be settled in immediately available funds. REGISTRATION RIGHTS; LIQUIDATED DAMAGES The Company, the Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on or prior to the Issue Date. Pursuant to the Registration Rights Agreement, the Company and the Guarantors agreed to file with the Commission the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the Holders of Transfer Restricted Securities pursuant to the Exchange Offer who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for Exchange Notes. If: (i) the Company and the Guarantors are not required to file the Exchange Offer Registration Statement or permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (ii) any Holder of Transfer Restricted Securities notifies the Company prior to the 20th day following consummation of the Exchange Offer that: (A) it is prohibited by law or Commission policy from participating in the Exchange Offer; or 121 (B) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or (C) that it is a broker-dealer and owns Old Notes acquired directly from the Company or an affiliate of the Company, the Company and the Guarantors will file with the Commission a Shelf Registration Statement to cover resales of the Exchange Notes by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Company and the Guarantors will use their best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Securities" means each Old Note until: (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer; (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement; (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (iv) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Act. The Registration Rights Agreement provides that: (i) the Company and the Guarantors will file an Exchange Offer Registration Statement with the Commission on or prior to 90 days after the Issue Date; (ii) the Company and the Guarantors will use their best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 150 days after the Issue Date; (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company and the Guarantors will commence the Exchange Offer and use their best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, new Exchange Notes in exchange for all new Exchange Notes tendered prior thereto in the Exchange Offer; and (iv) if obligated to file the Shelf Registration Statement, the Company and the Guarantors will use their best efforts to file the Shelf Registration Statement with the Commission on or prior to 30 days after such filing obligation arises and to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to 90 days after such obligation arises. If: (A) the Company and the Guarantors fail to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified above for such filing; (B) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); (C) the Company and the Guarantors fail to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or 122 (D) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (A) through (D) above a "Registration Default"), then the Company and the Guarantors will pay Liquidated Damages to each Holder of Old Notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Old Notes held by such Holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Old Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal amount of Old Notes. All accrued Liquidated Damages will be paid by the Company and the Guarantors on each Damages Payment Date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of certificated Old Notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of Old Notes will be required to make certain representations to the Company and the Guarantors (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Old Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "1997 Indenture" means the indenture, dated as of April 30, 1997, among The Bank of New York, as trustee, and the Company, with respect to the 1997 Notes. "1997 Notes" means the $225,000,000 in aggregate principal amount of the Company's 10 3/8% Senior Subordinated Notes due 2007, issued pursuant to the 1997 Indenture on April 30, 1997. "Acquired Debt" means, with respect to any specified Person: (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. 123 "Asset Sale" means: (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Change of Control" and/or the provisions described above under the caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant); and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (A) that have a fair market value in excess of $1.0 million or (B) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (iii) a Restricted Payment that is permitted by the covenant described above under the caption "-- Restricted Payments"; and (iv) a disposition of Cash Equivalents in the ordinary course of business will not be deemed to be an Asset Sale. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (i) in the case of a corporation, corporate stock; (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (i) United States dollars; (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and 124 overnight bank deposits, in each case with any domestic financial institution to the Senior Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above; (v) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within six months after the date of acquisition; (vi) investment funds investing 95% of their assets in securities of the types described in clauses (i)-(v) above; and (vii) readily marketable direct obligations issued by any State of the United States of America or any political subdivision thereof having maturities of not more than one year from the date of acquisition and having one of the two highest rating categories obtainable from either Moody's or S&P. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus: (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income); plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income; plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (iv) depreciation, amortization (including amortization of goodwill, debt issuance costs and other intangibles but excluding amortization of other prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (v) non-cash items (excluding any items that were accrued in the ordinary course of business) increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof that is a Guarantor; 125 (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (iv) the cumulative effect of a change in accounting principles shall be excluded; (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries; and (vi) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries. "Consolidated Tangible Assets" means, with respect to the Company, the total consolidated assets of the Company and its Restricted Subsidiaries, less the total intangible assets of the Company and its Restricted Subsidiaries, as shown on the most recent internal consolidated balance sheet of the Company and such Restricted Subsidiaries calculated on a consolidated basis in accordance with GAAP. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the Senior Credit Facilities) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means: (i) any Indebtedness outstanding under the Senior Credit Facilities; and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "-- Certain Covenants -- Restricted Payments"; and provided further, that if such Capital Stock is issued to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations. 126 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any public or private sale of equity securities (excluding Disqualified Stock) of the Company or Holdings, other than any private sales to an Affiliate of the Company or Holdings. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means any Indebtedness of the Company (other than Indebtedness under the Senior Credit Facilities and the Notes) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of: (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations, but excluding amortization of debt issuance costs); (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon); and (iv) the product of: (A) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means, with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above: (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income; 127 (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Foreign Subsidiary" means a Restricted Subsidiary of the Company that was not organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof or has not guaranteed or otherwise provided credit support for any Indebtedness of the Company. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which were in effect April 30, 1997. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under: (i) currency exchange or interest rate swap agreements, interest rate cap agreements and currency exchange or interest rate collar agreements; and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or interest rates. "Holdings" means L-3 Communications Holdings, Inc. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest; and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel, moving and similar 128 loans or advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the last paragraph of the covenant described above under the caption "-- Restricted Payments". "Issue Date" means December 11, 1998. "Lehman Investor" means Lehman Brothers Holdings Inc. and any of its Affiliates. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Marketable Securities" means, with respect to any Asset Sale, any readily marketable equity securities that are: (i) traded on The New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii) issued by a corporation having a total equity market capitalization of not less than $250.0 million; provided that the excess of: (A) the aggregate amount of securities of any one such corporation held by the Company and any Restricted Subsidiary; over (B) ten times the average daily trading volume of such securities during the 20 immediately preceding trading days shall be deemed not to be Marketable Securities; as determined on the date of the contract relating to such Asset Sale. "May 1998 Indenture" means the indenture, dated as of May 22, 1998, between the Bank of New York, as trustee, and the Company, with respect to the May 1998 Notes. "May 1998 Notes" means the $180,000,000 in aggregate principal amount of the Company's 8 1/2% Senior Subordinated notes due 2008, issued pursuant to the May 1998 Indenture on May 22, 1998. "Moody's" means Moody's Investors Services, Inc. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (i) any gain or loss, together with any related provision for taxes thereon, realized in connection with: (A) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions); or (B) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and 129 (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss; and (iii) the cumulative effect of a change in accounting principles. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company nor any of its Restricted Subsidiaries: (A) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness); (B) is directly or indirectly liable (as a guarantor or otherwise); or (C) constitutes the lender; (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than Indebtedness incurred under Credit Facilities) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization, whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages, guarantees and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereto. "Permitted Investments" means: (i) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (ii) any Investment in cash or Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (A) such Person becomes a Restricted Subsidiary of the Company and a Guarantor; or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Guarantor; (iv) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales" or any disposition of assets not constituting an Asset sale; 130 (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (vi) advances to employees not to exceed $2.5 million at any one time outstanding; (vii) any Investment acquired in connection with or as a result of a workout or bankruptcy of a customer or supplier; (viii) Hedging Obligations permitted to be incurred under the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; (ix) any Investment in a Similar Business that is not a Restricted Subsidiary; provided that the aggregate fair market value of all Investments outstanding pursuant to this clause (ix) (valued on the date each such Investment was made and without giving effect to subsequent changes in value) may not at any one time exceed 10% of the Consolidated Tangible Assets of the Company; and (x) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (x) that are at the time outstanding, not to exceed $15.0 million. "Permitted Joint Venture" means any joint venture, partnership or other Person designated by the Board of Directors (until designation by the Board of Directors to the contrary); provided that: (i) at least 25% of the Capital Stock thereof with voting power under ordinary circumstances to elect directors (or Persons having similar or corresponding powers and responsibilities) is at the time owned (beneficially or directly) by the Company and/or by one or more Restricted Subsidiaries of the Company; and (ii) such joint venture, partnership or other Person is engaged in a Similar Business. Any such designation or designation to the contrary shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes and the Subsidiary Guarantees are subordinated to Senior Debt pursuant to Article 10 of the Indenture. "Permitted Liens" means: (i) Liens securing Senior Debt of the Company or any Guarantor that was permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other assets of the Company or any of its Restricted Subsidiaries; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; 131 (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (vii) Liens existing on the Issue Date; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding; (x) Liens on assets of Guarantors to secure Senior Debt of such Guarantors that was permitted by the Indenture to be incurred; (xi) Liens securing Permitted Refinancing Indebtedness, provided that any such Lien does not extend to or cover any property, shares or debt other than the property, shares or debt securing the Indebtedness so refunded, refinanced or extended; (xii) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature, in each case incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (xiii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (xiv) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Hedging Obligations; and (xv) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory or regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses and prepayment premiums incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Exchange Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Exchange Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and 132 (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Permitted Securities" means, with respect to any Asset Sale, Voting Stock of a Person primarily engaged in one or more Similar Businesses; provided that after giving effect to the Asset Sale such Person shall become a Restricted Subsidiary and a Guarantor. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means, with respect to any Person, each Subsidiary of such Person that is not an Unrestricted Subsidiary. "Senior Credit Facilities" means the credit agreement, as in effect on the Issue Date among the Company and a syndicate of banks and other financial institutions led by Lehman Commercial Paper Inc., as syndication agent, and any related notes, collateral documents, letters of credit and guarantees, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), in each case, as such agreements may be amended, modified, supplemented or restated from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid or extended from time to time (whether with the original agents and lenders or other agents and lenders or otherwise, and whether provided under the original credit agreement or other credit agreements or otherwise). "Senior Debt" means: (i) all Indebtedness of the Company or any of its Restricted Subsidiaries outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (ii) any other Indebtedness permitted to be incurred by the Company or any of its Restricted Subsidiaries under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Exchange Notes; and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include: (i) any liability for federal, state, local or other taxes owed or owing by the Company; (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates; (iii) any trade payables; or (iv) any Indebtedness that is incurred in violation of the Indenture. The 1997 Notes and the May 1998 Notes will be pari passu with the Exchange Notes and will not constitute Senior Debt. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Similar Business" means a business, a majority of whose revenues in the most recently ended calendar year were derived from: (i) the sale of defense products, electronics, communications systems, aerospace products, avionics products and/or communications products; (ii) any services related thereto; (iii) any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto; and 133 (iv) any combination of any of the foregoing. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person: (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "S&P" means Standard and Poor's Corporation. "Transaction Documents" means the Indenture, the Exchange Notes, the Purchase Agreement and the Registration Rights Agreement. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation: (A) to subscribe for additional Equity Interests; or (B) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (iv) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "Certain Covenants -- Restricted Payments". If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock", the Company shall be in default of such covenant). 134 The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if: (i) such Indebtedness is permitted under the covenant described under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock", calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (ii) no Default or Event of Default would be in existence following such designation. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned" means, when used with respect to any Subsidiary or Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as appropriate) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person. 135 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE The exchange of Old Notes for Exchange Notes will not constitute a recognition event for federal income tax purposes. Consequently, no gain or loss will be recognized by holders upon receipt of the Exchange Notes. For purposes of determining gain or loss upon the subsequent sale or exchange of Exchange Notes, a Holder's basis in Exchange Notes will be the same as such Holder's basis in the Old Notes exchanged therefor. Holders will be considered to have held the Exchange Notes from the time of their original acquisition of the Old Notes. IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. To the extent any such broker-dealer participates in the Exchange Offer and so notifies the Company, or causes the Company to be so notified in writing, the Company has agreed that a period of 180 days after the date of this prospectus, it will make this prospectus, as amended or supplemented, available to such broker-dealer for use in connection with any such resale, and will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at prevailing market prices at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers or any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Exchange Offer (other than commissions and concessions of any broker-dealers), subject to certain prescribed limitations, and will indemnify the holders of the Old Notes against certain liabilities, including certain liabilities that may arise under the Securities Act. By its acceptance of the Exchange Offer, any broker-dealer that receives Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior to using the prospectus in connection with the sale or transfer of Exchange Notes, and acknowledges and agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in this prospectus untrue in any material respect or which requires the making of any changes in this prospectus in order to make the statements therein not misleading or which may impose upon the Company disclosure obligations that may have a material adverse effect on the Company (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will 136 suspend use of this prospectus until the Company has notified such broker-dealer that delivery of this prospectus may resume and has furnished copies of any amendment or supplement to this prospectus to such broker-dealer. LEGAL MATTERS Certain legal matters will be passed upon for the Company by Simpson Thacher & Bartlett, New York, New York. EXPERTS The (i) consolidated balance sheet of the Company as of December 31, 1997 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the nine months then ended, (ii) combined statements of operations, changes in invested equity and cash flows of the Predecessor Company for the three months ended March 31, 1997, (iii) combined balance sheet of the Predecessor Company as of December 31, 1996 and the related combined statements of operations, changes in invested equity and cash flows for the year then ended, (iv) combined statement of operations and cash flows of the Loral Acquired Businesses for the three months ended March 31, 1996 and for the year ended December 31, 1995 and (v) the combined balance sheet of AlliedSignal Ocean Systems (a wholly-owned operation of AlliedSignal, Inc.) and the related combined statements of operations, cash flows and equity for the year then ended have been included in this prospectus and the Registration Statement in reliance of the reports of PricewaterhouseCoopers LLP, independent auditors, given in the authority of such firm as experts in accounting and auditing. The report on the combined financial statements of the Predecessor Company for the year ended December 31, 1996 indicates that PricewaterhouseCoopers LLP's opinion, insofar as it relates to the financial statements of the Lockheed Martin Communications Systems Division included in such combined financial statements, is based solely on the report of other auditors. The consolidated financial statements of SPD Technologies Inc. and Subsidiaries as of December 31, 1997, 1996 and 1995 and for the years then ended have been included in this prospectus and the Registration Statement in reliance of the reports of Grant Thornton LLP, independent certified public accountants, upon the authority of such firm as experts in accounting and auditing. The combined financial statements of Lockheed Martin Communications Systems Division as of and for the year ended December 31, 1996 (not presented separately herein) and for the year ended December 31, 1995, and the financial statements of the Satellite Transmission Systems Division of California Microwave, Inc. as of June 30, 1997 and 1996 and for each of the three years in the period ended June 30, 1997, have been included in this prospectus and the Registration Statement in reliance on the reports of Ernst & Young LLP, independent auditors, set forth in their reports therein appearing elsewhere herein, and are included in such reports given on their authority as experts in accounting and auditing. The consolidated financial statements of ILEX Systems, Inc. as of December 31, 1997, and for the year then ended have been included in this prospectus and the Registration Statement in reliance upon the report of KPMG LLP, independent certified public accountants appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. 137 INDEX TO FINANCIAL STATEMENTS L-3 COMMUNICATIONS CORPORATION (AND THE PREDECESSOR COMPANY)
Condensed Consolidated (Combined) Financial Statements as of September 30, 1998 (Unaudited) and December 31, 1997 and for the three and nine months ended September 30, 1998 (Unaudited), and the three and six months ended September 30, 1997 (Unaudited) and the three months ended March 31, 1997 ......................... F-3 Condensed Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997 ............................................................... F-4 Condensed Consolidated Statements of Operations for the three months ended September 30, 1998 and 1997 (Unaudited) . ........................................ F-5 Condensed Consolidated (Combined) Statements of Operations for the nine months ended September 30, 1998 (Unaudited), the six months ended September 30, 1997 (Unaudited) and the three months ended March 31, 1997 ............................ F-6 Condensed Consolidated (Combined) Statements of Cash Flows for the nine months ended September 30, 1998 (Unaudited), the six months ended September 30, 1997 (Unaudited) and the three months ended March 31, 1997 ............................ F-7 Notes to Unaudited Condensed Consolidated (Combined) Financial Statements ........ F-8 Consolidated (Combined) Financial Statements as of December 31, 1997 and 1996 and for the nine months ended December 31, 1997, the three months ended March 31, 1997, and the years ended December 31, 1996 and 1995 ......................................... F-14 Report of PricewaterhouseCoopers LLP ............................................. F-15 Report of Ernst & Young LLP on the financial statements of Lockheed Martin Communications Systems Division as of December 31, 1996 and for the two years ended December 31, 1996 ......................................................... F-16 Consolidated (Combined) Balance Sheets as of December 31, 1997 and December 31, 1996 ............................................................... F-17 Consolidated (Combined) Statements of Operations for the nine months ended December 31, 1997, for the three months ended March 31, 1997 and for the years ended December 31, 1996 and 1995 ................................................ F-18 Consolidated (Combined) Statements of Changes in Shareholders' Equity and Invested Equity for the nine months ended December 31, 1997, for three months ended March 31, 1997 and for the years ended December 31, 1996 and 1995 ............... F-19 Consolidated (Combined) Statements of Cash Flows for the nine months ended December 31, 1997, for the three months ended March 31, 1997 and for the years ended December 31, 1996 and 1995 ............................................... F-20 Notes to Consolidated (Combined) Financial Statements ............................ F-21 LORAL ACQUIRED BUSINESSES Combined Financial Statements for the three months ended March 31, 1996 and the year ended December 31, 1995 ............................................................ F-39 Report of PricewaterhouseCoopers LLP ............................................. F-40 Combined Statements of Operations for three months ended March 31, 1996 and the year ended December 31, 1995 .................................................... F-41 Combined Statements of Cash Flows for three months ended March 31, 1996 and the year ended December 31, 1995 .................................................... F-42 Notes to Combined Financial Statements ........................................... F-43 SPD TECHNOLOGIES INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Financial Statements as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 ........................................ F-49 Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 1998 ............. F-50 Condensed Consolidated Statements of Earnings (Unaudited) for the six months ended June 30, 1998 and 1997 .......................................................... F-51
F-1
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 1998 and 1997 ......................................................... F-52 Notes to Condensed Consolidated Financial Statements .................................. F-53 Consolidated Financial Statements as of December 31, 1997 and for the year ended December 31, 1997 ....................................................................... F-54 Report of Grant Thornton LLP .......................................................... F-55 Consolidated Balance Sheet as of December 31, 1997 .................................... F-56 Consolidated Statement of Earnings for the year ended December 31, 1997 ............... F-57 Consolidated Statement of Cash Flows for the year ended December 31, 1997 ............. F-58 Notes to Consolidated Financial Statements ............................................ F-59 Consolidated Financial Statements as of December 31, 1996 and 1995 and for the years ended December 31, 1996 and 1995 ........................................................ F-68 Report of Grant Thornton LLP .......................................................... F-69 Consolidated Balance Sheets as of December 31, 1996 and 1995 .......................... F-70 Consolidated Statements of Earnings and Accumulated Deficit for the years ended December 31, 1996 and 1995 ........................................................... F-71 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 ............................................................................. F-72 Notes to Consolidated Financial Statements ............................................ F-73 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. Unaudited Condensed Financial Statements as of December 31, 1997 and for the six months ended December 31, 1997 and 1996 ............................................. F-79 Balance Sheet (Unaudited) as of December 31, 1997 ..................................... F-80 Statements of Operations (Unaudited) for the six months ended December 31, 1997 and 1996 ........................................................... F-81 Statements of Cash Flows (Unaudited) for the six months ended December 31, 1997 and 1996 ........................................................... F-82 Notes to Financial Statements (Unaudited) ............................................. F-83 Financial Statements as of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and 1995 ........................................................................... F-86 Report of Ernst & Young LLP ........................................................... F-87 Balance Sheets as of June 30, 1997 and 1996 ........................................... F-88 Statements of Operations for the years ended June 30, 1997, 1996 and 1995 ............. F-89 Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 ............. F-90 Notes to Financial Statements ......................................................... F-91 ILEX SYSTEMS, INC. AND SUBSIDIARY Consolidated Financial Statements as of December 31, 1997 and for the year ended December 31, 1997 ....................................................................... F-97 Report of KPMG LLP .................................................................... F-98 Consolidated Balance Sheet as of December 31, 1997 .................................... F-99 Consolidated Statement of Income for the year ended December 31, 1997 ................. F-100 Consolidated Statement of Shareholders' Equity for the year ended December 31, 1997 F-101 Consolidated Statement of Cash Flows for the year ended December 31, 1997 ............. F-102 Notes to the Consolidated Financial Statements ........................................ F-103 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.) Combined Financial Statements as of December 31, 1997 and for the year ended December 31, 1997 ....................................................................... F-107 Report of PricewaterhouseCoopers LLP .................................................. F-108 Combined Balance Sheet as of December 31, 1997 ........................................ F-109 Combined Statements of Operations for the year ended December 31, 1997 ................ F-110 Combined Statement of Equity for the year ended December 31, 1997 ..................... F-111 Combined Statement of Cash Flows for the year ended December 31, 1997 ................. F-112 Notes to Combined Financial Statements ................................................ F-113
F-2 L-3 COMMUNICATIONS CORPORATION (AND THE PREDECESSOR COMPANY) Condensed Consolidated (Combined) Financial Statements as of September 30, 1998 (Unaudited) and December 31, 1997 and for the three and nine months ended September 30, 1998 (Unaudited), and the three and six months ended September 30, 1997 (Unaudited) and the three months ended March 31, 1997 F-3 L-3 COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 DECEMBER 31, 1997 -------------------- ------------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ...................................... $ 5,687 $ 77,474 Contracts in process ........................................... 345,812 167,202 Net assets held for sale ....................................... -- 6,653 Deferred income taxes .......................................... 8,461 13,298 Other current assets ........................................... 16,444 2,750 ---------- -------- Total current assets .......................................... 376,404 267,377 ---------- -------- Property, plant and equipment ................................... 143,125 95,034 Less, accumulated depreciation and amortization ................ 25,941 12,025 ---------- -------- 117,184 83,009 ---------- -------- Intangibles, primarily cost in excess of net assets acquired, net of amortization ................................................ 608,380 297,503 Deferred income taxes ........................................... 53,939 24,217 Other assets .................................................... 40,359 31,298 ---------- -------- $1,196,266 $703,404 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .............................. $ -- $ 5,000 Accounts payable, trade ........................................ 55,326 33,052 Accrued employment costs ....................................... 56,178 31,162 Customer advances .............................................. 40,097 15,989 Amounts in excess of costs incurred ............................ 18,531 18,469 Accrued interest ............................................... 16,664 4,419 Other current liabilities ...................................... 48,593 27,476 ---------- -------- Total current liabilities ..................................... 235,389 135,567 ---------- -------- Pension and postretirement benefits ............................. 94,438 38,113 Other liabilities ............................................... 11,662 5,009 Long-term debt .................................................. 560,000 392,000 Commitments and contingencies Shareholders' equity Common stock, $.01 par value; 100 shares authorized and outstanding .................................................. -- -- Additional paid-in capital ..................................... 272,434 129,410 Retained earnings .............................................. 30,995 12,305 Equity adjustments ............................................. (8,652) (9,000) ---------- -------- Total Shareholders' equity ...................................... 294,777 132,715 ---------- -------- $1,196,266 $703,404 ========== ========
See notes to condensed consolidated financial statements. F-4 L-3 COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ----------- ----------- Sales .............................. $291,312 $174,822 Costs and expenses ................. 261,244 156,968 -------- -------- Operating income ................... 30,068 17,854 Interest income .................... 711 428 Interest expense ................... 13,584 9,717 -------- -------- Income before income taxes ......... 17,195 8,565 Income taxes ....................... 6,728 3,289 -------- -------- Net income ......................... $ 10,467 $ 5,276 ======== ========
See notes to condensed consolidated financial statements. F-5 L-3 COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSOR COMPANY COMPANY COMPANY -------------------- -------------------- --------------- NINE MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 MARCH 31, 1997 -------------------- -------------------- --------------- (UNAUDITED) (UNAUDITED) Sales ..................................... $708,300 $342,852 $158,873 Costs and expenses ........................ 644,681 314,287 150,937 -------- -------- -------- Operating income .......................... 63,619 28,565 7,936 Interest income ........................... 2,287 537 -- Interest expense .......................... 35,230 19,796 8,441 -------- -------- -------- Income (loss) before income taxes ......... 30,676 9,306 (505) Income taxes .............................. 11,986 5,349 (247) -------- -------- -------- Net income (loss) ......................... $ 18,690 $ 3,957 $ (258) ======== ======== ========
See notes to condensed consolidated (combined) financial statements. F-6 L-3 COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSOR COMPANY COMPANY COMPANY -------------------- -------------------- --------------- NINE MONTHS SIX MONTHS THREE MONTHS ENDED ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 MARCH 31, 1997 -------------------- -------------------- --------------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES: Net income (loss) ................................... $ 18,690 $ 3,957 $ (258) Depreciation and amortization ....................... 26,651 13,063 7,790 Noncash compensation charge ......................... -- 4,410 -- Amortization of deferred debt issue costs ........... 1,805 1,012 -- Deferred income taxes ............................... 11,611 5,349 -- Changes in operating assets and liabilities, net of amounts acquired ................................ Contracts in process ............................. (13,887) 11,658 (17,475) Other current assets ............................. 1,521 (1,113) (481) Other assets ..................................... (681) 3,912 (765) Accounts payable ................................. (536) (4,879) (207) Accrued employment costs ......................... 8,684 12,651 (625) Customer advances ................................ (18,376) 2,518 1,146 Amounts in excess of costs incurred .............. (1,578) (1,643) (3,037) Accrued interest ................................. 11,351 11,752 -- Other current liabilities ........................ 200 (6,741) (1,867) Pension and postretirement benefits .............. 135 (567) -- Other liabilities ................................ 2,255 1,039 (500) All other operating activities ................... 348 -- -- ---------- ---------- --------- Net cash from (used in) operating activities ........ 48,193 56,378 (16,279) ---------- ---------- --------- INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired ..... (412,526) (470,700) -- Net change in assets held for sale .................. -- 1,503 -- Proceeds from assets held for sale .................. 6,653 -- -- Purchases of investments ............................ (300) (4,020) -- Capital expenditures ................................ (12,691) (6,436) (4,300) Disposition of property, plant and equipment ........ 1,029 649 -- ---------- ---------- --------- Net cash used in investing activities ............... (417,835) (479,004) (4,300) ---------- ---------- --------- FINANCING ACTIVITIES: Borrowings under term loan facilities ............... -- 175,000 -- Borrowings under revolving credit facilities ........ 271,800 -- -- Repayment of borrowings under revolving credit facilities .................................. (116,800) -- -- Proceeds from sale of 8 1/2% senior subordinated notes ................................. 180,000 -- -- Proceeds from sale of 10 3/8% senior subordinated notes ................................. -- 225,000 -- Contribution from Holdings of net proceeds from issuance of common stock ...................... 139,500 80,000 -- Debt issuance costs ................................. (7,718) (15,607) -- Repayment of term loan facilities ................... (172,000) (2,000) -- Proceeds from exercise of stock options ............. 3,073 -- -- Advances from Lockheed Martin ....................... -- -- 20,579 ---------- ---------- --------- Net cash from financing activities .................. 297,855 462,393 20,579 ---------- ---------- --------- Net increase (decrease) in cash ..................... (71,787) 39,767 -- Cash and cash equivalents, beginning of the period ............................................. 77,474 -- -- ---------- ---------- --------- Cash and cash equivalents, end of the period ........ $ 5,687 $ 39,767 $ -- ========== ========== =========
See notes to condensed consolidated (combined) financial statements. F-7 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS The accompanying unaudited condensed consolidated (combined) financial statements include the assets, liabilities and results of operations of L-3 Communications Corporation ("L-3 Communications," "L-3" or the "Company"), the successor company, following the change in ownership effective as of April 1, 1997. Prior to April 1, 1997, the statements comprise the operations of (i) nine business units previously purchased by Lockheed Martin Corporation ("Lockheed Martin") as part of its acquisition of Loral Corporation ("Loral") in April 1996 and (ii) one business unit, Communication Systems-East, purchased by Lockheed Martin as part of its acquisition of the aerospace business of GE in April 1993 (collectively, the "Business" or the "Predecessor Company"). The combined financial statements of the Predecessor Company reflect the Businesses' results of operations and cash flows included in Lockheed Martin's historical financial statements. Significant intercompany and inter-business transactions and balances have been eliminated. The Company is a wholly owned subsidiary of L-3 Comunications Holdings, Inc. ("Holdings"). Holdings owns all of the authorized, issued and outstanding common stock, par value $0.01 per share, of L-3 Communications. Holdings has no other assets or liabilities and conducts no operations other than through its subsidiary, L-3. Certain obligations of the Company have been fully, jointly and severally guaranteed by substantially all of its subsidiaries. Non-guarantor subsidiaries are not significant to the consolidated financial position, results of operations and cash flows of the Company. The accompanying unaudited condensed consolidated (combined) financial statements 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 of the Securities and Exchange Commission ("SEC"); accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The combined statement of operations for the three months ended March 31, 1997 has been derived from the audited financial statements of the Predecessor Company for such period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. For further information, the interim financial statements should be read in conjunction with the Company's Consolidated (Combined) Financial Statements as of December 31, 1997 and notes thereto included in L-3 Communications' Annual Report on Form 10-K for fiscal year ended December 31, 1997, as amended by Form 10-K/A. The Company is a supplier of sophisticated secure communications systems and specialized communication products including secure, high data rate communication systems, microwave components, avionics and ocean systems, telemetry, instrumentation and space products. The Company's customers include the Department of Defense (the "DoD"), selected U.S. Government intelligence agencies, major aerospace/defense prime contractors and commercial customers. Substantially all the Company's products are sold to agencies of the U.S. Government, primarily the DoD, to foreign government agencies or to prime contractors or subcontractors thereof. All domestic government contracts and subcontracts of the Businesses are subject to audit and various cost controls, and include standard provisions for termination for the convenience of the U.S. Government. Multi-year U.S. Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the government. F-8 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2. COMMON STOCK INITIAL PUBLIC OFFERING On May 19, 1998, Holdings sold 6.9 million shares of its Common Stock in an Initial Public Offering ("IPO") representing 25.2% of Holdings' Common Stock. The net proceeds of the IPO amounted to $139,500 and were contributed by Holdings to L-3 Communications. After the completion of the IPO, the Lehman Partnership and Lockheed Martin owned 36.6% and 24.9%, respectively, of the outstanding shares of Holdings' Common Stock. 3. ACQUISITIONS On August 13, 1998, the Company purchased all of the outstanding stock of SPD Technologies, Inc. ("SPD") for $230,000 of cash, subject to adjustment based on final closing adjusted net assets. On March 30, 1998 the Company purchased the assets of the Ocean Systems business ("Ocean Systems") of AlliedSignal, Inc. for $67,500 of cash. On March 4, 1998, the Company purchased the assets of ILEX Systems ("ILEX") for $51,900 of cash, subject to adjustment based on closing net assets, and additional consideration based on post-acquisition performance of ILEX. On February 5, 1998, the Company purchased the assets of Satellite Transmission Systems division ("STS") of California Microwave, Inc. for $27,000 of cash, subject to adjustment based upon closing net assets. Additionally, during the nine months ended September 30, 1998, the Company purchased five other companies for an aggregate purchase price of $24,750 paid in cash, before adjustments, as appropriate, based on closing date net assets and additional consideration based on post-acquisition performance. These acquisitions, both individually and in the aggregate are not expected to have a material effect on the results of operations or financial position of the Company. The Company financed the above-mentioned acquisitions using cash from operations, the contribution by Holdings to the Company of the net proceeds from Holdings IPO and borrowings. All of the acquisitions have been accounted for as purchase business combinations and are included in the Company's results of operation from their effective dates. The assets and liabilities recorded in connection with the acquisitions of SPD, Ocean Systems, ILEX and STS are based upon preliminary estimates. Actual adjustments will be based on the final purchase prices and the final appraisals and other analyses of fair values which are in process. Management does not expect that differences between the preliminary and final purchase price allocations will have a material impact on the Company's financial position or results of operations. The assets and liabilities recorded in connection with the acquisitions of SPD, Ocean Systems, ILEX and STS were $318,825 and $77,557, $136,670 and $68,000, $58,370 and $3,939, and $34,471 and $6,949, respectively. Had the L-3 Acquisition and the SPD, Ocean Systems, ILEX and STS acquisitions and the related financing transactions occurred on January 1, 1997, the unaudited pro forma sales and net income for the nine months ended September 30, 1998 and 1997 would have been $834,500, $17,400, and $758,700 and $2,800, respectively. The pro forma results are based on various assumptions and are not necessarily indicative of what would have occurred had the acquisitions and the related financing transactions been consummated on January 1, 1997. F-9 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. CONTRACTS IN PROGRESS Billings and accumulated costs and profits on long-term contracts, principally with the U.S. Government, and other billed receivables comprise the following:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 -------------------- ------------------ Billed contract receivables ........................ $ 83,947 $ 37,980 Unbilled contract receivables ...................... 72,390 32,653 Other billed receivables, principally commercial and affiliates ....................................... 77,977 32,785 Inventoried costs .................................. 145,395 82,954 --------- --------- 379,709 186,372 Less, unliquidated progress payments ............... (33,897) (19,170) --------- --------- Net contracts in process ........................... $ 345,812 $ 167,202 ========= =========
5. DEBT The Company's long-term debt consists of the following:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 -------------------- ------------------ Senior Credit Facilities: Term Loan Facilities ............................ $ -- $172,000 Revolving Credit Facilities ..................... 155,000 -- 10 3/8% Senior Subordinated Notes due 2007 ........ 225,000 225,000 8 1/2% Senior Subordinated Notes due 2008 ......... 180,000 -- -------- -------- Total debt ..................................... 560,000 397,000 Less current portion .............................. -- 5,000 -------- -------- Total long-term debt ........................... $560,000 $392,000 ======== ========
In February 1998, an amendment to the Senior Credit Facilities increased the Revolving Credit Facility thereunder to $200,000. During the third quarter of 1998, the Senior Credit Facilities were further amended to add a Revolving 364 Day Credit Facility for $185,000. The Revolving 364 Day Credit Facility expires 364 days after the closing of the amendment, at which time the Company may (i) request that the creditors extend it for one additional 364 day period or (ii) exercise an option to convert any or all of the borrowings outstanding thereunder into term loans which amortize over a two year period beginning March 31, 2001, and must be paid in full no later than March 31, 2003. Accordingly, borrowings under the Revolving 364 Day Credit Facility are classified as a long term obligation. Approximately $28,330 of the Revolving Credit Facility and $175,000 of the Revolving 364 Day Credit Facility are available at September 30, 1998, net of outstanding letters of credit of $26,670 drawn against the Revolving Credit Facility. The Revolving Credit Facility and the Revolving 364 Day Credit Facility comprise the Revolving Credit Facilities. In May 1998, L-3 Communications sold $180,000 of 8 1/2% Senior Subordinated Notes (the "May 1998 Notes") due May 15, 2008 with interest payable semi-annually on May 15 and November 15 of each year, commencing November 15, 1998. The May 1998 Notes are redeemable at the option of L-3 Communications, in whole or in part, at any time on or after May 15, 2003, at various redemption prices plus accrued and unpaid interest to the applicable redemption date. In addition, prior to F-10 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) May 15, 2001, L-3 Communications may redeem up to 35% of the aggregate principal amount of May 1998 Notes at a redemption price of 108.500% of the principal amount thereof, plus accrued and unpaid interest to the redemption date with the net cash proceeds of one or more equity offerings by Holdings that are contributed to L-3 Communications as common equity capital. The Senior Credit Facilities, the $225,000 of 10 3/8% Senior Subordinated Notes due May 1, 2007 (the "1997 Notes") and the May 1998 Notes agreements contain financial and restrictive covenants that limit, among other things, the ability of the Company to borrow additional funds, dispose of assets, or pay cash dividends. The Senior Credit Facilities contain financial covenants which require that (i) the Company's debt ratio, as defined, be less than or equal to 5.00 for the quarter ended September 30, 1998, and that the maximum allowable debt ratio, as defined therein, thereafter declines over time to less than or equal to 3.25 for the quarters ending September 30, 2002 and thereafter, and (ii) the Company's interest coverage ratio, as defined, be greater than or equal to 2.00 for the quarter ended September 30, 1998, and that the minimum allowable interest coverage ratio, as defined therein, thereafter increases over time to greater than or equal to 3.00 for the quarters ending September 30, 2002 and thereafter. Through and at September 30, 1998 the Company was in compliance with these covenants at all times. The indebtedness under the Senior Credit Facilities is guaranteed by Holdings and by certain of L-3 Communications' direct domestic subsidiaries. The payment of principal, premium, if any, and interest on the 1997 Notes and May 1998 Notes is unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally, by substantially all of L-3 Communications' domestic subsidiaries, all of which are wholly-owned subsidiaries. 6. STOCK OPTIONS On May 1, 1998, Holdings granted options to certain employees of the Company to purchase 285,370 shares of Common Stock at an exercise price of $22.00 per share and on terms substantially similar to the 1997 Options granted in 1997. On August 14, 1998, Holdings granted options to certain employees of the Company to purchase 142,200 shares of Common Stock at an exercise price of $32.75 per share and on terms substantially similar to the 1997 Options granted in 1997. 7. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures to the Condensed Consolidated Statement of Cash Flows follow:
NINE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 -------------------- ------------------- Cash paid for interest ............. $19,828 $4,332 Cash paid for income taxes ......... $ 203 $ --
During the nine months ended September 30, 1998, the Company recorded an income tax benefit of $524 directly to shareholders' equity related to the exercise of Holdings' stock options. Prior to the L-3 Acquisition, the Predecessor Company participated in the Lockheed Martin cash management system, under which all cash was received and all payments were made by Lockheed Martin. For purposes of the statement of cash flows, all transactions with Lockheed Martin were deemed to have been settled in cash at the time they were recorded by the Predecessor Company. F-11 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 8. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. For the nine months ended September 30, 1998, comprehensive income was $19,038 and was comprised of net income of $18,690 and other comprehensive income of $348 relating to foreign currency translations. For the nine months ended September 30, 1997, there were no differences between net income and comprehensive income. In September 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 131 establishes accounting standards for the way that public enterprises report information about operating segments and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132 revises employers' disclosures about pension and other postretirement benefits plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirements benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits" and SFAS No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions" were issued. SFAS 132 suggests combined formats for presentation of pension and other postretirement benefits disclosures. The Company is currently evaluating the impact, if any, of SFAS No. 131 and SFAS No. 132. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), which provides guidance on the financial reporting of start-up and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company is currently evaluating the impact, if any, of SOP 98-5. In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is currently evaluating the impact, if any, of SFAS No. 133 which is effective for all quarters of fiscal years beginning after June 15, 1999. 9. CONTINGENCIES Management is continually assessing the Company's obligations with respect to applicable environmental protection laws. While it is difficult to determine the timing and ultimate cost to be incurred by the Company in order to comply with these laws, based upon available internal and external assessments with respect to those environmental loss contingencies of which management of the Company is aware, the Company believes that even without considering potential insurance F-12 L-3 COMMUNICATIONS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--CONTINUED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) recoveries, if any, there are no environmental loss contingencies that, individually or in the aggregate, would be material to the Company's result of operations. The Company accrues for these contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is engaged in providing products and services under contracts with the U.S. Government and to a lesser degree, under contracts with foreign governments, some of which are funded by the U.S. Government. All such contracts are subject to extensive legal and regulatory requirements, and, periodically, agencies of the U.S. Government investigate whether such contracts were and are being conducted in accordance with these requirements. Under government procurement regulations, an indictment of the Company by a Federal grand jury could result in the Company being suspended for a period of time from eligibility for awards of new government contracts. A conviction could result in debarment from contracting with the federal government for a specified term. The Company is periodically subject to litigation, claims or assessments and various contingent liabilities (including environmental matters) incidental to its business. With respect to those investigative actions, items of litigation, claims or assessments of which they are aware, management of the Company believes that, after taking into account certain provisions that have been made with respect to these matters, the ultimate resolution of any such investigative actions, items of litigation, claims or assessments would not have a material adverse effect on the financial position or result of operations of the Company. 10. SUBSEQUENT EVENTS On November 12, 1998, L-3 Communications acquired all the outstanding stock of DBS Microwave Inc. ("DBS") for $13,000 of cash subject to adjustment based on closing net assets, as defined. The acquisition was financed with borrowings under the Revolving Credit Facilities. On December 11, 1998, L-3 Communications completed the sale of $200,000 of its 8% Senior Subordinated Notes due August 1, 2008 in a private placement offering. On December 17, 1998, L-3 Communications acquired all of the outstanding stock of Electrodynamics Inc. from Carpenter Technology Corporation for $21,500 in cash, subject to adjustment based on closing net assets, as defined. The acquisition was financed with cash on hand and borrowings under the Senior Credit Facilities. F-13 L-3 COMMUNICATIONS CORPORATION (AND THE PREDECESSOR COMPANY) Consolidated (Combined) Financial Statements as of December 31, 1997 and 1996 and for the nine months ended December 31, 1997, the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995. F-14 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of L-3 Communications Corporation We have audited the accompanying (i) consolidated balance sheet of L-3 Communications Corporation and subsidiaries (the "Company") as of December 31, 1997, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the nine months then ended, (ii) the combined statements of operations and cash flows of the Predecessor Company, as defined in Note 1 to the Company's financial statements, for the three months ended March 31, 1997 and (iii) combined balance sheet of the Predecessor Company as of December 31, 1996 and the related combined statements of operations, changes in invested equity and cash flows for the year 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. We did not audit the 1996 financial statements of the Lockheed Martin Communications Systems Division, which statements reflect total assets and sales constituting 35 percent and 30 percent of the related combined totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Lockheed Martin Communications Systems Division for 1996, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above (i) present fairly in all material respects the consolidated financial position of the Company and subsidiaries as of December 31, 1997 and their consolidated results of operations and cash flows for the nine months then ended, and (ii) based on our audit and the report of other auditors for 1996, present fairly in all material respects the combined financial position of the Predecessor Company as of December 31, 1996 and their combined results of operations and cash flows for the year then ended and the three months ended March 31, 1997, in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP 1301 Avenue of the Americas New York, New York 10019 February 2, 1998 F-15 REPORT OF INDEPENDENT AUDITORS Board of Directors Lockheed Martin Corporation: We have audited the combined balance sheet of Lockheed Martin Communications Systems Division, as defined in Note 1 to the financial statements, as of December 31, 1996, and the related combined statements of operations, changes in shareholders' equity and invested equity, and cash flows for the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Division's and Lockheed Martin Corporation'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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Lockheed Martin Communications Systems Division at December 31, 1996 (not presented separately herein), and the combined results of its operations and its cash flows for the year ended December 31, 1996 (not presented separately herein), and the results of its operations and its cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Washington, D.C. March 7, 1997 F-16 L-3 COMMUNICATIONS CORPORATION CONSOLIDATED (COMBINED) BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMPANY PREDECESSOR COMPANY CONSOLIDATED COMBINED ------------------- -------------------- DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------- -------------------- ASSETS Current assets: Cash and cash equivalents .......................................... $ 77,474 $ -- Contracts in process ............................................... 167,202 198,073 Net assets held for sale ........................................... 6,653 -- Deferred income taxes .............................................. 13,298 -- Other current assets ............................................... 2,750 3,661 -------- -------- Total current assets ............................................ 267,377 201,734 -------- -------- Property, plant and equipment ....................................... 95,034 116,566 Less, accumulated depreciation and amortization .................... 12,025 24,983 -------- -------- 83,009 91,583 -------- -------- Intangibles, primarily cost in excess of net assets acquired, net of amortization .................................................... 297,503 282,674 Deferred income taxes ............................................... 24,217 -- Other assets ........................................................ 31,298 17,307 -------- -------- Total assets ..................................................... $703,404 $593,298 ======== ======== LIABILITIES AND SHAREHOLDERS' (INVESTED) EQUITY Current liabilities: Current portion of long-term debt .................................. $ 5,000 $ -- Accounts payable, trade ............................................ 33,052 35,069 Accrued employment costs ........................................... 31,162 27,313 Customer advances .................................................. 15,989 3,381 Amounts in excess of costs incurred ................................ 18,469 10,918 Accrued interest ................................................... 4,419 -- Other current liabilities .......................................... 27,476 26,207 -------- -------- Total current liabilities ....................................... 135,567 102,888 -------- -------- Pension and postretirement benefits ................................. 38,113 -- Other liabilities ................................................... 5,009 16,801 Long-term debt ...................................................... 392,000 -- Commitments and contingencies -- Shareholders' equity Common Stock, $.01 par value; 100 shares authorized and outstanding ...................................................... -- -- Additional paid-in capital ......................................... 129,410 -- Retained earnings .................................................. 12,305 -- Deemed distribution ................................................ (9,000) -- -------- -------- Total shareholders' and invested equity ............................. 132,715 473,609 -------- -------- Total liabilities and shareholders' and invested equity .......... $703,404 $593,298 ======== ========
See notes to consolidated (combined) financial statements. F-17 L-3 COMMUNICATIONS CORPORATION CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMPANY PREDECESSOR COMPANY CONSOLIDATED COMBINED ------------------- ------------------------------------------- YEAR ENDED DECEMBER 31, NINE MONTHS THREE MONTHS ------------------------- ENDED ENDED DECEMBER 31, 1997 MARCH 31, 1997 1996 1995 ------------------- --------------- ----------- ----------- Sales ..................................... $546,525 $158,873 $543,081 $166,781 Costs and expenses ........................ 490,669 150,937 499,390 162,132 Noncash compensation charge ............... 4,410 -- -- -- -------- -------- -------- -------- Operating income .......................... 51,446 7,936 43,691 4,649 Interest income ........................... 1,430 -- -- -- Interest expense .......................... 29,884 8,441 24,197 4,475 -------- -------- -------- -------- Income (loss) before income taxes ......... 22,992 (505) 19,494 174 Income tax expense (benefit) .............. 10,687 (247) 7,798 1,186 -------- -------- -------- -------- Net income (loss) ......................... $ 12,305 $ (258) $ 11,696 $ (1,012) ======== ======== ======== ========
See notes to consolidated (combined) financial statements. F-18 L-3 COMMUNICATIONS CORPORATION CONSOLIDATED (COMBINED) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND INVESTED EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1997, THREE MONTHS ENDED MARCH 31, 1997 AND YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSOR COMPANY COMPANY COMBINED CONSOLIDATED ------------ ------------------------------------------------------------------- COMMON STOCK -------------------- ADDITIONAL INVESTED SHARES PAID-IN RETAINED EQUITY EQUITY ISSUED PAR VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL ------------ -------- ----------- ----------- ---------- ----------- ----------- Balance January 1, 1995 ......... $199,506 Repayments to Lockheed Martin ....................... (3,831) Net loss ....................... (1,012) -------- Balance December 31, 1995 ....... 194,663 Advances from Lockheed Martin ....................... 267,250 Net income ..................... 11,696 -------- Balance December 31, 1996 ....... 473,609 Advances from Lockheed Martin ....................... 20,579 Net loss ....................... (258) -------- Balance March 31, 1997 .......... $493,930 ======== Shares issued .................. 100 $ -- $125,000 $125,000 Noncash stock compensation ..... 4,410 4,410 Deemed distribution ............ $ (9,000) (9,000) Net income ..................... $12,305 12,305 ------- -------- Balance December 31, 1997 ....... 100 $ -- $129,410 $12,305 $ (9,000) $132,715 === ====== ======== ======= ======== ========
See notes to consolidated (combined) financial statements. F-19 L-3 COMMUNICATIONS CORPORATION CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMPANY PREDECESSOR COMPANY CONSOLIDATED COMBINED ------------------- --------------------------------------------- YEAR ENDED DECEMBER 31, NINE MONTHS THREE MONTHS --------------------------- ENDED ENDED DECEMBER 31, 1997 MARCH 31, 1997 1996 1995 ------------------- --------------- ------------ ------------ OPERATING ACTIVITIES: Net income (loss) ............................... $ 12,305 $ (258) $ 11,696 $ (1,012) Depreciation and amortization ................... 22,190 7,790 28,139 11,578 Noncash compensation charge ..................... 4,410 -- -- -- Amortization of deferred debt issuance costs .......................................... 1,517 -- -- -- Deferred income taxes ........................... 9,991 -- -- -- Changes in operating assets and liabilities, net of amounts acquired Contracts in process ........................... 18,161 (17,475) 23,543 (3,267) Other current assets ........................... (275) (481) 3,049 788 Other assets ................................... 2,141 (765) (8,346) 1,245 Accounts payable ............................... (6,146) (207) 4,104 (648) Accrued employment costs ....................... 6,363 (625) 2,282 (611) Customer advances .............................. (611) 1,146 (5,541) -- Amounts in excess of costs incurred ............ 1,156 (3,037) (6,045) (2,041) Accrued interest ............................... 4,419 -- -- -- Other current liabilities ...................... (7,132) (1,867) 3,180 4,004 Pension and postretirement benefits ............ 4,284 -- -- -- Other liabilities .............................. 1,087 (500) (25,327) (699) ---------- --------- ---------- -------- Net cash from (used in) operating activities ..................................... 73,860 (16,279) 30,734 9,337 ---------- --------- ---------- -------- INVESTING ACTIVITIES: Acquisition of business ......................... (466,317) -- (287,803) -- Proceeds from assumption of contract obligation ..................................... 12,176 -- -- -- Net cash from assets held for sale .............. 3,179 -- -- -- Proceeds from sale of property .................. 9,458 -- -- -- Purchases of investments ........................ (5,113) -- -- -- Capital expenditures ............................ (11,934) (4,300) (13,528) (5,532) Disposition of property, plant and equipment ...................................... 771 -- 3,347 26 ---------- --------- ---------- -------- Net cash (used in) investing activities ......... (457,780) (4,300) (297,984) (5,506) ---------- --------- ---------- -------- FINANCING ACTIVITIES: Borrowings under term loan facilities ........... 175,000 -- -- -- Proceeds from sale of 10 3/8% senior subordinated notes ............................. 225,000 -- -- -- Contributions from Holdings of net proceeds from issuance of common stock .......................................... 80,000 -- -- -- Debt issuance costs ............................. (15,606) -- -- -- Payment of debt ................................. (3,000) -- -- -- Advances from (repayments to) Lockheed Martin ......................................... -- 20,579 267,250 (3,831) ---------- --------- ---------- -------- Net cash from (used in) financing activities 461,394 20,579 267,250 (3,831) ---------- --------- ---------- -------- Net change in cash .............................. 77,474 -- -- -- Cash and cash equivalents, beginning of the period ..................................... -- -- -- -- ---------- --------- ---------- -------- Cash and cash equivalents, end of the period ......................................... $ 77,474 $ -- $ -- $ -- ========== ========= ========== ========
See notes to consolidated (combined) financial statements. F-20 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS The accompanying consolidated financial statements include the assets, liabilities and results of operations of L-3 Communications Corporation, successor company, ("L-3", "L-3 Communications" or the "Company"), a wholly owned subsidiary of L-3 Communications Holdings, Inc. ("Holdings") following the change in ownership (see Note 2) effective as of April 1, 1997 and for the period from April 1, 1997 to December 31, 1997. Prior to April 1, 1997, the statements comprise substantially all of the assets and liabilities and results of operations of (i) nine business units previously purchased by Lockheed Martin Corporation ("Lockheed Martin") as part of its acquisition of Loral Corporation ("Loral") in April 1996 (the "Loral Acquired Businesses"), and (ii) one business unit, Communications Systems -- East purchased by Lockheed Martin as part of its acquisition of the aerospace business of GE in April 1993 (collectively, the "Businesses" or the "Predecessor Company"). The combined financial statements of the Predecessor Company reflect the Businesses' assets, liabilities and results of operations included in Lockheed Martin's historical financial statements. Intercompany accounts between Lockheed Martin and the Businesses have been included in Invested Equity. The assets and operations of the semiconductor product line and certain other facilities which are not material have been excluded from the combined financial statements. Significant intercompany and inter-business transactions and balances have been eliminated. The Company is a wholly owned subsidiary of Holdings which owns all the authorized, issued and outstanding common stock, par value $0.01 per share, of the Company. Holdings has no other assets or liabilities and conducts no other business other than through the Company. Certain obligations of the Company have been fully, jointly and severally guaranteed by substantially all of its subsidiaries. Non-guarantor subsidiaries are not significant to the consolidated financial position and results of operations of the Company. The Company is a supplier of sophisticated secure communication systems and specialized communication products including secure, high data rate communication systems, microwave components, avionics, recorders, telemetry and space products. The Company's customers include the Department of Defense (the "DoD"), selected U.S. government intelligence agencies, major aerospace/defense prime contractors and commercial customers. The Company operates primarily in one industry segment, electronic components and systems. Substantially all the Company's products are sold to agencies of the U.S. Government, primarily the DoD, to foreign government agencies or to prime contractors or subcontractors thereof. All domestic government contracts and subcontracts of the Businesses are subject to audit and various cost controls, and include standard provisions for termination for the convenience of the U.S. Government. Multi-year U.S. Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the government. 2. CHANGE IN OWNERSHIP TRANSACTION Holdings was formed by Mr. Frank C. Lanza, the former President and Chief Operating Officer of Loral, Mr. Robert V. LaPenta, the former Senior Vice President and Controller of Loral (collectively, the "Equity Executives"), Lehman Brothers Capital Partners III, L.P. and its affiliates (the "Lehman Partnership") and Lockheed Martin to acquire the Businesses. On December 31, 1997, the Equity Executives, the Lehman Partnership and Lockheed Martin owned approximately 14.9%, 50.1% and 34.0% of Holdings, respectively. On March 28, 1997, Lanza, LaPenta, the Lehman Partnership, L-3, and Lockheed Martin entered into a Transaction Agreement (the "L-3 Acquisition Agreement") whereby Holdings would acquire F-21 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) the Businesses from Lockheed Martin (the "L-3 Acquisition"). Also included in the acquisition is a semiconductor product line of another business and certain leasehold improvements in New York City which were not material. Pursuant to the L-3 Acquisition Agreement, L-3 acquired the Businesses from Lockheed Martin for $525,000, comprising $458,779 of cash, after a $21,221 reduction related to a purchase price adjustment, and $45,000 of common equity, representing a 34.9% interest in Holdings retained by Lockheed Martin, plus acquisition costs of $8,000. The Company and Lockheed Martin finalized the purchase price adjustment pursuant to an amendment to the L-3 Acquisition Agreement dated November 5, 1997, which also included the assumption by the Company of Lockheed Martin's rights and obligations under a contract for the U.S. Army's Command and Control Vehicle ("C2V") Mission Module Systems ("MMS"), for the production of mission communication systems for track vehicles, for which the Company received a cash payment of $12,176. In connection with the L-3 Acquisition Agreement, the Company anticipated entering into a transition services agreement with Lockheed Martin pursuant to which Lockheed Martin would provide to L-3 and its subsidiaries (and L-3 would provide to Lockheed Martin) certain corporate services of a type previously provided at costs consistent with past practices until December 31, 1997 (or, in the case of Communications Systems -- East (formerly known as Communications Systems -- Camden), for a period of up to 18 months after the Closing). Lockheed Martin is providing L-3 the services contemplated by the proposed transaction services agreement in the absence of any executed agreement. The parties also entered into supply agreements which reflect previously existing inter-company work transfer agreements or similar support arrangements upon prices and other terms consistent with previously existing arrangements. Holdings, the Company and Lockheed Martin have entered into certain subleases of real property and cross-licenses of intellectual property. Pursuant to the L-3 Acquisition Agreement the Company also assumed certain obligations relating to environmental liabilities and benefit plans. In accordance with Accounting Principles Board Opinion No. 16, the acquisition of the Businesses by Holdings and L-3 has been accounted for as a purchase business combination effective as of April 1, 1997. The purchase cost (including the fees and expenses related thereto) was allocated to the tangible and intangible assets and liabilities of the Company based upon their respective fair values. The assets and liabilities recorded in connection with the purchase price allocation were $664,800 and $164,400, respectively. The excess of the purchase price over the fair value of net assets acquired of $303,200 was recorded as goodwill, and is being amortized on a straight-line basis over a period of 40 years. As a result of the 34.9% ownership interest retained by Lockheed Martin, the provisions of Emerging Issues Task Force Issue Number 88-16 were applied in connection with the purchase price allocation, which resulted in the recognition of a deemed distribution of $9,000. In connection with the determination of the fair value of assets acquired and pursuant to the provisions of Accounting Principles Board Opinion No. 16, the Company has valued acquired contracts in process at contract price, less the estimated cost to complete and an allowance for the Company's normal profit on its effort to complete such contracts. Had the L-3 Acquisition occurred on January 1, 1996, the unaudited pro forma sales and net income for the years ended December 31, 1997 and 1996 would have been $703,600 and $11,890 and $663,200 and $5,290, respectively. The pro forma results, which are based on various assumptions, are not necessarily indicative of what would have occurred had the acquisition been consummated on January 1, 1996. The 1997 and 1996 pro forma sales and net income data have been adjusted to (i) include the operations of the Loral Acquired Businesses from January 1, 1996 (Note 4) and (ii) exclude the operations of the Hycor business net assets held for sale from January 1, 1996 (Note 6). F-22 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with a maturity of three months or less at time of purchase. STATEMENTS OF CASH FLOWS: Changes in operating assets and liabilities are net of the impact of acquisitions and final purchase price allocations. The Predecessor Company participated in Lockheed Martin's cash management system, under which all cash was received and payments were made by Lockheed Martin. All transactions between the Predecessor Company and Lockheed Martin have been accounted for as settled in cash at the time the transactions were recorded by the Predecessor Company. REVENUE RECOGNITION: Sales on production-type contracts are recorded as units are shipped; profits applicable to such shipments are recorded pro rata, based upon estimated total profit at completion of the contract. Sales and profits on cost reimbursable contracts are recognized as costs are incurred. Sales and estimated profits under other long-term contracts are recognized under the percentage of completion method of accounting using the cost-to-cost method. Amounts representing contract change orders or claims are included in sales only when they can be reliably estimated and their realization is probable. Losses on contracts are recognized when determined. Revisions in profit estimates are reflected in the period, on a cumulative catch-up basis, in which the facts, requiring the revision, become known. CONTRACTS IN PROCESS: Costs accumulated on contracts in process include direct costs, as well as manufacturing overhead, and for government contracts, general and administrative costs, independent research and development costs and bid and proposal costs. In accordance with industry practice, contracts in process contain amounts relating to contracts and programs with long performance cycles, a portion of which may not be realized within one year. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is provided primarily on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. COST IN EXCESS OF NET ASSETS ACQUIRED: The excess of the cost of the L-3 Acquisition over the fair value of the net assets acquired is being amortized using a straight-line method over a 40 year period. Accumulated amortization of the Company amounted to $5,741 at December 31, 1997. The carrying amount of cost in excess of net assets acquired is evaluated on a recurring basis. Current and future profitability as well as current and future undiscounted cash flows, excluding financing costs, of the acquired businesses are primary indicators of recoverability. For the nine months ended December 31, 1997, there was no reduction to the carrying amount of the cost in excess of net assets acquired resulting from these evaluations. PREDECESSOR COMPANY INTANGIBLES: Intangibles, primarily the excess of the cost of Businesses over the fair value of the net assets acquired, was amortized using a straight-line method primarily over a 40-year period. Other intangibles were amortized over their estimated useful lives which range from 11 to 15 years. Amortization expense of the Businesses was $2,655 for the three months ended March 31, 1997; $10,115 and $6,086 for the years ended December 31, 1996 and 1995, respectively. Accumulated amortization was $26,524 at December 31, 1996. Intangibles of the Predecessor Company include costs allocated to the Businesses relating to the Request for Funding Authorization ("RFA"), consisting of over 20 restructuring projects to reduce operating costs, initiated by General Electric ("GE") Aerospace in 1990 and to the REC Advance F-23 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Agreement ("RAA"), a restructuring plan initiated after Lockheed Martin's acquisition of GE Aerospace. The RAA was initiated to close two regional electronic manufacturing centers. Restructure costs are reimbursable from the U.S. Government if savings can be demonstrated to exceed costs. The total cost of restructuring under the RFA and the RAA represented approximately 15% of the estimated savings to the U.S. Government and, therefore, a deferred asset has been recorded by Lockheed Martin. The deferred asset is being allocated to all the former GE Aerospace sites, including the Communications Systems Division, on a basis that includes manufacturing labor, overhead, and direct material less non-hardware subcontracts. At December 31, 1997 and 1996, approximately $2,313 and $4,400, respectively, of unamortized RFA and RAA costs are deferred on the Company's and the Predecessor Company's consolidated (combined) balance sheets in other current assets and other assets. The carrying values of the Predecessor Company intangibles were reviewed if the facts and circumstances indicated potential impairment of their carrying value. If this review indicated that intangible assets were not recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Businesses carrying values related to the intangible assets were reduced by the estimated shortfall of cash flows. INCOME TAXES: The Company provides for income taxes using the liability method prescribed by the Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes." Under the liability method, deferred income tax assets and liabilities reflect tax carryforwards and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, as determined under enacted tax laws and rates. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. PREDECESSOR COMPANY INCOME TAXES: The Predecessor Company was included in the consolidated Federal income tax return and certain combined and separate state and local income tax returns of Lockheed Martin. However, for purposes of these financial statements, the provision for income taxes has been allocated to the Predecessor Company based upon reported combined income before income taxes. Income taxes, current and deferred, are considered to have been paid or charged to Lockheed Martin and are recorded through the invested equity account with Lockheed Martin. The principal components of the deferred taxes are contract accounting methods, property, plant and equipment, goodwill amortization and timing of accruals. RESEARCH AND DEVELOPMENT: Research and development costs sponsored by the Company and the Predecessor Company include research and development, bid and proposal costs related to government products and services. These costs generally are allocated among all contracts and programs in progress under U.S. Government contractual arrangements. Customer-sponsored research and development costs incurred pursuant to contracts are accounted for as direct contract costs. STOCK OPTIONS: In accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, compensation expense for stock options is recognized in income based on the excess, if any, of Holdings' fair value of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. The exercise price for stock options granted to employees equals or exceeds the fair value of the Holdings common stock at the date of grant, thereby resulting in no recognition of compensation expense by the Company. The Company has adopted the disclosure -- only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). DERIVATIVE FINANCIAL INSTRUMENTS: In the normal course of financing operations, the Company enters into interest rate cap and floor transactions for interest rate protection purposes, and not for speculative or trading purposes. Cash payments to and from the Company and the counterparties are recorded as a component of interest expense. The initial cost of these arrangements are deferred and amortized as interest expense. F-24 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant of these estimates and assumptions relate to contract estimates of sales and costs, allocations from Lockheed Martin, recoverability of recorded amounts of fixed assets and cost in excess of net assets acquired, litigation and environmental obligations. Actual results could differ from these estimates. EARNINGS PER SHARE: Earnings per share data is not presented since the Company and the Predecessor company are wholly owned subsidiaries. ACCOUNTING PRONOUNCEMENTS: In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in full set general purpose financial statements. SFAS No. 131 establishes accounting standards for the way that public business enterprises report selected information about operating segments and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132 revises employers' disclosures about pension and other postretirement benefits plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", were issued. SFAS No. 132 suggests combined formats for presentation of pension and other postretirement benefit disclosures. SFAS No. 130, SFAS No. 131 and SFAS No. 132 are required to be adopted by 1998. The Company is currently evaluating the impact, if any, of SFAS No. 130, SFAS No. 131 and SFAS No. 132. Effective January 1, 1996, the Businesses adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting standards for the impairment of long-lived assets, certain intangible assets and cost in excess of net assets acquired to be held and used for long-lived assets and certain intangible assets to be disposed of. The impact of adopting SFAS 121 was not material. Effective in December 1997 the Company adopted the provisions of SFAS No. 128, "Earnings Per Share" ("SFAS 128") and No. 129, "Disclosure of Information About Capital Structure" ("SFAS 129"). RECLASSIFICATIONS: Certain reclassifications have been made to conform prior-year amounts to the current-year presentation. 4. PREDECESSOR COMPANY ACQUISITION Effective April 1, 1996, Lockheed Martin acquired substantially all the assets and liabilities of the defense businesses of Loral, including the Wideband Systems Division and the Products Group which are included in the Businesses. The acquisition of the Wideband Systems Division and Products Group businesses (the "Loral Acquired Businesses") has been accounted for as a purchase by Lockheed F-25 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Martin Communications Systems -- Camden Division ("Division"). The acquisition has been reflected in the financial statements based on the purchase price allocated to those acquired businesses by Lockheed Martin. The assets and liabilities recorded in connection with the purchase price allocation were $401,000 and $113,200, respectively. As such, the accompanying combined financial statements for periods prior to April 1, 1997 reflect the results of operations of the Division and the Loral Acquired Businesses from the effective date of acquisition including the effects of an allocated portion of cost in excess of net assets acquired resulting from the acquisition. 5. CONTRACTS IN PROCESS Billings and accumulated costs and profits on long-term contracts, principally with the U.S. Government, comprise the following:
PREDECESSOR COMPANY COMPANY ------------ ------------ DECEMBER 31, --------------------------- 1997 1996 ------------ ------------ Billed contract receivables ............................................. $ 39,029 $ 45,212 Unbilled contract receivables ........................................... 33,136 84,814 Other billed receivables, principally commercial and affiliates ......... 31,253 41,154 Inventoried costs ....................................................... 82,954 72,880 --------- --------- 186,372 244,060 Less, unliquidated progress payments (19,170) (45,987) --------- --------- Net contracts in process ................................................ $ 167,202 $ 198,073 ========= =========
The U.S. Government has title to or a secured interest in, inventory to which progress payments are applied. Unbilled contract receivables represent accumulated costs and profits earned but not yet billed to customers. The Company believes that substantially all such amounts will be billed and collected within one year. The following data has been used in the determination of costs and expenses:
COMPANY PREDECESSOR COMPANY -------------- ----------------------------------- NINE THREE MONTHS MONTHS FOR THE YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ---------------------- 1997 1997 1996 1995 -------------- ---------- ---------- --------- Selling, general and administrative ("SG&A") costs included in inventoried costs ............................. $15,379 $14,536 $14,700 $1,156 Selling, general and administrative costs incurred ......... 88,527 28,449 82,226 6,525 Independent research and development, including bid and proposal costs, included in SG&A incurred ............. 28,893 12,024 36,500 9,800
6. NET ASSETS HELD FOR SALE The Company has accounted for the allocation of purchase price and the net assets of its Hycor business in accordance with the FASB's Emerging Issues Task Force Issue 87-11 "Allocation of Purchase Price to Assets to be Sold" ("EITF 87-11"). Accordingly, the net assets related to the Hycor business as of April 1, 1997 are included in the accompanying consolidated balance sheet as "Net assets held for sale". The fair value assigned to such net assets is based upon management's estimate of the proceeds from the sale of the Hycor business less the estimated income from operations for such business during the holding period of April 1, 1997 through January 29, 1998 (the "holding F-26 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) period"), plus interest expense on debt allocated to such net assets during the holding period. On January 29, 1998, the Company sold the Hycor business, excluding land and buildings for $3,500 in cash subject to adjustment based on final closing net assets. In accordance with EITF 87-11, loss from the operations of the Hycor business of $108 and interest expense of $552 on the debt allocated to the Hycor net assets have been excluded from the Company's consolidated statements of operations for the nine months ended December 31, 1997. Management of the Company expects that any gain or loss realized on the ultimate disposition of the Hycor business will not have a material impact on the original purchase price allocation. Also included in net assets held for sale at December 31, 1997 is a Company property located in Atlanta, Georgia. 7. PROPERTY, PLANT AND EQUIPMENT
PREDECESSOR COMPANY COMPANY ----------- ------------ DECEMBER 31, -------------------------- 1997 1996 ----------- ------------ Land ................................................. $ 6,670 $ 9,200 Buildings and improvements ........................... 19,487 27,000 Machinery, equipment, furniture and fixtures ......... 58,978 73,137 Leasehold improvements ............................... 9,899 7,229 -------- -------- $ 95,034 $116,566 ======== ========
Depreciation and amortization expense attributable to property, plant and equipment was $13,320 for the nine months ended December 31, 1997; $4,529 for the three months ended March 31, 1997, and $14,924 and $5,492 for the years ended December 31, 1996 and 1995, respectively. 8. DEBT Long-term debt consists of:
DECEMBER 31, 1997 ------------------ Term Loan Facilites ................................... $ 172,000 10 3/8 Senior Subordinated Notes due 2007 ............. 225,000 --------- 397,000 Less current portion of Term Loan Facilities .......... 5,000 --------- Total long-term debt ................................. $ 392,000 =========
In connection with the L-3 Acquisition, the Company entered into a credit facility (the "Senior Credit Facilities") with a syndicate of banks and financial institutions for $275,000 consisting of $175,000 of term loans (the "Term Loan Facilities") and a $100,000 revolving credit facility (the "Revolving Credit Facility"). The Senior Credit Facilities bear interest, at the option of the Company, at rates related to (i) the higher of federal funds rate plus 0.50% per annum or the reference rate published by Bank of America NT&SA or (ii) LIBOR. At December 31, 1997, such interest rates, based on various maturities, ranged from 7.625% to 8.625%. Interest payments vary in accordance with the type of borrowing and are made at a minimum every three months. The Revolving Credit Facility expires in 2003 and is available for ongoing working capital and letter of credit needs. The Term Loans mature in installments until the final maturity date in 2006. Approximately $93,428 of the Revolving Credit Facility is available at December 31, 1997 reflecting letters of credit of $6,572 drawn F-27 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) against the Revolving Credit Facility of $100,000. In February 1998, the Senior Credit Facilities were amended to, among other things, increase the Revolving Credit Facility to $200,000, waive certain excess cash flow prepayments, as defined, otherwise required, and permit the incurrence of up to an additional $150,000 of subordinated debt. The Company pays a commitment fee of 0.375% per annum on the unused portion of the Revolving Credit Facility. In April 1997, the Company issued $225,000 of 10 3/8% senior subordinated notes (the "1997 Notes") due May 1, 2007 with interest payable semi-annually on May 1 and November 1 of each year, commencing November 1, 1997. On November 5, 1997, the Company completed its exchange offer relating to the 1997 Notes and the holders of the 1997 Notes received registered securities. The 1997 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 2002, at various redemption prices plus accrued and unpaid interest to the applicable redemption date. In addition, prior to May 1, 2000, the Company may redeem up to 35% of the aggregate principal amount of 1997 Notes at a redemption price of 109.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date with the net cash proceeds of one or more equity offerings by Holdings that are contributed to the Company as common equity capital. The Senior Credit Facilities and the 1997 Notes agreement contain financial and restrictive covenants that limit, among other things, the ability of the Company to borrow additional funds, dispose of assets, or pay cash dividends. At December 31, 1997, none of the Company's retained earnings were available to pay dividends. The Senior Credit Facilities contain financial covenants, which remain in effect so long as any amount is owed by the Company thereunder. These financial covenants require that (i) the Company's debt ratio, as defined, be less than or equal to 5.50 for the quarter ended December 31, 1997, and that the maximum allowable debt ratio, as defined, thereafter be further reduced to less than or equal to 3.1 for the quarters ending after June 30, 2002, and (ii) the Company's interest coverage ratio, as defined, be at least 1.85 for the quarter ended December 31, 1997, and thereafter increasing the interest coverage ratio, as defined, to at least 3.10 for any fiscal quarters ended after June 30, 2002. At December 31, 1997, the Company was in compliance with these covenants. In connection with the Senior Credit Facilities, the Company has granted the lenders a first priority lien on substantially all of the Company's assets, including the stock of L-3 Communications Corporation. The aggregate principal payments for debt, excluding borrowings under the Revolving Credit Facility, for the five years ending December 31, 1998 through 2002 are: $5,000, $11,000, $19,000, $25,000 and $33,200, respectively. The costs related to the issuance of debt have been deferred and are being amortized as interest expense over the term of the related debt using a method that approximates the effective interest method. 9. PREDECESSOR COMPANY'S INTEREST EXPENSE Interest expense has been allocated to the Predecessor Company by applying Lockheed Martin's weighted average consolidated interest rate to the portion of the beginning of the period invested equity account deemed to be financed by consolidated debt, which has been determined based on Lockheed Martin's debt to equity ratio on such date, except that the acquisition of the Loral Acquired Businesses has been assumed to be fully financed by debt. Management of the Businesses believes that this allocation methodology is reasonable. F-28 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Interest expense of the Predecessor Company was calculated using the following balances and interest rates:
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ----------------------------- MARCH 31, 1997 1996 1995 --------------- ------------- ------------- Invested Equity ......... $ 473,609 $ 482,466 $ 199,506 Interest Rate ........... 7.10% 7.20% 7.40%
10. FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, billed contract receivables, other billed receivables (principally commercial and affiliates), trade accounts payable, customer advances, debt instruments, and interest rate cap and interest rate floor contracts. The book values of cash and cash equivalents, billed contract receivables, other billed receivables (principally commercial and affiliates), trade accounts payable and customer advances are considered to be representative of their respective fair values at December 31, 1997 due to the short-term maturities or expected settlement dates of these instruments. The Company's debt instruments consist of term loans and 1997 Notes (Note 8). The carrying values of the term loans approximate fair value because they are variable-rate loans which bear interest at current market rates. The 1997 Notes are registered, unlisted public debt which is traded in the over-the-counter market. The fair value of such debt at December 31, 1997 was estimated to be approximately $243,000, based on trading activity on December 31, 1997. To mitigate risks associated with changing interest rates on certain of its debt, the Company entered into the interest rate agreements. The fair values of the interest rate caps and interest rate floors (collectively, the "interest rate agreements") were estimated by discounting expected cash flows using quoted market interest rates. The Company manages exposure to counterparty credit risk by entering into the interest rate agreements only with major financial institutions that are expected to fully perform under the terms of such agreements. The notional amounts are used to measure the volume of these agreements and do not represent exposure to credit loss. The impact of the interest rate agreements was not material to interest expense for the nine months ended December 31, 1997. Information with respect to the interest rate agreements is as follows:
DECEMBER 31, 1997 ---------------------------- NOTIONAL UNREALIZED AMOUNT GAINS (LOSSES) ---------- --------------- Interest rate caps ........... $100,000 $ (1,008) -------- -------- Interest rate floors ......... $ 50,000 $ (263) -------- --------
At December 31, 1996, the Predecessor Company's financial instruments consisted primarily of billed contract receivables, other billed receivables (principally commercial and affiliates), trade accounts payable and customer advances. The book value of billed contract receivables, other billed receivables (principally commercial and affiliates), trade accounts payable and customer advances approximated their respective fair values at December 31, 1996, due to the short-term maturities or expected settlement dates of those instruments. 11. NONCASH COMPENSATION CHARGE Holdings' Class A Common Stock and Class B Common Stock were issued at per share prices of $6.47 and $5.00, respectively. The aggregate difference in issuance prices of $4,410 has been accounted for as a noncash compensation charge to expense effective on April 1, 1997, related to the initial capitalization of L-3. F-29 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 12. INCOME TAXES THE COMPANY Pretax income of the Company for the nine months ended December 31, 1997 was $22,992 and was primarily domestic. The components of the Company's provision for income taxes for the nine months ended December 31, 1997 are:
Income taxes currently payable, primarily federal ......... $ 696 Deferred income taxes: Federal ................................................. 8,635 State and local ......................................... 1,356 ------- Subtotal ................................................ 9,991 ------- Total provision for income taxes .......................... $10,687 =======
The effective income tax rate of the Company for the nine months ended December 31, 1997 differs from the statutory federal income tax rate for the following reasons:
Statutory federal income tax rate ..................................... 35.0% State and local income taxes, net of federal income tax benefit ....... 3.8 Noncash compensation charge ........................................... 6.8 Nondeductible goodwill amortization and other expenses ................ 4.4 Research and development and other tax credits ........................ (3.5) ---- Effective income tax rate ............................................. 46.5 % =======
The significant components of the Company's net deferred tax assets at December 31, 1997 are:
Deferred tax assets: Other postretirement benefits ............................. $ 8,649 Inventoried costs ......................................... 8,711 Compensation and benefits ................................. 528 Pension costs ............................................. 4,177 Property, plant and equipment ............................. 8,098 Income recognition on long-term contracts ................. 3,691 Other, net ................................................ 1,861 Net operating loss and other credit carryforwards ......... 2,969 -------- Total deferred tax assets ................................ 38,684 Deferred tax liabilities: Cost in excess of net assets acquired ..................... (1,099) Other, net ................................................ (70) -------- Total deferred tax liabilities ........................... (1,169) -------- Net deferred tax assets ..................................... $ 37,515 ======== The net deferred tax assets are classified as follows: Current deferred tax assets ............................... $ 13,298 Long-term deferred tax assets ............................. 24,217 -------- $ 37,515 ========
F-30 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) At December 31, 1997, the Company had $2,969 of tax credit carryforwards, primarily related to U.S. federal net operating losses and research and experimentation tax credits which expire, if unused, in 2012. The Company believes that these carryforwards will be available to reduce future income tax liabilities and has recorded these carryforwards as non-current deferred tax assets. PREDECESSOR COMPANY The (benefit) provision for income taxes for the Predecessor Company was calculated by applying statutory tax rates to the reported income (loss) before income taxes after considering items that do not enter into the determination of taxable income and tax credits reflected in the consolidated provision of Lockheed Martin, which are related to the Businesses. Substantially all the income of the Businesses are from domestic operations. For the three months ended March 31, 1997, it is estimated that the benefit for deferred taxes represents $1,315. For the years ended December 31, 1996 and 1995, it is estimated that the (benefit) provision for deferred taxes represents ($2,143) and $3,994, respectively. The effective income tax rate of the Predecessor Company differs from the statutory Federal income tax rate for the following reasons:
FOR THE THREE MONTHS YEARS ENDED DECEMBER ENDED 31, MARCH 31, ---------------------- 1997 1996 1995 ------------- ---------- --------- Statutory federal income tax rate ......................... (35.0)% 35.0% 34.0% Amortization of cost in excess of net assets acquired ..... (8.1) 2 529 Research and development and other tax credits ............ (11.3) (2) -- State and local income taxes, net of federal income tax benefit and state and local income tax credits ...... 4.8 6 101 Foreign sales corporation tax benefits .................... (8.4) (1) -- Other, net ................................................ 9.1 -- 17.0 ----- ------ ---- Effective income tax rate ................................. (48.9)% 40.0% 681% ===== ====== ====
13. STOCK OPTIONS THE COMPANY Holdings sponsors an option plan for key employees of the Company, pursuant to which options to purchase up to 3,255,815 shares of Holdings common stock have been authorized for grant. On April 30, 1997, Holdings adopted the 1997 Option Plan for key employees and granted to the Equity Executives nonqualified options to purchase, at $6.47 per share, 2,285,714 shares of Class A common stock of Holdings. In each case, half of the options are "Time Options" and half are "Performance Options" (collectively, the "Options"). The Time Options become exercisable with respect to 20% of the shares subject to the Time Options on each of the first five anniversaries if employment continues through and including such date. The Performance Options become exercisable nine years after the grant date, but may become exercisable earlier with respect to up to 20% of the shares subject to the Performance Options on each of the first five anniversaries, to the extent certain defined targets are achieved. The Options, which have a ten year term, become fully exercisable under certain circumstances, including a change in control. On July 1, 1997 and November 11, 1997, Holdings granted nonqualified options to certain officers and other employees of Holdings to purchase at $6.47 per share 689,500 shares of Class A common F-31 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) stock of Holdings (collectively, the "1997 Options"). Generally, the 1997 Options vest over a three-year period and expire ten years from the date of grant. The exercise price for Holdings' stock options granted to employees in 1997 equaled the estimated fair value of Holdings' common stock at the date of grant. Accordingly, in accordance with APB 25, no compensation expense was recognized by Holdings. Pro forma information regarding net earnings as required by SFAS 123 has been determined as if Holdings had accounted for its employee stock options under the fair value method. Because Holdings is a nonpublic entity the fair value for the options was estimated at the date of grant using the minimum value method prescribed in SFAS 123, which does not consider the expected volatility of Holdings' stock price, with the following weighted-average assumptions for 1997: risk-free interest rate of 6.3%; dividend yield of 0%; and weighted-average expected option life of 5.49 years. For purposes of pro forma disclosures, the compensation cost of the options based on their estimated fair values is amortized to expense over vesting periods of the options. The Company's net income for the nine months ended December 31, 1997 would have decreased to the pro forma amounts indicated below:
Net income: As reported ......... $12,305 ======= Pro forma ........... $11,751 =======
A summary of the stock option activity for the nine months ended December 31, 1997 is as follows:
SHARES WEIGHTED AVERAGE (IN THOUSANDS) EXERCISE PRICE ---------------- ----------------- Options granted ................................ 2,975 $6.47 Options exercised .............................. -- -- Options cancelled .............................. 4 $6.47 Options outstanding, December 31, 1997 ......... 2,971 $6.47 Options exercisable, December 31, 1997 ......... -- --
The weighted-average grant-date fair value of options granted during the nine months ended December 31, 1997 was $1.82 per option. The weighted average remaining contract life of the Company outstanding stock options was 9.37 years at December 31, 1997. PREDECESSOR COMPANY During the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, certain employees of the Predecessor Company participated in Lockheed Martin's stock option plans. All stock options granted had 10 year terms and vested over a two year service period. Exercise prices of options awarded in both years were equal to the market price of the stock on the date of grant. Pro forma information regarding net earnings (loss) as required by SFAS No. 123 has been determined as if the Predecessor Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three months ended March 31, 1997, and the years ended December 31, 1996 and 1995, respectively: risk-free interest rates of 5.58%, 5.58% and 6.64%; dividend yield of 1.70%; volatility factors related to F-32 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) the expected market price of the Lockheed Martin's common stock of .186, .186 and .216; weighted-average expected option life of five years. The weighted-average fair values of options granted during 1997, 1996 and 1995 were $17.24, $17.24 and $16.09, respectively. For the purposes of pro forma disclosures, the options' estimated fair values are amortized to expense over the options' vesting periods. The Predecessor Company's pro forma net loss for the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995 were ($386), $11,531, and ($1,040), respectively. 14. COMMITMENTS AND CONTINGENCIES The Company and the Predecessor Company lease certain facilities and equipment under agreements expiring at various dates through 2011. At December 31, 1997, the Company's future minimum payments for noncancellable operating leases with initial or remaining terms in excess of one year are as follows:
OPERATING LEASES --------------------------------------- REAL ESTATE EQUIPMENT TOTAL ------------- ----------- --------- 1998 ............... $ 8,599 $295 $ 8,894 1999 ............... 7,734 244 7,978 2000 ............... 10,030 232 10,262 2001 ............... 8,926 29 8,955 2002 ............... 2,795 22 2,817 Thereafter ......... 14,393 -- 14,393 ------- ---- ------- $52,477 $822 $53,299 ======= ==== =======
Real estate lease commitments have been reduced by minimum sublease rentals of $22,106 due in the future under noncancellable subleases. Leases covering major items of real estate and equipment contain renewal and or purchase options which may be exercised by the Company and Predecessor Company. Rent expense, net of sublease income from other Lockheed Martin entities was $7,330 for the Company for the nine months ended December 31, 1997; $2,553 for the Predecessor Company for the three months ended March 31, 1997 and $8,495 and $4,772 for the Predecessor Company for the years ended December 31, 1996 and 1995, respectively. The Company is and the Predecessor Company has been engaged in providing products and services under contracts with the U.S. Government and to a lesser degree, under foreign government contracts, some of which are funded by the U.S. Government. All such contracts are subject to extensive legal and regulatory requirements, and, from time to time, agencies of the U.S. Government investigate whether such contracts were and are being conducted in accordance with these requirements. Under government procurement regulations, an indictment of the Company and the Predecessor Company by a federal grand jury could result in the Company and the Predecessor Company being suspended for a period of time from eligibility for awards of new government contracts. A conviction could result in debarment from contracting with the federal government for a specified term. The decline in the U.S. defense budget since the mid-1980s has resulted in program delays, cancellations and scope reduction for defense contracts in general. These events may or may not have an effect on the Company's programs; however, in the event that U.S. Government expenditures for products of the type manufactured by the Company are reduced, and not offset by greater commercial sales or other new programs or products, or acquisitions, there may be a reduction in the volume of contracts or subcontracts awarded to the Company. F-33 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Pursuant to the L-3 Acquisition Agreement, Holdings and the Company has agreed to assume certain on-site and off-site environmental liabilities related to events or activities occurring prior to the consummation of the L-3 Acquisition. Lockheed Martin has agreed to retain all environmental liabilities for all facilities not used by the Businesses as of April 1997 and to indemnify fully Holdings for such prior site environmental liabilities. Lockheed Martin has also agreed, for the first eight years following April 1997 to pay 50% of all costs incurred by Holdings above those reserved for on the Company's balance sheet at March 31, 1997 relating to certain Company-assumed environmental liabilities and, for the seven years thereafter, to pay 40% of certain reasonable operation and maintenance costs relating to any environmental remediation projects undertaken in the first eight years. The Company believes that its total liability for known or reasonably probable environmental claims, even without consideration of the Lockheed Martin indemnification, would not either individually or collectively have a material adverse effect upon Holdings' financial condition or upon the results of its operations. Management continually assesses the Company's obligations with respect to applicable environmental protection laws. While it is difficult to determine the timing and ultimate cost to be incurred by the Company in order to comply with these laws, based upon available internal and external assessments, with respect to those environmental loss contingencies of which management is aware, the Company believes that even without considering potential insurance recoveries, if any, there are no environmental loss contingencies that, individually or in the aggregate, would be material to the Company's results of operations. The Company accrues for these contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company and the Predecessor Company have been periodically subject to litigation, claims or assessments and various contingent liabilities (including environmental matters) incidental to its business. With respect to those investigative actions, items of litigation, claims or assessments of which they are aware, management of the Company is of the opinion that the probability is remote that, after taking into account certain provisions that have been made with respect to these matters, the ultimate resolution of any such investigative actions, items of litigation, claims or assessments will have a material adverse effect on the financial position or results of operations of the Company and the Predecessor Company. 15. PENSIONS AND OTHER EMPLOYEE BENEFITS THE COMPANY PENSIONS: The Company maintains a number of pension plans, both contributory and noncontributory, covering certain employees. Eligibility for participation in these plans varies and benefits are generally based on members' compensation and years of service. The Company's funding policy is generally to contribute in accordance with cost accounting standards that affect government contractors, subject to the Internal Revenue Code and regulations thereon. Plan assets are invested primarily in U.S. government and agency obligations and listed stocks and bonds. Pension expense for the nine months ended December 31, 1997 includes the following components: Service cost ......................... $ 5,109 Interest cost ........................ 8,883 Actual return on plan assets ......... (11,285) Net deferral ......................... 1,581 --------- Total pension cost ................... $ 4,288 =========
F-34 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following presents the funded status and amounts recognized in the balance sheet for the Company's pension plans:
DECEMBER 31, 1997 -------------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS --------------- -------------- Actuarial present value of benefit obligations: Vested benefits ..................................................... $13,742 $ 152,133 ======= ========= Accumulated benefits ................................................ $13,825 $ 155,474 Effect of projected future salary increases ......................... 3,337 25,795 ------- --------- Projected benefits .................................................. $17,162 $ 181,269 ======= ========= Plan assets at fair value ............................................. $18,172 $ 155,278 ------- --------- Plan assets in excess of (less than) projected benefit obligation ..... 1,010 (25,991) Unrecognized net (gain) loss .......................................... (559) 5,683 ------- --------- Prepaid (accrued) pension cost ........................................ $ 451 $ (20,308) ======= =========
The following assumptions were used in accounting for pension plans for the Company:
APRIL 1, 1997 DECEMBER 31, 1997 --------------- ------------------ Discount rate ............................. 7.50% 7.25% Rate of increase in compensation .......... 5.00% 5.00% Rate of return on plan assets ............. 9.00% 9.00%
In connection with the Company's assumption of certain plan obligations pursuant to the L-3 Acquisition, Lockheed Martin has provided the PBGC with commitments to assume sponsorship or other forms of financial support under certain circumstances. In this connection, the Company has provided certain assurances to Lockheed Martin including, but not limited to, (i) continuing to fund the pension plans consistent with prior practices and to the extent deductible for tax purposes and, where appropriate, recoverable under Government contracts, (ii) agreeing to not increase benefits under the pension plans without the consent of Lockheed Martin, (iii) restricting the Company from a sale of any businesses employing individuals covered by the pension plans if such sale would not result in reduction or elimination of the Lockheed Martin Commitment with regard to the specific plan and (iv) if the pension plans were returned to Lockheed Martin, granting Lockheed Martin the right to seek recovery from the Company of those amounts actually paid, if any, by Lockheed Martin with regard to the pension plans after their return. POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE: In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees and dependents at certain locations. Participants are eligible for these benefits when they retire from active service and meet the eligibility requirements for the Company's pension plans. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Post-retirement health care and life insurance costs for the nine months ended December 31, 1997 include the following components:
Service cost ....................................................... $ 466 Interest cost ...................................................... 840 ------ Total post-retirement health care and life insurance costs ......... $1,306 ======
F-35 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following table presents the amounts recognized in the balance sheet for the Company at December 31, 1997:
Accumulated post-retirement benefit obligation: Retirees ........................................................... $ 4,702 Fully eligible plan participants ................................... 3,188 Other active plan participants ..................................... 10,990 ------- Total accumulated post-retirement benefit obligation ................. $18,880 Unrecognized net loss ................................................ 624 ------- Accrued post-retirement health care and life insurance costs ......... $18,256 =======
Actuarial assumptions used in determining the December 31, 1997 accumulated post-retirement benefit obligation include a discount rate of 7.25%, an average rate of compensation increase of 5.0% and an assumed health care cost trend rate of 6.5% in 1997 decreasing gradually to a rate of 4.5% by the year 2001. The discount rate used at April 1, 1997 was 7.50%. The other assumptions did not change from April 1, 1997. Increasing the assumed health care cost trend rate by 1% would change the accumulated post-retirement benefits obligation at December 31, 1997 by approximately $2,218 and the aggregate service and interest cost components for the nine months ended December 31, 1997 by approximately $81 and $113, respectively. EMPLOYEE SAVINGS PLAN: Under its various employee savings plans, the Company matches the contributions of participating employees up to a designated level. The extent of the match, vesting terms and the form of the matching contribution vary among the plans. Under these plans, the Company's matching contributions, in cash, for the nine months ended December 31, 1997 was $3,742. THE PREDECESSOR COMPANY Certain of the Businesses for the Predecessor Company participated in various Lockheed Martin-sponsored pension plans covering certain employees. Eligibility for participation in these plans varies, and benefits are generally based on members' compensation and years of service. Lockheed Martin's funding policy was generally to contribute in accordance with cost accounting standards that affect government contractors, subject to the Internal Revenue Code and regulations. Since the aforementioned pension arrangements are part of certain Lockheed Martin defined benefit plans, no separate actuarial data is available for the portion allocable to the Businesses. Therefore, no liabilities or assets are reflected in the accompanying combined financial statements of the Predecessor Company as of December 31, 1996. The Businesses have been allocated pension costs based upon participant employee headcount. Net pension expense included in the accompanying combined financial statements of the Predecessor Company was $1,848 for the three months ended March 31, 1997, and $7,027 and $4,134, for the years ended December 31, 1996 and 1995, respectively. In addition to participating in Lockheed Martin-sponsored pension plans, certain of the Businesses of the Predecessor Company provided varying levels of health care and life insurance benefits for retired employees and dependents. Participants were eligible for these benefits when they retired from active service and met the pension plan eligibility requirements. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Since the aforementioned postretirement benefits are part of certain Lockheed Martin postretirement arrangements, no separate actuarial data is available for the portion allocable to the Businesses. Accordingly, no liability is reflected in the accompanying combined financial statements as of combined December 31, 1996 and 1995. The Businesses have been allocated postretirement benefits cost based on participant employee F-36 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) headcount. Postretirement benefit costs included in the accompanying combined financial statements was $616 for the three months ended March 31, 1997 and $2,787 and $2,124 for the years ended December 31, 1996 and 1995, respectively. Under various employee savings plans sponsored by Lockheed Martin, the Predecessor Company matched contributions of participating employees up to a designated level. Under these plans the matching contributions for the three months ended March 31, 1997 and for the years ended December 31, 1996 and 1995 were $1,241, $3,940 and $1,478, respectively. 16. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures to the consolidated statement of cash flows are as follows:
COMPANY PREDECESSOR COMPANY ------------------- -------------------------------- YEAR ENDED DECEMBER 31, NINE MONTHS THREE MONTHS -------------- ENDED ENDED DECEMBER 31, 1997 MARCH 31, 1997 1996 1995 ------------------- --------------- ------ ----- Interest paid ............. $21,245 -- -- -- ======= == == == Income taxes paid ......... $ 109 -- -- -- ======= == == ==
17. SALES TO PRINCIPAL CUSTOMERS The Company and the Predecessor Company operate primarily in one industry segment, government electronic systems. Sales to principal customers are as follows:
COMPANY PREDECESSOR COMPANY -------------- -------------------------------------------- THREE NINE MONTHS YEAR YEAR MONTHS ENDED ENDED ENDED ENDED DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1997 1997 1996 1995 -------------- ----------- -------------- ------------- U.S. Government Agencies ......... $434,020 $128,505 $425,033 $161,617 Foreign (principally foreign governments) ................... 12,090 13,612 33,475 4,945 Other (principally U.S. commercial) .................... 100,415 16,756 84,573 219 -------- -------- -------- -------- $546,525 $158,873 $543,081 $166,781 ======== ======== ======== ========
18. OTHER TRANSACTIONS WITH LOCKHEED MARTIN The Company and the Predecessor Company sell products to Lockheed Martin and its affiliates, net sales for which were $60,402 for the nine months ended December 31, 1997; $21,171 for the three months ended March 31, 1997 and $70,658 and $25,874 for the years ended December 31, 1996 and 1995, respectively. Included in Contracts in Process are receivables from Lockheed Martin and its affiliates of $8,846 and $10,924 at December 31, 1997 and 1996, respectively. Lockheed Martin provides the Company information systems and other services and previously provided similar services to the Predecessor Company for which the Company and the Predecessor Company were charged $13,690, $4,210, $20,901 and $20,508 for the nine months ended December 31, 1997, the three months ended March 31, 1997 and the years ended December 31, 1996 and 1995, respectively. The Predecessor Company relied on Lockheed Martin for certain services, including treasury, cash management, employee benefits, taxes, risk management, internal audit, financial reporting, contract administration and general corporate services. Although certain assets, liabilities and F-37 L-3 COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) expenses related to these services have been allocated to the Businesses, the combined financial position, results of operations and cash flows presented in the accompanying combined financial statements would not be the same had the Businesses been independent entities. The amount of allocated corporate expenses to the Predecessor Company and reflected in these combined financial statements was estimated based primarily on an allocation methodology prescribed by government regulations pertaining to government contractors. Allocated costs to the Businesses were $5,208 for the three months ended March 31, 1997, and $10,057 and $2,964 for the years ended December 31, 1996 and 1995, respectively. 19. SUBSEQUENT EVENTS In February 1998, the Company purchased substantially all the assets and liabilities of the Satellite Transmission Systems division of California Microwave, Inc. The purchase price of $27,000 is subject to adjustment based on closing net assets. The Company used cash on hand to fund the purchase price. On December 22, 1997, the Company signed a definitive agreement to purchase substantially all the assets and liabilities of the Ocean Systems division of AlliedSignal Inc. The purchase price of $67,500, subject to adjustment based on closing net working capital, will be financed through cash on hand and/or borrowings available under the Senior Credit Facilities. In February 1998, the Company entered into a definitive agreement to purchase the assets of ILEX Systems ("ILEX") for $51,900 in cash, subject to adjustment based on closing net assets and additional consideration based on post-acquisition performance of ILEX. The acquisition of ILEX and Ocean Systems are expected to close during the first quarter of 1998. The company plans to finance the purchase prices using its cash on hand and available borrowings under its revolving credit facility. In February 1998, the Company filed a registration statement with the Securities and Exchange Commission ("SEC") for the sale of $150,000 aggregate principal amount of Senior Subordinated Notes due 2008 (the "Notes Offering"), and concurrently with the Notes Offering, Holdings filed a registration statement with the SEC for the sale of 5.5 million shares of common stock of Holdings. 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
COMPANY PREDECESSOR FOR THE QUARTERS ENDED COMPANY ------------------------------------------------------- --------------- DEC. 31, 1997 SEPT. 30, 1997 JUNE 30, 1997(a) MARCH 31, 1997 --------------- ---------------- ------------------ --------------- Sales ..................... $203,673 $174,822 $168,030 $158,873 Operating income .......... 22,881 17,854 10,711 7,936 Net income (loss) ......... 8,348 5,276 (1,319) (258)
PREDECESSOR COMPANY -------------------------------------------------- DEC. 31, SEPT. 30, JUNE 30, MARCH 31, 1996 1996 1996 1996 ---------- ----------- ---------- ---------- Sales ..................... $178,040 $158,594 $165,294 $41,153 Operating income .......... 20,564 12,197 9,254 1,676 Net income (loss) ......... 8,401 3,055 737 (497)
- ---------- (a) Includes a $4,410 noncash compensation charge. F-38 LORAL ACQUIRED BUSINESSES COMBINED FINANCIAL STATEMENTS For the three months ended March 31, 1996 and the year ended December 31, 1995 F-39 REPORT OF INDEPENDENT AUDITORS Board of Directors of L-3 Communications Corporation: We have audited the accompanying combined statements of operations and cash flows for the Loral Acquired Businesses as defined in Note 1 (the "Businesses") for the three months ended March 31, 1996 and the year ended December 31, 1995. These financial statements are the responsibility of the Businesses' 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 audits 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 combined results of the operations and cash flows of the Businesses for the three months ended March 31, 1996 and the year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP 1301 Avenue of the Americas New York, New York 10019 March 20, 1997 F-40 LORAL ACQUIRED BUSINESSES COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ Sales .............................. $132,200 $448,165 Cost and expenses .................. 124,426 424,899 -------- -------- Operating income ................... 7,774 23,266 Allocated interest expense ......... 4,365 20,799 -------- -------- Income before income taxes ......... 3,409 2,467 Income taxes ....................... 1,292 854 -------- -------- Net income ......................... $ 2,117 $ 1,613 ======== ========
See notes to combined financial statements. F-41 LORAL ACQUIRED BUSINESSES COMBINED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ OPERATING ACTIVITIES: Net income ........................................... $ 2,117 $ 1,613 Depreciation and amortization ........................ 5,011 20,625 Changes in operating assets and liabilities Contracts in process ................................ (11,382) 7,327 Other current assets ................................ (3,436) 890 Other assets ........................................ 2,437 6,736 Accounts payable and accrued liabilities ............ 4,525 (4,533) Other current liabilities ........................... 3,348 4,428 Other liabilities ................................... (452) 117 --------- ---------- Net cash from operating activities ................... 2,168 37,203 --------- ---------- INVESTING ACTIVITIES: Acquisition of business .............................. -- (214,927) Capital expenditures ................................. (3,962) (12,683) Disposition of property, plant and equipment ......... 187 4,342 --------- ---------- (3,775) (223,268) --------- ---------- FINANCING ACTIVITIES: Advances from (repayments to) Loral .................. 1,607 186,065 --------- ---------- Net change in cash ................................... $ -- $ -- ========= ==========
See notes to combined financial statements. F-42 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. BACKGROUND AND DESCRIPTION OF BUSINESS On January 31, 1997, Lockheed Martin Corporation ("Lockheed Martin"), Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza ("Lanza") and Robert V. LaPenta ("LaPenta") entered into a Memorandum of Understanding ("MOU") regarding the transfer of certain businesses of Lockheed Martin to a newly formed corporation ("Newco") to be owned by Lockheed Martin, Lehman, Lanza and LaPenta. The businesses proposed to be transferred (the "Loral Acquired Businesses" or "Businesses") include Lockheed Martin's Wideband Systems Division and the Products Group, comprised of ten autonomous operations, all of which were acquired by Lockheed Martin effective April 1, 1996 as part of the acquisition by Lockheed Martin of the defense electronics business of Loral Corporation ("Loral"). Also included in the transaction is the acquisition of a semiconductor product line of another business and certain leasehold improvements in New York City. The Businesses are leading suppliers of sophisticated secure communication systems, microwave communication components, avionic and instrumentation products and other products and services to major aerospace and defense contractors as well as the U.S. Government. The Businesses operate primarily in one industry segment, communication systems and products. Substantially all the Businesses' products are sold to agencies of the United States Government, primarily the Department of Defense, to foreign government agencies or to prime contractors or subcontractors thereof. All domestic government contracts and subcontracts of the Businesses are subject to audit, various cost controls and include standard provisions for termination for the convenience of the government. Multi-year government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the government. The decline in the U.S. defense budget since the mid 1980s has resulted in program delays, cancellations and scope reductions for defense contractors in general. These events may or may not have an effect on the Businesses' programs; however, in the event that expenditures for products of the type manufactured by the Businesses are reduced, and not offset by greater foreign sales or other new programs or products, or acquisitions, there may be a reduction in the volume of contracts or subcontracts awarded to the Businesses. The Businesses' operations, as presented herein, include allocations and estimates of certain expenses of Loral based upon estimates of services performed by Loral that management of the Businesses believe are reasonable. Such services include treasury, cash management, employee benefits, taxes, risk management, internal audit and general corporate services. Accordingly, the results of operations and cash flows as presented herein may not be the same as would have occurred had the Businesses been independent entities. 2. BASIS OF PRESENTATION BASIS OF COMBINATION The accompanying combined financial statements reflect the Businesses' assets, liabilities and operations included in Loral Corporation's historical financial statements that will be transferred to Newco. All significant intercompany transactions and amounts have been eliminated. The combined financial statements do not include the operations of telecommunications switch product line which will not be transferred and was exited in 1995. Also, the assets and operations of the semiconductor product line and certain other facilities which are not material to the Businesses have been excluded from the financial statements. F-43 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS) ALLOCATION OF CORPORATE EXPENSES The amount of corporate office expenses reflected in these financial statements has been estimated based primarily on the allocation methodology prescribed by government regulations pertaining to government contractors, which management of the Businesses believes to be a reasonable allocation method. INCOME TAXES The Businesses were included in the consolidated Federal income tax return and certain combined and separate state and local income tax returns of Loral. However, for the purposes of these financial statements, the provision for income taxes was allocated based upon reported income before income taxes. Such provision was recorded through the advances from (repayments to) Loral account. INTEREST EXPENSE Interest expense has been allocated to the Businesses by applying Loral's weighted average consolidated interest rate to the portion of the beginning of the period invested equity account deemed to be financed by consolidated debt, which amount has been determined based on Loral's debt to equity ratio on such date, except that the acquisition of Wideband Systems has been assumed to be fully financed by debt. STATEMENTS OF CASH FLOWS The Businesses participated in Loral's cash management system, under which all cash was received and payments made by Loral. All transactions between the Businesses and Loral have been accounted for as settled in cash on the date such transactions were recorded by the Businesses. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTRACTS IN PROCESS Sales on long-term production-type contracts are recorded as units are shipped; profits applicable to such shipments are recorded pro rata, based upon estimated total profit at completion of the contract. Sales and profits on cost reimbursable contracts are recognized as costs are incurred. Sales and estimated profits under other long-term contracts are recognized under the percentage of completion method of accounting using the cost-to-cost method. Amounts representing contract change orders or claims are included in sales only when they can be reliably estimated and realization is probable. Incentive fees and award fees enter into the determination of contract profits when they can be reliably estimated. Costs accumulated under long-term contracts include direct costs as well as manufacturing, overhead, and for government contracts, general and administrative, independent research and development and bid and proposal costs. Losses on contracts are recognized when determined. Revisions in profit estimates are reflected in the period in which the facts which require the revision become known. DEPRECIATION AND AMORTIZATION Depreciation is provided primarily on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. The excess of the cost of purchased businesses over the fair value of the net assets acquired is being amortized using a straight-line method generally over a 40-year period. F-44 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS) The carrying amount of cost in excess of net assets acquired is evaluated on a recurring basis. Current and future profitability as well as current and future undiscounted cash flows, excluding financing costs, of the underlying businesses are primary indicators of recoverability. There were no adjustments to the carrying amount of cost in excess of net assets acquired resulting from these evaluations during the periods presented. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the Businesses' management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant of these estimates and assumptions relate to contract estimates of sales and costs, cost allocations from Loral, including interest and income taxes, recoverability of recorded amounts of fixed assets and cost in excess of net assets acquired, litigation and environmental obligations. Actual results could differ from these estimates. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1996, the Businesses adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting standards for the impairment of long-lived assets, certain intangible assets and cost in excess of net assets and certain intangible assets to be disposed of. The impact of adopting SFAS 121 was not material. Effective January 1, 1994, the Businesses adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires that the costs of benefits provided to employees after employment but before retirement be recognized on an accrual basis. The adoption of SFAS 112 did not have a material impact on the results of operations of the Businesses. 4. ACQUISITIONS Effective May 1, 1995, Loral acquired substantially all the assets and liabilities of the Defense Systems operations of Unisys Corporation, which included the Wideband Systems Division. The acquisition has been accounted for as a purchase. As such, the accompanying combined financial statements reflect the results of operations of the Wideband Systems Division from the effective date of acquisition, including the amortization of an allocated portion of cost in excess of net assets acquired resulting from the acquisition. Such allocation was based on the sales and profitability of the Wideband Systems Divisions relative to the aggregate sales and profitability of the defense systems operations acquired by Loral. The assets and liabilities recorded in connection with the purchase price allocation were $240,525 and $25,598, respectively. Had the acquisition of the Wideband Systems Division occurred on January 1, 1995, the unaudited pro forma sales and net income for the year ended December 31, 1995 would have been $524,355 and $504,780, respectively. The results, which are based on various assumptions, are not necessarily indicative of what would have occurred had the acquisition been consummated as of January 1, 1995. F-45 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS) 5. OPERATING EXPENSES The following expenses have been included in the statements of operations:
THREE YEAR MONTHS ENDED ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ General and administrative expenses ...................... $23,558 $90,757 Independent research and development, and bid and proposal costs ................................................... $ 5,587 $21,370
6. INCOME TAXES The provision for income taxes was calculated by applying Loral's statutory tax rates to the reported pre-tax book income after considering items that do not enter into the determination of taxable income and tax credits reflected in the consolidated provision which are related to the Businesses. It is estimated that deferred income taxes represent approximately $714,000 and $2,857,000 of the provisions for income taxes reflected in these financial statements for the three months ended March 31, 1996 and the year ended December 31, 1995. The principal components of deferred income taxes are contract accounting methods, property plant and equipment, goodwill amortization, and timing of accruals. Substantially all of the Businesses' income is from domestic operations. The following is a reconciliation of the statutory rate to the effective tax rates reflected in the financial statements:
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 --------- ---------- Statutory Federal income tax rate ............................. 35.0% 35.0% Research and development and other tax credits ................ -- (18.6) State and local income taxes, net of Federal income tax benefit and state and local income tax credits ....................... 3.9 (.3) Foreign sales corporation tax benefit ......................... (2.2) (3.0) Amortization of goodwill ...................................... 6.3 35.1 Other, net .................................................... (5.1) (13.6) ---- ----- Effective income tax rate ..................................... 37.9% 34.6% ==== =====
7. INTEREST EXPENSE Interest expense was calculated using the following balances and interest rates:
THREE YEAR MONTHS ENDED ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ Invested Equity ................................... $ 453,062 $ 265,384 Interest Rate ..................................... 7.40% 7.87% Wideband Systems Allocated Purchase Price ......... -- $ 214,927 Interest Rate ..................................... -- 7.40%
F-46 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS) 8. COMMITMENTS AND CONTINGENCIES The Businesses lease certain facilities and equipment under agreements expiring at various dates through 2011. Leases covering major items of real estate and equipment contain renewal and/or purchase options which may be exercised by the Businesses. Rent expense for the three months ended March 31, 1996 was $1,063. Rent expense for the year ended December 31, 1995 was $4,276. Management is continually assessing its obligations with respect to applicable environmental protection laws. While it is difficult to determine the timing and ultimate cost to be incurred by the Businesses in order to comply with these laws, based upon available internal and external assessments, the Businesses believe that even without considering potential insurance recoveries, if any, there are no environmental loss contingencies that, individually or in the aggregate, would be material to the Businesses' operations. The Businesses accrue for these contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Businesses believe that it has adequately accrued for future expenditures in connection with environmental matters and that such expenditures will not have a material adverse effect on its financial position or results of operations. There are a number of lawsuits or claims pending against the Businesses and incidental to its business. However, in the opinion of management, the ultimate liability on these matters, if any, will not have a material adverse effect on the financial position or results of operations of the Businesses. 9. PENSIONS AND OTHER EMPLOYEE BENEFITS PENSIONS The Businesses participate in various Loral-sponsored pension plans both contributory and non-contributory covering certain employees. Eligibility for participation in these plans varies, and benefits are generally based on members' compensation and years of service. Loral's funding policy was generally to contribute in accordance with cost accounting standards that affect government contractors, subject to the Internal Revenue code and regulations thereon. Since the aforementioned pension arrangements were part of certain Loral defined benefit or defined contribution plans, no separate actuarial data was available for the Businesses. The Businesses have been allocated their share of pension costs based upon participation employee headcount. Net pension expense, which approximates the amount funded, included in the accompanying financial statements was $1,234 and $4,391 for the three months ended March 31, 1996 and the year ended December 31, 1995, respectively. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS In addition to participating in Loral-sponsored pension plans, the Businesses provide certain health care and life insurance benefits for retired employees and dependents at certain locations. Participants are eligible for these benefits when they retire from active service and meet the pension plan eligibility requirements. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Since the aforementioned postretirement benefits were part of certain Loral postretirement arrangements, no separate actuarial data is available for the Businesses. The Businesses have been allocated postretirement benefit costs based upon participant employee headcount. Post-retirement benefits costs included in the accompanying financial statements were $402 and $1,646 for the three months ended March 31, 1996 and the year ended December 31, 1995, respectively. F-47 LORAL ACQUIRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS IN THOUSANDS) EMPLOYEE SAVINGS PLANS Under various employee savings plans sponsored by Loral, the Businesses matched the contributions of participating employees up to a designated level. The extent of the match, vesting terms and the form of the matching contribution vary among the plans. Under these plans, the matching contributions, in cash, common stock or both, for the three months ended March 31, 1996 and the year ended December 31, 1995 were $634 and $1,879, respectively. 10. SALES TO PRINCIPAL CUSTOMERS The Businesses operate primarily in one industry segment, electronic components and systems. Sales to principal customers are as follows:
THREE YEAR MONTHS ENDED ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ U.S. Government Agencies .......................... $ 94,993 $328,476 Foreign (principally foreign governments) ......... 16,838 62,549 Other (principally commercial) .................... 20,369 57,140 -------- -------- $132,200 $448,165 ======== ========
Foreign sales comprise the following:
THREE YEAR MONTHS ENDED ENDED MARCH 31, 1996 DECEMBER 31, 1995 ---------------- ------------------ Export sales Asia ........................ $ 4,056 $19,248 Middle East ................. 3,648 4,147 Europe ...................... 6,275 26,283 Other ....................... 2,859 12,871 ------- ------- Total foreign sales ......... $16,838 $62,549 ======= =======
11. RELATED PARTY TRANSACTIONS The Businesses had a number of transactions with Loral and its affiliates. Management believes that the arrangements are as favorable to the Businesses as could be obtained from unaffiliated parties. The following describe the related party transactions. Loral allocated certain operational, administrative, legal and other services to the Businesses. Costs allocated to the Businesses were $1,827 and $6,535 for the three months ended March 31, 1996 and the year ended December 31, 1995, respectively. The Businesses sold products to Loral and its affiliates. Net sales to Loral were $14,840 for the three months ended March 31, 1996 and were $54,600 in 1995. Net sales to Space Systems/Loral were $2,471 for the three months ended March 31, 1996 and were $4,596 in 1995. Net sales to K&F Industries were $1,173 for the three months ended March 31, 1996 and were $2,415 in 1995. F-48 SPD TECHNOLOGIES INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Financial Statements As of June 30, 1998 and for the Six Months Ended June 30, 1998 and 1997 F-49 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 1998
ASSETS Current Assets Cash ............................................................. $ 197,000 Accounts receivable, less allowance for doubtful accounts of $582,000........................................................ 25,931,000 Inventories ...................................................... 28,174,000 Unbilled costs ................................................... 5,259,000 Deferred income tax benefit ...................................... 6,100,000 Prepaid expenses and other ....................................... 2,596,000 ------------ Total current assets ............................................. 68,257,000 Property, plant and equipment--at cost $ 15,663,000 Less accumulated depreciation and amortization ................... (2,782,000) 12,881,000 ------------ Deferred Income Tax Benefit ....................................... 927,000 Intangible Assets--net ............................................ 78,035,000 Other Assets ...................................................... 366,000 ------------ $160,466,000 ============ LIABILITIES AND STOCKHOLDERS'EQUITY Current Liabilities Current maturities of long-term debt ............................. $ 6,250,000 Accounts payable ................................................. 12,428,000 Accrued expenses and other liabilities ........................... 21,808,000 ------------ Total current liabilities ........................................ 40,486,000 Long-term debt, less current maturities ........................... 69,745,000 Postretirement benefits liability ................................. 25,500,000 Pension benefits liability ........................................ 4,731,000 Other liabilities ................................................. 435,000 Commitments and contingencies Stockholders' equity Preferred stock--authorized, 1,000,000 shares of $.01 par value; issued and outstanding, 38,010 shares, at stated value ......... $ 3,801,000 Common stock--authorized, 1,000,000 shares of $.01 par value; issued and outstanding, 99,000 shares .......................... 990 Additional paid-in capital ....................................... 2,422,010 Carryover basis adjustment ....................................... (2,151,000) Net earnings ..................................................... 15,785,000 Cumulative translation adjustment ................................ (289,000) 19,569,000 ------------ ------------ $160,466,000 ============
The accompanying notes are an integral part of this statement. F-50 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------------- 1998 1997 --------------- -------------- Net revenues ..................................................... $105,505,000 $ 50,782,000 Cost of goods sold ............................................... 76,429,000 33,929,000 ------------ ------------ Gross profit ..................................................... 29,076,000 16,853,000 ------------ ------------ Operating expenses Selling, general and administrative ............................. 14,132,000 5,525,000 Engineering, research and development ........................... 3,853,000 3,942,000 ------------ ------------ Actuarial and other changes to postretirement and defined benefit pension plans ................................................. -- (2,663,000) ------------ ------------ 17,985,000 6,804,000 ------------ ------------ Earnings from operations ........................................ 11,091,000 10,049,000 ------------ ------------ Other income (expenses) Interest expense, net ........................................... (4,951,000) (554,000) Earnings before income taxes .................................. 6,140,000 9,495,000 Income tax expense ............................................... 2,272,000 2,460,000 ------------ ------------ Net earnings .................................................. $ 3,868,000 $ 7,035,000 ============ ============
The accompanying notes are an integral part of these statements. F-51 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------------- 1998 1997 --------------- ----------------- Cash flows from operating activities Net earnings ....................................................... $ 3,868,000 $ 7,035,000 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization ...................................... 2,559,000 529,000 Changes in operating assets and liabilities, net of effect of acquisition of SPD Technologies Inc. Accounts receivable .............................................. (6,544,000) (2,868,000) Inventories ...................................................... 7,036,000 (386,000) Unbilled costs ................................................... (644,000) 827,000 Prepaid expenses and other ......................................... (793,000) (511,000) Accounts payable ................................................... 1,332,000 (618,000) Pension and postretirement benefits liability ...................... (1,033,000) (2,956,000) Accrual expenses and other liabilities ............................. 1,776,000 880,000 Income taxes payable ................................................ 1,284,000 703,000 ------------ ------------- Net cash provided by operating activities ........................... 8,841,000 2,635,000 ------------ ------------- Cash flows from investing activities Acquisition of SPD Technologies Inc., net of cash acquired ......... (791,000) -- Capital expenditures ............................................... (2,950,000) (914,000) ------------ ------------- Net cash (used in) investing activities .......................... (3,741,000) (914,000) ------------ ------------- Cash flows from financing activities Proceeds from the issuance of common and preferred stock ............ 1,000 -- Principal payments on short-term debt ............................... (2,955,000) (1,978,000) Principal payments on long-term debt ................................ (2,500,000) (750,000) ------------ ------------- Net cash (used in) financing activities .......................... (5,454,000) (2,728,000) ------------ ------------- Net (decrease) in cash ........................................... $ (354,000) $ (1,007,000) ============ =============
The accompanying notes are an integral part of these statements. F-52 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SPD Technologies Inc. ("SPD") and Subsidiaries (the "Company") develop, manufacture and market electrical power delivery systems and components and vehicular control systems, focused on switching and distribution and frequency and voltage conversion for military, commercial marine, rail transportation, utility and commercial specialty markets in the United States and overseas. SPD's products encompass the entire electrical distribution (power delivery) system utilized on self-contained power systems such as ships and rail cars. In January 1997, SPD Holdings Inc., a company formed by an investor group and certain minority stockholders of SPD Technologies Inc., the predecessor company, acquired all of the outstanding stock of the Company. The acquisition was accounted for as a purchase and was financed by the issuance of common and preferred stock and bank borrowings. As a result of certain minority shareholders of the predecessor company acquiring ownership in SPD Holdings Inc., the Company recorded a carryover basis adjustment to stockholders' equity of $(2,151,000). During 1997, SPD Holdings Inc. changed its name to SPD Technologies Inc. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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 six-month periods ended June 30, 1998 and 1997 are not necessarily indicative of the results that may be expected for the years ended December 31, 1997 and 1998. For further information, refer to the financial statements and footnotes thereto included in the Company's financial statements for the year ended December 31, 1997. NOTE B--INVENTORIES Inventories and inventoried costs relating to long-term contracts consist of the following:
JUNE 30, 1998 -------------- Materials and purchased parts ...................................... $10,730,000 Work-in-process, primarily on U.S. Government contracts ............ 24,064,000 Finished goods ..................................................... 1,703,000 ----------- 36,497,000 Less progress billings related to long-term contracts and programs . 8,323,000 ----------- $28,174,000 ===========
Under the contractual arrangements by which progress payments are received, the United States government asserts that it has a security interest in the contracts in process identified with the related contracts. NOTE C--SUBSEQUENT EVENT Pursuant to a definitive agreement entered into on July 2, 1998, L-3 Communications Corporation acquired the stock of the Company on August 13, 1998 for $230,000,000, subject to adjustment based on closing net assets, as defined. In connection with the sale of the Company, as provided for in the Company's stock option plan, on August 13, 1998 the vesting date for all outstanding stock options of the Company was accelerated and the Company recorded a related $22,078,000 pre-tax compensation charge. F-53 SPD TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Financial Statements and Report of Independent Certified Public Accountants December 31, 1997 F-54 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors SPD Technologies Inc.: We have audited the accompanying consolidated balance sheet of SPD Technologies Inc. and Subsidiaries as of December 31, 1997, and the related consolidated statements of earnings and cash flows for the year 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 audit. We conducted our audit 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 audit provides 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 SPD Technologies Inc. and Subsidiaries as of December 31, 1997, and the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP New York, New York February 25, 1998 F-55 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 ASSETS
Current assets Cash ............................................................. $ 551,230 Accounts receivable, less allowance for doubtful accounts of $772,000........................................................ 19,791,544 Inventories ...................................................... 35,209,738 Unbilled costs ................................................... 4,616,034 Deferred income tax benefit ...................................... 6,100,000 Prepaid expenses and other ....................................... 1,219,101 ------------ Total current assets ........................................... 67,487,647 Property, plant and equipment--at cost Land ............................................................. $ 150,651 Building and improvements ........................................ 826,754 Machinery and equipment .......................................... 8,701,809 Furniture and fixtures ........................................... 783,851 Leasehold improvements ........................................... 2,469,130 ------------ 12,932,195 Less accumulated depreciation and amortization ................... (1,626,808) 11,305,387 ------------ ------------ Deferred income tax benefit ....................................... 927,466 Intangible assets--net ............................................ 78,434,265 Other assets ...................................................... 726,932 ------------ $158,881,697 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt ............................. $ 6,305,700 Accounts payable ................................................. 11,096,002 Postretirement benefits liability ................................ 3,500,000 Pension benefits liability ....................................... 3,049,508 Accrued expenses and other liabilities ........................... 18,808,646 Income taxes payable ............................................. 229,479 ------------ Total current liabilities ...................................... 42,989,335 Long-term debt, less current maturities ........................... 75,403,527 Postretirement benefits liability ................................. 22,681,000 Pension benefits liability ........................................ 2,033,797 ------------ 143,107,659 ------------ Commitments and contingencies Stockholders' equity Preferred stock--authorized, 1,000,000 shares of $.01 par value; issued and outstanding, 38,010 shares, at stated value ......... $ 3,801,000 Common stock--authorized, 1,000,000 shares of $.01 par value; issued and outstanding, 99,000 shares .......................... 990 Additional paid-in capital ....................................... 2,422,170 Carryover basis adjustment ....................................... (2,151,000) Net earnings ..................................................... 11,916,021 Cumulative translation adjustment ................................ (215,143) 15,774,038 ------------ ------------ $158,881,697 ============
The accompanying notes are an integral part of this statement. F-56 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS YEAR ENDED DECEMBER 31, 1997
Net revenues .................................................................... $130,039,536 Cost of goods sold .............................................................. 86,533,682 ------------ Gross profit ................................................................... 43,505,854 ------------ Operating expenses Selling, general and administrative ............................................ 15,749,504 Engineering, research and development .......................................... 8,500,920 Amortization of intangible assets .............................................. 1,458,755 Actuarial and other changes to postretirement and defined benefit pension plans (5,332,680) ------------ 20,376,499 ------------ Earnings from operations ..................................................... 23,129,355 Other income (expenses) Interest expense, net .......................................................... (4,842,334) ------------ Earnings before income taxes ................................................. 18,287,021 Income taxes Current ........................................................................ 3,100,000 Deferred ....................................................................... 3,271,000 ------------ 6,371,000 ------------ Net earnings ................................................................. $ 11,916,021 ============
The accompanying notes are an integral part of this statement. F-57 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities Net earnings .......................................................................... $ 11,916,021 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization of property, plant and equipment ...................... 1,626,808 Amortization of intangible assets ................................................... 1,458,755 Deferred income taxes ............................................................... 3,271,000 Actuarial and other changes to postretirement and defined benefit pension plans ..... (5,332,680) Provision for losses on accounts receivable ......................................... 643,000 Changes in operating assets and liabilities, net of effect of acquisitions of SPD Technologies Inc. and Power Paragon Inc. Accounts receivable ................................................................ 664,814 Inventories ........................................................................ (6,995,194) Unbilled costs ..................................................................... 2,484,834 Prepaid expenses and other ......................................................... 923,808 Accounts payable ................................................................... 1,897,353 Pension and postretirement benefits liability ...................................... (2,893,879) Other liabilities .................................................................. 2,055,969 ------------- Net cash provided by operating activities ........................................ 11,720,609 ------------- Cash flows from investing activities Acquisition of SPD Technologies Inc. and Power Paragon Inc., net of cash acquired ..... (84,920,664) Capital expenditures .................................................................. (1,886,136) ------------- Net cash used in investing activities .............................................. (86,806,800) ------------- Cash flows from financing activities Proceeds from the issuance of common and preferred stock .............................. 3,122,000 Net proceeds from long-term debt ...................................................... 96,954,761 Principal payments on long-term debt .................................................. (22,718,315) Payment of deferred financing costs ................................................... (1,721,025) ------------- Net cash provided by financing activities .......................................... 75,637,421 ------------- Net increase in cash ............................................................... $ 551,230 =============
The accompanying notes are an integral part of this statement. F-58 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A--BUSINESS AND SUMMARY OF ACCOUNTING POLICIES SPD Technologies Inc. ("SPD") and Subsidiaries (the "Company") develop, manufacture and market electrical power delivery systems and components and vehicular control systems, focused on switching and distribution and frequency and voltage conversion for military, commercial marine, rail transportation, utility and commercial specialty markets in the United States and overseas. SPD's products encompass the entire electrical distribution (power delivery) system utilized on self-contained power systems such as ships and rail cars. In January 1997, SPD Holdings Inc., a company formed by an investor group and certain minority stockholders of SPD Technologies Inc., the predecessor company, acquired all of the outstanding stock of the Company. The acquisition was accounted for as a purchase and was financed by the issuance of common and preferred stock and bank borrowings. As a result of certain minority shareholders of the predecessor company acquiring ownership in SPD Holdings Inc., the Company recorded a carryover basis adjustment to stockholders' equity of $(2,151,000). During 1997, SPD Holdings Inc. changed its name to SPD Technologies Inc. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of SPD and its wholly-owned subsidiaries, SPD Electrical Systems, Inc., SPD Switchgear Inc., PacOrd Inc., Henschel, Inc., Power Paragon Inc. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. 2. REVENUE RECOGNITION Revenues for production-type contracts are recognized as units are shipped or are substantially ready to be shipped subject to customer inspection. Revenues on long-term, production-type contracts, service contracts and engineering and development contracts are recognized on the percentage-of-completion method, whereunder the estimated sales value is determined on the basis of contract milestones achieved and costs are recognized on the basis of contract percentage completions (as measured by applying the most recent estimated profit margin for the entire contract at completion to the revenues recognized based on contractual milestones achieved). The Company believes its approach is conservative and generally results in lower revenues and gross profits in the early stages of a contract when estimates are more susceptible to change. Sales under cost reimbursement contracts are recorded as costs are incurred and include estimated earned fees proportionate to total estimated costs. The fees under certain government contracts may be increased or decreased in accordance with cost or performance incentive provisions, which measure actual performance against established targets or other criteria. Such incentive fee awards or penalties are included in sales at the time the amounts can be reasonably determined. Generally, sales and earnings on long-term government contracts are determined on a contract-by-contract basis, based on estimates that are reviewed and revised periodically and adjustments to recognized sales and earnings resulting from such revisions are recorded on a cumulative basis in the period in which they are identified. Provisions for anticipated losses are made in the period in which they first become determinable. 3. CASH AND CASH EQUIVALENTS The Company classifies all highly liquid investments with original maturities of less than three months as cash equivalents. F-59 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE A--BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED) 4. INVENTORIES Inventories are stated at the lower of cost or market with appropriate provision to reduce excess and obsolete inventory to net realizable values. Generally, the Company values inventory at cost, which approximates actual on a first-in, first-out basis and the weighted moving average method. One subsidiary values inventory related to government contracts to include all costs identified with the contract and an allocation of all other indirect costs, including marketing, general and administrative, and other expenses. 5. PROPERTY, PLANT AND EQUIPMENT Depreciation and amortization of property, plant and equipment are computed by the straight-line method over the estimated useful lives of the assets for financial reporting purposes and straight-line and accelerated methods for tax reporting purposes. 6. INTANGIBLE ASSETS Goodwill is being amortized on a straight-line basis over forty years. Deferred financing costs are being amortized over the five-year term of the loan agreement. The Company evaluates goodwill on an annual basis for possible impairment based on the expected future cash flows of the businesses acquired. 7. INCOME TAXES Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to postretirement benefits other than pensions, pension costs, depreciation, inventory and various accrued expenses. 8. FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's German subsidiaries are translated into U.S. dollars at current exchange rates in effect at the reporting date. Income statement items are generally translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of stockholders' equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statement of earnings as incurred. 9. ACCOUNTING ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B--ACQUISITION OF POWER PARAGON INC. At the close of business on June 30, 1997, SPD acquired all of the outstanding stock of Power Paragon Inc. ("PPI") and subsidiaries (formerly known as PTS Holdings, Inc. and subsidiaries). PPI develops and manufactures electrical power systems and components for military and commercial specialty applications in the United States and overseas. The acquisition was financed principally by bank borrowings. The acquisition has been accounted for as a purchase and, accordingly, the results of F-60 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE B--ACQUISITION OF POWER PARAGON INC. (CONTINUED) operations of PPI are included in the consolidated financial statements from the date of acquisition. In lieu of cash, certain minority stockholders of PPI exchanged options for the purchase of stock in PPI for options to purchase shares of the Company's common stock. The fair value of the PPI options exchanged, totalling approximately $2,324,000, was recorded as additional paid-in capital at the date of the acquisition. NOTE C--INVENTORIES Inventories and inventoried costs relating to long-term contracts consist of the following:
Materials and purchased parts ..................................... $ 8,939,257 Work-in-process, primarily on U.S. Government contracts ........... 33,786,558 Finished goods .................................................... 1,874,897 ----------- 44,600,712 Less progress billings related to long-term contracts and programs 9,390,974 ----------- $35,209,738 ===========
Under the contractual arrangements by which progress payments are received, the United States government asserts that it has a security interest in the contracts in process identified with the related contracts. NOTE D--INTANGIBLE ASSETS Intangible assets consist of the following:
Goodwill .............................. $ 78,171,995 Deferred financing costs .............. 1,721,025 ------------ 79,893,020 Less accumulated amortization ......... (1,458,755) ------------ $ 78,434,265 ============
NOTE E--LONG-TERM DEBT Long-term debt is summarized as follows:
Term loan A payable in quarterly installments of principal plus interest at a variable rate (9.5% at December 31, 1997) maturing June 30, 2002 ........... $37,550,000 Term loan B payable in quarterly installments of principal plus interest at a variable rate (9.75% at December 31, 1997) maturing June 30, 2004 .......... 24,950,000 Revolving loan payable bearing interest at a variable rate (9.5% at December 31, 1997) maturing June 30, 2002 .................................. 18,949,707 Capital lease obligation payable in monthly installments of $6,261 through January 2002 less amount representing interest of $47,285................... 259,520 ----------- 81,709,227 Less current maturities ...................................................... 6,305,700 ----------- $75,403,527 ===========
F-61 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE E--LONG-TERM DEBT (CONTINUED) Substantially all of the assets and capital stock of the Company's subsidiaries are pledged as collateral for borrowings under the term and revolving loans. The loan agreement limits the payment of dividends and provides for mandatory prepayments based upon excess cash flow, as defined. The agreement also contains various restrictive financial covenants including interest coverage and leverage ratios and limitations on annual capital expenditures. Commencing January 1, 1998, the Company has the option to elect a fixed rate of interest based on LIBOR. At December 31, 1997, approximately $16,000,000 is available on the revolving loan payable. The following is a summary of the annual maturities of long-term debt:
YEAR ENDING DECEMBER 31, - ------------------------- 1998 $ 6,305,700 1999 7,561,100 2000 8,816,100 2001 10,320,300 2002 29,081,000 Thereafter 19,625,027 ----------- $81,709,227 ===========
NOTE F--COMMITMENTS AND CONTINGENCIES The Company conducts a substantial portion of its business utilizing leased facilities and equipment with terms lasting through June 2009. The terms of one principal facility lease include an option to purchase the leased premises based on 50% of the fair market value of the land and 100% of the fair market value of the building. The Company can renew the lease for two additional five-year terms. At December 31, 1997, future minimum payments under noncancellable operating leases with remaining terms of more than one year were as follows:
YEAR ENDING DECEMBER 31, - ------------------------- 1998 $ 4,086,000 1999 3,870,000 2000 2,892,000 2001 2,488,000 2002 2,464,000 Thereafter 7,942,000 ----------- $23,742,000 ===========
Rent expense for operating leases was approximately $3,344,000 for the year ended December 31, 1997. As a defense contractor for the U.S. Government, the books, records and other supporting documentation of the Company used to establish certain contract prices are subject to audit to determine the allowability and reasonableness of costs. The Company routinely undergoes audits by the Government on both a pre-award and post-award basis. F-62 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE F--COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company contributed approximately $1,000 in 1997 to multiemployer pension plans for employees covered by collective bargaining agreements. Under the Multiemployer Pension Plan Amendments Act of 1980, if the plan terminates or the Company withdraws, the Company could be subject to a "withdrawal liability." NOTE G--PREFERRED STOCK AND COMMON STOCK WARRANT AND OPTIONS The preferred stock has a stated value of $100 per share and provides for cumulative dividends at 8%. All shares of preferred stock are subject to mandatory redemption at the stated value in the event of a sale of securities of the Company or a sale of substantially all of the assets or a significant subsidiary of the Company. In connection with the acquisition discussed in Note A, the Company issued a warrant for the purchase of 1,000 shares of common stock at an exercise price of $1.00 to the principal stockholder of the Company. The warrant expires on December 31, 2006. In connection with the acquisition discussed in Note B, the Company issued options for the purchase of 4,397 shares of the Company's common stock at an exercise price of $68.37 per share. The options are exercisable in four years or if the Company is acquired. The Company issued additional options to acquire an aggregate of 14,740 Class B Nonvoting common shares to employees and directors. The options are exercisable at $1.00 per share and expire on July 1, 2007. These options become exercisable only upon the closing of an initial public offering or a sale of the Company for an amount in excess of a "minimum threshold amount." One-half of the options vest in 12 1/2% increments over the initial four-year period. The remaining one-half of the options vest in four equal installments beginning on December 31, 1998, based upon the attainment of certain performance goals. The Company has determined that a compensation charge will be recorded once it is determined that it is likely that the options will become exercisable, as defined above. The amount of the compensation charge will be based upon the difference between the fair value of the shares of the Company's common stock at the date of exercise and the exercise price. No compensation charge has been recorded as of December 31, 1997. NOTE H--POSTRETIREMENT BENEFITS 1. PENSION PLAN Substantially all the employees of the Company are covered under two defined benefit pension plans in the United States and one defined benefit plan in Germany. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet at December 31, 1997:
UNITED STATES GERMANY --------------- ----------- Actuarial present value of benefit obligations Accumulated benefit obligations including vested benefits in the United States of $61,292,666 and in Germany of $325,971 ............... $61,698,595 $494,879 =========== ======== Projected benefit obligation for services rendered to date ................. $65,881,023 $682,412 Plan assets at fair value, primarily fixed income investments and common stocks ............................................................. 62,312,893 -- ----------- -------- Projected benefit obligation in excess of plan assets -- pension liability . $ 3,568,130 $682,412 =========== ========
F-63 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE H--POSTRETIREMENT BENEFITS (CONTINUED)
UNITED STATES GERMANY --------------- ---------- Net periodic pension cost includes the following components: Service cost -- benefit earned during the year ............. $ 1,562,196 $21,731 Interest cost on projected benefit obligation .............. 4,956,982 23,171 Actual (return) on plan assets ............................. (7,532,589) -- Net amortization and deferral .............................. 2,477,131 -- ------------ ------- Net periodic pension cost .................................. $ 1,463,720 $44,902 ============ =======
The weighted average discount rates used in determining the present value of the projected benefit obligations was 8.15%. The projected rate of increase in future compensation levels was 5% - 5.5%. The expected long-term rate of return on assets was 8% - 9.5%. The Company's policy is to fund pension cost under its pension plan to the extent necessary under the Employee Retirement Income Security Act of 1974. For the year ended December 31, 1997, the Company recorded actuarial and other gains on its pension plans totalling approximately $3,239,000 principally resulting from better than projected performance of plan assets. 2. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Certain subsidiaries of the Company have a defined benefit postretirement plan that provides medical benefits for retirees. The Company does not fund retiree benefits in advance. In 1993, the predecessor company established plan cost maximums to account for and control future medical costs more effectively. The Company requires that the projected future cost of providing postretirement benefits, principally health care, be accrued over the period earned rather than expensed as claims are incurred. Net periodic postretirement benefit cost for the year ended December 31, 1997, included the following components: Service cost benefits attributed to service during the period .......... $ 117,000 Interest cost on the accumulated postretirement benefit obligation ..... 2,088,000 Net amortization and deferral .......................................... (2,114,000) ------------ Net periodic postretirement benefit cost ............................... $ 91,000 ============
Cost was determined by application of the terms of the medical plan, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at annual rates progressively declining from 12% in 1995. Future benefits for union-represented employees will be capped at the limits in effect for December 31, 1996. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $919,000 in 1997; the annual costs would not be materially affected. For the year ended December 31, 1997, the Company recognized prior service costs of approximately $4,362,000 relating to additional costs of salaried employees whose employer contributions do not have a cap and approximately $6,476,000 of net gains resulting from various underwriting changes including lower expected medical cost premiums as a result of more salaried employees choosing HMO's. F-64 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE H--POSTRETIREMENT BENEFITS (CONTINUED) The following table provides information on the status of the plan at December 31, 1997:
Accumulated postretirement benefit obligation Retirees ............................................ $18,420,000 Fully eligible active plan participants ............. 5,984,000 Other active plan participants ...................... 1,777,000 ----------- Accumulated postretirement benefit obligation ......... $26,181,000 ===========
Measurement of the accumulated postretirement benefit obligation was based on an assumed discount rate of 8.15% in 1997. The health care cost trend rate for salaried employees was 9% in 1997. 3. EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN The Company maintains various employee 401(k) savings plans. The Company contributes a guaranteed minimum of eligible employee contributions. Additional company contributions are voluntary and at the discretion of the Board of Directors. Profit-sharing expense was approximately $754,000 for the year ended December 31, 1997. 4. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Company has two supplemental executive retirement plans which are nonqualified plans maintained primarily for the purpose of providing additional deferred compensation for a select group of management or highly compensated employees, as defined by the Employee Retirement Income Security Act of 1974. Participation in, benefits under, and the duration of the plans are subject to the Company's discretion. Participants in the plans accrue benefits each fiscal year based on the Company's discretionary contribution for each participant. The Company has accrued $132,000 of estimated yearly contributions to be paid for the year ended December 31, 1997. In conjunction with the establishment of the plans, the Company established rabbi trusts to aid in the payment of plan benefits. The trusts are revocable and the assets contributed to the trusts can only be used to pay participant benefits, with certain exceptions. Although the rabbi trusts established are revocable by the Company, the trust agreements provide that, after a change in control, the rabbi trusts shall not be revocable until all protected benefits have been paid in full. The assets held in the trusts at December 31, 1997 (included in other assets) amounted to approximately $576,000. Earnings on trust assets are allocated to participants' accounts and are included in the trust assets amount. F-65 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE I--INCOME TAXES Income tax expense is comprised of the following:
Currently payable Federal ......... $2,377,000 State ............................. 708,000 Germany ........................... 15,000 ---------- 3,100,000 ----------
Deferred Federal ................ 2,842,000 State .................. 711,000 Germany ................ (282,000) --------- 3,271,000 --------- $6,371,000 ==========
The following is a reconciliation of the statutory Federal income tax rate to the effective rate reported in the financial statements:
Expected provision for Federal income taxes ..................... 34.0% State and local taxes, net of Federal income tax benefit ........ 5.1 Research and development credits ................................ (4.9) Amortization of goodwill ........................................ 2.8 Other ........................................................... (2.2) ---- 34.8% ====
Deferred income taxes at December 31, 1997 relate to the following:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES ---------------- ------------ Pension and postretirement benefits ............. $ 12,773,000 Net operating loss of German subsidiary ......... 1,245,466 Inventory costs ................................. 2,097,000 Contract costs .................................. $2,663,000 Vacation pay accrual ............................ 1,180,000 Warranty costs .................................. 519,000 Other temporary differences ..................... 2,822,000 318,000 Valuation allowance ............................. (10,628,000) ------------- $ 10,008,466 $2,981,000 ============= ==========
The Federal income tax returns of PPI for the year ended June 30, 1995 are under examination by the Internal Revenue Service. As of December 31, 1997, no adjustments have been proposed. PPI's subsidiaries in Germany have a net operating loss carryforward of approximately $2,600,000 which has no expiration date. F-66 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 NOTE J--CASH FLOW INFORMATION The following is supplemental cash flow information:
Cash paid for Interest ......... $2,850,000 Income taxes ................... 4,431,000
In connection with the acquisitions of SPD Technologies Inc. and Power Paragon Inc., liabilities were assumed as follows:
Fair value of assets acquired ......... $161,974,000 Cash paid ............................. 84,921,000 ------------ Liabilities assumed ................... $ 77,053,000 ============
NOTE K--ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities are summarized as follows:
Accrued employment costs ................... $ 7,365,243 Accrued interest ........................... 2,112,342 Allowance for contract adjustments ......... 2,258,777 Accrued warranties ......................... 1,287,972 Customer advances .......................... 1,315,714 Other current liabilities .................. 4,468,598 ----------- $18,808,646 ===========
F-67 SPD TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Financial Statements and Report of Independent Certified Public Accountants December 31, 1996 and 1995 F-68 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors SPD TECHNOLOGIES INC.: We have audited the accompanying consolidated balance sheets of SPD Technologies Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings and accumulated deficit and cash flows for 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. 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 SPD Technologies Inc. and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP New York, New York February 28, 1997 F-69 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ---------------- ---------------- ASSETS Current assets: Cash ............................................................ $ 738,344 $ 689,013 Accounts receivable, less allowance for doubtful accounts of $825,000 and $1,147,000 in 1996 and 1995, respectively......... 12,536,032 10,570,568 Inventories ..................................................... 15,622,720 13,261,009 Unbilled costs .................................................. 6,896,859 6,146,263 Deferred income tax benefit ..................................... 3,185,000 3,279,000 Prepaid expenses and other ...................................... 185,954 446,548 ------------- ------------- Total current assets .......................................... 39,164,909 34,392,401 Equipment and leasehold improvements--at cost Machinery and equipment ......................................... 15,312,374 13,874,680 Furniture and fixtures .......................................... 2,627,740 1,958,226 Leasehold improvements .......................................... 895,940 815,572 ------------- ------------- 18,836,054 16,648,478 Less accumulated depreciation and amortization .................. 13,834,973 13,041,802 ------------- ------------- 5,001,081 3,606,676 ------------- ------------- Deferred income tax benefit ...................................... 2,900,000 2,900,000 Intangible assets--net ........................................... 2,476,449 3,473,475 Other assets ..................................................... 211,961 224,016 ------------- ------------- $ 49,754,400 $ 44,596,568 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Note payable .................................................... $ 2,187,087 $ 3,604,724 Current maturities of long-term debt ............................ 2,500,000 2,500,000 Accounts payable ................................................ 6,000,531 2,760,861 Accrued employment costs ........................................ 3,902,930 3,182,689 Pension and postretirement benefits liability ................... 6,091,716 8,651,354 Other liabilities and accrued expenses .......................... 7,258,908 5,170,895 Income taxes payable ............................................ 55,100 521,000 ------------- ------------- Total current liabilities ..................................... 27,996,272 26,391,523 Long-term debt, less current maturities .......................... 2,500,000 5,000,000 Postretirement benefits liability ................................ 26,138,784 26,432,090 Pension liability ................................................ 2,870,173 3,750,000 Deferred income taxes ............................................ 285,000 379,000 Minority interest in subsidiary .................................. 116,955 Commitments and contingencies .................................... Stockholders' deficiency Common stock--authorized, 1,000,000 shares of $.01 par value; issued and outstanding, 102,750 shares, in 1996 and 1995, respectively ............................................ 1,027 1,027 Additional paid-in capital ...................................... 2,394,281 2,394,281 Accumulated deficit ............................................. (12,294,547) (19,868,308) ------------- ------------- (9,899,239) (17,473,000) Less: 2,355 shares of common stock in treasury--at cost at December 31, 1996 ............................................. 136,590 ------------- (10,035,829) (17,473,000) ------------- ------------- $ 49,754,400 $ 44,596,568 ============= =============
The accompanying notes are an integral part of these statements. F-70 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND ACCUMULATED DEFICIT YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------------ ------------------ Net revenues ................................................ $ 93,340,918 $ 87,181,721 Cost of goods sold .......................................... 61,902,538 57,193,503 -------------- -------------- Gross profit ............................................... 31,438,380 29,988,218 -------------- -------------- Operating expenses: Selling, general and administrative ........................ 10,328,101 11,432,406 Engineering, research and development ...................... 7,213,821 5,487,788 Actuarial gain from postretirement plan .................... (3,000) -------------- 17,541,922 16,917,194 -------------- -------------- Earnings from operations ................................. 13,896,458 13,071,024 Other income (expenses) Interest expense, net ...................................... (1,179,697) (1,728,787) -------------- -------------- Earnings before provision for income tax expense (benefit) and minority interest ................................... 12,716,761 11,342,237 Income taxes--currently payable ............................. 5,143,000 3,042,000 -------------- -------------- Earnings before minority interest ........................ 7,573,761 8,300,237 Minority interest ........................................... 125,414 -------------- Net earnings ............................................. 7,573,761 8,425,651 Accumulated deficit at beginning of year .................... (19,868,308) (28,293,959) -------------- -------------- Accumulated deficit at end of year .......................... $ (12,294,547) $ (19,868,308) ============== ==============
The accompanying notes are an integral part of these statements. F-71 SPD TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 --------------- --------------- Cash flows from operating activities: Net earnings ............................................. $ 7,573,761 $ 8,425,651 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization .......................... 1,179,610 988,886 Actuarial gain from postretirement plan ................ (3,000) Provision for losses on accounts receivable ............ (74,200) 9,495 Loss on sale of equipment .............................. 25,198 Minority interest ...................................... (142,214) Changes in operating assets and liabilities Accounts receivable ................................... (1,891,264) 823,833 Inventories ........................................... (2,361,711) 1,437,531 Unbilled costs ........................................ (750,596) (613,467) Prepaid expenses and other ............................ 272,649 (134,658) Accounts payable ...................................... 3,239,670 (1,383,543) Pension and postretirement benefits liability ......... (2,971,220) (4,915,779) Other liabilities ..................................... 2,247,311 501,886 ------------ ------------- Net cash provided by operating activities .............. 6,464,010 5,019,819 ------------ ------------- Cash flows from investing activities: Capital expenditures ................................... (2,338,539) (1,202,917) Proceeds from sale of equipment ........................ 24,069 ------------- Net cash used in investing activities ................. (2,338,539) (1,178,848) ------------ ------------- Cash flows from financing activities: Net (decrease) increase in borrowings .................. (1,417,638) 3,345,454 Term loan borrowing .................................... 7,500,000 Principal payments on long-term debt ................... (2,500,000) (14,500,000) (Purchase) sale of company stock ....................... (136,590) 2,351 Purchase of minority interest .......................... (21,912) ------------ Net cash used in financing activities ................. (4,076,140) (3,652,195) ------------ ------------- Net increase in cash .................................. 49,331 188,776 Cash at beginning of year ................................. 689,013 500,237 ------------ ------------- Cash at end of year ....................................... $ 738,344 $ 689,013 ============ =============
The accompanying notes are an integral part of these statements. F-72 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A--BUSINESS AND SUMMARY OF ACCOUNTING POLICIES SPD Technologies, Inc. ("SPD") and Subsidiaries (the "Company") develop, manufacture and service circuit protection systems, ship control systems and combat systems, and perform overhaul and repairs for naval vessels primarily under fixed-price contracts. At December 31, 1996, Merrill Lynch Capital Corp. ("MLCC") owned 77.9% of the Company. Reference is made to Note L. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of SPD and its wholly-owned subsidiaries, SPD Switchgear Inc., PacOrd Inc. and Henschel, Inc. All material intercompany accounts and transactions have been eliminated. In 1996, the Company purchased the minority interest of Henschel, Inc. for $21,912. 2. REVENUE RECOGNITION Substantially all of the Company's revenues and accounts receivable arise from contracts with the U.S. Navy or its suppliers. Production-type contracts, not classified as long-term, provide a substantial portion of the Company's revenues. Revenues are recognized as units are shipped or are substantially ready to be shipped subject to customer inspection. Revenues on long-term, production-type contracts, service contracts and engineering and development contracts are recognized on the percentage-of-completion method. Under the Company's methodology, revenues and gross profit are recognized based on billings rather than on a level-of-effort basis. The Company believes its approach is more conservative and generally results in lower revenues and gross profits in the early stages of a contract when estimates are more susceptible to change. Provisions for anticipated losses are made in the period in which they first become determinable. 3. INVENTORIES Inventories are stated at the lower of cost or market, with appropriate provision to reduce excess and obsolete inventory to net realizable values. In general, cost is currently adjusted standard cost, which approximates actual cost on a first-in, first-out basis, and the weighted moving average method. 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Depreciation and amortization are computed by the straight-line method over their estimated useful lives for financial reporting purposes and straight-line and accelerated methods for tax reporting purposes. 5. INCOME TAXES Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to postretirement benefits other than pensions, pension costs, depreciation, inventory and various accrued expenses. 6. ACCOUNTING ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. F-73 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE B--INVENTORIES Inventories primarily relate to production-type contracts and include expenditures for materials, purchased parts and work-in-process beyond what is required for recorded orders. These expenditures are incurred primarily to help maintain stable production schedules. Inventories consist of the following:
1996 1995 ------------- ------------- Materials and purchased parts .................................... $ 2,906,353 $ 2,960,879 Work-in-process, primarily on U.S. Government contracts .......... 10,624,008 9,248,883 Finished goods ................................................... 2,092,359 1,051,247 ----------- ----------- $15,622,720 $13,261,009 =========== ===========
NOTE C--INTANGIBLE ASSETS Intangible assets consist of the following:
1996 1995 ------------- ------------- Engineering drawings ................... $ 699,013 $ 699,013 Less accumulated amortization .......... (699,013) (463,538) ---------- ---------- -- 235,475 Intangible asset - pension ............. 2,476,449 3,238,000 ---------- ---------- $2,476,449 $3,473,475 ========== ==========
NOTE D--REVOLVING CREDIT FACILITY During 1995, the Company entered into a $15,000,000 revolving credit facility with a financial institution which expires on November 29, 1998. Borrowings are based upon eligible accounts receivable and inventory of the Company, as defined. Borrowings bear interest at the lender's prime rate plus .50% (9% at December 31, 1996). The agreement contains certain restrictive covenants, including, among other matters, the requirement to maintain certain financial ratios, and restricts the payment of dividends. Borrowings under this facility are collateralized by the Company's inventories and accounts receivable. Available borrowings under this credit arrangement are subject to a 0.37 percent commitment fee. NOTE E--LONG-TERM DEBT Long-term debt consists of the following:
1996 1995 ------------- ------------- Term Loan due to Heller Financial Inc. .......... $5,000,000 $7,500,000 Less current maturities ......................... 2,500,000 2,500,000 ---------- ---------- $2,500,000 $5,000,000 ========== ==========
The term loan due to Heller Financial Inc. is payable in quarterly installments of $625,000, and bears interest at prime plus .75% per annum, payable monthly (9.25% as of December 31, 1996). The term loan is collateralized by substantially all of the Company's equipment and leasehold improvements. The loan agreement restricts payment of dividends and contains certain restrictive covenants regarding the maintenance of financial ratios. F-74 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F--COMMITMENTS AND CONTINGENCIES The Company conducts a substantial portion of its business utilizing leased facilities and equipment with terms lasting through January 31, 2005. The terms of the facility lease include an option to purchase the leased premises based on 50% of the fair market value of the land and 100% of the fair market value of the building. The Company can renew the lease for two additional five-year terms. A subsidiary of the Company also conducts its business in a leased facility. The lease has a non-cancellable initial term of ten years expiring in December 1999 with two five-year renewal options. At December 31, 1996, future minimum payments under noncancellable operating leases with remaining terms of more than one year were as follows:
Year ending December 31, 1997 ......... $1,450,000 1998 ................................ 1,337,000 1999 ................................ 1,324,000 2000 ................................ 720,000 2001 ................................ 651,000 Thereafter .......................... 778,000 ---------- $6,260,000 ==========
Total rental expense for operating leases was approximately $1,875,000 and $1,787,000 for the years ended December 31, 1996 and 1995, respectively. As a defense contractor for the U.S. Government, the books, records and other supporting documentation of the Company used to establish certain contract prices are subject to audit to determine the allowability and reasonableness of costs. The Company routinely undergoes audits by the Government on both a pre-award and post-award basis. NOTE G--COMMON STOCK AND INCENTIVE STOCK OPTIONS In 1995, the Company sold 2,355 shares of common stock previously held in treasury to two employees and a director. The Company has options outstanding to key executives for the purchase of 954 shares of common stock at an exercise price of $1.00 per share. The options expire on December 31, 2002. F-75 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H--POSTRETIREMENT BENEFITS 1. PENSION PLAN Substantially all the employees of the Company are covered under a defined benefit pension plan. The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheets at December 31, 1996 and 1995:
1996 1995 -------------- -------------- Actuarial present value of benefit obligations Accumulated benefit obligations including vested benefits of $59,278,594 in 1996 and $52,700,092 in 1995...................... $ 60,303,661 $ 58,252,380 ============ ============ Projected benefit obligation for services rendered to date ......... $ 63,413,303 $ 61,142,368 Plan assets at fair value, primarily fixed income investments and common stocks ..................................................... 54,588,989 49,449,375 ------------ ------------ Projected benefit obligation in excess of plan assets .............. 8,824,314 11,692,993 Unrecognized net loss .............................................. (3,054,968) (3,056,450) Unrecognized prior service costs ................................... (2,596,625) (3,238,223) Unrecognized net transition asset .................................. 65,502 77,783 Minimum liability adjustment ....................................... 2,476,449 3,326,902 ------------ ------------ Pension liability .................................................. $ 5,714,672 $ 8,803,005 ============ ============ Net periodic pension cost includes the following components: 1996 1995 ------------- ------------- Service cost -- benefit earned during the year ..................... $ 1,327,831 $ 1,300,886 Interest cost on projected benefit obligation ...................... 4,872,752 4,743,858 Actual (return) on plan assets ..................................... (4,854,957) (6,663,443) Net amortization and deferral ...................................... 879,262 3,511,186 ------------- ------------- Net periodic pension cost ......................................... $ 2,224,888 $ 2,892,487 ============= =============
The weighted average discount rates used in determining the present value of the projected benefit obligations was 8.15% in 1996 and 1995. The projected rate of increase in future compensation levels was 5.0% for both years. The expected long-term rate of return on assets was 9.5% for both years. Prior service costs are amortized using a straight-line method over the average remaining service period of employees expected to receive benefits under the plan. The Company's policy is to fund pension cost under its pension plan to the extent necessary under the Employee Retirement Income Security Act of 1974. 2. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company has a defined benefit postretirement plan that provides medical benefits for retirees. The Company does not fund retiree benefits in advance. In 1992, the Company established plan cost maximums to account for and control future medical costs more effectively. The Company requires that the projected future cost of providing postretirement benefits, principally health care, be accrued over the period earned rather than expensed as claims are incurred. Net periodic postretirement benefit cost for the years ended December 31, 1996 and 1995, included the following components: F-76 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H--POSTRETIREMENT BENEFITS (CONTINUED)
1996 1995 -------------- ------------ Service cost benefits attributed to service during the period .......... $ 9,000 $ 13,000 Interest cost on the accumulated postretirement benefit obligation ............................................................ 2,216,000 2,305,000 Net amortization and deferral .......................................... (104,000) ---------- ---------- Net periodic postretirement benefit cost ............................... $2,121,000 $2,318,000 ========== ==========
Cost was determined by application of the terms of the medical plan, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at annual rates progressively declining from 12% in 1995. Future benefits will be capped at the limits in effect for December 31, 1996. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $-0- in 1996 and $32,000 in 1995; the annual costs would not be materially affected. In addition to net periodic postretirement cost, the Company recognized an actuarial gain of $3,000 in 1995. The following tables provide information on the status of the plan at December 31, 1996 and 1995.
1996 1995 -------------- -------------- Accumulated postretirement benefit obligation Retirees ............................................. $23,193,000 $23,144,000 Fully eligible active plan participants .............. 4,197,000 4,552,000 Other active plan participants ....................... 142,000 183,000 ----------- ----------- Accumulated postretirement benefit obligation ......... 27,532,000 27,879,000 Unrecognized net gain (loss) .......................... 1,854,000 2,135,000 ----------- ----------- Accrued postretirement benefit cost recognized in the consolidated balance sheet ........................... $29,386,000 $30,014,000 =========== ===========
Measurement of the accumulated postretirement benefit obligation was based on an assumed discount rate of 8.15% in 1996 and 1995. The health care cost trend rate was 0% in 1996 and 12% in 1995. 3. EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN The Company maintains an hourly and salaried employees' savings plan. The Company contributes a guaranteed minimum of eligible employee contributions. Additional company contributions of up to 25% of eligible employee contributions are voluntary and at the discretion of the Board of Directors. Profit-sharing expense was approximately $642,000 and $506,000 for the years ended December 31, 1996 and 1995, respectively. 4. MULTIEMPLOYER PLAN The Company contributed $1,000 in 1996 and 1995 to multiemployer pension plans for employees covered by collective bargaining agreements. These plans are not administered by the Company and contributions are determined in accordance with provisions of the negotiated labor contract. Information with respect to the Company's proportionate share of the excess, if any, of the actuarially computed value of vested benefits over the total of the pension plans' net assets is not available from the plans' administrators. F-77 SPD TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H--POSTRETIREMENT BENEFITS (CONTINUED) The Multiemployer Pension Plan Amendments Act of 1980 (the "Act") significantly increased the pension responsibilities of participating employers. Under the provisions of the Act, if the plan terminates or the Company withdraws, the Company could be subject to a "withdrawal liability." NOTE I--INCOME TAXES Income tax expense is comprised of the following:
1996 1995 ------------- ------------- Currently payable Federal ......... $4,133,000 $2,269,000 State ........... 1,010,000 773,000 ---------- ---------- $5,143,000 $3,042,000 ========== ==========
The effective tax rate varies from the statutory rate primarily due to state and local income taxes and for the year ended December 31, 1995 due to adjustment of prior year's tax provision. Deferred income taxes at December 31 relate to the following:
1996 1995 -------------------------------- ------------------------------- DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX ASSETS LIABILITIES ASSETS LIABILITIES ---------------- ------------- ---------------- ------------ Pension and postretirement benefits ......... $ 13,821,000 $ -- $ 15,462,000 $ -- Other temporary differences ................. 1,683,000 285,000 2,252,000 379,000 Inventory costs ............................. 1,640,000 -- 1,713,000 -- Vacation pay accrual ........................ 644,000 -- 625,000 -- Warranty costs .............................. 484,000 -- 652,000 -- Valuation allowance ......................... (12,187,000) -- (14,525,000) -- ------------- -------- ------------- -------- $ 6,085,000 $285,000 $ 6,179,000 $379,000 ============= ======== ============= ========
NOTE J--CASH FLOW INFORMATION The following is supplemental cash flow information:
1996 1995 ------------- ------------- Cash paid for Interest ............. $1,179,000 $1,665,000 Income taxes ......... 5,621,000 3,916,000
NOTE K--OTHER LIABILITIES AND ACCRUED EXPENSES Other liabilities and accrued expenses are summarized as follows:
1996 1995 ------------- ------------- Allowance for contract adjustments .......... $2,499,449 $ 783,513 Accrued warranties .......................... 1,160,613 1,490,294 Customer advances ........................... 797,931 851,364 Other current liabilities ................... 2,800,915 2,045,724 ---------- ---------- $7,258,908 $5,170,895 ========== ==========
NOTE L--SUBSEQUENT EVENTS In January 1997, a newly formed company, by an investor group and certain minority stockholders of the Company, acquired all the outstanding stock of the Company. The acquisition was financed through the issuance of preferred and common stock and bank borrowings. F-78 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. UNAUDITED CONDENSED FINANCIAL STATEMENTS As of December 31, 1997 and for the six months ended December 31, 1997 and 1996 F-79 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. BALANCE SHEET (UNAUDITED) DECEMBER 31, 1997 (Dollars in Thousands)
ASSETS Current assets: Accounts receivable, less $554 allowance for doubtful accounts ......... $ 22,204 Inventories ............................................................ 10,382 --------- Total current assets .................................................... 32,586 Property, plant and equipment, at cost .................................. 21,663 Less accumulated depreciation and amortization .......................... (14,467) --------- Net property and equipment .............................................. 7,196 Other assets ............................................................ 15 --------- Total assets ............................................................ $ 39,797 ========= LIABILITIES AND DIVISION EQUITY Current liabilities: Accounts payable ....................................................... $ 6,508 Accrued liabilities .................................................... 3,703 Current portion of long-term debt ...................................... 200 --------- Total current liabilities ............................................... 10,411 Long-term debt .......................................................... 1,330 --------- Total liabilities ....................................................... 11,741 Commitments Division equity ......................................................... 28,056 --------- Total liabilities and Division equity ................................... $ 39,797 =========
See accompanying notes. F-80 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands)
SIX MONTHS ENDED DECEMBER 31 --------------------------- 1997 1996 ------------ ------------ Net sales ................................... $ 24,551 $ 38,770 Cost of products sold ....................... 23,226 42,530 -------- --------- Gross margin ................................ 1,325 (3,760) -------- --------- Expenses: Research and development ................... 712 721 Marketing and administration ............... 5,123 8,064 Amortization of intangible assets .......... -- 72 -------- --------- Total expenses .............................. 5,835 8,857 -------- --------- Operating loss .............................. (4,510) (12,617) Interest expense ............................ (43) (70) Interest income ............................. -- 5 -------- --------- Loss before income tax benefit .............. (4,553) (12,682) Allocated benefit from income taxes ......... 1,639 4,185 -------- --------- Net loss .................................... $ (2,914) $ (8,497) ======== =========
See accompanying notes. F-81 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Thousands)
SIX MONTHS ENDED DECEMBER 31 --------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ............................................................. $ (2,914) $ (8,497) Adjustments for noncash items: Amortization of intangible assets ................................... -- 72 Depreciation and amortization of property, plant and equipment ..... 780 1,200 Loss on sale of assets ............................................. -- 151 Provision for doubtful accounts .................................... 66 750 Changes in asset and liability accounts: Accounts receivable ................................................. 6,053 16,124 Inventories ......................................................... (2,644) 6,789 Prepaid expenses and other assets ................................... 85 213 Accounts payable .................................................... (1,256) (10,238) Accrued liabilities ................................................. 132 (208) -------- --------- Net cash provided by operations ...................................... 302 6,356 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ................................................. (160) (1,072) Proceeds from sale of building ....................................... -- 1,617 -------- --------- Net cash provided by (used in) investing activities .................. (160) 545 -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt ........................................... (100) (200) Net cash provided to CMI ............................................. (42) (6,701) -------- --------- Net cash used in financing activities ................................ (142) (6,901) -------- --------- Cash and cash equivalents ............................................ $ -- $ -- ======== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the six month period for interest ................... $ 36 $ 32 ======== =========
See accompanying notes. F-82 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited financial statements include the operations of the Satellite Transmission Systems Division ("STS" or the "Division") of California Microwave, Inc. ("CMI" or the "Company"). The Division is a global satellite communication systems integrator providing hardware, software and services for turnkey projects to large commercial customers, principally domestic and foreign telephone companies and major common carriers and to the U.S. and foreign governments. These financial statements are presented as if the Division had existed as an entity separate from CMI during the periods presented and include the historical assets, liabilities, sales and expenses that are directly related to the Division's operations. However, these financial statements are not necessarily indicative of the financial position and results of operations which would have occurred had the Division been an independent entity. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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 six-month periods ended December 31, 1996 and 1997 are not necessarily indicative of the results that may be expected for the years ended June 30, 1997 and 1998. For further information, refer to the financial statements and footnotes thereto included in the Division's financial statements for the year ended June 30, 1997. USE OF ESTIMATES; RISKS AND UNCERTAINTIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates are used in determining the collectibility of accounts receivable, warranty costs, inventory realization, profitability on long-term contracts, restructuring reserves, recoverability of property, plant and equipment, and contingencies. Actual results could differ from estimates. INVENTORIES AND COST OF PRODUCTS SOLD Inventories are recorded at the lower of cost or market. Project inventories are transferred to cost of products sold at the time revenue is recognized based on the estimated total manufacturing costs and total contract prices under each contract. Losses on contracts are recognized in full when the losses become determinable. The cost of other inventories is generally based on standard costs which approximate actual costs determined by the first-in, first-out method. F-83 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. INVENTORIES Inventories consisted of the following:
DECEMBER 31, 1997 --------------- (In Thousands) Projects in process ............................................. $ 9,351 Less: progress billings ......................................... 1,547 ------- 7,804 Product inventories, principally materials and supplies ......... 2,578 ------- Total ........................................................... $10,382 =======
3. CORPORATE ALLOCATIONS CMI allocates corporate expenses on a value-added basis to each division, which CMI believes results in a reasonable allocation of such costs. The accompanying financial statements reflect charges for general corporate administrative expenses incurred by CMI which amounted to approximately $832,000 and $793,000 for the six months ended December 31, 1996 and 1997, respectively. No interest is allocated by CMI to the Division. The Division is charged for its proportional share of CMI's self-insured medical plan. Such charges amounted to $1,015,000 and $732,000 for the six months ended December 31, 1996 and 1997, respectively. In addition, there were direct charges from CMI as follows:
SIX MONTHS ENDED DECEMBER 31, ---------------- 1997 1996 ------ ------- (In Thousands) Marketing .......................... $304 $389 General and administrative ......... -- 142 ---- ---- Total .............................. $304 $531 ==== ====
The Division believes that the direct charges from CMI were reasonable during the periods presented. 4. RESTRUCTURING During fiscal 1997, a comprehensive review of the Division's operations was performed, including a review of inventory levels, product development and migration plans and facility and personnel needs. It was determined to focus the Division on potentially higher margin products. This resulted in the write-down of certain inventories and the restructuring of the Division's operations. During the six month period ended December 31, 1996 inventory and other charges of $10,300,000, arising from this review, were included in cost of products sold. During February 1997, additional charges of $800,000 relating to excess facilities and severance were recorded. There are no remaining cash outlays associated with the restructuring at December 31, 1997. F-84 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. OTHER In November 1997, the Division recorded a $1 million charge to cost of sales relating to a contract with a customer in Sudan. The President of the United States imposed economic sanctions on Sudan which banned U.S. companies from doing business in Sudan and as a result, the Division could not continue to perform under the existing contract. Based upon this, the contract was terminated and the Division has been released from further performance requirements. On December 19, 1997, L-3 Communications Corporation, an unrelated party, reached an agreement to purchase from CMI substantially all of the assets of the Division, and to assume certain of the liabilities of the Division, for approximately $27 million in cash. The final purchase price is subject to adjustment based on the net assets of the Division at the closing date of the transaction. F-85 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. Financial Statements As of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and 1995 F-86 REPORT OF INDEPENDENT AUDITORS The Board of Directors California Microwave, Inc. We have audited the accompanying balance sheets of the Satellite Transmission Systems Division of California Microwave, Inc. (the "Company") as of June 30, 1997 and 1996, and the related statements of operations and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 financial position of the Satellite Transmission Systems Division of California Microwave, Inc., as of June 30, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Melville, New York January 27, 1998 F-87 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. BALANCE SHEETS (Dollars in Thousands)
JUNE 30, --------------------------- 1997 1996 ------------ ------------ ASSETS Current assets: Accounts receivable, less $140 and $508 allowance for doubtful accounts in 1996 and 1997 ............................................. $ 28,323 $ 46,750 Inventories ............................................................. 7,738 10,412 Prepaid expenses and other assets ....................................... 77 121 --------- --------- Total current assets ..................................................... 36,138 57,283 Property, plant and equipment, at cost ................................... 21,503 21,378 Less accumulated depreciation and amortization ........................... (13,687) (12,984) --------- --------- Net property and equipment ............................................... 7,816 8,394 Intangible assets, net of accumulated amortization of $2,268 in 1996...... -- 2,032 Other assets ............................................................. 23 2,045 --------- --------- Total assets ............................................................. $ 43,977 $ 69,754 ========= ========= LIABILITIES AND DIVISION EQUITY Current liabilities: Accounts payable ........................................................ $ 7,764 $ 19,548 Accrued liabilities ..................................................... 3,571 3,584 Current portion of long-term debt ....................................... 100 200 --------- --------- Total current liabilities ................................................ 11,435 23,332 Long-term debt ........................................................... 1,530 1,630 --------- --------- Total liabilities ........................................................ 12,965 24,962 Commitments Division equity .......................................................... 31,012 44,792 --------- --------- Total liabilities and Division equity .................................... $ 43,977 $ 69,754 ========= =========
See accompanying notes. F-88 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. STATEMENTS OF OPERATIONS (Dollars in Thousands)
YEARS ENDED JUNE 30, ----------------------------------------- 1997 1996 1995 ------------ ----------- ------------ Net sales ................................................. $ 68,037 $124,393 $ 94,271 Cost of products sold ..................................... 65,724 102,399 86,335 --------- -------- -------- Gross margin .............................................. 2,313 21,994 7,936 --------- -------- -------- Expenses: Research and development ................................. 1,360 2,540 2,288 Marketing and administration ............................. 14,154 13,295 12,655 Amortization and write-down of intangible assets ......... 2,032 171 171 Restructuring ............................................ 800 -- 2,446 --------- -------- -------- Total expenses ............................................ 18,346 16,006 17,560 --------- -------- -------- Operating (loss) income ................................... (16,033) 5,988 (9,624) Interest expense .......................................... (65) (69) (98) Interest income ........................................... 40 11 3 --------- -------- -------- (Loss) income before income tax benefit (expense) ......... (16,058) 5,930 (9,719) Allocated benefit (expense) from income taxes ............. 4,676 (2,135) 3,207 --------- -------- -------- Net (loss) income ......................................... $ (11,382) $ 3,795 $ (6,512) ========= ======== ========
See accompanying notes. F-89 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. STATEMENTS OF CASH FLOWS (Dollars in Thousands)
YEARS ENDED JUNE 30, ------------------------------------------- 1997 1996 1995 ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income ........................................... $ (11,382) $ 3,795 $ (6,512) Adjustments for noncash items: Amortization and write-down of intangible assets ........... 2,032 171 171 Depreciation and amortization of property, plant and equipment ................................................ 1,639 1,746 1,848 Loss on sale of assets ..................................... 77 140 64 Provision for doubtful accounts ............................ 750 100 150 Changes in asset and liability accounts: Accounts receivable ........................................ 17,677 (17,019) 14,937 Inventories ................................................ 2,674 12,243 (8,211) Prepaid expenses and other assets .......................... 449 1,449 5,627 Accounts payable ........................................... (11,783) 5,736 (3,747) Accrued and other liabilities .............................. (14) (1,697) 1,895 --------- --------- -------- Net cash provided by operations ............................. 2,119 6,664 6,222 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ........................................ (1,138) (1,099) (1,881) Proceeds from sale of building .............................. 1,617 -- -- --------- --------- -------- Net cash (used in) provided by investing activities ......... 479 (1,099) (1,881) --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt .................................. (200) (100) (200) Net cash provided to CMI .................................... (2,398) (5,465) (4,141) --------- --------- -------- Net cash used in financing activities ....................... (2,598) (5,565) (4,341) --------- --------- -------- Cash and cash equivalents ................................... $ -- $ -- $ -- ========= ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest ...................... $ 38 $ 66 $ 70 ========= ========= ========
See accompanying notes. F-90 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1995, 1996 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the operations of the Satellite Transmission Systems Division ("STS" or the "Division") of California Microwave, Inc. ("CMI" or the "Company"). The Division is a global satellite communication systems integrator providing hardware, software and services for turnkey projects to large commercial customers, principally domestic and foreign telephone companies and major common carriers and to the U.S. and foreign governments. These financial statements are presented as if the Division had existed as an entity separate from CMI during the periods presented and include the historical assets, liabilities, sales and expenses that are directly related to the Division's operations. However, these financial statements are not necessarily indicative of the financial position and results of operations which would have occurred had the Division been an independent entity. USE OF ESTIMATES; RISKS AND UNCERTAINTIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates are used in determining the collectibility of accounts receivable, warranty costs, inventory realization, profitability on long-term contracts, restructuring reserves, recoverability of property, plant and equipment, and contingencies. Actual results could differ from estimates. CASH AND CASH EQUIVALENTS The Division participates in CMI's centralized cash management function; accordingly, the Division does not maintain separate cash accounts, other than payroll and foreign subsidiary accounts, which are deemed insignificant, and its cash disbursements and collections are settled through Division equity. INVENTORIES AND COST OF PRODUCTS SOLD Inventories are recorded at the lower of cost or market. Project inventories are transferred to cost of products sold at the time revenue is recognized based on the estimated total manufacturing costs and total contract prices under each contract. Losses on contracts are recognized in full when the losses become determinable. During the year ended June 30, 1995, the Division recognized losses of approximately $2,800,000 on such contracts. The cost of other inventories is generally based on standard costs which approximate actual costs determined by the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method based on the estimated useful lives of the related assets. INTANGIBLE ASSETS OF BUSINESS ACQUIRED During 1997, CMI wrote off $1,888,000 of purchased intangible assets, principally goodwill, relating to the original acquisition of STS by CMI, which was pushed down to the Division's books. F-91 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The intangible assets consisted of the excess of the purchase price paid for STS over the net tangible assets acquired and was amortized using the straight-line method over 30 years. During 1997, CMI determined that the excess purchase price was not recoverable due to a significant reduction in sales by the Division in 1997 as compared to prior periods and appropriately reduced the carrying value. OTHER LONG-LIVED ASSETS In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," the Division records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of such assets. Other than as described above related to purchased intangibles, no such losses have been incurred. REVENUE RECOGNITION, RECEIVABLES AND CREDIT RISK Revenue from product sales is recognized at the time of shipment. Sales on certain long-term, small quantity, high unit value contracts are recognized at the completion of significant project milestones, which are generally contract line items. Scheduled billings and retainages under certain contracts (principally export contracts) have deferred billing provisions resulting in unbilled accounts receivable (included in accounts receivable) of $7,426,000 and $4,425,000 at June 30, 1996 and 1997, respectively. The unbilled receivable at June 30, 1997, is expected to be collected within one year. The Division manufactures and sells satellite communications products, systems and turnkey telecommunications networks to large commercial customers, principally domestic and foreign telephone companies and major common carriers, and to the U.S. government. The Division generally requires no collateral, but generally requires letters of credit, denominated in U.S. dollars, from its foreign customers. During 1996 and 1997, the Division periodically transferred certain international accounts receivable to CMI. CMI insures these receivables under a credit insurance program and then sells the receivables, without recourse, at prevailing discount rates. The Division retains the responsibility to collect and service these amounts. Outstanding customer receivables transferred to CMI through Division equity amounted to approximately $421,000 and $2,100,000 during 1996 and 1997, respectively. The Division charged to operations $150,000, $100,000 and $750,000 for its provision for doubtful accounts in 1995, 1996 and 1997, respectively. WARRANTY The Company generally warrants its products for a period of 12 to 24 months from completion of contract or shipment. Warranty expense was approximately $679,000, $753,000 and $688,000 for 1995, 1996 and 1997, respectively. INCOME TAXES Income taxes reflect an allocation of CMI's income tax expense (benefit) calculated based on CMI's effective tax rate. All deferred tax assets and liabilities relating to the Division are included in intercompany balances with CMI and are accounted for within Division equity (see Note 7). On a F-92 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) stand-alone basis, income tax benefit (expense) for the year ended June 30, 1997 would not be material due to the existence of net operating loss carryforwards at the Division level and the need for a full valuation allowance on any resulting net deferred tax asset. Such net operating losses have been fully utilized by CMI. FISCAL YEAR The Division's fiscal year ends on the Saturday closest to June 30, and includes 52 weeks in fiscal 1995, 1996 and 1997. For 1995, 1996 and 1997, the fiscal years ended on July 1, 1995, June 29, 1996 and June 28, 1997, respectively. For clarity of presentation, the financial statements are reported as ending on a calendar month end. 2. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
JUNE 30, ----------------------- LIFE 1997 1996 ------------ ---------- ---------- (In Years) (In Thousands) Land .................................. $ 950 $ 950 Buildings ............................. 30 3,559 3,559 Machinery and equipment ............... 3-5 8,780 9,256 Office and computer equipment ......... 3-10 6,440 5,653 Building improvements ................. -- 1,721 1,813 Vehicles .............................. 5 53 147 ------- ------- $21,503 $21,378 ======= =======
Building improvements are depreciated over the shorter of the life of the improvement or the remaining life of the building. 3. INVENTORIES Inventories consisted of the following:
JUNE 30, --------------------- 1997 1996 --------- --------- (In Thousands) Projects in process ............................................. $6,484 $ 6,287 Less: progress billings ......................................... 2,544 1,991 ------ ------- 3,940 4,296 Product inventories, principally materials and supplies ......... 3,798 6,116 ------ ------- Total ........................................................... $7,738 $10,412 ====== =======
F-93 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. ACCRUED LIABILITIES Accrued liabilities consisted of the following:
JUNE 30, --------------------- 1997 1996 --------- --------- (In Thousands) Salaries and bonuses .......... $ 497 $1,381 Vacation ...................... 610 873 Other payroll related ......... 123 115 Warranties .................... 899 758 Commissions ................... 813 -- Other ......................... 629 457 ------ ------ $3,571 $3,584 ====== ======
5. LONG-TERM DEBT The Division has industrial development bonds that are payable in annual installments through November 9, 2007, may be prepaid at any time without penalty and bear interest at 65% of the bank's floating rate (5.5% at June 30, 1997), based upon prevailing market conditions, which is redetermined daily. The obligor of the industrial development bonds is a related entity, and the bonds are secured by mortgages on the equipment and properties involved. At June 30, 1997, the annual maturities of long-term debt are as follows:
1998 ......................... $ 100,000 1999 ......................... 200,000 2000 ......................... 100,000 2001 ......................... 200,000 2002 ......................... 100,000 Thereafter ................... 930,000 ---------- 1,630,000 Less current portion ......... 100,000 ---------- $1,530,000 ==========
6. COMMITMENTS On November 15, 1996, the Division leased a facility under an 18-month noncancelable operating lease. Rent expense was approximately $209,000, $229,000 and $69,000 for 1995, 1996, and 1997, respectively. Future minimum lease payments under the operating lease is $48,000 for 1998. F-94 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. DIVISION EQUITY A summary of the Division equity activity is as follows:
JUNE 30, ------------------------- 1997 1996 ------------ ---------- (In Thousands) Beginning balance ................ $ 44,792 $ 46,462 Net income (loss) ................ (11,382) 3,795 Net cash provided to CMI ......... (2,398) (5,465) --------- -------- Ending balance ................... $ 31,012 $ 44,792 ========= ========
8. EMPLOYEE BENEFITS The Division participates in the CMI defined contribution retirement plan which covers substantially all of the employees of the Division. The Division's contribution was $379,000, $700,000 and $180,000 for 1995, 1996 and 1997, respectively. 9. SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION The Division operates in a single industry segment and is engaged in the manufacture and sale of electronics equipment for satellite communications. International sales were as follows:
JUNE 30, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- (In Thousands) Asia Pacific ............... $22,333 $27,106 $17,164 Africa/Middle East ......... 13,052 41,827 9,572 Latin America .............. 5,149 11,137 14,768 Europe ..................... 7,828 15,984 9,784 Other ...................... 1,391 2,973 4,312 ------- ------- ------- $49,753 $99,027 $55,600 ======= ======= =======
The Division had revenues from one customer representing 17.3%, 31.5% and 11% of total revenues in 1995, 1996 and 1997, respectively. 10. CORPORATE ALLOCATIONS CMI allocates corporate expenses on a value-added basis to each division, which CMI believes results in a reasonable allocation of such costs. The accompanying financial statements reflect charges for general corporate administrative expenses incurred by CMI which amounted to approximately $1,477,000, $1,555,000 and $1,663,000 in 1995, 1996 and 1997, respectively. No interest is allocated by CMI to the Division. The Division is charged for its proportional share of CMI's self-insured medical plan. Such charges amounted to $944,000, $1,437,000 and $1,856,000 in 1995, 1996, and 1997, respectively. F-95 SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. CORPORATE ALLOCATIONS (CONTINUED) In addition, there were direct charges from CMI as follows:
JUNE 30, -------------------------- 1997 1996 1995 --------- ------ ----- (In Thousands) Marketing .......................... $ 889 -- $-- General and administrative ......... 285 $508 -- ------ ---- --- Total .............................. $1,174 $508 $-- ====== ==== ===
The Division believes that the direct charges from CMI were reasonable during the periods presented. 11. RELATED PARTY TRANSACTIONS Included in net sales are product sales to other divisions of CMI. These sales totaled $3,584,000, $640,000 and $1,800,000 for 1995, 1996 and 1997, respectively. In addition, there is approximately $2,363,000, $2,937,000 and $776,000 of purchases from another division of CMI which is included in ending inventory and $2,139,000, $3,576,000 and $1,129,000 due to this division which is included in accounts payable at June 30, 1995, 1996 and 1997, respectively. 12. RESTRUCTURING In June 1995, a decision was made to close the Division's Melbourne, Florida facility as well as to perform a review of personnel needs at the Division's operations. Pursuant to these decisions, approximately $2.4 million of restructuring charges were recorded, including approximately $600,000 to reflect the facility at its net realizable value. There are no remaining cash outlays associated with the restructuring at June 30, 1997. In December 1996 and January 1997, a comprehensive review of the Division's operations was performed, including a review of inventory levels, product development and migration plans and facility and personnel needs. It was determined to focus the Division on potentially higher margin products. This resulted in the write-down of certain inventories and the restructuring of the Division's operations. Inventory and other charges of $10,300,000, arising from this review, were included in cost of products sold and excess facilities and severance charges of $800,000 were included in restructuring. There are no remaining cash outlays associated with the restructuring at June 30, 1997. 13. SUBSEQUENT EVENTS In November 1997, the Division recorded a $1 million charge to cost of sales relating to a contract with a customer in Sudan. The President of the United States imposed economic sanctions on Sudan which banned U.S. companies from doing business in Sudan, and as a result the Division could not continue to perform under the existing contract. Based upon this, the contract was terminated and the Division has been released from further performance requirements. On December 19, 1997, L-3 Communications Corporation, an unrelated party, reached an agreement to purchase from CMI substantially all of the assets of the Division, and to assume certain of the liabilities of the Division, for approximately $27 million in cash. The final purchase price is subject to adjustment based on the net assets of the Division at the closing date of the transaction. F-96 ILEX SYSTEMS, INC. AND SUBSIDIARY Consolidated Financial Statements December 31, 1997 F-97 INDEPENDENT AUDITORS' REPORT The Board of Directors ILEX Systems, Inc.: We have audited the accompanying consolidated balance sheet of ILEX Systems, Inc. and subsidiary as of December 31, 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ILEX Systems, Inc. and subsidiary as of December 31, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG LLP San Jose, California February 9, 1998, except as to Note 9 which is as of February 27, 1998 F-98 ILEX SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997
ASSETS Current assets: Cash and cash equivalents ...................................................... $ 4,919,548 Accounts receivable, net of allowance for doubtful accounts of $327,422 ........ 7,354,640 Unbilled accounts receivable ................................................... 4,868,453 Inventories .................................................................... 923,466 Deferred income taxes .......................................................... 13,000 Other current assets ........................................................... 278,771 ------------ Total current assets .......................................................... 18,357,878 Property, plant, and equipment: Equipment ...................................................................... 2,343,643 Furniture, fixtures, and leasehold improvements ................................ 634,425 ------------ 2,978,068 Accumulated depreciation and amortization ...................................... (2,031,763) ------------ 946,305 Goodwill, net of accumulated amortization of $117,940 ........................... 343,564 Deposits and other assets ....................................................... 138,730 ------------ $ 19,786,477 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .............................................. $ 62,833 Accounts payable ............................................................... 2,226,340 Accrued payroll and related expenses ........................................... 3,176,151 Deferred income ................................................................ 37,843 Distribution payable to shareholders ........................................... 2,216,877 Income taxes payable ........................................................... 80,552 Other current liabilities ...................................................... 175,011 ------------ Total current liabilities ..................................................... 7,975,607 Other liabilities ............................................................... 18,678 ------------ Total liabilities ............................................................. 7,994,285 Shareholders' equity: Common stock, no par value; 5,000,000 shares authorized; 1,317,605 shares issued and outstanding .............................................................. 1,386,417 Retained earnings .............................................................. 10,405,775 ------------ Total shareholders' equity .................................................... 11,792,192 Commitments ..................................................................... $ 19,786,477 ============
See accompanying notes to consolidated financial statements. F-99 ILEX SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997
Revenues: Consulting fees .............................. $57,309,190 Equipment sales .............................. 6,213,038 ----------- 63,522,228 ----------- Costs and expenses: Cost of revenue, consulting .................. 41,852,031 Cost of sales, equipment ..................... 3,314,614 Selling, general, and administrative ......... 9,507,879 Research and development ..................... 1,211,497 ----------- 55,886,021 ----------- Operating income ............................ 7,636,207 Other income (expense): Interest income .............................. 135,114 Interest expense ............................. (8,579) Loss on write-down of investment ............. (250,000) Other expense ................................ (108,000) ----------- Income before income taxes .................. 7,404,742 Income taxes .................................. 550,000 ----------- Net income .................................. $ 6,854,742 ===========
See accompanying notes to consolidated financial statements. F-100 ILEX SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1997
COMMON STOCK TOTAL ----------------------------- RETAINED SHAREHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------------- ------------- -------------- -------------- Balances as of December 31, 1996 ......... 1,315,720 $1,352,249 $ 10,606,517 $ 11,958,766 Issuance of common stock in exchange for services ................................ 3,400 42,500 -- 42,500 Stock repurchase ......................... (1,515) (8,332) (6,060) (14,392) Distributions to shareholders ............ -- -- (7,049,424) (7,049,424) Net income ............................... -- -- 6,854,742 6,854,742 --------- ---------- ------------ ------------ Balances as of December 31, 1997 ......... 1,317,605 $1,386,417 $ 10,405,775 $ 11,792,192 ========= ========== ============ ============
See accompanying notes to consolidated financial statements. F-101 ILEX SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities: Net income ........................................................................... $ 6,854,742 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................................................... 419,593 Allowance for doubtful accounts ..................................................... (203,255) Loss on write-down of investment .................................................... 250,000 Deferred income taxes ............................................................... 485,000 Issuance of common stock for services ............................................... 42,500 Changes in operating assets and liabilities: Receivables ........................................................................ (1,267,205) Inventories ........................................................................ 387,485 Other current assets ............................................................... (112,176) Deposits and other assets .......................................................... 140,884 Accounts payable and accrued liabilities ........................................... 324,963 Deferred income .................................................................... (159,012) Income taxes payable ............................................................... 80,552 Other liabilities .................................................................. (459,166) ------------ Net cash provided by operating activities ......................................... 6,784,905 ------------ Cash flows used in investing activities -- purchases of property, plant, and equipment (416,630) ------------ Cash flows from financing activities: Payments on debt ..................................................................... (67,265) Distributions paid to shareholders ................................................... (4,832,547) Repurchase of common stock ........................................................... (14,392) ------------ Net cash used in financing activities ............................................. (4,914,204) ------------ Increase in cash and cash equivalents ................................................. 1,454,071 Cash and cash equivalents, beginning of year .......................................... 3,465,477 ------------ Cash and cash equivalents, end of year ................................................ $ 4,919,548 ============ Supplemental disclosures of cash flow information: Cash paid during year: Income taxes ........................................................................ $ 716,190 ============ Interest ............................................................................ $ 8,579 ============ Noncash investing and financing activities -- distributions payable to shareholders $ 2,216,877 ============
See accompanying notes to consolidated financial statements. F-102 ILEX SYSTEMS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS ILEX Systems, Inc. (the "Company") provides services and products primarily in four areas: environmental consulting services to private and public sector customers; software consulting services to the federal government and its contractors; supervisory control and data acquisition products and services to the electrical utility industry; and secured communications products, principally to the federal government and its agencies. The majority of the Company's revenues are derived from its software consulting services. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. REVENUE RECOGNITION The Company's consulting services are generally performed on time- and materials-based contracts for the federal government and its contractors. Accordingly, revenues are recognized as services are performed. Equipment sales revenues are recognized upon shipment. Unbilled accounts receivable comprise charges for services and materials provided to customers that have not been invoiced. The Company does not require collateral for its receivables. Reserves are maintained for potential credit losses. CASH EQUIVALENTS Cash equivalents of $1,879,285 as of December 31, 1997, consist principally of money market investments. For purposes of the accompanying consolidated statement of cash flows, the Company considers all highly liquid debt instruments with remaining maturities of three months or less when acquired to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of financial instruments in the Company's consolidated financial statements approximates fair value due to the short-term maturities of these instruments. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out basis) or market. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets (generally five years). Leasehold improvements are amortized straight-line over the shorter of the lease term or the estimated useful life of the asset. GOODWILL Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited of 10 to 15 years. The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. F-103 INCOME TAXES The Company elected S corporation status on March 17, 1997, effective January 1, 1997. Federal and the majority of state income taxes on the income of S corporations are generally payable by the individual shareholders rather than the Company. Income taxes are accounted for under the asset and liability method. 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. 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. USE OF ESTIMATES The Company's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) INVENTORIES Inventories consisted of the following as of December 31, 1997:
Raw materials and subassemblies ......... $833,945 Work in process ......................... 89,521 -------- $923,466 ========
(3) LINE OF CREDIT AND LONG-TERM DEBT The Company has a $5,000,000 line of credit with a bank that is due on demand. Interest is payable at the bank's prime rate (8.5% as of December 31, 1997) and is secured by trade accounts receivable, inventories, and other assets. Borrowings outstanding under the line of credit were $-0- as of December 31, 1997. The line of credit contains certain restrictive financial covenants, including a minimum level of net worth and cash flow to debt ratio. As of December 31, 1997, the Company was in compliance with all such covenants. The Company has an unsecured promissory note payable to a former shareholder that was issued in conjunction with the repurchase of shares of common stock in 1992. The note bears interest at 10% with payments of $6,000 per month, including interest, through December 1998. As of December 31, 1997, the principal balance of this note was $62,833. (4) INCOME TAXES The provision for income taxes for the year ended December 31, 1997, consisted of the following:
Federal: Current ............ -- Deferred ........... $388,000 -------- 388,000 -------- State: Current ............ 65,000 Deferred ........... 97,000 -------- 162,000 -------- $550,000 ========
F-104 The provision for income taxes for the year ended December 31, 1997, differs from the federal statutory rate, primarily due to the flow through nature of income tax liability to the shareholders and reduction of the federal and partial state deferred income tax assets and liabilities as of December 31, 1996, resulting from the S corporation election as follows:
Federal income tax statutory rate ................. 34.0% State income tax rate ............................. 2.2 Benefit of federal S corporation election ......... (28.8) ----- 7.4% =====
The gross deferred tax assets were $13,000 as of December 31, 1997, consisting of the state deferred income tax assets and liabilities for those states who do not recognize S corporation status. Management considers realization of the net deferred tax assets more likely than not due to continued profitability of the Company and significant carryback opportunities. (5) EMPLOYEE BENEFIT PLANS The Company has two Section 401(k) retirement savings plans (the Plans). Under the terms of the Plans, employees may make contributions based on a percentage of eligible earnings. Company contributions to the Plans are discretionary and totaled $359,718 in 1997. (6) STOCK OPTION PLAN The Company has 100,000 shares of common stock reserved for issuance under its 1992 Incentive Stock Option Plan (the "Plan"). Under the Plan, the Company may grant options to employees, officers, and directors. Options are granted at prices not less than the fair market value of the Company's common stock as determined by the Board of Directors on the grant date. Options vest ratably over 48 months and expire 49 months from the date of grant. The Company applies Accounting Principles Board Opinion No. 25 (APB 25) in accounting for its stock options. The exercise price for stock options granted to employees in 1997 equaled the fair value of the Company's common stock at the date of grant. Accordingly, in accordance with APB 25, no compensation expense was recognized by the Company. For purposes of pro forma disclosures required by Statement of Financial Accounting Standards No. 123 (SFAS 123), the compensation cost of the options, based on their estimated fair values, is amortized to expense over the vesting periods of the options. The Company's net income for the year ended December 31, 1997 would have reduced to the pro forma amounts indicated below: Net income: As reported ......... $6,854,742 ========== Pro forma ........... $6,838,958 ==========
On January 1, 1997, the Company had no options outstanding. In July 1997, the Company granted 25,000 options at an exercise price of $17.50, all of which were outstanding but not exercisable as of December 31, 1997. The weighted-average grant-date fair value of options granted during the year ended December 31, 1997 was $3.05 per option. The weighted-average remaining contract life of the Company's outstanding stock options was 3.5 years at December 31, 1997. Pro forma information regarding net income as required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for the options was estimated at the date of grant using the minimum value method prescribed in SFAS 123, which does not consider the expected volatility of the Company stock price, with the following weighted-average assumptions for 1997: risk free interest rate of 6.06%; dividend yield of 0%; and weighted-average expected option life of 3.25 years. F-105 (7) COMMITMENTS The Company leases certain facilities under operating leases that expire at various dates through 2001. The Company in turn subleases some of these facilities. As of December 31, 1997, future minimum lease payments under noncancelable operating leases, exclusive of the sublease rentals, are as follows:
YEAR ENDING DECEMBER 31, - ------------------ 1998 ........... $1,474,448 1999 ........... 510,551 2000 ........... 292,096 2001 ........... 124,212 ---------- $2,401,307 ==========
Rent expense, exclusive of sublease rentals, was approximately $1,081,636 in 1997. Sublease rental income was approximately $186,733 in 1997. (8) SIGNIFICANT CUSTOMERS For the year ended December 31, 1997, sales to a single customer represented 26% of revenues. The outstanding accounts receivable and unbilled receivable balances for this customer as of December 31, 1997, were $1,257,875 and $2,228,650, respectively. (9) SUBSEQUENT EVENT In January 1998, shareholders of the Company agreed to sell all of their common stock for approximately $50,000,000, subject to certain adjustments, plus additional consideration based on post-acquisition performance. The sale closed on February 27, 1998. F-106 ALLIEDSIGNAL OCEAN SYSTEMS A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC. Combined Financial Statements as of and for the year ended December 31, 1997 F-107 REPORT OF INDEPENDENT AUDITORS To the Board of Directors of L-3 Communications Corporation We have audited the accompanying combined balance sheet of AlliedSignal Ocean Systems, a wholly owned operation of AlliedSignal, Inc. ("Ocean Systems"), as of December 31, 1997 and the related combined statements of operations, equity and cash flows for the year then ended. These financial statements are the responsibility of Ocean System's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Ocean Systems as of December 31, 1997, and the combined results of their operations and cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 23, 1998 F-108 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.) COMBINED BALANCE SHEET AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
ASSETS Current assets: Accounts receivable, net of allowances for doubtful accounts of $81 ..... $ 13,313 Inventories ............................................................. 25,274 Contracts in progress ................................................... 793 Prepaid expenses and other current assets ............................... 1,743 -------- Total current assets ................................................... 41,123 Property, plant and equipment, net ....................................... 16,845 Capitalized software, net ................................................ 2,248 Goodwill, net ............................................................ 1,820 Other assets ............................................................. 31 -------- Total assets ............................................................. $ 62,067 ======== LIABILITIES AND EQUITY Current liabilities: Accounts payable ........................................................ $ 2,626 Accrued liabilities ..................................................... 16,112 Advance payments ........................................................ 16,162 -------- Total current liabilities .............................................. 34,900 Accrued pension and postretirement benefits .............................. 10,959 -------- Total liabilities ........................................................ 45,859 -------- Commitment and contingencies Equity: Invested equity ......................................................... 9,312 ELAC common stock ....................................................... 3,424 ELAC retained earnings .................................................. 4,570 Cumulative translation adjustment ....................................... (1,098) -------- Total equity ............................................................. 16,208 -------- Total liabilities and equity ............................................. $ 62,067 ========
See accompanying notes to the combined financial statements F-109 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.) COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Sales ......................................... $ 73,033 Cost of sales ................................. 56,049 -------- Gross profit ................................. 16,984 Operating expenses: General and administrative ................... 11,981 Selling ...................................... 5,933 Bid and proposal ............................. 2,053 Independent research and development ......... 2,765 -------- Total operating expenses .................... 22,732 -------- Loss from operations .......................... (5,748) Interest expense, net ......................... 490 Other income .................................. (185) -------- Loss before income taxes ...................... (6,053) Benefit for income taxes ...................... (2,378) -------- Net loss .................................... $ (3,675) ========
See accompanying notes to the combined financial statements F-110 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) COMBINED STATEMENT OF EQUITY FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
INVESTED ELAC ELAC CUMULATIVE EQUITY IN OS COMMON RETAINED TRANSLATION TOTAL (DEFICIT) STOCK EARNINGS ADJUSTMENT EQUITY -------------- -------- ---------- ------------- ---------- Balance at December 31, 1996 .............. $ 8,298 $3,424 $6,403 $ 87 $ 18,212 Net loss .................................. (2,680) -- (995) -- (3,675) Cumulative translation adjustment ......... -- -- -- (1,185) (1,185) Advances from (repayments to) AlliedSignal ............................. 3,694 -- (838) -- 2,856 -------- ------ ------ -------- -------- Balance at December 31, 1997 .............. $ 9,312 $3,424 $4,570 $ (1,098) $ 16,208 ======== ====== ====== ======== ========
See accompanying notes to the combined financial statements F-111 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Cash flows from operating activities: Net loss ...................................................................... $ (3,675) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property, plant and equipment ................................ 2,976 Amortization of capitalized software ......................................... 1,078 Amortization of intangible assets ............................................ 70 Loss on the disposal of property, plant and equipment ........................ 8 Changes in operating assets and liabilities: Accounts receivable ......................................................... 13,561 Inventories ................................................................. (359) Contracts in progress ....................................................... 1,666 Prepaid and other current assets ............................................ (220) Accounts payable ............................................................ (1,976) Accrued liabilities ......................................................... (10,472) Advance payments ............................................................ (1,092) Accrued pension and postretirement benefits ................................. (20) --------- Net cash provided by operating activities .................................. 1,545 --------- Cash flows from investing activities: Property, plant and equipment purchased ....................................... (3,090) Software purchased ............................................................ (265) --------- Net cash used in investing activities ...................................... (3,355) --------- Cash flows from financing activities: Advances from AlliedSignal, net ............................................... 3,198 --------- Net cash provided by financing activities .................................. 3,198 --------- Effect of foreign currency exchange rate changes on cash ...................... (1,388) --------- Net change in cash ............................................................. -- Cash and cash equivalents at the beginning of the year ......................... -- --------- Cash and cash equivalents at the end of the year ............................... $ -- ========= Supplement disclosures of cash flow information: Cash paid during the year for: Interest -- AlliedSignal ..................................................... $ 552 =========
See accompanying notes to the combined financial statements F-112 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) 1. BACKGROUND AND DESCRIPTION OF BUSINESS The Ocean Systems business ("Ocean Systems" or the "Company") is a wholly owned operation of AlliedSignal Inc. ("AlliedSignal") comprised of the Ocean Systems Division ("OS"), and AlliedSignal ELAC Nautik GmbH ("ELAC"). The OS Division headquarters and principal operations, including one manufacturing site, are located in Sylmar, California, a suburb of Los Angeles. OS also operates marketing offices located in Canada ("ASCI") and England ("BOSL"). OS was acquired through AlliedSignal's merger with the Bendix Corporation in 1982. ELAC is a wholly owned subsidiary of AlliedSignal Deutschland ("AS Deutschland") and is a separate legal entity located in Kiel, Germany. ELAC was acquired from Honeywell Inc. in 1994. On December 22, 1997, L-3 Communications Corporation, a wholly owned subsidiary of L-3 Communications Holdings, Inc. ("L-3") entered into a definitive Purchase Agreement with AlliedSignal to acquire substantially all the net assets excluding land and buildings, and assumed certain of the liabilities of OS and purchased the outstanding capital stock of ELAC from AS Deutschland. Ocean Systems develops, manufactures and sells sophisticated sonar detection and tracking devices for underwater use. The Company's customers include the U.S. Government, foreign governments, defense industry prime contractors and commercial customers. The Company operates primarily in one industry segment, electronic sonar components and systems. All domestic government contracts and subcontracts of Ocean Systems are subject to audit and various cost controls, and Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the foreign government. The decline in the U.S. defense budget since the late 1980s has resulted in program delays, cancellations and scope reduction for defense contracts in general. These events may or may not have an effect on the Company's programs; however, in the event that U.S. Government expenditures for products of the type manufactured by the Company are reduced, and not offset by greater foreign sales or other new programs or products, or acquisitions, there may be a reduction in the volume of contracts or subcontracts awarded to the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES BASIS OF PRESENTATION AND USE OF ESTIMATES The accompanying combined financial statements reflect the assets, liabilities and operations of Ocean Systems including OS and ELAC which are combined herein as they are entities under common control and management. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principals requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant of these estimates and assumptions relate to contract estimates of sales and costs, excess and obsolete inventory reserves, warranty reserves, pension estimates and recoverability of recorded amounts of fixed assets. Actual results could differ from these estimates. F-113 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) REVENUE RECOGNITION Under fixed-price contracts, sales and related costs are recorded upon delivery and customer acceptance. Sales and related costs under cost-reimbursable contracts are recorded on the percentage of completion method. Anticipated future losses on contracts are charged to income when identified. Revisions in profit estimates are reflected in the period in which the facts, which require the revision, become known. ACCOUNTS RECEIVABLE Management assesses the credit risk and records an allowance for uncollectable accounts as considered necessary based on several factors including, but not limited to, an analysis of specific customers, historical trends, current economic conditions and other information. The U.S. Navy comprises a significant portion of Ocean System's revenues. The Company's other customers include the navies of many foreign countries. The Company's credit risk is affected by conditions or occurrences within the U.S. Government and economic conditions of the countries in which the Company operates or has customers. Sales are made on unsecured, customer-specific credit terms, which may include extended terms. INVENTORIES Inventories are valued at the lower of cost or market using the average cost method. Inventories consist of raw materials and supplies, work in process and finished goods. An excess and obsolete inventory reserve has been established primarily for raw materials and parts that have not been allocated to firm contracts. The excess and obsolete inventory reserve is based on estimates of future usage of inventory on hand. CONTRACTS IN PROCESS Costs accumulated under cost-reimbursable contracts include direct costs, as well as manufacturing overhead. In accordance with industry practice, these amounts are included in current assets. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost net of accumulated depreciation. For financial purposes, property, plant and equipment is generally depreciated on the straight line method using estimated useful lives ranging from 3 to 20 years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Interest costs incurred during the construction of plant and equipment are capitalized using an imputed interest rate approximating 8%. Interest costs capitalized during 1997 amounted to $57. CAPITALIZED SOFTWARE Capitalized software primarily represents costs incurred related to the purchase and implementation of the Company's MRP II business system. Capitalized software is reported at historical cost less accumulated amortization. Amortization is based on the estimated useful service life not to exceed five years. Amortization of capitalized software was $1,078 for the year ended December 31, 1997. Accumulated amortization was $2,368 at December 31, 1997. F-114 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) GOODWILL Goodwill represents the excess of the cost of the purchased business over the net assets acquired and is being amortized on a straight-line basis over 40 years. This excess relates primarily to the allocated portion of goodwill arising out of the AlliedSignal merger with Bendix in 1982 and was allocated to OS based on the proportionate percentage of OS pretax earnings to the total Bendix Aerospace Group pretax earnings at the time of the AlliedSignal acquisition from Bendix. Amortization expense was $70 for the year ended December 31, 1997. Accumulated amortization was $980 at December 31, 1997. The carrying amounts of intangible assets are reviewed if the facts and circumstances indicate potential impairment of their carrying value. If this review indicates that intangible assets are not recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying values related to the intangible assets are reduced to the fair value of the asset. RESEARCH AND DEVELOPMENT AND SIMILAR COSTS Research and development costs sponsored by the Company include research and development and bid and proposal efforts related to government products and services. Customer-sponsored research and development costs incurred are included in contract costs. FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION The Company's major foreign operation is ELAC located in Germany with the Deutsche mark as its functional currency. Assets and liabilities are translated at current exchange rates at the end of the period. Income and expenses are translated using the monthly average exchange rates. The effect of the unrealized rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as a separate component of equity in the accompanying combined balance sheet. There are no material foreign currency gains or losses for the year ended December 31, 1997 as the Company's U.S. sales to foreign customers are denominated in U.S. dollars. ASCI Canadian sales are denominated in Canadian dollars and the ELAC foreign sales are denominated in Deutsche marks. FINANCIAL INSTRUMENTS At December 31, 1997, the carrying value of the Company's financial instruments, such as receivables, accounts payable and accrued liabilities, approximate fair value, based on the short-term maturities of these instruments. INCOME TAXES The benefit for income taxes for OS was computed by applying statutory tax rates to the reported loss before income taxes after considering items that do not enter into the determination of taxable income and tax credits reflected in the consolidated provision of AlliedSignal which are related to OS. Income taxes for OS are assumed to have been settled with AlliedSignal at December 31, 1997 and there are no separate tax attributes related to OS. For ELAC, separate tax attributes that relate specifically to ELAC have been considered in computing taxes. 3. TRANSACTIONS WITH ALLIEDSIGNAL Ocean Systems relies on AlliedSignal for certain services, including treasury, cash management, employee benefits, taxes, risk management, internal audit, financial reporting, legal, contract F-115 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) administration and general corporate services. Although certain assets, liabilities and expenses related to these services have been allocated to the Company, the combined financial position, results of operations and cash flows presented in the accompanying combined financial statements would not be the same as would have occurred had the Company been an independent entity. The following describes the related party transactions. ALLOCATION OF CORPORATE EXPENSES The amount of allocated corporate expenses reflected in these combined financial statements has been estimated based primarily on an allocation methodology prescribed by government regulations pertaining to government contractors. Corporate expenses allocated to Ocean Systems were $2,258 for the year ended December 31, 1997, and are included in general and administrative expense in the accompanying combined statement of operations. PENSIONS Certain of the Company's employees participate in various AlliedSignal sponsored pension plans covering certain employees. Eligibility for participation in these plans varies, and benefits are generally based on employees' compensation and years of service. AlliedSignal funding policy is generally to contribute in accordance with cost accounting standards that affect government contractors subject to the Internal Revenue code and regulations. Although the aforementioned pension arrangements are part of certain AlliedSignal defined benefit plans, separate actuarial estimates were made for the portion allocable to the Company. Pension expense included in the accompanying combined statement of operations was $1,452 for the year ended December 31, 1997. The pension plan liability at December 31, 1997 was fully funded. The Company also has a supplemental pension plan for highly compensated employees as defined by IRS rules. The liability reflected in the accompanying combined balance sheet was $650 at December 31, 1997. Pension expense included in the combined statement of operations for the supplemental pension plan was $24 for the year ended December 31, 1997. The Company's German employees of ELAC are covered by a separate pension plan. Pension costs included the following components for the year ended December 31, 1997: Service costs earned during the year .................. $ 163 Interest cost on projected benefit obligation ......... 119 Actual return on plan assets .......................... (92) Amortization of unrecognized net obligation ........... 24 ----- Net periodic pension cost ............................. $ 214 =====
F-116 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) The following table sets forth the ELAC pension plan funded status and amounts recognized in the Company's combined balance sheet at December 31, 1997: Actuarial present value of benefit obligation Vested ......................................................... $1,067 Nonvested ...................................................... 296 ------ Accumulated benefit obligation ................................ 1,363 ====== Projected benefit obligation ................................... 1,919 Plan assets at fair value ...................................... 1,422 ------ Projected benefit obligation in excess of plan assets ......... 497 Unrecognized net loss ......................................... 37 Unrecognized prior service costs .............................. Unrecognized net obligation ................................... (361) ------ Accrued pension costs ........................................ $ 173 ======
Major assumptions were: Discount Rate ....................................... 6.8% Expected long-term rate of return on assets ......... 6.8% Rate of increase in compensation levels ............. 4.0%
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS In addition to participating in AlliedSignal pension plans, employees of OS are provided varying levels of health care and life insurance benefits for retired employees and dependents. Participants are eligible for these benefits when they retire from active service and meet the pension plan eligibility requirements. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying of the cost through contributions, deductibles and coinsurance provisions. Although the aforementioned postretirement benefits are part of certain AlliedSignal postretirement arrangements, separate actuarial estimates were made for the portion allocable to the Company. The weighted average discount rate utilized in determining the accumulated postretirement benefit obligation was 7.25% for 1997. Net postretirement benefit costs included in the combined statements of operations was $1,072 for the year ended December 31, 1997. The net postretirement benefit costs for 1997 included the following components:
Service cost-benefits attributed to service during the period . $ 545 Interest cost on accumulated postretirement benefit obligation 704 Amortization of gain .......................................... (177) ====== Net postretirement benefit cost ............................... $1,072 ======
F-117 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) The funded status of the plan and related liability amounts recognized in the accompanying combined balance sheet at December 31, 1997 were as follows:
Accumulated postretirement benefit obligation: Fully eligible active plan participants ......... $2,698 Other active plan participants .................. 7,049 ------ 9,747 Unrecognized prior service costs ................. -- Unrecognized net gain (loss) ..................... -- ------ Accrued postretirement benefit cost ............. $9,747 ======
EMPLOYEE SAVINGS PLANS Ocean Systems North American operation also has a supplemental savings plan in which the Company matches the contributions of participating employees up to a designated level. Under this plan, the matching contributions, in cash, were $54 for the year ended December 31, 1997 and the liability recorded at December 31, 1997 was $562. INTEREST EXPENSE Interest expense has been allocated to the Company by applying AlliedSignal's weighted average consolidated interest rate to the portion of the beginning of the period equity account deemed to be financed by consolidated debt, which has been determined based on AlliedSignal's debt to equity ratio on such date. Management of the Company believes that this allocation methodology is reasonable. The allocated interest expense was calculated using the following equity balance and interest rate, for the year ended December 31, 1997:
Equity .......................... $5,751 Interest Rate ................... 9.6%
Allocated interest expense for the year ended December 31, 1997 amounted to $552 and is included in interest expense, net in the accompanying combined statement of operations. INCOME TAXES The Company will be included in the consolidated Federal income tax return, foreign tax returns and certain combined and separate state and local income tax returns of AlliedSignal for 1997. Income taxes for OS are considered to have been settled with AlliedSignal at December 31, 1997 and are recorded through the invested equity account with AlliedSignal as there are no separate stand alone tax attributes related to OS. ELAC participates in the AlliedSignal Deutschland GmbH profit pooling agreement for corporate income tax and municipal trade tax. Since entering into this agreement ELAC has not paid German taxes, as any profits or losses of ELAC are transferred to AlliedSignal Deutschland. For purposes of these combined financial statements, the tax attributes that relate to ELAC prior to entering into the pooling agreement have been considered in computing the separate ELAC tax computations as these attributes will remain with ELAC after the termination of the pooling agreement after the acquisition by L-3. F-118 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) STATEMENT OF CASH FLOWS The company participates in the AlliedSignal cash management system, under which all cash is received and payments are made by AlliedSignal. All transactions between the Company and AlliedSignal have been accounted for as settled in cash at the time such transactions were recorded by the Company. 4. INVENTORIES AND CONTRACTS IN PROCESS Net inventories are comprised of the following components at December 31, 1997:
Raw materials and supplies .................... $ 14,894 Work in process ............................... 6,675 Finished goods ................................ 12,080 Excess and obsolete inventory reserve ......... (7,772) -------- Net inventories .............................. 25,877 Less, unliquidated progress payments ......... (603) -------- $ 25,274 ========
For the year ended December 31, 1997, there were no general and administrative, independent research and development, or bid and proposal costs charged to inventory. Contracts in process, amounting to $793 as of December 31, 1997, include accumulated inventoried costs and profits on cost or cost-reimbursement contracts, principally with the U.S. Government. The U.S. Government has title to, or a security interest in, inventories to which progress payments are applied. The Company believes that substantially all such amounts will be billed and collected within one year. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1997 are comprised of the following components:
Buildings, building improvements and land improvements ......................................... $ 9,108 Machinery, equipment, furniture and fixtures ......... 48,060 Leasehold improvements ............................... 300 --------- 57,468 Less, accumulated depreciation and amortization ......................................... (43,324) --------- 14,144 Land ................................................. 388 Construction in progress ............................. 2,313 --------- $ 16,845 =========
Depreciation and amortization expense was $2,976 for the year ended December 31, 1997. F-119 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) 6. INCOME TAXES The effective tax rate differs from the statutory federal income tax rate for the following reasons:
Statutory federal income tax rate ............. (35.0)% State taxes net of federal benefit ............ (6.0)% Foreign losses with no tax benefit ............ 6.7 % Foreign sales corporation tax benefit ......... (4.5)% Other, net .................................... (0.5)% ------ (39.3)% ======
At December 31, 1997, the German trade tax and corporate income tax net operating loss ("NOL") carryovers amounted to $953 and $1,180, respectively, and may be carried forward indefinitely. At December 31, 1997, deferred tax assets related to ELAC's German trade tax and corporate income tax NOL carryovers amounted to $468. A full valuation is recorded against the deferred tax asset. The valuation allowance for deferred taxes was based on ELAC's historical losses from operations and its current year loss. In addition, certain aspects of the acquisition could limit the utilization of a portion or all of these NOL carryovers. Accordingly, management believes currently there is not enough historical information to support that it is more likely than not that ELAC will realize the future tax benefit of these NOL carryovers. 7. EQUITY Invested equity represents the equity contributed to OS by AlliedSignal and related accumulated results of operations of OS. ELAC common stock represents the one share of common stock held by AS Deutschland. ELAC's retained earnings includes the impact of ELAC's accumulated operating losses, and repayments to AlliedSignal offset by the effects of the amortization of negative goodwill associated with the ELAC acquisition from Honeywell. 8. SALES TO PRINCIPAL CUSTOMERS The Company operates primarily in one industry segment, electronic sonar components and systems. Sales to principal customers are as follows for the year ended December 31, 1997:
U.S. Government agencies and prime contractors ......... $36,133 German government ...................................... 5,895 Other foreign governments .............................. 24,883 Commercial customers ................................... 6,122 ------- $73,033 =======
F-120 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) Summarized data of the Company's operations by geographic area for the year ended December 31, 1997 are as follows:
NORTH REST OF AMERICA GERMANY EUROPE ASIA OTHER ELIM TOTAL ----------- ----------- -------- ---------- --------- ------------- ---------- Sales to unaffiliated customer .................... $ 39,002 $ 8,146 $6,220 $18,611 $1,054 -- $ 73,033 Inter-area sales ............. 19,536 4,334 -- -- -- $ (23,870) -- Loss from operations ......... (4,658) (1,090) -- -- -- -- (5,748) Identifiable assets at December 31, 1997 ........... 51,613 10,454 -- -- -- -- 62,067
9. COMMITMENTS AND CONTINGENCIES The Company leases certain facilities and equipment under agreements expiring at various dates through 2011. At December 31, 1997, future minimum payments for noncancellable operating leases with initial or remaining terms in excess of one year are $933 for 1998, $340 for 1999, $161 for 2000, $35 for 2001 and $7 for 2002. Leases covering major items of real estate and equipment contain renewal and or purchase options which may be exercised by the company. Rent expense, net of sublease income from other AlliedSignal entities, was $1,342 for the year ended December 31, 1997. Management is continually assessing the Company's obligations with respect to applicable environmental protection laws. While it is difficult to determine the timing and ultimate cost to be incurred by the Company in order to comply with these laws, based upon available internal and external assessments, with respect to those environmental loss contingencies of which management of the Company is aware, the Company believes that even without considering potential insurance recoveries, if any, there are no environmental loss contingencies that individually or in the aggregate, would be material to the Company's combined financial position, cash flows and results of operations. The Company accrues for these contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is engaged in providing products and services under contracts with the U.S. Government and foreign government agencies. All such contracts are subject to extensive legal and regulatory requirements, and, from time to time, agencies of the U.S. Government investigate whether such contracts were and are being conducted in accordance with these requirements. Under government procurement regulations, an indictment of the Company by a federal grand jury could result in the Company being suspended for a period of time from eligibility for awards of new government contracts. A conviction could result in debarment from contracting with federal government for a specified term. The Company is also periodically subject to periodic review or audit by agencies of the U.S. Government. At December 31, 1997, there are several pending issues with these agencies that are incidental to the Company's business. One of these reviews was critical of the Company's procedures for maintaining control of Government owned property in the Company's custody. The Company is responsible and liable for $93 million of Government-owned property in its possession. With respect to this and other U.S. Government matters, the Company's management believes the ultimate resolution of any such matters will not have a material adverse effect on the combined financial position, cash flows or results of operations of the Company. F-121 ALLIEDSIGNAL OCEAN SYSTEMS (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) The Company is periodically subject to litigation, claims or assessments and various contingent liabilities (including environmental matters) incidental to their business. With respect to those investigative actions, items of litigation, claims or assessments of which they are aware, management of the Company is of the opinion that the probability is remote that, after taking into account certain provisions that have been made with respect to these matters, the ultimate resolution of any such investigative actions, items of litigation, claims or assessments will have a material adverse effect on the combined financial position, cash flows or results of operations of the Company. F-122 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. -------------------------------------------- TABLE OF CONTENTS
PAGE --------- Where You Can Find More Information ............ i Prospectus Summary ............................. 1 Risk Factors ................................... 13 Use of Proceeds ................................ 22 Capitalization ................................. 23 Unaudited Pro Forma Condensed Consolidated Financial Information .......... 24 Selected Financial Information ................. 34 Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. 36 Business ....................................... 49 Certain Relationships and Related Transactions ................................ 71 Management ..................................... 73 Ownership of Capital Stock ..................... 82 Description of Certain Indebtedness ............ 83 The Exchange Offer ............................. 87 Description of the Exchange Notes .............. 98 Certain United States Federal Income Tax Consequences of the Exchange ................ 136 Plan of Distribution ........................... 136 Legal Matters .................................. 137 Experts ........................................ 137 Index to Financial Statements .................. F-1
[LOGO OMITTED] L-3 COMMUNICATIONS CORPORATION PROSPECTUS January 20, 1999 OFFER TO EXCHANGE $200,000,000 OF ITS 8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR $200,000,000 OF ITS OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS] PROSPECTUS [GRAPHIC OF L-3 COMMUNICATIONS] L-3 COMMUNICATIONS CORPORATION OFFER TO EXCHANGE 8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008. TERMS OF EXCHANGE OFFER o Expires 5:00 p.m., New York City time, February 19, 1999, unless extended o Subject to certain customary conditions, which we may waive o All outstanding notes that are validly tendered and not withdrawn will be exchanged o Tenders of outstanding notes may be withdrawn any time prior to the expiration of the Exchange Offer o The exchange of notes will not be a taxable exchange for U.S. Federal income tax purposes o We will not receive any proceeds from the Exchange Offer o The terms of the notes we will issue in the Exchange Offer are substantially identical to the outstanding notes, except that certain transfer restrictions and registration rights relating to the outstanding notes will not apply to the exchange notes Each broker-dealer that receives registered notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers may use this prospectus in connection with resales of notes received in exchange for the outstanding notes where such notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. L-3 has agreed that, for a period of 180 days after the expiration of the Exchange Offer or until such broker-dealers have sold all registered notes held by them, it will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution". FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" COMMENCING ON PAGE 13. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This prospectus has been prepared for and is to be used by Lehman Brothers Inc. in connection with offers and sales in market-making transactions of the Exchange Notes. L-3 will not receive any of the proceeds of such sales. Lehman Brothers Inc. may act as principal or agent in such transactions. The Exchange Notes may be offered in negotiated transactions or otherwise. THE DATE OF THIS PROSPECTUS IS JANUARY 20, 1999. [ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS] WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission (the "SEC" or the "Commission") a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Exchange Notes. This prospectus, which is a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. For further information about us and the Exchange Notes, you should refer to the Registration Statement. This prospectus summarizes material provisions of contracts and other documents to which we refer you. Since this prospectus may not contain all of the information that you may find important, you should review the full text of these documents. We have included copies of these documents as exhibits to our Registration Statement. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as a consequence we file reports and other information with the Commission. The Registration Statement and our other SEC filings can be inspected and copied at the Public Reference Section of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at regional public reference facilities maintained by the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials, including copies of all or any portion of the Registration Statement, can be obtained from the Public Reference Section of the Commission at prescribed rates. Such materials are also available on the Commission's home page on the Internet (http://www.sec.gov). ALT-2 [ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS] TRADING MARKET FOR THE EXCHANGE NOTES There is no existing trading market for the Exchange Notes, and there can be no assurance regarding the future development of a market for the Exchange Notes or the ability of the Holders of the Exchange Notes to sell their Exchange Notes or the price at which such Holders may be able to sell their Exchange Notes. If such market were to develop, the Exchange Notes could trade at prices that may be higher or lower than their initial offering price depending on many factors, including prevailing interest rates, the Company's operating results and the market for similar securities. Although it is not obligated to do so, Lehman Brothers Inc. intends to make a market in the Exchange Notes. Any such market-making activity may be discontinued at any time, for any reason, without notice at the sole discretion of Lehman Brothers Inc. No assurance can be given as to the liquidity of or the trading market for the Exchange Notes. Lehman Brothers Inc. may be deemed to be an affiliate of the Company and, as such, may be required to deliver a prospectus in connection with its market-making activities in the Exchange Notes. Pursuant to the Registration Rights Agreement, the Company agreed to file and maintain a registration statement that would allow Lehman Brothers Inc. to engage in market-making transactions in the Exchange Notes. Subject to certain exceptions set forth in the Registration Rights Agreement, the registration statement will remain effective for as long as Lehman Brothers Inc. may be required to deliver a prospectus in connection with market-making transactions in the Exchange Notes. The Company has agreed to bear substantially all the costs and expenses related to such registration statement. ALT-3 [ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS] USE OF PROCEEDS This prospectus is delivered in connection with the sale of the Exchange Notes by Lehman Brothers Inc. in market-making transactions. The Company will not receive any of the proceeds from such transactions. ALT-4 [ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS] PLAN OF DISTRIBUTION This prospectus is to be used by Lehman Brothers Inc. in connection with offers and sales of the Exchange Notes in market-making transactions effected from time to time. Lehman Brothers Inc. may act as a principal or agent in such transactions, including as agent for the counterparty when acting as principal or as agent for both counterparties, and may receive compensation in the form of discounts and commissions, including from both counterparties when it acts as agent for both. Such sales will be made at prevailing market prices at the time of sale, at prices related thereto or at negotiated prices. Affiliates of Lehman Brothers Inc. currently own 36.6% of the Parent Common Stock. See "Ownership of Capital Stock". Lehman Brothers Inc. has informed the Company that it does not intend to confirm sales of the Exchange Notes to any accounts over which it exercises discretionary authority without the prior specific written approval of such transactions by the customer. The Company has been advised by Lehman Brothers Inc. that, subject to applicable laws and regulations, Lehman Brothers Inc. currently intends to make a market in the Exchange Notes following completion of the Exchange Offer. However, Lehman Brothers Inc. is not obligated to do so and any such market-making may be interrupted or discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act. There can be no assurance that an active trading market will develop or be sustained. See "Risk Factors -- Trading Market for the Exchange Notes". Lehman Brothers Inc. has provided investment banking services to the Company in the past and may provide such services and financial advisory services to the Company in the future. Lehman Brothers Inc. acted as purchasers in connection with the initial sale of the Notes and received an underwriting discount of approximately $5.65 million in connection therewith. See "Certain Transactions". Lehman Brothers Inc. and the Company have entered into a registration rights agreement with respect to the use by Lehman Brothers Inc. of this prospectus. Pursuant to such agreement, the Company agreed to bear all registration expenses incurred under such agreement, and the Company agreed to indemnify Lehman Brothers Inc. against certain liabilities, including liabilities under the Securities Act. ALT-5 [ALTERNATE BACK COVER FOR MARKET-MAKING PROSPECTUS] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. -------------------------------------------- TABLE OF CONTENTS
PAGE --------- Where You Can Find More Information ............ i Prospectus Summary ............................. 1 Risk Factors ................................... 13 Use of Proceeds ................................ 22 Capitalization ................................. 23 Unaudited Pro Forma Condensed Consolidated Financial Information .......... 24 Selected Financial Information ................. 34 Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. 36 Business ....................................... 49 Certain Relationships and Related Transactions ................................ 71 Management ..................................... 73 Ownership of Capital Stock ..................... 82 Description of Certain Indebtedness ............ 83 The Exchange Offer ............................. 87 Description of the Exchange Notes .............. 98 Certain United States Federal Income Tax Consequences of the Exchange ................ 136 Plan of Distribution ........................... 136 Legal Matters .................................. 137 Experts ........................................ 137 Index to Financial Statements .................. F-1
[LOGO OMITTED] L-3 COMMUNICATIONS CORPORATION PROSPECTUS January 20, 1999 8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 LEHMAN BROTHERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") provides for, among other things: a. permissive indemnification for expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are parties to litigation other than stockholder derivative actions if certain conditions are met; b. permissive indemnification for expenses (including attorneys' fees) actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are parties to stockholder derivative actions if certain conditions are met; c. mandatory indemnification for expenses (including attorneys' fees) actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are successful on the merits or otherwise in defense of litigation covered by a. and b. above; and d. that the indemnification provided for by Section 145 is not deemed exclusive of any other rights which may be provided under any by-law, agreement, stockholder or disinterested director vote, or otherwise. In addition to the indemnification provisions of the DGCL described above, the Registrant's certificate of incorporation (the "Certificate of Incorporation") authorizes indemnification of the Registrant's officers and directors, subject to a case-by-case determination that they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the Company, and in the case of any criminal proceeding, they had no reasonable cause to believe their conduct was unlawful. In the event that a Change in Control (as defined in the Certificate of Incorporation) shall have occurred, the proposed indemnitee director or officer may require that the determination of whether he met the standard of conduct be made by special legal counsel selected by him. In addition, whereas the DGCL would require court-ordered indemnification, if any, in cases in which a person has been adjudged to be liable to the Registrant, the Certificate of Incorporation also permits indemnification in such cases if and to the extent that the reviewing party determines that such indemnity is fair and reasonable under the circumstances. The Certificate of Incorporation requires the advancement of expenses to an officer or director (without a determination as to his conduct) in advance of the final disposition of a proceeding if such person furnishes a written affirmation of his good faith belief that he has met the applicable standard of conduct and furnishes a written undertaking to repay any advances if it is ultimately determined that he is not entitled to indemnification. In connection with proceedings by or in the right of the Registrant, the Certificate of Incorporation provides that indemnification shall include not only reasonable expenses, but also penalties, fines and amounts paid in settlement. Unless ordered by a court, such indemnification shall not include judgments. Under the Certificate of Incorporation, no officer or director is entitled to indemnification or advancement of expenses with respect to a proceeding brought by him against the Registrant other than a proceeding seeking or defending such officer's or director's right to indemnification or advancement of expenses. Finally, the Certificate of Incorporation provides that the Company may, subject to authorization on a case by case basis, indemnify and advance expenses to employees or agents to the same extent as a director or to a lesser extent (or greater, as permitted by law) as determined by the Board of Directors. The Certificate of Incorporation purports to confer upon officers and directors contractual rights to indemnification and advancement of expenses as provided therein. In addition, as permitted by the II-1 DGCL, the Registrant has entered into indemnity agreements with its directors and selected officers that provide contract rights substantially identical to the rights to indemnification and advancement of expenses set forth in the Certificate of Incorporation, as described above. The Certificate of Incorporation limits the personal liability of directors to the Registrant or its stockholders for monetary damages for breach of the duty as a director, other than liability as a director (i) for breach of duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (certain illegal distributions), or (iv) for any transaction for which the director derived an improper personal benefit. The Registrant maintains officers' and directors' insurance covering certain liabilities that may be incurred by officers and directors in the performance of their duties. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following exhibits are filed pursuant to Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------ 3.1 Certificate of Incorporation of L-3 Communications Corporation (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 No. 333-31649). 3.2 By-Laws of L-3 Communications Corporation (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 No. 333-31649). 3.3 Certificate of Incorporation of Hygienetics Environmental Services, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.4 By-laws of Hygienetics Environmental Services, Inc. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.5 Certificate of Incorporation of L-3 Communications ILEX Systems, Inc. (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1 (No. 333-46983). 3.6 By-laws of L-3 Communications ILEX Systems, Inc. (incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.7 Certificate of Incorporation of Southern California Microwave, Inc. (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.8 By-laws of Southern California Microwave, Inc. (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-1 No. 333-46983). **3.9 Certificate of Incorporation of L-3 Communications SPD Technologies, Inc. **3.10 By-laws of L-3 Communications SPD Technologies, Inc. **3.11 Certificate of Incorporation of L-3 Communications ESSCO, Inc. **3.12 By-laws of L-3 Communications ESSCO, Inc. **3.13 Certificate of Incorporation of L-3 Communications Storm Control Systems, Inc. **3.14 By-laws of L-3 Communications Storm Control Systems, Inc. **3.15 Certificate of Incorporation of L-3 Communications DBS Microwave, Inc. **3.16 By-laws of L-3 Communications DBS Microwave, Inc. **3.17 Certificate of Incorporation of SPD Electrical Systems, Inc. **3.18 By-laws of SPD Electrical Systems, Inc. **3.19 Certificate of Incorporation of SPD Switchgear Inc. **3.20 By-laws of SPD Switchgear Inc. **3.21 Certificate of Incorporation of Pac Ord Inc. **3.22 By-laws of Pac Ord Inc.
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------------ ----------------------------------------------------------------------------------------- **3.23 Certificate of Incorporation of Henschel Inc. **3.24 By-laws of Henschel Inc. **3.25 Certificate of Incorporation of Power Paragon, Inc. **3.26 By-laws of Power Paragon, Inc. **3.27 Certificate of Incorporation of SPD Holdings, Inc. **3.28 By-laws of SPD Holdings, Inc. 4.1 Indenture dated as of December 11, 1998 among L-3 Communications Corporation, the Guarantors and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.32 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 4.2 Form of 8% Senior Subordinated Note due 2008 (included in Exhibit 4.1). 4.3 Form of 8% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1). **5 Opinion of Simpson Thacher & Bartlett. 10.1 Amended and Restated Credit Agreement, dated as of August 13, 1998, among L-3 Communications Corporation and lenders named therein (incorporated by reference to Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). 10.2 364 Day Credit Agreement, dated August 13, 1998, among L-3 Communications and lenders named therein (incorporated by reference to Exhibit 99.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). 10.3 Registration Rights Agreement, dated as of December 11, 1998, among L-3 Communications Corporation, the Guarantors, Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC (incorporated by reference to Exhibit 10.33 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 10.4 Purchase Agreement, dated as of December 3, 1998, among L-3 Communications Corporation, the Guarantors, Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC (incorporated by reference to Exhibit 10.34 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 10.5 Indenture dated as of April 30, 1997 between L-3 Communications Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 No. 333-31649). **10.6 Indenture dated as of May 22, 1998 between L-3 Communications and The Bank of New York, as Trustee. 10.7 Stockholders' Agreement between L-3 Communications Corporation and the stockholders parties thereto (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.8 Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed Martin Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, Robert V. LaPenta and L-3 Communications Corporation (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.9 Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.10 Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 10.61 to the Company's Registration Statement on Form S-4 No. 333-31649).
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------------ ------------------------------------------------------------------------------------------ 10.11 Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin Corporation and L-3 Communications Corporation (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.12 Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications Corporation and California Microwave, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.13 Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3 Communications Corporation (incorporated by reference to Exhibit 10.81 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.14 Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., AlliedSignal Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 Communications Corporation (incorporated by reference to Exhibit 10.82 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.15 Agreement and Plan of Merger dated as of December 3, 1998 among L-3 Communications, L-M Acquisition Corporation and Microdyne Corporation (incorporated by reference to Exhibit 2 to L-3 Communications Holdings' Current Report on Form 8-K filed on December 9, 1998). 10.16 Amended and Restated Agreement and Plan of Merger dated as of August 13, 1998 by and among L-3 Communications Corporation, SPD Merger Co., SPD Technologies, Inc. and Midmark Capital, L.P. (incorporated by reference to Exhibit 2 to L-3 Communications Corporation's Current Report on Form 8-K filed on October 27, 1998). 10.20 Form of Stock Option Agreement for Employee Options (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.30 Form of 1997 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10.91 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.31 L-3 Communications Corporation Pension Plan (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 No. 333-46983). *12 Computation of Ratio of Earnings to Fixed Charges. **21 Subsidiaries of the Company. **23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto). *23.2 Consent of PricewaterhouseCoopers LLP, independent auditors. *23.3 Consent of Ernst & Young LLP, independent auditors. *23.4 Consent of Ernst & Young LLP, independent auditors. *23.5 Consent of KPMG LLP, independent auditors. *23.6 Consent of Grant Thornton LLP, independent certified public accountants. **23.7 Consent of PricewaterhouseCoopers LLP, independent auditors. **23.8 Consent of Ernst & Young LLP, independent auditors. **23.9 Consent of Ernst & Young LLP, independent auditors. **23.10 Consent of KPMG LLP, independent auditors. **23.11 Consent of Grant Thornton LLP, independent certified public accountants. *24 Powers of Attorney. *25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee.
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------- --------------------------------------- **99.1 Letter of Transmittal. **99.2 Notice of Guaranteed Delivery.
- ---------- * Previously filed. ** Filed herewith. ITEM 22. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereto, which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment 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. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed to be underwriters, in addition to the information called for by the other Items of the applicable form. The Registrant undertakes that every prospectus (i) that is filed pursuant to the immediately preceding undertaking or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment 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, II-5 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. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS CORPORATION By: /s/ Michael T. Strianese ------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- David J. Brand Director * - --------------------------------- Thomas A. Corcoran Director * - --------------------------------- Alberto M. Finali Director * - --------------------------------- Eliot M. Fried Director * - --------------------------------- Frank H. Menaker, Jr. Director * - --------------------------------- Robert B. Millard Director * - --------------------------------- John E. Montague Director * - --------------------------------- John M. Shalikashvili Director * - --------------------------------- Alan H. Washkowitz Director
* By Michael T. Strianese as attorney-in-fact. II-7 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. HYGIENETICS ENVIRONMENTAL SERVICES, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director
* By Michael T. Strianese as attorney-in-fact. II-8 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS ILEX SYSTEMS, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Robert V. LaPenta Financial Officer) and Director /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director
* By Michael T. Strianese as attorney-in-fact. II-9 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. SOUTHERN CALIFORNIA MICROWAVE, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- William H. Kirk Director
* By Michael T. Strianese as attorney-in-fact. II-10 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director
* By Michael T. Strianese as attorney-in-fact. II-11 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS ESSCO, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director
* By Michael T. Strianese as attorney-in-fact. II-12 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS STORM CONTROL SYSTEMS, INC. By: /s/ Michael T. Strianese ------------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Director Christopher C. Cambria
* By Michael T. Strianese as attorney-in-fact. II-13 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. L-3 COMMUNICATIONS DBS MICROWAVE, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Director Christopher C. Cambria
* By Michael T. Strianese as attorney-in-fact. II-14 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. SPD ELECTRICAL SYSTEMS, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-15 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. SPD SWITCHGEAR INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-16 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. PAC ORD INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-17 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. HENSCHEL INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-18 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. POWER PARAGON, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-19 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused the Registration Statement or amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized, on January 19, 1999. SPD HOLDINGS, INC. By: /s/ Michael T. Strianese --------------------------------------------- Vice President--Finance and Controller Pursuant to the requirements of the Securities Act, the Registration Statement has been signed on the 19th day of January, 1999 by the following persons in the capacities indicated:
SIGNATURE TITLE - ----------------------------------- ---------------------------------------------- * Chairman, Chief Executive Officer, - --------------------------------- (Principal Executive Officer) and Director Frank C. Lanza * President, Chief Financial Officer (Principal - --------------------------------- Financial Officer) and Director Robert V. LaPenta /s/ Michael T. Strianese Vice President--Finance and Controller - --------------------------------- (Principal Accounting Officer) Michael T. Strianese * - --------------------------------- Christopher C. Cambria Director * - --------------------------------- Larry A. Colangelo Director
* By Michael T. Strianese as attorney-in-fact. II-20 EXHIBIT INDEX Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference to such previous filings.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------ 3.1 Certificate of Incorporation of L-3 Communications Corporation (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 No. 333-31649). 3.2 By-Laws of L-3 Communications Corporation (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 No. 333-31649). 3.3 Certificate of Incorporation of Hygienetics Environmental Services, Inc. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.4 By-laws of Hygienetics Environmental Services, Inc. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.5 Certificate of Incorporation of L-3 Communications ILEX Systems, Inc. (incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1 (No. 333-46983). 3.6 By-laws of L-3 Communications ILEX Systems, Inc. (incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.7 Certificate of Incorporation of Southern California Microwave, Inc. (incorporated by reference to Exhibit 3.7 to the Company's Registration Statement on Form S-1 No. 333-46983). 3.8 By-laws of Southern California Microwave, Inc. (incorporated by reference to Exhibit 3.8 to the Company's Registration Statement on Form S-1 No. 333-46983). **3.9 Certificate of Incorporation of L-3 Communications SPD Technologies, Inc. **3.10 By-laws of L-3 Communications SPD Technologies, Inc. **3.11 Certificate of Incorporation of L-3 Communications ESSCO, Inc. **3.12 By-laws of L-3 Communications ESSCO, Inc. **3.13 Certificate of Incorporation of L-3 Communications Storm Control Systems, Inc. **3.14 By-laws of L-3 Communications Storm Control Systems, Inc. **3.15 Certificate of Incorporation of L-3 Communications DBS Microwave, Inc. **3.16 By-laws of L-3 Communications DBS Microwave, Inc. **3.17 Certificate of Incorporation of SPD Electrical Systems, Inc. **3.18 By-laws of SPD Electrical Systems, Inc. **3.19 Certificate of Incorporation of SPD Switchgear Inc. **3.20 By-laws of SPD Switchgear Inc. **3.21 Certificate of Incorporation of Pac Ord Inc. **3.22 By-laws of Pac Ord Inc. **3.23 Certificate of Incorporation of Henschel Inc. **3.24 By-laws of Henschel Inc.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------------ ----------------------------------------------------------------------------------------- **3.25 Certificate of Incorporation of Power Paragon, Inc. **3.26 By-laws of Power Paragon, Inc. **3.27 Certificate of Incorporation of SPD Holdings, Inc. **3.28 By-laws of SPD Holdings, Inc. 4.1 Indenture dated as of December 11, 1998 among L-3 Communications Corporation, the Guarantors and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.32 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 4.2 Form of 8% Senior Subordinated Note due 2008 (included in Exhibit 4.1). 4.3 Form of 8% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1). **5 Opinion of Simpson Thacher & Bartlett. 10.1 Amended and Restated Credit Agreement, dated as of August 13, 1998, among L-3 Communications Corporation and lenders named therein (incorporated by reference to Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). 10.2 364 Day Credit Agreement, dated August 13, 1998, among L-3 Communications and lenders named therein (incorporated by reference to Exhibit 99.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). 10.3 Registration Rights Agreement, dated as of December 11, 1998, among L-3 Communications Corporation, the Guarantors, Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC (incorporated by reference to Exhibit 10.33 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 10.4 Purchase Agreement, dated as of December 3, 1998, among L-3 Communications Corporation, the Guarantors, Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC (incorporated by reference to Exhibit 10.34 to L-3 Communications Holdings' Registration Statement on Form S-1 No. 333-70125). 10.5 Indenture dated as of April 30, 1997 between L-3 Communications Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 No. 333-31649). **10.6 Indenture dated as of May 22, 1998 between L-3 Communications and The Bank of New York, as Trustee. 10.7 Stockholders' Agreement between L-3 Communications Corporation and the stockholders parties thereto (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.8 Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed Martin Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, Robert V. LaPenta and L-3 Communications Corporation (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.9 Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.10 Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 10.61 to the Company's Registration Statement on Form S-4 No. 333-31649).
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ---------------- ------------------------------------------------------------------------------------------ 10.11 Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin Corporation and L-3 Communications Corporation (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-4 No. 333-31649). 10.12 Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications Corporation and California Microwave, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.13 Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3 Communications Corporation (incorporated by reference to Exhibit 10.81 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.14 Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., AlliedSignal Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 Communications Corporation (incorporated by reference to Exhibit 10.82 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.15 Agreement and Plan of Merger dated as of December 3, 1998 among L-3 Communications, L-M Acquisition Corporation and Microdyne Corporation (incorporated by reference to Exhibit 2 to L-3 Communications Holdings' Current Report on Form 8-K filed on December 9, 1998). 10.16 Amended and Restated Agreement and Plan of Merger dated as of August 13, 1998 by and among L-3 Communications Corporation, SPD Merger Co., SPD Technologies, Inc. and Midmark Capital, L.P. (incorporated by reference to Exhibit 2 to L-3 Communications Corporation's Current Report on Form 8-K filed on October 27, 1998). 10.20 Form of Stock Option Agreement for Employee Options (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.30 Form of 1997 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10.91 to the Company's Registration Statement on Form S-1 No. 333-46983). 10.31 L-3 Communications Corporation Pension Plan (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 No. 333-46983). *12 Computation of Ratio of Earnings to Fixed Charges. **21 Subsidiaries of the Company. **23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto). *23.2 Consent of PricewaterhouseCoopers LLP, independent auditors. *23.3 Consent of Ernst & Young LLP, independent auditors. *23.4 Consent of Ernst & Young LLP, independent auditors.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------------ --------------------------------------------------------------------------------------- *23.5 Consent of KPMG LLP, independent auditors. *23.6 Consent of Grant Thornton LLP, independent certified public accountants. **23.7 Consent of PricewaterhouseCoopers LLP, independent auditors. **23.8 Consent of Ernst & Young LLP, independent auditors. **23.9 Consent of Ernst & Young LLP, independent auditors. **23.10 Consent of KPMG LLP, independent auditors. **23.11 Consent of Grant Thorton LLP, independent certified public accountants. *24 Powers of Attorney. *25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee. **99.1 Letter of Transmittal. **99.2 Notice of Guaranteed Delivery.
- ---------- * Previously filed. ** Filed herewith. EX-3.9 2 CERTIFICATE OF INCORPORATION OF L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC. Exhibit 3.9 CERTIFICATE OF INCORPORATION OF SPD HOLDINGS, INC. The undersigned, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware ("GCL"), does hereby certify as follows: FIRST: The name of the corporation is SPD Holdings, Inc. (hereinafter referred to as the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the GCL. FOURTH: (A) The total number of shares of all classes of stock which the Corporation shall have authority to issue is 2,000,000 shares divided into the following classes: (i) 1,000,000 shares of Common Stock with a par value of $0.01 per share; and (ii) 1,000,000 shares of Preferred Stock with a par value $0.01 per share. (B) The Board of Directors of the Corporation is authorized, subject to the limitations prescribed by law and the provisions of this Article, to provide for the issuance, from time to time in one or more series, or any number of shares of Preferred Stock, and by filing a certificate of designations pursuant to Section 151 of the GCL, to establish the number of shares to be included in each series of Preferred Stock and to fix the powers, designations, preferences, relative rights, qualifications and restrictions thereof. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, a determination of the following: (a) The number of shares of Preferred Stock constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of Preferred Stock of that series, whether dividends shall be cumulative, and if so, from which date or dates, and whether they shall be payable in preference to, or in such relation to, the dividends payable on any other class or classes or of any other series of the capital stock of the Corporation; (c) Whether that series shall have any voting rights in addition to those provided by law, and if so, the terms of such additional voting rights; (d) Whether that series shall have conversion or exchange privileges, and if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all of the shares are to be redeemed, the date or dates upon or after which they shall be redeemable and the type and amount of consideration payable per share in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that series, and if so, the terms and amount of such sinking fund; (g) The right of shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issuance of any additional stock (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase or redemption or other acquisition by the Corporation or any subsidiary of, any outstanding stock of the Corporation; (h) The rights of the shares of that series in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation and whether such rights shall be in preference to, or in another relation to, the comparable rights of any other class or classes or series of capital stock; and (i) Any other relative, participating, optional or other special rights, qualifications, limitations or restrictions of that series. FIFTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further -2- definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: I. The election of directors need not be by written ballot, unless the By-laws so provide. II. The Board of Directors shall have the power, without the assent or vote of the stockholders, to make, alter, amend, change, add to or repeal the By-laws of the Corporation in accordance with Article XI of the By-laws. SIXTH: The Corporation shall indemnify and advance expenses to, to the fullest extent permitted by Section 145 of the GCL, as amended from time to time, each person made or threatened to be made a party of an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or serves or served any other enterprise as director or officer at the request of the Corporation, and the heirs, executors and administrators of each such person. Any expenses (including attorneys' fees) incurred by each such person, and the heirs, executors and administrators of such person, in connection with defending any such proceeding in advance of its final disposition shall be paid by the Corporation; provided, however, that if the GCL requires, an advancement of expenses incurred by an indemnitee in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such indemnitee to repay all amounts so advanced, if it shall ultimately be determined that such indemnitee is not entitled to be indemnified for such expenses under this Article or otherwise. SEVENTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court -3- to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders of the Corporation, as the case may be, and also on the Corporation. EIGHTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. TENTH: The name and mailing address of the sole Incorporator of the Corporation is Susan Fields, c/o Reid & Priest LLP, 40 West 57th Street, New York, New York 10019 IN WITNESS WHEREOF, the undersigned, being the sole Incorporator of the Corporation, does hereby certify that the facts hereinabove stated are truly set forth and, accordingly, hereby executes this Certificate of Incorporation this 16th day of December, 1996. /s/ Susan Fields ------------------------------- Incorporator Susan Fields -4- CERTIFICATE OF DESIGNATION, RIGHTS AND PREFERENCES OF THE 8% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK OF SPD HOLDINGS, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- SPD HOLDINGS, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board of Directors") by its Certificate of Incorporation, and pursuant to the provision of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors, by unanimous written consent dated December 20, 1996, duly approved and adopted the following resolution: RESOLVED, that pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation (the "Certificate of Incorporation"), the Board of Directors does hereby create, authorize and provide for the issue of a 8% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a stated value of $100.00 per share, consisting initially of 38,010 shares, having the designations, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: 1. Designation and Amount. The distinctive designation of such series is "8% Series A Cumulative Redeemable Preferred Stock" (hereinafter in this Resolution called "Preferred Stock") and the number of shares constituting such series shall be 38,010. 2. Rank. the Preferred Stock shall, with respect to dividend rights and rights of liquidation, winding up and dissolution, rank senior to all other equity securities of the Corporation (all of such equity securities to which the Preferred Stock ranks senior are collectively referred to herein as the "Junior Securities"). 3. Dividends. (a) Subject in all cases to Section 3(b) below, with respect to each dividend period described below, holders of record of shares of Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors, out of funds legally available thereof (the "Legally Available Funds"), cash dividends payable on the shares of Preferred Stock (x) for the period commencing on the date of issuance of the Preferred Stock and ending on December 31, 1997 (the "Initial Period"), and (y) for cash dividend period (an "Annual Dividend Period") thereafter, which Annual Dividend Period shall commence on January 1 of each year and shall end on and shall include December 31 of such year, in each case at a rate per annum equal to 8% of the Liquidation Preference (as hereinafter defined) per share of Preferred Stock. Such dividends shall fully cumulative and shall accrue (whether or not declared and whether or not the Company has Legally Available Funds), without interest, from the first day of each Annual Dividend Period to and including the end of such Annual Dividend Period, except that with respect to the dividends for the Initial Period, such dividends shall accrue from the date of issuance on the shares of Preferred Stock to and including the end of the Initial Period. Dividends shall accrue on a daily basis without regard to the declaration of any dividend. (b) Except as provided in Section 4(a) below, all accrued and cumulated dividends described in Section 3(a) above shall be payable only upon the occurrence of a Triggering Event (as defined herein). Upon such Triggering Event, such dividend shall be payable concurrently with consummation of the Triggering Event and shall be paid to the holders of record at the close of business on the day immediately preceding consummation of the Triggering Event. (c) Dividends payable on the Preferred Stock for any period more or less than an Annual Dividend Period or the Initial Dividend Period, as the case may be, shall be computed on the basis of a 360-day year and the actual number of days elapse in such period. (d) All dividends paid with respect to shares of the Preferred Stock pursuant to Section 3(a) shall be paid pro rata to the holders of Preferred Stock. (e) (i) Holders of shares of the Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof in preference to and in priority over any dividends upon any of the Junior Securities. (ii) No dividends shall be paid on the Preferred Stock if such payment would violate terms of any instrument governing indebtedness of the Corporation. (iii) So long as any shares of the Preferred Stock are outstanding, the Corporation shall not (A) declare, pay or set apart for payment any dividend on any of the Junior Securities or make any payment on account of, or set apart for payment money for, the purchase, redemption or other -2- retirement of, any of the Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities, or make any distribution or exchange in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property, or (B) permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any Junior Securities, or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities, unless all accrued and unpaid dividends on shares of the Preferred Stock shall have been or be paid or declared or set aside for payment. Notwithstanding the foregoing, (x) dividends payable in additional shares of Junior Securities on any series of Junior Securities shall be permitted hereunder, and (y) repurchases of the Corporation's Common Stock shall be permitted pursuant to the terms of a Stockholders' Agreement to be entered into among the Corporation and its stockholders, as such agreement may be amended from time to time. (f) Subject to the foregoing provisions of this Section 3 and the other provisions hereof, the Board of Directors may declare and the Corporation may pay or set apart for payment dividends on any of the Junior Securities, and the holders of the shares of the Preferred Stock shall not be entitled to share therein. 4. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to $100.00 for each share outstanding (the "Liquidation Preference"), plus an amount in cash equal to all accrued but unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Preferred Stock, then the holders of all such shares shall ratably in such distribution of assets in proportion with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Preferred Stock are entitled were paid in full. (b) Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the remaining assets of the Corporation may be distributed to the holders of the Junior Securities. For the purposes of this Section 4, neither the voluntary sale, lease, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or any part of the property or assets of the Corporation nor the merger or consolidation of the Corporation with one or more corporations nor the reduction of the capital stock of the Corporation shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary. -3- 5. Mandatory Redemption. (a) All of the shares of Preferred Stock will be subject to mandatory redemption by the Corporation, at a redemption price equal to $100.00 per share, together with accrue and unpaid dividends thereon too the applicable redemption date, in cash out of Legally Available Funds without interest, upon the occurrence of any Triggering Event. (b) If, for any reason, the Corporation shall fail to discharge its mandatory redemption obligations pursuant to this Section 5, such mandatory redemption obligations shall be discharged as soon as the Corporation is able to discharge each obligation. If and so long as any mandatory redemption obligations with respect to the shares of the Preferred Stock shall not be fully discharged, the Corporation shall not directly or indirectly: (i) declare, pay or set apart for payment any dividend on the Junior Securities or make any payment on account of, or set apart for payment money for, a sinking or other similar fund for, the purchase, or other retirement of, any of the Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities, or make any distribution or exchange in respect thereof, either directly or indirectly, and whether in cash, obligations, or shares of the Corporation or other property; (ii) permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem Junior Securities, or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities. (iii) purchase or redeem fewer than all of the shares of the Preferred Stock then outstanding, other than pro rata among the holders of the Preferred Stock; or (iv) permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase any shares of the Preferred Stock. In addition, dividends shall continue to accrue on any mandatory redemption obligation that has been discharged by the Corporation pursuant to this Section 5. 6. Optional Redemption. (a) On the first day of any calendar quarter of the Corporation at anytime from and after the date of issuance, shares of Preferred Stock outstanding from time to time shall be subject to redemption at the option of the Board of Directors of the Corporation, as a whole at any time, or from time to time in part, at a price of $100.00 per share, together with all accrued and unpaid dividends thereon to the applicable redemption date, in cash out of Legally Available Funds without interest. -4- (b) If less than all of the outstanding shares of Preferred Stock are to be redeemed, the shares to be redeemed shall be redeemed pro rata. The Corporation may not redeem less than all outstanding shares of Preferred Stock unless all dividends due with respect to the Preferred Stock through the redemption date shall have been declared and paid or set aside for payment upon all outstanding shares of Preferred Stock for all past periods. 7. Procedure for Redemption. (a) In the event the Corporation shall be required to redeem shares of Preferred Stock pursuant to Section 5 or Section 6, notice of such redemption shall be given by first class mail, postage paid, mailed not less than 15 days nor more than 60 days prior to the redemption date to each holder of record of the shares of Preferred Stock at such holders's address as the same appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Preferred Stock to be redeemed, except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the redemption date; (ii) the total number of shares of Preferred Stock to be redeemed and the number of shares of Preferred Stock to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue upon the redemption date. (b) Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price of the shares of Preferred Stock called for redemption), dividends on the shares of Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price and any accrued and unpaid dividends without interest) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such shares shall be redeemed by this Corporation at the redemption price. 8. Voting Rights. The Holders of record of shares of Preferred Stock shall not be entitled to any voting rights except as otherwise provided by law. 9. Consents. Without the affirmative vote of the holders of at least 88% of the then outstanding shares of Preferred Stock, voting as a single class, the Corporation may not: (1) amend the Certificate of Incorporation so as to adversely affect the rights of preferences of shares of the Preferred Stock; or -5- (ii) authorize, issue or create any shares of capital stock that are pari passu with or senior with respect to dividends or liquidation rights to the Preferred Stock. 10. Exclusively. Except as expressly set forth herein, the holders of the Preferred Stock shall have no rights other than those provided by law. 11. Definition. (a) "Affiliate" means the same as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (b) "Change of Control" means one transaction or a series of transactions, other than a Public Offering, whereby the holders of shares of Voting Stock on the Closing Date hold fifty percent (50%) or less of the outstanding shares of Voting Stock following the consummation of such transaction(s). (c) "Closing Date" means the date of the closing of the purchase by the Corporation of 80,000 shares of the common stock of SPD Technologies, Inc., pursuant to the Stock Purchase Agreement, dated December 20, 1996 between Kulen Capital, L.P., a Delaware limited partnership, and the Corporation. (d) "Net Proceeds" means the aggregate cash proceeds actually received by the Corporation from any sale or sales of Junior Securities pursuant to a Public Offering, net of any expenses payable by the Corporation in connection with such sale or sales, including, without limitation, any underwriting discounts or commissions. (e) "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or other entity of whatever nature. (f) "Significant Subsidiary" means the same as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (g) "Triggering Event" means any of the following: (i) the sale of Junior Securities pursuant to one or more effective registration statements under the Securities Act of 1933, as amended, other than a registration statement relating to Junior Securities issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Corporation (a "Public Offering"), which Public Offering results in the receipt by the Corporation of at least $20.0 Million in Net Proceeds (as defined above); -6- (i) the consummation of the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the Corporation or of a Significant Subsidiary of the Corporation to or acquisition of the same by any Person other than an Affiliate of the Corporation; or (ii) the ocurrence of a Change of Control. (i) "Voting Stock" means capital stock of any class or classes of the Corporation, the holders of which are entitled, in the absence of contingencies, to participate generally in the election of the members of the Corporation's Board of Directors, and any securities of the Corporation convertible into, or exercisable or exchangeable for, any such capital stock of the Corporation; provided however, that options to purchase Voting Stock issued pursuant to any employee stock option plan of the Corporation shall not be deemed to be Voting Stock. "RESOLVED FURTHER, that, before the Corporation shall issue any shares of the Preferred Stock, a certificate pursuant to Section 151 of the General Corporation Law of the State of Delaware shall be made, executed, acknowledged, filed and recorded in accordance with the provisions of said Sections 103 and 151, and the proper officers of the Corporation are hereby authorized and directed to do all acts and things which may be necessary or proper in their opinion to carry into effect the purposes and intent of this and the foregoing resolutions." IN WITNESS WHEREOF, SPD Holdings, Inc. has caused this Certificate of Designation Rights and Preferences to be signed by Larry A. Colangelo its Chief Executive Officer, on this 27th day of December, 1996. SPD HOLDINGS, INC. By: /s/ LARRY A. COLANGELO -------------------------- Name: Larry A. Colangelo Title: Chief Executive Officer -7- CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF SPD HOLDINGS, INC. SPD Holdings, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, a resolution was duly adopted setting forth a proposed amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for approval by the shareholders of the Corporation. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended as follows: By striking out the whole of Section (A) of Article FOURTH as it exists now and inserting in lieu and instead thereof a new Section (A) of Article FOURTH reading as follows: FOURTH: (A) The total number of shares of all classes of stock which the Corporation shall have authority to issue is 2,000,000 shares divided into the following classes: (i) 500,000 shares of voting Class A Common Stock with a par value of $0.01 per share; (ii) 500,000 shares of non-voting Class B Common Stock with a par value of $0.01 per share; and (iii) 1,000,000 shares of Preferred Stock with a par value $0.01 per share. SECOND: That thereafter, pursuant to the resolution of the Board of Directors, the necessary number of shares as required by statute were voted by written consent in favor of the amendment pursuant to Section 228 of the Delaware General Corporation Law. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, SPD Holdings, Inc. has caused this Certificate to be signed in its name by its President this 25th day of June, 1997 and the statements contained therein are affirmed as true under penalties of perjury. SPD HOLDINGS, INC. By: /s/ Larry A. Colangelo --------------------------- Larry A. Colangelo, President and Chief Executive Officer CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SPD HOLDINGS, INC. SPD HOLDINGS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: THAT the Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: "RESOLVED, that Article First of the Certificate of Incorporation be amended to read as follows: 'FIRST: The name of the Corporation is SPD Technologies Inc.'" SECOND: That, in lieu of a meeting and a vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That said amendment was duly adopted in accordance with the applicable provisions of Sections 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, SPD HOLDINGS, INC. has caused this certificate to be signed by Larry A. Colangelo, its President, this 17th day of July, 1997. SPD HOLDINGS, INC, By: /s/ Larry A. Colangelo ----------------------------- ATTEST: /s/ John C. Fleury - ------------------------- Secretary CERTIFICATE OF MERGER OF SPD MERGER CO. INTO SPD TECHNOLOGIES INC. The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the names an states of incorporation of each of the constituent corporations of the merger is as follows: NAME STATE OF INCORPORATION SPD MERGER CO. Delaware SPD Technologies Inc. Delaware SECOND: That an agreement and plan of merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware. THIRD: The name of the surviving corporation of the merger is SPD Teohnologies Inc., a Delaware corporation. FOURTH: That the certificate of incorporation of SPD Technologies Inc., a Delaware corporation, shall be the certificate of incorporation of the surviving corporation following the merger. FIFTH: That the executed agreement of merger is on file at the principal place of business of the surviving corporation. The address of said principal place is 13500 Roosevelt Blvd., Philadelphia, Pennsylvania 19116. SIXTH: That a copy of the agreement of merger will be furnished on request and without cost to any stockholder of either constituent corporation. Dated: August 13, 1998 SPD TECHNOLOGIES, INC. By: /s/ Larry A. Colangelo -------------------------- Name: Larry A. Colangelo Title: President & CEO ATTEST: By: /s/ John C. Fleury - --------------------------- Name: John C. Fleury Title: VP & CFO CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SPD TECHNOLOGIES INC. (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) The undersigned, desiring to amend the certificate of incorporation of a Delaware corporation under the provisions of the General Corporation Law of the State of Delaware (the "GCL"), hereby certifies as follows: 1. The name of the corporation is: SPD TECHNOLOGIES INC. (the "Corporation"). 2. Article "FIRST" of the certificate of incorporation of the Corporation is hereby amended to change the name of the Corporation from "SPD TECHNOLOGIES INC." to "L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC." said Article "FIRST" to read in its entirety as follows: "FIRST: The name of the corporation is: L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC. (the "Corporation")." 3. The amendment herein certified has been duly adopted in accordance with Section 242 of the GCL. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed in its name by its officer as of the 8th day of December, 1998. SPD TECHNOLOGIES INC. By: /s/ Christopher C. Cambria ---------------------------- Christopher C. Cambria Vice President EX-3.10 3 BY-LAWS OF L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC. EXHIBIT 3.10 BY-LAWS OF L-3 COMMUNICATIONS SPD TECHNOLOGIES, INC. ARTICLE I Shareholders' Meetings; Voting Section 1.1 Annual Meetings. An annual meeting of shareholders shall be held for the election of directors on the first Monday in May of each year, if not a legal holiday, and, if a legal holiday, then on the next day not a legal holiday, at 10:00 o'clock in the forenoon at such time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of shareholders may be called at any time by the Chairman of the Board, the President, the Board of Directors, or as provided in Section 2.2, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of shareholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of shareholders who together own of record at least ten percent (10%) of the outstanding shares of stock entitled to vote at such meeting. Section 1.3. Notice of Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the shareholder at his address as it appears on the records of the Corporation. The Corporation shall, at the written request of any shareholder, cause such notice to such shareholder to be confirmed to such other address and/or by such other means as such shareholder may reasonably request, provided that if such written request is received after the date any such notice is mailed, such request shall be effective for subsequent notices only. Section 1.4. Adjournments. Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to Vote at the meeting. Section 1.5. Quorum. At each meeting of shareholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. With respect to any matter on which shareholders vote separately as a class, the holders of a majority of the outstanding shares of such class shall constitute a quorum for a meeting with respect to such matter. Two or more classes or series of stock shall be considered a single class for purposes of determining existence of a quorum for any matter to be acted on if the holders thereof are entitled or required to vote together as a single class at the meeting on such matter. In the absence of a quorum the shareholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these by-laws until a quorum shall attend. Section 1.6. Organization. Meetings of shareholders shall be presided over by the Chairman of the Board, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each shareholder entitled to vote at any meeting of shareholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support in irrevocable power. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of shareholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of any class of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of shareholders for the election of directors, such election and all other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares off all classes of stock entitled to vote thereon present in person or by proxy at the meeting, voting as a single class. -2- Section 1.8. Fixing Date for Determination of Shareholders of Record. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining shareholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, provided, however, that the Board may fix a new record date for the adjourned meeting. Section 1.9. List of Shareholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of shareholders, a, complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by my shareholder who is present. Section 1.10. Consent of Shareholders in Lieu of Meeting. To the extent provided by any statute at the time in force, whenever the vote of shareholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any statute, by the certificate of incorporation or by these by-laws, the meeting and prior notice thereof and vote of shareholders may be dispensed with if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action without a meeting by less than unanimous written consent and notice thereof shall be given to those shareholders who have not consented in writing. -3- ARTICLE 11 Board of Directors Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The number of Directors which shall constitute the whole Board of Directors shall not be less than one (1) nor more than eight (8). Within such limits, the number of directors may be fixed from time to time by vote of the shareholders or of the Board of Directors, at any regular or special meeting, subject to the provisions of the certificate of incorporation. Section 2.2. Election: Term of Office, Resignation; Removal; Vacancies; Special Elections. Except as otherwise provided in this Section 2.2, the directors shall be elected annually at the annual meeting of the shareholders. Each director (whenever elected) shall hold office until the annual meeting of shareholders or any special meeting of shareholders called to elect directors next succeeding his election and until his successor is elected and qualified or until his earlier resignation or removal, except as provided in the certificate of incorporation. Any director may resign at any time upon written notice to the Board of Directors or to the Chairman of the Board or to the President of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director may be removed with or without cause at any time upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such director, given at a special meeting of such shareholders called for the purpose. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of directors shall be increased, the directors then in office shall continue to act, and such vacancies may be filled by a majority of the directors then in office, though less than a quorum; provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series shall be filled by a majority of the directors elected by such class or classes or series thereof then in office though less than a quorum or by a sole remaining director so elected. Any such vacancies or newly created directorships may also be filled upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of directors, given at a special meeting of the shareholders called for the purpose. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. -4- Section 2.4. Special Meetings Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. Section 2.5. Telephonic Meetings Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, any member of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors the presence of a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of at least a majority of the directors present at any meeting at which a quorum is present shall be necessary to constitute and shall be the act of the Board unless the certificate of incorporation or these by-laws shall otherwise provide. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consents thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III Committees Section 3.1. Committees. The Board of Directors may, by resolution passed by a majority of the total number of directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board, and unless otherwise restricted by the certificate of incorporation or these by-laws, shall have and may exercise all -5- the powers and authority of the Board in the management of the business and affairs of the corporation, to the full extent permitted by law. Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of all such members present at a meeting shall be the act of such committee, and in other respects each committee shall conduct its business pursuant to Article II of these by-laws. ARTICLE IV Officers Section 4.1. Officers; Election. As soon as practicable after the annual meeting of shareholders in each year, the Board shall elect a President and a Secretary. The Board may also elect a Chairman of the Board, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person. Section 4.2. Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board after the annual meeting of shareholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time, provided that such action by the board shall require the vote of a majority of the whole Board. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall or may be filled for the unexpired portion of the term by the Board at any regular or special meeting in the manner provided in Section 4.1 for election of officers following the annual meeting of shareholders. Section 4.3. Chairman of the Board. The Chairman of the Board or, if there is not a Chairman of the Board, the President, shall be the chief executive officer and shall have general charge 2nd supervision of the business of the Corporation. In addition, he shall preside at all meetings of the Board of Directors and of the shareholders at which he shall be -6- present. He shall have and may exercise such powers and perform such other duties as are, from time to time, assigned to him by the Board and as may be provided by law. Section 4.4. President. The President shall be the chief operating officer and shall perform all duties incident to such office, and such other duties as, from time to time, may be assigned to him by the Board or as may be provided by law. Section 4.5. Vice Presidents. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties of the President, and when so acting shall have the powers of the President. If there be more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties; or if such determination is not made by the Board, the President may make such determination; otherwise any of the Vice Presidents may perform any of such duties. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board or the President or as may be provided by law. Section 4.6. Secretary. The Secretary shall have the duty to record the proceedings of the meetings of the shareholders, the Board of Directors and any committees in a book to be kept for that purpose; he shall see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; he shall be custodian of the records of the Corporation; he may affix the corporate seal to any document the execution of which, on behalf of the Corporation, is duly authorized, and when so affixed may attest the same; and, in general, he shall perform a11 duties incident to the office of secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board or the President or as may be provided by law. Section 4.7. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall from time to time, be selected by or under authority of the Board of Directors; if required by the Board, he shall give a bond for the faithful discharge of his duties, with such surety or sureties as the Board may determine; he shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of the Corporation and shall render to the President and to the Board, whenever requested, an account of the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of treasurer of a corporation, and such other duties as may be assigned to him by the Board or the President or as may be provided by law. Section 4.8. Other Officers. The other officers, if any, of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in a resolution adopted by the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the -7- control of the Board. The Board may require any officer, agent or employee to give security for the faithful performance of his duties. ARTICLE V Stock Section 5.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 5.2. Lost, Stolen or Destroyed Stock Certificates: Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous Section 6.1. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 6.2. Waiver of Notice of Meetings of Shareholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the -8- beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 6.3. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 6.4. Dividends. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, bonds, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation. Section 6.5. Reserves. Before the payment of any dividend, there may be set aide out of any funds of the Corporation available for dividends such sum or sums as directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve. Section 6.6. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 6.7. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 6.8. Offices. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places within or outside the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. -9- ARTICLE VII Amendments Section 7.1. Amendments. These by-laws may be altered, amended or repealed at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting. ARTICLE VIII Indemnification Section 8.1. Indemnification. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation, or serves or served any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor of the Corporation. The Corporation shall pay any expenses reasonably incurred by a director or officer in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide for the payment of such expenses incurred by employees and agents of the Corporation as it deems appropriate. The rights conferred on any person under this Article shall not be deemed exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation, by-law, agreement, vote of shareholders or disinterested directors or otherwise. All rights to indemnification and to the advancement of expenses under this Article shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these By-Laws and any other relevant provisions of the Delaware General Corporation Law and any other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. For purposes of this Article, references to "the Corporation" shall be deemed to include any subsidiary of the Corporation now or hereafter organized under the laws of the State of Delaware. -10- EX-3.11 4 CERTIFICATE OF INCORPORATION OF L-3 COMMUNICATIONS ESSCO, INC. Exhibit 3.11 RESTATED CERTIFICATE OF INCORPORATION OF ELECTRONIC SPACE SYSTEMS CORPORATION Electronic Space Systems Corporation, originally incorporated as Electronic Space Structures Corporation on July 5, 1961, a corporation organized and existing under the General Corporation Law of the State of Delaware hereby certifies that its Board of Directors, by unanimous written consent of its members filed with the minutes of the Board, duly adopted a Restated Certificate of Incorporation in accordance with the provisions of Section 245 of the General Corporation Law, effective June 1, 1982, which only restates and integrates and does not further amend the provisions of the corporation's Certificate of Incorporation as heretofore amended or supplemented, there being no discrepancies between those provisions and the provisions of this restated certificate. ------------------ We, the undersigned, for the purpose of associating to establish a corporation for the transaction of the business and the promotion and conduct of the objects and purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the 1953 Delaware Code and the acts amendatory thereof and supplemental thereto, and known as the "General Corporation Law of the State of Delaware"), do make and file this Certificate of Incorporation in writing and do hereby certify as follows, to wit: FIRST: The name of the corporation (hereinafter called the corporation) is ELECTRONIC SPACE SYSTEMS CORPORATION SECOND: The respective names of the County and of the City within the County in which the principal office of the corporation is to be located in the State of Delaware are the County of New Castle and the City of Wilmington. The name of the registered agent of the corporation is The Corporation Trust Company. The street and number of said registered office and the address by street and number of said registered agent is 100 West Tenth Street, Wilmington, Delaware. THIRD: The nature of the business of the corporation and the objects or purposes to be transacted, promoted or carried on by it are as follows: To conduct research with respect to, design, manufacture, sell and otherwise deal with antennas, antenna systems, radomes, hardened structures to resist the effect of blast from nuclear explosion and fallout, structures for industrial and resident use, electrical, mechanical, electro-mechanical and electronic equipment, machinery and components. To endorse, assume and/or guarantee, as accommodation endorser, guarantor or otherwise, the performance and/or payment of any leases, contracts, notes, debentures, mortgages or other evidences of indebtedness or obligations of any person, partnership, corporation, firm or association or other parties, whether or not the corporation has a direct or indirect interest in the subject matter with respect to which such leases, contracts, notes, debentures or other evidences of indebtedness are being executed or issued and/or in the obligors or makers of such leases, contracts, notes, debentures or any other parties thereto. To acquire by purchase, exchange, concession, easement, contract, lease or otherwise, to hold, own, use, control, manage, improve, maintain and develop, to mortgage, pledge, grant, sell, convey, exchange, assign, divide, lease, sublease, or otherwise encumber and dispose of, and to deal and trade in, real estate improved or unimproved, lands, leaseholds, options, concessions, easements, tenements, hereditaments and interests in real, mixed, and personal property, of every kind and description wheresoever situated, and any and all rights therein. To manufacture, process, purchase, sell and generally to trade and deal in and with goods, wares and merchandise of every kind, nature and description, and to engage and participate in any mercantile, industrial or trading business of any kind or character whatsoever. To apply for, register, obtain, purchase, lease, take licenses in respect of or otherwise acquire, and to hold, own, use, operate, develop, enjoy, turn to account, grant licenses and immunities in respect of, manufacture under and to introduce, sell, assign, mortgage, pledge or otherwise dispose of, and, in any manner deal with and contract with reference to: (a) inventions, devices, formulae, processes and any improvements and modifications thereof; (b) letters patent, patent rights, patented processes, copyrights, designs, and similar rights, trade-marks, trade symbols and other indications of origin, and ownership granted by or recognized under the laws of the United States of America or of any state or subdivision thereof, or of any foreign country or subdivision thereof, and all rights connected therewith or appertaining thereunto; (c) franchises, licenses, grants and concessions, To purchase or otherwise acquire, and to hold, mortgage, pledge, sell, exchange or otherwise dispose of, securities (which term, for the purpose of this Article THIRD, includes, without limitation of the generality thereof, any shares of stock, bonds, debentures, notes, mortgages, or other obligations, and any certificates, receipts or other instruments representing rights to receive, purchase or subscribe for the same, or representing any other rights or interests therein or in any property or assets) created or issued by any persons, firms, associations, corporations, or governments or subdivisions thereof; to make payment therefor in any lawful manner; and to exercise, as owner or holder of any securities, any and all rights, powers and privileges in respect thereof. -2- To make, enter into, perform and carry out contracts of every kind and description with any person, firm, association, corporation or government or subdivision thereof. To acquire by purchase, exchange or otherwise, all, or any part of, or any interest in, the properties, assets, business and good will of any one or more persons, firms, associations or corporations heretofore or hereafter engaged in any business for which a corporation may now or hereafter be organized under the laws of the State of Delaware; to pay for the same, in cash, property or its own or other securities; to hold, operate, reorganize, liquidate, sell or in any manner dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, firms, associations or corporations, and to conduct the whole or any part of any business thus acquired. To lend its uninvested funds from time to time to such extent, to such persons, firms, associations, corporations, governments or subdivisions thereof, and on such terms and on such security, if any, as the Board of Directors of the corporation may determine. To endorse or guarantee the payment of principal, interest or dividends upon, and to guarantee the performance of sinking fund or other obligations of, any securities, and to guarantee in any way permitted by law the performance of any of the contracts or other undertakings in which the corporation may otherwise be or become interested, of any person, firm, association, corporation, government or subdivision thereof, or of any other combination, organization or entity whatsoever. To borrow money for any of the purposes of the corporation, from time to time, and without limit as to amount; from time to time to issue and sell its own securities in such amounts, on such terms and conditions, for such purposes and for such prices, now or hereafter permitted by the laws of the State of Delaware and by this Certificate of Incorporation, as the Board of Directors of the corporation may determine; and to secure such securities by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets, business and good will of the corporation, then owned or thereafter acquired, To draw, make, accept, endorse, discount, execute, and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments and evidences of indebtedness whether secured by mortgage or otherwise, as well as to secure the same by mortgage or otherwise, so far as may be permitted by the laws of the State of Delaware. To purchase, hold, cancel, reissue, sell, exchange, transfer or otherwise deal in its own securities from time to time to such an extent and in such manner and upon such terms as the Board of Directors of the corporation shall determine; provided that the corporation shall -3- not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital except to the extent permitted by law; and provided further that shares of its own capital stock belonging to the corporation shall not be voted upon directly or indirectly. To organize or cause to be organized under the laws of the State of Delaware, or of any other State of the United States of America, or of the District of Columbia, or of any territory, dependency, colony or possession of the United States of America, or of any foreign country, a corporation or corporations for the purpose of transacting, promoting or carrying on any or all of the objects or purposes for which corporations may be organized, and to dissolve, wind up, liquidate, merge or consolidate any such corporation or corporations or to cause the same to be dissolved, wound up, liquidated, merged or consolidated. To conduct its business in any and all of its branches and maintain offices both within and without the State of Delaware, in any and all States of the United States of America, in the District of Columbia, in any or all territories, dependencies, colonies or possessions of the United States of America, and in foreign countries, To carry out all or any part of the foregoing objects and purposes in any and all parts of the world and to conduct business in all or any of its branches as principal, factor, agent, contractor or otherwise, either alone or through or in conjunction with any corporations, associations, partnerships, firms, trustees, syndicates, individuals, organizations and other entities located in or organized under the laws of any part of the world, and, in carrying out, conducting or performing its business and attaining or furthering any of its objects and purposes, to maintain offices, branches and agencies in any part of the world, to make and perform any contracts and to do any acts and things, and to carry on, any business, and to exercise any powers suitable, convenient or proper for the accomplishment of any of the objects and purposes herein specified or which at any time may appear conducive to or expedient for the accomplishment of any of such objects and purposes and which might be engaged in or carried on by a corporation formed under the General Corporation Law and to have and exercise all of the powers conferred by the laws of the State of Delaware upon corporations formed under the General Corporation Law. The foregoing provisions of this Article THIRD shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration of specific purposes and powers shall not be held to limit or restrict in any manner the purposes and powers of the corporation, and the purposes and powers herein specified shall, except when otherwise provided in this Article THIRD, be in no wise limited or restricted by reference to, or inference from, the terms of any provision of this or any other Article of this Certificate of Incorporation; provided, that the corporation shall not carry on any business or exercise any power in the State of Delaware or in any state, territory, or country which under the laws thereof the corporation may not lawfully carry on or exercise. -4- FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is Five Hundred and Seven Thousand (507,000) of which Five Hundred Thousand (500 000) shares shall be of a class designated Common Stock and have a par value of Twenty Cents ($.20) each; and seven thousand (7,000) shares shall be of a class designated Series Preferred Stock and have a par value of One Hundred ($100) Dollars. Section A; Provisions Relating to Series Preferred Stock The Series Preferred Stock may be issued from time to time in one or more series with such distinctive serial designations, at such price or prices and for such other consideration, and with such preferences, rights and privileges and subject to such qualifications, limitations and restrictions, as shall be determined and fixed by the Board of Directors as hereinafter provided in this Section A. All the shares of any one series shall be alike in every particular. In no event shall any share of any series be entitled to more than one vote. The Board of Directors is hereby expressly empowered to determine and fix by resolution or resolutions providing for the issuance of such series: (i) The number of shares to constitute each such series and the designation thereof: (ii) Whether or not the shares of such series shall be entitled to receive notice of Shareholders' meetings, and the voting powers, full, limited or contingent, if any, to which holders of shares of any series shall be entitled; (iii) The dividend rate or rates, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or series of stock, and whether such dividends shall be cumulative or noncumulative; (iv) Whether or not the shares of such series shall be redeemable and, if redeemable, the redemption price and the terms and conditions thereof; (v) The amount, if any, which the shares of any such series shall be entitled to receive in the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary or of any proceedings resulting in any distribution of all or substantially all, of its assets to its stockholders; (vi) Whether or not the shares of such series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares and, if such funds are established, the annual amount thereof and the terms and provisions relative to the operation thereof; -5- (vii) Whether or not the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class of stock of the corporation, and, if convertible or exchangeable, the conversion price or prices or rate or rates of conversion or exchange and such other terms and conditions of conversion or exchange as shall be stated in said resolution or resolutions, and (viii) Such other designations, preferences, and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as it may deem advisable and as shall be stated in said resolution or resolutions. Section B. Provisions Relating to Common and Series Preferred Stock (i) Fully Paid and Non-Assessable: Any and all shares of capital stock issued, and for which the full consideration has been paid or delivered, shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. (ii) Denial of Pre-emptive Rights: No holder of any of the shares of capital stock of the corporation shall be entitled as of right to purchase or subscribe for any unissued stock of any existing class or any new or additional shares of any class to be issued by reason of any increase of the authorized capital stock of the corporation of any class, or bonds, certificates of indebtedness, debentures or other securities convertible into stock of the corporation, or carrying any right to purchase stock of any class, but any such unissued stock, or such new or additional authorized issue of any stock or of other securities convertible into stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its discretion. (iii) The holders of Common Stock issued and outstanding, except where otherwise provided by law or by these Articles of Incorporation shall have and possess the exclusive right to notice of Shareholders' meetings and the exclusive voting rights and powers, and the holders of shares of the Series Preferred Stock shall not have any voting rights or be entitled to receive any notice of meetings of Stockholders, except where such notice or vote is required by the laws of the State of Delaware or by a resolution of the Board of Directors expressly providing for such notice of Shareholders' meetings and such voting rights. FIFTH: The minimum amount of capital with which the corporation will commence business is One Thousand Dollars. SIXTH: The names and places of residence of each of the incorporators are as follows: NAME PLACE OF RESIDENCE ---- ------------------ R. G. Dickerson Dover, Delaware J. A. Kent Dover, Delaware Z. A. Pool, III Dover, Delaware -6- SEVENTH: The corporation is to have perpetual existence. EIGHTH: The private property of the stockholders of the corporation shall not be subject to the payment of corporate debts to any extent whatever. NINTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders, it is further provided: 1. The number of directors of the corporation shall be as specified in the By-Laws of the corporation but such number may from time to time be increased or decreased in such manner as may be prescribed by the By-Laws. In no event shall the number of directors be less than three. The election of directors need not be by ballot. Directors need not be stockholders. 2. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered: (a) To make, alter, amend, and repeal By-Laws, subject to the power of the stockholders to alter or repeal the By-Laws made by the Board of Directors. (b) Subject to the applicable provisions of the By-Laws then in effect, to determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the corporation. (c) Without the assent or vote of the stockholders, to authorize and issue obligations of the corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors, in its sole discretion, may determine, and to authorize the mortgaging or pledging, as security therefor, of any property of the corporation, real or personal, including after-acquired property. (d) To establish bonus, profit-sharing or other types of incentive or compensation plans for the employees (including officers and directors) of the corporation and to fix the amount of profits to be distributed or shared and to determine the persons to participate in any such plans and the amounts of their respective participations. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of the Certificate of Incorporation and of the By-Laws of the corporation. -7- 3. Any director or any officer elected or appointed by the stockholders or by the Board of Directors may be removed at any time in such manner as shall be provided in the By-Laws of the corporation. 4. In the absence of fraud, no contract or other transaction between the corporation and any other corporation, and no act of the corporation, shall in any way be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation; and, in the absence of fraud, any director, individually, or any firm of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation; provided, in any case, that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or a majority thereof; and any director of the corporation who is also a director or officer of any such other corporation, or who is also interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract, act or transaction and may vote thereat to authorize any such contract, act or transaction, with like force and effect as if he were not such director or officer of such other corporation, or not so interested. 5. Any contract, act or transaction of the corporation or of the directors may be ratified by a vote of a majority of the shares having voting powers at any meeting of stockholders, or at any special meeting called for such purpose, and such ratification shall, so far as permitted by law and by this Certificate of Incorporation, be as valid and as binding as though ratified by every stockholder of the corporation. TENTH: From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this Certificate of Incorporation are granted subject to the provisions of this Article TENTH. IN WITNESS WHEREOF, said Electronic Space Systems Corporation has caused this certificate to be signed by ALBERT COHEN, its President and attested by STEVEN R. SCHEFF, its Secretary this 18th day of June, 1982. BY: /s/ Albert Cohen ---------------------------------- President ATTEST: [SEAL] BY: /s/ Steven R. Scheff ------------------------------- Secretary -8- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF ELECTRONIC SPACE SYSTEMS CORPORATION ELECTRONIC SPACE SYSTEMS CORPORATION, originally incorporated as Electronic Space Structures Corporation on July 5, 1961, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: The amendment set forth below to the Corporation's Restated Certificate of Incorporation, was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: Article NINTH is amended by the addition of a new Paragraph 6 to read in its entirety: 6. No director shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this paragraph shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. IN WITNESS WHEREOF, ELECTRONIC SPACE SYSTEMS CORPORATION has caused this Certificate to be signed and attested by its duly authorized officers, this 16th day of February, 1989. ELECTRONIC SPACE SYSTEMS CORPORATION By: /s/ Steven R. Scheff --------------------------------- President ATTEST: /s/ Charles R. Harking - ------------------------------------- Secretary CERTIFICATE OF AMENDMENT of the CERTIFICATE OF INCORPORATION of ELECTRONIC SPACE SYSTEMS CORPORATION (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) ------------------------------------- The undersigned, desiring to amend the certificate of incorporation of a Delaware corporation under the provisions of the General Corporation Law of the State of Delaware (the "GCL"), hereby certifies as follows: 1. The name of the corporation is: ELECTRONIC SPACE SYSTEMS CORPORATION (the "Corporation"). 2. Article "FIRST" of the certificate of incorporation of the Corporation is hereby amended to change the name of the Corporation from "ELECTRONIC SPACE SYSTEMS CORPORATION" to "L-3 COMMUNICATIONS ESSCO, INC.", said Article "FIRST" to read in its entirety as follows: "FIRST: The name of the corporation is: L-3 COMMUNICATIONS ESSCO, INC. (the "Corporation"). 3. The amendment herein certified has been duly adopted in accordance with Section 242 of the GCL. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed in its name by its officer as of the 8th day of December, 1998. ELECTRONIC SPACE SYSTEMS CORPORATION By: /s/ Christopher C. Cambria ------------------------------------ Christopher C. Cambria Vice President -1- EX-3.12 5 BY-LAWS OF L-3 COMMUNICATIONS ESSCO, INC. Exhibit 3.12 L-3 COMMUNICATIONS ESSCO, INC. BY-LAWS AS AMENDED THROUGH SEPTEMBER 22, 1986 ARTICLE I CERTIFICATE OF INCORPORATION The name, location of the principal office or place of business in Delaware, and the objects or purposes of the corporation shall be as set forth in its certificate of incorporation. These by-laws, the powers of the corporation and of its directors and stockholders, and all matters concerning the management of the business and conduct of the affairs of the corporation shall be subject to such provisions in regard thereto, if any, as are set forth in the certificate of incorporation; and the certificate of incorporation is hereby made a part of these by-laws. In these by-laws, references to the certificate of incorporation mean the provisions of the certificate of incorporation (as that term is defined in the General Corporation Law of the State of Delaware) of the corporation as from time to time in effect, and references to these by-laws or to any requirement or provision of law mean these by-laws or such requirement or provision of law as from time to time in effect. ARTICLE II ANNUAL MEETING OF STOCKHOLDERS The annual meeting of stockholders shall be held on or before the last day of December in each year. Purposes for which the annual meeting is to be held, additional to that prescribed by law, or by the certificate of incorporation and these by-laws, may be specified by the chairman of the board of directors. If the election of directors shall not be held on a day designated by these by-laws, the directors shall order the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and in such case all references in these by-laws, except in this Article II and in Article IV, to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called, and the purposes thereof shall be specified in the call, as provided in Article III. ARTICLE III SPECIAL MEETINGS OF STOCKHOLDERS A special meeting of the stockholders may be called at any time by the chairman of the board of directors. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by some other officer, upon written application of one or more stockholders who are entitled to vote and who hold at least twenty-five percent in interest of the capital stock entitled to vote at the meeting. Such call shall state the time, place and purposes of the meeting. ARTICLE IV PLACE OF STOCKHOLDERS' MEETING The annual election of directors, whether at the original or any adjourned session of the annual meeting of the stockholders or of a special meeting held in place thereof, shall be held in the Town of Concord, Commonwealth of Massachusetts, at such place within such city as the board of directors shall fix for each such meeting. Sessions of such meetings for any other purposes, and the original or any adjourned session of any other special meeting of the stockholders, shall be held at such place within or without the State of Delaware as shall be stated in the call or in the vote of adjournment, as the case may be. ARTICLE V NOTICE OF STOCKHOLDERS' MEETINGS Except as may be otherwise required by law, by the certificate of incorporation or by other provisions of these by-laws, a written notice of each meeting of stockholders, stating the place, day and hour thereof and the purposes for which the meeting is called, shall be given, at least ten 2 days before the meeting, to each stockholder entitled to vote thereat, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, addressed to such stockholder at his address as it appears upon the books of the corporation. Such notice shall be given by the secretary, or in case of death, absence, incapacity or refusal of the secretary, by some other officer or by a person designated by the chairman of the board. ARTICLE VI QUORUM AND ACTION OF STOCKHOLDERS At any meeting of the stockholders, a quorum for the election of any director or for the consideration of any question shall consist of a majority in interest of all stock issued and outstanding and entitled to vote for the election of such director or upon such question, respectively; except in any case where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Stock owned by the corporation, if any, shall not be deemed outstanding for this purpose. In any case any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. When a quorum for an election is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office. When a quorum for the consideration of a question is present at any meeting, a majority of the votes properly cast upon the question shall decide the question; except in any case where a larger vote is required by law, by the certificate of incorporation or by these by-laws. ARTICLE VII PROXIES AND VOTING Except as otherwise provided in the certificate of incorporation and subject to the provisions of Article XXIII, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock held by such stockholder, but no proxy shall be voted on after six months from its date, unless the proxy provides for a longer period; and except where the transfer books of the corporation shall have been closed or a date shall have been fixed as a record date for the determination of the stockholders entitled to vote, as provided in Article XXIII, no share of stock shall be voted 3 on at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election of directors. Shares of the capital stock of the corporation belonging to the corporation shall not be voted upon directly or indirectly. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held, or to give any consent permitted by law, and persons whose stock is pledged shall be entitled to vote, or to give any consent permitted by law, unless in the transfer by the pledgor on the books of the corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent said stock and vote thereon or give any such consent. The secretary shall prepare and make, at least ten days before every election of directors, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder during ordinary business hours, at the place where said election is to be held, for said ten days, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. The original or duplicate stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such election. ARTICLE VIII BOARD OF DIRECTORS The Board of Directors shall consist of not less than three nor more than seven directors and, within these limits, the number of directors shall be fixed by the stockholders at any annual or special meeting. In no event shall there be less than three directors. The directors shall be elected at the annual meeting of stockholders, by such stockholders as have the right to vote at such election. No director need be a stockholder. Each director shall hold office until the next annual meeting of the stockholders and until his successor is elected and qualified, or until he sooner dies, resigns or is removed or replaced. 4 ARTICLE IX POWERS OF THE BOARD OF DIRECTORS The board of directors shall have and may exercise all the powers of the corporation, except such as are conferred upon the stockholders by law, by the certificate of incorporation or by these by-laws. ARTICLE X COMMITTEES The board of directors may at any time and from time to time, by resolution adopted by a majority of the whole board (including any vacant directorships), designate, change the membership of or terminate the existence of any committee or committees, including if desired an executive committee, each committee to consist of two or more of the directors of the corporation. Each such committee shall have such name as may be determined from time to time by resolution adopted by the board of directors and shall have and may exercise such powers of the board of directors in the management of the business and affairs of the corporation, including power to authorize the seal of the corporation to be affixed to all papers which may require it, as may be determined from time to time by resolution adopted by a majority of the whole board (including any vacant directorships). All minutes of proceedings of committees shall be available to the board of directors on its request. ARTICLE XI MEETINGS OF THE BOARD OF DIRECTORS Regular meetings of the board of directors may be held without call or formal notice at such places either within or without the State of Delaware and at such times as the board may from time to time determine. A regular meeting of the board of directors may be held without call or formal notice immediately after and at the same place as the annual meeting of the stockholders. Special meetings of the board of directors may be held at any time and at any place either within or without the State of Delaware when called by the chairman of the board, or two or more directors, reasonable notice thereof being given to each director by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by the chairman or directors calling the meeting, or without 5 call or formal notice if each director then in office waives notice before or after the meeting. A waiver of notice in writing, signed by a director entitled to such notice, whether before or after the time of the meeting, shall be deemed equivalent to such notice to him. In any case it shall be deemed sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person either by telephone or by handing him a written notice at least twenty-four hours before the meeting. ARTICLE XII QUORUM AND ACTION OF DIRECTORS At any meeting of the board of directors, except in any case where a larger quorum or the vote of a larger number of directors is required by law, by the certificate of incorporation or by these by-laws, a quorum for any election or for the consideration of any question shall consist of three directors, but any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, the votes of a majority of the directors present and voting shall be requisite and sufficient for election to any office, and a majority of the directors present and voting shall decide any question brought before such meeting, except in any case where a larger vote is required by law, by the certificate of incorporation or by these by-laws. Any action required of the board of directors may be taken by a written and unanimous consent of all directors then in office. ARTICLE XIII OFFICERS AND AGENTS The officers of the corporation shall be a chairman of the board, a president, a treasurer, a secretary, and such other officers, if any, as the board of directors may in its discretion elect or appoint. The corporation may also have such agents, if any, as the board of directors may in its discretion appoint. The chairman of the board shall be chosen from among the directors. So far as is permitted by law any two or more offices may be held by the same person. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall 6 have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such duties and powers as the board of directors may from time to time designate. Officers shall be elected or appointed annually by the board of directors at its first meeting following the annual meeting of the stockholders. Additional officers may be elected or appointed by the board of directors at any time. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his successor is elected or appointed and qualified, or until he sooner dies, resigns, is removed or replaced or becomes disqualified. Each agent shall retain his authority at the pleasure of the board of directors. ARTICLE XIV CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND VICE PRESIDENTS The chairman of the board shall be the chief executive officer of the corporation and shall have general charge of the policies and direction of the corporation, and shall have such other duties and powers as shall be designated from time to time by the board of directors and these by-laws. The chairman of the board shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. The president shall be the chief operating officer of the corporation and shall have general charge and supervision of the business of the corporation, and shall have such other duties and powers as shall be designated from time to time by the board of directors, the chairman or these by-laws. In the ordinary conduct of the corporation's business, the president shall be responsible to and shall report to the chairman of the board of directors. In the absence of the chairman of the board, the president shall preside at all meetings of the stockholders and of the board of directors at which he is present and as otherwise voted by the board of directors. Any vice president shall have such duties and powers as shall be designated from time to time by the board of directors or by the president, and in any case shall be responsible to and shall report to the president. 7 ARTICLE XV TREASURER The treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable paper and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected the treasurer shall also have the duties and powers of the controller as provided in these by-laws. The treasurer shall be responsible to and shall report to the board of directors but in the ordinary conduct of the corporation's business shall be under the supervision of the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors or by the treasurer, and shall be responsible to and shall report to the treasurer. ARTICLE XVI CONTROLLER If a controller is elected, he shall be the chief accounting officer of the corporation and shall be in charge of its books of account and accounting records and of its accounting procedures and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. The controller shall be responsible to and shall report to the board of directors but in the ordinary conduct of the corporation's business shall be under the supervision of the treasurer. Any assistant controllers shall have such duties and powers as shall be designated from time to time by the board of directors or by the controller, and shall be responsible to and shall report to the controller. ARTICLE XVII SECRETARY The secretary shall record all the proceedings of the meetings of the stockholders and the board of directors, in a book or books to be kept for that purpose, and in his absence from any such meeting a temporary secretary shall be chosen who shall record the proceedings thereof. The secretary shall have charge of the stock ledger (which may, however, be kept by any transfer agent or agents 8 of the corporation), an original or duplicate of which shall at all times during the usual hours for business be open to the examination of every stockholder at the principal office of the corporation in Delaware. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors or by the secretary, and shall be responsible to and shall report to the secretary. ARTICLE XVIII RESIGNATIONS AND REMOVALS Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board or the president or to a meeting of the board of directors, and such resignation shall take effect at the time stated therein, or if no time be so stated upon its delivery, and without the necessity of its being accepted unless the resignation shall so state. The stockholders may, at any meeting called for the purpose, by a vote of a majority in interest of the stock issued and outstanding and entitled to vote for such removal, remove any director from office. The board of directors may at any time, by vote of a majority of the directors then in office, or the chairman of the board, may remove from office any officer. The board of directors may at any time, by vote of a majority of the directors present and voting, terminate or modify the authority of any agent. No director or officer resigning, and (except where a right to receive compensation for a definite future period shall be expressly provided in a written agreement with the corporation duly approved by the board of directors) no director or officer removed, shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise. ARTICLE XIX VACANCIES If the office of any director becomes vacant, by reason of death, resignation or removal, a successor may be appointed by the chairman of the board or elected by vote of a majority of the remaining directors then in office. If the office of any officer becomes vacant, by reason of death, resignation, removal or disqualification, a successor may be appointed by the chairman of the board or elected by vote of a majority of the directors present and voting. Each such 9 successor shall hold office for the unexpired term, and until his successor shall be elected or appointed and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. The board of directors shall have and may exercise all its powers notwithstanding the existence of one or more vacancies in its number as fixed by the stockholders, subject to any requirements of law or of these by-laws as to the number of directors required for a quorum or for any vote, resolution or other action. ARTICLE XX WAIVER 0F NOTICE Whenever any notice is required by law or under the provisions of the certificate of incorporation or of these by-laws, a waiver thereof, in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein or otherwise fixed for the meeting or other event for which notice is waived, shall be deemed equivalent to such notice. ARTICLE XXI CERTIFICATES OF STOCK Every holder of stock in the corporation shall be entitled to have a certificate, signed in the name of the corporation, by the chairman of the board and the president, or in lieu of the president, a vice president or the treasurer or an assistant treasurer or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation; provided, however, that where such certificate is signed (1) by a transfer agent or an assistant transfer agent or (2) by a transfer clerk acting on behalf of the corporation and a registrar, the signatures of the chairman of the board, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the corporation, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation, and any such issue and delivery shall be regarded as an 10 adoption by the corporation of such certificate or certificates. Certificates of stock shall be in such form as shall, in conformity to law, be prescribed from time to time by the board of directors. ARTICLE XXII TRANSFER OF SHARES OF STOCK Subject to applicable restrictions upon transfer, if any, title to a certificate of stock and to the shares represented thereby shall be transferred only by delivery of the certificate properly endorsed, or by delivery of the certificate accompanied by a written assignment of the same, or a written power of attorney to sell, assign or transfer the same or the shares represented thereby, properly executed; but the person registered on the books of the corporation as the owner of shares shall have the exclusive right to receive dividends thereon and, except as provided in Article VII with respect to stock which has been pledged, to vote thereon as such owner or to give any consent permitted by law, and shall be held liable for such calls and assessments, if any, as may lawfully be made thereon, and except only as may be required by law, may in all respects be treated by the corporation as the exclusive owner thereof. It shall be the duty of each stockholder to notify the corporation of his post office address. ARTICLE XXIII TRANSFER BOOKS; RECORD DATE The board of directors shall have power to close the stock transfer books of the corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding fifty days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the board of directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or any other of the above mentioned events, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, or to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital 11 stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. ARTICLE XXIV LOSS OF CERTIFICATES In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms in conformity with law as the board of directors may prescribe. ARTICLE XXV SEAL The corporate seal of the corporation shall, subject to alteration by the board of directors, consist of a flat-faced circular die with the words "CORPORATE SEAL DELAWARE", together with the name of the corporation and the year of its organization, cut or engraved thereon. The corporate seal of the corporation may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE XXVI EXECUTION OF PAPERS Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation shall be signed by the president or by one of the vice presidents or by the treasurer. 12 ARTICLE XXVII FISCAL YEAR Except as from time to time otherwise provided by the board of directors, the fiscal year of the corporation shall commence on the first day of October of each year. ARTICLE XXVIII AMENDMENTS These by-laws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal, or the articles to be affected thereby, or at any meeting of the board of directors by vote of a majority of the directors then in office, except that the number of directors may be increased only by action of the stockholders in the manner aforesaid. Any by-law, whether made, altered, amended or repealed by the stockholders or directors, may be repealed, amended, further amended or reinstated, as the case may be, by either the stockholders or the directors as aforesaid, except that the number of directors may be increased only by action of the stockholders in the manner aforesaid. Neither the time nor the place stated in these by-laws for the election of directors shall be changed within sixty days next before the day on which the election is to be held. A notice of any such change shall be given to each stockholder twenty days at least before the election is held, in person or by letter mailed to his last known post office address. 13 INSERT TO BYLAWS ARTICLE XXIX INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other than those by or in the Right of the Corporation. Subject to Section 3 of this Article XXIX, the corporation shall indemnify any person who was or is a party or is 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 corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article XXIX, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation; except that no indemnification shall be made in 14 respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine 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 which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article XXIX (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article XXIX, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote consisting of directors who were not parties to such action, suit or proceeding, or (ii) if a quorum of the Board of Directors is not obtainable, by the stockholders. To the extent, however, that a director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article XXIX, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the corporation or another enterprise, or on information supplied to him by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be 15 deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article XXIX, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article XXIX, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article XXIX. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article XXIX, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the corporation promptly upon the filing of such application. Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding, may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article XXIX. Section 7. Non-exclusivity and Survival of Indemnification. The indemnification and advancement of expenses provided by or granted pursuant to this Article XXIX shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Sections 1 and 2 of this Article XXIX shall be made to the fullest extent permitted by law. The provisions of this Article XXIX shall not be deemed to preclude the indemnification of any person who is specified in Sections 1 or 2 of this Article XXIX but whom the corporation has the obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article XXIX shall, unless otherwise provided when authorized or ratified, continue as to a person who has 16 ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. Section 8. Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article XXIX. Section 9. Meaning of "Corporation" for Purposes of Article XXIX. For purposes of this Article XXIX, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article XXIX with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 17 EX-3.13 6 CERTIFICATE OF INCORPORATION OF L-3 COMMUNICATIONS STORM CONTROL SYSTEMS, INC. Exhibit 3.13 ARTICLES OF INCORPORATION OF STORM INTEGRATION, INC., I The name of this corporation is STORM INTEGRATION, INC. II This corporation is a close corporation. All of the corporation's issued shares of all classes shall be held of record by not more than thirty-five (35) persons. III The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. IV The name and address in the State of California of this corporation's initial agent for service of process is: RICHARD GRICH, JR. 1912 MAGDALENA CIRCLE, NUMBER 98 SANTA CLARA, CALIFORNIA 95051 V This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is one million (1,000,000). VI The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. VII The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code), for breach of duty to the corporation and its stockholders through bylaw provisions, through agreements with the agents, or otherwise, in excess of that otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Dated: January 11, 1991 /s/ Richard Grich, Jr. ------------------------------- RICHARD GRICH, JR. Incorporator of STORM INTEGRATION, INC. 2 CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF STORM INTEGRATION, INC. a California corporation Richard J. Grich, Jr. and Paul G. Fregosi certify that: 1. They are the Vice President and Secretary, respectively, of Storm Integration, Inc., a California corporation (the "Corporation"); 2. ARTICLE V of the Articles of Incorporation of the Corporation is hereby amended to read in full as follows: "V. This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is two million five hundred thousand (2,500,000). Upon the amendment of this article to read as herein set forth, each outstanding share is split up and converted into two and one-half (2-1/2) shares. The shares of the Corporation may be issued from time to time in two series designated, respectively, Voting, of which the Corporation is authorized to issue seven hundred fifty thousand (750,000) shares and Non-Voting, of which the Corporation is authorized to issue one million seven hundred fifty thousand (1,750,000) shares. The rights, preferences, privileges and restrictions of the Voting and Non-Voting Common Stock shall be equal and identical in all respects except that, unless otherwise provided by law, the holders of shares of Voting Common Stock shall have and possess the exclusive right to notice of shareholders' meetings and the exclusive voting rights and power, and "the holders of Non-Voting Common Stock shall not be entitled to notice of any shareholders' meetings or to vote upon the election of directors or upon any other matters." 3. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the Board of Directors of the Corporation. 4. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the required vote of the shareholders of the Corporation in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of the Corporation is 80,000 shares of common stock. The number of shares voting in favor of the amendment equalled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding stock of the Corporation. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct or our own knowledge. Executed at Palo Alto, California this 3rd day of June, 1992. /s/ Richard J. Grich, Jr. ------------------------------ Richard J. Grich, Jr., Vice President /s/ Paul G. Fregosi -------------------- Paul G. Fregosi, Secretary CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF STORM INTEGRATION, INC. Chris R. Bourassa and Richard J. Grich, Jr. certify that: 1. They are the President and Secretary, respectively, of STORM INTEGRATION, INC., a California corporation (the "Corporation"); 2. ARTICLE V of the Articles of Incorporation of the Corporation is hereby amended to read in full as follows: "V. This Corporation is authorized to issue only one class of shares of stock; and the total number of shares which this Corporation is authorized to issue is fifty million (50,000,000) shares of Voting Common Stock. Upon the filing of the Amendment to this article to read as herein set forth, each share of Non-Voting Common Stock shall automatically be converted into one share of Voting Common Stock." 3. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the Board of Directors of the Corporation. 4. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the required vote of the shareholders of the Corporation in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of Voting Stock of the Corporation is 2,168,809 shares of comon stock. The number of shares voting in favor of the amendment equalled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding stock of the Corporation. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct or our own knowledge. Executed in San Jose, California this 14th day of December, 1994. /s/ Chris Bourassa -------------------- Chris Bourassa President /s/ Richard J. Grich, Jr. ------------------------------ Richard J. Grich, Jr. Secretary CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF STORM INTEGRATION, INC. Chris R. Bourassa and Richard J. Grich, Jr., certify that: 1. They are the President and the Secretary, respectively, of Storm Integration, Inc., a California corporation (the "Corporation"). 2. ARTICLE I of the Articles of Incorporation is hereby amended to read in full as follows: "I The name of this corporation is Storm Control Systems, Inc." 3. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the Corporation's Board of Directors. 4. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the required vote of the shareholders of the Corporation in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of Voting Stock of the Corporation is 2,414,120 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding stock of the Corporation. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed at San Jose, California this 5th day of May, 1997. /s/ Chris Bourassa -------------------- Chris R. Bourassa, President /s/ Richard J. Grich, Jr. -------------------- Richard J. Grich, Jr., Secretary CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF STORM CONTROL SYSTEMS, INC. Chris R. Bourassa and Richard J. Grich, Jr., certify that: 1. They are the President and the Secretary, respectively, of Storm Control Systems, Inc., a California corporation (the "Corporation"). 2. ARTICLE II of the Articles of Incorporation is hereby amended by deleting it in its entirety. 3. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the Corporation's Board of Directors. 4. The foregoing amendment to the Articles of Incorporation of the Corporation has been duly approved by the required vote of the shareholders of the Corporation in accordance with Sections 158 and 902 of the California Corporations Code. The total number of outstanding shares of Voting Stock of the Corporation is 3,554,723 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 66 2/3% of the outstanding stock of the Corporation. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed at Herndon, VA this 21st day of August, 1998. /s/ Chris R. Bourassa -------------------- Chris R. Bourassa, President /s/ Richard J. Grich, Jr. -------------------- Richard J. Grich, Jr., Secretary CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF STORM CONTROL SYSTEMS, INC. Christoper C. Cambria certifies that: 1. He is the Vice President and Secretary of Storm Control Systems, Inc., a California corporation. 2. Article I is amended to read as follows: "I. The name of this corporation is L-3 Communications Storm Control Systems, Inc." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the General Corporation Law of the State of California. The total number of outstanding shares of the corporation is 3,554,723. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Date: December 9, 1998 /s/ Christopher C. Cambria ----------------------------- Christopher C. Cambria, Vice President and Secretary EX-3.14 7 BY-LAWS OF L-3 COMMUNICATIONS STORM CONTROL SYSTEMS, INC. EXHIBIT 3.14 BYLAWS OF L-3 COMMUNICATIONS STORM CONTROL SYSTEMS, INC. A California Corporation ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office for the transaction of business of the corporation is hereby fixed and located at 50 Airport Parkway, San Jose, California 95110. The location may be changed by approval of a majority of the authorized Directors, and additional offices may be established and maintained at such other place or places, either within or without California, as the Board of Directors may from time to time designate. SECTION 2. OTHER OFFICES. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the corporation is qualified to do business. ARTICLE II DIRECTORS - MANAGEMENT SECTION 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions of the General Corporation Law and to any limitations in the Articles of Incorporation of the corporation relating to action required to be approved by the Shareholders, as that term is defined in Section 153 of the California Corporations Code, or by the outstanding shares, as that term is defined in Section 152 of the Code, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. PAGE 1 SECTION 2. STANDARD OF CARE. Each Director shall perform the duties of a Director, including the duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances. (Sec. 309) SECTION 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in Sec. 186, its Shareholders may enter into a Shareholders' Agreement as provided in Sec. 300 (b). Said agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the Shareholders, provided, however, such agreement shall, to the extent and so long as the discretion or the powers of the board in its management of corporate affairs is controlled by such agreement, impose upon each Shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Sec. 300 (d). SECTION 4. LIMITED LIABILITY OF DIRECTORS AND INDEMNIFICATION OF AGENTS. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The corporation shall indemnify agents (as defined in Section 317 of the Corporations Code), for breach of duty to the corporation and its stockholders in excess of that otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the Corporations Code. SECTION 5. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of Directors shall be. five (5) until changed by a duly adopted amendment to the articles of incorporation or by an amendment to this by-law adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Sec. 212. SECTION 6. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the Shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. SECTION 7. VACANCIES. Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a director by the vote or written consent of the Shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is PAGE 2 present, or by the written consent of holders of a majority of the outstanding shares entitled to vote, each director so elected shall hold office until the next annual meeting of the Shareholders and until a successor has been elected and qualified. The Shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors; any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any Director may resign effective on giving written notice to the Chairman of the Board, the President, The Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a Director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 8. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual Director may be removed from office as provided by Sections 302, 303 and 304 of the Corporations Code of the State of California. In such case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed. Section 9. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of Directors may be called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principal executive office of the corporation, unless some other place is designated in the notice of the meeting. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board or any committee thereof, shall be maintained as required by Sec. 312 of the Code by the Secretary or other Officer designated for that purpose. Section 10. ORGANIZATIONAL MEETING. The organizational meeting of the Board of Directors shall be held immediately following the adjournment of the initial meeting of the Shareholders. Section 11. OTHER REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, as follows: Time of Regular Meeting: 11:00 a.m. Date of Regular Meeting: First Tuesday In February PAGE 3 If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings. SECTION 12. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings of the Board may be called at any time by the President or, if he or she is absent or unable or refuses to act, by any Vice President or the Secretary or by any two (2) directors, or any one (1) Director if only one is provided. At least forty-eight (48) hours notice of the time and place of special meeting shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him or her at his or her address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director. When all of the Directors are present at any Directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors is present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation, or, (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. SECTION 13. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR BY-LAWS. In the event only one (1) Director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. PAGE 4 SECTION 14. DIRECTORS ACTION BY UNANIMOUS WRITTEN WRITTEN CONSENT. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and the the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the Regular minutes of the Board. SECTION 15. QUORUM. A majority of the number of Directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action or a majority of the Directors present at any meting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meeting. SECTION 16. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment. SECTION 17. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expenses, of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 18. COMMITTEES. Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two (2) or more members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board of Directors, except those powers expressly made non-delegable by Section 311 of the Corporations Code. SECTION 19. ADVISORY DIRECTORS. The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period PACE 5 during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. SECTION 20. RESIGNATIONS. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. ARTICLE III OFFICERS SECTION 1. OFFICERS. The Officers of the Corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article III. Any number of offices may be held by the same person. SECTION 2. ELECTION. The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or a successor shall be elected and qualified. SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. SECTION 4. REMOVAL AND RESIGNATION OP OFFICERS. Subject to the rights, if any, of an Officer under any contract of employment, any Officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting of the Board, or, except in case of an Officer chosen by the Board of Directors, by any Officer upon whom such power of removal may be conferred by the Board of Directors. PAGE 6 Any Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Officer is a party. SECTION 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to that office. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors or prescribed by the By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article III. SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there by such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He or she shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as, may be prescribed by the Board of Directors or the By-Laws. SECTION 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. PAGE 7 SECTION 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board of Directors required by the By-Laws or by law to be given. He or she shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may. be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director. This Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his or her transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. PAGE 8 ARTICLE IV SHAREHOLDERS' MEETINGS SECTION 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be held at the principal executive office of the corporation unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. SECTION 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall be held, each year, at the time and on the day following: Time of Meeting: 10:00 a.m. Date of Meeting: First Tuesday In February If this day shall be a legal holiday, then the meeting shall be held on the next succeeding business day, at the same hour. At the annual meeting, the Shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, Vice President, or secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these By-Laws or apply to the Superior Court as provided in Section 305 (c) of the California Corporations Code. PAGE 9 SECTION 4. NOTICE OF MEETINGS REPORTS. Notice of meetings, annual or special, shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting of Shareholders entitled to vote thereat. Such notice shall be given by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his or her neglect or refusal, by any Director or Shareholder. Such notices or any reports shall be given personally or by mail or other means of written communication as provided in Sec. 601 of the Code and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him or her to the corporation for the purpose of notice, and in the absence thereof, as provided in Sec. 601 of the Code. Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at date of notice to be presented by management for election. If a Shareholder supplies no address, notice shall be deemed to have been given if mailed to the place where the principal executive office of the corporation, in California, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof. When a meeting is adjourned for forty-five (45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Except as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. SECTION 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of Shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in Sec. 601 (e). PAGE 10 SECTION 6. SHAREHOLDERS ACTING WITHOUT A MEETING - DIRECTORS. Any action which may be taken at a meeting of the Shareholders may be taken without a meeting, or notice of meeting if authorized by a writing signed by all of the shareholders entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation, provided, further, that while ordinarily Directors can only be elected by unanimous written consent under Sec. 603 (d), if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors. SECTION 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided in the General Corporation Law or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, signed by the holders or outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all Shareholders entitled to vote have been solicited in writing, (1) Notice of any Shareholder approval pursuant to Secs. 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval, and (2) Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing. Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective proxy-holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. SECTION 8. QUORUM. The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to PAGE 11 time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified. If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum. SECTION 9. VOTING. Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of Shareholders, unless some other day be fixed by the Board of Directors for the determination of Shareholders of record, and then on such other day, shall be entitled to vote at such meeting. Provided the candidate's name has been placed in nomination prior to the voting and one or more Shareholder has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate their votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his or her shares are entitled, or distribute his or her votes on the same principle among as many candidates as he or she thinks fit. The candidates receiving the highest number of votes up to the number of Directors to be elected are elected. The Board of Directors may fix a time in the future not exceeding thirty (30) days preceding the date of any meeting of Shareholders or the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the termination of the Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive such dividends, distribution or allotment of rights, or to exercise such rights, as the case may be notwithstanding any transfer of any share on the books of the corporation after any recorded date fixed as aforesaid. The Board of Directors may close the books of the corporation against transfers of shares during the whole or any part of such period. PAGE 12 SECTION 10. PROXIES. Every shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Sec. 604 and 705 of the Code and filed with the Secretary of the corporation. SECTION 11. ORGANIZATION. The President, or in the absence of the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as Chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such meeting. The Secretary of the corporation shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting. SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of Shareholders the Board of Directors may, if they so elect, appoint inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any Shareholder or his or her proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one (1) or three (3) as determined by a majority of the Shareholders represented at the meeting. SECTION 13. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions, in the event this corporation elects to become a close corporation, an agreement between two (2) or more Shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Sec. 706, and may otherwise modify these provisions as to Shareholders' meetings and actions. SECTION 14. EFFECT OF SHAREHOLDERS' AGREEMENTS. Any shareholders' Agreement authorized by Sec. 300 (b), shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Sec. 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Secs. 158, (defining close corporations), 202 (requirements of Articles of Incorporation) 500 and 501 relative to distributions, 1100 et. seq. (merger), 1201 (e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. PAGE 13 ARTICLE IV CERTIFICATES AND TRANSFER OF SHARES SECTION 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable or, if assessments are collectible by personal action, a plain statement of such facts. All certificates shall be signed in the name of the corporation by the Chairman of the Board of Vice Chairman of the Board or the President or Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the Shareholder. Any or all of the signatures on the certificate may be facsimile. In case any Officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that Officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an Officer, transfer agent, or registrar at the date of issue. SECTION 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall, if the Directors so require, give the corporation a bond of indemnity, in the form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed. PAGE 14 SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. SECTION 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If no record date is fixed; the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. SECTION 6. LEGEND CONDITION. In the event any shares of this corporation are issued pursuant to a permit or exemption therefrom requiring the imposition of a legend condition, the person or persons issuing or transferring said shares shall make sure said legend appears on the certificate and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion. SECTION 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Corporations Code Section 418(c). PAGE 15 SECTION 8. PROVISION RESTRICTING TRANSFER OF SHARES. Before there can be a valid sale or transfer of any of the shares of this corporation by the holders thereof, the holder of the shares to be sold or transferred shall first give notice in writing to be Secretary of this Corporation of his or her intention to sell or transfer such shares. Said notice shall specify the number of shares to be sold or transferred, the price per share and the terms upon which such holder intends to make such sale or transfer. The Secretary shall within five (5) days thereafter, mail or deliver a copy of said notice to each of the other Shareholders of record of this corporation. Such notice may be delivered to such Shareholders personally or may be mailed to the last known addresses of such Shareholders, as the same may appear on the books of this corporation. Within days after the mailing or delivery of said notices to such Shareholders, any such Shareholder or Shareholders desiring to acquire any part or all of the shares referred to in said notice shall deliver by mail or otherwise to the Secretary of this corporation a written offer or offers to purchase a specified number or numbers of such shares at the price and upon the terms stated in said notice. If the total number of shares specified in such offers exceeds the number of shares referred to in said notice, each offering Shareholder shall be entitled to purchase such proportion of the shares referred to in said notice to the Secretary, as the number of shares of this corporation, which he or she holds, bears to the total number of shares held by all Shareholders desiring to purchase the shares referred to in said notice to the Secretary. If all of the shares referred to in said notice to the Secretary are not disposed of under such apportionment, each Shareholder desiring to purchase shares in a number in excess of his or her proportionate share, as provided above, shall be entitled to purchase such proportion of those shares which remain thus undisposed of, as the total number of shares which he or she holds bears to the total number of shares held by all of the Shareholders desiring to purchase shares in excess of those to which they are entitled under such apportionment. The aforesaid right to purchase the shares referred to in the aforesaid notice to the Secretary shall apply only if all of the share referred to in said notice are purchased. Unless all of the shares referred to in said notice to the Secretary are purchased, as aforesaid, in accordance with offers made within said days, the Shareholder desiring to sell or transfer may dispose of all shares of stock referred to in said notice to the Secretary to any person or persons whomsoever; provided, however, that he or she shall not sell or transfer such shares at a lower price or on terms more favorable to the purchaser or transferee than those specified in said notice to Secretary. PAGE 16 Any sale or transfer, or purported sale or transfer, of the shares of said corporation shall be null and void unless the terms, conditions and provisions of this section are strictly observed and followed. SECTION 9. PLEDGED OR HYPOTHECATED SHARES. Any Shareholder desiring to borrow money on or hypothecate any or all of the shares of stock held by such Shareholder shall first mail notice in writing to the Secretary of this corporation of his or her intention to do so. Said notice shall specify the number of shares to be pledged or hypothecated, the amount to be borrowed per share, the terms, rate of interest, and other provisions upon which each Shareholder intends to make such loan or hypothecation. The Secretary shall, within five (5) days thereafter, mail or deliver a copy of said notice to each of the other Shareholders of record of this corporation. Such notice may be delivered to such Shareholder personally, or may be mailed to the last known addresses of such Shareholders as the same may appear on the books of this corporation. Within fifteen (15) days after the mailing or delivering of said notice to said Shareholders, any such Shareholder or Shareholders desiring to lend any part or all of the amount sought to be borrowed, as set forth in said notice, at the terms therein specified, shall deliver by mail, or otherwise, to the Secretary of this corporation a written offer or offers to lend a certain amount of money for the term, at the rate of interest, and upon the other provisions specified in said notice. If the total amount of money subscribed in such offers exceeds the amount sought to be borrowed, specified in said notice, each offering Shareholder shall be entitled to lend such proportion of the amount sought to be borrowed, as set forth in said notice, as the number of shares which he or she holds bears to the total number of shares held by all such Shareholders desiring to lend all or part of the amount specified in said notice. If the entire amount of monies sought to be borrowed, as specified in said notice, is not subscribed as set forth in the preceding paragraphs, each Shareholder desiring to lend an amount in excess of his or her proportionate share, as specified in the preceding paragraph, shall be entitled to lend such proportion of the subscribed amount as the total number of share which he or she holds bears to the total number of shares held by all of the Shareholders desiring to lend an amount in excess of that to which they are entitled under such apportionment. If there be but one Shareholder so desiring to lend, such Shareholder shall be entitled to lend up to the full amount sought to be borrowed. PAGE 17 If none, or only a part of the amount sought to be borrowed, as specified in said notice, is subscribed as aforesaid, in accordance with offers made within said fifteen (15) day period, the Shareholder desiring to borrow may borrow from any person or persons he or she may so desire as to any or all shares of stock held by him or her which have not been covered by lending Shareholders; provided, however, that said Shareholders shall not borrow any lesser amount, or any amount on terms less favorable to the borrower, than those specified in said notice to the Secretary. Any pledge or hypothecation, or other purported transfer as security for a loan of the shares of this corporation, shall be null and void unless the terms, conditions and provisions of these By-Laws are strictly observed and followed. ARTICLE VI RECORDS - REPORTS - INSPECTION SECTION 1. RECORDS. The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office in the State of California, as fixed by the Board of Directors from time to time. SECTION 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided for in Sec. 1500 shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sec. 1600 - 1602. SECTION 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the Shareholders of the corporation at all reasonable times during office hours, as provided in Sec. 213 of the Corporations Code. SECTION 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. PAGE 18 SECTION 5. CONTRACTS, ETC. -- NOW EXECUTED. The Board of Directors, except as in the By-Laws otherwise provided, may authorize any Officer of Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 313 of the Corporations Code. ARTICLE VII ANNUAL REPORTS SECTION 1. REPORT TO SHAREHOLDERS, DUE DATE. The Board of Directors shall cause an annual report to be sent to the Shareholders not later than one hundred twenty (120) days after the close of the fiscal or calendar year adopted by the corporation. This report shall be sent at least fifteen (15) days before the annual meeting of Shareholders to be held during the next fiscal year and in the manner specified in Section 4 of Article IV of these By-Laws for giving notice to Shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized Officer of the corporation that the statements were prepared without audit from the books and records of the corporation. SECTION 2. WAIVER. The annual report to Shareholders referred to in section 1501 of the California General Corporation Law is expressly dispensed with so long as this corporation shall have less than one hundred (100) Shareholders. However, nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the Shareholders of the corporation as they consider appropriate. ARTICLE VIII AMENDMENTS TO BY-LAWS SECTION 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be amended or repealed by the vote or written consent of holders of a majority of the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that it the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. PAGE 19 SECTION 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VIII, and the limitations of Sec. 204(a) (5) and Sec. 212, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of Directors. SECTION 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, it shall be copied in the book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE IX CORPORATE SEAL The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the date of its incorporation, and the word "California." ARTICLE X MISCELLANEOUS SECTION 1. REFERENCES TO CODE SECTIONS. "Sec." references herein refer to the equivalent Sections of the General Corporation Law effective January 1, 1977, as amended. SECTION 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary. SECTION 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possession more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one (1) or more subsidiaries. PAGE 20 SECTION 4. INDEMNITY. The corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Sec. 317 of the Code. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. The provisions of this paragraph shall be construed in tandem with but subject to the provisions of Article II, Section 4 of these Bylaws. SECTION 5. ACCOUNTING YEAR. The accounting year of the corporation shall be fixed by resolution of the Board of Directors. CERTIFICATE OF ADOPTION OF BY-LAWS CERTIFICATE BY SECRETARY I DO HEREBY CERTIFY AS FOLLOWS: That I am the duly elected, qualified and acting Secretary of the above named corporation, that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 10th day of April, 1991. /s/ PAUL FREGOSI - ------------------------------- PAUL FREGOSI Secretary Of STORM INTEGRATION, INC. PAGE 21 EX-3.15 8 CERTIFICATE OF INCORPORATION OF L-3 COMMUNICATIONS DBS MICROWAVE, INC. Exhibit 3.15 ARTICLES OF INCORPORATION OF DBS MICROWAVE, INC. ONE: The name of this corporation is DBS MICROWAVE, INC. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporation Code. THREE: The name and address in this state of the corporation's initial agent for service of process is: Dan Lusky, 5049 Dory Way, Sacramento, CA 95628. FOUR: This corporation is authorized to issue only one class of shares of stock which shall be designated common stock. The total number of shares it is authorized to issue is five million (5,000,000) shares. FIVE: The names and addresses of the persons who are appointed to act as the initial directors of this corporation are: Dan Lusky 5049 Dory Way Sacramento, CA 95628 SIX: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California Law. SEVEN: The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the Corporations Code) for breach of duty to the corporation and its stockholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the Corporations Code. DBS MICROWAVE, INC. ARTICLES OF INCORPORATION PAGE 2 IN WITNESS WHEREOF, the undersigned, being all the persons named above as the initial directors, have executed these Articles of Incorporation. Dated 7/19/92 /s/ Dan Lusky ------------------------------- ----------------------------------- Dan Lusky The undersigned, being all the persons named above as the initial directors, declare that they are the persons who executed the foregoing Articles of Incorporation, which execution is their act and deed. Dated 7/19/92 /s/ Dan Lusky ------------------------------- ----------------------------------- Dan Lusky AMENDED AND RESTATED ARTICLES OF INCORPORATION OF DBS MICROWAVE, INC. Dan Lusky and Steve Fake certify that: 1. They are the President and Secretary, respectively, of DBS Microwave, Inc., a California corporation. 2. The Articles of Incorporation of the corporation are amended and restated to read as follows: ARTICLE I The name of the corporation is: DBS Microwave, Inc. ARTICLE II The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III The corporation is authorized to issue only one class of shares of stock which shall be designated common stock $.01 par value per share; and the total number of shares which the corporation is authorized to issue is 10,000,000. ARTICLE IV (a) The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents vote of shareholders or disinterested directors, or otherwise, to the fullest extent permissible under California law. (c) Any amendment, repeal or modification of any provision of this Article V shall not adversely affect any right or protection of an agent of the corporation existing at the time of such amendment, repeal or modification. 3. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code, The total number of outstanding shares of the corporation is 1,723,006 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares of Common Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: July 2, 1997. /s/ Dan Lusky ----------------------------------- Dan Lusky, President /s/ Steve Fake ----------------------------------- Steve Fake, Secretary -2- AGREEMENT OF MERGER This AGREEMENT OF MERGER is entered into as of November 6, 1998 (this "Agreement"), between L-3 COMMUNICATIONS DBS MICROWAVE, INC., a Delaware corporation ("Merger Sub"), and DBS MICROWAVE, INC., a California corporation (the "Company"). RECITALS A. Merger Sub and the Company, together with L-3 Communications Corporation, a Delaware corporation ("Parent"), and Daniel M. Lusky, Stephen R. Fake and Robert P. Anderson, the principal shareholders of the Company (collectively, the "Principals") are parties to an agreement dated as of October 2, 1998, and an amendment thereto dated as of November 3, 1998 (collectively, the "Plan of Merger"). B. The Plan of Merger sets forth the terms and conditions of the plan of merger for the merger of Merger Sub with and into the Company (the "Merger"). C. Merger Sub is a wholly owned subsidiary of Parent. D. The Boards of Directors of Merger Sub and the Company deem the Merger desirable and in the best interests of their respective corporations and shareholders, and such Boards of Directors have each approved the Merger. E. The approval of the Merger also requires the approval of the shareholders of Merger Sub and the Company. The Boards of Directors of Merger Sub and the Company have submitted the principal terms of the Merger to their respective shareholders and have received the requisite shareholder approval. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties agree as follows: 1. The Merger. On the Effective Date (as defined in Section 7), in accordance with the General Corporation Law of the State of Delaware ("DGCL") and the General Corporation Law of the State of California ("CGCL"). Merger Sub shall be merged with and into the Company, the separate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation") under the name of DBS Microwave, Inc. Merger Sub and the Company are sometimes referred to herein as the "Constituent Corporations". 2. Effect of the Merger. On and after the Effective Date; (a) the Merger in all respects shall have the effect provided for in Section 259 of the DGCL, in Section 1107 of the CGCL and in this Agreement; (b) the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature of each of the Constituent Corporations; (c) the Surviving Corporation shall be subject to all of the restrictions, disabilities and duties of each of the Constituent Corporations; (d) all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account, as well as all other things in action or belonging to each of the Constituent Corporations, shall be vested in the Surviving Corporation; (e) all property, rights, privileges, powers and franchises and all and every other interest of each of the Constituent Corporations shall be thereafter the property of the Surviving Corporation as they were of the respective Constituent Corporations, and the title to real estate (if any) vested by deed or otherwise, in either of the Constituent Corporations, shall not revert or be in any way impaired; (f) all rights of creditors and all liens upon any property of either of the Constituent Corporations shall he preserved unimpaired; and (g) all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred by it. 3. Charter Documents. On the Effective Date, the Articles of Incorporation and the Bylaws of the Company shall be the Articles of Incorporation and Bylaws of the Surviving Corporation, as in effect immediately prior to the Effective Date, until thereafter amended as provided therein and under the CGCL. 4. Consideration; Conversion of Shares. (a) Upon the terms and subject to the conditions set forth herein and in the Plan of Merger, the aggregate consideration to he paid for the entire equity interest of the Company shall be $13,000,000 subject to adjustment as provided in Sections 5 and 6 below (the "Aggregate Consideration"). (b) As of the Effective Date, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any Principal: (i) Each share of the Company's Common Stock issued and outstanding immediately prior to the Effective Date (other than Dissenting Shares, as such term is defined below) shall automatically he converted into the right to receive an amount equal to the quotient of (A) the Aggregate Consideration divided by (B) the total number of shares of the Company's Common Stock outstanding immediately prior to the Effective Date (the "Merger Consideration"). Each stock certificate which immediately prior to the Effective Date represented shares of the Company's Common Stock (each, a "Certificate") (other than Certificates representing Dissenting Shares) shall represent for all purposes only the right to receive the Merger Consideration, without interest thereon. (ii) Each share of the Company's Common Stock held in the treasury of the Company (if any) and each share of the Company's Common Stock held by the Parent (if any) immediately prior to the Effective Date shall automatically be canceled and retired and cease to exist and no payment shall be made with respect thereto. (iii) Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Date shall be converted into and constitute a validly issued, fully paid and nonassessable share of the common stock of the Surviving Corporation. (c) (i) Notwithstanding anything in this Agreement to the contrary shares of the Company's Common Stock held by any holder who becomes entitled to the payment of the fair value for such shares under Section 1300 of the CGCL, if such law provides for such payment in connection with the Merger (the "Dissenting Shares"), if any, shall be entitled to payment for Such shares only to the extent permitted by and in accordance with the provisions of the CGCL. Notwithstanding the foregoing, if in accordance with the CGCL, any holder of Dissenting Shares shall forfeit such right to payment of the fair market value of such shares of the Company's Common Stock, such shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Date, the right to receive the Merger Consideration on the same terms as the holders of non-Dissenting Shares in accordance with this Agreement. (ii) The Company shall give Parent (A) prompt notice of any written demands for payment or appraisal of any shares of the Company's Common Stock pursuant to Section 1300 of the CGCL, attempted withdrawals of such demands, and any other instruments served pursuant to the CGCL and received by the Company relating to shareholders' rights to dissent, and (B) the opportunity to direct all negotiations and proceedings with respect to demands for payment or appraisal under Section 1300 of the CGCL. The Company shall not, without the prior consent of Parent, voluntarily make any payment with respect to any demands for payment or appraisals of the capital stock of the Company, offer to settle or settle any demands, or approve any withdrawal of any such demands. Notwithstanding the foregoing, the Company may take any actions reasonably necessary to comply with Chapter 13 of the CGCL if compliance with this Section 4(c)(ii) would result in a violation of Chapter 13 of the CGCL. (d) With regard to any holder of shares of the Company's Common Stock (a "Shareholder") who exercised one or more options to purchase shares of the Company's Common Stock during October 1998 or November 1998, an amount (a "Shareholder Set-Off Amount") equal to the sum of (i) the unpaid principal of and interest of any promissory note issued by such Shareholder in connection with any such exercise, plus (ii) the estimated employee income tax, FICA tax and Medicare tax withholdings related to such exercise (an "Estimated Employee Stock Option Income Tax Withholding Amount") shall he set off against and deducted from the Merger Consideration payable to such Shareholder. Notwithstanding anything herein that may be to the contrary, the amount payable pursuant to Section 4(a) shall be reduced by the aggregate Shareholder Set-Off Amounts. (e) If any Shareholder fails to deliver the Certificates representing such Shareholder's shares of the Company's Common Stock, duly endorsed in blank or -3- accompanied by stock powers duly endorsed in blank, in proper form for transfer, or in the case of lost Certificates, an affidavit and indemnification agreement in form and substance satisfactory to Parent, in each case with guaranties of such Shareholder's signature thereon, then Parent and Merger Sub shall not be required to pay the Merger Consideration with respect to the shares of the Company's Common Stock represented by such Shareholder's Certificate until such time as such Certificates or such affidavit and indemnification agreement are so delivered to Parent and Merger Sub. 5. Adjustment of Aggregate Consideration. The Aggregate Consideration shall be: (a) increased dollar-for-dollar by the amount that the Effective Date Net Assets (as defined below) are greater than $745,941 (the "Target Net Assets"); or (b) decreased dollar-for-dollar by the amount that the Effective Date Net Assets are less than the Target Net Assets, in accordance with the provisions of Section 2.6 of the Plan of Merger. The term "Effective Date Net Assets" means the excess of the assets set forth on the Final Effective Date Balance Sheet as defined in the Plan of Merger) over the liabilities set forth on the Final Effective Date Balance Sheet, determined in accordance with the provisions of Section 2.6 of the Plan of Merger. The amount of any decrease or increase to the Aggregate Consideration pursuant to this section 5 plus interest from and including the Effective Date to but excluding the date of payment at the rate of 8.5% per annum shall be paid by the Shareholders or Parent, as the case may be within five business days after the Final Effective Date Balance Sheet is agreed to, in accordance with the provisions of Section 2.6 of the Plan of Merger. 6. Earnout Amounts. (a) Subject to all the terms and conditions of this Section 6 and Section 2.7 of the Plan of Merger, as additional consideration in the Merger, the Shareholders shall be entitled to the following additional payments from Parent after the Effective Date (the "Earnout Amounts"): (i) if the revenues of the Surviving Corporation in the fiscal year ending December 31, 1998 are at least equal to 50% of the revenues of the Company in the fiscal year ended December 31, 1997, an amount equal to $666,667; (ii) if the revenues of the Surviving Corporation in the fiscal year ending December 31, 1999 are at least equal to 50% of the revenues of the Company in the fiscal year ended December 31, 1997, an amount equal to $666,667; and (iii) if the revenues of the Surviving Corporation in the fiscal year ending December 31, 2000 are at least equal to 50% of the revenues of the Company in the fiscal year ended December 31, 1997, an amount equal to $666,666. The aggregate Earnout Amount(s) payable by Parent to the Shareholders pursuant to this Section 6 shall not in any event exceed cash in the amount of $2,000,000. (b) Notwithstanding anything else in this Section 6 or elsewhere in this Agreement that may be to the contrary; -4- (i) If none of the Principals is employed by the Surviving Corporation on the first anniversary of the Effective Date pursuant to the terms and provisions of their respective Employment Agreements with the Company entered into in connection with the Merger (each, an Employment Agreement" and collectively, the "Employment Agreements"), then the percentage referred to in clause (i) of Section 6(a) shall be adjusted to read 500% (instead of 50%) and the Earnout Amount pursuant to such clause (i) shall be calculated using such adjusted percentage; (ii) If none of the Principals is employed by the Surviving Corporation on the second anniversary of the Effective Date pursuant to the terms and provisions of their respective Employment Agreements, then the percentage referred to in clause (ii) of Section 6(a) shall be adjusted to read 500% (instead of 50%) and the Earnout Amount pursuant to such clause (ii) shall be calculated using such adjusted percentage; and (iii) If none of the Principals is employed by the Surviving Corporation on the third anniversary of the Effective Date pursuant to the terms and provisions of their respective Employment Agreements, then the percentage referred to in clause (iii) of Section 6(a) shall be adjusted to read 500% (instead of 50%) and the Earnout Amount pursuant to such clause (iii) shall be calculated using such adjusted percentage. (c) Notwithstanding anything else in this Section 6 or elsewhere in this Agreement that may be to the contrary: (i) If any one of the Principals is no longer employed by the Surviving Corporation on the first anniversary of the Effective Date. pursuant to the terms and provisions of such Principal's Employment Agreement then the Earnout Amount (if any) pursuant to clause (i) of Section 6(a) shall be adjusted by reducing the same by $222,222; (ii) If any two of the Principals are no longer employed by the Surviving Corporation on the first anniversary of the Effective Date, pursuant to the terms and provisions of their respective Employment Agreements, then the Earnout Amount (if any) pursuant to clause (i) of Section 6(a) shall be adjusted by reducing the same by $444,444; (iii) If any one of the Principals is no longer employed by the Surviving Corporation on the second anniversary of the Effective Date, pursuant to the terms and provisions of such Principal's Employment Agreement, then the Earnout Amount (if any) pursuant to clause (ii) of Section 6(a) shall be adjusted by reducing the same by $222,222; (iv) If any two of the Principals are no longer employed by the Surviving Corporation on the second anniversary of the Effective Date, pursuant to the -5- terms and provisions of their respective Employment Agreements, then the Earnout Amount (if any) pursuant to clause (ii) of Section 6(a) shall be adjusted by reducing the same by $444,444; (v) If any one of the Principals is no longer employed by the Surviving Corporation on the third anniversary of the Effective Date, pursuant to the terms and provisions of such Principal's Employment Agreement, then the Earnout Amount (if any) pursuant to clause (iii) of Section 6(a) shall be adjusted by reducing the same by $222,222; and (vi) If any two of the Principals are no longer employed by the Surviving Corporation on the third anniversary of the Effective Date, pursuant to the terms and provisions of their respective Employment Agreements, then the Earnout Amount (if any) pursuant to clause (iii) of Section 6(a) shall be adjusted by reducing the same by $444,444. (d) For purposes of this Section 6, there shall not be included in connection with the calculation of any Earnout Amount any revenues derived from or in respect of the addition to the Surviving Corporation, by acquisition or otherwise, of any business, operation or product line, other than any business, operation or product line developed internally by the Surviving Corporation. (e) Parent shall pay the Earnout Amount, if any, payable pursuant to clause (i), clause (ii) of Section 6(a) on the fifth business day after the first anniversary of the Effective Date, the second anniversary of the Effective Date and the third anniversary of the Effective Date, respectively. 7. Effective Date. the Merger shall become effective at the close of business on the date this Agreement is filed with the California Secretary of State (the "Effective Date"). 8. Termination. This Agreement may be terminated, and the Merger abandoned, at any time prior to the Effective Date, before or after approval by holders of the shares entitled to vote thereon of Merger Sub and the Company, by mutual written agreement of the Merger Sub and the Company. 9. Modification or Amendment. At any time prior to the Effective Date, the parties hereto may, by written agreement, make any modification or amendment of this Agreement; provided, however, that a modification or amendment made subsequent to the approval of the principal terms of the Merger by the shareholders of Merger Sub and the Company also shall require the approval of the shareholders of Merger Sub and the Company if and to the extent such approval is required by the DGCL or the CGCL, as the case may be. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the conflict of laws rules thereof, except that the corporation law aspects of this Agreement as applied to the Company shall be governed by the CGCL and that the corporation law aspects -6- of this Agreement as applied to Merger Sub shall be governed by the DGCL. 11. Counterparts. This Agreement may be executed with counterpart signature pages or in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 12. Miscellaneous. Nothing herein is intended to, and this Agreement shall not amend, modify, supplement, waive or supercede any of the terms, conditions and provisions of the Plan of Merger, all of which terms, conditions and provisions shall remain in full force and effect. A copy of the Plan of Merger is on file at the principal executive offices of the Company. 13. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. -7- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. L-3 COMMUNICATIONS DBS MICROWAVE, INC., a Delaware corporation. By: --------------------------------------------- Name: Christopher C. Cambria Title: Vice President and Secretary By: --------------------------------------------- Name: Robert F. Mehmel Title: Vice President and Assistant Secretary DBS MICROWAVE, INC., a California corporation By: /s/ Daniel M. Lusky --------------------------------------------- Name: Daniel M. Lusky Title: President By: /s/ Stephen R. Fake --------------------------------------------- Name: Stephen R. Fake Title: Secretary -8- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. L-3 COMMUNICATIONS DBS MICROWAVE, INC., a Delaware corporation. By: /s/ Christopher C. Cambria --------------------------------------------- Name: Christopher C. Cambria Title: Vice President and Secretary By: /s/ Robert F. Mehmel --------------------------------------------- Name: Robert F. Mehmel Title: Vice President and Assistant Secretary DBS MICROWAVE, INC., a California corporation By: --------------------------------------------- Name: Daniel M. Lusky Title: President By: --------------------------------------------- Name: Stephen R. Fake Title: Secretary -9- CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER Christopher C. Cambria and Robert F. Mehmel certify that: 1. They are the duly elected and acting Vice President and Assistant Secretary, respectively, of L-3 COMMUNICATIONS DBS MICROWAVE, INC., a Delaware corporation (the "Company"). 2. The Agreement of Merger in the form attached was duly approved by the Board of Directors of the Company. 3. The principal terms of the Agreement of Merger in the form attached were duly approved by the Company's shareholders by a vote of a number of shares of each class which equaled or exceeded the vote required. 4. The Company has only one class of shares of which 100 shares were outstanding and entitled to vote on the principal terms of the Agreement or Merger. The vote required was at least a majority of the outstanding shares entitled to vote. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at New York, New York, on November 6, 1998 /s/ Christopher C. Cambria ----------------------------- Christopher C. Cambria Vice President /s/ Robert P. Mehmel ----------------------------- Robert P. Mehmel Assistant Secretary CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER Daniel M. Lusky and Stephen R. Fake certify that: 1. They are the duly elected and acting President and Secretary, respectively, of DBS MICROWAVE, INC., a California corporation (the "Corporation"). 2. The Agreement of Merger in the form attached was duly approved by the Board of Directors of the Corporation. 3. The principal terms of the Agreement of Merger in the form attached were duly approved by the Corporation's shareholders by a vote of a number of shares of each class which equaled or exceeded the vote required. 4. The Corporation has only one class of shares of which 1,723,756 shares were outstanding and entitled to vote on the principal terms of the Agreement or Merger. The vote required was at least a majority of the outstanding shares entitled to vote. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at El Dorado Hills, California, on November 6, 1998 /s/ Daniel M. Lusky ----------------------------- Daniel M. Lusky /s/ Stephen R. Fake ----------------------------- Stephen R. Fake [SEAL] CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF DBS MICROWAVE, INC. Christopher C. Cambria certifies that: 1. He is the Vice president and Secretary of DBS Microwave, Inc., a California corporation. 2. Article I is a amended to read as follows: "I. The name of this corporation is L-3 Communications DBS Microwave, Inc." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the General Corporation Law of the State of California. The total number of outstanding shares of the corporation is 1,856,408. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of my own knowledge. Date December 9, 1998 /s/ Christopher C. Cambria ------------------------------- Christopher C. Cambria, Vice President and Secretary EX-3.16 9 BY-LAWS OF L-3 COMMUNICATIONS DBS MICROWAVE, INC. Exhibit 3.16 ------------------------------------------- BYLAWS of L-3 COMMUNICATIONS DBS MICROWAVE INC. (as originally adopted: September 21, 1998) ------------------------------------------- BYLAWS of L-3 COMMUNICATIONS DBS MICROWAVE INC. a Delaware corporation (hereinafter referred to as the "Company") ------------------------------------------- ARTICLE I - OFFICES Section 1.1. Location. The address of the registered office of the Company in the State of Delaware and the name of the registered agent at such address shall be as specified in the Certificate of Incorporation or, if subsequently changed, as specified in the most recent certificate of change filed pursuant to law. The Company may also have other offices at such places within or without the State of Delaware as the Board of Directors may from time to time designate or the business of the Company may require. Section 1.2. Change of Location. In the manner permitted by law, the Board of Directors or the registered agent may change the address of the Company's registered office in the State of Delaware and the Board of Directors may make, revoke or change the designation of the registered agent. ARTICLE II - MEETINGS OF STOCKHOLDERS Section 2.1. Annual Meeting. The annual meeting of the stockholders of the Company for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at the registered office of the Company, or at such other place within or without the State of Delaware as the Board of Directors may fix, at 10 o'clock A.M. on the 3rd Wednesday in April of each year commencing with the year 1999, but if such a date is a legal holiday, then on the next succeeding business day, or may be held by telephone conference or other similar means, or by written consent. Section 2.2. Special Meetings. Special meetings of stockholders, unless otherwise prescribed by law, may be called at any time by the Chairman of the Board, the President, the Secretary or by order of the Board of Directors. Special meetings of stockholders shall be held at such place within or without the State of Delaware as shall be designated in the notice of meeting, or may be held by telephone conference or other similar means, or by written consent. Section 2.3. Quorum. At any meeting of stockholders, except as otherwise expressly required by law or by the Certificate of Incorporation, the holders of record of at least a majority of the outstanding shares of capital stock entitled to vote or act at such meetings shall be present or represented by proxy in order to constitute a quorum for the transaction of any business, but less than a quorum shall have power to adjourn any meeting until a quorum shall be present. Section 2.4. Voting. At any meeting of stockholders at which a quorum shall be present, each matter shall be decided by majority vote of the shares voting on such matter, except as otherwise expressly required by law or by the Certificate of Incorporation and except as otherwise expressly provided in these Bylaws. Section 2.5. Action by Consent of Stockholders. Whenever any action by the stockholders at a meeting thereof is required or permitted by law, the Certificate of Incorporation or these Bylaws, such action may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of such action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III - BOARD OF DIRECTORS Section 3.1. General Powers. The property, business and affairs of the Company shall be managed by the Board of Directors. The Board of Directors may exercise all such powers of the Company and have such authority and do all such lawful acts and things as are permitted by law, the Certificate of Incorporation or these Bylaws. Section 3.2. Number of Directors. The Board of Directors of the Company shall consist of one or more members; the exact number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution adopted by a majority of the whole Board of Directors. Until the number of directors has been so fixed by the Board of Directors, the number of directors constituting the whole Board of Directors shall be one (1). -2- Section 3.3. Qualification. Directors need not be stockholders of the Company. Section 3.4. Election. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, after the first meeting of the Company at which directors are elected, directors of the Company shall be elected in each year at the annual meeting of stockholders or at a special meeting in lieu of the annual meeting called for such purpose, by a plurality of votes cast at such meeting. The voting on directors at any such meeting need not be by written ballot unless otherwise so requested by any stockholder. Section 3.5. Term. Each director shall hold office until his successor is duly elected and qualified, except in the event of the earlier termination of his term of office by reason of death, resignation, removal or other reason. Section 3.6. Resignation and Removal. Any director may resign at any time upon written notice to the Board of Directors, the President or the Secretary. Any director may be removed at any time for any reason and his place filled by the stockholders. Section 3.7. Vacancies. Vacancies in the Board of Directors (unless the vacancy be caused by the removal of a director) and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. The vacancy caused by the removal of a director shall be filled by the stockholders. Each director chosen to fill a vacancy on the Board of Directors shall hold office until the next annual election of directors and until his successor shall be elected and qualified. Section 3.8. Quorum and Voting. Unless the Certificate of Incorporation provides otherwise, at all meetings of the Board of Directors a majority of the total number of directors shall be present to constitute a quorum for the transaction of business. A director interested in a contract or transaction may be counted in determining the presence of a quorum at a meeting of the Board of Directors which authorizes the contract or transaction. In the absence of a quorum, a majority of the directors present may adjourn the meeting until a quorum shall be present. Members of the Board of Directors or any committee designated by the Board of Directors may participate in a -3- meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3.9. Regulations. The Board of Directors may hold its meetings and cause the books and records of the Company to be kept at such place or places within or without the State of Delaware as the Board of Directors may from time to time determine. A member of the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the Company by any of its officers, by an independent certified public accountant or by an appraiser selected with reasonable care by the Board of Directors or any committee of the Board of Directors or in relying in good faith upon other records of the Company. Section 3.10. Annual Meeting of Board of Directors. An annual meeting of the Board of Directors shall be called and held for the purpose of organization, election of officers and transaction of any other business. If such meeting is held promptly after and at the place specified for the annual meeting of stockholders, no notice of the annual meeting of the Board of Directors need be given. Otherwise such annual meeting shall be held at such time (not more than thirty days after the annual meeting of stockholders) and place as may be specified in a notice of the meeting. Section 3.11. Regular Meetings. Regular meetings of the Board of Directors shall be held at the time and place, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors. After there has been such determination and notice thereof has been given to each member of the Board of Directors, no further notice shall be required for any such regular meeting. Except as otherwise provided by law, any business may be transacted at any regular meeting. Section 3.12. Special Meetings. Special meetings of the Board of Directors may, unless otherwise prescribed by law, be called from time to time by the President, and shall be called by the President or the Secretary upon the written request of a majority of the whole Board of Directors directed to the President or the Secretary. Except as provided below, notice of any special meeting of -4- the Board of Directors, stating the time, place and purpose of such special meeting, shall be given to each director. Section 3.13. Notice of Meetings; Waiver of Notice. Notice of any meeting of the Board of Directors shall be deemed to be duly given to a director (i) if mailed to such director, addressed to him at his address as it appears upon the books of the Company or at the address last made known in writing to the Company by such director as the address to which such notices are to be sent, at least two days before the day on which such meeting is to be held, (ii) if sent to him at such address by telecopier, telex or telegraph, not later than the day before the day on which such meeting is to be held, or (iii) if delivered to him personally or orally, by telephone or otherwise, not later than the day before the day on which such meeting is to be held. Each such notice shall state the time and place of the meeting and the purposes thereof. Notice of any meeting of the Board of Directors need not be given to any director if waived by him in writing (or by telecopier, telex or telegram and confirmed in writing) whether before or after the holding of such meeting or if such director is present at such meeting. Any meeting of the Board of Directors shall be a duly constituted meeting without any notice thereof having been given if all directors then in office shall be present thereat. Section 3.14. Committees of Directors. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Company. Except as herein provided, vacancies in membership of any committee shall be filled by the vote of a majority of the whole Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Members of a committee shall hold office for such period as may be fixed by a resolution adopted by a majority of the whole Board of Directors, subject, however, to removal at any time by the vote of a majority of the whole Board of Directors. -5- Section 3.15. Powers and Duties of Committees. Any committee, to the extent provided in the resolution or resolutions creating such committee, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Company and may authorize the seal of the Company to be affixed to all papers which may require it. No such committee shall have the power or authority with regard to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Company's property and assets, recommending to the stockholders a dissolution of the Company or a revocation of a dissolution or amending the Bylaws. The Board of Directors may, in the resolution creating a committee, grant to such committee the power and authority to declare a dividend or authorize the issuance of stock. Section 3.16. Compensation of Directors. The Board of Directors may from time to time, in its discretion, fix the amounts which shall be payable to directors and to members of any committee of the Board of Directors for attendance at the meetings of the Board of Directors or of such committee and for services rendered to the Company. Section 3.17. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE IV - OFFICERS Section 4.1. Principal Officers. The principal officers of the Company shall be elected by the Board of Directors and shall include a President, a Secretary and a Treasurer and may, at the discretion of the Board of Directors, also include a Chairman of the Board, one or more Vice Presidents and a Controller. Except as otherwise provided in the Certificate of Incorporation or these Bylaws, one person may hold the offices and perform the duties of any two or more of said principal offices. Section 4.2. Election of Principal Officers: Term of Office. The principal officers of the Company shall be elected annually by the Board of Directors at each annual meeting of the Board of Directors. Failure to elect annually any principal officer shall not dissolve the Company. -6- If the Board of Directors shall fail to fill any principal office at an annual meeting, if any vacancy in any principal office shall occur or if any principal office shall be newly created, such principal office may be filled at any regular or special meeting of the Board of Directors. Each principal officer shall hold office until his successor is duly elected and qualified, or until his earlier death, resignation or removal. Section 4.3. Subordinate Officers. Agents and Employees. In addition to the principal officers, the Company may have one or more Assistant Treasurers, Assistant Secretaries, Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem advisable, each of whom shall hold office for such period and have such authority and perform such duties as the Board of Directors, the President or any officer designated by the Board of Directors may from time to time determine. The Board of Directors at any time may appoint and remove, or may delegate to any principal officer the power to appoint and to remove, any subordinate officer, agent or employee of the Company. Section 4.4. Delegation of Duties of Officers. The Board of Directors may delegate the duties and powers of any officer of the Company to any other officer or to any director for a specified period of time for any reason that the Board of Directors may deem sufficient. Section 4.5. Removal of Officers. Any officer of the Company may be removed with or without cause by resolution adopted by a majority of the directors then in office at any regular or special meeting of the Board of Directors or by a written consent signed by all of the directors then in office. Section 4.6. Resignations. Any officer may resign at any time by giving written notice of resignation to the Board of Directors, to the President or to the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein. Unless otherwise specified in the notice, the acceptance of a resignation shall not be necessary to make the resignation effective. Section 4.7. Chairman of the Board. The Chairman of the Board, if any, shall preside at all meetings of stockholders and of the Board of Directors at which he is present. The Chairman of the Board shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. -7- Section 4.8. President. The President shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors at which he is present. The President shall be the chief executive officer of the Company and shall have general supervision over the business of the Company. The President shall have all powers and duties usually incident to the office of the President except as specifically limited by a resolution of the Board of Directors. The President shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. Section 4.9. Vice President. In the absence or disability of the President or if the office of President be vacant, the Vice Presidents in the order determined by the Board of Directors, or if no such determination has been made in the order of their seniority, shall perform the duties and exercise the powers of the President, subject to the right of the Board of Directors at any time to extend or confine such powers and duties or to assign them to others. Any Vice President may have such additional designation in his title as the Board of Directors may determine. The Vice Presidents shall generally assist the President in such manner as the President shall direct. Each Vice President shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.10. Secretary. The Secretary shall act as Secretary of all meetings of stockholders and of the Board of Directors at which he is present, shall record all the proceedings of all such meetings in a book to be kept for that purpose, shall have supervision over the giving and service of notices of the Company and shall have supervision over the care and custody of the records and seal of the Company. The Secretary shall be empowered to affix the corporate seal to documents, the execution of which on behalf of the Company under its seal is duly authorized, and when so affixed may attest the same. The Secretary shall have all powers and duties usually incident to the office of Secretary except as specifically limited by a resolution of the Board of Directors. The Secretary shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.11. Treasurer. The Treasurer shall have general supervision over the care and custody of the funds and over the receipts and disbursements of the Company and shall cause the funds of the Company to be deposited in the name of the Company in such banks or other depositaries as the Board of Directors may designate. The Treasurer -8- shall have supervision over the care and safekeeping of the securities of the Company. The Treasurer shall have all powers and duties usually incident to the office of Treasurer except as specifically limited by a resolution of the Board of Directors. The Treasurer shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.12. Controller. The Controller shall be the chief accounting officer of the Company and shall have supervision over the maintenance and custody of the accounting operations of the Company, including the keeping of accurate accounts of all receipts and disbursements and all other financial transactions. The Controller shall have all powers and duties usually incident to the office of Controller except as specifically limited by a resolution of the Board of Directors. The Controller shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.13. Bond. The Board of Directors shall have power, to the extent permitted by law, to require any officer, agent or employee of the Company to give bond for the faithful discharge of his duties in such form and with such surety or sureties as the Board of Directors may determine. ARTICLE V - CAPITAL STOCK Section 5.1. Issuance of Certificates for Stock. Each stockholder of the Company shall be entitled to a certificate or certificates in such form as shall be approved by the Board of Directors certifying the number of shares of capital stock of the Company owned by such stockholder. Section 5.2. Signatures on Stock Certificates. Certificates for shares of capital stock of the Company shall be signed by, or in the name of the Company by, the Chairman of the Board, the President or a Vice President and by the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Company with the same effect as if such signer were such officer, transfer agent or registrar at the date of issue. -9- Section 5.3. Stock Ledger. A record of all certificates for capital stock issued by the Company shall be kept by the Secretary or any other officer or employee of the Company designated by the Secretary or by any transfer clerk or transfer agent appointed pursuant to Section 5.4 hereof. Such record shall show the name and address of the person, firm or corporation in which certificates for capital stock are registered, the number of shares represented by each such certificate, the date of each such certificate and in case of certificates which have been canceled the dates of cancellation thereof. The Company shall be entitled to treat the holder of record of shares of capital stock as shown on the stock ledger as the owner thereof and as the person entitled to receive dividends thereon, to vote such shares and to receive notice of meetings and for all other purposes. The Company shall not be bound to recognize any equitable or other claim to or interest in any share of capital stock on the part of any other person whether or not the Company shall have express or other notice thereof. Section 5.4. Regulations Relating to Transfer. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with law, the Certificate of Incorporation or these Bylaws, concerning issuance, transfer and registration of certificates for shares of capital stock of the Company. The Board of Directors may appoint, or authorize any principal officer to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars and may require all certificates for capital stock to bear the signature or signatures of any of them. Section 5.5. Transfers. Transfers of capital stock shall be made on the books of the Company only upon delivery to the Company or its transfer agent of (i) a written direction of the registered holder named in the certificate or such holder's attorney lawfully constituted in writing, (ii) the certificate for the shares of capital stock being transferred and (iii) a written assignment of the shares of capital stock evidenced thereby. Section 5.6. Cancellation. Each certificate for capital stock surrendered to the Company for exchange or transfer shall be canceled and no new certificate or certificates shall be issued in exchange for any existing certificate (other than pursuant to Section 5.7) until such existing certificate shall have been canceled. Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates. In the event that any certificate for shares of capital stock of the Company shall be -10- mutilated, the Company shall issue a new certificate in place of such mutilated certificate. In case any such certificate shall be lost, stolen or destroyed, the Company may, in the discretion of the Board of Directors or a committee designated thereby with power so to act, issue a new certificate for capital stock in the place of any such lost, stolen or destroyed certificate. The applicant for any substituted certificate or certificates shall surrender any mutilated certificate or, in the case of any lost, stolen or destroyed certificate, furnish satisfactory proof of such loss, theft or destruction of such certificate and of the ownership thereof. The Board of Directors or such committee may, in its discretion, require the owner of a lost, stolen or destroyed certificate or his representatives to furnish to the Company a bond with an acceptable surety or sureties and in such sum as will be sufficient to indemnify the Company against any claim that may be made against it on account of the lost, stolen or destroyed certificate or the issuance of such new certificate. A new certificate may be issued without requiring a bond when, in the judgment of the Board of Directors, it is proper to do so. Section 5.8. Fixing of Record Dates. (a) The Board of Directors may fix in advance a record date, which shall not be more than sixty nor less than ten days before the date of any meeting of stockholders nor more than sixty days prior to any other action, for the purpose of determining stockholders entitled to notice of or to vote at such meeting of stockholders or any adjournment thereof, to express consent or dissent to corporate action in writing without a meeting or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action. (b) If no record date is fixed by the Board of Directors: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived at the close of business on the day next preceding the day on which the meeting is held; (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action by the Board of Directors is -11- necessary shall be the day on which the first consent is expressed; (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VI - INDEMNIFICATION Section 6.1. General. To the fullest extent permitted by applicable law, the Company shall indemnify, and advance Expenses (as hereinafter defined) to, each and every person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in which such person is or was serving at the request of the Company and who, because of any such position or status, is directly or indirectly involved in any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative (a "Proceeding"). "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. Section 6.2. Indemnification Insurance. The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such whether or not the Company would have the power to indemnify him against such liability under applicable law. -12- ARTICLE VII - MISCELLANEOUS PROVISIONS Section 7.1. Corporate Seal. The seal of the Company shall be circular in form with the name of the Company in the circumference and the words and figures "Corporate Seal - 1998 Delaware" in the center. The seal may be used by causing it to be affixed or impressed, or a facsimile thereof may be reproduced or otherwise used in such manner as the Board of Directors may determine. Section 7.2. Fiscal Year. The fiscal year of the Company shall be from the 1st day of January to the 31st day of December, inclusive, in each year, or such other twelve consecutive months as the Board of Directors may designate. Section 7.3. Waiver of Notice. Whenever any notice is required to be given under any provision of law the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 7.4. Execution of Instruments, Contracts, etc. (a) All checks, drafts, bills of exchange, notes or other obligations or orders for the payment of money shall be signed in the name of the Company by such officer or officers or person or persons as the Board of Directors may from time to time designate. (b) Except as otherwise provided by law, the Board of Directors, any committee given specific authority in the premises by the Board of Directors or any committee given authority to exercise generally the powers of the Board of Directors during the intervals between meetings of the Board of Directors may authorize any officer, employee or agent, in the name of and on behalf of the Company, to enter into or execute and deliver deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. (c) All applications, written instruments and papers required by or filed with any department of the United States Government or any state, county, municipal or other governmental official or authority may if permitted by applicable law be executed in the name of the Company by any principal officer or subordinate officer of the Company or, -13- to the extent designated for such purpose from time to time by the Board of Directors, by an employee or agent of the Company. Such designation may contain the power to substitute, in the discretion of the person named, one or more other persons. ARTICLE VIII - AMENDMENTS Section 8.1. By Stockholders. These Bylaws may be amended, added to, altered or repealed, or new Bylaws may be adopted, at any meeting of stockholders by the vote of the holders of not less than a majority of the outstanding shares of stock entitled to vote thereat, provided that, in the case of a special meeting, notice that an amendment is to be considered and acted upon shall be inserted in the notice or waiver of notice of said meeting. Section 8.2. By Directors. To the extent permitted by the Certificate of Incorporation, these Bylaws may be amended, added to, altered or repealed, or new Bylaws may be adopted, at any regular or special meeting of the Board of Directors. -14- EX-3.17 10 CERTIFICATE OF INCORPORATION OF SPD ELECTRICAL SYSTEMS, INC. Exhibit 3.17 CERTIFICATE OF INCORPORATION OF SPD TECHNOLOGIES, INC. FIRST. The name of the Corporation is SPD TECHNOLOGIES, INC. SECOND. The location of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is THE CORPORATION TRUST COMPANY. THIRD. The nature of the business or purposes to be conducted or promoted is to engage in, and to do any lawful act for which corporations may be incorporated under the General Corporation Law of Delaware. FOURTH. The Corporation is to have perpetual existence. FIFTH. The authorized capital stock of the Corporation shall be 1,000,000 Common Shares with a par value of $.0l per share. SIXTH. The Corporation may issue shares, option rights, or securities having conversion or option rights, without first offering them to shareholders of any class or classes. SEVENTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the bylaws of the Corporation. EIGHTH. Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide. Meetings of shareholders may be held within or without the State of Delaware as the by-laws may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors, subject to the provisions of law. NINTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation. TENTH. A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. ELEVENTH. The name and mailing address of each incorporator is as follows: Name Mailing Address ---- --------------- BARBARA A. SCHECKENBACH Obermayer, Rebmann, Maxwell & Hippel 14th Floor, Packard Building 15th & Chestnut Streets Philadelphia, PA 19102 -2- I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts stated herein are true and accordingly have hereunto set my hand this 23rd day of March, 1987. /s/ BARBARA A. SCHECKENBACH --------------------------- BARBARA A. SCHECKENBACH -3- CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF INCORPORATION OF SPD TECHNOLOGIES, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON MARCH 25, 1987. SPD TECHNOLOGIES, INC. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is SPD TECHNOLOGIES, INC. 2. That a Certificate of Incorporation was filed by the Secretary of State of Delaware on March 25, 1987 and that said certificate requires correction as permitted by subsection (F) of section 103 of The General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said certificate to be corrected is as follows: The name of the corporation is incorrect 4. Article First of the certificate is corrected to read as follows: 1. The name of the corporation is SPD TECHNOLOGIES INC. IN WITNESS WHEREOF, said SPD TECHNOLOGIES, INC. has caused this certificate to be signed by Barbara A. Scheckenback its incorporator, this 22th day of 1987. SPD TECHNOLOGIES, INC. By /s/ BARBARA A. SCHECKENBACK ------------------------------ BARBARA A. SCHECKENBACK Incorporator CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SPD TECHNOLOGIES INC. SPD TECHNOLOGIES INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: "RESOLVED, that Article First of the Certificate of Incorporation be amended to read as follows: FIRST: The name of the Corporation is SPD Electrical Systems, Inc. SECOND: That, in lieu of a meeting and a vote of stockholders, the stockholders have given unanimous written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That such amendment was duly adopted in accordance with the applicable provisions of Sections 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, SPD TECHNOLOGIES INC. has caused this certificate to be signed by Larry A. Colangelo, its President, this 24 day of July, 1997. ATTEST: SPD TECHNOLOGIES INC. /s/ John C. Fleury By: /s/ Larry A. Colangelo - --------------------------- ------------------------------ Secretary EX-3.18 11 BY-LAWS OF SPD ELECTRICAL SYSTEMS, INC. Exhibit 3.18 SPD ELECTRICAL SYSTEMS, INC. BYLAWS SECTION 1. STOCKHOLDER MEETINGS 1.01 Place of Meeting. Meetings of stockholders of the Corporation shall be held at such place within or without the State of Delaware as the Board of Directors may determine. 1.02. Annual Meetings. An annual meeting of the stockholders of the Corporation shall be held on such date and at such place and hour, as the Board of Directors may fix, for the election of directors and such other business as may properly come before an annual meeting of stockholders. 1.03 Special Meetings. Special meetings of the stockholders of the Corporation may be called by the Board of Directors, the Chairman of the Board (if any), the President or by the holders of a majority of the shares entitled to vote at any such meeting. 1.04 Notice of Meetings. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting no less than ten nor more than 60 days prior to the date of the meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such written notice shall be given by United States mail, postage prepaid, or by hand delivery, telex, or electronic transmission which provides a written copy to the recipient and for which a written receipt or confirmation is given to the sender, to the stockholder at his address as it appears on the records of the Corporation. 1.05 Quorum and Required Vote. No action other than adjournment shall be taken at a meeting of stockholders unless a quorum is present. The presence in person or by proxy of the holders of a majority of shares entitled to vote at the meeting shall constitute a quorum. Unless a greater vote is required by law or these Bylaws with respect to a particular matter, action may be taken upon receiving the affirmative vote of the holders of a majority of the shares present and voting at a meeting at which a quorum is present. 1.06 Action by Written Consent. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of such action shall be given to those stockholders who have not consented in writing. -2- SECTION 2. DIRECTORS AND DIRECTORS MEETINGS 2.01 Management of the Corporation. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. 2.02 Number of Directors; Election. The number of directors of the Corporation shall initially be one and thereafter as the Board of Directors may determine from time to time, but shall not be less than three nor more than nine. Directors shall be elected at the annual meeting of stockholders, except that if a vacancy shall occur in the Board of Directors by reason of resignation, an increase in the number of directors or otherwise, the remaining Directors, although less than a quorum, may appoint a person to fill such vacancy. Each Director shall serve until the next annual meeting of stockholders and until his successor is duly elected. 2.03 Meetings of the Board of Directors. The Board of Directors may hold meetings within or without the State of Delaware. An annual meeting of the Board of Directors for the purpose of electing officers of the Corporation and conducting any other business which may properly come before the meeting shall be held as promptly as practicable following the annual meeting of stockholders of the Corporation. The Board of Directors may establish a schedule of regular meetings, setting forth the dates, times and places thereof. Whether or not the -3- Board adopts such a schedule of regular meetings, special meetings of the Board of Directors may be called by the Chairman of the Board, if any, by the President or by a majority of the Board of Directors. 2.04 Notice of Meetings. Notice of the annual meeting or of any regularly-scheduled meeting of the Board of Directors shall not be required. Notice of each special meeting of the Board of Directors shall be in writing and shall be given to each director not less than three days prior to the date of the meeting. Any such notice shall be deemed to have been given one business day after it is placed in the United States mail, postage prepaid, addressed to each Director at his address as shown on the records of the Corporation, or immediately upon personal delivery thereof or transmission thereof by telegram, radiogram, telex, telecopier, or other means of instantaneous delivery which provides a written copy to the recipient. 2.05 Quorum and Required Vote. No action other than adjournment shall be taken at a meeting of the Board of Directors unless a quorum is present. A majority of the Directors in office shall constitute a quorum. Unless a greater vote is required by law or by these Bylaws with respect to a particular matter, action may be taken upon receiving the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present. -4- 2.06 Participation in Meetings. One or more Directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and any Director so participating shall be considered present at the meeting for all purposes. 2.07 Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 2.08 Compensation of Directors. The Board of Directors may fix the compensation, if any, of Directors. The reasonable expenses incurred by the Directors of the Corporation to attend Board meetings shall be reimbursed by the Corporation. 2.09 Chairman of the Board of Directors. The President of the Corporation, if he is a director, shall serve as Chairman of the Board of Directors, unless the Board of Directors elects another person to act as Chairman of the Board. The Chairman of the Board, if so elected, shall serve as chairman of all meetings of the Board of Directors at which he is present and -5- at all meetings of stockholders at which he is present and, in his absence, the President or other person designated by the Board of Directors shall serve as chairman of the meeting. The Chairman of the Board shall have such other duties as may, from time to time, be assigned to him by the Board of Directors. SECTION 3. COMMITTEES 3.01 Executive Committee. The Board of Directors shall have the power to elect from the Directors an Executive Committee of two or more members. Unless otherwise directed by the Board of Directors, each elected member of the Executive Committee shall continue to be a member thereof until the expiration of his term of office as a Director. The Board of Directors, by majority vote of all Directors, shall fill vacancies in the Executive Committee, but during the temporary absence of a member of the Executive Committee, the remaining members of the Committee may appoint a member of the Board of Directors to act in his place. The Executive Committee may fix its own rules of proceeding, and shall meet at such times, in such places, and upon such notice as may be provided by such rules or by resolution of the Board of Directors. The presence of a majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the members of the Committee present at a meeting shall be necessary for the adoption of any -6- resolution. The Executive Committee shall have such powers, authority and duties as may properly be assigned to it by the Board of Directors. Unless the Board of Directors otherwise directs, during the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock or to approve and recommend to stockholders any action requiring stockholder approval. The Executive Committee shall exercise such powers in a manner which it shall deem in the best interests of the Corporation in all cases in which specific directions shall not have been given by the Board of Directors. All actions by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action. 3.02 Other Committees. The Board of Directors may designate one or more additional committees consisting of one or more Directors which shall have such powers, authority and duties as may properly be assigned to them by the Board of Directors. A majority of all Directors shall fill any vacancies existing in any such committees, but during the temporary absence of any member of any such committee, the remaining members of the committee may appoint a member of the Board of Directors to act in his place. Any such committee appointed by the Board of Directors may fix its own rules of proceedings and shall meet at -7- such time and place and upon such notice as may be provided by such rules or by resolution of the Board of Directors. All actions by any such committee shall be reported to the Board of Directors at its meeting next succeeding such action. SECTION 4. OFFICERS 4.01 Officers. The officers of the Corporation shall be a President, one or more Vice-Presidents, a Secretary, a Treasurer or Chief Financial Officer and such other officers as the Board of Directors may from time to time determine. Officers shall be elected at each annual meeting of the Board of Directors and shall serve at the pleasure of the Board of Directors. The failure to hold an annual meeting of Directors as set forth in these Bylaws shall not invalidate any action taken by an officer of the Corporation who has been duly elected and not replaced by the Board of Directors. 4.02 The President. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall be responsible for the carrying out of the orders and resolutions of the Board of Directors. 4.03 The Vice-President or Vice-Presidents. In the absence of the President or in the event of his inability or -8- refusal to act, the Vice-President can in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such powers as the Board of Directors or the President may from time to time prescribe. 4.04 The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, shall record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it. When so affixed, the corporate seal may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal -9- of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. SECTION 5. INDEMNIFICATION 5.01 General Right to Indemnification. Every person who was or is a party or is threatened to be made a carry to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action, suit or proceeding by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the authorization, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including in any capacity with respect to an employee benefit plan, shall be indemnified by the Corporation against any and all liability, expenses (including attorney's fees), judgments and losses actually and reasonably incurred by him in connection with any such action, suit or proceeding to -10- the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted by such law prior to such amendment). Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of his heirs, executors and administrators. 5.02 Advance of Expenses. The Corporation shall have the right, but not the obligation, to pay expenses incurred by any Director or officer of the Corporation in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section 5. Such expenses incurred by other employees and agents may also be so paid upon such terms and conditions, as the Board of Directors deems appropriate. 5.03 Non-Exclusivity. The right to indemnification and payment of expenses provided in Section 5 shall not be deemed to be exclusive of any other rights to which the person seeking indemnification or payment of expenses may be entitled under -11- these Bylaws or any agreement by or with the Corporation, by vote of stockholders or disinterested directors of the Corporation, or otherwise. 5.04 Joint Indemnification. The amounts to be paid for or on behalf of any person by the Corporation as indemnification under these bylaws or applicable law with respect to any matter shall be reduced by the amount such person is entitled to receive as indemnification for the same matter from any other source. 5.05 Insurance. The Corporation may, at its own expense, maintain insurance to protect itself and any Director, officer, employee or agent of the Corporation, or another corporation, partnership, joint venture, trust or other enterprise against any liability, expense, judgment or loss, whether or not the Corporation would have the power to indemnify such person against such liability, expense, judgment, fine or loss under the Delaware General Corporation Law. SECTION 6. EMERGENCY ACTION 6.01 General. Notwithstanding any other provision of these bylaws, in the event of an emergency resulting from war, military attack, nuclear or other atomic disaster or any other major catastrophe, including precipitous change of government in the nation, state or similar political entity in which a -12- stockholder or Director is then present, or if such person shall become physically or mentally incapacitated or shall disappear, as a result of which a quorum of stockholders or directors cannot be readily convened or communicated with, for the purposes of action believed to be necessary or desired by a majority of the remaining stockholders or directors: (a) A meeting of the stockholders or directors may be called by any member thereof in the manner otherwise provided for in these Bylaws; (b) The stockholders or directors, as the case may be, who are not rendered unavailable as aforesaid shall be deemed to be the entirety of the body of stockholders or of the Board of Directors for all purposes, and their actions, if otherwise in conformity with these Bylaws and applicable law, shall be as valid and effective as if taken with the participation and assent of the persons so rendered unavailable. The minutes of every emergency meeting held, and every written consent executed, under authority of this Section 6 shall be distributed to the missing person or persons as promptly as practicable. In no event shall any action be taken under this Section 6 by less than two of the stockholders or two of the Directors. -13- SECTION 7. SHARES AND CERTIFICATES 7.01 Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the President and the Secretary or Assistant Secretary and sealed with the corporate seal, which may be a facsimile. If such certificate is signed by a transfer agent or registrar, the signature of any corporate officer upon such certificate may be a facsimile. The signature of any corporate officers upon a certificate shall not be invalidated by his subsequent death or resignation. 7.02 Transfers of Stock. Transfers of share certificates and the shares represented thereby shall be made only on the books of the Corporation at the direction of the owner thereof or of his attorney authorized by a power of attorney duly executed and filed with the Secretary or transfer agent of the Corporation, and only on surrender of the share certificate or certificates. 7.03 Lost, Destroyed and Mutilated Certificates. In case of mutilation of a share certificate the holder thereof may obtain a new certificate from the Corporation or transfer agent upon surrender of the mutilated certificate. In case of loss or destruction of a certificate, the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon satisfactory proof of such loss or destruction and after deposit -14- of a bond in such form and amount and with such surety or sureties as the Board of Directors may determine. SECTION 8. OFFICES 8.01 Location. The Corporation may have such offices and keep its books and records at such places within or without the State of Delaware, as the Board of Directors may from time to time determine. SECTION 9. AMENDMENTS 11.01 Power to Amend Bylaws. These Bylaws may be amended or repealed in whole or in part and new Bylaws may be adopted by the Board of Directors at any regular or special meeting or by the stockholders at a regular or special stockholders' meeting. -15- EX-3.19 12 CERTIFICATE OF INCORPORATION OF SPD SWITCHGEAR INC. Exhibit 3.19 CERTIFICATE OF INCORPORATION OF SPD SWITCHGEAR INC. ---------------------------- FIRST. The name of this corporation shall be: SPD SWITCHGEAR INC. SECOND, Its registered office in the State of Delaware is to be located at 1013 Centre Road, in the City of Wilmington, County of New Castle 19805, and its registered Agent at such address is CORPORATION SERVICE COMPANY. THIRD. The purpose or purposes of the corporation shall be: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of stock which this corporation is authorized to issue is: One Thousand(1,000) shares of the par value of One Dollar ($1.00) each, amounting to One Thousand Dollars ($1,000.00). FIFTH. The name and address of the incorporator is as follows: Jane S. Krayer Corporation Service Company 1013 Centre Road Wilmington, DE 19805 SIXTH. The Board of Directors shall have the power to adopt, amend or repeal the by-laws. SEVENTH. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct of a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the lability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. IN WITNESS WHEREOF, The undersigned, being the incorporator herein before named, has executed, signed and acknowledged this certificate of incorporation this twentieth day of April A.D., 1988. /s/ Jane S. Krayer ---------------------------- Jane S. Krayer Incorporator EX-3.20 13 BY-LAWS OF SPD SWITCHGEAR INC. Exhibit 3.20 BY-LAWS OF SPD SWITCHGEAR INC. (a Delaware corporation) SECTION 1. STOCKHOLDER MEETINGS 1.01 Place of Meeting. Meetings of stockholders of the Corporation shall be held at such place within or without the State of Delaware as the Board of Directors may determine. 1.02. Annual Meetings. An annual meeting of the stockholders of the Corporation shall be held on such date and at such place and hour, as the Board of Directors may fix, for the election of directors and such other business as may properly come before an annual meeting of stockholders. 1.03 Special Meetings. Special meetings of the stockholders of the Corporation may be called by the Board of Directors, the Chairman of the Board (if any), the President or by the holders of a majority of the shares entitled to vote at such meeting. 1.04 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 1.05 Notice of Meetings. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting no less than ten nor more than 60 days prior to the date of the meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice shall be given by United States mail, postage prepaid, or by hand delivery, telex or electronic transmission for which a written copy is provided to the recipient to the stockholder at his address as it appears on the records of the Corporation. 1.06 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of stockholders unless a quorum is present. The presence in person or by proxy of the holders of a majority of shares entitled to vote at the meeting shall constitute a quorum. Unless a greater vote is required by law or these By-Laws with respect to a particular matter, action may be taken upon receiving the affirmative vote of the holders of a majority of the shares present and voting at a meeting at which a quorum is present. -2- 1.07 Action by Written Consent. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such consents shall reflect the date on which each shareholder executed the consent. Consents must be delivered to the Corporation within sixty days of the date of execution of the earliest signature thereon or on a counterpart thereof in order to be effective. Prompt notice of the taking of such action shall be given to those stockholders who have not consented in writing. SECTION 2. DIRECTORS AND DIRECTORS MEETINGS 2.01 Management of the Corporation. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. 2.02 Number of Directors; Election. The number of directors of the Corporation shall initially be two and thereafter as the Board of Directors may determine from time to time. Directors shall be elected at the annual meeting of stockholders, except that if a vacancy shall occur in the Board of Directors by reason of resignation, an increase in the number of directors or otherwise, the remaining Directors, although less than a quorum, may appoint a person to fill such vacancy. each Director shall serve until the next annual meeting of stockholders and until his successor is duly elected. -3- 2.03 Meetings of the Board of Directors. The Board of Directors may hold meetings within or without the State of Delaware. An annual meeting of the Board of Directors for the purpose of electing officers of the Corporation and conducting any other business which the Directors wish to conduct shall be held as promptly as practicable following the annual meeting of stockholders of the Corporation. The Board of Directors may establish a schedule of regular meetings, setting forth the dates, times and places thereof. Whether or not the Board adopts such a schedule of regular meetings, special meetings of the Board of Directors may be called by the Chairman of the Board, if any, by the President or by a majority of the Board of Directors. 2.04 Notice of Meetings. No notice of any regular meeting of the Board of Directors shall be required. Notice of the annual meeting and each special meeting of the Board of Directors shall be in writing and shall be given to each director not less than three days prior to the date of the meeting. Any such notice shall be deemed to have been given one business day after it is placed in the United States mail, postage prepaid, addressed to each Director at his address as shown on the records of the Corporation, or immediately upon personal delivery thereof or transmission thereof by telegram, radiogram, telex, telecopier, or other means of instantaneous delivery which provides a written copy to the recipient. 2.05 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of the Board of Directors unless a quorum is present. A majority of the Directors in office shall constitute a quorum. Unless a greater vote is required by law or by these By-Laws with respect to a -4- particular matter, action may be taken upon receiving the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present. 2.06 Participation in Meetings. One or more Directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and any Director so participating shall be considered present at the meeting for all purposes. 2.07 Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 2.08 Compensation of Directors. The Board of Directors may fix the compensation, if any, of Directors. The reasonable expenses incurred by the Directors of the Corporation to attend Board meetings shall be reimbursed by the Corporation. 2.09 Removal of Directors. Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless the certificate of incorporation provides otherwise. -5- 2.10 Chairman of the Board of Directors. The President of the Corporation, if he is a Director, shall serve as Chairman of the Board of Directors, unless the Board of Directors elects another person to act as Chairman of the Board. The Chairman of the Board, if so elected, shall serve as Chairman of all meetings of the Board of Directors at which he is present and at all meetings of stockholders at which he is present and, in his absence, the President or other person designated by the Board of Directors shall serve as Chairman of the meeting. The Chairman of the Board shall have such other duties as may, from time to time, be assigned to him by the Board of Directors. SECTION 3. COMMITTEES 3.01 Executive Committee. The Board of Directors shall have the power to elect from the Directors an Executive Committee of two or more members. Unless otherwise directed by the Board of Directors, each elected member of the Executive Committee shall continue to be a member thereof until the expiration of his term of office as a Director. The Board of Directors, by majority vote of all Directors, shall fill vacancies in the Executive Committee, but during the temporary absence of a member of the Executive Committee, the remaining members of the Committee may appoint a member of the board of Directors to act in his place. The Executive Committee may fix its own rules of proceeding, and shall meet at such times, in such places, and upon such notice as may be provided by such rules or by resolution of the Board of Directors. The presence of a majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the members of the Committee -6- present at a meeting shall be necessary for the adoption of any resolution. The Executive Committee shall have such powers, authority and duties as may properly be assigned to it by the Board of Directors. Unless the Board of Directors otherwise directs, during the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock or to approve and recommend to stockholders any action requiring stockholder approval. The Executive Committee shall exercise such powers in a manner which it shall deem in the best interests of the Corporation in all cases in which specific directions shall not have been given by the Board of Directors. All actions by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action. 3.02 Other Committees. The Board of Directors may designate one or more additional committees consisting of one or more Directors which shall have such powers, authority and duties as may properly be assigned to them by the Board of Directors. A majority of all Directors shall fill any vacancies existing in any such committees, but during the temporary absence of any member of any such committee, the remaining members of the committee may appoint a member of the Board of Directors to act in his place. Any such committee appointed by the Board of Directors may fix its own rules of proceedings and shall meet at such time and place and upon such notice as may be provided by such rules or by resolution of the Board of Directors. All actions by any such committee shall be reported to the Board of Directors at its meeting next succeeding such action. -7- SECTION 4. OFFICERS 4.01 Officers. The officers of the Corporation shall be a President, one or more Vice-Presidents, a Secretary and such other officers as the Board of Directors may from time to time determine. Officers shall be elected at each annual meeting of the Board of Directors. Each officer shall serve at the pleasure of the Board of Directors. Failure to hold an annual meeting of Directors as set forth in these Bylaws shall not invalidate any action taken by an officer of the Corporation who has been duly elected and not replaced by the Board of Directors. 4.02 The President. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall be responsible for the carrying out of the orders and resolutions of the Board of Directors. 4.03 The Vice-President or Vice-Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such powers as the Board of Directors or the President may from time to time prescribe. -8- 4.04 The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, shall record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it. When so affixed, the corporate seal may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. SECTION 5. INDEMNIFICATION 5.01 General Right to Indemnification. Every person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or -9- proceeding, whether civil, criminal, administrative or investigative, including any action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including in any capacity with respect to an employee benefit plan, shall be indemnified by the Corporation against any and all liability, expenses (including attorney's fees), judgments and losses actually and reasonably incurred by him in connection with any such action, suit or proceeding to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted by such law prior to such amendment). Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of his heirs, executors and administrators. 5.02 Advance of Expenses. The Corporation shall have the right, but not the obligation, to pay expenses incurred by an officer or Director in defending a civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section 5. Such expenses incurred by other employees and agents nay also be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. -10- 5.03 Non-Exclusivity. The right to indemnification and payment of expenses provided in Section 5 shall not be deemed to be exclusive of any other rights to which the person seeking indemnification or payment of expenses may be entitled under these By-Laws or any agreement by or with the Corporation, by vote of stockholders or disinterested directors of the Corporation, or otherwise. 5.04 Joint Indemnification. The amounts to be paid for or on behalf of any person by the Corporation as indemnification under these By-Laws or applicable law with respect to any matter shall be reduced by the amount such person is entitled to receive as indemnification for the same matter from any other source. 5.05 Benefits to Survive. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 5.06 Insurance. The Corporation may, at its own expense, maintain insurance to protect itself and any Director, officer, employee or agent of the Corporation, or another corporation, partnership, joint venture, trust or other enterprise against any liability, expense, judgment or loss, whether or not the Corporation would have the power to indemnify such person against such liability, expense, judgment, fine or loss under the Delaware General Corporation Law. -11- SECTION 6. EMERGENCY ACTION 6.01 General. Notwithstanding any other provision of these By-Laws, in the event of an emergency resulting from war, military attack, nuclear or other atomic disaster or any other major catastrophe, including precipitous change of government in the nation, state, or similar political entity in which a stockholder or director is then present, or if such person shall become physically or mentally incapacitated or shall disappear, as a result of which a quorum of stockholders or directors cannot be readily convened or communicated with, for the purposes of action believed to be necessary or desired by a majority of the remaining stockholders or directors: (a) A meeting of the stockholders or directors may be called by any member thereof in the manner otherwise provided for in these By-Laws; (b) The stockholders or directors, as the case may be, who are not rendered unavailable as aforesaid shall be deemed to be the entirety of the body of stockholders or of the Board of Directors for all purposes, and their actions, if otherwise in conformity with these By-Laws and applicable law, shall be as valid and effective as if taken with the participation and assent of the persons so rendered unavailable. The minutes of every emergency meeting held, and every written consent executed, under authority of this Article shall be distributed to the missing person or persons as promptly as practicable. -12- SECTION 7. SHARES AND CERTIFICATES 7.01 Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the President and the Secretary or Assistant Secretary and sealed with the corporate seal, which may be a facsimile. Where such certificate is signed by a transfer agent or registrar, the signature of any corporate officer upon such certificate may be a facsimile. The signature of any corporate officers upon a certificate shall not be invalidated by his subsequent death or resignation. 7.02 Transfers of Stock. Transfers of share certificates and the shares represented thereby shall be made only on the books of the Corporation at the direction of the owner thereof or of his attorney authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and only on surrender of the share certificate or certificates. 7.03 Lost, Destroyed and Mutilated Certificates. In case of mutilation of a share certificate the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon surrender of the mutilated certificate. In case of loss or destruction of a certificate, the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon satisfactory proof of such loss or destruction and after deposit of a bond in such form and amount and with such surety or sureties as the Board of Directors may determine. -13- SECTION 8. OFFICES 8.01 Location. The Corporation may have such offices and keep its books and records at such places within or without the State of Delaware, as the Board of Directors may from time to time determine. SECTION 9. FISCAL YEAR 9.01 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. SECTION 10. AMENDMENTS 10.01 Power to Amend Bylaws. These By-Laws may be amended or repealed in whole or in part and new By-Laws may be adopted by the Board of Directors at any regular or special meeting or by the stockholders at a regular or special stockholders' meeting. -14- EX-3.21 14 CERTIFICATE OF INCORPORATION OF PAC ORD INC. Exhibit 3.21 CERTIFICATE OF INCORPORATION OF PAC ORD INC. FIRST. The name of the Corporation is Pac Ord Inc. SECOND. The location of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted is to engage in and to do any lawful act for which corporations may be incorporated under the General Corporation Law of Delaware. FOURTH. The Corporation is to have perpetual existence. FIFTH. The authorized capital stock of the Corporation shall be 1,000 Common Shares, par value $1.00 per share. SIXTH. The Corporation may issue shares, option rights, or securities having conversion or option rights, without first offering them to stockholders of any class or classes. SEVENTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the Corporation. EIGHTH. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware as the by-laws may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors, subject to the provisions of law. NINTH. A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. TENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. The name and mailing address of each incorporator is as follows: Name Mailing Address ---- --------------- Patricia C. Surotchak 14th Floor - Packard Building Philadelphia, PA 19102 THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly have hereunto set her hand this 19th day of August, 1988. /s/ Patricia C. Surotchak ------------------------- Incorporator EX-3.22 15 BY-LAWS OF PAC ORD INC. Exhibit 3.22 BY-LAWS OF PAC ORD INC. (a Delaware Corporation) SECTION 1. STOCKHOLDER MEETINGS 1.01 Place of Meeting. Meetings of stockholders of the Corporation shall be held at such place within or without the State of Delaware as the Board of Directors may determine. 1.02. Annual Meetings. An annual meeting of the stockholders of the Corporation shall be-held on such date and at such place and hour, as the Board of Directors may fix, for the election of directors and such other business as may properly come before an annual meeting of stockholders. 1.03 Special Meetings. Special meetings of the stockholders of the Corporation may be called by the Board of Directors, the Chairman of the Board (if any), the President or by the holders of a majority of the shares entitled to vote at such meeting. 1.04 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 1.05 Notice of Meetings. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting no less than ten nor more than 60 days prior to the date of the meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice shall be given by United States mail, postage prepaid, or by hand delivery, telex or electronic transmission for which a written copy is provided to the recipient to the stockholder at his address as it appears on the records of the Corporation. 1.06 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of stockholders unless a quorum is present. The presence in person or by proxy of the holders of a majority of shares entitled to vote at the meeting shall constitute a quorum. Unless a greater vote is required by law or these By-Laws with respect to a particular matter, action may be taken upon receiving the affirmative vote of the holders of a majority of the shares present and voting at a meeting at which a quorum is present. 1.07 Action by Written Consent. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting -2- forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such consents shall reflect the date on which each shareholder executed the consent. Consents must be delivered to the Corporation within sixty days of the date of execution of the earliest signature thereon or on a counterpart thereof in order to be effective. Prompt notice of the taking of such action shall be given to those stockholders who have not consented in writing. SECTION 2. DIRECTORS AND DIRECTORS MEETINGS 2.01 Management of the Corporation. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. 2.02 Number of Directors; Election. The number of directors of the Corporation shall be as fixed from time to time by the Board of Directors. Directors shall be elected at the annual meeting of stockholders, except that if a vacancy shall occur in the Board of Directors by reason of resignation, an increase in the number of directors or otherwise, the remaining Directors, although less than a quorum, may appoint a person to fill such vacancy. Each Director shall serve until the next annual meeting of stockholders and until his successor is duly elected. 2.03 Meetings of the Board of Directors. The Board of Directors may hold meetings within or without the State of Delaware. An annual meeting of the Board of Directors for the purpose of electing officers of the Corporation and conducting -3- any other business which the Directors wish to conduct shall be held as promptly as practicable following the annual meeting of stockholders of the Corporation. The Board of Directors may establish a schedule of regular meetings, setting forth the dates, times and places thereof. Whether or not the Board adopts such a schedule of regular meetings, special meetings of the Board of Directors may be called by the Chairman of the Board, if any, by the President or by a majority of the Board of Directors. 2.04 Notice of Meetings. No notice of any regular meeting of the Board of Directors shall be required. Notice of the annual meeting and each special meeting of the Board of Directors shall be in writing and shall be given to each director not less than three days prior to the date of the meeting. Any such notice shall be deemed to have been given one business day after it is placed in the United States mail, postage prepaid, addressed to each Director at his address as shown on the records of the Corporation, or immediately upon personal delivery thereof or transmission thereof by telegram, radiogram, telex, telecopier, or other means of instantaneous delivery which provides a written copy to the recipient. 2.05 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of the Board of Directors unless a quorum is present. A majority of the Directors in office shall constitute a quorum. Unless a greater vote is required by law or by these By-Laws with respect to a particular matter, action may be taken upon receiving the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present. 2.06 Participation in Meetings. One or more Directors may participate in a meeting of the Board of Directors -4- or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and any Director so participating shall be considered present at the meeting for all purposes. 2.07 Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 2.08 Compensation of Directors. The Board of Directors may fix the compensation, if any, of Directors. The reasonable expenses incurred by the Directors of the Corporation to attend Board meetings shall be reimbursed by the Corporation. 2.09 Removal of Directors. Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless the certificate of incorporation provides otherwise. 2.10 Chairman of the Board of Directors. The President of the Corporation, if he is a Director, shall serve as Chairman of the Board of Directors, unless the Board of Directors elects another person to act as Chairman of the Board. The Chairman of the Board, if so elected, shall serve as Chairman of all meetings of the Board of Directors at which he is present and at all meetings of stockholders at which he is present and, in his absence, the President or other person designated by the -5- Board of Directors shall serve as Chairman of the meeting. The Chairman of the Board shall have such other duties as may, from time to time, be assigned to him by the Board of Directors. SECTION 3. COMMITTEES 3.01 Executive Committee. The Board of Directors shall have the power to elect from the Directors an Executive Committee of two or more members. Unless otherwise directed by the Board of Directors, each elected member of the Executive Committee shall continue to be a member thereof until the expiration of his term of office as a Director. The Board of Directors, by majority vote of all Directors, shall fill vacancies in the Executive Committee, but during the temporary absence of a member of the Executive Committee, the remaining members of the Committee may appoint a member of the board of Directors to act in his place. The Executive Committee may fix its own rules of proceeding, and shall meet at such times, in such places, and upon such notice as may be provided by such rules or by resolution of the Board of Directors. The presence of a majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the members of the Committee present at a meeting shall be necessary for the adoption of any resolution. The Executive Committee shall have such powers, authority and duties as may properly be assigned to it by the Board of Directors. Unless the Board of Directors otherwise directs, during the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock or to approve and -6- recommend to stockholders any action requiring stockholder approval. The Executive Committee shall exercise such powers in a manner which it shall deem in the best interests of the Corporation in all cases in which specific directions shall not have been given by the Board of Directors. All actions by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action. 3.02 Other Committees. The Board of Directors may designate one or more additional committees consisting of one or more Directors which shall have such powers, authority and duties as may properly be assigned to them by the Board of Directors. A majority of all Directors shall fill any vacancies existing in any such committees, but during the temporary absence of any member of any such committee, the remaining members of the committee may appoint a member of the Board of Directors to act in his place. Any such committee appointed by the Board of Directors may fix its own rules of proceedings and shall meet at such time and place and upon such notice as may be provided by such rules or by resolution of the Board of Directors. All actions by any such committee shall be reported to the Board of Directors at its meeting next succeeding such action. SECTION 4. OFFICERS 4.01 Officers. The officers of the Corporation shall be a President, one or more Vice-Presidents, a Secretary and such other officers as the Board of Directors may from time to time determine. Officers shall be elected at each annual meeting of the Board of Directors. Each officer shall serve at the pleasure of the Board of Directors. Failure to hold an annual meeting of Directors as set forth in these Bylaws shall -7- not invalidate any action taken by an officer of the Corporation who has been duly elected and not replaced by the Board of Directors. 4.02 The President. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall be responsible for the carrying out of the orders and resolutions of the Board of Directors. 4.03 The Vice-President or Vice-Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such powers as the Board of Directors or the President may from time to time prescribe. 4.04 The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, shall record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. -8- He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it. When so affixed, the corporate seal may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. SECTION 5. INDEMNIFICATION 5.01 General Right to Indemnification. Every person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including in any capacity with respect to an employee benefit plan, shall be indemnified by the Corporation against any and all liability, expenses (including attorney's fees), judgments and losses actually and reasonably incurred by him in connection with any such action, -9- suit or proceeding to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted by such law prior to such amendment). Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of his heirs, executors and administrators. 5.02 Advance of Expenses. The Corporation shall have the right, but not the obligation, to pay expenses incurred by an officer or Director in defending a civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section 5. Such expenses incurred by other employees and agents may also be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. 5.03 Non-Exclusivity. The right to indemnification and payment of expenses provided in Section 5 shall not be deemed to be exclusive of any other rights to which the person seeking indemnification or payment of expenses may be entitled under these By-Laws or any agreement by or with the Corporation, by vote of stockholders or disinterested directors of the Corporation, or otherwise. 5.04 Joint Indemnification. The amounts to be paid for or on behalf of any person by the Corporation as indemnification under these By-Laws or applicable law with -10- respect to any matter shall be reduced by the amount such person is entitled to receive as indemnification for the same matter from any other source. 5.05 Benefits to Survive. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 5.06 Insurance. The Corporation may, at its own expense, maintain insurance to protect itself and any Director, officer, employee or agent of the Corporation, or another corporation, partnership, joint venture, trust or other enterprise against any liability, expense, judgment or loss, whether or not the Corporation would have the power to indemnify such person against such liability, expense, judgment, fine or loss under the Delaware General Corporation Law. SECTION 6. EMERGENCY ACTION 6.01 General. Notwithstanding any other provision of these By-Laws, in the event of an emergency resulting from war, military attack, nuclear or other atomic disaster or any other major catastrophe, including precipitous change of government in the nation, state, or similar political entity in which a stockholder or director is then present, or if such person shall become physically or mentally incapacitated or shall disappear, as a result of which a quorum of stockholders or directors cannot be readily convened or communicated with, for -11- the purposes of action believed to be necessary or desired by a majority of the remaining stockholders or directors: (a) A meeting of the stockholders or directors may be called by any member thereof in the manner otherwise provided for in these By-Laws; (b) The stockholders or directors, as the case may be, who are not rendered unavailable as aforesaid shall be deemed to be the entirety of the body of stockholders or of the Board of Directors for all purposes, and their actions, if otherwise in conformity with these By-Laws and applicable law, shall be as valid and effective as if taken with the participation and assent of the persons so rendered unavailable. The minutes of every emergency meeting held, and every written consent executed, under authority of this Article shall be distributed to the missing person or persons as promptly as practicable. SECTION 7. SHARES AND CERTIFICATES 7.01 Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the President and the Secretary or Assistant Secretary and sealed with the corporate seal, which may be a facsimile. Where such certificate is signed by a transfer agent or registrar, the signature of any corporate officer upon such certificate may be a facsimile. The signature of any corporate officers upon a certificate shall not be invalidated by his subsequent death or resignation. -12- 7.02 Transfers of Stock. Transfers of share certificates and the shares represented thereby shall be made only on the books of the Corporation at the direction of the owner thereof or of his attorney authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and only on surrender of the share certificate or certificates. 7.03 Lost, Destroyed and Mutilated Certificates. In case of mutilation of a share certificate the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon surrender of the mutilated certificate. In case of loss or destruction of a certificate, the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon satisfactory proof of such loss or destruction and after deposit of a bond in such form and amount and with such surety or sureties as the Board of Directors may determine. SECTION 8. OFFICES 8.01 Location. The Corporation may have such offices and keep its books and records at such places within or without the State of Delaware, as the Board of Directors may from time to time determine. SECTION 9. FISCAL YEAR 9.01 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. -13- SECTION 10. AMENDMENTS 10.01 Power to Amend Bylaws. These By-Laws may be amended or repealed in whole or in part and new By-Laws may be adopted by the Board of Directors at any regular or special meeting or by the stockholders at a regular or special stockholders' meeting. -14- EX-3.23 16 CERTIFICATE OF INCORPORATION OF HENSCHEL INC. Exhibit 3.23 CERTIFICATE OF INCORPORATION OF SPD HOLDINGS CORPORATION FIRST. The name of the Corporation is SPD Holdings Corporation. SECOND. The location of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted is to engage in and to do any lawful act for which corporations may be incorporated under the General Corporation Law of Delaware. FOURTH. The Corporation is to have perpetual existence. FIFTH. The authorized capital stock of the Corporation shall be 1,000 Common Shares with a par value of $.O1 per share. SIXTH. The Corporation may issue shares, option rights, or securities having conversion or option rights, without first offering them to stockholders of any class or classes. incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. The name and mailing address of each incorporator is as follows: Name Mailing Address ---- --------------- Patricia C. Surotchak 14th Floor Packard Building Philadelphia, PA 19102 THE UNDERSIGNED, the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 20th day of March, 1989. /s/ Patricia C. Surotchak ----------------------------------- Incorporator -3- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SPD HOLDINGS CORPORATION SPD HOLDINGS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: RESOLVED, that Article First of the Certificate of Incorporation be amended to read as follows: FIRST: The name of the Corporation is Henschel Inc. SECOND: That, in lieu of a meeting and a vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That said amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF SPD Holdings Corporation has caused this certificate to be signed by its Executive Vice President, this 11th day of May, 1989. SPD HOLDINGS CORPORATION By: /s/ Larry A. Colangelo -------------------------------- Executive Vice President ATTEST: /s/ John C. Fleury - ------------------------------ Assistant Secretary -2- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF HENSCHEL INC. HENSCHEL INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: RESOLVED, that Article Five of the Certificate of Incorporation be amended to read as follows: FIFTH: The authorized capital stock of the Corporation shall be 100,000 Common Shares with a par value of $.0l per share. SECOND: That, the sole stockholder has given its unanimous written consent to such amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That such amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Henschel Inc. has caused this certificate to be signed by its Executive Vice President, this 23 day of February, 1990. HENSCHEL INC. By: /s/ Larry A. Colangelo ------------------------------ Executive Vice President ATTEST /s/ John C. Fleury - ------------------------------- Assistant Secretary EX-3.24 17 BY-LAWS OF HENSCHEL INC. Exhibit 3.24 BY-LAWS OF HENSCHEL INC. (a Delaware corporation) SECTION 1. STOCKHOLDER MEETINGS 1.01 Place of Meeting. Meetings of stockholders of the Corporation shall be held at such place within or without the State of Delaware as the Board of Directors may determine. 1.02. Annual Meetings. An annual meeting of the stockholders of the Corporation shall be held on such date and at such place and hour, as the Board of Directors may fix, for the election of directors and such other business as may properly come before an annual meeting of stockholders. 1.03 Special Meetings. Special meetings of the stockholders of the Corporation may be called by the Board of Directors, the Chairman of the Board (if any), the President or by the holders of a majority of the shares entitled to vote at such meeting. 1.04 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 1.05 Notice of Meetings. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote at the meeting no less than ten nor more than 60 days prior to the date of the meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice shall be given by United States mail, postage prepaid, or by hand delivery, telex or electronic transmission for which a written copy is provided to the recipient to the stockholder at his address as it appears on the records of the Corporation. 1.06 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of stockholders unless a quorum is present. The presence in person or by proxy of the holders of a majority of shares entitled to vote at the meeting shall constitute a quorum. Unless a greater vote is required by law or these By-Laws with respect to a particular matter, action may be taken upon receiving the affirmative vote of the holders of a majority of the shares present and voting at a meeting at which a quorum is present. -2- 1.07 Action by Written Consent. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such consents shall reflect the date on which each shareholder executed the consent. Consents must be delivered to the Corporation within sixty days of the date of execution of the earliest signature thereon or on a counterpart thereof in order to be effective. Prompt notice of the taking of such action shall be given to those stockholders who have not consented in writing. SECTION 2. DIRECTORS AND DIRECTORS MEETINGS 2.01 Management of the Corporation. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. 2.02 Number of Directors; Election. The number of directors of the Corporation shall initially be two and thereafter as the Board of Directors may determine from time to time. Directors shall be elected at the annual meeting of stockholders, except that if a vacancy shall occur in the Board of Directors by reason of resignation, an increase in the number of directors or otherwise, the remaining Directors, although less than a quorum, may appoint a person to fill such vacancy. Each Director shall serve until the next annual meeting of stockholders and until his successor is duly elected. -3- 2.03 Meetings of the Board of Directors. The Board of Directors may hold meetings within or without the State of Delaware. An annual meeting of the Board of Directors for the purpose of electing officers of the Corporation and conducting any other business which the Directors wish to conduct shall be held as promptly as practicable following the annual meeting of stockholders of the Corporation. The Board of Directors may establish a schedule of regular meetings, setting forth the dates, times and places thereof. Whether or not the Board adopts such a schedule of regular meetings, special meetings of the Board of Directors may be called by the Chairman of the Board, if any, by the President or by a majority of the Board of Directors. 2.04 Notice of Meetings. No notice of any regular meeting of the Board of Directors shall be required. Notice of the annual meeting and each special meeting of the Board of Directors shall be in writing and shall be given to each director not less than three days prior to the date of the meeting. Any such notice shall be deemed to have been given one business day after it is placed in the United States mail, postage prepaid, addressed to each Director at his address as shown on the records of the Corporation, or immediately upon personal delivery thereof or transmission thereof by telegram, radiogram, telex, telecopier, or other means of instantaneous delivery which provides a written copy to the recipient. 2.05 Quorum and Required Vote. No action other than adjournment may be taken at a meeting of the Board of Directors unless a quorum is present. A majority of the Directors in office shall constitute a quorum. Unless a greater vote is required by law or by these By-Laws with respect to a -4- particular matter, action may be taken upon receiving the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present. 2.06 Participation in Meetings. One or more Directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and any Director so participating shall be considered present at the meeting for all purposes. 2.07 Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 2.08 Compensation of Directors. The Board of Directors may fix the compensation, if any, of Directors. The reasonable expenses incurred by the Directors of the Corporation to attend Board meetings shall be reimbursed by the Corporation. 2.09 Removal of Directors. Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless the certificate of incorporation provides otherwise. -5- 2.10 Chairman of the Board of Directors. The President of the Corporation, if he is a Director, shall serve as Chairman of the Board of Directors, unless the Board of Directors elects another person to act as Chairman of the Board. The Chairman of the Board, if so elected, shall serve as Chairman of all meetings of the Board of Directors at which he is present and at all meetings of stockholders at which he is present and, in his absence, the President or other person designated by the Board of Directors shall serve as Chairman of the meeting. The Chairman of the Board shall have such other duties as may, from time to time, be assigned to him by the Board of Directors. SECTION 3. COMMITTEES 3.01 Executive Committee. The Board of Directors shall have the power to elect from the Directors an Executive Committee of two or more members. Unless otherwise directed by the Board of Directors, each elected member of the Executive Committee shall continue to be a member thereof until the expiration of his term of office as a Director. The Board of Directors, by majority vote of all Directors, shall fill vacancies in the Executive Committee, but during the temporary absence of a member of the Executive Committee, the remaining members of the Committee may appoint a member of the board of Directors to act in his place. The Executive Committee may fix its own rules of proceeding, and shall meet at such times, in such places, and upon such notice as may be provided by such rules or by resolution of the Board of Directors. The presence of a majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the members of the Committee -6- present at a meeting shall be necessary for the adoption of any resolution. The Executive Committee shall have such powers, authority and duties as may properly be assigned to it by the Board of Directors. Unless the Board of Directors otherwise directs, during the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock or to approve and recommend to stockholders any action requiring stockholder approval. The Executive Committee shall exercise such powers in a manner which it shall deem in the best interests of the Corporation in all cases in which specific directions shall not have been given by the Board of Directors. All actions by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action. 3.02 Other Committees. The Board of Directors may designate one or more additional committees consisting of one or more Directors which shall have such powers, authority and duties as may properly be assigned to them by the Board of Directors. A majority of all Directors shall fill any vacancies existing in any such committees, but during the temporary absence of any member of any such committee, the remaining members of the committee may appoint a member of the Board of Directors to act in his place. Any such committee appointed by the Board of Directors may fix its own rules of proceedings and shall meet at such time and place and upon such notice as may be provided by such rules or by resolution of the Board of Directors. All actions by any such committee shall be reported to the Board of Directors at its meeting next succeeding such action. -7- SECTION 4. OFFICERS 4.01 Officers. The officers of the Corporation shall be a President, one or more Vice-Presidents, a Secretary and such other officers as the Board of Directors may from time to time determine. Officers shall be elected at each annual meeting of the Board of Directors. Each officer shall serve at the pleasure of the Board of Directors. Failure to hold an annual meeting of Directors as set forth in these Bylaws shall not invalidate any action taken by an officer of the Corporation who has been duly elected and not replaced by the Board of Directors. 4.02 The President. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall be responsible for the carrying out of the orders and resolutions of the Board of Directors. 4.03 The Vice-President or Vice-Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such powers as the Board of Directors or the President may from time to time prescribe. -8- 4.04 The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, shall record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it. When so affixed, the corporate seal may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. SECTION 5. INDEMNIFICATION 5.01 General Right to Indemnification. Every person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or -9- proceeding, whether civil, criminal, administrative or investigative, including any action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including in any capacity with respect to an employee benefit plan, shall be indemnified by the Corporation against any and all liability, expenses (including attorney's fees), judgments and losses actually and reasonably incurred by him in connection with any such action, suit or proceeding to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted by such law prior to such amendment). Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of his heirs, executors and administrators. 5.02 Advance of Expenses. The Corporation shall have the right, but not the obligation, to pay expenses incurred by an officer or Director in defending a civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section 5. Such expenses incurred by other employees and agents may also be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. -10- 5.03 Non-Exclusivity. The right to indemnification and payment of expenses provided in Section 5 shall not be deemed to be exclusive of any other rights to which the person seeking indemnification or payment of expenses may be entitled under these By-Laws or any agreement by or with the Corporation, by vote of stockholders or disinterested directors of the Corporation, or otherwise. 5.04 Joint Indemnification. The amounts to be paid for or on behalf of any person by the Corporation as indemnification under these By-Laws or applicable law with respect to any matter shall be reduced by the amount such person is entitled to receive as indemnification for the same matter from any other source. 5.05 Benefits to Survive. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 5.06 Insurance. The Corporation may, at its own expense, maintain insurance to protect itself and any Director, officer, employee or agent of the Corporation, or another corporation, partnership, joint venture, trust or other enterprise against any liability, expense, judgment or loss, whether or not the Corporation would have the power to indemnify such person against such liability, expense, judgment, fine or loss under the Delaware General Corporation Law. -11- SECTION 6. EMERGENCY ACTION 6.01 General. Notwithstanding any other provision of these By-Laws, in the event of an emergency resulting from war, military attack, nuclear or other atomic disaster or any other major catastrophe, including precipitous change of government in the nation, state, or similar political entity in which a stockholder or director is then present, or if such person shall become physically or mentally incapacitated or shall disappear, as a result of which a quorum of stockholders or directors cannot be readily convened or communicated with, for the purposes of action believed to be necessary or desired by a majority of the remaining stockholders or directors: (a) A meeting of the stockholders or directors may be called by any member thereof in the manner otherwise provided for in these By-Laws; (b) The stockholders or directors, as the case may be, who are not rendered unavailable as aforesaid shall be deemed to be the entirety of the body of stockholders or of the Board of Directors for all purposes, and their actions, if otherwise in conformity with these By-Laws and applicable law, shall be as valid and effective as if taken with the participation and assent of the persons so rendered unavailable. The minutes of every emergency meeting held, and every written consent executed, under authority of this Article shall be distributed to the missing person or persons as promptly as practicable. -12- SECTION 7. SHARES AND CERTIFICATES 7.01 Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the President and the Secretary or Assistant Secretary and sealed with the corporate seal, which may be a facsimile. Where such certificate is signed by a transfer agent or registrar, the signature of any corporate officer upon such certificate may be a facsimile. The signature of any corporate officers upon a certificate shall not be invalidated by his subsequent death or resignation. 7.02 Transfers of Stock. Transfers of share certificates and the shares represented thereby shall be made only on the books of the Corporation at the direction of the owner thereof or of his attorney authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and only on surrender of the share certificate or certificates. 7.03 Lost, Destroyed and Mutilated Certificates. In case of mutilation of a share certificate the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon surrender of the mutilated certificate. In case of loss or destruction of a certificate, the holder thereof may obtain a new certificate from the Corporation or a transfer agent upon satisfactory proof of such loss or destruction and after deposit of a bond in such form and amount and with such surety or sureties as the Board of Directors may determine. -13- SECTION 8. OFFICES 8.01 Location. The Corporation may have such offices and keep its books and records at such places within or without the State of Delaware, as the Board of Directors may from time to time determine. SECTION 9. FISCAL YEAR 9.01 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. SECTION 10. AMENDMENTS 10.01 Power to Amend Bylaws. These By-Laws may be amended or repealed in whole or in part and new By-Laws may be adopted by the Board of Directors at any regular or special meeting or by the stockholders at a regular or special stockholders' meeting. -14- EX-3.25 18 CERTIFICATE OF INCORPORATION OF POWER PARAGON, INC. Exhibit 3.25 CERTIFICATE OF INCORPORATION OF PTS, INC. FIRST: The name of the corporation (hereinafter sometimes referred to as the "Corporation") is: PTS, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is 900 Market Street, Suite 209, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is Delaware Trust Capital Management Incorporated. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The aggregate number of all classes of shares within the Corporation shall have authority to issue is one thousand (1,000) shares of common stock with a par value of $.01 per share. No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any share of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time or from time to time be issued, sold or offered for sale by the Corporation; provided, however, that in connection with the issuance or sale of any such shares or securities, the Board of Directors of the Corporation may, in its sole discretion, offer such shares or securities, or any part thereof, for purchase or subscription by the holders of shares of the Corporation, except as may otherwise be provided by this Certificate of Incorporation as from time to time amended. At all times, each holder of common stock of the Corporation shall be entitled to one vote for each share of common stock held by such stockholder standing in the name of such stockholder on the books of the Corporation. FIFTH: The name and address of the Incorporation is a follows: Eleanor K. Horslay Latham & Watkins 1001 Pennsylvania Avenue Suite 1300 Washington D.C. 20004 SIXTH: In furtherance and not in limitation of the power conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation. SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for the breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. EIGHTH: Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. 2 NINTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the law of the State of Delaware. All rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, herein declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 7th day of November, 1994. /s/ Eleanor K . Horsley ------------------------------ Eleanor K. Horsley Incorporator 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF PTS, INC, Pursuant to Section 242 of the General Corporation Law of the State of Delaware, PTS, Inc. (the "Corporation"), a Delaware corporation, hereby certifies that: 1. The Certificate of Incorporation of the Corporation is hereby amended by deleting the present Article FIRST and inserting in lieu thereof a new Article FIRST, as follows; FIRST: The name of the corporation (hereinafter sometimes referred to as the "Corporation") is: Power Paragon, Inc. 2. The Board of Directors of the Corporation, by written consent, declared the foregoing Amendment advisable and referred it to the stockholders of the Corporation for a vote and approval; and 3. The sole shareholder of the Corporation, by written consent, has adopted and approved the foregoing amendment. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed and executed in its corporate name by William E. Conway, Jr., its president, and attested by Allan M. Holt, its secretary, on this 31st day of January, 1995. ATTEST: PTS, INC., a Delaware corporation /s/ Allan M. Holt By: William E. Conway, Jr. - ---------------------------- ------------------------- Allan M. Holt William E. Conway, Jr. Secretary President EX-3.26 19 BY-LAWS OF POWER PARAGON, INC. Exhibit 3.26 BY-LAWS OF Power Paragon, Inc. TABLE OF CONTENTS Page ARTICLE I - OFFICES ......................................................... 1 Section 1. Registered Office ......................................... 1 Section 2. Other Offices ............................................. 1 ARTICLE II - MEETINGS OF STOCKHOLDERS ....................................... 1 Section 1. Place of Meetings ......................................... 1 Section 2. Annual Meeting of Stockholders ............................ 1 Section 3. Quorum; Adjourned Meetings and Notice Thereof ............. 1 Section 4. Voting .................................................... 2 Section 5. Proxies ................................................... 2 Section 6. Special Meetings .......................................... 3 Section 7. Notice of Stockholder's Meetings .......................... 3 Section 8. Maintenance and Inspection of Stockholder List ............ 4 Section 9. Stockholder Action by Written Consent Without a Meeting ... 4 ARTICLE III - DIRECTORS ..................................................... 5 Section 1. The Number of Directors ................................... 5 Section 2. Vacancies ................................................. 5 Section 3. Powers .................................................... 6 Section 4. Place of Directors' Meetings .............................. 7 Section 5. Regular Meetings .......................................... 7 Section 6. Special Meetings .......................................... 7 Section 7. Quorum .................................................... 7 Section 8. Action Without Meeting .................................... 8 Section 9. Telephonic Meetings ....................................... 8 Section 10. Committees of Directors ................................... 8 Section 11. Minutes of Committee Meetings ............................. 9 Section 12. Compensation of Directors ................................. 9 Section 13. Indemnification ........................................... 10 ARTICLE IV - OFFICERS ....................................................... 10 Section 1. Officers .................................................. 10 Section 2. Election of Officers ...................................... 11 Section 3. Subordinate Officers ...................................... 11 Section 4. Compensation of Officers .................................. 11 Section 5. Term of Office; Removal and Vacancies ..................... 11 Section 6. Chairman of the Board ..................................... 12 Section 7. President ................................................. 12 Section 8. Vice Presidents ........................................... 13 Section 9. Secretary ................................................. 13 Section 10. Assistant Secretaries ..................................... 13 i Page Section 11. Treasurer ................................................. 14 Section 12. Assistant Treasurer ....................................... 15 ARTICLE V - CERTIFICATES OF STOCK ........................................... 15 Section 1. Certificates .............................................. 15 Section 2. Signatures on Certificates ................................ 15 Section 3. Statement of Stock Rights, Preferences, Privileges ........ 16 Section 4. Lost Certificates ......................................... 16 Section 5. Transfers of Stock ........................................ 17 Section 6. Fixing Record Date ........................................ 17 Section 7. Registered Stockholders ................................... 18 ARTICLE VI - GENERAL PROVISIONS ............................................. 18 Section 1. Dividends ................................................. 18 Section 2. Payment of Dividends' Directors' Duties ................... 18 Section 3. Checks .................................................... 19 Section 4. Fiscal Year ............................................... 19 Section 5. Corporate Seal ............................................ 19 Section 6. Manner of Giving Notice ................................... 19 Section 7. Waiver of Notice .......................................... 19 Section 8. Annual Statement .......................................... 20 ARTICLE VII - AMENDMENTS .................................................... 20 Section 1. Amendment by Directors or Stockholders .................... 20 ii ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the Corporation. Section 2. The annual meeting of stockholders shall be held each year on a date and a time designated by the Board of Directors. At each annual meeting directors shall be elected and any other proper business may be transacted. Section 3. A majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes 1 present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 4. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes, or the Certificate of Incorporation, or these By-Laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 5. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior 2 to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the Corporation at the beginning of each meeting in order to be counted in any vote at the meeting. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation on the record date set by the Board of Directors as provided in Article V, Section 6 hereof. All elections shall be had and all questions decided by a plurality vote. Section 6. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation, issued and outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to 3 each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 8. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent 4 in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole Board shall be not less than one (1) and not more than five (5). The exact number of directors shall be determined by resolution of the Board, and the initial number of directors shall be one (1). The directors need not be stockholders. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat. Section 2. Vacancies on the Board of Directors by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, and newly created 5 directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and shall qualify, unless sooner replaced by a vote of the shareholders. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. 6 Section 4. The directors may hold their meetings and have one or more offices, and keep the books of the Corporation outside of the State of Delaware. Section 5. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. Section 6. Special meetings of the Board of Directors may be called by the President on forty-eight hours' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of two directors. Section 7. At all meetings of the Board of Directors a majority of the authorized number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one director is authorized, such sole director shall constitute a quorum. At any meeting, a director shall have the right to be accompanied by counsel 7 provided that such counsel shall agree to any confidentiality restrictions reasonably imposed by the Corporation. Section 8. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 9. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 10. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each such committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or 8 members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Section 11. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 12. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of 9 directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 13. The Corporation shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation or, while a director or officer or employee of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the full extent permitted by applicable law. ARTICLE IV OFFICERS Section 1. The officers of this corporation shall be chosen by the Board of Directors and shall include a President, a Secretary, and a Treasurer. The Corporation may also have, 10 at the discretion of the Board of Directors, such other officers as are desired, including a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 hereof. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall choose the officers of the Corporation. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. If the office of any 11 officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. Section 6. Chairman of the Board. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 7 of this Article IV. Section 7. President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of President and Chief Executive Officer of corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-Laws. 12 Section 8. Vice Presidents. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors. Section 9. Secretary. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required by the Board of Directors. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or these By-Laws. He shall keep in safe custody the seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 10. Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant 13 Secretaries in the order determined by the Board of Directors, or if there be no such determination, the Assistant Secretary designated by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, 14 vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 12. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, or if there be no such determination, the Assistant Treasurer designated by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE V CERTIFICATES OF STOCK Section 1. Every holder of stock of the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of shares represented by the certificate owned by such stockholder in the Corporation. Section 2. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same 15 effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 3. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 4. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or 16 destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 5. Upon surrender to the Corporation, or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its book. Section 6. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior 17 to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. ARTICLE VI GENERAL PROVISIONS Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or 18 for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve. Section 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. Section 4. The fiscal year of the Corporation shall end June 30th. Section 5. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 7. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to 19 said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Section 8. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VII AMENDMENTS Section 1. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal By-Laws is conferred upon the Board of Directors by the Certificate of Incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal By-Laws. 20 AMENDMENT TO BYLAWS POWER PARAGON, INC. Article III, Section 1, Line 1 of the Bylaws is amended to read as follows: Section 1. The number of directors which shall constitute the whole Board shall be not less than one (1) and not more than eight( 8). Effective as of January 27, 1995. EX-3.27 20 CERTIFICATE OF INCORPORATION OF SPD HOLDINGS, INC. Exhibit 3.27 CERTIFICATE OF INCORPORATION OF DEL HOLDINGS, INC. FIRST. The name of the Corporation is Del Holdings, Inc. SECOND. The location of its registered office in the State of Delaware is 103 Springer Blvd., 3411 Silverside Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Organization Services, Inc. THIRD. The nature of the business or purposes to be conducted or promoted is to engage in and to do any lawful act for which corporations may be incorporated under the General Corporation Law of Delaware. FOURTH. The Corporation is to have perpetual existence. FIFTH. The authorized capital stock of the Corporation shall be 1000 Common Shares without par value. SIXTH. The Corporation may issue shares, option rights, or securities having conversion or option rights, without first offering them to stockholders of any class or classes. SEVENTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the Corporation. EIGHTH. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware as the by-laws may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors, subject to the provisions of law. NINTH. The Corporation shall indemnify and advance expenses to, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware ("GCL"), as amended from time to time, each person made or threatened to be made a party of an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or serves or served any other enterprise as a director or officer at the request of the corporation, and the heirs, executors and administrators of each such person. Any expenses (including attorneys' fees) incurred by each such person, and the heirs, executors and administrators of such person, in connection with defending any such proceeding in advance of its final disposition shall be paid by the Corporation: provided, however, that if the GCL requires, an advancement of expenses incurred by an indemnitee in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such indemnitee to repay all amounts so advanced, if it shall ultimately be determined that such indemnitee is not entitled to be indemnified for such expenses under this Article or otherwise. TENTH. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which such director derived an improper personal benefit. ELEVENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TWELFTH. The name and mailing address of each incorporator is as follows: Name Mailing Address ---- --------------- Barbara Palm Obermayer Rebmann Maxwell & Hippel LLP 1617 John F. Kennedy Blvd. 19th Floor Philadelphia, PA 19103-1895 THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 29th day of May, 1997. /s/ Barbara Palm --------------------------------- Incorporator Barbara Palm CERTIFICATE OF MERGER OF PTS HOLDINGS, INC. WITH AND INTO DEL HOLDINGS, INC. DEL HOLDINGS, INC. hereby certifies as follows: FIRST: That the names and states of incorporation of each of the constituent corporations of the merge is as follows: Name State of Incorporation ---- ---------------------- Del Holdings, Inc. Delaware PTS Holdings, Inc. Delaware SECOND: That an Agreement and Plan of Merger between has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 251(c) of the General Corporation Law of the State of Delaware. THIRD: the name of the surviving corporation of the merger is Del Holdings, Inc., a Delaware corporation. FOURTH: That the certificates of incorporation of Del Holdings, Inc., a Delaware corporation, shall be the certificate of incorporation of the surviving corporation. FIFTH: That the executed Agreement and Plan of Merger is on file at the principal place of business of the surviving corporation, 103 Springer Building, 3411 Silverside Road, Wilmington, Delaware 19810. SIXTH: That a copy of the Agreement and Plan of Merger will be furnished on request and without any costs to any stockholder of either constituent corporation. ATTEST: DEL HOLDINGS, INC. By: /s/ John C. Fleury By: /s/ Larry A. Colangelo ----------------------------- ----------------------------------- John C. Fleury, Secretary Larry A. Colangelo, President Dated: July 24th, 1997 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF DEL HOLDINGS, INC. DEL HOLDINGS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: "RESOLVED, that Article First of the Certificate of Incorporation be amended to read as follows: 'FIRST: The name of the Corporation is SPD Holdings, Inc.,'" SECOND: That, in lieu of a meeting and a vote of stockholders, the stockholders have given unanimous written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That such amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, DEL HOLDINGS, INC. has caused this certificate to be signed by Larry A. Colangelo, its President, this 31 day of July, 1997. DEL HOLDINGS, INC. By: /s/ Larry A. Colangelo --------------------------------- ATTEST: /s/ John C. Fleury - ------------------------- Secretary EX-3.28 21 BY-LAWS OF SPD HOLDINGS, INC. Exhibit 3.28 BY-LAWS OF SPD HOLDINGS, INC. ARTICLE I Shareholders' Meetings; Voting Section 1.1. Annual Meetings. An annual meeting of shareholders shall be held for the election of directors on the first Monday in May of each year, if not a legal holiday, and, if a legal holiday, then on the next day not a legal holiday, at 10:00 o'clock in the forenoon at such time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of shareholders may be called at any time by the Chairman of the Board, the President, the Board of Directors, or as provided in Section 2.2, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of shareholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of shareholders who together own of record at least ten percent (10%) of the outstanding shares of stock entitled to vote at such meeting. Section 1.3. Notice of Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the shareholder at his address as it appears on the records of the Corporation. The Corporation shall, at the written request of any shareholder, cause such notice to such shareholder to be confirmed to such other address and/or by such other means as such shareholder may reasonably request, provided that if such written request is received after the date any such notice is mailed, such request shall be elective for subsequent notices only. Section 1.4. Adjournments. Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 1.5. Quorum. At each meeting of shareholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. With respect to any matter on which shareholders vote separately as a class, the holders of a majority of the outstanding shares of such class shall constitute a quorum for a meeting with respect to such matter. Two or more classes or series of stock shall be considered a single class for purposes of determining existence of a quorum for any matter to be acted on if the holders thereof are entitled or required to vote together as a single class at the meeting on such matter. In the absence of a quorum the shareholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these by-laws until a quorum shall attend. Section 1.6. Organization. Meetings of shareholders shall be presided over by the Chairman of the Board, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each shareholder entitled to vote at any meeting of shareholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of shareholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of any class of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of shareholders for the election of directors, such election and all other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at the meeting, voting as a single class. -2- Section 1.8. Fixing Date for Determination of Shareholders of Record. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining shareholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 1.9. List of Shareholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any shareholder who is present. Section 1.10. Consent of Shareholders in Lieu of Meeting. To the extent provided by any statute at the time in force, whenever the vote of shareholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any statute, by the certificate of incorporation or by these by-laws, the meeting and prior notice thereof and vote of shareholders may be dispensed with if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action without a meeting by less than unanimous written consent and notice thereof shall be given to those shareholders who have not consented in writing. -3- ARTICLE II Board of Directors Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The number of Directors which shall constitute the whole Board of Directors shall not be less than one (1) nor more than eight (8). Within such limits, the number of directors may be fixed from time to time by vote of the shareholders or of the Board of Directors, at any regular or special meeting, subject to the provisions of the certificate of incorporation. Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies; Special Elections. Except as otherwise provided in this Section 2.2, the directors shall be elected annually at the annual meeting of the shareholders. Each director (whenever elected) shall hold office until the annual meeting of shareholders or any special meeting of shareholders called to elect directors next succeeding his election and until his successor is elected and qualified or until his earlier resignation or removal, except as provided in the certificate of incorporation. Any director may resign at any time upon written notice to the Board of Directors or to the Chairman of the Board or to the President of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director may be removed with or without cause at any time upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such director, given at a special meeting of such shareholders called for the purpose. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of directors shall be increased, the directors then in office shall continue to act, and such vacancies may be filled by a majority of the directors then in office, though less than a quorum; provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series shall be filled by a majority of the directors elected by such class or classes or series thereof then in office though less than a quorum or by a sole remaining director so elected. Any such vacancies or newly created directorships may also be filled upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of directors, given at a special meeting of the shareholders called for the purpose. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. -4- Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. Section 2.5. Telephonic Meetings Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, any member of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors the presence of a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of at least a majority of the directors present at any meeting at which a quorum is present shall be necessary to constitute and shall be the act of the Board unless the certificate of incorporation or these by-laws shall otherwise provide. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consents thereto in writing, and the writing or writings an flied with the minutes of proceedings of the Board or committee. ARTICLE III Committees Section 3.1. Committees. The Board of Directors may, by resolution passed by a majority of the total number of directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board, and unless otherwise restricted by the certificate of incorporation or these by-laws, shall have and may exercise all -5- the powers and authority of the Board in the management of the business and affairs of the Corporation, to the full extent permitted by law. Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of all such members present at a meeting shall be the act of such committee, and in other respects each committee shall conduct its business pursuant to Article II of these by-laws. ARTICLE IV Officers Section 4.1. Officers; Election. As soon as practicable after the annual meeting of shareholders in each year, the Board shall elect a President and a Secretary. The Board may also elect a Chairman of the Board, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person. Section 4.2. Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board after the annual meeting of shareholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time, provided that such action by the Board shall require the vote of a majority of the whole Board. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall or may be filled for the unexpired portion of the term by the Board at any regular or special meeting in the manner provided in Section 4.1 for election of officers following the annual meeting of shareholders. Section 4.3. Chairman of the Board. The Chairman of the Board or, if there is not a Chairman of the Board, the President, shall be the chief executive officer and shall have general charge and supervision of the business of the Corporation. In addition, he shall preside at all meetings of the Board of Directors and of the shareholders at which he shall be -6- present. He shall have and may exercise such powers and perform such other duties as are, from time to time, assigned to him by the Board and as may be provided by law. Section 4.4. President. The President shall be the chief operating officer and shall perform all duties incident to such office, and such other duties as, from time to time, may be assigned to him by the Board or as may be provided by law. Section 4.5. Vice Presidents. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties of the President, and when so acting shall have the powers of the President. If there be more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties; or if such determination is not made by the Board, the President may make such determination; otherwise any of the Vice Presidents may perform any of such duties. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board or the President or as may be provided by law. Section 4.6. Secretary. The Secretary shall have the duty to record the proceedings of the meetings of the shareholders, the Board of Directors and any committees in a book to be kept for that purpose; he shall see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; he shall be custodian of the records of the Corporation; he may affix the corporate seal to any document the execution of which, on behalf of the Corporation, is duly authorized, and when so affixed may attest the same; and, in general, he shall perform all duties incident to the office of secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board or the President or as may be provided by law. Section 4.7. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by or under authority of the Board of Directors; if required by the Board, he shall give a bond for the faithful discharge of his duties, with such surety or sureties as the Board may determine; he shall keep or cause to be kept full and accurate records of all receipts and disbursements in books of the Corporation and shall render to the President and to the Board, whenever requested, an account of the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of treasurer of a corporation, and such other duties as may be assigned to him by the Board or the President or as may be provided by law. Section 4.8. Other Officers. The other officers, if any, of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in a resolution adopted by the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the -7- control of the Board. The Board may require any officer, agent or employee to give security for the faithful performance of his duties. ARTICLE V Stock Section 5.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous Section 6.1. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 6.2. Waiver of Notice of Meetings of Shareholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the -8- beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 6.3. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be convened into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 6.4. Dividends. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, bonds, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation. Section 6.5. Reserves. Before the payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve. Section 6.6. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 6.7. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 6.8. Officers. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places within or outside the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. -9- ARTICLE VII Amendments Section 7.1. Amendments. These by-laws may be altered, amended or repealed at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting. ARTICLE VIII Indemnification Section 8.1. Indemnification. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation, or serves or served any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor of the Corporation. The Corporation shall pay any expenses reasonably incurred by a director or officer in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide for the payment of such expenses incurred by employees and agents of the Corporation as it deems appropriate. The rights conferred on any person under this Article shall not be deemed exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation, by-law, agreement, vote of shareholders or disinterested directors or otherwise. All tights to indemnification and to the advancement of expenses under this Article shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these By-Laws and any other relevant provisions of the Delaware General Corporation Law and any other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. For purposes of this Article, references to the "Corporation" shall be deemed to include any subsidiary of the Corporation now or hereafter organized under the laws of the State of Delaware. -10- EX-5 22 OPINION OF SIMPSON THACHER & BARTLETT EXHIBIT 5 January 19, 1999 L-3 Communications Corporation 600 Third Avenue, 34th Floor New York, NY 10016 Ladies and Gentlemen: We have acted as counsel to L-3 Communications Corporation, a Delaware corporation (the "Company"), and to Hygienetics Environmental Services, Inc., a Delaware corporation, L-3 Communications ILEX Systems, Inc., a Delaware corporation, Southern California Microwave, a California corporation, L-3 Communications SPD Technologies, Inc., a Delaware corporation, L-3 Communications ESSCO, Inc., a Delaware corporation, L-3 Communications Storm Control Systems, Inc., a California corporation, L-3 Communications DBS Microwave, a California corporation, SPD Electrical Systems, Inc., a Delaware corporation, SPD Switchgear Inc., a Delaware corporation, Pac Ord Inc., a Delaware corporation, Henschel Inc., a Delaware corporation, Power Paragon, Inc., a Delaware corporation, and SPD Holdings, Inc., a Delaware corporation (individually, a "Guarantor" and collectively, the "Guarantors"), in connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by the Company and the Guarantors with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, relating to the issuance by the Company of $200,000,000 aggregate principal amount of Series B 8% Senior Subordinated Notes Due 2008 (the "Exchange Notes") and the issuance by the Guarantors of guarantees (the "Guarantees"), to be indorsed by the Guarantors on the Exchange Notes. The Exchange Notes and the Guarantees will be issued under an indenture (the "Indenture") among the Company, the Guarantors and the Bank of New York, as Trustee. The Exchange Notes will be offered by the Company in exchange for $200,000,000 aggregate principal amount of its outstanding 8% Senior Subordinated Notes due 2008 (the "Notes"). We have examined the Registration Statement and the Indenture, which has been filed with the Commission as an exhibit to the Registration Statement. We also have examined the originals, or duplicates or certified or conformed copies, of such records, agreements, instruments and other documents and have made such other and further investigations as we have deemed relevant and necessary in connection with the opinions expressed herein. As to questions of fact material to this opinion, we have relied upon certificates of public officials and of officers and representatives of the Company and the Guarantors. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the due incorporation and valid existence of the Guarantors, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies, and the authenticity of the originals of such latter documents. Based upon the foregoing, and subject to the qualifications and limitations stated herein, we are of the opinion that: 2 1. Assuming the Indenture has been duly authorized and validly executed and delivered by the parties thereto, when (a) the Board of Directors of the Company, a duly constituted and acting committee of such Board or duly authorized officers of the Company has or have taken all necessary corporate action to approve the issuance and terms of the Exchange Notes, the terms of the exchange and related matters and (b) the Exchange Notes have been duly executed, authenticated, issued and delivered in accordance with the provisions of the Indenture upon the exchange, the Exchange Notes will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms. 2. Assuming the Indenture has been duly authorized and validly executed and delivered by the parties thereto, when (a) the Board of Directors of each Guarantor, a duly constituted and acting committee of each such Board or duly authorized officers of each Guarantor have taken all necessary corporate action to approve the issuance and terms of the Guarantees and related matters, (b) the Exchange Notes have been duly executed, authenticated, issued and delivered in accordance with the provisions of the Indenture upon the exchange and (c) the Guarantees have been duly indorsed on the Exchange Notes, the Guarantees will constitute valid and legally binding obligations of the Guarantors enforceable against the Guarantors in accordance with their terms. Our opinion set forth above is subject to the effects of (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, (ii) general equitable principles (whether 3 considered in a proceeding in equity or at law) and (iii) an implied covenant of good faith and fair dealing. We are members of the Bar of the State of New York and we do not express any opinion herein concerning any law other than the law of the State of New York, the federal law of the United States and the Delaware General Corporation Law. We hereby consent to the filing of this opinion letter as Exhibit 5 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, /s/ Simpson Thacher & Bartlett SIMPSON THACHER & BARTLETT 4 EX-10.6 23 INDENTURE =============================================================================== L-3 COMMUNICATIONS CORPORATION, As Issuer $250,000,000 8 1/2% SENIOR SUBORDINATED NOTES DUE 2008 ----------------------------------- INDENTURE Dated as of May 22, 1998 ----------------------------------- ----------------------------------- The Bank of New York, As Trustee ----------------------------------- =============================================================================== TABLE OF CONTENTS ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1 SECTION 1.01. DEFINITIONS.........................................................................................1 SECTION 1.02. OTHER DEFINITIONS..................................................................................17 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT..................................................17 SECTION 1.04. RULES OF CONSTRUCTION..............................................................................18 ARTICLE 2. THE NOTES.............................................................................................18 SECTION 2.01. FORM AND DATING....................................................................................18 SECTION 2.02. EXECUTION AND AUTHENTICATION.......................................................................19 SECTION 2.03. REGISTRAR AND PAYING AGENT.........................................................................19 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST................................................................20 SECTION 2.05. HOLDER LISTS.......................................................................................20 SECTION 2.06. TRANSFER AND EXCHANGE..............................................................................20 SECTION 2.07. REPLACEMENT NOTES..................................................................................24 SECTION 2.08. OUTSTANDING NOTES..................................................................................25 SECTION 2.09. TREASURY NOTES.....................................................................................25 SECTION 2.10. TEMPORARY NOTES....................................................................................25 SECTION 2.11. CANCELLATION.......................................................................................26 SECTION 2.12. DEFAULTED INTEREST.................................................................................26 SECTION 2.13. CUSIP NUMBERS......................................................................................26 ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................26 SECTION 3.01. NOTICES TO TRUSTEE.................................................................................26 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED..................................................................27 SECTION 3.03. NOTICE OF REDEMPTION...............................................................................27 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.....................................................................28 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE........................................................................28 SECTION 3.06. NOTES REDEEMED IN PART.............................................................................29 SECTION 3.07. OPTIONAL REDEMPTION................................................................................29 SECTION 3.08. MANDATORY REDEMPTION...............................................................................29 SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS................................................29 ARTICLE 4. COVENANTS.............................................................................................31 SECTION 4.01. PAYMENT OF NOTES...................................................................................31 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY....................................................................32 SECTION 4.03. REPORTS............................................................................................32 SECTION 4.04. COMPLIANCE CERTIFICATE.............................................................................33 SECTION 4.05. TAXES..............................................................................................34 SECTION 4.06. [INTENTIONALLY OMITTED]............................................................................34 SECTION 4.07. RESTRICTED PAYMENTS................................................................................34 SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.....................................36 SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.........................................37 SECTION 4.10. ASSET SALES........................................................................................40 SECTION 4.11. TRANSACTIONS WITH AFFILIATES.......................................................................41 SECTION 4.12. LIENS..............................................................................................42 SECTION 4.13. FUTURE SUBSIDIARY GUARANTEES.......................................................................42 SECTION 4.14. CORPORATE EXISTENCE................................................................................43 SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.........................................................44 i SECTION 4.16. NO SENIOR SUBORDINATED DEBT........................................................................45 SECTION 4.17. PAYMENTS FOR CONSENT...............................................................................45 ARTICLE 5. SUCCESSORS............................................................................................45 SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS...........................................................45 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED..................................................................46 ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................46 SECTION 6.01. EVENTS OF DEFAULT..................................................................................46 SECTION 6.02. ACCELERATION.......................................................................................48 SECTION 6.03. OTHER REMEDIES.....................................................................................49 SECTION 6.04. WAIVER OF PAST DEFAULTS............................................................................49 SECTION 6.05. CONTROL BY MAJORITY................................................................................50 SECTION 6.06. LIMITATION ON SUITS................................................................................50 SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT......................................................50 SECTION 6.08. COLLECTION SUIT BY TRUSTEE.........................................................................50 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM...................................................................51 SECTION 6.10. PRIORITIES.........................................................................................51 SECTION 6.11. UNDERTAKING FOR COSTS..............................................................................52 ARTICLE 7. TRUSTEE...............................................................................................52 SECTION 7.01. DUTIES OF TRUSTEE..................................................................................52 SECTION 7.02. RIGHTS OF TRUSTEE..................................................................................53 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.......................................................................54 SECTION 7.04. TRUSTEE'S DISCLAIMERS..............................................................................54 SECTION 7.05. NOTICE OF DEFAULTS.................................................................................55 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.........................................................55 SECTION 7.07. COMPENSATION AND INDEMNITY.........................................................................55 SECTION 7.08. REPLACEMENT OF TRUSTEE.............................................................................56 SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC...................................................................57 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION......................................................................57 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..................................................57 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................57 SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE...........................................57 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.....................................................................58 SECTION 8.03. COVENANT DEFEASANCE................................................................................58 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.........................................................59 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS...................................................................................60 SECTION 8.06. REPAYMENT TO COMPANY...............................................................................61 SECTION 8.07. REINSTATEMENT......................................................................................61 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.....................................................................61 SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES................................................................61 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES...................................................................62 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT................................................................64 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS..................................................................64 SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES...................................................................64 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC....................................................................64 ii ARTICLE 10. SUBORDINATION........................................................................................64 SECTION 10.01. AGREEMENT TO SUBORDINATE..........................................................................64 SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY..............................................................65 SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.................................................................65 SECTION 10.04. ACCELERATION OF SECURITIES........................................................................66 SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER...............................................................66 SECTION 10.06. NOTICE BY COMPANY.................................................................................66 SECTION 10.07. SUBROGATION.......................................................................................67 SECTION 10.08. RELATIVE RIGHTS...................................................................................67 SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY......................................................67 SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE..........................................................68 SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT................................................................68 SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.............................................................68 SECTION 10.13. AMENDMENTS........................................................................................68 ARTICLE 11. MISCELLANEOUS........................................................................................68 SECTION 11.01. TRUST INDENTURE ACT CONTROLS......................................................................69 SECTION 11.02. NOTICES...........................................................................................69 SECTION 11.03. COMMUNICATIONS BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES....................................70 SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT................................................70 SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.....................................................70 SECTION 11.06. RULE BY TRUSTEE AND AGENTS........................................................................71 SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS..........................71 SECTION 11.08. GOVERNING LAW.....................................................................................71 SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.....................................................71 SECTION 11.10. SUCCESSORS........................................................................................71 SECTION 11.11. SEVERABILITY......................................................................................72 SECTION 11.12. COUNTERPART ORIGINALS.............................................................................72 SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC..................................................................72
iii EXHIBITS EXHIBIT A FORM OF NOTE EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY GUARANTEEING SUBSIDIARY EXHIBIT C FORM OF NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE iv CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section - --------------- ---------- 310 (a)(1)............................................. 7.10 (a)(2)............................................. 7.10 (a)(3)............................................. N.A. (a)(4)............................................. N.A. (a)(5)............................................. 7.10 (b)................................................ 7.10 (c)................................................ N.A. 311 (a)................................................ 7.11 (b)................................................ 7.11 (c)................................................ N.A. 312 (a)................................................ 2.05 (b)................................................ 11.03 (c)................................................ 11.03 313 (a)................................................ 7.06 (b)(1)............................................. 10.03 (b)(2)............................................. 7.07 (c)................................................ 7.06;11.02 (d)................................................ 7.06 314 (a)................................................ 4.03;11.02 (b)................................................ 10.02 (c)(1)............................................. 11.04 (c)(2)............................................. 11.04 (c)(3)............................................. N.A. (d)................................................ 10.03, 10.04, 10.05 (e)................................................ 11.05 (f)................................................ N.A. 315 (a)................................................ 7.01 (b)................................................ 7.05, 11.02 (c)................................................ 7.01 (d)................................................ 7.01 (e)................................................ 6.11 316 (a)(last sentence)................................. 2.09 (a)(1)(A).......................................... 6.05 (a)(1)(B).......................................... 6.04 (a)(2)............................................. N.A. - ----------------------- *This Cross-Reference Table is not part of the Indenture. v (b)................................................ 6.07 (c)................................................ 2.12 317 (a)(1)............................................. 6.08 (a)(2)............................................. 6.09 (b)................................................ 2.04 318 (a)................................................ 11.01 (b)................................................ N.A. (c)................................................ 11.01 - ------------------- N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. vi This INDENTURE dated as of May 22, 1998, between L-3 Communications Corporation, a Delaware corporation (the "Company"), and The Bank of New York, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8 1/2% Senior Subordinated Notes due 2008: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "1997 Indenture" means the indenture, dated as of April 30, 1997, among The Bank of New York, as trustee, and the Company, with respect to the 1997 Notes. "1997 Notes" means the $225,000,000 in aggregate principal amount of the Company's 10 3/8% Senior Subordinated Notes due 2007, issued pursuant to the 1997 Indenture on April 30, 1997. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other 1 disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by the covenant contained in Section 4.15 and/or the covenant contained in Section 5.01 and not by the covenant contained in Section 4.10), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (A) that have a fair market value in excess of $1.0 million or (B) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the covenant contained in Section 4.07 and (iv) a disposition of Cash Equivalents in the ordinary course of business shall not be deemed to be an Asset Sale. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic financial institution to the Senior Credit Facilities or with 2 any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within six months after the date of acquisition, (vi) investment funds investing 95% of their assets in securities of the types described in clauses (i)-(v) above, and (vii) readily marketable direct obligations issued by any State of the United States of America or any political subdivision thereof having maturities of not more than one year from the date of acquisition and having one of the two highest rating categories obtainable from either Moody's or S&P. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Principals or their Related Parties (as defined below), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares) or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill, debt issuance costs and other intangibles but excluding amortization of other prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other 3 non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items (excluding any items that were accrued in the ordinary course of business) increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries, and (vi) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries. "Consolidated Tangible Assets" means, with respect to the Company, the total consolidated assets of the Company and its Restricted Subsidiaries, less the total intangible assets of the Company and its Restricted Subsidiaries, as shown on the most recent internal consolidated balance sheet of the Company and such Restricted Subsidiaries calculated on a consolidated basis in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Issue Date or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the Senior Credit Facilities) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities 4 formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Article 2 hereof, substantially in the form of Exhibit A hereto, except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Senior Credit Facilities and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof; and provided further, that if such Capital Stock is issued to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any public or private sale of equity securities (excluding Disqualified Stock) of the Company or Holdings, other than any private sales to an Affiliate of the Company or Holdings. 5 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means any Indebtedness of the Company (other than Indebtedness under the Senior Credit Facilities and the Notes) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations, but excluding amortization of debt issuance costs) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (A) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be 6 excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Foreign Subsidiary" means a Restricted Subsidiary of the Company that was not organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which were in effect April 30, 1997. "Global Notes" means, individually and collectively, each of the Global Notes substantially in the form of Exhibit A hereto issued in accordance with Article 2 hereof. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) currency exchange or interest rate swap agreements, interest rate cap agreements and currency exchange or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or interest rates. "Holder" means a Person in whose name a Note is registered. "Holdings" means L-3 Communications Holdings, Inc. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid 7 of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel, moving and similar loans or advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the last paragraph of the covenant contained in Section 4.07. "Issue Date" means the closing date for the sale and original issuance of the Notes under the Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lehman Investor" means Lehman Brothers Holdings Inc. and any of its Affiliates. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention 8 agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Marketable Securities" means, with respect to any Asset Sale, any readily marketable equity securities that are (i) traded on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii) issued by a corporation having a total equity market capitalization of not less than $250.0 million; provided that the excess of (A) the aggregate amount of securities of any one such corporation held by the Company and any Restricted Subsidiary over (B) ten times the average daily trading volume of such securities during the 20 immediately preceding trading days shall be deemed not to be Marketable Securities; as determined on the date of the contract relating to such Asset Sale. "Moody's" means Moody's Investors Services, Inc. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes thereon, realized in connection with (A) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (B) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss and (iii) the cumulative effect of a change in accounting principles. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (A) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (B) is directly or indirectly liable (as a guarantor or otherwise), or (C) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than Indebtedness incurred under Credit Facilities) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the 9 payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Obligations" means any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization, whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages, guarantees and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereto. "Offering" means the Offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to DTC, a Person who has an account with DTC. "Permitted Investments" means (i) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (ii) any Investment in cash or Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary of the Company and a Guarantor or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Guarantor; (iv) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.07 or any disposition of assets not constituting an Asset sale; (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (vi) advances to employees not to exceed $2.5 million at any one time outstanding; (vii) any Investment acquired in connection with or as a result of a workout or bankruptcy of a customer or supplier; (viii) Hedging Obligations permitted to be incurred under 10 Section 4.09; (ix) any Investment in a Similar Business that is not a Restricted Subsidiary; provided that the aggregate fair market value of all Investments outstanding pursuant to this clause (ix) (valued on the date each such Investment was made and without giving effect to subsequent changes in value) may not at any one time exceed 10% of the Consolidated Tangible Assets of the Company; and (x) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (x) that are at the time outstanding, not to exceed $15.0 million. "Permitted Joint Venture" means any joint venture, partnership or other Person designated by the Board of Directors (until designation by the Board of Directors to the contrary); provided that (i) at least 25% of the Capital Stock thereof with voting power under ordinary circumstances to elect directors (or Persons having similar or corresponding powers and responsibilities) is at the time owned (beneficially or directly) by the Company and/or by one or more Restricted Subsidiaries of the Company and (ii) such joint venture, partnership or other Person is engaged in a Similar Business. Any such designation or designation to the contrary shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes and the Subsidiary Guarantees are subordinated to Senior Debt pursuant to Article 10 of this Indenture. "Permitted Liens" means (i) Liens securing Senior Debt of the Company or any Guarantor that was permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of the Company or any Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other assets of the Company or any of its Restricted Subsidiaries; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of Section 4.09 covering only the assets acquired with such Indebtedness; (vii) Liens existing on the Issue Date; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one 11 time outstanding; (x) Liens on assets of Guarantors to secure Senior Debt of such Guarantors that was permitted by this Indenture to be incurred; (xi) Liens securing Permitted Refinancing Indebtedness, provided that any such Lien does not extend to or cover any property, shares or debt other than the property, shares or debt securing the Indebtedness so refunded, refinanced or extended; (xii) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature, in each case incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (xiii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (xiv) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Hedging Obligations; and (xv) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory or regulatory, contractual or warranty requirements of the Company or its Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses and prepayment premiums incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Permitted Securities" means, with respect to any Asset Sale, Voting Stock of a Person primarily engaged in one or more Similar Businesses; provided that after giving effect to the Asset Sale such Person shall become a Restricted Subsidiary and a Guarantor. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). 12 "Principals" means any Lehman Investor, Lockheed Martin Corporation, Frank C. Lanza and Robert V. LaPenta. "Related Party" with respect to any Principal means (i) any controlling stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a more than 50% controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means, with respect to any Person, each Subsidiary of such Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facilities" means the credit agreement, as in effect on the Issue Date among the Company and a syndicate of banks and other financial institutions led by Lehman Commercial Paper Inc., as syndication agent, and any related notes, collateral documents, letters of credit and guarantees, including any appendices, exhibits or schedules to any of the foregoing (as the same may be in effect from time to time), in each case, as such agreements may be amended, modified, supplemented or restated from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid or extended from time to time (whether with the original agents and lenders or other agents and lenders or otherwise, and whether provided under the original credit agreement or other credit agreements or otherwise). "Senior Debt" means (i) all Indebtedness of the Company or any of its Restricted Subsidiaries outstanding under Credit Facilities and all Hedging Obligations with respect thereto, (ii) any other Indebtedness permitted to be incurred by the Company or any of its Restricted 13 Subsidiaries under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (i) any liability for federal, state, local or other taxes owed or owing by the Company, (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Similar Business" means a business, a majority of whose revenues in the most recently ended calendar year were derived from (i) the sale of defense products, electronics, communications systems, aerospace products, avionics products and/or communications products, (ii) any services related thereto, (iii) any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto, and (iv) any combination of any of the foregoing. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "S&P" means Standard and Poor's Corporation. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under TIA. "Transaction Documents" means the Indenture, the Notes and the Underwriting Agreement. 14 "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Underwriting Agreement" means the Underwriting Agreement, dated May 18, 1998, by and among the Company and Lehman Brothers Inc. and Bank of America Robertson Stephens. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (A) to subscribe for additional Equity Interests or (B) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (iv) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09, the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) 15 the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Wholly Owned" means, when used with respect to any Subsidiary or Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as appropriate) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person. 16 SECTION 1.02. OTHER DEFINITIONS. Defined in Term Section ---- ---------- "Affiliate Transaction"......................................4.11 "Asset Sale Offer"...........................................3.09 "Bankruptcy Law".............................................4.01 "Change of Control Offer"....................................4.15 "Change of Control Payment"..................................4.15 "Change of Control Payment Date".............................4.15 "Covenant Defeasance"........................................8.03 "Event of Default"...........................................6.01 "Global Note Legend".........................................2.06 "Excess Proceeds"............................................4.10 "incur"......................................................4.09 "Legal Defeasance"...........................................8.02 "Offer Amount"...............................................3.09 "Offer Period"...............................................3.09 "Paying Agent"...............................................2.03 "Purchase Date"..............................................3.09 "Registrar"..................................................2.03 "Remaining Excess Proceeds"..................................4.10 "Restricted Payments"........................................4.07 "Secondary Asset Sale Offer".................................4.10 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company and any successor obligor upon the Notes. 17 All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may be issued in the form of Definitive Notes or Global Notes, as specified by the Company. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of 18 Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. SECTION 2.02. EXECUTION AND AUTHENTICATION Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or 19 maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA ss. 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that 20 the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.11 hereof. Every Note authenticated and made available for delivery in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.07 or 2.11 hereof, shall be authenticated and made available for delivery in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the procedures of the Depositary therefor. The Trustee shall have no obligation to ascertain the Depositary's compliance with any such restrictions on transfer. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests (other than transfers of beneficial interests in a Global Note to Persons who take delivery thereof in the form of a beneficial interest in the same Global Note), the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in the specified Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture, the Notes and otherwise 21 applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (iii) If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii), the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Definitive Notes issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such names and in such authorized denominations as the holder shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) Transfer or Exchange of Definitive Notes for Beneficial Interests. (iv) A Holder of Unrestricted Definitive Notes may exchange such Notes for a beneficial interest in the Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in the Unrestricted Global Note. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the Unrestricted Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (i) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above. (e) Transfer and Exchange of Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 2.06(e). 22 (v) A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Legends. The following Global Note Legend shall appear on the face of all Global Notes issued under this Indenture: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (g) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such increase. (h) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or 23 exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. 24 Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. 25 SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.13. CUSIP NUMBERS. The Company in issuing the Notes may use CUSIP numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this 26 Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption shall be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed (including CUSIP Numbers, if any) and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; 27 (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to 11:00 a.m. on the Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. 28 SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this Section 3.7, the Notes shall not be redeemable at the Company's option prior to May 15, 2003. Thereafter, the Notes shall be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2003...........................................104.250% 2004...........................................102.833% 2005...........................................101.417% 2006 and thereafter............................100.000% (b) Notwithstanding the foregoing clause (a), during the first 36 months after the Issue Date, the Company may on any one or more occasions redeem up to an aggregate of 35% of the Notes originally issued at a redemption price of 108.500% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Equity Offerings by the Company or the net cash proceeds of one or more Equity Offerings by Holdings that are contributed to the Company as common equity capital; provided that at least 65% of the Notes originally issued remain outstanding immediately after the occurrence of each such redemption; and provided, further, that any such redemption must occur within 120 days of the date of the closing of such Equity Offering. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. 29 The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the 30 principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the 31 then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03. REPORTS. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Company shall file with the SEC (and provide the Trustee and Holders with copies thereof), without cost to each Holder, within 15 days after it files them with the SEC: (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form); (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form); (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form); and 32 (d) any other information, documents and other reports which the Company would be required to file with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act; provided, however, the Company shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which event the Company will make available such information to prospective purchasers of Notes, in addition to providing such information to the Trustee and the Holders, in each case within 15 days after the time the Company would be required to file such information with the SEC, if it were subject to Sections 13 or 15(d) of the Exchange Act. Subject to the provisions of Article 7, delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. 33 (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, as soon as possible and in any event within five Business Days after any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. [INTENTIONALLY OMITTED] SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than (A) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or (B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least 34 $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since April 30, 1997 (excluding Restricted Payments permitted by clauses (ii) through (vii) of the next succeeding paragraph or of the kind contemplated by such clauses that were made prior to the date of the Indenture), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from July 1, 1997 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since April 30, 1997 from a contribution to its common equity capital or the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after April 30, 1997 is sold for cash or otherwise liquidated or repaid for cash, the amount of cash received in connection therewith (or from the sale of Marketable Securities received in connection therewith), plus (iv) to the extent not already included in such Consolidated Net Income of the Company for such period and without duplication, (A) 100% of the aggregate amount of cash received as a dividend from an Unrestricted Subsidiary, (B) 100% of the cash received upon the sale of Marketable Securities received as a dividend from an Unrestricted Subsidiary, and (C) 100% of the net assets of any Unrestricted Subsidiary on the date that it becomes a Restricted Subsidiary. The foregoing provisions shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness (other than intercompany Indebtedness) in exchange for, or with the net cash proceeds from an incurrence of, Permitted Refinancing Indebtedness; (iv) the repurchase, retirement or other acquisition or retirement for value of common Equity Interests of the Company or Holdings held by any future, present or former employee, director or consultant of the Company or any Subsidiary or Holdings issued pursuant to any management equity plan or 35 stock option plan or any other management or employee benefit plan or agreement; provided, however, that the aggregate amount of Restricted Payments made under this clause (iv) does not exceed $1.5 million in any calendar year and provided further that cancellation of Indebtedness owing to the Company from members of management of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Company shall not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of this Indenture; (v) repurchases of Equity Interests deemed to occur upon exercise of stock options upon surrender of Equity Interests to pay the exercise price of such options; (vi) payments to Holdings (A) in amounts equal to the amounts required for Holdings to pay franchise taxes and other fees required to maintain its legal existence and provide for other operating costs of up to $500,000 per fiscal year and (B) in amounts equal to amounts required for Holdings to pay federal, state and local income taxes to the extent such income taxes are actually due and owing; provided that the aggregate amount paid under this clause (B) does not exceed the amount that the Company would be required to pay in respect of the income of the Company and its Subsidiaries if the Company were a stand alone entity that was not owned by Holdings; and (vii) other Restricted Payments in an aggregate amount since the Issue Date not to exceed $20.0 million. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated shall be deemed to be Restricted Payments at the time of such designation and shall reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments shall be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation shall only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by Section 4.07 were computed. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(A) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (B) 36 pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (A) the provisions of security agreements that restrict the transfer of assets that are subject to a Lien created by such security agreements, (B) the provisions of agreements governing Indebtedness incurred pursuant to clause (v) of the second paragraph of Section 4.09, (C) this Indenture, the Notes, and the 1997 Indenture and the 1997 Notes, (D) applicable law, (E) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (F) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (G) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in this clause (iii) on the property so acquired, (H) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (I) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (J) agreements relating to secured Indebtedness otherwise permitted to be incurred pursuant to 4.09 and 4.12 that limit the right of the debtor to dispose of the assets securing such Indebtedness, (K) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, or (L) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or issue shares of preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such preferred stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. 37 The provisions of the first paragraph of this Section 4.09 shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of additional Indebtedness under Credit Facilities (and the guarantee thereof by the Guarantors) in an aggregate principal amount outstanding pursuant to this clause (i) at any one time (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder), including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (i), not to exceed $375.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant to Section 4.10; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company and the Guarantors of $180.0 million in aggregate principal amount of the Notes and the Subsidiary Guarantees thereof; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (iv), not to exceed $30.0 million at any time outstanding; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Restricted Subsidiaries; and provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (v), does not exceed $10.0 million; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness that was permitted by this Indenture to be incurred (other than intercompany Indebtedness or Indebtedness incurred pursuant to clause (i) above); 38 (vii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence; (viii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that (A) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (B)(1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or one of its Restricted Subsidiaries and (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or one of its Restricted Subsidiaries shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (x) the incurrence by the Company or any of the Guarantors of Hedging Obligations that are incurred for the purpose of (A) fixing, hedging or capping interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding or (B) protecting the Company and its Restricted Subsidiaries against changes in currency exchange rates; (xi) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this Section 4.09; 39 (xii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (xii), and the issuance of preferred stock by Unrestricted Subsidiaries; (xiii) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiaries in the ordinary course of business; and (xiv) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness then outstanding incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (xiv), not to exceed $50.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify, or later reclassify, such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness shall not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by an Officers' Certificate delivered to the Trustee which will include a resolution of the Board of Directors with respect to such fair market value in the event such Asset Sale involves aggregate consideration in excess of $5.0 million) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 80% of the consideration therefor received by the Company or such Restricted Subsidiary, as the case may be, consists of cash, Cash Equivalents and/or Marketable Securities; provided, however, that (A) the amount of any Senior Debt of the Company or such Restricted Subsidiary that is assumed by the transferee in any such transaction and (B) any consideration received by the Company or such Restricted Subsidiary, as the case may be, that consists of (1) all or substantially all of the assets of one or more Similar Businesses, (2) other long-term assets that are used or useful in one or more Similar Businesses and (3) Permitted Securities shall be deemed to be cash for purposes of this provision. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (i) to repay Indebtedness under a Credit 40 Facility, or (ii) to the acquisition of Permitted Securities, all or substantially all of the assets of one or more Similar Businesses, or the making of a capital expenditure or the acquisition of other long-term assets in a Similar Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under a Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph shall be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall make an offer to all holders of 1997 Notes (an "Asset Sale Offer") to purchase the maximum principal amount of 1997 Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set forth in the 1997 Indenture. To the extent that the aggregate amount of 1997 Notes tendered pursuant to an Asset Sale Offer is less than the remaining Excess Proceeds ("Remaining Excess Proceeds") and the sum of (A) such amount of Remaining Excess Proceeds and (B) the Remaining Excess Proceeds from any subsequent Asset Sale Offers exceeds $3.0 million, the Company will be required to make an offer to all Holders of Notes and any other Indebtedness that ranks pari passu with the Notes that, by its terms, requires the Company to offer to repurchase such Indebtedness with such Remaining Excess Proceeds (a "Secondary Asset Sale Offer") to purchase the maximum principal amount of Notes and pari passu Indebtedness that may be purchased out of such Remaining Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes or pari passu Indebtedness tendered pursuant to a Secondary Asset Sale Offer is less than the Remaining Excess Proceeds, the Company may use any Remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the amount of Remaining Excess Proceeds in a Secondary Asset Sale Offer, the Company shall repurchase such Indebtedness on a pro rata basis and the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and 41 that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions shall not prohibit: (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (ii) any transaction with a Lehman Investor; (iii) any transaction between or among the Company and/or its Restricted Subsidiaries; (iv) transactions between the Company or any of its Restricted Subsidiaries, on the one hand, and Lockheed Martin or any of its Subsidiaries or a Permitted Joint Venture, on the other hand, on terms that are not materially less favorable to the Company or the applicable Restricted Subsidiary of the Company than those that could have been obtained from an unaffiliated third party; provided that (A) in the case of any such transaction or series of related transactions pursuant to this clause (iv) involving aggregate consideration in excess of $5.0 million but less than $25.0 million, such transaction or series of transactions (or the agreement pursuant to which the transactions were executed) was approved by the Company's Chief Executive Officer or Chief Financial Officer and (B) in the case of any such transaction or series of related transactions pursuant to this clause (iv) involving aggregate consideration equal to or in excess of $25.0 million, such transaction or series of related transactions (or the agreement pursuant to which the transactions were executed) was approved by a majority of the disinterested members of the Board of Directors; (v) any transaction pursuant to and in accordance with the provisions of the Transaction Documents as the same are in effect on the Issue Date; and (vi) any Restricted Payment that is permitted by the provisions of Section 4.07. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. SECTION 4.13. FUTURE SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiaries shall acquire or create a Subsidiary (other than a Foreign Subsidiary or an Unrestricted Subsidiary) after the Issue Date, then such Subsidiary shall execute a Subsidiary Guarantee, in the form of the Supplemental Indenture attached hereto as Exhibit B, and the Form of Notation on Senior Subordinated Note, attached hereto as Exhibit C, and deliver an opinion of counsel as to the validity of such Subsidiary Guarantee, in accordance with the terms of this Indenture. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor, which would include the guarantees of amounts borrowed under the Senior Credit Facilities. The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. 42 No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person (except the Company or another Guarantor) unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) the Company (A) would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 or (B) would have a pro forma Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge Coverage Ratio for the same four-quarter period without giving pro forma effect to such transaction. Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (ii) any Guarantor may merge with an Affiliate that has no significant assets or liabilities and was incorporated solely for the purpose of reincorporating such Guarantor in another State of the United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of Section 4.10. SECTION 4.14. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. 43 SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101 % of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"). Such notice, which shall govern the terms of the Change of Control offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date; (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes in connection with a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be 44 in a principal amount of $1,000 or an integral multiple thereof. Prior to mailing a Change of Control Offer, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or offer to repay all Senior Debt and terminate all commitments thereunder of each lender who has accepted such offer or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. SECTION 4.16. NO SENIOR SUBORDINATED DEBT. The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes. No Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of a Guarantor and senior in any respect in right of payment to any of the Subsidiary Guarantees. SECTION 4.17. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5. SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event 45 of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made, after giving pro forma effect to such transaction as if such transaction had occurred at the beginning of the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such transaction either (A) would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 or (B) would have a pro forma Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge Coverage Ratio for the same four-quarter period without giving pro forma effect to such transaction. Notwithstanding clause (iv) in the immediately foregoing paragraph, (i) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (ii) the Company may merge with an Affiliate that has no significant assets or liabilities and was incorporated solely for the purpose of reincorporating the Company in another State of the United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on the Notes and such default continues for a period of 30 days (whether or not prohibited by the subordination provisions of this Indenture); 46 (b) the Company defaults in the payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of this Indenture); (c) the Company fails to comply with any of the provisions of Section 4.10, 4.15, or 5.01 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness, together with the principal amount of any other such Indebtedness, the maturity of which has been so accelerated, aggregates $10.0 million or more; (f) the Company or any of its Restricted Subsidiaries is subject to a final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (g) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 47 (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (iv) Except as permitted herein, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. SECTION 6.02. ACCELERATION. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, such declaration shall not become effective until the earlier of (i) the day which is five Business Days after receipt by the Representatives of Designated Senior Debt of such notice of acceleration or (ii) the date of acceleration of any Designated Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Restricted Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected 48 to redeem the Notes pursuant to the optional redemption provisions of this Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to May 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to May 15, 2003, then the premium specified below shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes during the twelve-month period ending on May 1 of the years indicated below: YEAR PERCENTAGE ---- ---------- 1998............................................112.752% 1999............................................111.335% 2000............................................109.918% 2001............................................108.500% 2002............................................107.084% 2003............................................105.667% SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 49 SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and interest remaining unpaid 50 on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. 51 The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith or negligence on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; 52 (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in such document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. 53 (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. (i) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMERS. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. 54 SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee or any predecessor Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such 55 counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 56 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be 57 applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Sections 2.06, 2.07, 2.10 and 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15 and 4.16 and Article 5 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, 58 subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Restricted Subsidiaries is a party or by which the Company or any of its Restricted Subsidiaries is bound; 59 (f) the Company shall have delivered to the Trustee an opinion of counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. 60 SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and The Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 hereof; 61 (a) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (b) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by 62 virtue of the requisite percentage having been obtained prior to the date which is 180 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; or (g) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.09, 4.10 and 4.15 hereof). (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. 63 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. 64 SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not an allowable claim in any such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full in cash, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except, in each case, that Holders of Notes may receive Permitted Junior Securities and payments made from the trust described under Article 8). SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (i) securities that are subordinated to at least the same extent as the Notes to (a) Senior Debt and (b) any securities issued in exchange for Senior Debt and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of any principal or other Obligations with respect to Designated Senior Debt occurs and is continuing; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or a Representative with respect to such Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived or cured for a period of not less than 90 days. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: 65 (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.03(ii) hereof, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 10.04. ACCELERATION OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Article 10 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or negligence of the Trustee. SECTION 10.06. NOTICE BY COMPANY The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Debt (or a trustee or agent on behalf of such 66 holder) to establish that such notice has been given by a holder of Senior Debt (or a trustee or agent on behalf of any such holder). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as holder of Senior Debt to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such person, the extent to which such person is entitled to participate in such evidence is not furnish, the Trustee may defer any payment which it may be required to make for the benefit of such person pursuant to the terms of this Indenture pending judicial determination as to the rights of such person to receive such payment. SECTION 10.07. SUBROGATION. After all Senior Debt is paid in full in cash and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.08. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. 67 SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least three Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the credit agents are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 10.13. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. 68 ARTICLE 11. MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss.318(c), the imposed duties shall control. SECTION 11.02. NOTICES. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: L-3 Communications Corporation 600 Third Avenue, 34th Floor, New York, New York 10016 Attention: Vice President-Finance (Fax: 212-805-5470) With a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Vincent Pagano Jr. (Fax: 212-455-2502) If to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration (Fax: 212-815-5915) The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 69 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.03. COMMUNICATIONS BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 70 (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 11.06. RULE BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes and this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 11.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. 71 SECTION 11.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following pages] 72 SIGNATURES Dated as of May 22, 1998 L-3 COMMUNICATIONS CORPORATION By: --------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee By: --------------------------- Name: Title: S-1 EXHIBIT A (Face of Note) =============================================================================== CUSIP/CINS __________ 8 1/2% Senior Subordinated Notes due 2008 No. ___ $_________ L-3 COMMUNICATIONS CORPORATION promises to pay to __________________________________________________ the principal sum of ________________________________________________ Dollars on May 15, 2008. Interest Payment Dates: May 15, and November 15 Record Dates: May 1, and November 1 Dated: _______________, 199__ L-3 Communications Corporation By: --------------------------- Name: Title: By: --------------------------- Name: Title: This is one of the [Global] Notes referred to in the within (SEAL) mentioned Indenture: Dated: THE BANK OF NEW YORK, as Trustee By: -------------------------------- =============================================================================== A-1 (Back of Note) 8 1/2% Senior Subordinated Notes due 2008 [THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.]1 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated 1. INTEREST. L-3 Communications Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8 1/2% per annum from May 22, 1998 until maturity. The Company shall pay interest semi-annually in arrears on May 15 and November 15, commencing on November 15, 1998, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"), with the same force and effect as if made on the date for such payment. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be November 15. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next (whether or not a Business Day) preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest - --------------- 1 This paragraph should be included only if the Note is issued in global form. A-2 Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within The City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent if such Holders shall be registered Holders of at least $250,000 in principal amount of the Notes. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 22, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes issuable under the Indenture are obligations of the Company limited to $250.0 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this paragraph 5, the Notes shall not be redeemable at the Company's option prior to May 15, 2003. Thereafter, the Notes shall be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2003......................................... 104.250% 2004......................................... 102.833% 2005......................................... 101.417% 2006 and thereafter.......................... 100.000% A-3 (b) Notwithstanding the foregoing, during the first 36 months after the date of the Indenture, the Company may on any one or more occasions redeem up to an aggregate of 35% of the Notes originally issued at a redemption price of 108.500% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Equity Offerings by the Company or the net cash proceeds of one or more Equity Offerings by Holdings that are contributed to the Company as common equity capital; provided that at least 65% of the Notes originally issued remain outstanding immediately after the occurrence of each such redemption; and provided, further, that any such redemption must occur within 120 days of the date of the closing of such Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (in either case, the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five Business Days of each date on which the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall commence an offer to all holders of 1997 Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of 1997 Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set forth in the 1997 Indenture. To the extent that the aggregate amount of 1997 Notes tendered pursuant to an Asset Sale Offer is less than the remaining Excess Proceeds ("Remaining Excess Proceeds") and the sum of (A) such amount of Remaining Excess Proceeds and (B) the Remaining Excess Proceeds from any subsequent Asset Sale Offers exceeds $3.0 million, the Company will be required to make an offer to all Holders of Notes and any other Indebtedness that ranks pari passu with the Notes that, by its terms, requires the Company to offer to repurchase such Indebtedness with such Remaining Excess Proceeds (a "Secondary Asset Sale Offer") to purchase the maximum principal amount of Notes and pari passu Indebtedness that may be purchased out of such Remaining Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes or pari passu Indebtedness tendered pursuant to a Secondary Asset Sale Offer is less than the Remaining Excess Proceeds, the Company may use any Remaining Excess A-4 Proceeds for general corporate purposes. If the aggregate principal amount of Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the amount of Remaining Excess Proceeds in a Secondary Asset Sale Offer, the Company shall repurchase such Indebtedness on a pro rata basis and the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. A-5 12. DEFAULTS AND REMEDIES. An "Event of Default" occurs if: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the covenants contained in sections 4.10, 4.15 or 5.10 of the Indenture; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $10.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, such declaration shall not become effective until the earlier of (i) the day which is five Business Days after receipt by the Representatives of Designated Senior Debt of such notice of acceleration or (ii) the date of acceleration of any Designated Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Restricted Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to May 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to May 15, 2003, then the A-6 premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 18. GOVERNING LAW. The internal law of the State of New York shall govern and be used to construe this Note, without regard to the principles of conflicts of laws. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: L-3 Communications Corporation 600 Third Avenue, 34th Floor, New York, New York 10016 Attention: Vice President-Finance (Fax: 212-805-5470) A-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: -------------------- Your Signature: ------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee. A-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $______________ Date: Your Signature: -------------------- ------------------------ (Sign exactly as your name appears on the Note) Tax Identification No.: --------------- Signature Guarantee. A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE2 The following exchanges of a part of this Global Note for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of this Global Note Signature of Amount of decrease Amount of increase following such authorized officer in Principal Amount in Principal Amount decrease of Trustee or Note Date of Exchange of this Global Note of this Global Note (or increase) Custodian ---------------- ------------------- ------------------- ------------------- -------------------
- --------------------- 2 This should be included only if the Note is issued in global form. A-10 EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY GUARANTEEING SUBSIDIARY SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of _________________, between ____________________ (the "Guaranteeing Subsidiary"), a subsidiary of L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the "Company"), and __________, as trustee under the indenture referred to below (the "Trustee"). WITNESSETH WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of _______, 1998 providing for the issuance of an aggregate principal amount of up to $250,000,000 of ____% Senior Subordinated Notes due 2008 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 4.13 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as follows: (a) The Guaranteeing Subsidiary, jointly and severally with all other Guaranteeing Subsidiaries, if any, unconditionally guarantees to each Holder of a Senior Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, regardless of the validity and enforceability of the Indenture, the Notes or the Obligations of the Company under the Indenture or the Notes, that: B-1 (i) the principal of, premium and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium and interest on the Notes, to the extent lawful, and all other Obligations of the Company to the Holders or the Trustee thereunder or under the Indenture will be promptly paid in full, all in accordance with the terms thereof; and (ii) in case of any extension of time for payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. (b) Notwithstanding the foregoing, in the event that this Subsidiary Guarantee would constitute or result in a violation of any applicable fraudulent conveyance or similar law of any relevant jurisdiction, the liability of the Guaranteeing Subsidiary under this Supplemental Indenture and its Subsidiary Guarantee shall be reduced to the maximum amount permissible under such fraudulent conveyance or similar law. 3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES. (a) To evidence its Subsidiary Guarantee set forth in this Supplemental Indenture, the Guaranteeing Subsidiary hereby agrees that a notation of such Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture shall be endorsed by an officer of such Guaranteeing Subsidiary on each Senior Note authenticated and delivered by the Trustee after the date hereof. (b) Notwithstanding the foregoing, the Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set forth herein shall remain in full force and effect notwithstanding any failure to endorse on each Senior Note a notation of such Subsidiary Guarantee. (c) If an Officer whose signature is on this Supplemental Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Senior Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. (d) The delivery of any Senior Note by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of the Guaranteeing Subsidiary. B-2 (e) The Guaranteeing Subsidiary hereby agrees that its obligations hereunder shall be unconditional, regardless of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions of the Notes or the Indenture, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (f) The Guaranteeing Subsidiary hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Subsidiary Guarantee made pursuant to this Supplemental Indenture will not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (g) If any Holder or the Trustee is required by any court or otherwise to return to the Company or the Guaranteeing Subsidiary, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guaranteeing Subsidiary, any amount paid by either to the Trustee or such Holder, the Subsidiary Guarantee made pursuant to this Supplemental Indenture, to the extent theretofore discharged, shall be reinstated in full force and effect. (h) The Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. The Guaranteeing Subsidiary further agrees that, as between the Guaranteeing Subsidiary, on the one hand, and the Holders and the Trustee, on the other hand: (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of the Subsidiary Guarantee made pursuant to this Supplemental Indenture, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby; and (ii) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guaranteeing Subsidiary for the purpose of the Subsidiary Guarantee made pursuant to this Supplemental Indenture. B-3 (i) The Guaranteeing Subsidiary shall have the right to seek contribution from any other non-paying Guaranteeing Subsidiary so long as the exercise of such right does not impair the rights of the Holders or the Trustee under the Subsidiary Guarantee made pursuant to this Supplemental Indenture. 4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5 of the Indenture, nothing contained in the Indenture, this Supplemental Indenture or in the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or any other Guaranteeing Subsidiary or shall prevent any transfer, sale or conveyance of the property of the Guaranteeing Subsidiary as an entirety or substantially as an entirety, to the Company or any other Guaranteeing Subsidiary. (b) Except as set forth in Article 4 of the Indenture, nothing contained in the Indenture, this Supplemental Indenture or in the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into a corporation or corporations other than the Company or any other Guaranteeing Subsidiary (in each case, whether or not affiliated with the Guaranteeing Subsidiary), or successive consolidations or mergers in which a Guaranteeing Subsidiary or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guaranteeing Subsidiary as an entirety or substantially as an entirety, to a corporation other than the Company or any other Guaranteeing Subsidiary (in each case, whether or not affiliated with the Guaranteeing Subsidiary) authorized to acquire and operate the same; provided, however, that the Guaranteeing Subsidiary hereby covenants and agrees that (i) subject to the Indenture, upon any such consolidation, merger, sale or conveyance, the due and punctual performance and observance of all of the covenants and conditions of the Indenture and this Supplemental Indenture to be performed by such Guaranteeing Subsidiary, shall be expressly assumed (in the event that the Guaranteeing Subsidiary is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Guaranteeing Subsidiary shall have been merged, or by the corporation which shall have acquired such property and (ii) immediately after giving effect to such consolidation, merger, sale or conveyance no Default or Event of Default exists. (c) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee made pursuant to this Supplemental Indenture B-4 and the due and punctual performance of all of the covenants and conditions of the Indenture and this Supplemental Indenture to be performed by the Guaranteeing Subsidiary, such successor corporation shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as the Guaranteeing Subsidiary. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon the Notes issuable under the Indenture which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture and this Supplemental Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture and this Supplemental Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. 5. RELEASES. (a) Concurrently with any sale of assets (including, if applicable, all of the Capital Stock of the Guaranteeing Subsidiary), all Liens, if any, in favor of the Trustee in the assets sold thereby shall be released; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 of the Indenture. If the assets sold in such sale or other disposition include all or substantially all of the assets of the Guaranteeing Subsidiary or all of the Capital Stock of the Guaranteeing Subsidiary, then the Guaranteeing Subsidiary (in the event of a sale or other disposition of all of the Capital Stock of such Guaranteeing Subsidiary) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) shall be released from and relieved of its obligations under this Supplemental Indenture and its Subsidiary Guarantee made pursuant hereto; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale or other disposition was made by the Company or the Guaranteeing Subsidiary, as the case may be, in accordance with the provisions of the Indenture and this Supplemental Indenture, including without limitation, Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guaranteeing Subsidiary from its obligations under this Supplemental Indenture and its Subsidiary Guarantee made pursuant hereto. If the Guaranteeing Subsidiary is not released from its obligations under its Subsidiary Guarantee, it shall remain liable for the full amount of principal B-5 of and interest on the Notes and for the other obligations of such Guaranteeing Subsidiary under the Indenture as provided in this Supplemental Indenture. (b) Upon the designation of a Guaranteeing Subsidiary as an Unrestricted Subsidiary in accordance with the terms of the Supplemental Indenture, such Guaranteeing Subsidiary shall be released and relieved of its obligations under its Subsidiary Guarantee and this Supplemental Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such designation of such Guaranteeing Subsidiary as an Unrestricted Subsidiary was made by the Company in accordance with the provisions of this Supplemental Indenture, also including without limitation Section 4.07 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of such Guaranteeing Subsidiary from its obligations under its Subsidiary Guarantee. Any Guaranteeing Subsidiary not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guaranteeing Subsidiary under the Indenture as provided in Article 10. 6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 8. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. B-6 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: , [GUARANTEEING SUBSIDIARY] ------------ ---- By: ------------------------- Name: Title: Dated: , THE BANK OF NEW YORK, ------------ ---- as Trustee By: ------------------------- Name: Title: B-7 EXHIBIT C FORM OF NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE Pursuant to the Supplemental Indenture (the "Supplemental Indenture") dated as of _______________ among _______________ and _________________, each Guaranteeing Subsidiary (i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the principal of, premium and interest on the Notes, whether at maturity or an interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal and premium of, and interest on the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guaranteeing Subsidiary would constitute or result in a violation of any applicable fraudulent conveyance or similar law of any relevant jurisdiction, the liability of such Guaranteeing Subsidiary under its Subsidiary Guarantee shall be reduced to the maximum amount permissible under such fraudulent conveyance or similar law. No past, present or future director, officer, employee, agent, incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantee, Indenture, any supplemental indenture delivered pursuant to the Indenture by such Guaranteeing Subsidiary or any Subsidiary Guarantees, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This Subsidiary Guarantee shall be binding upon each Guaranteeing Subsidiary and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. Capitalized terms used herein have the meaning assigned to them in the Indenture. [GUARANTEEING SUBSIDIARY] By: ------------------------------ Name: Title: C-1 =============================================================================== CUSIP/CINS 502413AD9 8 1/2% Senior Subordinated Notes due 2008 No. 1 $180,000,000 L-3 COMMUNICATIONS CORPORATION promises to pay to Cede & Co. or registered assigns the principal sum of One Hundred and Eighty Million Dollars on May 15, 2008. Interest Payment Dates: May 15, and November 15 Record Dates: May 1, and November 1 Dated: May 22, 1998 L-3 Communications Corporation By: -------------------------- Name: Title: By: -------------------------- Name: Title: This is one of the Global Notes referred to in the within mentioned Indenture: Dated: May 22, 1998 THE BANK OF NEW YORK, as Trustee By: ---------------------------- Name: Title: =============================================================================== 8 1/2% Senior Subordinated Notes due 2008 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. L-3 Communications Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8 1/2% per annum from May 22, 1998 until maturity. The Company shall pay interest semi-annually in arrears on May 15 and November 15, commencing on November 15, 1998, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"), with the same force and effect as if made on the date for such payment. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be November 15. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next (whether or not a Business Day) preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within The City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent if such Holders shall be registered Holders of at least $250,000 in principal amount of the Notes. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 22, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such 2 terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes issuable under the Indenture are obligations of the Company limited to $250.0 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this paragraph 5, the Notes shall not be redeemable at the Company's option prior to May 15, 2003. Thereafter, the Notes shall be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 15 of the years indicated below: YEAR PERCENTAGE 2003............................................ 104.250% 2004............................................ 102.833% 2005............................................ 101.417% 2006 and thereafter............................. 100.000% (b) Notwithstanding the foregoing, during the first 36 months after the date of the Indenture, the Company may on any one or more occasions redeem up to an aggregate of 35% of the Notes originally issued at a redemption price of 108.500% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Equity Offerings by the Company or the net cash proceeds of one or more Equity Offerings by Holdings that are contributed to the Company as common equity capital; provided that at least 65% of the Notes originally issued remain outstanding immediately after the occurrence of each such redemption; and provided, further, that any such redemption must occur within 120 days of the date of the closing of such Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (in either case, the "Change of Control Payment"). Within 10 days following any Change of Control, the 3 Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five Business Days of each date on which the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall commence an offer to all holders of 1997 Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of 1997 Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set forth in the 1997 Indenture. To the extent that the aggregate amount of 1997 Notes tendered pursuant to an Asset Sale Offer is less than the remaining Excess Proceeds ("Remaining Excess Proceeds") and the sum of (A) such amount of Remaining Excess Proceeds and (B) the Remaining Excess Proceeds from any subsequent Asset Sale Offers exceeds $3.0 million, the Company will be required to make an offer to all Holders of Notes and any other Indebtedness that ranks pari passu with the Notes that, by its terms, requires the Company to offer to repurchase such Indebtedness with such Remaining Excess Proceeds (a "Secondary Asset Sale Offer") to purchase the maximum principal amount of Notes and pari passu Indebtedness that may be purchased out of such Remaining Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes or pari passu Indebtedness tendered pursuant to a Secondary Asset Sale Offer is less than the Remaining Excess Proceeds, the Company may use any Remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the amount of Remaining Excess Proceeds in a Secondary Asset Sale Offer, the Company shall repurchase such Indebtedness on a pro rata basis and the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any 4 Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. An "Event of Default" occurs if: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply with the covenants contained in sections 4.10, 4.15 or 5.10 of the Indenture; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the Issue Date, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $10.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, such declaration shall not become effective until the earlier of (i) the day which is 5 five Business Days after receipt by the Representatives of Designated Senior Debt of such notice of acceleration or (ii) the date of acceleration of any Designated Senior Debt. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Restricted Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to May 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to May 15, 2003, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 6 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 18. GOVERNING LAW. The internal law of the State of New York shall govern and be used to construe this Note, without regard to the principles of conflicts of laws. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: L-3 Communications Corporation 600 Third Avenue, 34th Floor, New York, New York 10016 Attention: Vice President-Finance (Fax: 212-805-5470) 7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to _______________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date: _________________________ Your Signature: ___________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee. 8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $______________ Date:_____________ Your Signature: ______________________________ (Sign exactly as your name appears on the Note) Tax Identification No.: ______________________ Signature Guarantee. 9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of this Global Note Signature of Amount of decrease Amount of increase following such authorized officer in Principal Amount in Principal Amount decrease of Trustee or Note Date of Exchange of this Global Note of this Global Note (or increase) Custodian ---------------- ------------------- ------------------- -------------------- ------------------
10 SUBSIDIARY GUARANTEE Pursuant to the Supplemental Indenture (the "Supplemental Indenture") dated as of May 22, 1998 among The Bank of New York, as trustee (the "Trustee"), and Hygienetics Environmental Services, Inc., a Delaware corporation, L-3 Communications ILEX Systems, Inc., a Delaware corporation and Southern California Microwave, Inc., a California corporation (the "Guaranteeing Subsidiaries"), each Guaranteeing Subsidiary (i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the principal of, premium and interest on the Notes, whether at maturity or an interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal and premium of, and interest on the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guaranteeing Subsidiary would constitute or result in a violation of any applicable fraudulent conveyance or similar law of any relevant jurisdiction, the liability of such Guaranteeing Subsidiary under its Subsidiary Guarantee shall be reduced to the maximum amount permissible under such fraudulent conveyance or similar law. No past, present or future director, officer, employee, agent, incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantee, Indenture, any supplemental indenture delivered pursuant to the Indenture by such Guaranteeing Subsidiary or any Subsidiary Guarantees, or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This Subsidiary Guarantee shall be binding upon each Guaranteeing Subsidiary and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. Capitalized terms used herein have the meaning assigned to them in the Indenture. 1 HYGIENETICS ENVIRONMENTAL SERVICES, INC. By: ________________________________ Name: Title: L-3 COMMUNICATIONS ILEX SYSTEMS, INC. By: ________________________________ Name: Title: SOUTHERN CALIFORNIA MICROWAVE, INC. By: ________________________________ Name: Title: EX-21 24 SUBSIDIARIES OF THE COMPANY Exhibit 21 SUBSIDIARIES OF THE COMPANY
Name Doing Business As State of Incorporation - ----------------- ---------------------- 1. Hygienetics Environmental Services, Inc. Delaware Hygienetics Environmental Services 2. L-3 Communications ILEX Systems, Inc. Delaware ILEX Systems 3. Southern California Microwave, Inc. California Southern California Microwave 4. L-3 Communications SPD Technologies, Inc. Delaware SPD Technologies 5. L-3 Communications ESSCO, Inc. Delaware ESSCO 6. Electronic Space Systems International Corp. U.S. Virgin Islands Electronic Space Systems 7. Electronic Space Systems (UK) Limited United Kingdom Electronic Space Systems (UK) 8. ESSCO Collins Limited Republic of Ireland ESSCO Collins 9. ESSCO Satellite Systems Corp. Delaware ESSCO Satellite 10. L-3 Communications Storm Control Systems, Inc. California Storm Control Systems 11. L-3 Communications DBS Microwave, Inc. California DBS Microwave 12. SPD Electrical Systems, Inc. Delaware SPD Electrical Systems 13. SPD Switchgear Inc. Delaware SPD Switchgear 14. Pac Ord Inc. Delaware Pac Ord 15. Henschel Inc. Delaware Henschel 16. Power Paragon, Inc. Delaware Power Paragon 17. SPD Holdings, Inc. Delaware SPD Holdings 18. Cardiovascular Computer Systems, Ltd. Wisconsin Cardiovascular Computer Systems 19. Digital Technics, L.L.C. Delaware Digital Technics 20. Digital Technics, L.P. Delaware Digital Technics 21. Electrodynamics, Inc. Arizona Electrodynamics 22. L-3 Communications Secure Information Technology, Inc. Delaware L-3 Secure Information Technology 23. L-3 Communications Network Security Systems, LLC Delaware L-3 Network Security Systems 24. L-3 Communications Network Security Systems (Europe) PLC United Kingdom L-3 Network Security Systems (Europe) 25. L-3 Communications U.K. Ltd. United Kingdom L-3 Communications U.K. 26. Storm Control Systems Limited United Kingdom Storm Control Systems 27. L-3 Management Corp. Delaware L-3 Management 28. L-M Acquisition Corporation Maryland L-M Acquisition 29. Microdyne Corporation Maryland Microdyne 30. Microdyne Communications Technologies, Inc. Maryland Microdyne Communications 31. MCTI Acquisition Corp. Maryland MCTI Acquisition 32. Apcom Inc. Maryland Apcom 33. Celerity Systems Inc. California Celerity Systems 34. Microdyne Ltd. U.S. Virgin Islands Microdyne Ltd. 35. Microdyne Outsourcing Incorporated Maryland Microdyne Outsourcing 36. Microdyne U.K., Inc. Delaware Microdyne U.K. 37. Medical Education Technologies, Inc Delaware Medical Education Technologies 38. L-3 Communications Holding GmbH Federal Republic of Germany L-3 Communications Holding 39. L-3 Communications ELAC Nautik GmbH Federal Republic of Germany L-3 Communications ELAC Nautik 40. Power Paragon (Deutschland) Holding GmbH Federal Republic of Germany Power Paragon (Deutschland) 41. EuroAtlas Gesellschaft fur Leistungselektronik mbH Federal Republic of Germany EuroAtlas 42. JovyAtlas Elektrische Umformtechnik GmbH Federal Republic of Germany JovyAtlas
EX-23.7 25 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.7 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in this registration statement on Form S-4 of (i) our report dated February 2, 1998 on our audits of the consolidated financial statements of L-3 Communications Corporation and subsidiaries as of December 31, 1997 and for the nine months then ended, and the combined financial statements of the Predecessor Company for the three months ended March 31, 1997, and as of December 31, 1996 and for the year then ended, and (ii) our report, dated March 20, 1997, on our audits of the combined financial statements of the Loral Acquired Businesses for the three months ended March 31, 1996 and for the year ended December 31, 1995, and (iii) our report, dated February 23, 1998, on our audit of the combined financial statements of AlliedSignal Ocean Systems (a wholly owned operation of AlliedSignal, Inc.) as of and for the year ended December 31, 1997. Our report on the combined financial statements of the Predecessor Company as of and for the year ended December 31, 1996 indicates that our opinion, insofar as it relates to the financial statements of the Lockheed Martin Communications Systems Division as of December 31, 1996 included in such combined financial statements, is based solely on the report of other auditors. We also consent to the reference to our Firm under the caption "Experts". /s/ PricewaterhouseCoopers LLP New York, New York January 15, 1999 EX-23.8 26 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.8 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 7, 1997, with respect to the combined financial statements of Lockheed Martin Communications Systems Division as of and for the year ended December 31, 1996 (not presented separately herein) and for the year ended December 31, 1995, included in Amendment No. 1 to the Registration Statement on Form S-4 and related Prospectus of L-3 Communications Corporation for the registration of its 8% Senior Subordinated Notes due 2008. /s/ Ernst & Young LLP Washington, D.C. January 13, 1999 EX-23.9 27 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.9 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 27, 1998 with respect to the financial statements of Satellite Transmission Systems Division of California Microwave, Inc. included in Amendment No. 1 to the Registration Statement on Form S-4 and related Prospectus of L-3 Communications Corporation for the registration of $200,000,000 of Senior Subordinated Notes. /s/ Ernst & Young LLP Melville, New York January 13, 1999 EX-23.10 28 CONSENT OF KPMG LLP EXHIBIT 23.10 CONSENT OF INDEPENDENT AUDITORS To Board of Directors ILEX Systems, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Mountain View, California January 13, 1999 EX-23.11 29 CONSENT OF GRANT THORNTON LLP EXHIBIT 23.11 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated February 25, 1998 and February 28, 1997, accompanying the financial statements of SPD Technologies Inc. and Subsidiaries contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". /s/ Grant Thornton LLP New York, New York January 13, 1999 EX-99.1 30 LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL FOR 8% SENIOR SUBORDINATED NOTES DUE 2008 OF L-3 COMMUNICATIONS CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 19, 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED BY L-3 COMMUNICATIONS CORPORATION. EXCHANGE AGENT: THE BANK OF NEW YORK
By Hand: By Mail: The Bank of New York (Insured or Registered Recommended) 101 Barclay Street The Bank of New York Corporate Trust Services Window 101 Barclay Street, 7E New York, New York 10286 New York, New York 10286 Attention: Reorganization Section Attention: Reorganization Section By Overnight Express: By Facsimile: The Bank of New York (212) 815-6339 101 Barclay Street (For Eligible Institutions Only) Corporate Trust Services Window New York, New York 10286 By Telephone: Attention: Reorganization Section (212) 815-4444
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the prospectus dated January 20, 1999 (the "Prospectus") of L-3 Communications Corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of its new 8% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000 in principal amount of outstanding 8% Senior Subordinated Notes due 2008 (the "Old Notes"). The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are freely transferable by holders thereof (except as provided herein or in the Prospectus) and are not subject to any covenant regarding registration under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate Numbers and Principal Amounts should be listed on a separate signed schedule affixed hereto.
- ----------------------------------------------------------------------------------------------------------- DESCRIPTION OF OLD NOTES TENDERED HEREWITH - ----------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED AGGREGATE PRINCIPAL HOLDER(S) CERTIFICATE AMOUNT REPRESENTED PRINCIPAL AMOUNT (PLEASE FILL IN) NUMBER(S)* BY OLD NOTES* TENDERED** - ----------------------------------------------------------------------------------------------------------- * Need not be completed by book-entry holders. ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Old Notes. See Instruction 2.
This Letter of Transmittal is to be used either if certificates representing Old Notes are to be forwarded herewith or if delivery of Old Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company, pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. Delivery of documents to the book-entry transfer facility does not constitute delivery to the Exchange Agent. Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old Notes". [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution______________________________________ [ ] The Depository Trust Company Account Number_____________________________________________________ Transaction Code Number____________________________________________ [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)_____________________________________________ Name of Eligible Institution that Guaranteed Delivery____________________ Date of Execution of Notice of Guaranteed Delivery_______________________ 2 If Delivered by Book-entry Transfer: Account Number_________________________________________________________________ [ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON SIGNING THE LETTER OF TRANSMITTAL: Name_______________________________________________________________________ (Please Print) Address____________________________________________________________________ (Including Zip Code) [ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL: Address____________________________________________________________________ (Including Zip Code) [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:_____________________________________________________________________ Address:__________________________________________________________________ __________________________________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Any holder who is an "affiliate" of the Company or who has an arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Old Notes from the Company to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act. 3 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the above-described principal amount of the Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered herewith, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Exchange Agent acts as the agent of the Company, in connection with the Exchange Offer) to cause the Old Notes to be assigned, transferred and exchanged. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Old Notes or transfer ownership of such Old Notes on the account books maintained by the book-entry transfer facility. The undersigned further agrees that acceptance of any and all validly tendered Old Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement (as defined in the Prospectus) and that the Company shall have no further obligations or liabilities thereunder except as provided in the first paragraph of Section 2 of said agreement. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer -- Certain Conditions to the Exchange Offer." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Old Notes tendered hereby and, in such event, the Old Notes not exchanged will be returned to the undersigned at the address shown above. In addition, the Company may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set forth under "The Exchange Offer -- Certain Conditions to the Exchange Offer" occur. By tendering, each holder of Old Notes represents that the Exchange Notes acquired in the exchange will be obtained in the ordinary course of such holder's business, that such holder has no arrangement with any person to participate in the distribution of such Exchange Notes, that such holder is not an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act and that such holder is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. Any holder of Old Notes using the Exchange Offer to participate in a distribution of the Exchange Notes (i) cannot rely on the position of the staff of the Securities and Exchange Commission (the "Commission") enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar letters and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes, however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. See Instruction 2. Certificates for all Exchange Notes delivered in exchange for tendered Old Notes and any Old Notes delivered herewith but not exchanged, and registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned. 4 TENDER HOLDER(S) SIGN HERE (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) _______________________________________________________________________________ SIGNATURE(S) OF HOLDER(S) Dated _________________________ Area Code and Telephone Number ________________ (Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Old Notes. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person.) See Instruction 3. Name(s) _______________________________________________________________________ (PLEASE PRINT) Capacity (full title)__________________________________________________________ Address _______________________________________________________________________ (INCLUDING ZIP CODE) Area Code and Telephone No. ___________________________________________________ Taxpayer Identification No. ___________________________________________________ GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTION 3) Authorized Signature __________________________________________________________ Name __________________________________________________________________________ Title _________________________________________________________________________ Address _______________________________________________________________________ _______________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number ________________________________________________ Dated _________________________________________________________________________ 5 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. A holder of Old Notes may tender the same by (i) properly completing and signing this Letter of Transmittal or a facsimile hereof (all references in the Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Old Notes being tendered and any required signature guarantees and any other document required by this Letter of Transmittal, to the Exchange Agent at its address set forth above on or prior to the Expiration Date (or complying with the procedure for book-entry transfer described below) or (ii) complying with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERTY INSURED, BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. If tendered Old Notes are registered in the name of the signer of the Letter of Transmittal and the Exchange Notes to be issued in exchange therefor are to be issued (and any untendered Old Notes are to be reissued) in the name of the registered holder (which term, for the purposes described herein, shall include any participant in The Depository Trust Company (also referred to as a "book-entry transfer facility") whose name appears on a security listing as the owner of Old Notes), the signature of such signer need not be guaranteed. In any other case, the tendered Old Notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Company and duly executed by the registered holder, and the signature on the endorsement or instrument of transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution (each an "Eligible Institution") that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. If the Exchange Notes and/or Old Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Old Notes, the signature on the Letter of Transmittal must be guaranteed by an Eligible Institution. The Exchange Agent will make a request within two business days after the date of receipt of this Prospectus to establish accounts with respect to the Old Notes at the book-entry transfer facility for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of Old Notes by causing such book-entry transfer facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the book-entry transfer facility, an appropriate Letter of Transmittal with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received on or prior to the Expiration Date, a letter, telegram or facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) from an Eligible Institution setting forth the name and address of the tendering holder, the names in which the Old Notes are registered and, if possible, the certificate numbers of the Old Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date, the Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the book-entry transfer facility), will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Old Notes being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at its option, reject the tender. 6 Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may be used by Eligible Institutions for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when (i) the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the book- entry transfer facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) from an Eligible Institution is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Old Notes. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders appear on the Old Notes. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Old Notes for exchange. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of Old Notes evidenced by a submitted certificate is tendered, the tendering holder should fill in the principal amount tendered in the box entitled "Principal Amount Tendered." A newly issued certificate for the principal amount of Old Notes submitted but not tendered will be sent to such holder as soon as practicable after the Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise clearly indicated. For a withdrawal to be effective, a written notice of withdrawal sent by telegram, facsimile transmission (receipt confirmed by telephone) or letter must be received by the Exchange Agent at the address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (iii) specify the principal amount of Old Notes to be withdrawn, (iv) include a statement that such holder is withdrawing his election to have such Old Notes exchanged, (v) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered or as otherwise described above (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee under the Indenture register the transfer of such Old Notes into the name of the person withdrawing the tender and (vi) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. The Exchange Agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Old Notes or otherwise comply with the book-entry transfer facility procedure. All questions as to the validity of notices of withdrawals, including, time of receipt, will be determined by the Company and such determination will be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account with such book-entry transfer facility specified by the holder) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under the caption "Procedures for Tendering Old Notes" in the Prospectus at any time on or prior to the Expiration Date. 3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) written on the face of the certificates without alteration, enlargement or any change whatsoever. 7 If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Old Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Old Notes. When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include the book-entry transfer facility whose name appears on a security listing as the owner of the Old Notes) of Old Notes listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required. If this Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the Old Notes. If this Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. Endorsements on certificates or signatures on separate written instruments of transfer or exchange required by this Instruction 3 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal need not be guaranteed by an Eligible Institution, provided the Old Notes are tendered: (i) by a registered holder of such Old Notes, for the holder of such Old Notes; or (ii) for the account of an Eligible Institution. 4. TRANSFER TAXES. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exception therefrom is not submitted herewith the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 4, it will not be necessary for transfer tax stamps to be affixed to the Old Notes listed in this Letter of Transmittal. 5. WAIVER OF CONDITIONS. The Company reserves the right to waive in its reasonable judgment, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 6. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed, should contact the Exchange Agent at the address indicated above for further instructions. 7. SUBSTITUTE FORM W-9. Each holder of Old Notes whose Old Notes are accepted for exchange (or other payee) is required to provide a correct taxpayer identification number ("TIN"), generally the holder's Social Security or federal employer identification number, and with certain other information, on Substitute Form W-9, which is provided under "Important Tax Information" below, and to certify that the holder (or other payee) is not subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service and 31% federal income tax backup withholding on payments made in connection with the Exchange Notes. The box in Part 3 8 of the Substitute Form W-9 may be checked if the holder (or other payee) has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is not provided by the time any payment is made in connection with the Exchange Notes, 31% of all such payments will be withheld until a TIN is provided. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to L-3 Communications Corporation, 600 Third Avenue, New York, New York 10016, attention: Corporate Secretary (telephone: (212) 697-1111). IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under U.S. federal income tax law, a holder of Old Notes whose Old Notes are accepted for exchange may be subject to backup withholding unless the holder provides The Bank of New York (as payor) (the "Paying Agent"), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Old Notes is awaiting a TIN) and that (A) the holder of Old Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Old Notes that he or she is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Old Notes is an individual, the TIN is such holder's social security number. If the Paying Agent is not provided with the correct taxpayer identification number, the holder of Old Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt holders of Old Notes should indicate their exempt status on Substitute Form W-9. In order for a foreign individual to qualify as an exempt recipient, the holder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Paying Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Paying Agent is required to withhold 31% of any such payments made to the holder of Old Notes or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the surrendering holder of Old Notes has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder of Old Notes or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Paying Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Paying Agent. The holder of Old Notes is required to give the Paying Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Old Notes. If the Old Notes are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 9 PAYOR'S NAME: THE BANK OF NEW YORK, AS PAYING AGENT
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN TIN: _______________ FORM W-9 IN THE BOX AT RIGHT AND CERTIFY BY DEPARTMENT OF THE TREASURY SIGNING AND DATING BELOW. Social Security number(s) or INTERNAL REVENUE SERVICE Employer Identification PAYOR'S REQUEST FOR TAXPAYER Number IDENTIFICATION NUMBER (TIN) - ---------------------------------------------------------------------------------------------------------------- PART 2 -- CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued for me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.
SIGNATURE _________________ DATE _________, 1999 PART 3 __ Awaiting TIN [ ] NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable cash payments made to me thereafter will be withheld until I provide a taxpayer identification number. Signature ________________________________________ Date ________________, 1999 10 EX-99.2 31 NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF $200,000,000 OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008 IN EXCHANGE FOR NEW 8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 OF L-3 COMMUNICATIONS CORPORATION Registered holders of outstanding 8% Senior Subordinated Notes due 2008 (the "Old Notes") who wish to tender their Old Notes in exchange for a like principal amount of new 8% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") and whose Old Notes are not immediately available or who cannot deliver their Old Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to The Bank of New York (the "Exchange Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or mail to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" in the prospectus dated January 20, 1999 of L-3 Communications Corporation (the "Prospectus"). The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK By Hand: By Mail: The Bank of New York (Insured or Registered Recommended) 101 Barclay Street The Bank of New York Corporate Trust Services Window 101 Barclay Street, 7E New York, New York 10286 New York, New York 10286 Attention: Reorganization Section Attention: Reorganization Section By Overnight Express: By Facsimile: The Bank of New York (212) 815-6339 101 Barclay Street (For Eligible Institutions Only) New York, New York 10286 Attention: Reorganization Section By Telephone: (212) 815-4444
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution (as defined in the Prospectus), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. Ladies and Gentlemen: The undersigned hereby tenders the principal amount of Old Notes indicated below, upon the terms and subject to the conditions contained in the Prospectus dated January 20, 1999 of L-3 Communications Corporation (the "Prospectus"), receipt of which is hereby acknowledged. DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF REGISTERED HOLDER AS IT CERTIFICATE APPEARS ON THE NUMBER(S) PRINCIPAL NAME OF OLD NOTES OF OLD NOTES AMOUNT OF OLD TENDERING HOLDER (PLEASE PRINT) TENDERED NOTES TENDERED
THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the certificates representing the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the book-entry transfer facility), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three business days after the Expiration Date (as defined in the Prospectus and the Letter of Transmittal).
Name of Firm: (Authorized Signature) _______________________________________ __________________________________ Address: ______________________________ Title: ___________________________ ____________________ Zip Code ________ Name: ____________________________ (Please type or print) Area Code and Telephone No.: Date: _______________________________________ __________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----