10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended March 31, 2003

Commission File Number 1-8533

DRS Technologies, Inc.
(Exact name of registrant as specified in charter)

Delaware (State or other jurisdiction of incorporation or organization)	13-2632319 (I.R.S. Employer Identification Number)
5 Sylvan Way, Parsippany, New Jersey (Address at principal executive offices)	07054 (Zip Code)
(973) 898-1500 (Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Name of Each Exchange on which Registered
Common Stock, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The market value of shares of common stock held by non-affiliates as of the last business day of the registrants most recently completed second fiscal quarter was $627,811,104. The number of shares of common stock outstanding as of June 20, 2003 was 22,455,348.

DOCUMENTS INCORPORATED BY REFERENCE

        1.    Definitive Proxy Statement, dated June 24, 2003, for the Annual Meeting of Stockholders, incorporated in Part III of this Form 10-K.

DRS Technologies, Inc
Form 10-K
For the Fiscal Year Ended March 31, 2003

Table of Contents

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	26
Item 3.	Legal Proceedings	27
Item 4.	Submission of Matters to a Vote of Security Holders	28
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	29
Item 6.	Selected Financial Data	30
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
PART III
Item 10.	Directors and Executive Officers of the Registrant	93
Item 11.	Executive Compensation	93
Item 12.	Security Ownership of Certain Beneficial Owners and Management	93
Item 13.	Certain Relationships and Related Transactions	93
Item 14.	Controls and Procedures	93
Item 15.	Principal Accountant Fees and Services	93
PART IV
Item 16.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	93
Signatures		94
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		96

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Item 1. Business

        References in this Annual Report on Form 10-K to "DRS," "the Company," "we," "our" and "us" pertain to DRS Technologies, Inc., its subsidiaries and majority-owned partnership companies.

General

        DRS Technologies is a leading supplier of defense electronic products and systems. We provide high-technology products and services to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial markets. Incorporated in 1968, DRS has served the defense industry for 34 years. We are a leading provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, battlefield digitization systems, mission recorders and deployable flight incident recorders. Our products are deployed on a wide range of high-profile military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet jet fighters and on several other platforms for military and non-military applications. We also have contracts that support future military platforms, such as the DD(X) destroyer, CVN(X) aircraft carrier and Virginia class submarine.

        Over the past five years, we increased our annual revenues at a compounded annual growth rate of approximately 30% and our operating income at a compounded annual growth rate of approximately 36%. For the year ended March 31, 2003, we had revenues of $675.8 million and operating income of $67.7 million.

        The address of our principal executive office is 5 Sylvan Way, Parsippany, New Jersey 07054 and our telephone number is 973-898-1500. Our web address is www.drs.com. We provide free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission.

Company Organization

        We operate in three principal operating segments on the basis of products and services offered: the Electronic Systems Group, the Electro-Optical Systems Group and the Flight Safety and Communications Group. All other operations are grouped in Other. Each operating segment is comprised of several subsidiaries of the Company.

        Financial information on our reportable business segments is presented in Note 14 to our Consolidated Financial Statements, which are included in this Form 10-K (see Item 8. Financial Statements and Supplementary Data). Additional financial data and commentary on the results of operations for the operating segments are included in Management's Discussion and Analysis of Financial Condition and Results of Operations, which also is included in this Form 10-K (see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations). The data and comments should be referred to in conjunction with the summary description of our operating segments, which follows.

        Electronic Systems Group.    Our Electronic Systems Group (ESG) is a leader in high-performance combat display systems, digital information processing systems, power generation, conversion, distribution, propulsion and control systems, and battlefield digitization systems for sea, air and land applications supporting military modernization and transformation initiatives. ESG also produces radar surveillance and tracking systems, acoustic signal processing systems, flat panels and other computer peripherals, signal intelligence products, ship networks and middleware to promote interoperability and compatibility with the military's new and existing systems. ESG's products are used on various front-line

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platforms, such as ships, amphibious operation platforms, surveillance aircraft and submarines and mobile ground platforms, and our power systems are installed on every combatant ship in the U.S. Navy, including destroyers, aircraft carriers and attack submarines. ESG is a leader in battlefield digitization programs for the U.S. Army and the British Army. We also provide technical support services, including worldwide field service, depot-level repair, equipment installation and integrated logistics for the Navy's fleet, avionics support for U.S. and international helicopter and airlift aircraft, hardware and software system engineering, and electronic manufacturing, testing and system integration services. Many of ESG's systems incorporate advanced commercial computing technology to provide innovative, rapidly fielded and cost-effective defense solutions. Our electronic systems are compatible with new, emerging and legacy systems and are vital to the U.S. military for making strategic command combat decisions. We market our products directly to various U.S. government agencies and international militaries and, on certain programs, we team with leading defense industry corporations, such as Boeing, Lockheed Martin, Northrop Grumman and General Dynamics.

        ESG's business is concentrated in Naval Electronics and Intelligence Systems, Tactical Systems and Power Systems. The Naval Electronics and Intelligence Systems area includes products such as advanced tactical display workstations, radar and radar support systems, acoustic surveillance systems, shipboard control equipment and control panels, networks, middleware, flat panels and peripheral equipment, and advanced signal processors, analyzers, digital switching matrices and recording systems for airborne signal intelligence (SIGINT) applications. The Tactical Systems area includes computers and peripherals used in Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance (C4ISR) Army digital battlefield applications, which provide commanders, brigades and soldiers with improved combat support, real-time command and control, enhanced interoperability and improved situational awareness. Products include man-portable and vehicle-mounted Commercial Off-The-Shelf (COTS) workstations, laptops and handheld computers that are proven to operate in harsh military environments. The Power Systems area includes integrated Hull, Mechanical and Electrical (HM&E) equipment, such as power generation, conversion, distribution, propulsion, ship networks, electronic control systems, motor and high-density electric drive systems supporting the Navy's nuclear and conventional surface ship combatant and submarine fleets, as well as electric drives for transformation programs, such as the DD(X), CVN(X) and other platforms. Power Systems also includes permanent magnet motors, integrated gas and steam turbine engines, high-performance pumps, fuel cells and industrial equipment.

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        Our Electronic Systems Group's products and services, their applications, platforms and end-users are summarized in the table below:

Product	Description	Platforms/Customers
Naval Electronics and Intelligence
Tactical/Sensor Combat Display Systems	AN/UYQ-70 Advanced Display Systems family of products comprised of Commercial Off-the-Shelf-based systems integrating the latest information processing and display technology for combat, command and control, and mission-essential applications. DRS, teamed with Lockheed Martin, has provided these systems since 1994 as the sole source team provider under an indefinite delivery, indefinite quantity contract.	•  U.S. Navy Aegis cruisers/destroyers •  U.S. Navy aircraft carriers •  U.S. Navy NSSN New Attack Submarines, Trident and other attack submarines •  U.S. Navy E-2C Hawkeye surveillance aircraft •  U.S. Navy LHA amphibious assault ships •  U.S. Navy/Marine Corps Cooperative Engagement Capability platforms
Secure Voice System (SVS)	Incorporated in the AN/UYQ-70 consoles for secure transmission of internal voice communications. Designed to become the backbone of a completely integrated voice and data transfer system to support a full range of internal ship communication requirements.	•  DDG-51 Combat System •  U.S. Navy aircraft carriers
Engineering Services	Hardware, middleware and software engineering development services for defense computing environments, network-centric computing infrastructures for next-generation platforms, multi-modal display workstations, thin client computers.	•  Aegis Tactical Display Upgrade program for Lockheed Martin/U.S. Navy
AN/SPS-67(V)3 Radar System	Naval surveillance radar system forming an integral part of the command and control combat system. Provides automatic target detection, digital moving target indications, track-while-scan capability for surface and low flying object detection.	• U.S. Navy Aegis cruisers/destroyers •  Spanish Navy F-100 ships •  Other international surface ships
Antennas, Radar Pedestals and Positioning Systems	Antennas, radar pedestals and antenna positioning products for shipboard and land-based radar and communications systems.	•  International military FPS-117 air defense radar •  International military Cobra Radar System •  U.S. Navy EHF satellite program
AN/SQR-17A Sonar Signal Processing System	State-of-the-art string array (acoustic) sonar sensors and multi-sensor processing systems for harbor and coastal surveillance. Used for shore and near-shore warfare, amphibious operations and harbor defense.	•  U.S. Navy MIUW shore surveillance vans

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Product	Description	Platforms/Customers
Data Recorders	Data recorders for telecommunications signals, classical variable rate instrumentation applications, and general data and in-flight recording applications. Enables users to record, analyze, store and forward signals at significantly enhanced speeds.	•  Government intelligence agencies
Digital Signal Processing (DSP) Systems and Equipment	High-speed processing equipment used to collect and process data and information in intelligence applications. More than 30 DSP routing, digital switching, data reformatting, data processing and recording systems for SIGINT, telecommunications, radar electronic intelligence and satellite ground station applications.	•  Government intelligence agencies •  U.S. Air Force RC-135V/W Rivet Joint aircraft
Opus II Sonar Display Consoles	High-quality, modular, multi-function sonar display consoles developed for use on the Sonar 2193 Project and other programs of the United Kingdom's Royal Navy. Product details include conformance to defense ergonomic standards, versatility, ease of technology insertion and simple customization.	•  U.K. Royal Navy Sonar 2193 Mid-Life Update project •  NAUTIS 3 Command and Control System Upgrade •  Hunt Class Mine Countermeasures Vehicles •  Sonar 2087 for Type 23 Duke Class frigates •  Sonar 2093 for European Minesweepers
Technical Support Services	Naval support, including engineering, integrated logistics support, technical manuals, depot-level system repair and installation, training, maintenance planning, configuration management, on-line and phone support, R&D.	•  U.S. and international naval bases •  Worldwide field support
Electronic Manufacturing, Integration and Testing Services	Value-added electronic manufacturing services with advanced ISO 9000, ISO 9001 and AS-9000 Quality System Standards certified manufacturing, testing and system integration facilities. Manufactures computer workstations, rugged computers, cable and wire harness assemblies for tanks and aircraft, printed circuit cards, and provides system integration and test services for military and commercial customers.	•  Rugged computer systems for General Dynamics/U.S. Army •  M2A3 Bradley Fighting Vehicles for United Defense/U.S. Army •  AN/UYQ-70 Display Systems for Lockheed Martin/U.S. Navy •  E-8C Joint STARS aircraft for Northrop Grumman/U.S. Air Force

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Product	Description	Platforms/Customers
Tactical Systems
Battlefield Digitization Systems	Commercial off-the-shelf-based computer systems, communications interfaces, servers and other peripheral equipment in battlefield-ready hardware that meets reliability and durability standards of harsh environments. Products include hand-held devices, laptops and vehicle-mounted systems. Digitized battlefield communication systems link front-line ground forces through battle command stations to the tactical operation center for situation awareness and command and control functions. Supports the U.S. Army's Common Hardware/Software 2 (CH/S-2) program, British Armed Forces BOWMAN program and the U.S Army's Force XXI Battle Command, Brigade & Below (FBCB2) Appliqué program.	•  U.S. Army soldier systems •  U.S. Army M1A1 Abrams Tank •  M2A3 Bradley Fighting Vehicles •  HMMWV wheeled vehicles •  U.K. Ministry of Defence/British Army/General Dynamics U.K. •  International military ground mobile, airborne, surface, subsurface platforms •  Government intelligence agencies
Movement Tracking System (MTS)	Satellite-based mobile rugged computer system for logistics support vehicles, including messaging and tracking systems. Identifies position, tracks progress and communicates with the use of a global positioning system (GPS).	•  Various U.S. Army support vehicle platforms
Altitude Hold and Hover Stabilization (AHHS) System	Avionics equipment used to reduce pilot workload and increase safety during low altitude and low speed aircraft operations by providing the pilot with a variety of altitude hold and stabilized hover/low speed control modes. Combines our C4I experience with communications equipment integration in airborne tactical receivers.	•  U.S. Air Force H-60/H-53 helicopters •  Israeli Air Force H-53 helicopters
Avionics Products	Products and subsystems for U.S. and international helicopter and airlift aircraft modernization programs, including night vision-compatible control panels, beacon rings, control modules, transformers, landing lights, mission command LCD monitors and displays, aircraft videocassette recorders, and software development.	•  U.S. Air Force H-60 aircraft •  Special Operations helicopters •  MH-53J and MH-53M helicopters
Enhanced Diagnostic Aid (EDNA)	Flight-line diagnostic systems and interfaces.	•  U.S. Air Force F-16, F-117, B-2 aircraft

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Product	Description	Platforms/Customers
Power Systems
Integrated Fight Through Power	First large-scale power conversion and electric propulsion research and development program using COTS+4 technology to enable integrated powering of all propulsion, combat systems and ship services.	•  U.S. Navy's next-generation combatant ships, including the DD(X) destroyer •  U.S. Navy's CVN-21 preliminary design
Advanced Modular Power (AMP)	Nuclear power conversion equipment.	•  U.S. Navy Aegis cruisers/destroyers •  U.S. Navy NSSN, Seawolf, Los Angeles, Nimitz, Ohio and other classes of attack submarines •  Bechtel plant machinery
DD(X) Electric Drive Engineering Development Models	Newly designed lower-weight, compact and high-density electric drive motors.	•  DD(X) EDMs of electric drive for Northrop Grumman/U.S. Navy
Large Scale Vehicle 2 (LSV-2)	Electric drive scale model of the Virginia-class submarine developed by the Navy to conduct hydro-acoustic modeling studies.	•  Virginia-class submarine, U.S. Navy
Secondary Propulsion Unit Drive (SPUD)	Second-generation power conversion product with soft switch topology to satisfy high power density, fidelity and thermal efficiency requirements.	•  SSGN retrofits, U.S. Navy
Millennium Motor Controls	Microprocessor and Local Area Network (LAN)-based motor control products that provide accurate measurement and control functions of load current for superior motor protection.	•  U.S. Navy's LPD-17 •  Virginia-class submarine •  CVN-76 aircraft carriers •  Arleigh Burke-class guided missile destroyers •  U.S. Navy's Landing Helicopter Deck (LHD-8) amphibious assault ships
Nuclear Control Panels	Nuclear control panels that act as central control stations for nuclear propulsion plants.	•  U.S. Navy surface and submarine combatants
Monitoring Integrated Control and Automation Systems (MICA)	Major shipboard control system utilizing COTS+4 technology. Serves main engine control throttle of CVN-77 and is planned for backfit on the CVN-69.	•  U.S. Navy's CVN-77, CVN-69 aircraft carriers •  Nimitz-class ships
Aircraft Carrier and Ship Local Area Networks	Aircraft carrier LAN system utilizing COTS+4 technology. Connects numerous pieces of equipment with the propulsion plant and facilitates data storage and common processing. Converts a ruggedized personal computer to a shipboard server network or LAN.	•  U.S. Navy aircraft carriers and surface ships

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Product	Description	Platforms/Customers
High-Performance Electric Drives	Provides extensive power range, multiple communication networks and several packaging styles for pumps, fans, compressors, winches, conveyers, and power generation and distribution.	•  Wide range of applications in military and industrial markets
Pod Propulsion Motors	Compact, permanent magnet motors delivering high torque at slow speed, eliminating the need for reduction gears in podded marine propulsion systems.	•  Defense Advanced Research Projects Agency
Integral Motor Pumps	Integrates a brushless permanent magnet motor into the impeller of a centrifugal pump, forming a single, compact motor/pump unit with only one moving part.	•  Office of Naval Research •  Knolls Atomic Power Laboratory •  General Dynamics Electric Boat •  Boeing/SAIC •  Other military and industrial customers
Oil & Gas Drilling Products	Oil and gas drilling equipment powered by durable motors and drives, providing continuous high torque in a compact, light weight package.	•  Various commercials applications throughout North America and Europe
Steam & Gas Turbines	Design, development, manufacturing and life-cycle support for a variety of large and small high-performance, complex power systems and rotating machinery.	•  U.S. Navy •  Pratt & Whitney •  General Electric Company •  Rolls Royce
Traction Motors and Electric Generators	Design and production of transit system motors and electric bus generators.	•  Bombardier monorail system •  NEOPLAN, Metropolitan Boston Transportation

        Electro-Optical Systems Group.    Our Electro-Optical Systems Group (EOSG) is a leader in second-generation electro-optical infrared sighting, surveillance, targeting and weapons guidance systems, assemblies and components used in the aerospace and defense industry and is one of only two key suppliers to the U.S. government for advanced focal plane array sensor technology. As a leader in infrared sighting and targeting systems for vehicle, surface ship, airborne, weapon, space-based and soldier system platforms, EOSG supports the modernization and transformational initiatives of the U.S. Armed forces, as they strive to meet the strategic responsiveness and dominance goals of the military's Joint Vision 2020 doctrine. EOSG is playing a key role in developing and producing the "eyes" of the Objective Force, supporting the Counter-Attack Corps, Brigade Combat Team, Future Combat System and Objective Force Warrior, and participates on emerging, leading edge government technology research and development programs in support of space-based and airborne threat warning and countermeasures associated with future national strategic defense needs. EOSG's products also have homeland defense and force protection applications.

        EOSG product designs are based on infrared cooled and uncooled sensor system technologies. EOSG designs, manufactures and markets these systems to allow operators to detect, identify and track targets based on their infrared signatures regardless of the ambient light level. Our cooled systems, which utilize advanced detectors and cryogenic cooler assemblies, are used on critical front-line ground vehicle, surface ship and weapons system platforms of the U.S. Army, Navy and Marine Corps, including the M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior Helicopters, AH-64 Apache helicopters, DDG Aegis class destroyers and cruisers, Javelin

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Missile Systems and the HMMWV Scout vehicles. EOSG's uncooled sighting systems are lighter weight, less expensive thermal imaging systems used for man-portable weapons, transportable gimbals, head-gear, hand-held devices and vehicle-mounted sights for enhancement of driver vision. These products are used in various soldier systems enabling day/night vision supporting military reconnaissance, surveillance and target acquisition, regardless of battlefield smoke, fog and other elements that can obscure vision. EOSG also produces Forward Looking Infrared (FLIR) cameras and thermal sensor modules that can be used in unmanned ground vehicles (UGVs), unmanned aerial vehicles (UAVs), missile guidance, sensor fusion and automotive collision avoidance applications. EOSG also produces medium-range UAVs and seeks to incorporate DRS's core technologies, such as computer display systems, electro-optical and infrared sensors and targeting systems, high-speed digital cameras, data recording, communications and other intelligence gathering equipment, onto these platforms to support special military operations, surveillance and targeting missions, payload drops and civil applications.

        EOSG leverages its technology base and advanced electro-optical manufacturing facilities by pursuing commercial opportunities, and produces electro-optical modules used in corrective laser eye surgery equipment and retinal scanning devices.

        Our Electro-Optical Systems Group's products and services, their applications, platforms and end-users are summarized in the table below:

Product	Description	Platforms/Customers
Horizontal Technology Integration Second Generation FLIR Thermal Imaging Systems	Second Generation Forward Looking Infrared (FLIR) thermal imaging and sighting systems providing common thermal imaging technology across ground vehicles using Standard Advanced Dewar Assemblies (SADA) II, which extends targeting ranges beyond enemy weapon limits.	•  U.S. Army M1A2 Abrams Battle Tanks •  U.S. Army M2A3 Bradley Fighting Vehicles •  U.S. Army M1025 and M1114 Long Range Scouts
Improved Bradley Acquisition System (IBAS)	Second Generation targeting system with FLIR, laser range finder and tracker. Integrates a complete fire control system for the Bradley Fighting Vehicle, including HTI technology.	•  U.S. Army Bradley M2A3 TOW vehicles
Long Range Advanced Scout Surveillance System (LRAS3)	Long-range, multi-sensor surveillance system for the U.S. Army's Scout vehicles, providing real-time detection, recognition, identification and pinpointing of distant target locations. Bridges the gap between currently fielded systems and the Future Scout and Cavalry System.	•  U.S. Army Brigade Combat Team HMMWV Scouts
Cost Effective Targeting System (CETS)	Targeting system to support a fully integrated sensor suite automated for application on the Demo III Unmanned Ground Vehicle (UGV), as part of the Objective Force Science and Technology Objective for the Future Combat System.	•  U.S. Army's Future Combat System

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Product	Description	Platforms/Customers
Firepower Enhancement Program (FEP)	Second generation forward looking infrared thermal imaging system for the gunner's sighting system, increasing imaging resolution, targeting range, detection capability and reliability. Also provides Far Target Locator capability.	•  U.S. Army M1A1 Abrams Main Battle Tank
Standard Advanced Dewar Assembly I (SADA I)	Detector and cooler assembly for U.S. Army's thermal imaging equipment.	•  U.S. Army AH-64 Apache, Apache Longbow and RAH-66 Comanche helicopters
Standard Advanced Dewar Assembly II (SADA II)	Detector Dewar cooler assembly for U.S. Army's HTI program, used in Second Generation thermal imaging equipment upgrades.	•  U.S. Army HTI program for ground combat vehicles, including M1A2 tanks and M2A3 Bradley combat vehicles
Thermal Weapon Sights	Lightweight sighting systems for portable soldier weapons systems.	•  Thermal Weapon Sight (TWS) II •  XM-29 Integrated Air Burst Weapon
Javelin Anti-Tank Weapon System	Premier man-portable, fire-and-forget, medium-range, anti-tank weapon system including Second Generation forward looking infrared detectors, Dewar assemblies and coolers.	•  U.S. Army •  U.S. Marine Corps
AN/SAY-1 Thermal Imaging Sensor System (TISS)	Second generation forward looking infrared, multi-sensor surveillance and targeting system for detecting threats, including floating mines, swimmers, speedboats and low flying aircraft. Includes advanced stabilization technology and GPS satellite-linking capability.	•  U.S. Navy frigates and other surface combatants •  U.S. Special Operations Command and non-U.S. navies, special operations and patrol boats

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Product	Description	Platforms/Customers
Mast-Mounted Sight (MMS)	First generation surveillance and targeting system for detecting, identifying and destroying enemy targets during reconnaissance missions. Sighting system includes high-resolution television camera, thermal imaging sensor, laser range finder/designator and boresight assembly.	•  U.S. Army's OH-58D Kiowa Warrior helicopters
NightHawk	Second generation forward looking infrared surveillance and targeting system for detecting, identifying and destroying enemy targets during armed helicopter reconnaissance missions.	•  Korean Light Helicopter •  Mast-Mounted Sight Upgrade for replacement of MMS on Kiowa Warrior helicopter
Virtual Imaging System for Approach and Landing (VISUAL)	Aircraft carrier surveillance and tracking system for air traffic control of aircraft takeoffs and landings. Reduces landing risks on board carriers by providing precise infrared imagery to help guide and align aircraft for safer landings.	•  U.S. Navy aircraft carriers and amphibious operation ships
Focal Plane Arrays (FPAs)	Infrared sensor components for sighting, targeting and weapons systems. Process incoming infrared energy; support surveillance, early warning, tracking and identification applications.	•  Thermal imaging systems •  Heat seeking missile guidance systems and missile warning systems •  Military and non-military space applications
Uncooled Focal Plane Arrays	Less expensive infrared sensors for commercial and military applications involving the detection of heat, temperature maintenance and short-range surveillance.	•  FLIR cameras •  Bradley Head Tracked Sensor Suite (HTSS) •  Thermal sensor modules for unmanned ground vehicles (UGVs) and unmanned aerial vehicles (UAVs) •  Driver Vision Enhancement (DVE) II •  Small Arms Fire Control System (SAFCS) •  Low Power Uncooled Infrared (LPUIR) •  Various other customers, including research organizations, fire departments, short-range military surveillance and targeting missions
Vertical Integrated Sensor Arrays (VISA)	State-of-the-art active and passive infrared sensing systems with parallel signal processors implementing DRS's proprietary High-Density Vertically Integrated Photodiode (HDVIP®) infrared detector technology.	•  U.S. Navy •  Defense Advanced Research Projects Agency (DARPA)

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Product	Description	Platforms/Customers
Staring Mid-Wave FLIRs	Major subsystem for surveillance and targeting systems supporting military airborne and surface ship applications.	•  U.S. Navy's Aegis DDG class destroyers providing surveillance for MK-46 weapon system
Space-Based Sensors	Focal plane arrays for strategic space applications.	•  NASA platforms, such as the Hubble Space Telescope, weather satellites and surveillance satellites for remote sensing missions
Nightstar® Day/Night Vision Binoculars	Binoculars that incorporate an image intensifier tube, laser range finder and digital compass.	•  U.S. Army ground troops and special operations units •  Border patrol forces •  International military forces
Sentry® and Sentry® HP Unmanned Aerial Vehicles	Support military special operations missions with close-range, low-weight, low-noise, medium-duration UAVs. Sentry® applications include tactical, short-range optical/electronic surveillance and radio relay (with long duration, full configuration). Next generation Sentry® HP models provide additional payload capacity and enhanced performance characteristics.	•  Special operations •  Various civil applications
Neptune™ Maritime Unmanned Aerial Vehicles	Support military special operations missions with close-range, low-weight, low-noise, medium-duration UAVs. Optimized for at-sea launch and recovery, ease of deployment and recovery on land or in water for day and night special operations, especially where developed runways are unavailable. Simple assembly and disassembly.	•  U.S. Navy •  Various civil applications
LADARVision® Manufacturing	Exclusive manufacturer of electro-optical modules for the LADARVision® System used in laser vision corrective surgery.	•  Alcon Laboratories, a unit of Nestlè
Panoramic200™ Non-Mydriatic Scanning Laser Ophthalmoscope Manufacturing	North American manufacturer of FDA-approved high-resolution, ultra-wide field, retinal digital imaging scanner, providing a revolutionary approach to early retinal disease detection. Includes complex electro-optical laser technology.	•  The New England Eye Center •  Other commercial biomedical customers

        Flight Safety and Communications Group.    Our Flight Safety and Communications Group (FSCG) is a leader in deployable flight incident recorders and emergency locator beacon systems used on military and commercial search and rescue platforms to locate downed aircraft. Because FSCG's deployable recorders are mounted on the outside of an aircraft, they eject automatically prior to impact, float indefinitely in water and transmit a locator signal, making them easily recoverable by search and rescue teams. These complete emergency avionics systems combine the functionality of a crash locator beacon with a flight data recorder for crash analysis, training and new airframe design improvements.

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        FSCG also is a leader in the supply of Link 11 data transmission products supporting coordinated theater warfare and enhanced tactical command and control operations. We provide tactical data link communication products, secure modems, telephonic products and next-generation secure voice and data communications systems for advanced digital communications networks. These technologies support the crucial exchange of tactical command and control data with ship, shore and air platforms and have applicability to a Joint Fires Network to support a network-centric warfare system for real-time intelligence correlation, sensor control, target generation, mission planning and battle damage assessment. Our integrated shipboard communications systems are becoming the backbone of a fully integrated voice and data transfer system to support a range of internal ship communication military transformational requirements. In addition, we design and produce fully integrated non-secure Naval ship communication systems, ground radar surveillance systems, infrared search and track systems, aircraft mission recording systems, aircraft weapons calibration systems and high-speed digital imaging systems for U.S. and international defense, aerospace and commercial customers. FSCG incorporates advanced commercial technology in the design and manufacture of multi-sensor digital, analog and video data capture and recording products, as well as high-capacity data storage devices for harsh aerospace and defense environments. FSCG's equipment operates on board a wide range of U.S., Canadian and other international surface ships, carriers, fixed-wing aircraft, helicopters, ground vehicles, soldier systems and commercial space-based platforms. In addition, we provide electronic manufacturing services to the defense, aerospace, commercial and space industries.

        FSCG's business is concentrated in Communications and Surveillance Systems, Data and Imaging Systems and Advanced Electronic Manufacturing. The Communication and Surveillance Systems area includes such products as tactical data links, shipboard communication systems, modems, telephonic products, coastal border surveillance systems, ship infrared search and track systems, and ground radar systems. The Data and Imaging Systems area includes such products as airborne mission recorders, deployable flight recorders, airborne analysis equipment, aircraft weapons calibration equipment, and high-speed and ultra high-speed digital cameras supporting military in-flight capture of weapons release tests, ballistic range tests, industrial and university research, combustion and high-speed manufacturing processes. FSCG also provides electronic manufacturing services, often with value-added engineering content, to the defense and space industries.

        Our Flight Safety and Communications Group's products and services, their applications, platforms and end-users are summarized in the table below:

Product	Description	Platforms/Customers
Communications and Surveillance Systems
Integrated Shipboard Communications Systems	Tactical, secure and non-secure interior ship communication systems providing voice transmission; including modems, terminals and digital telephones.	•  USS George Washington aircraft carrier •  Canadian patrol frigates, Trump destroyers and AOR supply ships •  Venezuelan Mariscal Sucre class ships •  U.S. Navy Aegis class ships
Secure Voice System (SVS)	Incorporated in the AN/UYQ-70 display system and designed to become the backbone of a completely integrated voice and data transfer system to support a full range of internal Naval ship communication requirements.	•  U.S. Navy aircraft carriers •  Aegis DDG class destroyer combat system baseline

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Product	Description	Platforms/Customers
Data Link Products	Provide data link solutions for data transmission and exchange between ship, air and shore platforms to support national security interests and increased battle group interoperability. Includes modems and cryptographic devices for tactical and secure communications.	•  U.S. and international aircraft, ship and shore platforms •  Royal Australian Air Force's Wedgetail aircraft
Tactical Dissemination Modules (TDM)	Installed on both surface ships and mobile ground platforms to serve as tactical communication links between ships, fighter aircraft and Scout vehicles.	•  U.S. Navy ships •  Scout vehicles •  NATO and other allied military ships, aircraft and land-based sites
Secure Terminal Equipment (STE)	Next-generation secure voice and data communications subsystems for communication over public service telephone and military tactical networks.	•  U.S. government information security (INFOSEC) program •  U.S. Navy's AN/UYQ-70 Common Data Link Management System
Infrared Search and Track (IRST) System	Sophisticated sensor signal processing subsystems for international naval surface ship self defense against anti-ship missiles and aircraft.	•  Joint Dutch/Canadian SIRIUS program •  Canadian Department of National Defense •  Republic of Korea
Mobile Ground Surveillance Radar Systems	Radar surveillance systems for light mobile vehicle/Scout platforms comprised of Squire™ radar, thermal imaging and other Multi sensor equipment. Developed by Thales, built by DRS.	•  U.S. and international High-Mobility purpose Wheeled Vehicles associated with military FMS programs for the Republic of China, Greece, Egypt, Israel •  Homeland defense, border patrol •  High-value asset protection
AN/TAS-502 Night Observation Device, Long Range (NODLR)	Supporting the NODLR Mid-Life Improvement program, these man-portable or vehicle-mounted systems are comprised of Third Generation Focal Plane Arrays (FPAs) and associated electronic components for day/night ground surveillance. Doubles the range of current systems improving their operation with increased reliability and noise reduction. Utilizes DRS-produced AN/UAR-501 Thermal Observation Device.	•  Canadian Department of National Defence; Canadian Army

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Product	Description	Platforms/Customers
Data and Imaging Systems
EAS 3000 Emergency Avionics Systems	Deployable, crash-survivable systems for helicopters incorporating flight data recorder, cockpit voice recorder and emergency locator beacon.	•  U.K. Royal Air Force & U.K. Royal Navy EH-101 Merlin and variants •  Canadian Cormorant search and rescue helicopters •  Italian MMI helicopter •  Tokyo metropolitan police helicopters
ELB 3000 Emergency Locator Beacon	Variant of the EAS 3000 enabling rapid location of downed aircraft and timely search for survivors.	•  U.S. Army/Sikorsky S-92 helicopters •  Various helicopters flown by commercial North Sea Heavy Lift operators
Deployable Flight Incident Recorders Systems	Deployable systems for fixed-wing aircraft incorporating flight data recorder, cockpit voice recorder and emergency locator beacon; variant used for cockpit voice recording.	•  U.S. Navy and international F/A-18 Hornet strike aircraft •  German Air Force/Navy Tornado •  U.S. Air Force RC-135 surveillance aircraft •  Canadian CP-140 Aurora patrol aircraft
Aircraft Crash Locator Beacons	Deployable systems for fixed-wing aircraft incorporating radio transmitter and power source to alert search and rescue operators.	•  Wide variety of military aircraft, including P-3, EA-3, AWACS, C-130 and others
Video Recording Systems	Cockpit recording systems that capture various sensor and video data to provide airborne and ground imagery.	•  U.S. Air Force A-10 Thunderbolt aircraft •  U.S. Navy F/A-18C/D/E/F Hornet aircraft •  U.S. Army OH-58D Kiowa Warrior helicopter •  Canada's Light Armored Reconnaissance Vehicle
Airborne Mission Recorders	Digital recorders with ground-based relay stations that capture and record mission sensor data, including sonar and acoustic sonobuoy data.	•  U.S. Navy's and international navies' P-3C Orion and S-3 Viking patrol aircraft •  Japanese Navy SH-60F Inner Zone helicopters
Multiplexed Airborne Video Analysis System	Analysis system used for replay and reconstruction of mission data.	•  U.K. Ministry of Defence for the Tornado aircraft
Airborne Separation Video System (ASVS)	High-speed digital camera system specifically designed and qualified to replace high-speed film cameras to capture airborne weapons separation events.	•  U.S. Navy F/A-18 Hornet aircraft •  U.S. Air Force F-16 Fighting Falcon •  Republic of Korea Air Force
Framing and Ballistic Range Cameras	Ultra high-speed cameras used primarily for capturing images relating to ballistics range tests, electrical discharge, detonics and combustion processes.	•  Wide variety of military, industrial and university research laboratory applications.

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Product	Description	Platforms/Customers
Common Multi- Platform Boresight System (CMBS)	DRS proprietary infrared laser Triaxial Measurement System (TMS) with aircraft-specific adapters. System provides portable, cost-effective, time saving boresighting capability and is considered essential ground support equipment. Aligns aircraft sighting, weapons and navigation systems to ensure target accuracy. Multiple Platform Boresighting Equipment (MPBE) expands application to multiple air platforms.	•  U.S. Army AH-64 Apache and Apache Longbow helicopters •  U.S. Air Force AC-130U Spectre gunship, F-16 Fighting Falcon and F-15 Eagle •  U.S. Marine Corps Cobra helicopters •  NATO aircraft
Advanced Electronic Manufacturing
Electronic Manufacturing and Integration Services	Electronic manufacture of DRS products and turn-key manufacturing services for other manufacturers in the aerospace, defense and space industries.	•  Boeing spacecraft •  Smiths Industries for F/A-18 and AV-8B aircraft •  Eastman Kodak spacecraft •  General Motors Defense Light Armored Vehicle •  Northrop Grumman •  Lockheed Martin •  Honeywell •  L-3 Communications

        Other.    "Other" includes the activities of DRS Corporate Headquarters, DRS Ahead Technology (for the period we owned it) and certain of our non-operating subsidiaries. DRS Ahead produced magnetic head components used in the manufacturing process of computer disk drives, which burnish and verify the quality of disk surfaces. DRS Ahead also serviced and manufactured video heads used in broadcast television equipment. DRS Ahead Technology was sold on May 27, 2002 (see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions and Divestitures).

Industry Background

        The U.S. military has worked to meet the changing threats that have evolved since the mid-1980s with a focus on lighter, faster and more intelligent weapons and an emphasis on intelligence, surveillance and reconnaissance. This change in focus, the end of the Cold War, and the subsequent reduction in defense spending, led to consolidation in the defense industry. Today, the industry is dominated by a small number of large domestic prime contractors and a few large European defense companies with an increasing presence in the U.S. markets. These large prime contractors have shifted their business strategies to focus on platforms and systems integration and consequently subcontract the development of many systems and subsystems.

        In 2001, the defense procurement budget increased for the first time in almost a decade. Due to the historical lack of procurement spending, increased funding by the U.S. government is now necessary to develop new combat systems and upgrade existing platforms with new technology. We believe that the current business, political and global environments will create new opportunities for mid-tier defense companies to develop strategic relationships with prime contractors. Through these relationships, we believe we can provide new systems and subsystems, which are capable of meeting the military's evolving requirements.

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Business Strategy

        Our goal is to continually improve our position as a leading supplier of defense electronics products and systems. Our strategies to achieve our objectives include:

•

Leverage Incumbent Relationships.  We intend to leverage our relationships with government and industry decision-makers by continuing to deliver high levels of performance on our existing contracts.



•

Develop and Expand Existing Technologies.  Through a combination of customer-funded research and development and our own internal research and development efforts, we intend to continue to focus on the development and commercialization of our technology.



•

Pursue Strategic Acquisitions.  We plan to continue our active participation in the ongoing consolidation of the aerospace and defense industry. Through selective acquisitions, we aim to broaden our existing product base and enhance our ability to enter new markets.



•

Continue to React Quickly to the Changing Defense Environment.  In addition to being well positioned for conventional warfare roles, we intend to continue to adapt our products, such as thermal imaging, ruggedization and communication products, to address evolving military requirements such as rapid deployment and containment of non-conventional threats such as terrorism.



•

Pursue Selective Commercial Opportunities.  We seek to identify and pursue commercial applications for selected products and technologies where we can add value based on our related technological and manufacturing expertise.

Fiscal 2003 Acquisitions

        On February 14, 2003, we acquired all of the outstanding stock of Power Technology Incorporated, a privately held company principally located in Fitchburg, Massachusetts, for $35 million in cash, subject to adjustment, plus $14.0 million of contingent consideration and $1.5 million of acquisition-related costs. Renamed DRS Power Technology, Inc. (PTI), the company operates as part of our ESG operating segment. PTI designs, develops, manufactures and provides life-cycle support of a wide variety of high-performance, complex power systems and rotating machinery and is concentrated in four major areas: Navy Electric Drive Equipment, Navy Main Propulsion Turbines, High-Performance Navy Pumps, and Fuel Cells and Industrial Equipment. The addition of PTI to DRS's existing power systems line of business is a significant part of our strategy of providing Naval vessels with a totally integrated gas turbine or steam turbine propulsion plant, either electrical or mechanical drive, and is expected to enhance our ability to expand our involvement in other electric drive platforms supporting Navy growth initiatives.

        On January 15, 2003, we acquired the assets and certain liabilities of the Electromagnetics Development Center of Kaman Aerospace, a subsidiary of Kaman Corporation, located in Hudson, Massachusetts, for $27.5 million in cash, subject to adjustment, plus $7.5 million of contingent consideration and $1.2 million of acquisition-related costs. Kaman's Electromagnetics Development Center develops high-performance, lightweight electric motors, generators and drive electronics for defense, industrial and transportation applications. Renamed DRS Electric Power Technologies, Inc. (EPT), the company operates as part of our ESG operating segment. The addition of EPT is complementary to our existing position in ship electric propulsion equipment, control equipment, high-performance networks, tactical displays and specialty reactor plant instrumentation.

        On November 27, 2002, a wholly-owned subsidiary of DRS merged with and into Paravant Inc. (Paravant), with Paravant being the surviving corporation and continuing as a wholly-owned subsidiary of DRS. Consideration in the Paravant acquisition was approximately $94.7 million in cash and the

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assumption of $15.5 million in debt. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $5.0 million. Paravant, which consists of five operating units, is a designer and manufacturer of highly engineered, technically advanced, defense electronics for U.S. and allied international military and intelligence agency applications. The company manufactures rugged computer systems and communications interfaces serving military Command, Control, Communications, Computer, Intelligence and Surveillance (C4ISR) initiatives. Paravant also produces high-speed processing equipment for the intelligence community and offers modernization design and installation services for select rotary- and fixed-wing military aircraft. The Paravant acquisition is highly compatible with the Company's goals of expanding its core tactical systems business base and increasing its presence in the U.S. Air Force and high-end signal intelligence programs supporting government agencies. The acquired Paravant operating units are being managed as part of our ESG operating segment.

        On October 15, 2002, we acquired DKD, Inc. (which operated under the name Nytech) for $13.0 million plus contingent consideration. The $13.0 million consists of a $5.0 million cash payment and an $8.0 million promissory note, bearing interest at a rate of 6%, with payments of $5.0 million and $3.0 million due on the first and second anniversaries of the closing, respectively. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $0.5 million. Renamed DRS Nytech Imaging Systems, Inc. and located in Irvine, California, the company manufactures and markets uncooled thermal imaging systems for portable weapons, head gear, hand-held devices and vehicle-mounted sights. The business also specializes in the design of stabilized, lightweight gimbals capable of controlling numerous sensors and suitable for mounting on a variety of land, sea and air platforms. The Nytech acquisition enhances our position as a supplier of lightweight thermal imaging systems and supports our objectives to further expand its position in the uncooled infrared technology market.

        Pursuant to a purchase agreement effective July 1, 2002, we acquired the assets and assumed certain liabilities of the Navy Controls Division (NCD) of Eaton Corporation for $96.0 million in cash. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $3.5 million. Renamed DRS Power & Control Technologies, Inc. (PCT) and located in Milwaukee, Wisconsin, and Danbury, Connecticut, the company is a leading supplier of high-performance power conversion and instrumentation and control systems for the U.S. Navy's combatant fleet, including nuclear-powered and conventionally powered ships, as well as for specialized industrial customers. Products include ship electric propulsion equipment, power electronics equipment, high-performance networks, shipboard control equipment and control panels, tactical displays, and specialty reactor instrumentation and control equipment. The addition of this unit complements our presence in naval advanced command and control computer display and other ship systems. PCT is being managed as a part of our ESG operating segment.

        On April 11, 2002, we acquired the assets of the U.S.-based Unmanned Aerial Vehicle (UAV) business of Meggitt Defense Systems—Texas, Inc., a unit of Meggitt PLC, for $0.8 million in cash. In addition to the purchase price, the costs related to the acquisition were approximately $0.2 million. The business, located in Mineral Wells, Texas, and now operating as DRS Unmanned Technologies, Inc., provides close-range, low-weight, low-noise, medium-duration UAVs supporting military special operations missions. Applications for these products include tactical short-range surveillance, radio relay, and command, control, communications, computers, intelligence, surveillance and reconnaissance. DRS Unmanned Technologies, Inc. is being managed as a part of our EOSG operating segment.

Customers

        We sell a significant portion of our products to agencies of the U.S. government, primarily the Department of Defense, to foreign government agencies or to prime contractors or their subcontractors. Approximately 81%, 78% and 78% of total consolidated revenues for fiscal 2003, 2002

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and 2001, respectively, were derived directly or indirectly from defense contracts for end use by the U.S. government and its agencies (see Contracts and International Operations and Export Sales below).

Backlog

        The following table sets forth our backlog by major product group (including enhancements, modifications and related logistics support) at the dates indicated. "Backlog" refers to the aggregate revenues remaining to be earned at a specified date under contracts held by us, including, for U.S. government contracts, the extent of the funded amounts under such a contract, which have been appropriated by Congress and allotted to the contract by the procuring government agency. Our backlog does not include the full value of contract awards nor does it include the sales value of unexercised options that may be exercised in the future. Backlog also includes all firm orders for commercial products. Fluctuations in backlog generally relate to the timing and amount of defense contract awards.

	March 31,
	2003		2002		2001
	(in thousands)
U.S. Governement	$	595,562	$	468,931	$	363,777
Foreign Government		199,683		93,557		55,388
		795,245		562,488		419,165
Commercial Products		71,809		32,780		37,339
	$	867,054	$	595,268	$	456,504

        We expect to record as revenues approximately 64% of our funded backlog as of March 31, 2003, during fiscal 2004. However, there can be no assurance that our entire funded backlog will become sales in future periods.

Research and Development

        We conduct research and development programs to maintain and advance our technology base. Our research and development efforts are funded by both internal sources and as part of customer-funded development contracts. We recorded revenues for customer-sponsored research and development of approximately $43.8 million, $36.2 million, and $32.9 million for fiscal 2003, 2002 and 2001, respectively. Such customer-sponsored activities are primarily the result of contracts directly or indirectly with the U.S. government. We also invest in internal research and development. Expenditures for internal research and development amounted to approximately $14.4 million, $9.5 million and $8.0 million for fiscal 2003, 2002 and 2001, respectively.

Contracts

        A significant portion of our revenue is derived from strategic, long-term programs and from programs for which we are the incumbent supplier or have been the sole or dual supplier for many years. A large percentage of our revenue is derived from programs that are in the production phase. These contracts provide us with a strong basis for projecting future business and the ability to control our cost structure.

        We have a diverse business mix with limited dependence on any single program. Only one program, the AN/UYQ-70, at approximately 13%, 20% and 22% represented more than 10% of our revenue in the years ended March 31, 2003, 2002 and 2001, respectively. The AN/UYQ-70 program is diversified, with over 50 unique products manufactured under it that are used by a diverse group of ten platforms, or customers, each of which has its own budget and requirements.

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        The percentages of revenues during fiscal 2003, 2002 and 2001 attributable to our contracts by contract type were as follows:

	March 31,
	2003		2002		2001
Firm fixed-price	85	%	87	%	94	%
Cost-type	15	%	13	%	6	%

        Our contracts are normally for production, service or development. Production and service contracts are typically of the fixed-price variety with development contracts currently of the cost-type variety. The continued predominance of firm fixed-price contracts are reflective of the fact that production contracts comprise a significant portion of our U.S. government contract portfolio. Fixed-price contracts may provide for a firm fixed price or they may be fixed-price incentive contracts. Under the firm fixed-price contracts, we agree to perform for an agreed-upon price. Accordingly, we derive benefits from cost savings, but bear the risk of cost overruns. Under the fixed-price incentive contracts, if actual costs incurred in the performance of the contracts are less than estimated costs for the contracts, the savings are apportioned between the customer and us. If actual costs under such a contract exceed estimated costs, however, excess costs are apportioned between the customer and us, up to a ceiling. We bear all costs that exceed the ceiling, if any.

        Cost-type contracts typically provide for reimbursement of allowable costs incurred plus a fee (profit). Unlike fixed-price contracts in which we are committed to deliver without regard to cost, cost-type contracts normally obligate us to use our best efforts to accomplish the scope of work within a specified time and a stated contract dollar limitation. In addition, U.S. government procurement regulations mandate lower profits for cost-type contracts because of our reduced risk. Under cost-plus-incentive-fee contracts, the incentive may be based on cost or performance. When the incentive is based on cost, the contract specifies that we are reimbursed for allowable incurred costs plus a fee adjusted by a formula based on the ratio of total allowable costs to target cost. Target cost, target fee, minimum and maximum fee and adjustment formulae are agreed upon when the contract is negotiated. In the case of performance-based incentives, we are reimbursed for allowable incurred costs plus an incentive, contingent upon meeting or surpassing stated performance targets. The contract provides for increases in the fee to the extent that such targets are surpassed and for decreases to the extent that such targets are not met. In some instances, incentive contracts also may include a combination of both cost and performance incentives. Under cost-plus-fixed-fee contracts, we are reimbursed for costs and receive a fixed fee, which is negotiated and specified in the contract. Such fees have statutory limits.

        We negotiate for and generally receive progress payments from our customers of between 75-90% of allowable costs incurred on the previously described contracts. Included in our reported revenues are certain amounts, which we have not billed to customers. These amounts consist of costs and related profits, if any, in excess of progress payments for contracts on which revenues are recognized on a percentage-of-completion basis.

        Under accounting principles generally accepted in the United States, contract costs, including applicable general and administrative expenses on long-term government contracts, are charged to work-in-progress inventory and are written off to costs and expenses as revenues are recognized. The Federal Acquisition Regulations, incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. To the extent that general and administrative expenses are included in inventory, research and development costs also are included. Unallowable costs, pursuant to the Federal Acquisition Regulations, are excluded from costs accumulated on U.S. government contracts. Work-in-process inventory included general and administrative costs (which include internal research and development costs) of $23.2 million and $16.3 million at March 31, 2003 and 2002, respectively.

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        Our defense contracts and subcontracts are subject to audit, various profit and cost controls, and standard provisions for termination at the convenience of the customer. Multi-year U.S. government contracts and related orders are subject to cancellation if funds for the contract for any subsequent year become unavailable. In addition, if certain technical or other program requirements are not met in the developmental phases of the contract, then the follow-on production phase may not be realized.

        Upon the termination of a contract with the U.S. government, a defense contractor is entitled to reimbursement for allowable costs and an allowance for the proportionate share of fees or earnings for the work completed if the contract was not terminated due to the contractor's default. International defense contracts generally also contain comparable provisions relating to termination at the convenience of the international government.

Competition

        Our products are sold in markets in which our competitors are substantially larger than we are, devote substantially greater resources to research and development and generally have greater financial resources. Certain competitors are also our customers, partners and suppliers. The extent of competition for any single project generally varies according to the complexity of the product and the dollar volume of the anticipated award. We believe that we compete on the basis of:

•

the performance and flexibility of our products;



•

reputation for prompt and responsive contract performance;



•

accumulated technical knowledge and expertise; and



•

breadth of our product line.

        Our future success will depend in large part upon our ability to improve existing product lines and to develop new products and technologies in the same or related fields.

        In the military sector, we compete with large and mid-tier defense contractors on the basis of product performance, cost, overall value, delivery and reputation. As the size of the overall defense industry has decreased in recent years, the number of consolidations and mergers of defense suppliers has increased. We expect this consolidation trend to continue. As the industry consolidates, the large defense contractors are narrowing their supplier base, awarding increasing portions of projects to strategic mid- and lower-tier suppliers, and, in the process, are becoming oriented more toward systems integration and assembly. We believe that we have benefited from this trend, as evidenced by the formation of strategic alliances with several large suppliers.

Patents and Licenses

        We have patents on certain of our commercial and data recording products, semi-conductor devices, rugged computer related items, and electro-optical and focal plane array products. We and our subsidiaries have certain registered trademarks, none of which are considered significant to our current operations. We believe our patent position and intellectual property portfolio, in the aggregate, is valuable to our operations. We do not believe that the conduct of our business as a whole is materially dependent on any single patent, trademark or copyright.

Manufacturing and Supplies

        Our manufacturing processes for most of our products include the assembly of purchased components and testing of products at various stages in the assembly process. Purchased components include integrated circuits, circuit boards, sheet metal fabricated into cabinets, resistors, capacitors, semiconductors, silicon wafers and other conductive materials, insulated wire and cables. In addition, many of our products use machine castings and housings, motors and recording and reproducing heads.

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Many of the purchased components are fabricated to our designs and specifications. The manufacturing process for certain of our optic products includes the grinding, polishing and coating of various optical materials and the machining of metal components.

        Although materials and purchased components generally are available from a number of different suppliers, several suppliers are our sole source of certain components. If a supplier should cease to deliver such components, other sources probably would be available; however, added cost and manufacturing delays might result. We have not experienced significant production delays attributable to supply shortages, but occasionally experience quality and other related problems with respect to certain components, such as semiconductors and connectors. In addition, with respect to our optical products, certain materials, such as germanium, zinc sulfide and cobalt, may not always be readily available.

International Operations and Export Sales

        We currently sell several of our products and services internationally, such as sales to Canada, Israel, the Republic of China, Spain, Australia, and other countries in Europe and Southeast Asia. International sales are subject to export licenses granted on a case-by-case basis by the United States Department of State. Our international contracts generally are payable in United States dollars. Export sales accounted for approximately 13%, 15% and 14% of total revenues in the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

        We operate outside the United States through our Flight Safety and Communications Group in Canada and the United Kingdom and through our Electronic Systems Group primarily in the United Kingdom.

        The addition of international businesses involves additional risks for us, such as exposure to currency fluctuations, future investment obligations and changes in international economic and political environments. In addition, international transactions frequently involve increased financial and legal risks arising from stringent contractual terms and conditions and widely different legal systems, customs and practices in foreign countries (see Note 14 of Notes to Consolidated Financial Statements).

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EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers

        The names of our executive officers, their positions and offices with us, and their ages are set forth below:

Name	Age	Position
Mark S. Newman	53	Chairman of the Board, President and Chief Executive Officer
Paul G. Casner, Jr	65	Executive Vice President, Chief Operating Officer
Nina Laserson Dunn	56	Executive Vice President, General Counsel and Secretary
Robert F. Mehmel	40	Executive Vice President, Business Operations and Strategy
Richard A. Schneider	50	Executive Vice President, Chief Financial Officer

Mark S. Newman joined us in 1973 and became a director in 1988. He was named Vice President, Finance, Chief Financial Officer and Treasurer in 1980 and Executive Vice President in 1987. In May 1994, Mr. Newman became our President and Chief Executive Officer and in August 1995 became Chairman of the Board. Mr. Newman serves as Vice Chairman of the board of directors of the American Electronics Association and is a member of the board of governors of the Aerospace Industries Association. He is a director on the boards of Congoleum Corporation, Opticare Health Systems, Inc. and SSG Precision Optronics, Inc.

Paul G. Casner, Jr. joined us in 1993 as President of Technology Applications and Service Company, now DRS Electronic Systems, Inc. In 1994, he became one of our Vice Presidents and President of the DRS Electronic Systems Group. In 1998, he became Executive Vice President, Operations, and in May 2000, he became our Executive Vice President, Chief Operating Officer. Mr. Casner has more than 30 years of experience in the defense electronics industry and has held positions in engineering, marketing and general management. Mr. Casner is a director of ACE-COMM Corporation and Mikros Systems Corporation.

Nina Laserson Dunn joined us as Executive Vice President, General Counsel and Secretary in July 1997. Prior to joining us, Ms. Dunn was a Director in the corporate law department of Hannoch Weisman, a Professional Corporation, where she served as our outside legal counsel. Ms. Dunn is admitted to practice law in New York and New Jersey and is a member of the American, New York State and New Jersey State Bar Associations.

Robert F. Mehmel joined us as Executive Vice President, Business Operations and Strategy, in January 2001. Before joining us, he was Director, Corporate Development, at Jabil Circuit, Inc. Prior to that, he was Vice President, Planning, at L-3 Communications Corporation from its inception in April 1997 until June 2000. Earlier, Mr. Mehmel held various positions in divisional and corporate financial management with Lockheed Martin Corporation, Loral Corporation and Lear Siegler, Inc.

Richard A. Schneider joined us in 1999 as Executive Vice President and Chief Financial Officer. He also served as our Treasurer until November 20, 2002. He held similar positions at NAI Technologies, Inc. (NAI) and was a member of its board of directors prior to its acquisition by us in February 1999. Mr. Schneider has over 23 years of experience in corporate financial management, including ten years with NAI.

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Employees

        As of March 31, 2003, we had approximately 3,750 employees, approximately 3,340 of whom are located in the United States. There is a continuing demand for qualified technical personnel, and we believe that our future growth and success will depend upon our ability to attract, train and retain such personnel. Approximately 119 of our employees at DRS Power & Control Technologies are represented by a labor union, which formerly had a collective bargaining agreement with Eaton Corporation. Two DRS Power & Control Technologies employees are represented by a separate labor union. We are currently negotiating labor contracts with both unions and we have not experienced any work stoppages, nor do we expect to experience any. We believe that our relations with our employees are generally good.

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Item 2.    Properties

        We lease the following properties:

Location	Activities	Operating Segment	Approximate Square Footage	Lease Expiration
Parsippany, New Jersey	Corporate Headquarters	Corporate	30,700	Fiscal 2011
Arlington, Virginia	Administrative	Corporate	4,300	Fiscal 2007
Washington, D.C.	Administrative	Corporate	3,400	Fiscal 2008
Gaithersburg, Maryland	Administrative, Engineering and Manufacturing	ESG	42,500	Fiscal 2006
Gaithersburg, Maryland	Administrative, Engineering and Product Development	ESG	10,700	Fiscal 2008
Chesapeake, Virginia	Field Service and Engineering Support	ESG	22,000	Fiscal 2004
San Diego, California	Engineering Support Services	ESG	7,200	Fiscal 2005
Johnstown, Pennsylvania	Administrative and Manufacturing	ESG	130,000	Fiscal 2011
Farnham, Surrey, United Kingdom	Administrative, Engineering and Manufacturing	ESG/FSCG	28,000	Fiscal 2015
Colorado Springs, Colorado	Administrative, Engineering and Manufacturing	ESG	21,600	Fiscal 2011
Columbia, Maryland	Administrative and Manufacturing	ESG	11,600	Fiscal 2007
Danbury, Connecticut	Administrative, Engineering and Manufacturing	ESG	15,800	Fiscal 2005
Dayton, Ohio	Administrative, Manufacturing and Field Service	ESG	17,100	Fiscal 2005
Dayton, Ohio	Administrative, Manufacturing and Field Service	ESG	13,700	Fiscal 2005
Fitchburg, Massachusetts	Administrative and Engineering	ESG	13,700	Fiscal 2004
	Administrative, Engineering and Manufacturing	ESG	53,400	Fiscal 2004
Palm Bay, Florida	Administrative, Engineering and Manufacturing	ESG	96,900	Fiscal 2011
Melbourne, Florida	Administrative, Engineering and Manufacturing	EOSG	114,600	Fiscal 2011
Torrance, California	Administrative, Engineering and Manufacturing	EOSG	39,400	Fiscal 2009
Anaheim, California	Administrative, Engineering and Manufacturing	EOSG	182,700	Fiscal 2004
Irvine, California	Administrative, Engineering and Manufacturing	EOSG	18,900	Fiscal 2005
Mineral Wells, Texas	Administrative, Engineering, Manufacturing and Product Development	EOSG	42,000	Fiscal 2008
Dallas, Texas	Administrative, Engineering and Manufacturing	EOSG	124,000	Fiscal 2008
Kanata, Ontario, Canada	Administrative and Engineering	FSCG	63,100	Fiscal 2012
Oakland, New Jersey	Administrative, Engineering and Manufacturing	FSCG	60,000	Fiscal 2008
Wyndmoor, Pennsylvania	Administrative and Manufacturing	FSCG	98,000	Fiscal 2009

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        We own the following properties:

Location	Activities	Operating Segment	Approximate Square Footage
Largo, Florida	Administrative and Manufacturing	ESG	120,000
Hudson, Massachusetts	Administrative, Engineering, Product Development and Manufacturing	ESG	52,000
Danbury, Connecticut	Administrative, Engineering and Manufacturing	ESG	72,700
Milwaukee, Wisconsin	Administrative, Engineering, Field Service, Product Development and Manufacturing	ESG	612,500
Palm Bay, Florida	Administrative, Manaufacturing and Engineering	ESG	54,000
Carleton Place, Ontario, Canada	Administrative and Manufacturing	FSCG	140,000
Tring, Hertfordshire, United Kingdom	Administrative, Engineering, Product Development and Manufacturing	FSCG	8,000

        We believe that all our facilities are in good condition, adequate for our intended use and sufficient for our immediate needs. It is not certain whether we will negotiate new leases as existing leases expire. Such determinations will be made as existing leases approach expiration and will be based on an assessment of our requirements at that time. Further, we believe that we can obtain additional space, if necessary, based on prior experience and current real estate market conditions.

Environmental Protection

        We believe that our manufacturing operations and properties are, in all material respects, in compliance with existing federal, state, foreign and local laws and regulations enacted or adopted to regulate pollution, the discharge or emission of materials into the environment or otherwise protect the environment. Such compliance has been achieved without material effect on our earnings or competitive position.

Item 3.    Legal Proceedings

        We are party to various legal actions and claims arising in the ordinary course of our business. In our opinion, we have adequate legal defenses for each of the actions and claims, and we believe that their ultimate disposition will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

        In April and May 1998, subpoenas were issued to us by the United States Attorney for the Eastern District of New York seeking documents related to a governmental investigation of certain equipment manufactured by DRS Photronics, Inc. (DRS Photronics). These subpoenas were issued in connection with United States v. Tress, a criminal complaint against a then employee of our DRS Photronics operating unit, alleging that improper test data was provided in connection with boresighting equipment furnished to the U.S. Army. On June 26, 1998, the complaint against the employee was dismissed without prejudice. Additional subpoenas were issued to us on August 12, 1999 and May 10, 2000, relating to the ongoing investigation of DRS Photronics and one or more of its then employees. On May 17, 2002, DRS Photronics announced that it had entered into a global settlement with the government, resolving all potential allegations related to the investigation. Under the terms of the settlement, DRS Photronics agreed to pay $2.5 million in restitution and pleaded guilty to a violation of the False Claims Act.

        During fiscal 2003, we settled a dispute with Spar Aerospace Ltd. (Spar) with respect to the working capital adjustment provided for in the purchase agreement between us and Spar dated as of September 19, 1997, pursuant to which we acquired, through certain of our subsidiaries, certain assets

27

of Spar. Under the terms of this settlement, we agreed to pay Spar a working capital adjustment of CAN$4,616,000 (or approximately U.S.$3,000,000) and CAN$723,654 (or approximately U.S.$460,000) in interest. During fiscal 2002, we accrued $3.9 million, including interest, associated with the dispute. In connection with this settlement, the parties agreed to release each other from all claims arising out of or relating to the working capital adjustment provision in the purchase agreement and to discontinue all legal actions relating thereto.

        On October 3, 2001, a lawsuit was filed in the United States District Court of the Eastern District of New York by Miltope Corporation, a corporation of the State of Alabama, and IV Phoenix Group, Inc., a corporation of the State of New York, against DRS Technologies, Inc., DRS Electronic Systems, Inc. and a number of individual defendants, several of whom are employed by DRS Electronic Systems, Inc. The plaintiffs claims against us allege infringement of a number of patents, breach of a confidentiality agreement, misappropriation of trade secrets, unjust enrichment and unfair competition. The claims relate generally to the activities of certain former employees of IV Phoenix Group and the hiring of some of those employees by us. The plaintiffs seek damages of not less than $5.0 million for each of the claims. The plaintiffs also allege claims for tortious interference with business relationships, tortious interference with contracts and conspiracy to breach fiduciary duty. The plaintiffs seek damages of not less than $47.1 million for each claim. In addition, plaintiffs seek punitive and treble damages, injunctive relief and attorney's fees. In our answer, we have denied the plaintiffs' allegations and we intend to vigorously defend this action. In February 2002, plaintiffs filed an amended complaint, which eliminated the patent infringement claims and added claims related to statutory and common law trademark infringement. Although this action is still in discovery, we believe we have meritorious defenses and do not believe the action will have a material adverse effect on our earnings, financial condition or liquidity.

Item 4.    Submission of Matters to a Vote of Security Holders

        Not applicable

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PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        We have not paid any cash dividends since 1976. We intend to retain future earnings for use in our business and do not expect to declare cash dividends on our common stock in the foreseeable future. The Credit Facility restricts our ability to pay dividends or make other distributions on our common stock (see Note 8 of Notes to Consolidated Financial Statements). Any future declaration of dividends will be subject to the discretion of our Board of Directors. The timing, amount and form of any future dividends will depend, among other things, on our results of operations, financial condition, cash requirements, plans for expansion and other factors deemed relevant by our Board of Directors.

        On April 30, 2002, our common stock began trading on the New York Stock Exchange (NYSE) under the symbol "DRS." Prior to April 30, 2002, our common stock traded on the American Stock Exchange. The following table shows the high and low sale prices per share of our common stock during fiscal 2003 and 2002 as reported on the NYSE and the American Stock Exchange.

	Fiscal 2003				Fiscal 2002
	High		Low		High		Low
First Quarter	$	48.66	$	35.20	$	23.65	$	14.50
Second Quarter	$	42.75	$	30.58	$	40.00	$	18.50
Third Quarter	$	37.66	$	28.20	$	46.10	$	29.80
Fourth Quarter	$	31.90	$	21.00	$	43.10	$	33.20

        The closing sale price of our common stock as reported by the New York Stock Exchange on June 20, 2003 was $28.34 per share. As of that date there were approximately 477 holders of record of the Company's common stock.

        See information with respect to shares of DRS common stock that may be issued under our equity compensation plan as of March 31, 2003 in our Definitive Proxy Statement, dated June 24, 2003, for the 2003 Annual Meeting of Stockholders.

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Item 6. Selected Financial Data

		Years Ended March 31,
		2003			2002			2001			2000			1999
		(in thousands, except per-share data and ratios)
Summary of Earnings
	Revenues	$	675,762		$	517,200		$	427,606		$	391,467		$	265,849
	Operating income	$	67,684		$	49,769		$	37,531		$	26,178		$	15,301
	Earnings from continuing operations before income taxes and extraordinary item	$	55,872		$	38,361		$	24,954		$	12,832		$	5,780
	Earnings from continuing operations before extraordinary item	$	30,171		$	20,331		$	11,978		$	7,661		$	3,865
	Net earnings	$	30,171		$	20,331		$	11,978		$	4,310		$	680
Per-Share Data from Continuing Operations (1),(2)
	Basic earnings per share	$	1.64		$	1.52		$	1.14		$	0.83		$	0.58
	Diluted earnings per share	$	1.58		$	1.41		$	1.01		$	0.76		$	0.57
Summary of Financial Position
	Working capital	$	100,024		$	165,237		$	43,686		$	21,384		$	13,491
	Net property, plant and equipment	$	87,610		$	50,481		$	37,639		$	29,006		$	32,124
	Total assets	$	972,121		$	601,091		$	334,940		$	320,098		$	329,639
	Long-term debt, excluding current installments	$	216,837		$	138,060		$	75,076		$	97,695		$	102,091
	Total stockholders' equity	$	438,180		$	257,235		$	111,947		$	78,184		$	73,442
Financial Ratios and Supplemental Information (1)
	EBIT (3)	$	65,282		$	48,171		$	36,213		$	25,232		$	14,787
	EBITDA (3)	$	81,942		$	61,960		$	52,338		$	42,302		$	26,388
	Free cash flow (4)	$	30,482		$	14,266		$	18,085		$	1,807		$	9,004
	Cash flows from operating activities of continuing operations	$	52,008		$	27,849		$	34,270		$	8,017		$	15,558
	Capital expenditures	$	21,526		$	13,583		$	16,185		$	6,210		$	6,554
	Depreciation and amortization	$	16,660		$	13,789		$	16,125		$	17,070		$	11,601
	Internal research and development	$	14,355		$	9,535		$	8,027		$	9,867		$	5,104
	Net debt (5)	$	129,137		$	21,939		$	80,800		$	117,397		$	107,073
	Interest and related expenses	$	10,589		$	10,954		$	11,461		$	12,600		$	9,357
	Interest coverage ratio (6)		7.7x			5.7x			4.6x			3.4x			2.8x
	Long-term debt to total capitalization		33.9	%		35.1	%		42.2	%		51.9	%		56.6	%
	Long-term debt to EBITDA		2.7x			2.3x			1.6x			2.4x			4.1x
	Net debt to EBITDA		1.6x			0.4x			1.5x			2.8x			4.1x

(1)

Per-share data and financial ratios from continuing operations are presented and calculated before extraordinary item recorded in fiscal 1999 in connection with the write-off of deferred financing fees relating to a previous credit facility.

(2)

No cash dividends have been distributed in any of the years presented.

(3)

Earnings from continuing operations before extraordinary item, net interest and related expenses (primarily amortization of debt issuance costs), income taxes (EBIT) and depreciation and amortization (EBITDA). See Management's Discussion and Analysis of Financial Condition and Results of Operations, Use of Non-GAAP Financial Measures.

(4)

Cash flows from operating activities of continuing operations less capital expenditures. See Management's Discussion and Analysis of Financial Condition and Results of Operations, Use of Non-GAAP Financial Measures.

(5)

Total debt net of cash and cash equivalents. See Management's Discussion and Analysis of Financial Condition and Results of Operations, Use of Non-GAAP Financial Measures.

(6)

Ratio of EBITDA to interest and related expenses (primarily amortization of debt issuance costs).

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following is management's discussion and analysis of the consolidated financial condition and results of operations of DRS Technologies, Inc. and Subsidiaries (hereinafter, we, us, our, the Company or DRS) as of March 31, 2003 and 2002, and for each of the fiscal years in the three-year period ended March 31, 2003. This discussion should be read in conjunction with the audited consolidated financial statements and related notes.

Forward-Looking Statements

        The following discussion and analysis contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates and projections. Such statements, including statements relating to the Company's expectations for future financial performance, are not considered historical facts and are considered forward-looking statements under the federal securities laws. These statements may contain words such as "believes," "anticipates," "plans," "expects," "intends," "estimates" or similar expressions. These statements are not guarantees of the Company's future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements and include, without limitation: the effect of our acquisition strategy on future operating results, including our ability to effectively integrate acquired companies into our existing operations; the uncertainty of acceptance of new products and successful bidding for new contracts; the effect of technological changes or obsolescence relating to our products and services; and the effects of government regulation or shifts in government policy, as they may relate to our products and services and other risks or uncertainties detailed in the Company's Securities and Exchange Commission filings. Given these uncertainties, you should not rely on forward-looking statements. The Company undertakes no obligations to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

        DRS is a leading supplier of defense electronic products and systems. We provide high-technology products and services to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial markets. Incorporated in 1968, DRS has served the defense industry for 34 years. We are a leading provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, battlefield digitization systems, mission recorders and deployable flight incident recorders. Our products are deployed on a wide range of high-profile military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet jet fighters and on several other platforms for military and non-military applications. We also have contracts that support future military platforms, such as the DD(X) destroyer, CVN-21 next generation aircraft carrier and Virginia class submarine.

        We have increased our annual revenues and operating income at compounded annual growth rates of 30% and 36%, respectively, over the last five years. In addition, from fiscal 2002 to fiscal 2003, operating income increased approximately 36% and net earnings increased approximately 48%. For the year ended March 31, 2003, we generated revenues of $675.8 million and operating income of $67.7 million.

        Funded backlog increased substantially in fiscal 2003, primarily as a result of our acquisitions. At March 31, 2003, our funded backlog was approximately $867.1 million, an increase of 46% from March 31, 2002. As of March 31, 2003, approximately 36% and 30% of our backlog related to products and services for the U.S. Army and U.S. Navy, respectively, as compared with 53% and 23% at March 31, 2002.

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Company Organization and Products

        We operate in three principal operating segments on the basis of products and services offered. Each operating segment is comprised of separate and distinct businesses: the Electronic Systems Group, the Electro-Optical Systems Group and the Flight Safety and Communications Group. All other operations are grouped in Other.

        Our Electronic Systems Group (ESG) is a leader in high-performance combat display systems, digital information processing systems, power generation, conversion, distribution, propulsion and control systems, and battlefield digitization systems for sea, air and land applications supporting military modernization and transformation initiatives. ESG also produces radar surveillance and tracking systems, acoustic signal processing systems, flat panels and other computer peripherals, signal intelligence products, ship networks and middleware to promote interoperability and compatibility with the military's new and existing systems. ESG's products are used on various front-line platforms, such as ships, amphibious operation platforms, surveillance aircraft and submarines and mobile ground platforms, and our power systems are installed on every combatant ship in the U.S. Navy, including destroyers, aircraft carriers and attack submarines. ESG is a leader in battlefield digitization programs for the U.S. Army and the British Army. The Group also provides technical support services, including worldwide field service, depot-level repair, equipment installation and integrated logistics for the Navy's fleet, avionics support for U.S. and international helicopter and airlift aircraft, hardware and software system engineering, and electronic manufacturing, testing and system integration services.

        ESG provided $291.8 million, or 43% of total revenues, for the year ended March 31, 2003.

        Our Electro-Optical Systems Group (EOSG) is a leader in second-generation electro-optical infrared sighting, surveillance, targeting and weapons guidance systems, assemblies and components used in the aerospace and defense industry and is one of only two key suppliers to the U.S. government for advanced focal plane array sensor technology. EOSG product designs are based on infrared cooled and uncooled sensor system technologies. EOSG designs, manufactures and markets these systems to allow operators to detect, identify and track targets based on their infrared signatures regardless of the ambient light level. The Group's cooled systems, which utilize advanced detectors and cryogenic cooler assemblies, are used on the most critical front-line ground vehicle, surface ship and weapons system platforms of the U.S. Army, Navy and Marine Corps, including the M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, DDG Aegis class destroyers and cruisers, Javelin Missile Systems and the HMMWV Scout vehicles. EOSG's uncooled sighting systems are lighter weight, less expensive thermal imaging systems used for man-portable weapons, transportable gimbals, head-gear, hand-held devices and vehicle-mounted sights for enhancement of driver vision. EOSG also produces medium-range Unmanned Aerial Vehicles (UAVs) and seeks to incorporate DRS's core technologies, such as computer display systems, electro-optical and infrared sensors and targeting systems, high-speed digital cameras, data recording, communications and other intelligence gathering equipment, onto these platforms to support special military operations, surveillance and targeting missions, payload drops and civil applications.

        EOSG provided $276.4 million, or 41% of total revenues, for the year ended March 31, 2003.

        Our Flight Safety and Communications Group (FSCG) is a leader in deployable flight incident recorders and emergency locator beacon systems used by military and commercial search and rescue platforms to locate downed aircraft. FSCG also is a leader in the supply of Link 11 data transmission products supporting coordinated theater warfare and enhanced tactical command and control operations. FSCG provides tactical data link communication products, secure modems, telephonic products and next-generation secure voice and data communications systems for advanced digital communications networks. These technologies support the crucial exchange of tactical command and control data with ship, shore and air platforms and have applicability to a Joint Fires Network to support a network-centric warfare system for real-time intelligence correlation, sensor control, target

32

generation, mission planning and battle damage assessment. The Group also designs and produces fully integrated non-secure Naval ship communication systems, ground radar surveillance systems, infrared search and track systems, aircraft mission recording systems, aircraft weapons calibration systems and high-speed digital imaging systems for U.S. and international defense, aerospace and commercial customers. FSCG's equipment operates on board a wide range of U.S., Canadian and other international surface ships, carriers, fixed-wing aircraft, helicopters, ground vehicles, soldier systems and commercial space-based platforms. In addition, FSCG provides electronic manufacturing services to the defense, aerospace, commercial and space industries.

        FSCG provided $106.3 million, or 16% of total revenues, for the year ended March 31, 2003.

        Other includes the activities of DRS Corporate Headquarters, DRS Ahead Technology (for the period it was owned by us during the first quarter of fiscal 2003) and certain non-operating subsidiaries of the Company. DRS Ahead Technology produced magnetic head components used in the manufacturing process of computer disk drives, which burnish and verify the quality of disk surfaces. DRS Ahead Technology also serviced and manufactured magnetic video recording heads used in broadcast television equipment. The assets of DRS Ahead Technology were sold on May 27, 2002 (see Acquisitions and Divestitures below).

Acquisitions and Divestitures

        The following summarizes certain acquisitions and divestitures we completed which significantly affect the comparability of the period-to-period results presented in this discussion and analysis. The acquisitions discussed below have been accounted for using the purchase method of accounting. Accordingly, the results of operations of the acquired businesses are included in our reported operating results from their respective effective dates of acquisition. We selectively target acquisition candidates that complement or expand our product lines, services or technical capabilities. We continue to seek acquisition opportunities consistent with our overall business strategy.

        Fiscal 2003 Acquisitions    On February 14, 2003, we acquired all of the outstanding stock of Power Technology Incorporated, a privately held company principally located in Fitchburg, Massachusetts, for $35.0 million in cash, subject to adjustment, plus $14.0 million of contingent consideration and $1.5 million of acquisition-related costs. Renamed DRS Power Technology, Inc. (DRS PTI), the company operates as part of our ESG operating segment. DRS PTI designs, develops, manufactures and provides life-cycle support for a wide variety of high-performance, complex power systems and rotating machinery and is concentrated in four major areas: Navy Electric Drive Equipment, Navy Main Propulsion Turbines, High-Performance Navy Pumps, and Fuel Cells and Industrial Equipment. The addition of DRS PTI to DRS's existing power systems line of business is a significant part of our strategy of providing Naval vessels with a totally integrated gas turbine or steam turbine propulsion plant, either electric or mechanical drive and is expected to enhance our ability to expand our involvement in other electric drive platforms supporting Navy growth initiatives.

        On January 15, 2003, we acquired the assets and certain liabilities of the Electromagnetics Development Center of Kaman Aerospace, a subsidiary of Kaman Corporation, located in Hudson, Massachusetts, for $27.5 million in cash, subject to adjustment, plus $7.5 million of contingent consideration and $1.2 million of acquisition-related costs. Kaman's Electromagnetics Development Center develops high-performance, lightweight electric motors, generators and drive electronics for defense, industrial and transportation applications. Renamed DRS Electric Power Technologies, Inc. (DRS EPT), the company operates as part of our ESG operating segment. The addition of DRS EPT is complementary to our existing position in ship electric propulsion equipment, control equipment, high-performance networks, tactical displays and specialty reactor plant instrumentation.

        On November 27, 2002, a wholly-owned subsidiary of DRS merged with and into Paravant Inc. (Paravant), with Paravant being the surviving corporation and continuing as a wholly-owned subsidiary of DRS. Consideration in the Paravant acquisition was approximately $94.7 million in cash and the assumption of $15.5 million in debt. In addition to the purchase price, the estimated costs related to

33

the acquisition, including professional fees, approximated $5.0 million. Paravant, which consists of five operating units, is a designer and manufacturer of highly engineered, technically advanced, defense electronics for U.S. and allied international military and intelligence agency applications. The company manufactures rugged computer systems and communications interfaces serving military Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance (C4ISR) initiatives. Paravant also produces high-speed processing equipment for the intelligence community and offers modernization design and installation services for select rotary- and fixed-wing military aircraft. The Paravant acquisition is highly compatible with the Company's goals of expanding its core tactical systems business base and increasing our presence in the U.S. Air Force and high-end signal intelligence programs supporting government agencies. The acquired Paravant operating units are being managed as part of our ESG operating segment.

        On October 15, 2002, we acquired DKD, Inc. (which operated under the name Nytech) for $13.0 million plus contingent consideration. The $13.0 million consists of a $5.0 million cash payment and an $8.0 million promissory note, bearing interest at a rate of 6%, with payments of $5.0 million and $3.0 million due on the first and second anniversaries of the closing, respectively. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $0.5 million. Renamed DRS Nytech Imaging Systems, Inc. and located in Irvine, California, the company manufactures and markets uncooled thermal imaging systems for portable weapons, head gear, hand-held devices and vehicle-mounted sights. The business also specializes in the design of stabilized, lightweight gimbals capable of controlling numerous sensors and suitable for mounting on a variety of land, sea and air platforms. The Nytech acquisition enhances our position as a supplier of lightweight thermal imaging systems and supports our objectives to further expand its position in the uncooled infrared technology market. DRS Nytech operates as part of EOSG.

        Pursuant to a purchase agreement effective July 1, 2002, we acquired the assets and assumed certain liabilities of the Navy Controls Division (NCD) of Eaton Corporation for $96.0 million in cash. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $3.5 million. Renamed DRS Power & Control Technologies, Inc. (DRS PCT) and located in Milwaukee, Wisconsin, and Danbury, Connecticut, the company is a leading supplier of high-performance power conversion and instrumentation and control systems for the U.S. Navy's combatant fleet, including nuclear-powered and conventionally powered ships, as well as for specialized industrial customers. Products include ship electric propulsion equipment, power electronics equipment, high-performance networks, shipboard control equipment and control panels, tactical displays, and specialty reactor instrumentation and control equipment. The addition of this unit complements our presence in Naval advanced command and control, computer display and other ship systems. DRS PCT is being managed as a part of our ESG operating segment.

        On April 11, 2002, we acquired the assets of the U.S.-based Unmanned Aerial Vehicle (UAV) business of Meggitt Defense Systems—Texas, Inc., a unit of Meggitt PLC, for $0.8 million in cash. In addition to the purchase price, the costs related to the acquisition were approximately $0.2 million. The business, located in Mineral Wells, Texas, and now operating as DRS Unmanned Technologies, Inc., provides close-range, low-weight, low-noise, medium-duration UAVs supporting military special operations missions. Applications for these products include tactical short-range surveillance, radio relay and C4ISR. DRS Unmanned Technologies, Inc. is being managed as a part of our EOSG operating segment.

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        Fiscal 2002 Acquisitions    On September 28, 2001, we acquired certain assets and liabilities of the Sensors and Electronic Systems business of The Boeing Company (SES business). We paid approximately $60.1 million in cash, net of a $7.0 million favorable working capital adjustment received in the fourth quarter of fiscal 2002 for the acquisition. In addition to the purchase price, the costs related to the acquisition, including professional fees, approximated $4.0 million. SES, located in Anaheim, California, is a leading provider of advanced electro-optical airborne and Naval surveillance and targeting systems, high-performance military infrared cooled sensor systems, and infrared uncooled sensor products for military and commercial applications. Production, engineering and management of the contracts acquired in the SES acquisition have been assigned, based on operational synergies, to two previously existing EOSG operating units, as well as a new operating unit called DRS Sensors & Targeting Systems, Inc. (DRS STS). DRS STS was created as a result of the SES acquisition, and it is also an operating unit of our EOSG operating segment. This acquisition broadens the product lines and customer base of EOSG, particularly in those areas associated with Naval and air-based applications, and provides a strong complement to our existing products in ground-based forward looking infrared technology.

        On August 22, 2001, we acquired certain assets and liabilities of the Electro Mechanical Systems unit of Lockheed Martin Corporation for $4.0 million in cash, subject to adjustment, and $0.3 million in acquisition-related costs. Located in Largo, Florida, this company now operates as DRS Surveillance Support Systems, Inc. (DRS SSS), a unit of our ESG operating segment. DRS SSS produces pedestals, support systems and antennae for radar and other surveillance sensor systems.

        On June 14, 2000, we acquired the assets of General Atronics Corporation for $7.5 million in cash, $4.0 million in common stock, representing 355,359 shares of DRS common stock, and $0.4 million in acquisition-related costs. Located in Wyndmoor, Pennsylvania, and now operating as DRS Communications Company, LLC (DRS Communications Company), the company designs, develops and manufactures military data link components and systems, high-frequency communication modems, tactical and secure digital telephone components and radar surveillance systems for U.S. and international militaries. DRS Communications Company is being managed as part of the our FSCG operating segment.

        Fiscal 2003 Divestitures    On November 22, 2002, we sold our DRS Advanced Programs, Inc. operating unit (DRS API) for $7.6 million in cash and recorded a $0.6 million loss on the sale. DRS API, which operated as part of our ESG operating segment, developed, designed, manufactured and marketed custom-packaged computers and peripherals, primarily for the Department of Defense and the government intelligence community. The results of operations of DRS API, prior to the sale, are summarized as follows:

	Year Ended March 31,
	2003			2002		2001
	(in thousands)
Revenues	$	8,507		$	15,843	$	12,784
Operating (loss) income	$	(1,067	)	$	125	$	(101	)

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        On May 27, 2002, we sold the assets of our DRS Ahead Technology operating unit. The operating unit produced magnetic head components used in the manufacturing process of computer disk drives and manufactured magnetic video recording heads used in broadcast television equipment. No gain or loss was recorded on the sale. The results of operations of DRS Ahead Technology, prior to the sale, are summarized as follows:

	Year Ended March 31,
	2003			2002			2001
	(in thousands)
Revenues	$	1,349		$	9,209		$	9,651
Operating (loss) income	$	(496	)	$	(369	)	$	70

Critical Accounting Policies

        During fiscal 2002, the Securities and Exchange Commission (SEC) issued disclosure guidance for "critical accounting policies." The SEC defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

        The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 1 to Consolidated Financial Statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management's judgment in their application. Other areas require management's judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and costs and expenses during the reporting period. Ultimately, actual amounts may differ from these estimates. We believe that critical accounting estimates have the following attributes: (1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimates that are reasonably likely to occur, would have a material effect on our financial condition or results of operations. We believe the following critical accounting policies contain the more significant judgments and estimates used in the preparation of our financial statements.

        Revenue Recognition on Contracts and Contract Estimates    Substantially all of our direct and indirect sales to the U.S. government and certain of our sales to foreign governments and commercial customers are made pursuant to written contractual arrangements or "contracts" to design, develop, manufacture and/or modify complex products to the specifications of the buyers (customers) or to provide services related to the performance of such contracts. These contracts are accounted for in accordance with American Institute of Certified Public Accountants Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (SOP 81-1), and cost-reimbursable contracts with the U.S. government are also specifically accounted for in accordance with Accounting Research Bulletin No. 43, Chapter 11, Section A, "Government Contracts, Cost-Plus-Fixed Fee Contracts" (ARB 43).

        Revenues and profits on fixed-price contracts are recognized using percentage-of-completion methods of accounting. Revenues and profits on fixed-price production contracts whose units are produced and delivered in a continuous or sequential process are recorded as units are delivered based on their selling prices (the "units-of-delivery" method). Revenues and profits on other fixed-price contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs at completion of the contract for each contract (the "cost-to-cost method"). Under the percentage-of-completion methods of accounting, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year.

        Accounting for the revenues and profits on a fixed-price contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of

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the actual incurred costs to date on the contract and the estimated costs to complete the contract's scope of work, and (3) the measurement of progress towards completion. The estimated profit or loss on a contract is equal to the difference between the total contract value and the estimated total cost at completion. Under the units-of-delivery percentage-of-completion method, revenues on a fixed-price contract are recorded as the units are delivered during the period at an amount equal to the contractual selling price of those units. Under the cost-to-cost percentage-of-completion method, revenues on a fixed-price contract are recorded at amounts equal to the ratio of cumulative costs incurred to date to total estimated costs at completion multiplied by the contract value, less the cumulative revenues recognized in prior periods. The profit recorded on a contract in any period under both the units-of-delivery method and cost-to-cost method is equal to the current estimated total profit margin for the contract stated as a percentage of contract revenue multiplied by the cumulative revenue recorded less the cumulative profit previously recorded. Adjustments to original estimates for a contract's revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These changes are recorded on a cumulative catch-up basis in the period they are determined to be necessary.

        Revenues and profits on a cost-reimbursable contract are recognized as allowable costs are incurred on the contract and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs which are generally fixed or variable based on the contract fee arrangement. Thus, cost-reimbursable contracts generally are not subject to the same estimation risks that affect fixed-price contracts.

        The impact of revisions in profit estimates on both fixed-price and cost-reimbursable contracts is recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident. Amounts representing contract change orders or claims are included in revenues only when they can be estimated reliably and their realization is reasonably assured. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows.

        We record contract-related assets and liabilities acquired in business combinations at their fair value by considering the remaining contract amounts to be billed, our estimate to complete and a profit allowance on our completion effort commensurate with the profit margin we earn on similar contracts. Revisions to cost estimates subsequent to the date of acquisition may be recorded as an adjustment to goodwill or earnings, depending on the nature and timing of the revision.

        We often enter into contracts that provide for significant engineering as well as the production of finished units with the expectation that we will incur substantial up-front costs to engineer the product to meet customer specifications. These arrangements typically provide us the opportunity to be awarded add-on contracts requiring the delivery of additional finished units. Our ability to recover up-front costs and earn a reasonable overall profit margin often is contingent on our ability to recover the up-front costs over multiple deliverable awards. Prior to entering into such arrangements, we estimate the amount of up-front costs to be incurred and evaluate the likelihood of being awarded the add-on contracts. Inaccurate estimates of up-front costs, coupled with the failure to obtain, or delays in obtaining, add-on contracts, could have a material effect on the timing of revenue and/or profit recognition.

        Goodwill and Intangible Assets    In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 142 requires that goodwill and identifiable acquired intangible assets with indefinite useful lives shall no longer be amortized, but tested for impairment annually and whenever events or circumstances occur indicating that goodwill or indefinite life intangibles might be impaired. SFAS 142 also requires the amortization of identifiable assets with finite useful lives, although the Statement no longer limits the amortization period to forty years. Identifiable acquired intangible

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assets, which are subject to amortization, are to be tested for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (see Long-Lived Assets and Acquired Intangible Assets below). As of March 31, 2003, we had $436.9 million of goodwill and $44.8 million of net acquired identifiable intangible assets subject to amortization and no identifiable intangible assets with indefinite lives. In accordance with SFAS 142, goodwill is to be tested for impairment at a level of reporting referred to as a "reporting unit." We have identified four reporting units for impairment testing purposes.

        The annual impairment test is performed after completion of our annual financial operating plan, which occurs in the fourth quarter of our fiscal year. We completed our annual impairment tests with no adjustment to the carrying value of our goodwill, as of March 31, 2003 and 2002. The annual goodwill impairment assessment involves estimating the fair values of four reporting units (three reporting units in fiscal 2002) and comparing such fair values with the reporting unit's respective carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential impairment loss. We estimate the fair value of our reporting units by applying third party market value indicators to the reporting unit's projected revenues, earnings before net interest and taxes (EBIT), earnings before net interest, taxes, depreciation and amortization (EBITDA), and calculating an average of the three extended values. Estimating the fair value of the reporting units requires significant estimates and assumptions by management, as the calculation is dependent on estimates for future revenues, EBIT and EBITDA, all of which are impacted by economic conditions related to the industries in which we operate, as well as conditions in the U.S. capital markets. A decline in the estimated fair value of a reporting unit could result in an impairment charge to goodwill, which could have a material adverse effect on our business, financial condition and results of operations.

        Long-Lived Assets and Acquired Intangible Assets    We assess the recoverability of our long-lived assets and acquired identifiable intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Factors we consider important which could trigger an impairment review include:

•

Significant under-performance relative to expected historical performance or projected future operating results;



•

Significant changes in the manner or use of the assets or the strategy of our overall business;



•

Significant adverse changes in the business climate in which we operate; and



•

Loss of a significant contract.

        If we identify the existence of one or more of the above indicators, we would determine if the asset is impaired by comparing its net undiscounted cash flows to its carrying value. If the expected future net undiscounted cash flows are less than the carrying value of the asset, we would record an impairment loss based on the difference between the asset's estimated fair value and its carrying value.

        Valuation of Deferred Tax Assets and Liabilities    At March 31, 2003, we had net deferred tax assets of $3.1 million, including net operating loss carryforwards, which are subject to various limitations and will expire if unused within their respective carryforward periods. As of March 31, 2003, we have provided a $7.1 million valuation allowance that is included in our net deferred tax assets. Deferred taxes are determined separately for each of our tax paying entities in each tax jurisdiction. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback and carryforward periods available under the tax law. Based on our estimates of the amounts and timing of future taxable income, we believe we will realize our recorded net deferred tax assets. A change in the ability of our operations to continue to generate future taxable income could affect our ability to realize the future tax deductions underlying our net deferred tax assets and require us to increase our valuation allowance against our net deferred tax assets. Such changes, if significant, could

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have a material impact on our effective tax rate, results of operations and financial position in any given period.

        Management Estimates    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Some of the more significant estimates made by management involve percentage of completion on long-term contracts, recoverability of long-lived and intangible assets, and the valuation of deferred tax assets and liabilities, as discussed above. We also make estimates regarding the recoverability of assets, including accounts receivable and inventories, and for litigation and contingencies.

        A substantial majority of our revenues and, consequently, our outstanding accounts receivables are directly or indirectly with the United States government. Therefore, our risk of not collecting amounts due us under such arrangements is minimal. We generally require letters of credit or deposit payments prior to the commencement of work or obtain progress payments upon the achievement of certain milestones from our commercial customers. In addition, our revenues are supported by contractual arrangements specifying the timing and amounts of payments. Consequently, we historically have experienced and expect to continue to experience a minimal amount of uncollectible accounts receivable. Changes in the underlying financial condition of our customers or changes in the industry in which we operate necessitating revisions to our standard contractual terms and conditions could have an impact on our results of operations in the future.

        Our inventory consists of work-in-process, raw materials and finished goods, including subassemblies principally for use in our products. We continually evaluate the adequacy of our reserves on our raw materials and finished goods inventory by reviewing historical rates of scrap, on-hand quantities, as compared with historical and projected usage levels and other anticipated contractual requirements.

        We record a liability pertaining to pending litigation based on our best estimate of potential loss, if any, or at the minimum end of the range of loss in circumstances where the range of loss reasonably can be estimated. Because of uncertainties surrounding the nature of litigation and the cost to us, if any, we continually revise our estimated losses as additional facts become known.

Results of Operations

        Our operating cycle is long-term and involves various types of production contracts and varying production delivery schedules. Accordingly, operating results of a particular year, or year-to-year comparisons of recorded revenues and earnings, may not be indicative of future operating results. The following comparative analysis should be viewed in this context.

Fiscal Year Ended March 31, 2003, Compared with Fiscal Year Ended March 31, 2002

        Revenues and operating income for the year ended March 31, 2003 were $675.8 million and $67.7 million, respectively, increasing approximately $158.6 million and $17.9 million, respectively, as compared with the prior fiscal year. The increase in revenues was driven primarily by our fiscal 2003 acquisitions, primarily DRS PCT and Paravant, as well as a complete fiscal year of revenues generated by the SES business acquired in fiscal 2002. DRS PCT and Paravant contributed $72.4 million and $23.0 million, respectively, to fiscal 2003 revenues. The SES business contributed an incremental increase (year-over-year increase) of $35.7 million to revenues for the year ended March 31, 2003. In addition, increased shipments of our ground vehicle electro-optical systems, mission data recorders and avionics contributed to the fiscal 2003 increase in revenues. Partially offsetting the overall increase in revenues were decreases from our combat display workstations, certain rugged computers and peripherals programs, and the sale of DRS Ahead Technology and DRS API. DRS Ahead Technology and DRS API combined recorded revenues of $9.9 million during fiscal 2003, as compared with

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$25.1 million in fiscal 2002. The growth in operating income was due primarily to the overall increase in revenues and operating margin improvements in our FSCG operating segment. DRS PCT and Paravant contributed $7.8 million and $4.1 million, respectively, to operating income in fiscal 2003, while the SES business contributed an incremental increase of $3.1 million to operating income for the same period. See Operating Segments discussion below for additional information.

        Interest income increased slightly to $1.2 million for the year ended March 31, 2003, as compared with the prior fiscal year. The increase in interest income reflects a higher average cash and cash equivalents balance in fiscal 2003, resulting primarily from our common stock offerings in December 2002 and 2001, partially offset by lower average interest rates.

        Interest and related expenses decreased slightly to $10.6 million for the year ended March 31, 2003, as compared with $11.0 million in the prior fiscal year. Although weighted average borrowings outstanding increased during fiscal 2003 due primarily to the Paravant acquisition, interest expense decreased as a result of an overall decrease in weighted average interest rates during fiscal 2003, as compared with the prior fiscal year. We had no borrowings outstanding under our revolving credit facility as of March 31, 2003 and 2002.

        Other expense of $0.8 million for the year ended March 31, 2003 was primarily driven by foreign currency transaction losses recorded during fiscal 2003.

        Minority interest was approximately $1.6 million for the years ended March 31, 2003 and 2002. Operating income generated by ESG's DRS Laurel Technologies unit, in which we have an 80% interest, decreased slightly year over year.

        The provision for income taxes for the year ended March 31, 2003 reflected an annual estimated effective income tax rate of approximately 46%, as compared with 47% in the prior-year period. There are two primary factors that negatively impact our effective income tax rate: losses in ESG's U.K. operation for which the full tax benefit has not been recognized and the effect of non-deductible expenses. It is anticipated that our effective tax rate will continue to decline moderately in future years, as we continue to grow and our ESG U.K. operation returns to profitability.

        Earnings before net interest and related expenses (primarily amortization of debt issuance costs), income taxes, depreciation and amortization (EBITDA) for the year ended March 31, 2003 was $81.9 million, an increase of approximately 32% over the prior fiscal year. See Use of Non-GAAP Financial Measures below.

Fiscal Year Ended March 31, 2002, Compared with Fiscal Year Ended March 31, 2001

        Revenues and operating income for the year ended March 31, 2002, were $517.2 million and $49.8 million, respectively, increasing approximately $89.6 million and $12.2 million, respectively, as compared with the prior fiscal year. The increase in revenues was driven by our fiscal 2002 second quarter acquisitions of the SES business and DRS SSS, increased shipments of our second generation infrared sighting and targeting systems, and combat display workstations, as well as a complete fiscal year of revenues generated by DRS Communications Company, which we acquired at the end of the first quarter of fiscal 2001. The 33% increase in operating income was due primarily to the overall increase in revenues and the impact of our fiscal 2002 adoption of SFAS 141 and 142 (see Notes 1 and 3 of Notes to Consolidated Financial Statements). In accordance with the provisions of SFAS 142, we ceased amortizing goodwill effective April 1, 2001. Operating income for the year ended March 31, 2001, included $5.3 million of goodwill amortization. Partially offsetting the increase in operating income was the impact of certain charges at our operating segments. See Operating Segments discussion below for additional information.

        Interest income increased approximately $942,000 to $1.1 million for the year ended March 31, 2002, as compared with the prior fiscal period. The increase in interest income reflects a higher average cash and cash equivalents balance in fiscal 2002 as a result of our secondary common stock offering in the third quarter of fiscal 2002.

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        Interest and related expenses decreased approximately $507,000 for the year ended March 31, 2002, as compared with the prior fiscal year period. The decrease in interest expense in fiscal 2002 was primarily the result of an overall decrease in average working capital borrowings outstanding during the year, the favorable impact of the conversion of all of our 9% Senior Subordinated Convertible Debentures during the second half of fiscal 2001 and an overall decrease in weighted average interest rates in fiscal 2002, as compared with fiscal 2001. The overall decrease in average working capital borrowings in fiscal 2002 was due to our repayments of amounts outstanding under our revolving credit line with proceeds from our secondary common stock offering. As of March 31, 2002, we had no borrowings outstanding under our revolving credit facility. Partially offsetting the overall decrease in interest and related expenses were interest charges of approximately $1.6 million associated with actual and estimated working capital adjustments in connection with certain previous acquisitions (see Note 3 of Notes to Consolidated Financial Statements).

        Minority interest was approximately $1.6 million and $1.4 million in fiscal 2002 and 2001, respectively. The increase was due to higher operating income generated by ESG's DRS Laurel Technologies unit.

        The provision for income taxes for the year ended March 31, 2002 reflects an annual estimated effective income tax rate of approximately 47%, as compared with 52% in the prior fiscal year. The decrease in our effective tax rate was primarily due to the cessation of goodwill amortization pursuant to the adoption of SFAS 142. It is anticipated that our effective tax rate will decline moderately in future years as we continue to grow.

        EBITDA for the year ended March 31, 2002 was $62.0 million, an increase of approximately 18% over the prior fiscal year. See Use of Non-GAAP Financial Measures below.

Operating Segments

        The following tables set forth, by operating segment, revenues, operating income, operating margin, depreciation and amortization, and the percentage increase or decrease of those items, as compared with the prior-year period:

	Year Ended March 31,									Percent Changes
	2003			2002			2001			2003 vs. 2002		2002 vs. 2001
	(dollars in thousands)
ESG
Revenues*	$	291,756		$	206,617		$	186,474		41.2	%	10.8	%
Operating income	$	18,733		$	18,053		$	15,336		3.8	%	17.7	%
Operating margin		6.4	%		8.7	%		8.2	%	(26.5	)%	6.2	%
Depreciation and amortization	$	4,403		$	1,914		$	3,447		130.0	%	(44.5	)%
EOSG
Revenues*	$	276,363		$	208,221		$	148,162		32.7	%	40.5	%
Operating income	$	37,168		$	27,365		$	23,646		35.8	%	15.7	%
Operating margin		13.4	%		13.1	%		16.0	%	2.3	%	(17.7	)%
Depreciation and amortization	$	8,630		$	7,153		$	6,972		20.6	%	2.6	%
FSCG
Revenues*	$	106,294		$	93,153		$	83,319		14.1	%	11.8	%
Operating income (loss)	$	12,605		$	5,090		$	(747	)	147.6	%	N/A
Operating margin		11.9	%		5.5	%		(0.9	)%	117.0	%	N/A
Depreciation and amortization	$	2,300		$	2,907		$	4,029		(20.9	)%	(27.8	)%
Other
Revenues*	$	1,349		$	9,209		$	9,651		(85.4	)%	(4.6	)%
Operating (loss)	$	(822	)	$	(739	)	$	(704	)	(11.2	)%	(5.0	)%
Operating margin		(60.9	)%		(8.0	)%		(7.3	)%	(659.3	)%	(10.0	)%
Depreciation and amortization	$	1,327		$	1,815		$	1,797		(26.9	)%	1.0	%

*

Revenues are net of intersegment eliminations.

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Fiscal Year Ended March 31, 2003, Compared with Fiscal Year Ended March 31, 2002

        Electronic Systems Group    Revenues increased $85.1 million, or 41%, to $291.8 million in fiscal 2003, as compared with the corresponding prior fiscal year. Operating income increased $0.7 million, or 4%, to $18.7 million. The increase in revenues was driven by the DRS PCT and Paravant acquisitions, which contributed revenues of $72.4 million and $23.0 million, respectively, as well as contributions from our fiscal 2003 fourth quarter acquisitions of DRS PTI and DRS EPT. Also favorably impacting revenues were increased sales of rugged computers and multi-function consoles from our U.K. operating unit, as well as shipments of certain surface search radar systems. Partially offsetting the overall increase in revenues were decreased shipments of combat display workstations and related engineering volume and certain rugged computers and peripherals under the U.S. Army's Common Hardware/Software (CH/S-2) program. The increase in operating income was driven primarily by the fiscal 2003 acquisitions, offset in part by the unfavorable impact of decreased revenue from certain products, particularly the CH/S-2 related programs that have traditionally earned higher margins. Fiscal 2003 operating income also was unfavorably impacted by charges of $2.2 million and $1.8 million for cost growth on a surface search radar program and for certain charges at the Group's U.K. operating unit, respectively. ESG's U.K. operating unit's charges included $1.5 million for cost growth and inventory write-offs on certain programs, and $0.3 million for reorganization costs. DRS PCT and Paravant contributed $7.8 million and $4.1 million, respectively, to operating income in fiscal 2003.

        Electro-Optical Systems Group    Revenues increased $68.1 million, or 33%, to $276.4 million in fiscal 2003, as compared with the corresponding prior fiscal year. Operating income increased $9.8 million to $37.2 million. The increase in revenues was driven by $35.7 million of incremental revenue growth from programs acquired in connection with our fiscal 2002 second quarter acquisition of the SES business. In addition, our fiscal 2003 acquisitions of DRS Nytech and DRS Unmanned Technologies, Inc., and growth in our second generation infrared targeting and imaging systems programs, particularly the Long Range Advanced Scout Surveillance System (LRAS3) and Improved Bradley Acquisition Subsystem (IBAS) programs, contributed to the overall increase in revenues. Partially offsetting the increase in revenues was a decrease in shipments of Horizontal Technology Integration (HTI) related systems. The increase in fiscal 2003 operating income, as compared with the corresponding prior-year period, was primarily due to the overall increase in revenues, as well as the incremental increase of $3.1 million from the SES programs.

        Flight Safety & Communications Group    Revenues increased $13.1 million, or 14%, to $106.3 million in fiscal 2003, as compared with the corresponding prior fiscal year. Operating income increased $7.5 million, or 148%, to $12.6 million. Increased shipments of mission data recording systems, avionics products and certain communication and surveillance systems were the primary reasons for the increase in revenues. Decreased revenues recognized on advanced manufacturing systems partially offset the overall increase in revenues. The increase in operating income was a result of higher revenues and favorable margins on advance manufacturing services. Operating income for the year ended March 31, 2003 included charges of $2.0 million, $1.1 million and $1.2 million for program reserves on a mission data recorder program, additional costs associated with closing FSCG's Santa Clara, California production and engineering facility, and reorganization charges in the operating group's Canadian and U.K. operating subsidiaries, respectively. Operating income for the year ended March 31, 2002 included charges of $2.5 million, $1.3 million and $1.2 million for the settlement of litigation, cost growth on a mission data recorder program and costs incurred in connection with closing FSCG's Santa Clara, California production and engineering facility, respectively (see FSCG prior-year discussion below).

        Other    Revenues decreased $7.9 million to $1.3 million, and operating losses increased $0.1 million to $0.8 million in fiscal 2003, as compared with the corresponding prior fiscal year. The decrease in revenues was attributable to our sale of substantially all of the assets and liabilities of DRS

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Ahead Technology on May 27, 2002 (see Note 2 of Notes to Consolidated Financial Statements). The increase in operating losses was due to DRS Ahead Technology generating a greater loss for the period of time that we owned them in fiscal 2003, as compared with fiscal 2002.

Fiscal Year Ended March 31, 2002, Compared with Fiscal Year Ended March 31, 2001

        Electronic Systems Group    Revenues increased $20.1 million, or 11%, to $206.6 million in fiscal 2002, as compared with the corresponding prior fiscal year. Operating income increased $2.7 million, or 18%, to $18.1 million. Revenues increased primarily as a result of internal growth from our combat display workstations and components, as well as the inclusion of $8.0 million of revenue contributed by DRS SSS, which we acquired during the second quarter of fiscal 2002. These increases were partially offset by decreases in revenues from certain search and navigation radar systems, and rugged computers and peripherals sold to international militaries. The increase in fiscal 2002 operating income resulted from the net increase in revenues and the favorable impact of the elimination of goodwill amortization, due to the adoption of SFAS 142, partially offset by operating margin decreases on certain search and navigation radar systems. DRS SSS contributed $0.9 million to fiscal 2002 operating income. ESG's fiscal 2001 operating income included $1.9 million of goodwill amortization.

        Electro-Optical Systems Group    Revenues increased $60.1 million, or 41%, to $208.2 million in fiscal 2002, as compared with the corresponding prior fiscal year. Operating income increased $3.7 million to $27.4 million. The increase in revenues was driven by growth in our second generation infrared targeting and imaging systems programs, and $45.1 million in revenues generated by programs acquired with our purchase of the SES business at the end of the second quarter of fiscal 2002. The increase in fiscal 2002 operating income, as compared with the corresponding prior-year period, was due primarily to $4.3 million of operating income contributed by the SES business, as well as the positive impact of the elimination of goodwill amortization. Fiscal 2002 and 2001 operating income reflects $1.7 million and $7.0 million, respectively, of net favorable program adjustments on certain long-term programs. EOSG's fiscal 2001 operating income included $2.1 million of goodwill amortization.

        Flight Safety & Communications Group    Revenues increased $9.8 million, or 12%, to $93.2 million in fiscal 2002, as compared with the corresponding prior fiscal year. Operating income increased $5.8 million to $5.1 million. The revenue increase was driven primarily by the inclusion of a full year of revenues generated by DRS Communications Company, which we acquired at the end of the first quarter of fiscal 2001, greater volume of contract manufacturing services, and shipments of infrared search and tracking systems. The year-over-year growth in operating income was a result of the overall increase in revenues and the elimination of goodwill amortization. Fiscal 2002 operating income reflects charges of $2.5 million, $1.3 million and $1.2 million for the settlement of litigation (see Industry/Business Considerations below), cost growth on a mission data recorder program and costs incurred in connection with closing FSCG's Santa Clara, California production and engineering facility, respectively. Fiscal 2001 includes charges attributed to several matters: a $1.3 million charge for estimated excess inventories associated with a specific product line for which the anticipated future sales are less than previously estimated; a $1.0 million charge for a contract pricing dispute between us and a prime contractor on a U.S. Navy program; and a charge of $1.9 million for additional costs incurred to complete the development of a mission data recording system for the U.S. Navy. FSCG's fiscal 2001 operating income included $1.3 million of goodwill amortization.

        Other    Revenues decreased $0.4 million to $9.2 million, and operating losses were flat at $0.7 million in fiscal 2002. The decrease in revenues resulted from weaker sales at our DRS Ahead Technology operating unit. We sold our DRS Ahead Technology operating unit on May 27, 2002 (see Note 2 of Notes to Consolidated Financial Statements). Fiscal 2001 operating income included a $1.1 million charge for a potentially uncollectible note receivable.

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Liquidity and Capital Resources

        Cash Flows    The following table provides our cash flow data for the fiscal years ended March 31, 2003, 2002 and 2001:

	Year Ended March 31,
	2003			2002			2001
	(in thousands)
Net cash provided by operating activities	$	52,008		$	27,849		$	34,270
Net cash used in investing activities	$	(278,721	)	$	(84,943	)	$	(19,655	)
Net cash provided by (used in) financing activities	$	204,398		$	172,565		$	(16,056	)

        Cash and cash equivalents, internally generated cash flow from operations and other available financing resources are expected to be sufficient to meet anticipated operating, capital expenditure and debt service requirements during the next 12 months and the foreseeable future. Consistent with our desire to generate cash to invest in our core businesses and reduce debt, we anticipate that, subject to prevailing financial, market and economic conditions, we may divest certain non-core businesses. There can be no assurance, however, that our business will continue to generate cash flow at current levels, or that anticipated operational improvements will be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing. Our ability to make scheduled principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or effecting the defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

        Operating Activities    During fiscal 2003, we generated $52.0 million of operating cash flow, $24.2 million more than the $27.8 million reported in the corresponding prior fiscal year. Net earnings increased by $9.8 million to $30.2 million. Adjustments to reconcile net earnings to cash flows from operating activities increased $10.0 million over the corresponding prior fiscal year. Depreciation and amortization increased mainly as a result of our increased investment in our manufacturing facilities and equipment to upgrade our existing infrastructure and to integrate recent acquisitions into our existing businesses. Net deferred tax assets for fiscal 2003, as compared with fiscal 2002, decreased because of smaller estimated tax deductions arising from our recently completed acquisitions. Non-cash increases to our inventory and accounts receivable reserves increased in fiscal 2003, as compared with fiscal 2002. Fiscal 2003 also included the loss incurred on the sale of our DRS API operating unit. The cash used by working capital accounts resulted from a net decrease in certain current liabilities, which included a payment of $2.5 million associated with the settlement of litigation, and increases in accounts receivable due to high sales volume in the fourth quarter, offset, in part, by advances received from customers and lower inventory balances.

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        Investing Activities    The following table summarizes the cash flow impact of our business combinations for the years ended March 31, 2003, 2002 and 2001:

		Effective Date of Transaction	Net Cash Paid		Acquisition Expenses		Total
			(in thousands)
Fiscal 2003 Business Combinations
UAV Business of Meggitt Defense Systems		04/11/02	$	750	$	122	$	872
Navy Controls Division of Eaton Corporation		07/01/02		96,025		2,642		98,667
DKD, Inc. (Nytech)		10/15/02		3,383		161		3,544
Paravant Inc.		11/27/02		94,744		3,259		98,003
Kaman Electromagnetics Development Center		01/15/03		27,515		31		27,546
Power Technology Incorporated		02/14/03		33,233		216		33,449
	Fiscal 2003 business combinations			255,650		6,431		262,081
Spar Aerospace Ltd.—working capital adjustment (A)				2,977		—		2,977
	Total payments pursuant to business combinations		$	258,627	$	6,431	$	265,058
Fiscal 2002 Business Combinations
SES Business of The Boeing Company		09/28/01	$	60,138	$	3,470	$	63,608
Electro Mechanical Systems unit of Lockheed Martin Corp.		08/22/01		4,000		175		4,175
	Fiscal 2002 business combinations			64,138		3,645		67,783
EOS Business of Raytheon Company—working capital adjustment (B)				3,823		—		3,823
	Total payments pursuant to business combinations		$	67,961	$	3,645	$	71,606
Fiscal 2001 Business Combinations
General Atronics Corporation		06/14/00	$	6,979	$	395	$	7,374

(A)

Represents working capital payment made to Spar Aerospace Ltd. in December, 2002.

(B)

Represents working capital payment made to Raytheon Company in February, 2002.

        The following table summarizes the sales of our businesses that impacted net cash used in investing activities for the years ended March 31, 2003 and 2001:

	Date of Transaction	Cash Received
		(in thousands)
Fiscal 2003 Divestiture
DRS Advanced Programs, Inc.	11/22/02	$	7,624
Fiscal 2001 Divestiture
DRS Magnetic Tape Head business	08/31/00	$	3,000

        Our long-term growth strategy includes a disciplined program of acquiring companies that are both strategic and expected to be accretive to our earnings. Continuation of our acquisition program will depend, in part, on the availability of financial resources at a cost of capital that is acceptable to us. We would expect to utilize cash generated by operations, as well as cash available under our Credit Facility, which also may include the renegotiation of our credit limit to finance such acquisitions. Other sources of capital could include proceeds from a sale of our common stock and the placement of convertible or high-yield debt. We continually evaluate the capital markets climate and may access such markets when the circumstances appear favorable to us. We believe that sufficient capital resources will

45

be available to us from one or several of these sources to finance future acquisitions that we believe to be strategic and accretive to our net earnings. However, no assurances can be made that such financing will be available and at a cost that is acceptable to us, that we will identify acceptable acquisition candidates, or that such acquisitions will be accretive to earnings.

        We paid $21.5 million for capital improvements made primarily to our manufacturing facilities and equipment during fiscal 2003, as compared with $13.6 million and $16.2 million for the fiscal years ended 2002 and 2001, respectively. We expect to increase capital expenditures to approximately $25-$35 million in fiscal 2004, as we continue to upgrade our facilities and integrate recent acquisitions into our existing businesses.

        Financing Activities    For the fiscal year ended March 31, 2003, financing activities provided $204.4 million. Sources of cash included our December 20, 2002 issuance of approximately 5.5 million shares of our common stock at $28.00 per share, resulting in net proceeds of $144.3 million after underwriting discounts and professional fees, and $75.0 million in new term loans drawn down from our amended and restated credit agreement. Uses of cash included the retirement of $12.0 million in term debt acquired in the Paravant merger, $2.0 million in scheduled payments on our long-term debt, primarily related to our term loans, and $2.3 million for costs related to our new Credit Facility. We also borrowed and repaid $6.5 million under our senior secured revolving line of credit.

        On November 26, 2002, we entered into a $338.6 million amended and restated credit agreement (the Credit Facility) with Wachovia Bank, N.A. as the Administrative Agent to fund the Paravant merger. The Credit Facility consists of a $125 million senior secured revolving line of credit and a $213.6 million senior secured term loan facility. The maturity dates of the term loan and the revolving line of credit are September 30, 2008 and September 30, 2006, respectively. The term loan requires quarterly principal payments of $537,500 through September 30, 2007 and four equal quarterly payments of $50.7 million thereafter ending on September 30, 2008. The Credit Facility is secured by a lien on substantially all of our assets. Borrowings under this Credit Facility bear interest, at our option, at either: a "base rate," as defined in the credit agreement, equal to the higher of 0.50% per annum above the latest prime rate and federal funds rate plus a spread ranging from 1.25% to 2.25% per annum, depending on our Total Leverage Ratio (TLR) at the time of determination; or a LIBOR rate, as defined in the Credit Facility, plus a spread ranging from 2.25% to 3.25% per annum, depending on our TLR. The TLR is defined as total debt minus performance-based letters of credit, as compared with EBITDA, as defined in the credit agreement. We pay commitment fees calculated on the average daily unused portion of our revolving line of credit at a rate of 0.50% per annum, provided that the amount of outstanding swingline loans, as defined in the credit agreement, shall not be considered usage of the revolving line of credit for the purpose of calculating such commitment fee. We pay commissions and issuance fees on our outstanding letters of credit and are obligated to pay or reimburse the issuing lender of any letters of credit for such normal and customary costs and expenses incurred or charged by the issuing lender in issuing, effecting payment under, amending or otherwise administering any letter of credit. Letter-of-credit commissions are calculated at a rate ranging from 2.25% to 3.00% per annum, depending on our TLR ratio at the time of issuance, multiplied by the face amount of such letter of credit. Letter-of-credit issuance fees are charged at 0.125% per annum, multiplied by the face amount of such letter-of-credit. Both letter-of-credit commissions and issuance fees are paid quarterly.

        We previously had a $240 million credit agreement with a syndicate of lenders, with Wachovia Bank, N.A. as the Lead Lender, consisting of a term loan in the aggregate principal amount of $140 million and a $100 million revolving line of credit. Repayment terms, collateral, interest rates and other charges under the previous facility were substantially the same as those pursuant to the amended and restated credit agreement described above.

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        There are certain covenants and restrictions placed on us under our Credit Facility, including a maximum TLR and a minimum fixed-charge ratio, as defined in the credit agreement, a maximum amount of capital expenditures, a restriction on the payment of dividends on our capital stock, a limitation on the issuance of additional debt, a requirement that the Company offer to make prepayments on its term loans outstanding with 50% of the aggregate net cash proceeds from any equity offering if our adjusted leverage ratio, as defined, exceeds 2.00 to 1.00, and certain other restrictions. We were in compliance with all covenants under our Credit Facility at March 31, 2003. Amounts available under the revolving line of credit are based upon a borrowing base calculation, as defined in the credit agreement, which is primarily based on accounts receivable and inventory balances. As of March 31, 2003, we had approximately $99.5 million of additional available credit, after satisfaction of our borrowing base requirement.

        As of March 31, 2003, $212.5 million of term loans was outstanding against the Credit Facility, in addition to which $25.5 million was contingently payable under letters of credit, as compared with amounts outstanding and contingently payable at March 31, 2002 of $139.3 million and $11.6 million, respectively, under the previous facility. The effective interest rates on the term loans were 4.4% and 5.3% as of March 31, 2003 and 2002, respectively. We enter into standby letter-of-credit agreements with financial institutions and customers primarily relating to the guarantee of our future performance on certain contracts to provide products and services and to secure advanced payments we have received from our customers. There were no borrowings under our revolving line of credit as of March 31, 2003 and 2002.

        On November 27, 2002, we acquired a mortgage note payable with our acquisition of Paravant. The note is secured by the DRS Tactical Systems facility located in Palm Bay, Florida, and bears interest at a rate equal to the one-month LIBOR plus 1.65%. Effective April 1, 2001, Paravant entered into a 15-year interest rate swap with an original notional amount of $3.6 million to receive interest at a variable rate equal to the one month LIBOR and to pay interest at a fixed rate of 7.85%. The balance of the mortgage as of March 31, 2003 is $3.3 million. Payment of principal and interest will continue through December 1, 2016.

        On October 15, 2002, the Company issued an $8.0 million promissory note, bearing interest at 6% per annum, related to the Nytech acquisition. Payments of $5.0 million and $3.0 million are due on the first and second anniversaries of the closing, respectively.

        The aggregate maturities of long-term debt for fiscal 2004, 2005, 2006, 2007 and 2008 are $7.7 million, $5.5 million, $2.4 million, $2.3 million and $102.7 million per year, respectively, and $103.8 million thereafter.

        We use "free cash flow" as a measure to evaluate our performance. The calculation of free cash flow is net cash provided by operating activities less capital expenditures. Free cash flow was $30.5 million, $14.3 million and $18.1 million for fiscal 2003, 2002 and 2001, respectively (see Use of Non-GAAP Measures below).

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        Contractual Obligations    Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and future minimum operating lease obligations as set forth in the table below:

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
	(in thousands)
Long-term debt obligations	$	224,554	$	7,717	$	7,952	$	105,049	$	103,836
Operating lease commitments		86,430		26,334		26,951		18,805		14,340
Acquisition earnouts (A)		38,500		9,750		27,950		800		—
Total contractual obligations	$	349,484	$	43,801	$	62,853	$	124,654	$	118,176

(A)

Represents contingent purchase price payments or "earnouts" for certain of our acquisitions that are contingent upon the receipt of post-acquisition orders at those acquired businesses. Any amount that we pay for the earnouts will be reported as cash paid for acquisition of business within investing activities on the consolidated statement of cash flows and will be recorded as an increase to goodwill for the acquisition. The last earnout period expires on December 31, 2009.

        We enter into standby letter-of-credit agreements with financial institutions and customers primarily relating to the guarantee of our future performance on certain contracts to provide products and services and to secure advance payments we have received from customers. At March 31, 2003, we had contingent liabilities on outstanding letters of credit as follows:

	Contingent Payments Due by Period
	Total		Less than 1 Year		1-3 Years		More than 3 Years
	(in thousands)
Standby letters of credit	$	25,511	$	20,650	$	4,661	$	200

        Backlog    Funded backlog represents products or services that our customers have committed by contract to purchase from us. Due to the general nature of defense procurement and contracting, the operating cycle for our military business typically has been long term. Military backlog currently consists of various production and engineering development contracts with varying delivery schedules and project timetables. Our backlog also includes a significant amount of commercial off-the-shelf (COTS)-based systems for the military, which favor shorter delivery times. Accordingly, revenues for a particular year, or year-to-year comparisons of reported revenues and related backlog positions, may not be indicative of future results.

        Backlog at March 31, 2003 was $867.1 million, as compared with $595.3 million at March 31, 2002. We booked $723.5 million in new orders in fiscal 2003. The increase in backlog was due to the net effect of bookings and $225.1 million of acquired backlog obtained through our current year acquisitions. Approximately 64% of backlog as of March 31, 2003 is expected to result in revenues during fiscal 2004.

        ESG secured $344.8 million in new contracts during fiscal 2003. Orders from the newly acquired DRS PCT contributed $99.2 million. We received $87.4 million of awards for the design and production of console and display systems, predominantly the AN/UYQ-70 Advanced Display Systems used in U.S. Navy surface ships, aircraft and submarines. Contract manufacturing and repair and technical services bookings accounted for $38.8 million and $11.8 million, respectively. ESG captured $51.2 million of awards, including $34.9 million from DRS Tactical Systems (formerly a Paravant operating unit) for rugged computers, servers and peripheral equipment used in intelligence applications, international battlefield digitization programs and rugged portable computers for the U.S. Army. Search and navigation system bookings accounted for $31.8 million. DRS EPT and DRS PTI, both acquired in the fourth quarter, contributed $2.4 million and $4.9 million of bookings, respectively.

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        EOSG booked $272.2 million during fiscal 2003. Key awards primarily from the U.S. Army to provide sighting and targeting systems used in M2 Bradley Fighting Vehicles, M1 Abrams Battle Tanks, Javelin missile systems and Apache and Kiowa Warrior helicopters were valued at $177.7 million. Other awards totaling $28.6 million were received for commercial laser vision correction systems and uncooled electro-optical technology. Infrared and electro-optical research technology development programs accounted for $33.2 million in awards. Certain remote sensing products provided $6.5 million in bookings.

        FSCG received a total of $105.4 million in new awards in fiscal 2003. Communications and surveillance systems provided $43.5 million in bookings. Awards for high-speed cameras and flight and mission data recorders totaled $33.6 million. Advanced electronic manufacturing services bookings for major aerospace prime contractors accounted for $28.3 million.

        DRS Ahead Technology, included in the operations of Other, booked $1.2 million in new orders for magnetic burnish, glide and test verification heads used in the manufacture of computer disk drives.

        Internal Research and Development    In addition to customer-sponsored research and development, we also engage in internal research and development. These expenditures reflect our continued investment in new technology and diversification of our products. Expenditures for internal research and development in fiscal 2003, 2002 and 2001 were $14.4 million, $9.5 million and $8.0 million, respectively.

        Industry/Business Considerations    We provide high-technology products and services to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial customers. We are a leading provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, battlefield digitization systems, mission recorders and deployable flight incident recorders. Our products are deployed on a wide range of high-profile military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet jet fighters and on several other platforms for military and non-military applications. Although we have diversified into commercial products and markets, the majority of our revenues are derived directly or indirectly from defense industry contracts with the U.S. government.

        The landscape of the global defense industry continues to evolve as new events, such as those of September 11, 2001, demand alternative strategic defense initiatives. The defense requirements of the United States have shifted from defending against Cold War era threats to a focus upon the management of one or more regional conflicts, homeland security and proactive threat identification. For the first time in almost a decade, the U.S. defense procurement budget has increased, providing new funding for the acquisition and development of weapons and supporting systems. As a result of this change, the defense industry is now influenced by several key factors:

•

New funding, which will assist in upgrading and replacing aging military systems and implementing new technologies to meet modern threats.



•

Increased focus by the Department of Defense on "best value" instead of lowest cost. Best value procurement considers development and life-cycle costs in the evaluation of a system's price.



•

Consolidation within the industry. As a result of this consolidation, domestic prime contractors are now focused on providing weapons platforms and systems integration, while relying on others to provide subsystems and components.



•

The U.S. military is developing lighter, faster defense platforms that are able to react quickly to regional conflict. These highly mobile, rapidly deployable forces must rely on the latest technologies to provide a full awareness of the battlefield and its associated threats.

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        Despite an increased focus on new capabilities, traditional platforms remain important, as well. As many of these systems were neglected during years of reduced defense spending, the U.S. military is now faced with the need to refurbish these weapons platforms and upgrade their weapons systems with improved technology.

        We are subject to certain inherent risks associated with defense contracting, including changes in government policies and dependence on Congressional support, primarily for appropriations and allocation of funds to products and programs that we support. In recent years, our products and programs have been well supported. However, uncertainty exists with respect to the size and scope of future defense budgets and their possible impact on existing or future products and programs. Further, our existing defense contracts are subject to termination, either at the convenience of the customer or as a result of cancellation of funding. Our contracts and operations also are subject to governmental oversight, particularly with respect to business practices, contract performance and cost accounting practices. Governmental investigations may lead to claims against us, the outcome of which cannot be predicted.

        As described in Note 13 of Notes to Consolidated Financial Statements, in April and May 1998, subpoenas were issued to us by the United States Attorney for the Eastern District of New York seeking documents related to a governmental investigation of certain equipment manufactured by DRS Photronics, Inc. (DRS Photronics). These subpoenas were issued in connection with United States v. Tress, a criminal complaint against a then employee of our DRS Photronics operating unit, alleging that improper test data was provided in connection with boresighting equipment furnished to the U.S. Army. On June 26, 1998, the complaint against the employee was dismissed without prejudice. Additional subpoenas were issued to us on August 12, 1999 and May 10, 2000, relating to the ongoing investigation of DRS Photronics and one or more of its then employees. On May 17, 2002, DRS Photronics announced that it had entered into a global settlement with the government, resolving all potential allegations related to the investigation. Under the terms of the settlement, DRS Photronics agreed to pay $2.5 million in restitution and pleaded guilty to a violation of the False Claims Act.

        We are party to various legal actions and claims arising in the ordinary course of our business. In our opinion, we have adequate legal defenses for each of the actions and claims, and we believe that their ultimate disposition will not have a material adverse effect on our consolidated financial position, results of operations or liquidity (see Item 3. Legal Proceedings).

        The addition of international businesses involves additional risks, such as exposure to currency fluctuations and changes in foreign economic and political environments. International transactions frequently involve increased financial and legal risks arising from stringent contractual terms and conditions, and widely differing legal systems, customs and practices in foreign countries. We expect that international sales as a percentage of our overall sales will continue to increase in future years as a result of, among other factors, our growth strategy and continuing changes in the United States defense industry.

        Our future operating results depend on our ability to successfully compete in a highly competitive industry that is characterized by rapid technology change and to effectively integrate acquired companies into our existing operations. Continuation of our recent revenue growth rate depends primarily on our ability to identify and acquire suitable acquisition targets. We have participated successfully in the defense industry consolidation through strategic business acquisitions and by streamlining our existing operations; however, we cannot guarantee that we will have sufficient funds available to us to continue investing in business acquisitions.

Use of Non-GAAP Financial Measures

        Certain disclosures in this document include "non-GAAP (Generally Accepted Accounting Principles) financial measures." A non-GAAP financial measure is defined as a numerical measure of a

50

company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Earnings, Balance Sheets or Statements of Cash Flows of the company. As required by the SEC's recently issued Regulation G, a reconciliation of EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and "free cash flow" with the most directly comparable GAAP measure follows:

EBIT and EBITDA

        We define EBIT as earnings from continuing operations before extraordinary items, before net interest and related expenses (primarily amortization of debt issuance costs) and income taxes and EBITDA as earnings from continuing operations before extraordinary items, before net interest and related expenses (primarily amortization of debt issuance costs), income taxes, depreciation and amortization. We believe that the most directly comparable GAAP financial measure to EBIT and EBITDA is net cash from operating activities of continuing operations. The table below presents net cash flows from operating activities of continuing operations and also presents a reconciliation of earnings from continuing operations before extraordinary item to EBIT and EBITDA.

		Year Ended March 31,
		2003			2002			2001			2000			1999
		(in thousands)
Net cash flows from operating activities of continuing operations		$	52,008		$	27,849		$	34,270		$	8,017		$	15,558
Earnings from continuing operations before extraordinary item		$	30,171		$	20,331		$	11,978		$	7,661		$	3,865
Income taxes			25,701			18,030			12,976			5,171			1,915
Interest income			(1,179	)		(1,144	)		(202	)		(200	)		(350	)
Interest and related expenses			10,589			10,954			11,461			12,600			9,357
	EBIT		65,282			48,171			36,213			25,232			14,787
Depreciation and amortization			16,660			13,789			16,125			17,070			11,601
	EBITDA	$	81,942		$	61,960		$	52,338		$	42,302		$	26,388

        EBIT and EBITDA are presented as additional information because we believe they are useful indicators of an entity's debt capacity and its ability to service its debt. EBIT and EBITDA are not a substitute for operating income, net earnings or cash flows from operating activities, as determined in accordance with generally accepted accounting principles. EBIT and EBITDA are not complete net cash flow measures because they are financial performance measures that do not include reductions for cash payments for an entity's obligation to service its debt, fund its working capital and capital expenditures, and pay its income taxes. EBIT is not a complete measure of an entity's profitability because it does not include costs and expenses for interest and income taxes, and EBITDA is not a complete measure of an entity's profitability because it does not include costs and expenses for interest and income taxes and depreciation and amortization. Rather, EBIT and EBITDA are potential indicators of an entity's ability to fund these cash requirements. EBIT and EBITDA, as we define them, may differ from similarly named measures used by other entities and, consequently, could be misleading unless all entities calculate and define EBIT and EBITDA in the same manner.

Free Cash Flow

        We define free cash flow as net cash from operating activities of continuing operations less capital expenditures. We believe that the most directly comparable GAAP financial measure to free cash flow

51

is net cash from operating activities of continuing operations. The table below presents a reconciliation of cash flows from operating activities of continuing operations to free cash flow.

		Year Ended March 31,
		2003			2002			2001			2000			1999
		(in thousands)
Net cash flows from operating activities of continuing operations		$	52,008		$	27,849		$	34,270		$	8,017		$	15,558
Capital expenditures			(21,526	)		(13,583	)		(16,185	)		(6,210	)		(6,554	)
	Free cash flow	$	30,482		$	14,266		$	18,085		$	1,807		$	9,004

        We disclose free cash flow because we believe that it is a measurement of cash flow generated that is available to common stockholders. Free cash flow represents cash generated after paying for interest on borrowings, income taxes, capital expenditures and changes in working capital, but before repaying outstanding debt and investing cash to acquire businesses and making other strategic investments. Thus, key assumptions underlying free cash flow are that we will be able to refinance our existing debt when it matures with new debt, and that we will be able to finance any new acquisitions we make by raising new debt or equity capital.

Net Debt

        The table below presents a reconciliation of total outstanding debt to net debt.

		March 31,
		2003			2002			2001			2000			1999
		(in thousands)
Current installments of long-term debt		$	7,717		$	1,435		$	7,217		$	5,699		$	5,844
Short-term bank debt			521			226			831			17,781			9,169
Long-term debt, excluding current installments			216,837			138,060			75,076			97,695			102,091
Cash and cash equivalents			(95,938	)		(117,782	)		(2,324	)		(3,778	)		(10,031	)
	Net debt	$	129,137		$	21,939		$	80,800		$	117,397		$	107,073

Recently Issued Accounting Pronouncements

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 applies to legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset, except for certain obligations of lessees. This statement does not apply to obligations that arise solely from a plan to dispose of a long-lived asset. SFAS 143 requires that estimated asset retirement costs be measured at their fair values and recognized as assets and depreciated over the useful life of the related asset. Similarly, liabilities for the present value of asset retirement obligations are to be recognized and accreted each year to their estimated future value until the asset is retired. These provisions will be applied to existing asset retirement obligations, as of the adoption date, as a cumulative effect of a change in accounting policy. SFAS 143 is effective for us beginning April 1, 2003. SFAS 143 is not expected to have a material effect on our consolidated results of operations and financial position.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance or modification of a guarantee. In addition, FIN 45 requires disclosures about the

52

guarantees that an entity has issued, including a rollforward of the entity's product warranty liabilities. We have adopted the provisions of FIN 45 and have included the required disclosures in Note 1 of Notes to Consolidated Financial Statements. FIN 45 is not expected to have a material effect on our consolidated results of operations and financial position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        Market Risk    In the normal course of business, we are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange risk.

        Interest Rate Risk    As we seek debt financing to maintain our ongoing operations and sustain our growth, we are exposed to interest rate risk on our variable rate borrowings. Our earnings are affected by changes in interest rates due to the impact those changes have on our outstanding variable rate debt. In an effort to limit its interest expense and cash flow exposure, the Company may from time to time enter into various derivative instruments that meet the criteria to be accounted for as hedges. DRS does not use derivative financial instruments for trading purposes. If interest rates average 12.5 basis points more in fiscal 2004 than in fiscal 2003, our interest expense would be increased by approximately $266,000. This amount was determined based on the hypothetical interest rates on our variable debt at March 31, 2003. We are also exposed to interest rate risk as it relates to our investments in marketable securities. Our investments consist primarily of debt instruments of the Unites States government, government agencies, financial institutions and corporations with strong credit ratings.

        Foreign Currency Exchange Risk    We operate and conduct business in foreign countries and, as a result, are exposed to movements in foreign currency exchange rates. More specifically, our net equity is impacted by the conversion of the net assets of foreign subsidiaries for which the functional currency is not the U.S. Dollar for U.S. reporting purposes. Our exposure to foreign currency exchange risk related to our foreign operations is not material to our results of operations, cash flows or financial position. We, at present, do not hedge this risk, but continue to evaluate such foreign currency translation risk exposure.

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

	Page
Independent Auditors' Report	55
Consolidated Balance Sheets as of March 31, 2003 and 2002	56
Consolidated Statements of Earnings for the years ended March 31, 2003, 2002 and 2001	57
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for the years ended March 31, 2003, 2002 and 2001	58
Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002 and 2001	59
Notes to Consolidated Financial Statements	60
Financial Statement Schedule—Schedule II—Valuation and Qualifying Accounts for the years ended March 31, 2003, 2002 and 2001	92

54

Independent Auditors' Report

To the Board of Directors and Stockholders,
DRS Technologies, Inc.:

        We have audited the consolidated financial statements of DRS Technologies, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DRS Technologies, Inc. and subsidiaries as of March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" for all business combinations consummated after June 30, 2001 and the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" effective April 1, 2001.

/s/ KPMG LLP

Short Hills, New Jersey
May 13, 2003

55

DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)

			March 31,
			2003			2002
Assets
Current assets
	Cash and cash equivalents		$	95,938		$	117,782
	Accounts receivable, net			163,048			110,861
	Inventories, net			114,102			120,910
	Prepaid expenses, deferred income taxes and other current assets			16,211			9,276
		Total current assets		389,299			358,829
Property, plant and equipment, net				87,610			50,481
Acquired intangible assets, net				44,781			34,133
Goodwill				436,863			142,610
Deferred income taxes and other noncurrent assets				13,568			15,038
	Total assets		$	972,121		$	601,091
Liabilities and Stockholders' Equity
Current liabilities
	Current installments of long-term debt		$	7,717		$	1,435
	Short-term bank debt			521			226
	Accounts payable			68,340			49,671
	Accrued expenses and other current liabilities			212,697			142,260
		Total current liabilities		289,275			193,592
Long-term debt, excluding current installments				216,837			138,060
Other liabilities				27,829			12,204
	Total liabilities			533,941			343,856
Commitments and contingencies (Notes 8 and 13)
Stockholders' equity
Preferred stock, no par value. Authorized 2,000,000 shares; none issued at March 31, 2003 and 2002				—			—
Common stock, $.01 par value per share. Authorized 30,000,000 shares; issued 22,421,986 shares and 16,834,052 shares at March 31, 2003 and 2002, respectively				224			168
Additional paid-in capital				343,605			197,387
Retained earnings				94,527			64,356
Accumulated other comprehensive losses				(176	)		(4,630	)
Unamortized stock compensation				—			(46	)
	Total stockholders' equity			438,180			257,235
	Total liabilities and stockholders' equity		$	972,121		$	601,091

See accompanying Notes to Consolidated Financial Statements.

56

DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per-share data)

		Year ended March 31,
		2003			2002		2001
Revenues		$	675,762		$	517,200	$	427,606
Costs and expenses			608,078			467,431		390,075
	Operating income		67,684			49,769		37,531
Interest income			1,179			1,144		202
Interest and related expenses			10,589			10,954		11,461
Other (expense) income, net			(824	)		8		108
	Earnings before minority interests and income taxes		57,450			39,967		26,380
Minority interests			1,578			1,606		1,426
	Earnings before income taxes		55,872			38,361		24,954
Income taxes			25,701			18,030		12,976
	Net earnings	$	30,171		$	20,331	$	11,978
Net earnings per share of common stock:
Basic earnings per share		$	1.64		$	1.52	$	1.14
Diluted earnings per share		$	1.58		$	1.41	$	1.01

See accompanying Notes to Consolidated Financial Statements.

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings
(in thousands, except share data)

			Common Stock										Accumulated Other Comprehensive Losses			Treasury Stock
								Additional Paid-In Capital			Retained Earnings										Unamortized Stock Compensation			Total Stockholders' Equity
			Shares		Amount											Shares		Amount
Balances at March 31, 2000			9,717,020		$	97		$	48,584		$	32,047	$	(86	)	440,939		$	(1,988	)	$	(470	)	$	78,184
Comprehensive earnings:
	Net earnings		—			—			—			11,978		—		—			—			—			11,978
	Foreign currency translation adjustments		—			—			—			—		(3,882	)	—			—			—			(3,882	)
Total comprehensive earnings																									8,096
Stock options and warrants exercised			248,391			2			2,289			—		—		—			—			—			2,291
Income tax benefit from stock options exercised			—			—			607			—		—		—			—			—			607
Compensation relating to stock options and other stock awards, net of forfeitures			(10,465	)		—			(105	)		—		—		—			—			206			101
Conversion of 9% debentures			2,188,691			22			18,645			—		—		—			—			—			18,667
Equity issued in connection with GAC acquisition			355,359			4			3,997			—		—		—			—			—			4,001
Cancellation of treasury stock			(440,939	)		(4	)		(1,984	)		—		—		(440,939	)		1,988			—			—
Balances at March 31, 2001			12,058,057			121			72,033			44,025		(3,968	)	—			—			(264	)		111,947
Comprehensive earnings:
	Net earnings		—			—			—			20,331		—		—			—			—			20,331
	Unrealized losses on hedging instruments:
		Cumulative adjustment at April 1, 2001, net of income taxes	—			—			—			—		(289	)	—			—			—			(289	)
		Unrealized losses on hedging instruments, net of income taxes	—			—			—			—		(198	)	—			—			—			(198	)
		Foreign currency translation adjustments	—			—			—			—		(175	)	—			—			—			(175	)
Total comprehensive earnings																									19,669
Stock options exercised			454,317			4			3,780			—		—		—			—			—			3,784
Income tax benefit from stock options exercised			—			—			3,420			—		—		—			—			—			3,420
Compensation relating to stock options			—			—			—			—		—		—			—			218			218
Secondary stock issuance			3,755,000			37			112,557			—		—		—			—			—			112,594
Warrants exercised			580,906			6			5,803			—		—		—			—			—			5,809
Other			(14,228	)		—			(206	)															(206	)
Balances at March 31, 2002			16,834,052			168			197,387			64,356		(4,630	)	—			—			(46	)		257,235
Comprehensive earnings:
	Net earnings		—			—			—			30,171		—		—			—			—			30,171
	Unrealized losses on hedging instruments, net of income taxes		—			—			—			—		(70	)	—			—			—			(70	)
	Foreign currency translation adjustments		—			—			—			—		4,524		—			—			—			4,524
Total comprehensive earnings																									34,625
Stock options exercised			125,434			1			1,121			—		—		—			—			—			1,122
Income tax benefit from stock options exercised			—			—			808			—		—		—			—			—			808
Compensation relating to stock options			—			—			—			—		—		—			—			46			46
Secondary stock issuance			5,462,500			55			144,289			—		—		—			—			—			144,344
Balances at March 31, 2003			22,421,986		$	224		$	343,605		$	94,527	$	(176	)	—		$	—		$	—		$	438,180

See accompanying Notes to Consolidated Financial Statements.

58

DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)

			Year Ended March 31,
			2003			2002			2001
Cash Flows from Operating Activities
Net earnings			$	30,171		$	20,331		$	11,978
Adjustments to reconcile net earnings to cash flows from operating activities:
	Depreciation and amortization			16,660			13,789			16,125
	Deferred income taxes			6,919			2,895			(287	)
	Inventory reserves and provision for doubtful accounts			2,063			(542	)		2,654
	Loss on sale of operating unit			575			—			—
	Other, net			743			788			1,856
Changes in assets and liabilities, net of effects from business combinations and divestitures:
	Increase in accounts receivable			(22,588	)		(2,618	)		(15,926	)
	Decrease (increase) in inventories			9,249			(25,400	)		(10,007	)
	(Increase) decrease in prepaid expenses and other current assets			(2,983	)		(3,424	)		354
	Increase in accounts payable			15,121			9,546			11,007
	(Decrease) increase in accrued expenses and other current liabilities			(33,817	)		6,835			7,311
	Increase in customer advances			20,516			4,573			7,057
	Other, net			9,379			1,076			2,148
		Net cash provided by operating activities		52,008			27,849			34,270
Cash Flows from Investing Activities
	Capital expenditures			(21,526	)		(13,583	)		(16,185	)
	Payments pursuant to business combinations, net of cash acquired			(265,058	)		(71,606	)		(7,374	)
	Proceeds from sales of businesses			7,624			—			3,000
	Other, net			239			246			904
		Net cash used in investing activities		(278,721	)		(84,943	)		(19,655	)
Cash Flows from Financing Activities
	Net borrowings (payments) of short-term debt			272			(599	)		(2,628	)
	Borrowings of long-term debt			81,478			218,250			44,784
	Debt issuance costs			(2,254	)		(5,974	)		—
	Net payments on long-term debt			(8,459	)		(161,093	)		(60,502	)
	Retirement of long-term debt			(12,195	)		—			—
	Proceeds from sale of common stock			144,344			112,594			—
	Proceeds from exercise of stock options and warrants			1,122			9,589			2,188
	Other, net			90			(202	)		102
		Net cash provided by (used in) financing activities		204,398			172,565			(16,056	)
Effect of exchange rates on cash and cash equivalents				471			(13	)		(13	)
Net (decrease) increase in cash and cash equivalents				(21,844	)		115,458			(1,454	)
Cash and cash equivalents, beginning of year				117,782			2,324			3,778
		Cash and cash equivalents, end of year	$	95,938		$	117,782		$	2,324

See accompanying Notes to Consolidated Financial Statements.

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.     Summary of Significant Accounting Policies

A.    Organization    DRS Technologies, Inc. and subsidiaries (hereinafter, DRS or the Company) is a supplier of defense electronic products and systems. The Company provides high-technology products and services to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military forces and industrial markets. Incorporated in 1968, DRS has served the defense industry for 34 years. DRS is a provider of thermal imaging devices, combat display workstations, electronic sensor systems, power systems, battlefield digitization systems, mission recorders and deployable flight incident recorders. The Company's products are deployed on a wide range of military platforms, such as DDG-51 Aegis destroyers, M1A2 Abrams Main Battle Tanks, M2A3 Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, AH-64 Apache helicopters, F/A-18E/F Super Hornet jet fighters and on several other platforms for military and non-military applications.

B.    Basis of Presentation and Use of Estimates    The consolidated financial statements include the accounts of DRS Technologies, Inc., its subsidiaries (all of which are wholly owned) and a partnership of which DRS owns an 80% controlling interest. All significant intercompany transactions and balances have been eliminated in consolidation.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant of these estimates and assumptions relate to the recognition of contract revenues and estimated costs to complete contracts in process, market values of inventories reported at lower of cost or market, recoverability of reported amounts of fixed assets, goodwill and intangible assets, and valuation of deferred tax assets and liabilities. Actual results could differ from these estimates.

C.    Classifications    Unbilled receivables, inventories, accrual for future costs on uncompleted contracts and accrual for future costs related to acquired contracts are primarily attributable to long-term contracts or programs in progress for which the related operating cycles are longer than one year. In accordance with industry practice, these items are included in current assets and liabilities, respectively. It is the Company's policy to classify any outstanding revolving line of credit borrowings as long-term debt, excluding current installments to reflect the intent of the borrowings and their maturity date, which as of March 31, 2003 and 2002, was greater than one year. As of March 31, 2003 and 2002, there were no borrowings outstanding under the Company's revolving line of credit.

        Certain other amounts for prior years have been reclassified to conform with the fiscal 2003 presentation.

D.    Translation of Foreign Currency Financial Statements and Foreign Currency Transactions    Transactions in foreign currencies are translated into U.S. dollars at the approximate prevailing rate at the time of the transaction. The operations of the Company's foreign subsidiaries are translated from the local (functional) currencies into U.S. dollars. The rates of exchange at each balance sheet date are used for translating certain balance sheet accounts, and a weighted average rate of exchange is used for translating the statements of earnings. Gains or losses resulting from these translation adjustments are included in the accompanying Consolidated Balance Sheets as a component

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of accumulated other comprehensive losses. Foreign exchange transaction gains and losses in fiscal 2003, 2002 and 2001 were immaterial to the Company's overall results of operations.

E.    Cash and Cash Equivalents    The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

F.    Receivables    Receivables consist of amounts billed and currently due from customers, and unbilled costs and accrued profits primarily related to revenues on long-term contracts that have been recognized for accounting purposes, but not yet billed to customers.

G.    Inventories    Commercial and other non-contract inventories are stated at the lower of cost (which includes material, labor and manufacturing overhead) or net realizable value. Costs accumulated under contracts are stated at actual cost, not in excess of estimated net realizable value, including, for long-term government contracts, applicable amounts of general and administrative expenses, which include internal research and development costs and bid and proposal costs, where such costs are recoverable under customer contracts. General and administrative expenses related to commercial products and services provided essentially under commercial terms and conditions are expensed as incurred and are included in costs and expenses in the Consolidated Statements of Earnings.

        Pursuant to contract provisions, agencies of the U.S. government and certain other customers have title to, or a security interest in, inventories related to such contracts as a result of progress payments and advances. Accordingly, such progress payments and certain advances are reflected as an offset against the related inventory balances. To the extent that customer advances exceed related inventory levels, such advances are classified as current liabilities.

H.    Property, Plant and Equipment    Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are calculated on the straight-line method. The ranges of estimated useful lives are: office furnishings, laboratory, production, computer and other equipment, 3-10 years; building and building improvements, 15-40 years; and leasehold improvements, over the shorter of the estimated useful lives of the improvements or the life of the lease. When property, plant and equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's balance sheet and the net gain or loss is included in the determination of income. Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized.

I.    Debt Issuance Costs    Costs incurred to issue debt are deferred and amortized as interest expense over the term of the related debt using a method that approximates the effective interest method.

J.    Goodwill and Acquired Intangible Assets    In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 and No. 142, "Business Combinations" and "Goodwill and Other Intangible Assets" (SFAS 141 and SFAS 142), respectively. SFAS 141 replaces Accounting Principles Board (APB) Opinion No. 16 and requires the use of the purchase method for all business combinations initiated after June 30, 2001. It also provides guidance on purchase accounting related to the recognition of intangible assets, noting that any purchase price allocated to an assembled workforce may not be accounted for separately, and accounting for negative goodwill. SFAS 142 requires that goodwill and identifiable acquired intangible assets with indefinite useful lives shall no longer be amortized, but tested for impairment annually and whenever events or circumstances occur indicating that goodwill or indefinite life intangibles might be impaired. SFAS 142 also requires the amortization of identifiable intangible assets with finite useful lives, although the Statement no longer limits the amortization period to forty years. Identifiable acquired intangible assets, which are subject to amortization, are to be tested for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

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        The Company elected to adopt the provisions of SFAS 142 as of April 1, 2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business combinations ceased, and intangible assets that did not meet the criteria for recognition apart from goodwill under SFAS 141 were reclassified to goodwill. In connection with the adoption of SFAS 142, the Company was required to perform a transitional goodwill impairment assessment within six months of adoption. The Company completed its transitional goodwill impairment assessment, with no adjustment to the carrying value of its goodwill as of April 1, 2001.

        The annual impairment test is performed after completion of the Company's annual financial operating plan, which occurs in the fourth quarter of its fiscal year. The Company completed its annual impairment tests with no adjustment to the carrying value of its goodwill as of March 31, 2003 and 2002. The annual goodwill impairment assessment involves estimating the fair values of the Company's four reporting units (three reporting units in fiscal 2002) and comparing such fair values with the reporting unit's respective carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential impairment loss. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. The Company estimates the fair value of its reporting units by applying third party market value indicators to the reporting unit's projected revenues, earnings before net interest and taxes (EBIT) and earnings before net interest, taxes, depreciation and amortization (EBITDA), and calculating an average of the three extended values.

        The Company is amortizing its acquired intangibles on a straight-line basis over 4-30 years (see Note 3 below).

K.    Impairment of Long-Lived Assets and Acquired Intangible Assets    The Company assesses the recoverability of the carrying value of its long-lived assets and identifiable acquired intangible assets with finite useful lives held for use, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the costs to sell.

L.    Derivative Financial Instruments    DRS does not use derivative financial instruments for trading purposes. The Company utilizes variable rate debt to fund its operations and sustain its growth. Such variable rate borrowings expose the Company to interest rate risk and the related impact that changes in interest rates can have on the Company's earnings and on its cash flows. In an effort to limit its interest expense and cash flow exposure, the Company may from time to time enter into various derivative instruments that meet the criteria to be accounted for as hedges. The Company does not enter into derivatives designated as fair value hedges.

        Effective April 1, 2001, the Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS 133). This Statement requires the recognition of all derivative instruments as either assets or liabilities in the consolidated balance sheets and the periodic adjustment of those instruments to fair value. The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on the intended use of the derivative and its resultant designation.

        On the date a derivative contract is entered into, the Company designates the hedging relationship. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy. This process includes linking all derivatives that are designated as hedges to specific assets or liabilities on the balance sheet or to forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether

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the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive losses until operations are affected by the variability in cash flows of the designated item. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively, as discussed below.

        The Company discontinues hedge accounting prospectively when: (1) it is determined that a derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; or (3) the derivative is discontinued as a hedging instrument, because it is unlikely that a forecasted transaction will occur. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective hedge of cash flows, the derivative will continue to be carried at fair value in the Consolidated Balance Sheets and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings.

        On April 1, 2001, in accordance with the provisions of SFAS 133, the Company designated its previously outstanding interest rate collars as cash flow hedges and recorded the fair value of the instruments on the balance sheet at that date, with a corresponding adjustment to accumulated other comprehensive losses. Due to the nature and characteristics of the Company's collars, all adjustments to the fair values of such instruments were adjusted via accumulated other comprehensive losses. In accordance with certain covenants in DRS's previous credit facility, the Company entered into interest rate collar agreements, none of which were in place as of March 31, 2003, with notional amounts covering a limited amount of the aggregate outstanding principal balance of the Company's term loans (see Note 8 below). An interest rate collar is a combination of an interest rate cap and an interest rate floor. The collars allowed the Company to manage a portion of its variable rate borrowings within an acceptable, predetermined range. Under the collar, no payments were required to be made by the Company or paid to the Company unless the prevailing LIBOR rate (London Interbank Offered Rate) dropped below the floor or exceeded the ceiling. Any payments made or received by the Company while the collars were in effect were reflected as an adjustment to interest expense in the period in which it was settled.

        In connection with the November 27, 2002 acquisition of Paravant, Inc. (see Note 2 below), the Company acquired a mortgage note payable with a variable interest rate equal to one month LIBOR plus 1.65% and a 15-year interest rate swap with a notional amount of $3.6 million. Under the terms of the interest rate swap, the Company receives interest at a variable rate equal to LIBOR and pays interest at a fixed rate of 7.85%. The combination of the swap and the debt obligation results in a net cash outflow equal to 9.5%. Repricing dates of the swap match those of the mortgage note. The fixed rate of 9.5% will remain the same until the swap expires on April 1, 2016. The Company has evaluated the terms and conditions of the swap and determined the instrument qualifies as a cash flow hedge pursuant to SFAS 133. Accordingly, adjustments to the fair value of the swap are included in other accumulated comprehensive losses.

        The effect of adopting SFAS 133 at April 1, 2001 and the amounts recorded related to its derivative financial instruments, as of and for the years ended March 31, 2003 and 2002, were immaterial to the Company's consolidated financial position, consolidated results of operations and cash flows.

M.    Revenue Recognition    The substantial majority of the Company's direct and indirect sales to the U.S. government and certain of the Company's sales to foreign governments and commercial customers are made pursuant to written contractual arrangements or "contracts" to design, develop, manufacture and/or modify complex products to the specifications of the buyers (customers), or to provide services related to the performance of such contracts. These contracts are accounted for in

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accordance with American Institute of Certified Public Accountants Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (SOP 81-1), and revenues and profits are recognized using percentage-of-completion methods of accounting. Revenues and profits on fixed-price production contracts whose units are produced and delivered in a continuous or sequential process are recorded as units are delivered based on their selling prices (the "units-of-delivery" method). In certain limited circumstances, when all applicable revenue recognition criteria are met, revenue may be recognized prior to shipment to the customer, as discussed below. Revenues and profits on other fixed-price contracts with significant engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the "cost-to-cost method").

        Revenue recognition on cost-reimbursable contracts with the U.S. government are accounted for in accordance with Accounting Research Bulletin No. 43, Chapter 11, Section A, Government Contracts, Cost-Plus-Fixed Fee Contracts (ARB 43), in addition to SOP 81-1. Revenues and profits on cost-reimbursable contracts are recognized as allowable costs are incurred on the contract and become billable to the customer, in an amount equal to the allowable costs plus the profit on those costs, which is generally fixed or variable based on the contract fee arrangement.

        Revenues on arrangements that are not within the scope of SOP 81-1 or ARB 43 are recognized in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition In Financial Statements". Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been performed, the selling price to the buyer is fixed or determinable and collectibility is reasonably assured.

        Most of the Company's contracts are long-term in nature, spanning multiple years. The Company reviews cost performance and estimates to complete on its ongoing and acquired contracts at least quarterly and in many cases more frequently. The impact of revisions of profit estimates on both fixed-price and cost-reimbursable contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident.

        Amounts representing contract change orders, claims or other items are included in revenues only when they can be reliably estimated and realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. Incentives or penalties and awards applicable to performance on contracts are considered in estimating revenues and profit rates, and are recorded when there is sufficient information to assess anticipated contract performance. Incentive provisions, which increase or decrease earnings based solely on a single significant event, are not recognized until the event occurs.

        The Company records contract-related assets and liabilities acquired in business combinations at their fair value by considering the remaining contract amounts to be billed, DRS's estimate to complete and a reasonable profit allowance on the Company's completion effort commensurate with the profit margin that the Company earns on similar contracts. Revisions to cost estimates subsequent to the date of acquisition may be recorded as an adjustment to goodwill or earnings, depending on the nature and timing of the revision.

        Included in revenues for fiscal 2003, 2002 and 2001 were $43.8 million, $36.2 million and $32.9 million, respectively, of customer-sponsored research and development, which are principally accounted for under the cost reimbursement method.

        Approximately 81%, 78% and 78% of the revenues in fiscal 2003, 2002 and 2001, respectively, were derived directly or indirectly from defense-related contracts with the United States government. In addition, approximately 9% in fiscal 2003, 11% in fiscal 2002 and 12% in fiscal 2001 of the Company's revenues were derived directly or indirectly from sales to international governments.

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N.    Stock-Based Compensation    At March 31, 2003, the Company has one stock-based compensation plan, which is described more fully in Note 11. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

		Year Ended March 31,
		2003			2002			2001
		(in thousands, except per-share data)
Net earnings, as reported		$	30,171		$	20,331		$	11,978
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects			46			218			206
Less: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects			(2,351	)		(1,250	)		(597	)
Pro forma net earnings		$	27,866		$	19,299		$	11,587
Earnings per share:
	Basic—as reported	$	1.64		$	1.52		$	1.14
	Basic—pro forma	$	1.51		$	1.44		$	1.11
	Diluted—as reported	$	1.58		$	1.41		$	1.01
	Diluted—pro forma	$	1.46		$	1.34		$	0.93

        For purposes of determining the pro forma effects of SFAS 123, the estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. The weighted-average assumptions used in the valuation model are presented in the table below.

	Year Ended March 31,
	2003			2002			2001
Expected holding period (in years)		5.0			5.0			5.0
Expected volatility		46.1	%		44.2	%		28.9	%
Expected dividend yield		—			—			—
Risk-free interest rate		3.0	%		4.5	%		5.7	%
Weighted-average fair value of options granted	$	14.11		$	11.90		$	4.85

O.    Income Taxes    In accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109), the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. 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 earnings in the period that includes the enactment date.

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P.    Earnings Per Share    Basic earnings per share (EPS) is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during each period. The computation of diluted earnings per share includes the effect of shares from the assumed exercise of dilutive stock options and warrants and, when dilutive, the effect of the assumed conversion of the Company's previously outstanding 9% Senior Subordinated Debentures. The following table provides the components of the earnings per-share computations:

		Year Ended March 31,
		2003		2002		2001
		(in thousands, except per-share data)
Basic EPS Computation
	Net earnings	$	30,171	$	20,331	$	11,978
Weighted average common shares outstanding			18,411		13,408		10,485
	Basic earnings per share	$	1.64	$	1.52	$	1.14
Diluted EPS Computation
	Net earnings	$	30,171	$	20,331	$	11,978
	Interest and expenses related to convertible debentures		—		—		574
	Adjusted net earnings	$	30,171	$	20,331	$	12,552
Diluted common shares outstanding:
	Weighted average common shares outstanding		18,411		13,408		10,485
	Stock options and warrants		662		1,047		642
	Convertible debentures		—		—		1,308
Diluted common shares outstanding			19,073		14,455		12,435
	Diluted earnings per share	$	1.58	$	1.41	$	1.01

Q.    Fair Value of Financial Instruments    Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and derivative instruments reported in the Consolidated Balance Sheets equal or approximate their fair values. The fair value of the Company's outstanding term loan approximates its recorded value, based on the variable rates of the facility and currently available terms and conditions for similar debt at March 31, 2003.

R.    Product Warranties    Product warranty costs are accrued when the covered products are delivered to the customer. Product warranty expense is recognized based on the terms of the product warranty and the related estimated costs, considering historical claims expense. Accrued warranty costs are reduced as these costs are incurred and as the warranty period expires. The table below presents the changes in the Company's accrual for product warranties, which is included in accrued expenses, for the year ended March 31, 2003.

	(in thousands)
Balance at April 1, 2002	$	10,319
Acquisitions during fiscal 2003		9,017
Accruals for product warranties issued during fiscal 2003		5,399
Accruals related to pre-existing product warranties		75
Settlements made during the period		(5,445	)
Balance at March 31, 2003	$	19,365

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S.    New Accounting Pronouncements    In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 applies to legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset, except for certain obligations of lessees. This Statement does not apply to obligations that arise solely from a plan to dispose of a long-lived asset. SFAS 143 requires that estimated asset retirement costs be measured at their fair values and recognized as assets and depreciated over the useful life of the related asset. Similarly, liabilities for the present value of asset retirement obligations are to be recognized and accreted each year to their estimated future value until the asset is retired. These provisions will be applied to existing asset retirement obligations, as of the adoption date, as a cumulative effect of a change in accounting policy. SFAS 143 is effective for the Company beginning April 1, 2003. SFAS 143 is not expected to have a material effect on the Company's consolidated results of operations and financial position.

        In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance or modification of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity's product warranty liabilities. The Company has adopted the provisions of FIN 45 and has included the required disclosures in "R. Product Warranties," above. FIN 45 is not expected to have a material effect on the Company's consolidated results of operations and financial position.

2.     Acquisitions and Divestitures

Acquisitions

        On February 14, 2003, the Company acquired all of the outstanding stock of Power Technology Incorporated, a privately held company principally located in Fitchburg, Massachusetts, for $35.0 million in cash, subject to adjustment, plus $14.0 million of contingent consideration. Contingent consideration is based on earnout payments, as defined in the purchase agreement, that are triggered by the receipt of certain funded booking awards on or before certain dates (earnout dates), the last of which expires on or before December 31, 2008. If the Company does not receive these funded backlog awards on or before these earnout dates, it will have no liability nor obligation to pay any contingent consideration. The earnout period began on the closing date of the acquisition. Renamed DRS Power Technology, Inc. (DRS PTI), the company operates as part of DRS's Electronic Systems Group (ESG). In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $1.5 million. DRS PTI designs, develops, manufactures and provides life-cycle support for a wide variety of high-performance, complex power systems and rotating machinery, and is concentrated in four major areas: Navy Electric Drive Equipment, Navy Main Propulsion Turbines, High-Performance Navy Pumps, and Fuel Cells and Industrial Equipment. The addition of DRS PTI to DRS's existing power systems product lines is a significant part of the Company's strategy of providing Naval vessels with a totally integrated gas turbine or steam turbine propulsion plant, either electric or mechanical drive, and is expected to enhance DRS's ability to expand onto other electric drive platforms supporting Navy growth initiatives.

        The Company is in the process of obtaining third-party valuations of certain assets acquired, as well as performing its own internal assessment of the acquired contracts; thus, the preliminary allocation of the purchase price may change. Based on preliminary purchase price allocations, the Company has estimated goodwill to be $35.6 million and has allocated the estimated goodwill to ESG. The Company expects to complete the purchase price allocation in the first quarter of fiscal 2004.

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        On January 15, 2003, the Company acquired the assets and certain liabilities of the Electromagnetics Development Center of Kaman Aerospace, a subsidiary of Kaman Corporation, located in Hudson, Massachusetts, for $27.5 million in cash, subject to adjustment, plus $7.5 million of contingent consideration. Contingent consideration is based on a funded booking milestone, as defined in the purchase agreement. If the funded booking milestone is not fulfilled on or before December 31, 2008, DRS will have no liability or obligation to pay any contingent consideration. The earnout period began on the closing date of the acquisition. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $1.2 million. Kaman's Electromagnetics Development Center develops high-performance, lightweight electric motors, generators and drive electronics for defense, industrial and transportation applications. Renamed DRS Electric Power Technologies, Inc. (DRS EPT), the company operates as part of ESG. The addition of DRS EPT is complementary to DRS's existing position in ship electric propulsion equipment, control equipment, high-performance networks, tactical displays and specialty reactor plant instrumentation.

        The Company is in the process of obtaining third-party valuations of certain assets acquired, as well as performing its own internal assessment of the acquired contracts; thus, the preliminary allocation of the purchase price may change. Based on preliminary purchase price allocations, the Company has estimated goodwill to be $20.9 million and has allocated the estimated goodwill to ESG. The Company expects to complete the purchase price allocation in the first quarter of fiscal 2004.

        On November 27, 2002, a wholly-owned subsidiary of the Company merged with and into Paravant Inc. (Paravant), with Paravant being the surviving corporation and continuing as a wholly-owned subsidiary of DRS. Consideration in the Paravant acquisition was approximately $94.7 million in cash and the assumption of $15.5 million in debt. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $5.0 million. The Company financed the acquisition with borrowings under its Credit Facility (see Note 8 below). Paravant, which is comprised of five operating units, is a designer and manufacturer of highly engineered, technically advanced, defense electronics for U.S. and allied international military, and intelligence agency applications. The company manufactures rugged computer systems and communications interfaces serving military Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) initiatives. Paravant also produces high-speed processing equipment for the intelligence community and offers modernization design and installation services for select rotary- and fixed-wing military aircraft. The Paravant acquisition is highly compatible with the Company's goals of expanding its core tactical systems business base and increasing its presence in the U.S. Air Force and high-end signal intelligence programs supporting government agencies. The acquired Paravant operating units are being managed as part of the Company's ESG operating segment.

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        The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the Paravant acquisition. The Company is in the process of performing an assessment of the acquired contracts; thus, the preliminary allocation of the purchase price may change. The Company will complete the purchase price allocation in the first quarter of fiscal 2004.

		November 27, 2002
		(in thousands)
Accounts receivable		$	10,120
Inventory			12,108
Other current assets			1,449
Property, plant and equipment			6,482
Other assets			1,361
Acquired intangible assets			2,300
Goodwill			96,552
	Total assets acquired		130,372
Accrual for future costs on acquired contracts			4,840
Other current liabilities			9,217
Long-term debt			15,469
Other liabilities			1,103
	Total liabilities assumed		30,629
Net assets acquired		$	99,743

        The $96.6 million of goodwill was allocated to the Company's ESG operating segment, $15.4 million of which is expected to be deductible for tax purposes. The $2.3 million in acquired intangible assets were assigned to customer-related intangibles and are being amortized over a period of 20 years.

        On October 15, 2002, the Company acquired DKD, Inc. (which operated under the name Nytech) for $13.0 million plus contingent consideration. The $13.0 million consists of a $5.0 million cash payment and an $8.0 million promissory note, bearing interest at a rate of 6%, with payments of $5.0 million and $3.0 million due on the first and second anniversaries of the closing, respectively. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $0.5 million. Contingent consideration is based on an aggregate bookings earnout, as defined in the purchase agreement, and is not to exceed $17.0 million in the aggregate. The earnout period began on the closing date of the acquisition and ends on March 31, 2009. Renamed DRS Nytech Imaging Systems, Inc. (DRS Nytech) and located in Irvine, California, the company manufactures and markets uncooled thermal imaging systems for portable weapons, head gear, hand-held devices and vehicle-mounted sights. The business also specializes in the design of stabilized, lightweight gimbals capable of controlling numerous sensors and suitable for mounting on a variety of land, sea and air platforms. The Nytech acquisition enhances DRS's position as a supplier of lightweight thermal imaging systems and supports the Company's objectives to further expand its position in the uncooled infrared technology market.

        The Company is in the process of obtaining a third-party valuation of certain assets acquired, as well as finalizing its own internal assessment of the acquired contracts; thus, the preliminary allocation of the purchase price may change. Based on preliminary purchase price allocations, the Company has estimated goodwill and acquired technology-related intangible assets to be $10.2 million and

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$4.0 million, respectively. Goodwill has been allocated to the Electro-Optical Systems Group (EOSG). The Company expects to complete the purchase price allocation in the first quarter of fiscal 2004.

        Pursuant to a purchase agreement effective July 1, 2002, the Company acquired the assets and assumed certain liabilities of the Navy Controls Division (NCD) of Eaton Corporation for $96.0 million in cash. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $3.5 million. The Company financed the acquisition with existing cash on hand. Renamed DRS Power & Control Technologies, Inc. (DRS PCT) and located in Milwaukee, Wisconsin, and Danbury, Connecticut, the company is a leading supplier of high-performance power conversion and instrumentation and control systems for the U.S. Navy's combatant fleet, including nuclear-powered and conventionally-powered ships, as well as for specialized industrial customers. Products include ship electric propulsion equipment, power electronics equipment, high-performance networks, shipboard control equipment and control panels, tactical displays, and specialty reactor instrumentation and control equipment. The addition of this unit complements the Company's presence in Naval advanced command and control computer display and other ship systems. DRS PCT is being managed as a part of the Company's ESG operating segment.

        The following table summarizes the final purchase price allocation of the NCD acquisition.

		July 1, 2002
		(in thousands)
Accounts receivable		$	16,237
Inventory			5,719
Property, plant and equipment			12,368
Goodwill			103,456
Acquired intangible assets			6,590
	Total assets acquired		144,370
Accrual for future costs on acquired contracts			26,176
Accrued warranty			7,920
Other current liabilities			3,574
Postretirement liability			6,990
Other long-term liabilities			170
	Total liabilities assumed		44,830
Net assets acquired		$	99,540

        The $103.5 million of goodwill was allocated to the Company's ESG operating segment, all of which is expected to be deductible for tax purposes. The $6.6 million in acquired intangible assets were assigned to customer-related intangibles and are being amortized over a period of 20 years.

        On April 11, 2002, the Company acquired the assets of the U.S.-based Unmanned Aerial Vehicle (UAV) business of Meggitt Defense Systems—Texas, Inc., a unit of Meggitt PLC, for $0.8 million in cash. In addition to the purchase price, the costs related to the acquisition were approximately $0.2 million. The business, located in Mineral Wells, Texas, and now operating as DRS Unmanned Technologies, Inc., provides close-range, low-weight, low-noise, medium-duration UAVs supporting military special operations missions. Applications for these products include tactical short-range surveillance, radio relay and C4ISR. The excess of costs over the net amounts allocated to the assets acquired and liabilities assumed in the acquisition (goodwill) and the appraised value of an identifiable

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intangible asset were $3.9 million and $0.3 million, respectively. The goodwill has been allocated to the Company's EOSG operating segment.

        On September 28, 2001, DRS acquired certain assets and liabilities of the Sensors and Electronic Systems business of The Boeing Company (SES business). The Company paid $60.1 million in cash, net of a $7.0 million favorable working capital adjustment received in the fourth quarter of fiscal 2002 for the acquisition. In addition to the purchase price, the estimated costs related to the acquisition, including professional fees, approximated $4.0 million. SES, located in Anaheim, California, is a provider of advanced electro-optical airborne and naval surveillance and targeting systems, high-performance military infrared cooled sensor systems, and infrared uncooled sensor products for military and commercial applications. Production, engineering and management of the contracts acquired in the SES acquisition have been assigned, based on operational synergies, to two previously existing EOSG operating units, as well as a new operating unit called DRS Sensors & Targeting Systems, Inc. (DRS STS). DRS STS was created as a result of the SES acquisition, and it is also an operating unit of the Company's EOSG operating segment. This acquisition broadens the product lines and customer base of EOSG, particularly in those areas associated with Naval and air-based applications, and provides a strong complement to DRS's existing products in ground-based forward looking infrared technology.

        During fiscal 2003, the Company finalized the purchase price allocation associated with its fiscal 2002 acquisition of the SES business. The following table summarizes the allocation of the assets acquired and liabilities assumed, as compared with the preliminary purchase price allocation recorded at March 31, 2002. The final purchase price allocation reflects a net increase to goodwill of $22.6 million and a corresponding net adjustment to inventory, accrual for future costs on acquired contracts and property, plant and equipment.

		September 28, 2001
		(in thousands)
Accounts receivable		$	8,917
Inventory			6,049
Property, plant and equipment			7,666
Goodwill			87,109
Acquired intangible assets			14,000
	Total assets acquired		123,741
Accrual for future costs on acquired contracts			58,579
Other current liabilities			5,024
	Total liabilities assumed		63,603
	Net assets acquired	$	60,138

        The $87.1 million of goodwill was allocated to the EOSG operating segment, all of which is expected to be deductible for tax purposes. The $14.0 million in acquired intangible assets was assigned to customer-related intangibles, which are subject to amortization, and they have a weighted-average useful life of approximately 17 years.

        On August 22, 2001, the Company acquired certain assets and liabilities of the Electro Mechanical Systems unit of Lockheed Martin Corporation for $4.0 million in cash and $0.3 million in acquisition-related costs. This company now operates as DRS Surveillance Support Systems, Inc. (DRS SSS), a unit of the Company's ESG operating segment, and is located in Largo, Florida. DRS SSS produces

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pedestals, support systems and antennae for radar and other surveillance sensor systems. The Company finalized its purchase price allocation during fiscal 2003 and recorded $1.2 million of goodwill in connection with the acquisition, all of which has been allocated to ESG. The revised purchase price allocation was a result of the refinement of estimates to complete certain contracts as of the date of acquisition.

        On June 14, 2000, the Company acquired the assets of General Atronics Corporation (GAC) for $7.5 million in cash, $4.0 million in common stock, representing 355,359 shares of DRS common stock, and $0.4 million in acquisition-related costs. The Company funded the cash portion of this acquisition through borrowings under its previous revolving line of credit. Located in Wyndmoor, Pennsylvania, and now operating as DRS Communications Company, LLC (DRS Communications Company), the company designs, develops and manufactures military data link components and systems, high-frequency communication modems, tactical and secure digital telephone components and radar surveillance systems for U.S. and international militaries. DRS Communications Company is managed as part of the Company's Flight Safety and Communications Group (FSCG). The Company recorded $6.8 million of goodwill in connection with the acquisition.

        All of the Company's acquisitions have been accounted for as purchase business combinations and are included in the Company's results of operations from their respective acquisition dates. Any additional payments are payable in cash and will be recorded as additional goodwill when the contingencies for such payments have been met. The Company records contract-related assets and liabilities required in business combinations at their fair value by considering the remaining contract amounts to be billed, DRS's estimate to complete and a reasonable profit allowance on the Company's completion effort commensurate with the profit margin that the Company earns on similar contracts.

        The following unaudited pro forma financial information shows the results of operations for the years ended March 31, 2003 and 2002, as though the acquisitions of DRS PCT, DRS Nytech, Paravant, DRS EPT and DRS PTI had occurred on April 1, 2001. The fiscal 2002 and 2001 pro forma presentation shows the results of operations, as though the acquisition of the SES business occurred on April 1, 2000. The unaudited pro forma presentation reflects adjustments for: (i) the capitalization of general and administrative costs to be consistent with DRS's accounting practice, (ii) the amortization of acquired intangible assets, (iii) the elimination of goodwill amortization in certain periods presented to be consistent with DRS's April 1, 2001 adoption of SFAS 142, (iv) additional interest expense on acquisition related borrowings and (v) the income tax effect on the pro forma adjustments, using a statutory tax rate of 42%. The pro forma adjustments related to certain acquisitions are based on preliminary purchase price allocations. Actual adjustments will be based on final appraisals and other analyses of fair values of acquired contracts, identifiable tangible and intangible assets, pensions and deferred tax assets and liabilities, which will be completed after third-party appraisals are obtained and all available data is reviewed. Differences between the preliminary and final purchase price allocations could have a significant impact on the unaudited pro forma financial information presented. The unaudited pro forma financial information below is presented for illustrative purposes only and is not

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necessarily indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated above or the results that may be obtained in the future.

		Unaudited Year Ended March 31,
		2003		2002		2001
		(in thousands, except per-share data)
Revenues		$	771,638	$	755,455	$	535,949
Net earnings		$	35,018	$	22,455	$	7,582
Earnings per share of common stock:
	Basic earnings per share	$	1.90	$	1.67	$	0.72
	Diluted earnings per share	$	1.84	$	1.55	$	0.66

Divestitures

        On November 22, 2002, the Company sold its DRS Advanced Programs, Inc. (DRS API) operating unit for $7.6 million in cash and recorded a $0.6 million loss on the sale. DRS API, which operated as part of the Company's ESG operating segment, developed, designed, manufactured and marketed custom-packaged computers and peripherals, primarily for the Department of Defense and the government intelligence community. The Company wrote off $2.3 million of goodwill in connection with the sale. The results of operations of DRS API, prior to the sale, are summarized as follows:

	Year Ended March 31,
	2003			2002		2001
	(in thousands)
Revenues	$	8,507		$	15,843	$	12,784
Operating (loss) income	$	(1,067	)	$	125	$	(101	)

        On May 27, 2002, the Company sold the assets of its DRS Ahead Technology operating unit. DRS Ahead Technology, which operated as part of the Company's "Other" operating segment, produced magnetic head components used in the manufacturing process of computer disk drives and manufactured magnetic video recording heads used in broadcast television equipment. The assets of DRS Ahead Technology were sold for their aggregate book value, and DRS received an interest bearing promissory note in the amount of $3.1 million as consideration for the sale. The promissory note bears interest and is payable over an 80-month term. No gain or loss was recorded on the sale. The results of operations of DRS Ahead Technology, prior to the sale, are summarized as follows:

	Year Ended March 31,
	2003			2002			2001
	(in thousands)
Revenues	$	1,349		$	9,209		$	9,651
Operating (loss) income	$	(496	)	$	(369	)	$	70

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3. Goodwill and Related Intangible Assets

        The following disclosure presents certain information regarding the Company's acquired intangible assets as of March 31, 2003 and 2002. All intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual values.

		Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization			Net Balance
			(in thousands)
As of March 31, 2003
Amortized acquired intangible assets:
	Technology-based intangibles	21 years	$	26,955	$	(6,348	)	$	20,607
	Customer-related intangibles	19 years		27,400		(3,226	)		24,174
Total			$	54,355	$	(9,574	)	$	44,781
As of March 31, 2002
Amortized acquired intangible assets:
	Technology-based intangibles	21 years	$	22,931	$	(5,155	)	$	17,776
	Customer-related intangibles	19 years		18,230		(1,873	)		16,357
Total			$	41,161	$	(7,028	)	$	34,133

        The aggregate acquired intangible asset amortization expense for the fiscal years ended March 31, 2003, 2002 and 2001 was $2.5 million, $1.8 million and $2.1 million, respectively. The estimated acquired intangible asset annual amortization expense for each of the subsequent five fiscal years ending March 31, 2008 is approximately $2.7 million.

        The table below reconciles the change in the carrying amount of goodwill by operating segment for the period from March 31, 2001 to March 31, 2003. These changes include the effects of the allocation of the purchase prices for the DRS Unmanned Technologies, Inc., DRS PCT, DRS Nytech, Paravant, DRS EPT and DRS PTI acquisitions in fiscal 2003 and the SES acquisition in fiscal 2002. Certain purchase price allocations are subject to change in fiscal 2004 (see Note 2 above). During fiscal 2002, DRS recorded increases to goodwill of $3.8 million and $2.9 million, plus interest, for the settlement of working capital adjustments with Raytheon Company and Spar Aerospace Ltd., respectively. Also during fiscal 2002, the Company recorded a $12.7 million reduction in goodwill in connection with the reduction of accruals on certain acquired contracts. As discussed in Note 2, the Company recorded a $22.6 million net increase to EOSG's goodwill during fiscal 2003. The increase is the result of the Company's finalization of its internal assessment of certain contracts acquired in connection with the SES acquisition, as well as an adjustment to acquired property, plant and equipment. Also during fiscal 2003, the Company recorded a $1.2 million adjustment to ESG's goodwill, which was a result of the finalization of the purchase price allocation on the acquisition of DRS SSS. The Company's DRS API operating unit was sold in fiscal 2003 and accordingly, ESG's goodwill was reduced by $2.3 million.

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		Electronic Systems Group			Electro-Optical Systems Group			Flight Safety and Communications Group			Other			Total
		(in thousands)
Balance as of March 31, 2001		$	31,450		$	20,236		$	24,661		$	43		$	76,390
Effect of adoption of SFAS 141 and 142:
	Workforce		—			3,807			3,064			—			6,871
	Technical infrastructure		—			4,642			—			—			4,642
	Other		—			—			742			—			742
	Existing technology		—			—			(1,155	)		—			(1,155	)
	Adjustments		—			—			—			(43	)		(43	)
Balance as of April 1, 2001			31,450			28,685			27,312			—			87,447
Fiscal 2002 acquisitions			—			64,593			—			—			64,593
Purchase price allocation adjustment			—			(12,691	)		—			—			(12,691	)
Working capital adjustments			—			3,823			2,908			—			6,731
Deferred tax asset adjustment—NAI acquisition			(3,354	)		—			—			—			(3,354	)
Foreign currency translation adjustment			31			—			(147	)		—			(116	)
Balance as of March 31, 2002			28,127			84,410			30,073			—			142,610
Fiscal 2003 acquisitions			256,484			14,088			—			—			270,572
Purchase price allocation adjustments on fiscal 2002 acquisitions			1,236			22,618			—			—			23,854
Sale of business unit			(2,323	)		—			—			—			(2,323	)
Foreign currency translation adjustment			790			—			1,360			—			2,150
Balance as of March 31, 2003		$	284,314		$	121,116		$	31,433		$	—		$	436,863

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        The table below presents net earnings and basic and diluted EPS for the years ended March 31, 2003 and 2002 compared with those amounts in fiscal 2001, adjusted to exclude goodwill amortization, net of income taxes as if SFAS 142 had been adopted April 1, 2000.

			Year Ended March 31,
			2003		2002		2001
			(in thousands, except per-share data)
Reported net earnings			$	30,171	$	20,331	$	11,978
Add back:
	Goodwill and related intangible amortization, net of tax benefit of $2,497			—		—		2,815
Adjusted net earnings			$	30,171	$	20,331	$	14,793
Basic earnings per share:
	Reported net earnings		$	1.64	$	1.52	$	1.14
	Add back:
		Goodwill and related intangible amortization, net of tax benefit of $0.24		—		—		0.27
Adjusted net earnings			$	1.64	$	1.52	$	1.41
Diluted earnings per share:
	Reported net earnings		$	1.58	$	1.41	$	1.01
	Add back:
		Goodwill and related intangible amortization, net of tax benefit of $0.20		—		—		0.23
Adjusted net earnings			$	1.58	$	1.41	$	1.24

4. Accounts Receivable

        Unbilled receivables represent sales for which billings have not been presented to customers as of the end of the fiscal year, including retentions arising from contractual provisions. At March 31, 2003, retentions amounted to $10.2 million, with approximately $0.6 million anticipated to be collected beyond one year. The component elements of accounts receivable, net of allowances for doubtful accounts of $2.9 million and $1.4 million at March 31, 2003 and 2002, respectively, are as follows:

		March 31,
		2003		2002
		(in thousands)
U.S. government contracts:
	Billed receivables	$	44,703	$	31,706
	Unbilled receivables		23,485		12,876
			68,188		44,582
Other defense-related contracts:
	Billed receivables		72,886		44,533
	Unbilled receivables		10,094		7,399
			82,980		51,932
Trade receivables			11,880		14,347
	Total	$	163,048	$	110,861

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5. Inventories

        Inventories are summarized as follows:

		March 31,
		2003			2002
		(in thousands)
Work-in-process		$	142,083		$	139,748
Raw material and finished goods			13,139			9,127
			155,222			148,875
Less progress payments and certain customer advances			(41,120	)		(27,965	)
	Total	$	114,102		$	120,910

        General and administrative costs included in inventory were $23.2 million and $16.3 million at March 31, 2003 and 2002, respectively. General and administrative costs included in costs and expenses amounted to $122.1 million, $99.0 million and $78.6 million in fiscal 2003, 2002 and 2001, respectively. Included in these amounts are expenditures for internal research and development, amounting to $14.4 million, $9.5 million and $8.0 million in fiscal 2003, 2002 and 2001, respectively.

6. Property, Plant and Equipment

        Property, plant and equipment are summarized as follows:

		March 31,
		2003		2002
		(in thousands)
Land		$	6,187	$	962
Laboratory and production equipment			68,304		55,389
Computer equipment			22,956		15,788
Buildings and improvements and leasehold improvements			31,012		16,453
Office furnishings, equipment and other			12,302		7,278
			140,761		95,870
Less accumulated depreciation and amortization			53,151		45,389
	Total	$	87,610	$	50,481

        Annual depreciation and amortization of property, plant and equipment amounted to $13.4 million, $10.7 million and $8.6 million in fiscal 2003, 2002 and 2001, respectively.

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7. Accrued Expenses and Other Current Liabilities

        The component elements of accrued expenses and other current liabilities are as follows:

		March 31,
		2003		2002
		(in thousands)
Accruals for future costs related to acquired contracts (Note 2)		$	70,362	$	51,896
Customer advances			46,040		23,983
Payroll, other compensation and related expenses			32,588		20,653
Accrued product warranty			19,365		10,319
Accrual for future costs on uncompleted contracts			7,108		9,324
Income taxes payable			6,176		5,651
Other			31,058		20,434
	Total	$	212,697	$	142,260

8. Debt

        A summary of debt is as follows:

		March 31,
		2003		2002
		(in thousands)
Term notes		$	212,525	$	139,300
Other obligations			12,550		421
			225,075		139,721
Less:
Current installments of long-term debt			7,717		1,435
Short-term bank debt			521		226
	Total long-term debt	$	216,837	$	138,060

        On November 26, 2002, the Company entered into a $338.6 million amended and restated credit agreement (the Credit Facility) with Wachovia Bank, N.A. as the Administrative Agent to fund the Paravant acquisition. The Credit Facility consists of a $125 million senior secured revolving line of credit and a $213.6 million senior secured term loan facility. The maturity dates of the revolving line of credit and the term loan are September 30, 2006 and September 30, 2008, respectively. The term loan requires quarterly principal payments of $537,500 through September 30, 2007 and four equal quarterly payments of $50.7 million thereafter ending on September 30, 2008. The Credit Facility is secured by a lien on substantially all of DRS's assets. Borrowings under this Credit Facility bear interest, at the Company's option, at either: a "base rate," as defined in the credit agreement, equal to the higher of 0.50% per annum above the latest prime rate and federal funds rate plus a spread ranging from 1.25% to 2.25% per annum, depending on the Company's Total Leverage Ratio (TLR) at the time of determination; or a LIBOR rate, as defined in the Credit Facility, plus a spread ranging from 2.25% to 3.25% per annum, depending on the Company's TLR. The TLR is defined as total debt minus performance-based letters of credit, as compared with EBITDA, as defined in the credit agreement. The Company pays commitment fees calculated on the average daily unused portion of its revolving line of credit at a rate of 0.50% per annum, provided that the amount of outstanding swingline loans, as defined in the credit agreement, shall not be considered usage of the revolving line of credit for the purpose of calculating such commitment fee. The Company pays commissions and issuance fees on its outstanding letters of credit and is obligated to pay or reimburse the issuing lender of any letters of credit for such normal and customary costs and expenses incurred or charged by the issuing lender in

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issuing, effecting payment under, amending or otherwise administering any letter of credit. Letter of credit commissions are calculated at a rate ranging from 2.25% to 3.00% per annum, depending on the Company's TLR ratio at the time of issuance, multiplied by the face amount of such letter of credit. Letter of credit issuance fees are charged at 0.125% per annum multiplied by the face amount of such letter of credit. Both letter of credit commissions and issuance fees are paid quarterly.

        The Company previously had a $240 million credit agreement with a syndicate of lenders, with Wachovia Bank, N.A. as the Lead Lender, consisting of a term loan in the aggregate principal amount of $140 million and a $100 million revolving line of credit. Repayment terms, collateral, interest rates and other charges under the previous facility were substantially the same as those pursuant to the amended and restated credit agreement described above.

        There are certain covenants and restrictions placed on DRS under its Credit Facility, including a maximum TLR and a minimum fixed-charge ratio, as defined in the credit agreement, a maximum amount of capital expenditures, a restriction on the payment of dividends on DRS's capital stock, a limitation on the issuance of additional debt, a requirement that the Company offer to make prepayments on its term loans outstanding with 50% of the aggregate net cash proceeds from any equity offering if DRS's adjusted leverage ratio, as defined, exceeds 2.00 to 1.00, and certain other restrictions. The Company was in compliance with all covenants under its Credit Facility at March 31, 2003. Amounts available under the revolving line of credit are based upon a borrowing base calculation, as defined in the credit agreement, which is principally based on accounts receivable and inventory balances. As of March 31, 2003, the Company had approximately $99.5 million of additional available credit, after satisfaction of its borrowing base requirement.

        As of March 31, 2003, $212.5 million of term loans were outstanding against the Credit Facility, in addition to which $25.5 million was contingently payable under letters of credit, as compared with amounts outstanding and contingently payable at March 31, 2002 of $139.3 million and $11.6 million, respectively, under the previous facility. The effective interest rates on the term loans were 4.4% and 5.3%, as of March 31, 2003 and 2002, respectively. The Company enters into standby letter-of-credit agreements with financial institutions and customers primarily relating to the guarantee of the Company's future performance on certain contracts to provide products and services and to secure advanced payments it has received from customers. There were no borrowings under the Company's revolving line of credit as of March 31, 2003 and 2002.

        On November 27, 2002, the Company acquired a mortgage note payable with its acquisition of Paravant. The note is secured by the DRS Tactical Systems' facility located in Palm Bay, Florida, and bears interest at a rate equal to the one-month LIBOR plus 1.65%. Effective April 1, 2001, Paravant entered into a 15-year interest rate swap with an original notional amount of $3.6 million to receive interest at a variable rate equal to the one month LIBOR and to pay interest at a fixed rate of 7.85% (see Note 1 above). The balance of the mortgage as of March 31, 2003 was $3.3 million. Payments of principal and interest will continue through December 1, 2016.

        On October 15, 2002, the Company issued an $8.0 million promissory note, bearing interest at 6% per annum, related to the Nytech acquisition. Payments of $5.0 million and $3.0 million are due on the first and second anniversaries of the closing, respectively.

        The aggregate maturities of long-term debt for fiscal 2004, 2005, 2006, 2007 and 2008 are $7.7 million, $5.5 million, $2.4 million, $2.3 million and $102.7 million per year, respectively, and $103.8 million thereafter.

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9. Supplemental Cash Flow Information

			Year Ended March 31,
			2003		2002		2001
			(in thousands)
Supplemental disclosure of cash flow information:
	Cash paid for:
		Interest	$	11,315	$	9,547	$	11,518
		Income taxes	$	18,663	$	12,679	$	9,175
Supplemental disclosure of non-cash investing and financing activities:
	Acquisition costs for business combinations		$	5,119	$	655	$	—
	Common stock issued for purchase of GAC		$	—	$	—	$	4,000
	Fixed assets		$	884	$	—	$	—
	Note receivable—sale of operating unit		$	3,070	$	—	$	1,741
	Promissory note—Nytech acquisition		$	8,000	$	—	$	—
	Conversion of 9% convertible debentures		$	—	$	—	$	18,870

10. Income Taxes

        Earnings before income taxes consist of the following:

			Year Ended March 31,
			2003		2002		2001
			(in thousands)
Earnings before income taxes:
	Domestic earnings		$	49,878	$	36,943	$	29,384
	Foreign earnings (losses)			5,994		1,418		(4,430	)
		Total	$	55,872	$	38,361	$	24,954

        Income tax expense consists of the following:

			Year Ended March 31,
			2003		2002		2001
			(in thousands)
Income tax expense (benefit)
	Current:
		Federal	$	13,782	$	11,466	$	8,962
		State		3,226		2,760		2,654
		Foreign		1,560		896		1,647
				18,568		15,122		13,263
	Deferred:
		Federal		4,516		1,130		844
		State		1,811		136		928
		Foreign		806		1,642		(2,059	)
				7,133		2,908		(287	)
Total			$	25,701	$	18,030	$	12,976

        Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax effects of

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temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2003 and 2002 are as follows:

		March 31,
		2003			2002
		(in thousands)
Deferred tax assets:
	Acquired federal net operating loss (NOL) carryforwards	$	5,984		$	6,438
	State NOL carryforwards		3,394			3,775
	Foreign NOL carryforwards		4,051			3,681
	Costs accrued on uncompleted contracts		6,638			5,933
	Inventory capitalization		4,921			3,331
	Other		1,202			3,754
Total gross deferred tax assets			26,190			26,912
Less valuation allowance			(7,088	)		(5,435	)
Deferred tax assets			19,102			21,477
Deferred tax liabilities:
	Depreciation and amortization		2,276			943
	Long-term contract costs		10,717			8,860
	Federal impact of state benefits		595			510
	Other		2,403			2,874
Deferred tax liabilities			15,991			13,187
	Net deferred tax assets	$	3,111		$	8,290

        A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company has established a valuation allowance for a portion of the deferred tax assets attributable to state and foreign net operating loss (NOL) carryforwards at March 31, 2003 and 2002, due to the uncertainty of future earnings of certain subsidiaries of the Company and the status of applicable statutory regulations that could limit or preclude utilization of these benefits in future periods. During the fiscal year ended March 31, 2003, the valuation allowance increased by $1.7 million as follows: There was a $1.5 million increase in the valuation allowance associated with the U.K. NOL and temporary differences for DRS Tactical Systems Ltd. (fka DRS Rugged Systems (Europe) Ltd.), due to the uncertainty of the operating unit's future profitability. Valuation allowances associated with various state NOLs increased by $0.2 million, as well. During the fiscal year ended March 31, 2002, the valuation allowance increased by a net amount of $1.0 million as follows: The valuation allowance attributable to certain temporary differences in the amount of $1.3 million was released, due to a change in the expectation of the utilization of such temporary differences, primarily as a result of a change in the Internal Revenue Code with regard to the separate return limitation rules. Since the valuation allowance was established as a result of the Company's fiscal 1999 NAI Technologies, Inc. (NAI) acquisition, the change of such valuation allowance did not reduce income tax expense, but rather reduced goodwill. The $0.6 million valuation allowance associated with the U.K. NOL for DRS Hadland Ltd. was released, due to the operating unit's increased profitability. There was a $2.9 million increase in the valuation allowance associated with the U.K. NOL and temporary differences for DRS Tactical Systems Ltd., due to the uncertainty of the operating unit's future profitability. Based upon the level of historical taxable income and projections for future taxable income over the period in which the Company's deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2003 and 2002.

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        The Company considers earnings of its foreign subsidiaries to be reinvested permanently. While these earnings would be subject to additional tax if repatriated, such repatriation is not anticipated. Any additional amount of tax is not practicable to estimate.

        Current and noncurrent deferred tax assets (liabilities) of $6.8 million and $(3.7) million, and $3.4 million and $4.9 million, respectively, are included in the Consolidated Balance Sheets as of March 31, 2003 and 2002, respectively. At March 31, 2003, $17.0 million of U.S. federal and $27.0 million of state NOL carryforwards, which expire between fiscal years 2004 and 2023, and $13.5 million of foreign NOLs, which carry forward indefinitely, were available. All of the Company's U.S. federal and $8.9 million of its state NOL carryforwards were acquired in connection with the NAI acquisition. The annual utilization of these NAI NOL carryforwards is limited under certain provisions of the Internal Revenue Code. Any future utilization of these net operating loss carryforwards will result in an adjustment to goodwill to the extent it reduces the valuation allowance.

        A reconciliation of the expected U.S. federal income tax rate to the actual (effective) income tax rate is as follows:

		Year Ended March 31,
		2003		2002		2001
Expected U.S. federal income tax expense		35.0	%	35.0	%	35.0	%
Difference between U.S. and foreign tax rates		—	%	0.6	%	1.5	%
State income tax rate, net of federal income tax benefit		5.5	%	5.0	%	8.0	%
Nondeductible expenses		1.8	%	3.0	%	5.8	%
Change in valuation allowance		2.9	%	5.7	%	—
Foreign investment tax credits		(1.4	)%	(2.5	)%	—
Other		2.2	%	0.2	%	1.7	%
	Total	46.0	%	47.0	%	52.0	%

        The provision for income taxes includes all estimated income taxes payable to federal, state and foreign governments, as applicable.

11. Common Stock and Stock Compensation Plans

Common Stock    As of March 31, 2003, the authorized capital of the Company was composed of 30.0 million shares of common stock (22,421,986 shares issued) and 2.0 million shares of preferred stock (no shares issued). During fiscal 2001, the Company cancelled all stock held in treasury.

        On December 20, 2002, the Company issued 5,462,500 shares of its common stock in a public offering for $28.00 per share, including shares related to an over-allotment option that was granted to the underwriters. The Company received net proceeds of $144.3 million, net of underwriters' fees and other costs associated with the offering of $8.6 million. Approximately $12.0 million of the proceeds were used during the third quarter of fiscal 2003 to repay certain debt balances assumed in connection with the Company's November 27, 2002 acquisition of Paravant (see Note 2 above). The balance of the proceeds was used for the Kaman Electromagnetics Development Center and Power Technology Incorporated acquisitions and to provide funds for potential future acquisitions and working capital needs.

        On December 19, 2001, the Company issued 3,755,000 shares of its common stock in a public offering for $32.00 per share, including shares related to an over-allotment option that was granted to the underwriters. The Company received net proceeds of $112.6 million, net of underwriters' fees and other costs associated with the offering of $7.6 million. The Company used $24.0 million of the net proceeds of the offering to repay the outstanding balance of its revolving line of credit and retained the balance to fund future acquisitions and working capital needs.

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        In connection with the fiscal 2001 acquisition of General Atronics Corporation, the Company issued 355,359 shares of common stock.

Stock Compensation Plans    The 1991 Stock Option Plan (the Plan), which was approved by the Company's stockholders on August 8, 1991, provided for the grant of options to purchase a total of 600,000 shares of DRS common stock through February 6, 2001. Upon the expiration of the Plan on February 6, 2001, a total of 161,550 shares of common stock remained ungranted. Options still outstanding at the time of the Plan's expiration remain in effect, as granted. Shares of DRS common stock are no longer reserved for future grants under the Plan.

        On June 17, 1996, the Board of Directors adopted, and on August 7, 1996, the stockholders approved, the 1996 Omnibus Plan (Omnibus Plan). Under the terms of the Omnibus Plan, options may be granted to key employees, directors and consultants of the Company. The Omnibus Plan was initially limited to 500,000 shares of DRS common stock and has since been increased, with stockholder approval, to 3,875,000 shares. Awards under the Omnibus Plan are at the discretion of the Executive Compensation Committee and may be made in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock, (v) phantom stock, (vi) stock bonuses and (vii) other awards. Unless the Executive Compensation Committee expressly provides otherwise, options granted under the Omnibus Plan have a term of ten years and generally are not exercisable prior to one year after the date of grant with 25% of the shares granted exercisable on each of the first four anniversaries of the date of grant. As of March 31, 2003, 888,643 shares remain available for future grants under the Omnibus Plan.

        Pursuant to the terms of exercise under the grant, the excess of the fair-market value of shares under option at the date of grant over the option price may be charged to unamortized stock compensation or to earnings as compensation expense and credited to additional paid-in capital. The unamortized stock compensation, if any, is charged to earnings as it becomes exercisable, in accordance with the terms of the grant. The amount of compensation charged to earnings in fiscal 2003, 2002 and 2001 was approximately $46,000, $218,000 and $206,000, respectively.

        A summary of stock option activity is as follows:

		Number of Shares of Common Stock		Weighted Average Exercise Price
Outstanding at March 31, 2000		1,684,071		$	8.76
	Granted	532,600		$	13.42
	Exercised	(225,579	)	$	9.15
	Expired or cancelled	(57,562	)	$	8.55
Outstanding at March 31, 2001		1,933,530		$	9.99
	Granted	652,207		$	33.56
	Exercised	(454,317	)	$	8.33
	Expired or cancelled	(18,600	)	$	18.97
Outstanding at March 31, 2002		2,112,820		$	17.52
	Granted	767,850		$	32.10
	Exercised	(125,434	)	$	8.95
	Expired or cancelled	(54,187	)	$	27.22
Outstanding at March 31, 2003		2,701,049		$	21.87

        As of March 31, 2003, 2002 and 2001, 1,177,841, 754,078 and 792,668 options were exercisable, respectively, at weighted average exercise prices of $13.53, $10.07 and $9.15, respectively.

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        In connection with the Company's acquisition of NAI during fiscal 1999, each issued and outstanding NAI warrant to purchase NAI common stock at an exercise price of $2.50 per share was converted into DRS warrants at a conversion ratio of 0.25 of a share of DRS common stock to one share of NAI common stock. These warrants expired on February 15, 2002 and were exercised in full with the exception of 401 shares that were not presented for exercise. Each issued and outstanding NAI stock option, whether vested or unvested, was assumed by DRS using the same conversion ratio as was used for the warrants, but rounded down to the nearest whole number. The terms and conditions under which the stock options were granted prior to the acquisition, with the exception of the exercise price and number of shares, remained the same. The Company issued 603,175 warrants and assumed 161,230 converted stock options, respectively.

        During fiscal 1999, the Board of Directors issued options to purchase 250,000 shares of DRS common stock with vesting terms similar to awards issued in fiscal 1999 under the Omnibus Plan at exercise prices in excess of the market price on the date of grant. The per-share weighted-average fair value and exercise price of these options were $1.89 and $10.44, respectively.

        The stock options exercised during fiscal 2000 include 50,000 shares, which are being held by the Company in "book entry" form. Book entry shares are not considered issued or outstanding as of March 31, 2003. However, these shares are included in the Company's diluted earnings per share calculations for fiscal 2003, 2002 and 2001.

        Information regarding all options outstanding at March 31, 2003 follows:

	Options Outstanding
					Options Exercisable
				Weighted Average Remaining Contractual Life
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price			Number of Options	Weighted Average Exercise Price
Less than $7.76	323,037	$	7.35	5.7 years	234,875	$	7.46
$7.76 - $11.00	517,200	$	9.93	5.2 years	517,200	$	9.93
$11.01 - $26.10	560,152	$	14.92	7.8 years	271,502	$	13.99
$26.11 - $33.33	643,640	$	32.08	9.6 years	390	$	33.33
Greater than $33.33	657,020	$	34.33	8.7 years	153,874	$	33.99
Total	2,701,049	$	21.87	7.7 years	1,177,841	$	13.53

12. Pensions and Other Employee Benefits

        In connection with the acquisitions of the Boeing SES business and the Navy Controls Division of Eaton Corporation (see Note 2 above), the Company established defined benefit pension plans for certain of those employees who transferred to DRS at the time of the acquisitions. In addition, DRS maintains a defined benefit pension plan for certain employees of its Canadian operating unit. Eligibility for participation in the plans varies, and benefits are generally based on the participant's compensation and years of service, as defined. 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 therein. Plan assets are invested primarily in U.S. government and U.S. government agency instruments, listed stocks and bonds.

        Postretirement medical benefits are provided to certain retired employees and dependents of the Navy Controls Division of Eaton Corporation, as well as the Company's Canadian operating unit. 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 by the Company in accordance with cost accounting standards that effect government contractors, subject to the Internal

84

Revenue Code and regulations therein, with the retiree generally paying a portion of the costs through contributions, deductibles and coinsurance provisions.

        The Company also maintains two non-contributory and unfunded supplemental retirement plans: the Supplemental Executive Retirement Plan (DRS SERP), which was established on February 1, 1996 for the benefit of certain key executives; and the DRS Supplemental Retirement Plan (DRS SRP), which was established for the benefit of certain employees who were transferred to DRS in connection with the Company's fiscal 1998 acquisition of certain assets of the Electro-Optical Systems and Focal Plane Array businesses of Raytheon Company. Pursuant to the DRS SERP, the Company will provide retirement benefits to each key executive, based on years of service and final average annual compensation as defined therein. The DRS SRP benefits are based on the eligible employees' final average earnings, as defined, and their Social Security benefit.

        The following table summarizes the balance sheet impact, as well as the benefit obligations, assets and funded status associated with the pension, postretirement and supplemental retirement plans.

		Funded Defined Benefit Pension Plans						Funded Postretirement Benefit Plans			Unfunded Supplemental Retirement Plans
		2003			2002			2003			2003			2002
		(in thousands)
Change in benefit obligation:
	Benefit obligation at beginning of year	$	17,169		$	—		$	—		$	7,377		$	4,039
	Benefit obligation assumed through acquisition		22,215			16,086			6,990			—			2,948
	Addition of a plan		1,586			—			499			—			—
	Service cost		2,605			500			326			413			308
	Interest cost		2,604			583			414			520			376
	Plan participants' contributions		60			—			—			—			—
	Actuarial (gain) loss		1,490			—			577			(262	)		(220	)
	Benefits paid		(118	)		—			(9	)		(74	)		(74	)
	Exchange rate differences		150			—			43			—			—
Benefit obligation at end of year		$	47,761		$	17,169		$	8,840		$	7,974		$	7,377
Change in plan assets:
	Fair value of plan assets at beginning of year	$	15,900		$	—		$	—		$	—		$	—
	Fair value of plan assets assumed through acquisition		22,068			15,900			—			—			—
	Addition of a plan		1,504			—			—			—			—
	Actual return on plan assets		(262	)		—			—			—			—
	Plan participants' contributions		60			—			—			—			—
	Employer contributions		231			—			705			74			74
	Benefits paid		(118	)		—			(9	)		(74	)		(74	)
	Exchange rate differences		135			—			—			—			—
Fair value of plan assets at end of year		$	39,518		$	15,900		$	696		$	—		$	—
Net amount recognized:
	Funded status of the plans	$	(8,243	)	$	(1,269	)	$	(8,144	)	$	(7,974	)	$	(7,377	)
	Unrecognized loss		5,767			735			1,089			749			1,081
	Unrecognized prior service cost		—			—			—			3,325			3,586
Net amount recognized		$	(2,476	)	$	(534	)	$	(7,055	)	$	(3,900	)	$	(2,710	)
Amounts recognized in the Consolidated Balance Sheets consist of:
	Intangible asset	$	—		$	—		$	—		$	1,624		$	1,371
	Accrued benefit liability		(2,476	)		(534	)		(7,055	)		(5,524	)		(4,081	)
Net amount recognized		$	(2,476	)	$	(534	)	$	(7,055	)	$	(3,900	)	$	(2,710	)

85

        As required by SFAS No. 87, "Employers' Accounting for Pensions" (SFAS 87), where the accumulated benefit obligation exceeds the fair value of plan assets, the Company has recognized in the Consolidated Balance Sheets at March 31, 2003 and 2002 the additional minimum liability of the unfunded accumulated benefit obligation of $1.6 million and $1.4 million, respectively, as a long-term liability with an offset to deferred income taxes and other noncurrent assets.

The net periodic expense related to the plans includes the following components:

		Funded Defined Benefit Pension Plans						Funded Postretirement Benefit Plans		Unfunded Supplemental Retirement Plans
		2003			2002			2003		2003		2002		2001
		(in thousands)
Components of net periodic expense:
	Service cost	$	2,605		$	500		$	326	$	413	$	308	$	195
	Interest cost		2,604			583			414		520		376		221
	Expected return on plan assets		(3,184	)		(735	)		—		—		—		—
	Amortization of unrecognized prior service cost		—			—			27		331		245		133
Net periodic expense		$	2,025		$	348		$	767	$	1,264	$	929	$	549

        The following weighted average actuarial assumptions were used to determine the benefit obligation and the net costs related to the plans:

		Funded Defined Benefit Pension Plans				Funded Postretirement Benefit Plans		Unfunded Supplemental Retirement Plans
		2003		2002		2003		2003		2002
Rate assumptions
	Discount rate	6.70	%	7.25	%	6.70	%	6.70	%	7.13	%
	Expected return on plan assets	9.20	%	9.25	%	—		—		—
	Increase in future compensation levels	3.60	%	5.80	%	—		3.90	%	5.00	%

        The annual increase in cost of benefits (health care cost trend rate) is assumed to be an average of 12% in fiscal 2004 and is assumed to gradually decrease to a rate of 4.5% in fiscal 2009 and thereafter. Assumed health care cost trend rates have a significant effect on amounts reported for postretirement medical benefit plans. A one percentage point decrease in the assumed health care cost trend rates would have the effect of decreasing the aggregate service and interest cost by $13,995 and the postretirement medical obligations by $112,601. A one percentage point increase in the assumed health care cost trend rate would have the effect of increasing the aggregate service and interest cost by $10,298 and the postretirement medical obligations by $86,834.

        The Company maintains defined contribution plans covering substantially all domestic full-time eligible employees. The Company's contributions to these plans for fiscal 2003, 2002 and 2001 amounted to $6.0 million, $3.3 million and $2.3 million, respectively.

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13. Commitments, Contingencies and Related Party Transactions

        At March 31, 2003, the Company was party to various noncancellable operating leases (principally for administration, engineering and production facilities) with minimum rental payments as follows:

	(in thousands)
2004	$	26,334
2005		14,385
2006		12,566
2007		10,866
2008		7,939
Thereafter		14,340
Total	$	86,430

        It is not certain as to whether the Company will negotiate new leases as existing leases expire. Determinations to that effect will be made as existing leases approach expiration and will be based on an assessment of the Company's capacity requirements at that time.

        Net rent expense was equal to $18.9 million, $14.3 million and $11.3 million in fiscal 2003, 2002 and 2001, respectively.

        Effective July 20, 1994, the Company entered into an Employment, Non-Competition and Termination Agreement with David E. Gross (the Gross Agreement), who retired as President and Chief Technical Officer of the Company on May 12, 1994. Under the terms of the Gross Agreement, Mr. Gross received compensation for his services under a five-year consulting agreement and a five-year non-compete arrangement. The payments were charged to expense over the five-year term, as services were performed and obligations were fulfilled by Mr. Gross. Upon conclusion of the initial five-year period, Mr. Gross began receiving an aggregate of $1.3 million, payable over a nine-year period as deferred compensation. The approximate net present value of the deferred compensation payments to be made to Mr. Gross is included in other liabilities in the Consolidated Balance Sheets.

        In April and May 1998, subpoenas were issued to the Company by the United States Attorney for the Eastern District of New York seeking documents related to a governmental investigation of certain equipment manufactured by DRS Photronics, Inc. (DRS Photronics). These subpoenas were issued in connection with United States v. Tress, a criminal complaint against a then employee of DRS Photronics, alleging that improper test data was provided in connection with boresighting equipment furnished to the U.S. Army. On June 26, 1998, the complaint against the employee was dismissed without prejudice. Additional subpoenas were issued to the Company on August 12, 1999 and May 10, 2000, relating to the ongoing investigation of DRS Photronics and one or more of its then employees. On May 17, 2002, DRS Photronics announced that it had entered into a global settlement with the government, resolving all potential allegations related to the investigation. Under the terms of the settlement, DRS Photronics agreed to pay $2.5 million in restitution and pleaded guilty to a violation of the False Claims Act.

        During fiscal 2003, the Company settled a dispute with Spar Aerospace Ltd. (Spar) with respect to the working capital adjustment provided for in the purchase agreement between DRS and Spar dated as of September 19, 1997, pursuant to which the Company acquired, through certain of its subsidiaries, certain assets of Spar. Under the terms of this settlement, DRS agreed to pay Spar a working capital adjustment of CAN$4,616,000 (or approximately US$3,000,000) and CAN$723,654 (or approximately US$460,000) in interest. During fiscal 2002, the Company accrued $3.9 million, including interest, associated with the dispute. In connection with this settlement, the parties agreed to release each other from all claims arising out of or relating to the working capital adjustment provision in the purchase agreement and to discontinue all legal actions relating thereto.

87

        On October 3, 2001, a lawsuit was filed in the United States District Court of the Eastern District of New York by Miltope Corporation, a corporation of the State of Alabama, and IV Phoenix Group, Inc., a corporation of the State of New York, against DRS Technologies, Inc., DRS Electronic Systems, Inc. and a number of individual defendants, several of whom are employed by DRS Electronic Systems, Inc. The plaintiffs claims against the Company allege infringement of a number of patents, breach of a confidentiality agreement, misappropriation of trade secrets, unjust enrichment and unfair competition. The claims relate generally to the activities of certain former employees of IV Phoenix Group and the hiring of some of those employees by DRS. The plaintiffs seek damages of not less than $5.0 million for each of the claims. The plaintiffs also allege claims for tortious interference with business relationships, tortious interference with contracts and conspiracy to breach fiduciary duty. The plaintiffs seek damages of not less than $47.1 million for each claim. In addition, the plaintiffs seek punitive and treble damages, injunctive relief and attorney's fees. In our answer, the Company has denied the plaintiffs' allegations and intends to vigorously defend this action. In February 2002, the plaintiffs filed an amended complaint, which eliminated the patent infringement claims and added claims related to statutory and common-law trademark infringement. Although this action is still in discovery, the Company believes that it has meritorious defenses and does not believe the action will have a material adverse effect on its consolidated earnings, financial condition or liquidity.

        The Company is a party to various legal actions and claims arising in the ordinary course of its business. In the Company's opinion, the Company has adequate legal defenses for each of the actions and claims, and believes that their ultimate disposition will not have a material adverse effect on the Company's consolidated financial position or results of operations.

        Since a substantial amount of the Company's revenues are derived from contracts or subcontracts with the U.S. government and foreign governments, future revenues and profits will be dependent upon continued contract awards, Company performance and volume of government business. The books and records of the Company are subject to audit and post-award review by the Defense Contract Audit Agency and similar foreign agencies.

14. Operating Segments

        DRS operates in three principal business segments on the basis of products and services offered: Electronic Systems Group (ESG), Electro-Optical Systems Group (EOSG) and Flight Safety and Communications Group (FSCG). Separate and distinct businesses comprise each operating segment. All other operations are combined in Other.

        ESG is a supplier of combat display systems, digital information processing systems, power generation, conversion, distribution, propulsion and control systems, and battlefield digitization systems for sea, air and land applications supporting military modernization and transformation initiatives. ESG also produces radar surveillance and tracking systems, acoustic signal processing systems, flat panels and other computer peripherals, signal intelligence products, ship networks and middleware to promote interoperability and compatibility with the military's new and existing systems. ESG's products are used on various front-line platforms, such as ships, amphibious operation platforms, surveillance aircraft, submarines and mobile ground platforms, and the Group's power systems are installed on every combatant ship in the U.S. Navy, including destroyers, aircraft carriers and attack submarines.

        EOSG produces systems and subsystems for infrared night vision and targeting systems for the U.S. Army's Abrams Main Battle Tanks, Bradley Fighting Vehicles, OH-58D Kiowa Warrior helicopters, Aegis destroyers and cruisers, and High-Mobility Multipurpose Wheeled Vehicle Scouts, among other platforms. EOSG designs, manufactures and markets these and other products that allow operators to detect, identify and target objects based upon their infrared signatures, regardless of the ambient light level. The Group is one of two key suppliers to the U.S. government for advanced focal plane array technology. In addition to the Group's military applications, EOSG also manufactures electro-optical

88

modules for commercial devices used in corrective laser eye surgery and provides system integration for retinal scanning and imaging devices.

        FSCG is a manufacturer of airborne deployable recorders and surveillance and communications systems. FSCG's products are used by U.S. and international militaries, as well as commercial customers. The Group produces integrated naval ship communications systems, information management systems, mission recorders, coastal and border surveillance and radar systems, ultra high-speed digital imaging systems for F/A-18 aircraft and industrial purposes, and multiple-platform weapons calibration systems for air platforms, such as the AH-64 Apache attack helicopter and the AC-130U gunship. FSCG also provides electronic manufacturing services to the defense and space industries.

        Other includes the activities of DRS Corporate Headquarters and DRS Ahead Technology (for the period it was owned by the Company during the first quarter of fiscal 2003) and certain non-operating subsidiaries of the Company. The assets of DRS Ahead Technology were sold on May 27, 2002 (see Note 2 above). DRS Ahead Technology produced magnetic head components used in the manufacturing process of computer disk drives, which burnish and verify the quality of disk surfaces. DRS Ahead Technology also serviced and manufactured magnetic video recording heads used in broadcast television equipment.

89

        Transactions between segments generally are negotiated and accounted for under terms and conditions that are similar to other government and commercial contracts; however, these intercompany transactions are eliminated in consolidation. Other accounting policies of the segments are consistent with those described in the summary of significant accounting policies (see Note 1 above). The Company evaluates segment-level performance based on revenues and operating income, as presented in the Consolidated Statements of Earnings. Operating income, as shown, includes amounts allocated from DRS Corporate operations using an allocation methodology prescribed by U.S. government regulations for government contractors. Information about the Company's operating segments follows:

			ESG			EOSG			FSCG			Other			Total
			(in thousands)
Fiscal 2003
	Total revenues		$	292,794		$	276,581		$	113,934		$	1,349		$	684,658
		Intersegment revenues		(1,038	)		(218	)		(7,640	)		—			(8,896	)
	External revenues		$	291,756		$	276,363		$	106,294		$	1,349		$	675,762
	Operating income (loss)		$	18,733		$	37,168		$	12,605		$	(822	)	$	67,684
	Identifiable assets		$	466,155		$	287,209		$	105,958		$	112,799		$	972,121
	Depreciation and amortization		$	4,403		$	8,630		$	2,300		$	1,327		$	16,660
	Capital expenditures		$	3,121		$	11,641		$	717		$	6,047		$	21,526
Fiscal 2002
	Total revenues		$	206,654		$	208,883		$	99,106		$	9,209		$	523,852
		Intersegment revenues		(37	)		(662	)		(5,953	)		—			(6,652	)
	External revenues		$	206,617		$	208,221		$	93,153		$	9,209		$	517,200
	Operating income (loss)		$	18,053		$	27,365		$	5,090		$	(739	)	$	49,769
	Identifiable assets		$	127,391		$	248,604		$	111,016		$	114,080		$	601,091
	Depreciation and amortization		$	1,914		$	7,153		$	2,907		$	1,815		$	13,789
	Capital expenditures		$	2,618		$	7,553		$	1,694		$	1,718		$	13,583
Fiscal 2001
	Total revenues		$	186,731		$	148,227		$	87,055		$	9,651		$	431,664
		Intersegment revenues		(257	)		(65	)		(3,736	)		—			(4,058	)
	External revenues		$	186,474		$	148,162		$	83,319		$	9,651		$	427,606
	Operating income (loss)		$	15,336		$	23,646		$	(747	)	$	(704	)	$	37,531
	Identifiable assets		$	106,627		$	112,154		$	97,791		$	18,368		$	334,940
	Depreciation and amortization		$	3,447		$	6,972		$	4,029		$	1,797		$	16,245
	Capital expenditures		$	2,239		$	10,099		$	2,216		$	1,631		$	16,185

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        Revenues, total assets, and property, plant and equipment by geographic location are presented in the table below. Revenues are attributed to countries based on the physical location of the operating unit generating the revenues. Information about the Company's operations in these geographic locations for each of the three years ended March 31, 2003 is as follows:

		Total		United States		Canada		United Kingdom
		(in thousands)
Fiscal 2003
	Revenues	$	675,762	$	613,568	$	35,718	$	26,476
	Total assets	$	972,121	$	891,498	$	36,443	$	44,180
	Property, plant and equipment, net	$	87,610	$	84,087	$	2,209	$	1,314
Fiscal 2002
	Revenues	$	517,200	$	464,758	$	31,228	$	21,214
	Total assets	$	601,091	$	534,347	$	37,485	$	29,259
	Property, plant and equipment, net	$	50,481	$	46,674	$	2,518	$	1,289
Fiscal 2001
	Revenues	$	427,606	$	380,279	$	26,964	$	20,363
	Total assets	$	334,940	$	273,178	$	33,162	$	28,600
	Property, plant and equipment, net	$	37,639	$	34,343	$	2,046	$	1,250

        Export sales accounted for approximately 13%, 15% and 14% of total revenues in the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

15. Unaudited Quarterly Financial Information

The following table sets forth unaudited quarterly financial information for fiscal 2003 and 2002:

			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
			(in thousands, except per-share data)
Fiscal year ended March 31, 2003
	Revenues		$	131,238	$	161,196	$	167,540	$	215,788
	Operating income		$	12,673	$	16,723	$	16,570	$	21,718
	Net earnings		$	5,434	$	7,663	$	7,406	$	9,668
		Basic earnings per share	$	0.32	$	0.45	$	0.42	$	0.43
		Diluted earnings per share	$	0.31	$	0.44	$	0.41	$	0.42
Fiscal year ended March 31, 2002
	Revenues		$	103,352	$	116,178	$	141,238	$	156,432
	Operating income		$	9,684	$	10,703	$	13,878	$	15,504
	Net earnings		$	3,898	$	4,483	$	5,371	$	6,579
		Basic earnings per share	$	0.32	$	0.37	$	0.42	$	0.40
		Diluted earnings per share	$	0.30	$	0.34	$	0.38	$	0.38

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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES

Schedule II. Valuation and Qualifying Accounts
Years Ended March 31, 2003, 2002 and 2001

			Col. C Additions (a)					Col. D Deductions (b)
Col. A	Col. B												Col. E
					(2)			(1)		(2)
			(1)		Charged to Other Accounts- Describe
Description	Balance at Beginning of Period		Charged to Costs and Expenses					Credited to Costs and Expenses		Credited to Other Accounts—Describe			Balance at End of Period
	(in thousands)
Inventory reserve
Year ended March 31, 2003	$	4,468	$	1,386	$	2,804	(c)	$	391	$	3,267	(d)	$	5,000
Year ended March 31, 2002	$	5,460	$	1,383	$	1,261	(c)	$	2,217	$	1,419	(d)	$	4,468
Year ended March 31, 2001	$	5,340	$	4,138	$	437	(c)	$	2,021	$	2,434	(d)	$	5,460
Accrual for future costs on uncompleted contracts
Year ended March 31, 2003	$	9,324	$	4,293	$	60	(c)	$	6,367	$	202	(e)	$	7,108
Year ended March 31, 2002	$	8,032	$	6,005	$	1,612	(c)	$	3,561	$	2,764	(e)	$	9,324
Year ended March 31, 2001	$	4,973	$	6,576	$	56	(c)	$	2,562	$	1,011	(e)	$	8,032
Allowance for doubtful accounts
Year ended March 31, 2003	$	1,409	$	2,084	$	210	(c)	$	455	$	347	(d)	$	2,901
Year ended March 31, 2002	$	1,074	$	483	$	217	(c)	$	190	$	175	(d)	$	1,409
Year ended March 31, 2001	$	1,140	$	677	$	2	(c)	$	140	$	875	(d)	$	1,074
Other current assets—note receivable reserve
Year ended March 31, 2003	$	1,375	$	—	$	—		$	—	$	—		$	1,375
Year ended March 31, 2002	$	1,375	$	—	$	—		$	—	$	—		$	1,375
Year ended March 31, 2001	$	259	$	1,116	$	—		$	—	$	—		$	1,375

(a)

Represents, on a full-year basis, net credits to reserve accounts.

(b)

Represents, on a full-year basis, net charges to reserve accounts.

(c)

Represents amounts reclassified from related reserve accounts.

(d)

Represents amounts utilized and credited to related asset accounts.

(e)

Represents amounts reclassified to related reserve accounts.

92

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Not Applicable.

PART III

        The information required by Items 10 through 13 and Item 15 of this Part is incorporated herein by reference to our Definitive Proxy Statement, dated June 24, 2003, for the 2003 Annual Meeting of Stockholders. Reference also is made to the information under Executive Officers of the Registrant in Part I of this report.

Item 14.    Controls and Procedures

        Evaluation of Disclosure Controls and Procedures.    The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of a date within 90 days prior to the filing date of this Annual Report on Form 10-K (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) and required to be included in the Company's reports filed or submitted under the Exchange Act.

        Changes in Internal Controls.    Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls.

Item 16.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

The following are documents filed as part of this report:



1.

Financial Statements

	See Item 8. Financial Statements and Supplementary Data	54
2.    Financial Statement Schedules
	Schedule II—Valuation and Qualifying Accounts	92
	All other financial statement schedules have been omitted because they are either not required, not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

(b)

Reports on Form 8-K

        A Form 8-K was filed on March 10, 2003, announcing DRS's presentation to analysts and investors with respect to DRS's historical financial results, forecasts, strategic plans and other business information.

93

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DRS TECHNOLOGIES, INC.
Dated: June 24, 2003
	/s/  MARK S. NEWMAN Mark S. Newman, Chairman of the Board, President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  MARK S. NEWMAN Mark S. Newman	Chairman of the Board, President, Chief Executive Officer and Director	June 24, 2003
/s/  RICHARD A. SCHNEIDER Richard A. Schneider	Executive Vice President, Chief Financial Officer	June 24, 2003
/s/  IRA ALBOM Ira Albom	Director	June 24, 2003
/s/  DONALD C. FRASER Donald C. Fraser	Director	June 24, 2003
/s/  WILLIAM F. HEITMANN William F. Heitmann	Director	June 24, 2003
/s/  STEVEN S. HONIGMAN Steven S. Honigman	Director	June 24, 2003
/s/  C. SHELTON JAMES C. Shelton James	Director	June 24, 2003

94

/s/  MARK N. KAPLAN Mark N. Kaplan	Director	June 24, 2003
/s/  STUART F. PLATT Stuart F. Platt	Director	June 24, 2003
/s/  DENNIS J. REIMER Dennis J. Reimer	Director	June 24, 2003
/s/  ERIC J. ROSEN Eric J. Rosen	Director	June 24, 2003

95

Certification Pursuant to
Section 302 of
The Sarbanes-Oxley Act of 2002

Chief Executive Officer Certification

I, Mark S. Newman, Chief Executive Officer of DRS Technologies, Inc. (the "registrant") certify that:

1.

I have reviewed this annual Report on Form 10-K of DRS Technologies, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/  MARK S. NEWMAN Mark S. Newman
Chief Executive Officer
June 24, 2003

96

Certification Pursuant to
Section 302 of
The Sarbanes-Oxley Act of 2002

Chief Financial Officer Certification

        I, Richard A. Schneider, Chief Financial Officer of DRS Technologies, Inc. (the "registrant") certify that:

1.

I have reviewed this annual Report on Form 10-K of DRS Technologies, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c.

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/  RICHARD A. SCHNEIDER Richard A. Schneider
Chief Financial Officer
June 24, 2003

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Table of Contents
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share data)
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per-share data)
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands)
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES Schedule II. Valuation and Qualifying Accounts Years Ended March 31, 2003, 2002 and 2001
PART III
SIGNATURES
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

EX-3.3

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EXHIBIT 3.3

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.

        As authorized by Sections 242 and 103 of the Delaware General Corporation Law, the undersigned being the duly authorized officer of the above corporation, hereby amends the Amended and Restated Certificate of Incorporation thereof, as follows:

        Article FIRST of the Amended and Restated Certificate of Incorporation is hereby amended to read as follows:

FIRST:    The name of the corporation is DRS TECHNOLOGIES, INC. (hereinafter called the "corporation").

        The undersigned hereby certifies that the foregoing amendment has been adopted by the unanimous vote of the board of directors and the affirmative vote of the stockholders of the corporation in accordance with the provisions of Section 242 of the Delaware General Corporation Law.

        IN WITNESS WHEREOF, this Certificate of Amendment has been signed this 8th day of August, 1997.

/s/  NANCY R. PITEK     NANCY R. PITEK,
     Vice President

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CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.

EX-3.4

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EXHIBIT 3.4

RESOLUTION ADOPTED BY STOCKHOLDERS
ON
AUGUST 9, 2000
AMENDING THE BY-LAWS
OF
DRS TECHNOLOGIES, INC.
(the "Company")

        RESOLVED, that Article III, Section 2 of the By-Laws of the Company be amended so that, as amended, it shall read as follows:

"The number of directors which shall constitute the whole Board shall be such number, not less than seven nor more than eleven, as shall be determined from time to time by a resolution adopted by the directors then in office or by the remaining director if there be only one. Directors need not be stockholders of the Corporation, citizens of the United States, or residents of the State of Delaware."

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RESOLUTION ADOPTED BY STOCKHOLDERS ON AUGUST 9, 2000 AMENDING THE BY-LAWS OF DRS TECHNOLOGIES, INC. (the "Company")

EX-3.5

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Exhibit 3.5

CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
DRS TECHNOLOGIES, INC.

Pursuant to Section 242 of the General
Corporation Law of the State of Delaware

        DRS Technologies, Inc., a Delaware corporation (hereinafter called the "Corporation"), does hereby certify as follows:

        FIRST: Article FOURTH of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as set forth below:

        (a)    The aggregate number of shares of capital stock which the corporation is authorized to issue is 32,000,000 consisting of 30,000,000 shares of Common Stock each having a par value of $0.01 per share and 2,000,000 shares of Preferred Stock each having a par value of $10.00 per share.

        (b)    No holder of shares of stock of the corporation of any class now or hereafter authorized shall be entitled as of right to purchase or subscribe for any part of any unissued shares of stock of the corporation of any class now or hereafter authorized or any additional shares of stock to be issued by reason of any increase of the authorized capital stock of the corporation of any class, or any bonds, certificates of indebtedness, debentures or other securities convertible into stock of the corporation of any class now or hereafter authorized, but any such unissued stock or such additional authorized issue of new stock, or such securities convertible into stock, may be issued and disposed of, pursuant to resolutions 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.

        (c)    The Board of Directors hereby is vested with the authority to provide for the issuance of the Preferred Stock, at any time and from time to time, in one or more series, each of such series to have such powers, designations, preferences and relative, participating or optional or other special rights and such qualifications, limitations or restrictions thereon as expressly provided in the resolution or resolutions duly adopted by the Board of Directors providing for the issuance of shares of such series. The authority which hereby is vested in the Board of Directors shall include, but not be limited to, the authority to provide for the following matters relating to each series of the Preferred Stock:

        (1)    the number of shares to constitute such series and the designations thereof;

        (2)    the voting power, if any, of holders of shares of such series and, if voting power is limited, the circumstances under which such holders may be entitled to vote; provided, however, that the Board of Directors shall not create any series of Preferred Stock with more than one vote per share

        (3)    the rate of dividends, if any, and the extent of further participation in dividend distributions, if any, and whether dividends shall be cumulative or non-cumulative;

        (4)    whether or not such series shall be redeemable, and, if so, the terms and conditions upon which shares of such series shall be redeemable;

        (5)    the extent, if any, to which such series shall have the benefit of any sinking fund provision for the redemption or purchase of shares;

        (6)    the rights, if any, of such series, in the event of the dissolution of the corporation, or upon any distribution of the assets of the corporation; and

        (7)    whether or not the shares of such series shall be convertible, and, if so, the terms and conditions upon which shares of each series shall be convertible.

        SECOND: The foregoing amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, DRS Technologies, Inc. has caused this Certificate to be duly executed in its corporate name this 8^th day of August 200l.

DRS TECHNOLOGIES, INC.
By:	/s/  NINA LASERSON DUNN Nina Laserson Dunn Executive Vice President, General Counsel and Secretary

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Pursuant to Section 242 of the General Corporation Law of the State of Delaware

EX-10.17

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Exhibit 10.17

CREDIT AGREEMENT

dated as of September 28, 2001,

as amended and restated as of November 26, 2002

by and among

DRS TECHNOLOGIES, INC.,
as Borrower,

the Lenders referred to herein,

WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent,

TD SECURITIES (USA), INC. and
BEAR STEARNS CORPORATE LENDING, INC.,
as Syndication Agents,

and

FLEET NATIONAL BANK,
as Documentation Agent

WACHOVIA SECURITIES, INC.,
as Sole Lead Arranger and Sole Book Manager,

TABLE OF CONTENTS

ARTICLE I DEFINITIONS		2
SECTION 1.1	Definitions	2
SECTION 1.2	General	19
SECTION 1.3	Other Definitions and Provisions	20
ARTICLE II REVOLVING CREDIT FACILITY		20
SECTION 2.1	Revolving Credit Loans	20
SECTION 2.2	Swingline Loans	20
SECTION 2.3	Procedure for Advances of Revolving Credit and Swingline Loans	22
SECTION 2.4	Repayment of Loans	22
SECTION 2.5	Notes	23
SECTION 2.6	Permanent Reduction of the Revolving Credit Commitment	24
SECTION 2.7	Termination of Revolving Credit Facility	24
ARTICLE III LETTER OF CREDIT FACILITY		24
SECTION 3.1	L/C Commitment	24
SECTION 3.2	Procedure for Issuance of Letters of Credit	25
SECTION 3.3	Commissions and Other Charges	25
SECTION 3.4	L/C Participations	26
SECTION 3.5	Reimbursement Obligation of the Borrower	27
SECTION 3.6	Obligations Absolute	28
SECTION 3.7	Effect of Application	28
SECTION 3.8	Existing Foreign Currency Letter of Credit	28
ARTICLE IV TERM LOAN FACILITY		28
SECTION 4.1	Term Loans	28
SECTION 4.2	Procedure for Advances of Term Loans	28
SECTION 4.3	Repayment of Term Loans	29
SECTION 4.4	Prepayments of Term Loans	29
SECTION 4.5	Term Notes	32
SECTION 4.6	Optional Increase In Term Loan Commitment	32
ARTICLE V GENERAL LOAN PROVISIONS		34
SECTION 5.1	Interest	34
SECTION 5.2	Notice and Manner of Conversion or Continuation of Loans	36
SECTION 5.3	Fees	37
SECTION 5.4	Manner of Payment	37
SECTION 5.5	Crediting of Payments and Proceeds	38
SECTION 5.6	Adjustments	38
SECTION 5.7	Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent	38
SECTION 5.8	Changed Circumstances	39
SECTION 5.9	Indemnity	41
SECTION 5.10	Capital Requirements	41
SECTION 5.11	Taxes	42
SECTION 5.12	Security	43
SECTION 5.13	Mitigation Obligations/Replacement of Lenders	43
ARTICLE VI CLOSING; CONDITIONS OF CLOSING AND BORROWING		44
SECTION 6.1	Closing	44
SECTION 6.2	Conditions to Closing and Initial Extensions of Credit on the Amendment and Restatement Closing Date	44
SECTION 6.3	Conditions to All Extensions of Credit	48

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ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE BORROWER		48
SECTION 7.1	Representations and Warranties	48
SECTION 7.2	Survival of Representations and Warranties, Etc	54
ARTICLE VIII FINANCIAL INFORMATION AND NOTICES		55
SECTION 8.1	Financial Statements and Projections	55
SECTION 8.2	Officer's Compliance Certificate	56
SECTION 8.3	Accountants' Certificate	56
SECTION 8.4	Other Reports	56
SECTION 8.5	Notice of Litigation and Other Matters	57
SECTION 8.6	Accuracy of Information	58
ARTICLE IX AFFIRMATIVE COVENANTS		58
SECTION 9.1	Preservation of Corporate Existence and Related Matters	58
SECTION 9.2	Maintenance of Property	58
SECTION 9.3	Insurance	58
SECTION 9.4	Accounting Methods and Financial Records	59
SECTION 9.5	Payment and Performance of Obligations	59
SECTION 9.6	Compliance With Laws and Approvals	59
SECTION 9.7	Environmental Laws	59
SECTION 9.8	Compliance with ERISA	59
SECTION 9.9	Compliance With Agreements	60
SECTION 9.10	Inspection of Property; Books and Records; Discussions	60
SECTION 9.11	Additional Subsidiaries	60
SECTION 9.12	Certain Agreements with Respect to the Paravant Merger	62
SECTION 9.13	Use of Proceeds	62
SECTION 9.14	Conduct of Business	63
SECTION 9.15	Account Designation	63
SECTION 9.16	Debt Rating	63
SECTION 9.17	Post Closing Covenants; Further Assurances; Existing Letters of Credit	63
ARTICLE X FINANCIAL COVENANTS		63
SECTION 10.1	Maximum Adjusted Leverage Ratio	63
SECTION 10.2	Minimum Fixed Charge Coverage Ratio	63
SECTION 10.3	Maximum Capital Expenditures	64
ARTICLE XI NEGATIVE COVENANTS		64
SECTION 11.1	Limitations on Debt	65
SECTION 11.2	Limitations on Liens	66
SECTION 11.3	Limitations on Loans, Advances, Investments and Acquisitions	68
SECTION 11.4	Limitations on Mergers and Liquidation	69
SECTION 11.5	Limitations on Sale of Assets	69
SECTION 11.6	Limitations on Dividends and Distributions	69
SECTION 11.7	Limitations on Exchange and Issuance of Capital Stock	70
SECTION 11.8	Transactions with Affiliates	70
SECTION 11.9	Certain Accounting Changes; Organizational Documents	70
SECTION 11.10	Amendments; Payments and Prepayments of Subordinated Debt	70
SECTION 11.11	Amendments, Consents and Waivers under the Sensors Purchase Agreement or Paravant Acquisition Documents	70
SECTION 11.12	Restrictive Agreements	70
SECTION 11.13	Nature of Business	71
SECTION 11.14	Limitation on Bonding Obligations	71
SECTION 11.15	Impairment of Security Interests	71
ARTICLE XII DEFAULT AND REMEDIES		71
SECTION 12.1	Events of Default	71
SECTION 12.2	Remedies	73

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SECTION 12.3	Rights and Remedies Cumulative; Non-Waiver; etc	74
ARTICLE XIII THE ADMINISTRATIVE AGENT		74
SECTION 13.1	Appointment	74
SECTION 13.2	Delegation of Duties	75
SECTION 13.3	Exculpatory Provisions	75
SECTION 13.4	Reliance by the Administrative Agent	75
SECTION 13.5	Notice of Default	75
SECTION 13.6	Non-Reliance on the Administrative Agent and Other Lenders	76
SECTION 13.7	Indemnification	76
SECTION 13.8	The Administrative Agent in Its Individual Capacity	76
SECTION 13.9	Resignation of the Administrative Agent; Successor Administrative Agent	77
SECTION 13.10	Trustee Powers	77
SECTION 13.11	Documentation and Syndication Agent	77
ARTICLE XIV MISCELLANEOUS		77
SECTION 14.1	Notices	77
SECTION 14.2	Expenses; Indemnity	78
SECTION 14.3	Set-off	79
SECTION 14.4	Governing Law	79
SECTION 14.5	Jurisdiction and Venue	79
SECTION 14.6	Waiver of Jury Trial	80
SECTION 14.7	Reversal of Payments	80
SECTION 14.8	Injunctive Relief; Punitive Damages	80
SECTION 14.9	Accounting Matters	81
SECTION 14.10	Successors and Assigns; Participations	81
SECTION 14.11	Amendments, Waivers and Consents	84
SECTION 14.12	Performance of Duties	85
SECTION 14.13	[Reserved]	85
SECTION 14.14	All Powers Coupled with Interest	85
SECTION 14.15	Survival of Indemnities	85
SECTION 14.16	Titles and Captions	58
SECTION 14.17	Severability of Provisions	58
SECTION 14.18	Counterparts v	58
SECTION 14.19	Term of Agreement	86
SECTION 14.20	Advice of Counsel	86
SECTION 14.21	No Strict Construction	86
SECTION 14.22	Inconsistencies with Other Documents; Independent Effect of Covenants	86

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EXHIBITS

Exhibit A-1	—	Form of Revolving Credit Note
Exhibit A-2	—	Form of Swingline Note
Exhibit A-3	—	Form of Term Note
Exhibit B	—	Form of Notice of Borrowing
Exhibit C	—	Form of Notice of Account Designation
Exhibit D	—	Form of Notice of Prepayment
Exhibit E	—	Form of Notice of Conversion/Continuation
Exhibit F	—	Form of Officer's Compliance Certificate
Exhibit G	—	Form of Assignment and Acceptance
Exhibit H	—	Form of Subsidiary Guaranty Agreement
Exhibit I	—	Form of Collateral Agreement
Exhibit J	—	Form of Reaffirmation Agreement
Exhibit K-1	—	Form of Borrowing Base Certificate
Exhibit K-2	—	Form of Asset Coverage Ratio Certificate
Exhibit L	—	Form of Pledge Agreement

SCHEDULES

Schedule 1	—	Joinder Documents
Schedule 2	—	Unrestricted Subsidiaries
Schedule 7.1(a)	—	Jurisdictions of Organization and Qualification
Schedule 7.1(b)	—	Subsidiaries and Capitalization
Schedule 7.1(i)	—	ERISA Plans
Schedule 7.1(l)	—	Material Contracts
Schedule 7.1(m)	—	Labor and Collective Bargaining Agreements
Schedule 7.1(r)	—	Owned and Leased Real Property
Schedule 7.1(t)	—	Debt, Guaranty and Bonding Obligations
Schedule 7.1(u)	—	Litigation
Schedule 11.2	—	Existing Liens
Schedule 11.3	—	Existing Loans, Advances and Investments
Schedule 11.8	—	Transactions with Affiliates

iv

Execution Version

        CREDIT AGREEMENT, dated as of the 28th day of September, 2001, as amended and restated as of November 26, 2002, by and among DRS TECHNOLOGIES, INC., a Delaware corporation, as Borrower, the lenders who are or may become a party to this Agreement, as Lenders, WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Lenders, TD SECURITIES (USA), INC. and BEAR STEARNS CORPORATE LENDING, INC., as Syndication Agents, and FLEET NATIONAL BANK, as Documentation Agent.

STATEMENT OF PURPOSE

        Pursuant to the Credit Agreement, dated as of September 28, 2001 (the "Original Credit Agreement"), among the Borrower and the Lenders party thereto, such existing Lenders extended certain credit facilities to the Borrower.

        The terms and conditions of the Original Credit Agreement have been amended as set forth in the (a) First Amendment, dated as of March 26, 2002, (b) Second Amendment, Waiver and Consent, dated as of May 23, 2002, and (c) Third Amendment and Consent, dated as of July 15, 2002 (collectively, the "Prior Amendments").

        In connection with the proposed Paravant Acquisition (as defined below), the Borrower has requested and the Lenders have agreed to (a) consent to the Paravant Acquisition and (b) further amend the terms and conditions of the Original Credit Agreement, as amended by the Prior Amendments, in each case subject to the terms and conditions set forth herein. In order to consolidate the changes made pursuant to the Prior Amendments and to reflect the amendments to be made in connection with the Paravant Acquisition, the Borrower and the Lenders desire to amend and restate the Original Credit Agreement, as amended by the Prior Amendments, as set forth herein.

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

ARTICLE I

DEFINITIONS

        SECTION 1.1    Definitions.    The following terms when used in this Agreement shall have the meanings assigned to them below:

        "Account Debtor" means, with respect to any Account, any Person obligated to make payment thereunder, including, without limitation, any account debtor thereon.

        "Accounts" means all "accounts" (as now or hereafter defined in the UCC) of the Borrower or any of its Restricted Subsidiaries, including, without limitation, all present or future accounts receivable, all rights to payment of a monetary obligation, whether or not earned by performance, for property sold, leased, licensed, assigned or otherwise disposed of or to be sold, leased, licensed, assigned or otherwise disposed of, for services rendered or to be rendered, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, or arising out of the use of a credit card or charge card or information contained on or for use with any such card, all rights in any merchandise or goods which any of the same may represent, all notes receivable, health care insurance receivables (as now or hereafter defined in the UCC), book debts, notes, bills, drafts, acceptances, and all sums of money due or to become due thereon and all proceeds thereof and all rights, title, security interests and guarantees with respect to each of the foregoing.

        "Additional Term Loan" has the meaning assigned thereto in Section 4.6.

        "Additional Term Loan Commitment" means (a) as to any Lender, the obligation of such Lender to make Additional Term Loans for the account of the Borrower hereunder in an aggregate principal amount not to exceed the amount set forth in the Register and (b) as to all Lenders, the aggregate

2

commitment to make Additional Term Loans. As of the Amendment and Restatement Closing Date, the aggregate Additional Term Loan Commitment is $0.

        "Additional Term Loan Effective Date" means the date, which shall be a Business Day, on or before the Additional Term Loan Termination Date, but no earlier than thirty (30) days after any Increase Notification Date, on which the Term Lenders make Additional Term Loans to the Borrower pursuant to Section 4.6.

        "Adjusted Leverage Ratio" means, as of any date, the ratio of (a) the sum of (i) Debt outstanding as of such date less (ii) the sum of (A) the outstanding amount of all Performance Based Letters of Credit and (B) so long as there are no outstanding Revolving Credit Loans funded under the Revolving Credit Facility, an amount (not to exceed $100,000,000) equal to the amount of cash and Cash Equivalents of the Borrower and its Subsidiaries immediately available to repay the obligations thereof, in each case as of such date to (b) EBITDA for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date

        "Administrative Agent" means Wachovia in its capacity as Administrative Agent hereunder, and any successor thereto appointed pursuant to Section 13.9.

        "Administrative Agent's Office" means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 14.1(c).

        "Affiliate" means, with respect to any Person, any other Person (other than a Subsidiary of such Person) which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person or any of its Subsidiaries. The term "control" means (a) the power to vote ten percent (10%) or more of the securities or other equity interests of a Person having ordinary voting power, or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

        "Aggregate Commitment" means the aggregate amount of the Lenders' Commitments hereunder, as such amount may be increased, reduced or otherwise modified at any time or from time to time pursuant to the terms hereof. On the Amendment and Restatement Closing Date, the Aggregate Commitment shall be Three Hundred Thirty Eight Million Six Hundred Thousand Dollars ($338,600,000).

        "Agreement" means this Credit Agreement, as amended, restated, supplemented or otherwise modified from time to time.

        "Amendment and Restatement Closing Date" means the date of this Agreement or such later Business Day upon which each condition described in Section 6.2 shall be satisfied or waived in all respects in a manner acceptable to the Administrative Agent, in its sole discretion.

        "Applicable Law" means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities and all orders and decrees of all courts and arbitrators.

        "Applicable Margin" shall have the meaning assigned thereto in Section 5.1(c).

        "Application" means an application, in the form specified by the Issuing Lender from time to time, requesting the Issuing Lender to issue a Letter of Credit.

        "Approved Fund" means any Person (other than a natural Person), including, without limitation, any special purpose entity, that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business; provided, that with respect to any assignment of any Revolving Credit Commitment, such Approved Fund must be administered by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

        "Asset Coverage Ratio" means, as of any date of determination, the ratio of (a) the sum of (i) Available Cash plus (ii) the gross book value of all Accounts of the Borrower and its Restricted Subsidiaries on such date determined in accordance with GAAP plus (iii) the gross book value of all

3

Inventory of the Borrower and its Restricted Subsidiaries on such date determined in accordance with GAAP to (b) the aggregate outstanding amount of all Extensions of Credit as of such date.

        "Asset Coverage Ratio Certificate" means a certificate delivered by the Borrower substantially in the form of Exhibit K-2.

        "Asset Sale Proceeds" shall have the meaning assigned thereto in Section 4.4(b)(iii).

        "Assignment and Acceptance" shall have the meaning assigned thereto in Section 14.10.

        "Available Cash" means, as of any date of determination, without duplication, calculated in accordance with GAAP, the aggregate amount of all cash and Cash Equivalents of the Borrower and its Restricted Subsidiaries, which such cash or Cash Equivalents are readily marketable and available without restriction or limitation for the immediate payment or repayment of Debt as of such date of determination.

        "Base Rate" means, at any time, the higher of (a) the Prime Rate and (b) the Federal Funds Rate plus ¹/2 of 1%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate or the Federal Funds Rate.

        "Base Rate Loan" means any Loan bearing interest at a rate based upon the Base Rate as provided in Section 5.1(a).

        "Benefited Lender" shall have the meaning assigned thereto in Section 5.6.

        "Bonding Obligations" means, with respect to the Borrower or any Restricted Subsidiary thereof, without duplication, the face amount (including, without limitation, any contingent obligations arising in connection therewith), of any surety, performance or other bond issued at the request of or delivered by the Borrower or any Restricted Subsidiary thereof in the ordinary course of business to any other Person owed any contractual or other obligation (other than for borrowed money or other Debt) by such Borrower or Restricted Subsidiary thereof to secure the performance of such contractual or other obligations or otherwise benefit such Person to whom such contractual or other obligations are owed. All outstanding Bonding Obligations as of the Amendment and Restatement Closing Date are set forth on Schedule 7.1(t).

        "Borrower" means DRS Technologies, Inc., a Delaware corporation.

        "Borrowing Base" means, at any date of determination thereof, an amount equal to the sum of (a) ninety percent (90%) of Eligible Accounts Receivable, plus (b) fifty percent (50%) of Eligible Unbilled Receivables, plus (c) fifty percent (50%) of Eligible Inventory.

        "Borrowing Base Certificate" means each certificate delivered by the Borrower substantially in the form of Exhibit K-1.

        "Borrowing Limit" means, at any date of determination thereof, an amount equal to the lesser of (a) the Borrowing Base and (b) the Revolving Credit Commitment of all Lenders.

        "Business Day" means (a) for all purposes other than as set forth in clause (b) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York, are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any LIBOR Rate Loan, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.

        "Calculation Date" shall have the meaning assigned thereto in Section 5.1(c).

        "Capital Asset" means, with respect to the Borrower and its Restricted Subsidiaries, any asset that should, in accordance with GAAP, be classified and accounted for as a capital asset on a Consolidated balance sheet of the Borrower and its Restricted Subsidiaries.

        "Capital Expenditures" means with respect to the Borrower and its Restricted Subsidiaries for any period, the aggregate cost of all Capital Assets acquired by the Borrower and its Restricted Subsidiaries during such period, as determined in accordance with GAAP.

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        "Capital Lease" means any lease of any property by the Borrower or any of its Restricted Subsidiaries, as lessee, that should, in accordance with GAAP, be classified and accounted for as a capital lease on a Consolidated balance sheet of the Borrower and its Restricted Subsidiaries.

        "Cash Equivalents" shall have the meaning assigned thereto in Section 11.3(b).

        "Change in Control" shall have the meaning assigned thereto in Section 12.1(i).

        "Code" means the Internal Revenue Code of 1986, and the rules and regulations thereunder, each as amended or modified from time to time.

        "Collateral" means the collateral security for the Obligations pledged or granted pursuant to the Security Documents.

        "Collateral Agreement" means the collateral agreement dated as of September 28, 2001, entered into by the Borrower and its Domestic Subsidiaries that are Restricted Subsidiaries in favor of the Administrative Agent for the ratable benefit of itself and the Lenders, substantially in the form of Exhibit I, as amended, restated, supplemented or otherwise modified prior to the date hereof, by the Existing Joinder Documents or otherwise, as reaffirmed pursuant to the Reaffirmation Agreement and as otherwise amended, restated, supplemented or otherwise modified from time to time hereafter.

        "Commitment" means, as to any Lender, the sum of such Lender's Revolving Credit Commitment and applicable Term Loan Commitment as set forth in the Register, as such Commitment may be increased, reduced or otherwise modified at any time or from time to time pursuant to the terms hereof.

        "Commitment Percentage" means, as to any Lender at any time, the ratio of (a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment of all the Lenders.

        "Consolidated" means, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries, such statements or items on a consolidated basis in accordance with applicable principles of consolidation under GAAP.

        "Credit Facility" means, collectively, the Revolving Credit Facility, the Term Loan Facility and the L/C Facility.

        "Debt" means, with respect to the Borrower and its Restricted Subsidiaries at any date and without duplication, the sum of the following calculated in accordance with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money including, but not limited to, obligations evidenced by bonds, debentures, notes or other similar instruments of any such Person, (b) all obligations to pay the deferred purchase price of property or services of any such Person (including, without limitation, all obligations under non-competition agreements), except trade payables arising in the ordinary course of business not more than ninety (90) days past due, (c) all obligations of any such Person as lessee under Capital Leases to the extent such obligations are required to be capitalized in accordance with GAAP, (d) all Debt of any other Person secured by a Lien on any asset of any such Person, (e) all Guaranty Obligations of any such Person, (f) all obligations, contingent or otherwise, of any such Person relative to the face amount of letters of credit, whether or not drawn, including, without limitation, any Reimbursement Obligation, and banker's acceptances issued for the account of any such Person, (g) all obligations of any such Person to redeem, repurchase, exchange, defease or otherwise make payments in respect of capital stock or other securities or partnership interests of such Person and, (h) all net payment obligations incurred by any such Person pursuant to Hedging Agreements; provided, however, that Bonding Obligations shall not be considered Debt.

        "Default" means any of the events specified in Section 12.1 which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default.

        "Disputes" shall have the meaning set forth in Section 14.5(b).

        "Dollars" or "$" means, unless otherwise qualified, the lawful currency of the United States.

        "Dollar Equivalent" means, at any time of determination, (a) with respect to any L/C Obligation denominated in Dollars, the amount thereof and (b) with respect to any L/C Obligation denominated in a currency other than Dollars, the amount of Dollars which is equivalent to the amount of such L/C

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Obligation at the most favorable spot exchange rate determined by the Administrative Agent to be available to it at such time of determination.

        "Domestic Subsidiary" means any direct or indirect subsidiary of the Borrower organized under the laws of the United States, the law of any State thereof or the laws of Puerto Rico.

        "EBITDA" means, for any period, the sum of the following determined on a Consolidated basis, without duplication, for the Borrower and its Restricted Subsidiaries in accordance with GAAP: (a) Net Income for such period plus (b) the sum of the following to the extent deducted in determining Net Income: (i) income and franchise taxes, (ii) Interest Expense, (iii) amortization and depreciation, (iv) expenses related to the transactions contemplated under this Agreement, (v) extraordinary losses and (vi) non-cash minority interest deductions, less (c) interest income and any extraordinary gains, plus (d) Pro Forma EBITDA, plus (e) non-recurring charges to the extent that such non-recurring charges are reasonably satisfactory to the Administrative Agent and such non-recurring charges do not exceed 7.5% of Consolidated EBITDA (including Pro Forma EBITDA) for the period for which such charges are to be added back plus (f) for any measurement period ending during the Fiscal Year ending March 31, 2003, $2,500,000, reflecting the amount paid by DRS Photronics, Inc. pursuant to its settlement agreement with the federal government in connection with United States v. Tress; provided, that as of the fiscal quarters ending on each of the dates set forth below, EBITDA for the four (4) consecutive fiscal quarter period ending on such date shall be increased to reflect historical EBITDA attributable to the Borrower's acquisition of the Navy Controls Division of Eaton Corp. by the below amount corresponding to such fiscal quarter end:

Date	Amount
December 31, 2002	$	5,850,000
March 31, 2003	$	2,925,000

and provided further, that following the closing of the Paravant Merger, as of the fiscal quarters ending on each of the dates set forth below, EBITDA for the four (4) consecutive fiscal quarter period ending on such date shall be increased to reflect historical EBITDA attributable to Paravant by the below amount corresponding to such fiscal quarter end:

Date	Amount
December 31, 2002	$	10,600,000
March 31, 2003	$	7,950,000
June 30, 2003	$	5,300,000
September 30, 2003	$	2,650,000

        (In the event the Paravant Merger does not close on or prior to December 31, 2002, the foregoing schedule of EBITDA increases may be modified with the mutual agreement of the Borrower and the Administrative Agent to reflect such revised closing date.)

        "Eligible Assignee" means, with respect to any assignment of the rights, interest and obligations of a Lender hereunder, a Person that is at the time of such assignment (a) a commercial bank organized under the laws of the United States or any state thereof, having combined capital and surplus in excess of $500,000,000, (b) a commercial bank organized under the laws of any other country that is a member of the Organization of Economic Cooperation and Development, or a political subdivision of any such country, having combined capital and surplus in excess of $500,000,000, (c) a finance company, insurance company or other financial institution which in the ordinary course of business extends credit of the type extended hereunder and that has total assets in excess of $500,000,000, (d) already a Lender hereunder (whether as an original party to this Agreement or as the assignee of another Lender), (e) the successor (whether by transfer of assets, merger or otherwise) to all or substantially all of the commercial lending business of the assigning Lender, (f) any Affiliate of the assigning Lender, (g) any Approved Fund or (h) any other Person that has been approved in writing as an Eligible Assignee by the Borrower (other than upon the occurrence and during the continuance of any Default or Event of Default) and the Administrative Agent.

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        "Eligible Accounts Receivable" means, at any date of determination thereof, any bona fide Account created or acquired by the Borrower or any Restricted Subsidiary thereof in the ordinary course of their business as presently conducted, for which the Account Debtor has been billed and which Account satisfies and continues to satisfy the following requirements:

        (i)    The Account is a bona fide existing obligation of the named Account Debtor arising from the rendering of services or the sale and delivery of merchandise to such Account Debtor in the ordinary course of business on terms that are normal and customary in the business of the Borrower or its Restricted Subsidiaries and is actually and absolutely owing to the Borrower or a Restricted Subsidiary of the Borrower and is not contingent for any reason and such Borrower or such Restricted Subsidiary has lawful and absolute title to such Account;

        (ii)   The Account does not arise out of transactions with an employee, officer, agent, director, stockholder or other Affiliate of the Borrower or any Restricted Subsidiary thereof;

        (iii)  The Account is evidenced by an invoice and has not remained unpaid for a period exceeding ninety (90) days or more beyond the invoice date of the invoice;

        (iv)  The Account is not due from an Account Debtor whose debt on Accounts that are unpaid ninety (90) days or more after the invoice date of the respective invoices exceeds fifty percent (50%) of such Account Debtor's total debt to the Borrower and its Restricted Subsidiaries;

        (v)   The Account is a valid, legally enforceable obligation of the named Account Debtor and no offset (including without limitation discounts, advertising allowances, counterclaims or contra accounts) or other defense on the part of such named Account Debtor or any claim on the part of such Account Debtor denying liability thereunder has been asserted; provided, however, that if the Account is subject to any such offset, defense or claim, or any inventory related thereto has been returned, such Account shall not be an Eligible Account Receivable only to the extent of the maximum amount of such offset, defense, claim or return and the balance of such Account, if it otherwise represents a valid, uncontested and legally enforceable obligation of the Account Debtor and meets all of the other criteria for eligibility set forth herein, shall be considered an Eligible Account Receivable;

        (vi)  The named Account Debtor is not the subject of any bankruptcy or insolvency proceeding of any kind;

        (vii) The services giving rise to such Account have been performed (unless billing prior to such services having been performed is permitted under the agreement with the named Account Debtor) or the subject merchandise has been shipped or delivered on open Account to the named Account Debtor on an absolute sale basis and not on a bill-and-hold, consignment, sale on approval or subject to any other repurchase or return agreement and no material part of the subject goods has been returned;

        (viii) Other than pursuant to the Security Documents, the Account is not subject to any Lien or security interest whatsoever, including any Account owed pursuant to any contractual or other obligation of the Borrower or any Restricted Subsidiary thereof subject to any Bonding Obligation;

        (ix)  The Account is not evidenced by chattel paper or an instrument of any kind;

        (x)   The Account is not due from an Account Debtor, except for the United States government, its branches and its agencies, whose total debt to the Borrower and its Restricted Subsidiaries, on a Consolidated basis, on Accounts exceeds fifteen percent (15%) of the aggregate amount of the Eligible Accounts Receivable; provided, however, that the Account shall not be an Eligible Account Receivable only to the extent of such excess, if it otherwise represents a valid, uncontested and legally enforceable obligation of the named Account Debtor and meets all of the other criteria for eligibility set forth herein;

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        (xi)  The Account is not due pursuant to a Governmental Contract with respect to which the aggregate amount of all Accounts due under such Governmental Contract to the Borrower and its Subsidiaries, on a Consolidated basis, exceeds fifteen percent (15%) of the aggregate amount of the Eligible Accounts Receivable; provided, however, that the Account shall not be an Eligible Account Receivable only to the extent of such excess, if it otherwise represents a valid, uncontested and legally enforceable obligation of the Account Debtor and meets all of the other criteria for eligibility set forth herein;

        (xii) The Account has not been turned over to any Person that is not a Restricted Subsidiary or Affiliate of the Borrower for collection;

        (xiii) The Administrative Agent has not determined, in good faith in its reasonable discretion in accordance with its internal credit policies and after fifteen (15) days notice to the Borrower that (A) collection of the Account is insecure or (B) the Account may not be paid by reason of the named Account Debtor's financial inability to pay;

        (xiv) The Account is not with a customer located in any state denying creditors access to said state's courts in the absence of a notice of business activities report or other similar filing, unless the Borrower, its Restricted Subsidiaries and Affiliates have either qualified as a foreign corporation authorized to transact business in such state or has filed a notice of business activities report or similar filing with the applicable state agency for the then current year;

        (xv) With respect to any Account, which is payable to a Foreign Subsidiary (any such Account, a "Foreign Account"), the amount of such Foreign Account is reported in Dollars (irrespective of the currency in which such Account is payable) on the applicable Borrowing Base Certificate; provided that no more than thirty percent (30%) of the aggregate amount of all Eligible Accounts Receivable at any one time shall be Foreign Accounts; and

        (xvi) In addition to the foregoing, with respect to Accounts arising out of a Governmental Contract, the Administrative Agent is satisfied as to the absence of setoffs, counterclaims and other defenses to payment on the part of the United States or any state governmental authority.

        "Eligible Inventory" means, at any date of determination, any Inventory of the Borrower or any Restricted Subsidiary thereof that satisfies and continues to satisfy each of the following requirements:

        (a)   Any warranty or representation contained in this Agreement or any of the other Loan Documents applicable either to Inventory in general or to any specific Inventory remains true and correct in all material respects with respect to such Inventory;

        (b)   If the Inventory is located in a public warehouse, the Administrative Agent shall have received a control agreement, in form and substance reasonably satisfactory to the Administrative Agent;

        (c)   The Inventory is not under consignment to or from any Person;

        (d)   The Inventory is free from defects which would materially and adversely affect the market value thereof;

        (e)   The Inventory meets in all material respects all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, and is either currently useable or currently saleable in the normal course of the Borrower's or any Restricted Subsidiary's business;

        (f)    The Inventory was produced in accordance with the Fair Labor Standards Act and is not subject to the "hot goods" provisions contained in 29 U.S.C. § 215 or any successor statute or section;

        (g)   The Inventory is not obsolete or currently unfit for use or sale in the ordinary course of the business of the Borrower or any Restricted Subsidiary thereof;

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        (h)   Other than pursuant to the Security Documents, the Inventory is not subject to any Lien or security interest whatsoever; provided that for purposes hereof, any Inventory subject to a progress payment shall not be considered to be subject to a Lien or security interest.

        (i)    If the Inventory has been purchased with a trade letter of credit, all reimbursement and similar obligations with respect to such trade letter of credit has been paid in full;

        (j)    With respect to any Inventory located outside of the United States (any such Inventory, "Foreign Inventory"), no more than thirty percent (30%) of the aggregate amount of all Eligible Inventory at any one time shall be Foreign Inventory; and

        (k)   The Administrative Agent has not determined, in good faith in its reasonable discretion in accordance with its internal credit policies, that the Inventory is otherwise ineligible.

        "Eligible Unbilled Receivables" means, at any date of determination thereof, any Account (i) which is an Eligible Accounts Receivable, but for the fact such Account has not been invoiced (a) as a result of normal frequency of billing under the particular contract, or (b) as a result of government delays in the preparation of contract documents and (ii) which will be invoiced within ninety (90) days of the "as of" date of the particular Borrowing Base Certificate setting forth such Account.

        "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower or any ERISA Affiliate or (b) has at any time within the preceding six (6) years been maintained for the employees of the Borrower or any current or former ERISA Affiliate.

        "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or any permit issued, or any approval given, under any such Environmental Law, including, without limitation, any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages, contribution, indemnification cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to human health or the environment.

        "Environmental Laws" means any and all federal, foreign, state, provincial and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Materials.

        "ERISA" means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, each as amended or modified from time to time.

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        "ERISA Affiliate" means any Person who, together with the Borrower, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA.

        "Eurodollar Reserve Percentage" means, for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including, without limitation, any basic, supplemental or emergency reserves) in respect of eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal Reserve System in New York City.

        "Event of Default" means any of the events specified in Section 12.1, provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied.

        "Excess Cash Flow" means, for any period of determination, the sum of (a) EBITDA for such period (determined by adding back thereto any amounts deducted in determining Net Income for such period that were paid, incurred or accrued by Borrower or any of its Restricted Subsidiaries in violation of any of the other provisions of this Agreement), minus (b) income and franchise taxes (paid or payable in cash) and (to the extent permitted hereunder) Interest Expense (paid or payable in cash) minus (c) all principal payments made in respect of Debt during such period, to the extent permitted hereunder (excluding Excess Cash Flow payments pursuant to Section 4.4(b)(vii)) minus (d) all Capital Expenditures made in cash during such period, to the extent permitted hereunder, minus (e) non-scheduled principal payments of Term Loans (excluding Excess Cash Flow payments pursuant to Section 4.4(b)(v)) and plus or minus (as applicable) (f) changes in working capital.

        "Excess Proceeds" shall have the meaning assigned thereto in Section 4.4(b)(vii).

        "Existing Foreign Currency Letter of Credit" means letter of credit number 866287 issued by Mellon Bank, N.A. in the face amount of £750,000.

        "Existing Joinder Documents" means each agreement and instrument listed on Schedule 1 hereto.

        "Existing Letters of Credit" means those letters of credit issued by Mellon Bank, N.A. and existing on the Closing Date and identified on Schedule 7.1(t).

        "Extensions of Credit" means, as to any Lender at any time, (a) an amount equal to the sum of (i) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding, (ii) such Lender's Revolving Credit Commitment Percentage of the L/C Obligations then outstanding, (iii) such Lender's Revolving Credit Commitment Percentage of the Swingline Loans then outstanding and (iv) the aggregate principal amount of all Term Loans made by such Lender then outstanding, or (b) the making of any Loan or participation in any Letter of Credit by such Lender, as the context requires.

        "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto.

        "Federal Funds Rate" means, the rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) representing the daily effective federal funds rate as quoted by the Administrative Agent and confirmed in Federal Reserve Board Statistical Release H.15 (519) or any successor or substitute publication selected by the Administrative Agent. If, for any reason, such rate is not available, then "Federal Funds Rate" means a daily rate which is determined, in the opinion of the Administrative Agent, to be the rate at which federal funds are being offered for sale in the national federal funds market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be the same as the rate for the most immediately preceding Business Day.

        "Fiscal Year" means the fiscal year of the Borrower and its Restricted Subsidiaries ending on March 31.

        "Fixed Charges" means, for any period, the sum of the following determined on a Consolidated basis, without duplication, for the Borrower and its Restricted Subsidiaries in accordance with GAAP:

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(a) Interest Expense (paid in cash), (b) scheduled principal payments with respect to Debt, and (c) cash taxes.

        "Foreign Accounts" shall have the meaning assigned thereto in clause (vii) of the definition of Eligible Accounts Receivable.

        "Foreign Subsidiary" means any direct or indirect subsidiary of the Borrower that is not a Domestic Subsidiary.

        "GAAP" means United States generally accepted accounting principles, as recognized by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, consistently applied and maintained on a consistent basis for the Borrower and its Subsidiaries throughout the period indicated.

        "Governmental Approvals" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

        "Governmental Authority" means any nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

        "Governmental Contract" means a contract between the Borrower and an agency, department or instrumentality of the United States or any state Governmental Authority in the United States where such Borrower is the prime contractor.

        "Guaranty Obligation" means, with respect to the Borrower and its Restricted Subsidiaries, without duplication, any obligation, contingent or otherwise, of any such Person pursuant to which such Person has directly or indirectly guaranteed any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of any such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement condition or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, that the term Guaranty Obligation shall not include (i) endorsements for collection or deposit in the ordinary course of business or (ii) guarantees by the Borrower or any Restricted Subsidiary thereof of any non-Debt obligations of the Borrower or any Restricted Subsidiary thereof.

        "Hazardous Materials" means any substances or materials (a) which are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants, chemical substances or mixtures or toxic substances under any Environmental Law, (b) which are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human health or the environment and are or become regulated by any Governmental Authority, (c) the presence of which require investigation or remediation under any Environmental Law or common law, (d) the discharge or emission or release of which requires a permit or license under any Environmental Law or other Governmental Approval, (e) which are deemed to constitute a nuisance or a trespass which pose a health or safety hazard to Persons or neighboring properties, or (f) which contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.

        "Hedging Agreement" means any agreement with respect to any Interest Rate Contract, forward rate agreement, commodity swap, forward foreign exchange agreement, currency swap agreement, cross-currency rate swap agreement, currency option agreement or other agreement or arrangement designed to alter the risks of any Person arising from fluctuations in interest rates, currency values or commodity prices, all as amended, restated, supplemented or otherwise modified from time to time.

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        "Increase Notification" means the written notice by the Borrower of its desire to increase the Term Loan Commitment pursuant to Section 4.6.

        "Increase Notification Date" means the date on which the Increase Notification is received by the Administrative Agent.

        "Initial Term Loan Commitment" means (a) as to any Lender, the obligation of such Lender to make Initial Term Loans for the account of the Borrower hereunder in an aggregate principal amount not to exceed the amount set forth in the Register and (b) as to all Lenders, the aggregate commitment to make Initial Term Loans. As of the Original Closing Date, the Initial Term Loan Commitment was $140,000,000, and as of the Amendment and Restatement Closing Date (after giving effect to repayments of the Initial Term Loans prior to such date) the Initial Term Loan Commitment is $138,600,000.

        "Initial Term Loans" means the term loans made to the Borrower by the Lenders pursuant to Section 4.1(a) on the Original Closing Date and shall not include any of the Supplemental Term Loans made to the Borrower pursuant to Section 4.1(b) or any of the Additional Term Loans made to the Borrower pursuant to Section 4.6.

        "Insurance and Condemnation Proceeds" shall have the meaning assigned thereto in Section 4.4(b)(iv).

        "Interest Expense" means, with respect to the Borrower and its Restricted Subsidiaries for any period, the gross interest expense (including, without limitation, interest expense attributable to Capital Leases and all net payment obligations pursuant to Hedging Agreements) of the Borrower and its Restricted Subsidiaries, all determined for such period on a Consolidated basis, without duplication, in accordance with GAAP.

        "Interest Period" shall have the meaning assigned thereto in Section 5.1(b).

        "Interest Rate Contract" means any interest rate swap agreement, interest rate cap agreement, interest rate floor agreement, interest rate collar agreement, interest rate option or any other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of any Person and any confirming letter executed pursuant to such agreement, all as amended, restated, supplemented or otherwise modified from time to time.

        "Inventory" means all "inventory" (as now or hereafter defined in the UCC) of the Borrower or any Restricted Subsidiary, including, without limitation, all raw materials, inventory and other materials and supplies, work-in-process, finished goods, all accessions thereto, documents therefor and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto.

        "ISP98" means the International Standby Practices (1998 Revision, effective January 1, 1999), International Chamber of Commerce Publication No. 590.

        "Issuing Lender" means (a) with respect to Letters of Credit issued hereunder after the Original Closing Date, Wachovia, in its capacity as issuer thereof, or any successor thereto and (b) with respect to the Existing Letters of Credit, Mellon Bank, N.A.

        "Issuing Lender" means with respect to Letters of Credit issued hereunder, Wachovia, in its capacity as issuer thereof, or any successor thereto.

        "L/C Commitment" means Seventy-Five Million Dollars ($75,000,000).

        "L/C Facility" means the letter of credit facility established pursuant to Article III.

        "L/C Obligations" means at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5.

        "L/C Participants" means the collective reference to all the Lenders other than the Issuing Lender.

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        "Lender" means each Person executing this Agreement as a Lender (including, without limitation, the Issuing Lender and the Swingline Lender unless the context otherwise requires) set forth on the signature pages hereto and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 4.6 or Section 14.10.

        "Lending Office" means, with respect to any Lender, the office of such Lender maintaining such Lender's Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable, of the Extensions of Credit.

        "Letters of Credit" means the collective reference to letters of credit issued pursuant to Section 3.1 and the Existing Letters of Credit.

        "LIBOR" means the rate of interest per annum determined on the basis of the rate for deposits in Dollars in minimum amounts of at least $5,000,000 for a period equal to the applicable Interest Period which appears on the Dow Jones Market Screen 3750 at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period (rounded upward, if necessary, to the nearest 1/100^th of 1%). If, for any reason, such rate does not appear on Dow Jones Market Screen 3750, then "LIBOR" shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars in minimum amounts of at least $5,000,000 would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period. Each calculation by the Administrative Agent of LIBOR shall be conclusive and binding for all purposes, absent manifest error.

        "LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula:

LIBOR Rate =                           LIBOR                           
1.00-Eurodollar Reserve Percentage

        "LIBOR Rate Loan" means any Loan bearing interest at a rate based upon the LIBOR Rate as provided in Section 5.1(a).

        "Lien" means, with respect to any asset, any mortgage, leasehold mortgage, lien, pledge, charge, security interest, hypothecation or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset.

        "Loan Documents" means, collectively, this Agreement, the Notes, the Applications, the Security Documents, each joinder agreement executed pursuant to Section 9.11 and each other document, instrument, certificate and agreement executed and delivered by the Borrower or any Subsidiary thereof in connection with this Agreement or otherwise referred to herein or contemplated hereby (excluding any Hedging Agreement), all as may be amended, restated, supplemented or otherwise modified from time to time.

        "Loans" means the collective reference to the Revolving Credit Loans, the Term Loans, the Swingline Loans, and "Loan" means any of such Loans.

        "Material Adverse Effect" means, with respect to the Borrower or any of its Restricted Subsidiaries (or prior to the consummation of the Paravant Merger, Paravant or any of its Subsidiaries), a material adverse effect on (i) the properties, business, prospects, operations or condition (financial or otherwise) of such Persons, taken as a whole, or (ii) the ability of such Persons, taken as a whole, to perform their obligations under the Loan Documents in each case to which they are parties.

        "Material Contract" means (a) any contract or other agreement, written or oral, of the Borrower or any of its Restricted Subsidiaries involving monetary liability of or to any Person in an amount in excess of $5,000,000 per annum, or (b) any other contract or agreement, written or oral, of the Borrower or

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any of its Restricted Subsidiaries the failure to comply with which could reasonably be expected to have a Material Adverse Effect.

        "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, or has accrued an obligation to make contributions within the preceding six (6) years.

        "Net Cash Proceeds" means, as applicable, (a) with respect to any sale or other disposition of assets, the gross cash proceeds received by the Borrower or any of its Restricted Subsidiaries from such sale less the sum of (i) all income taxes and other taxes assessed by (or reasonably anticipated to be payable to) a Governmental Authority as a result of such sale and any other fees and expenses incurred in connection therewith, (ii) net reserves required in accordance with GAAP in connection with such sale and (iii) the principal amount of, and premium, if any, and interest on any Debt secured by a Lien on the asset (or a portion thereof) sold, which Debt is required to be repaid in connection with such sale, (b) with respect to any offering of capital stock or issuance of Debt, the gross cash proceeds received by the Borrower or any of its Restricted Subsidiaries therefrom less all reasonable legal, underwriting and other reasonable fees and expenses incurred in connection therewith and (c) with respect to any payment under an insurance policy or in connection with a condemnation proceeding, the amount of cash proceeds received by the Borrower or its Restricted Subsidiaries from an insurance company or Governmental Authority, as applicable, net of all reasonable expenses of collection.

        "Net Income" means, with respect to the Borrower and its Restricted Subsidiaries, for any period of determination, the net income (or loss) of the Borrower and its Restricted Subsidiaries for such period, determined on a Consolidated basis in accordance with GAAP; provided that there shall be excluded from Net Income the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary of such Person or is merged into or consolidated with such Person or any of its Restricted Subsidiaries or that Person's assets are acquired by such Person or any of its Restricted Subsidiaries.

        "New Lender" shall have the meaning assigned thereto in Section 4.6(b).

        "Notes" means the collective reference to the Revolving Credit Notes, the Term Notes and Swingline Note, and "Note" means any of such Notes.

        "Notice of Account Designation" shall have the meaning assigned thereto in Section 2.3(b).

        "Notice of Borrowing" shall have the meaning assigned thereto in Section 2.3(a).

        "Notice of Conversion/Continuation" shall have the meaning assigned thereto in Section 5.2.

        "Notice of Prepayment" shall have the meaning assigned thereto in Section 2.4(c).

        "Obligations" means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including interest accruing after the filing of any bankruptcy or similar petition) the Loans, (b) the L/C Obligations, (c) all existing or future payment and other obligations owing by the Borrower under any Hedging Agreement (which such Hedging Agreement is permitted hereunder) with any Person that is a Lender hereunder at the time such Hedging Agreement is executed, (all such obligations with respect to any such Hedging Agreement, "Hedging Obligations") and (d) all other fees and commissions (including attorneys' fees), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Borrower or any of its Restricted Subsidiaries to the Lenders or the Administrative Agent, in each case under or in respect of this Agreement, any Note, any Letter of Credit or any of the other Loan Documents of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note.

        "Officer's Compliance Certificate" shall have the meaning assigned thereto in Section 8.2.

        "Original Closing Date" means September 28, 2001.

        "Other Taxes" shall have the meaning assigned thereto in Section 5.11(b).

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        "Paravant" means Paravant Inc., a Florida corporation.

        "Paravant Acquisition" means, collectively, the acquisition of all of the issued and outstanding shares of common stock of Paravant pursuant to the Paravant Tender Offer and the subsequent Paravant Merger.

        "Paravant Merger" means the merger of Prince Merger Corporation with and into Paravant, pursuant to the terms and conditions of the Paravant Merger Agreement.

        "Paravant Merger Agreement" means the Agreement and Plan of Merger, dated as of October 23, 2002, among the Borrower, Prince Merger Corporation (a Wholly-Owned Subsidiary of the Borrower) and Paravant, as amended, modified or supplemented from time to time with the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld or delayed.

        "Paravant Tender Offer" means the Tender Offer made by Prince Merger Corporation for all of the issued and outstanding shares of Paravant common stock pursuant to the Offer to Purchase, dated October 28, 2002.

        "PBGC" means the Pension Benefit Guaranty Corporation or any successor agency.

        "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (a) is maintained for the employees of the Borrower or any ERISA Affiliates or (b) has at any time within the preceding six (6) years been maintained for the employees of the Borrower or any of its current or former ERISA Affiliates.

        "Performance Based Letters of Credit" means standby Letters of Credit issued to ensure the performance of services and/or delivery of goods by or on behalf of the Borrower.

        "Permitted Acquisition" means any acquisition permitted by Section 11.3(d).

        "Permitted Acquisition Consideration" means the aggregate amount of the purchase price (including, but not limited to, any assumed debt, earn-outs (valued at the maximum amount payable thereunder), deferred payments, or capital stock of the Borrower, net of the applicable acquired company's cash (including Cash Equivalents) balance as shown on its most recent financial statements delivered in connection with the applicable Permitted Acquisition) to be paid on a singular basis in connection with any applicable Permitted Acquisition as set forth in the applicable Permitted Acquisition Documents executed by the Borrower or any of its Restricted Subsidiaries in order to consummate the applicable Permitted Acquisition.

        "Permitted Acquisition Documents" means the merger, stock and/or asset purchase documents entered into in connection with any Permitted Acquisition.

        "Permitted Lien" means any Lien permitted pursuant to Section 11.2 hereof.

        "Permitted Subordinated Debt" means Subordinated Debt consisting of high-yield notes or convertible notes issued on terms and conditions (including subordination provisions) reasonably satisfactory to the Administrative Agent and consistent with then-current market terms and conditions of such tenor of Subordinated Debt.

        "Person" means an individual, corporation, limited liability company, partnership, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof.

        "Pledge Agreement" means the collective reference to the pledge agreements entered into by the Borrower (or applicable Restricted Subsidiary thereof) in favor of the Administrative Agent for the ratable benefit of itself and the Lenders, substantially in the form of Exhibit L hereto, as amended, restated, supplemented or otherwise modified prior to the date hereof, by the Existing Joinder Documents or otherwise, as reaffirmed pursuant to the Reaffirmation Agreement and as otherwise amended, restated, supplemented or otherwise modified from time to time hereafter.

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        "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by Wachovia as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by Wachovia as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.

        "Pro Forma EBITDA" means, with respect to any Person acquired in connection with a Permitted Acquisition consummated during any calculation period, EBITDA of such acquired Person calculated on a pro forma basis as of the first day of such calculation period.

        "Purchasing Lender" shall have the meaning assigned thereto in Section 14.10.

        "Reaffirmation Agreement" means the Reaffirmation Agreement, of even date herewith, among the Borrower, its Domestic Subsidiaries that are Restricted Subsidiaries and the Administrative Agent (for the ratable benefit of itself and the Lenders), substantially in the form of Exhibit J, as amended, restated, supplemented or otherwise modified from time to time.

        "Register" shall have the meaning assigned thereto in Section 14.10(d).

        "Reimbursement Obligation" means the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit.

        "Required Lenders" means, at any date, any combination of Lenders holding at least fifty-one percent (51%) of each of (a) the Revolving Credit Commitment (or, if the Revolving Credit Facility has been terminated, any combination of Lenders holding at least fifty-one percent (51%) of the aggregate outstanding Extensions of Credit thereunder) and (b) the aggregate outstanding Extensions of Credit under the Term Loan Facility.

        "Responsible Officer" means any of the following: the chief executive officer, chief financial officer or corporate controller of the Borrower or any other officer of the Borrower reasonably acceptable to the Administrative Agent.

        "Restricted Paravant Entities" means Paravant and each of its Wholly-Owned Subsidiaries.

        "Restricted Subsidiaries" means all Subsidiaries of the Borrower other than the Unrestricted Subsidiaries.

        "Revolving Credit Commitment" means (a) as to any Lender, the obligation of such Lender to make Revolving Credit Loans for the account of the Borrower hereunder in an aggregate principal amount at any time outstanding not to exceed the amount set forth in the Register, as such Revolving Credit Commitment may be reduced or modified at any time or from time to time pursuant to the terms hereof and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Credit Loans, as such amount may be reduced at any time or from time to time pursuant to the terms hereof. The Revolving Credit Commitment of all Lenders on the Amendment and Restatement Closing Date shall be $125,000,000.

        "Revolving Credit Commitment Percentage" means, as to any Lender at any time, the ratio of (a) the amount of the Revolving Credit Commitment of such Lender to (b) the Revolving Credit Commitments of all Lenders.

        "Revolving Credit Facility" means the revolving credit facility established pursuant to Article II.

        "Revolving Credit Loans" means any revolving loan made to the Borrower pursuant to Section 2.1, and all such revolving loans collectively as the context requires.

        "Revolving Credit Maturity Date" means the earliest of the dates referred to in Section 2.7.

        "Revolving Credit Notes" means the collective reference to the revolving credit promissory notes made by the Borrower payable to the order of each Lender, substantially in the form of Exhibit A-1 hereto, evidencing the Revolving Credit Loans, and any amendments, supplements and modifications

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thereto, any substitutions therefor, and any replacements, restatements, renewals or extensions thereof, in whole or in part; "Revolving Credit Note" means any of such Revolving Credit Notes.

        "Security Documents" means the collective reference to the Subsidiary Guaranty Agreement, the Collateral Agreement, the Pledge Agreement, the Reaffirmation Agreement and each other agreement or writing pursuant to which the Borrower or any Restricted Subsidiary thereof purports to pledge or grant a security interest in any property or assets securing the Obligations or any such Person purports to guaranty the payment and/or performance of the Obligations, in each case, as amended, restated, supplemented or otherwise modified prior to the date hereof, by the Existing Joinder Documents or otherwise, as reaffirmed pursuant by the Reaffirmation Agreement and as otherwise amended, restated, supplemented or otherwise modified from time to time hereafter.

        "Sensors Acquisition" means the acquisition by the Borrower of the assets and business of the Sensors and Electronic Systems Organization business unit of The Boeing Company, pursuant to the terms and conditions of the Sensors Purchase Agreement.

        "Sensors Purchase Agreement" means the Asset Purchase Agreement between The Boeing Company and the Borrower dated as of August 3, 2001, as amended, modified or otherwise supplemented.

        "Solvent" means, as to the Borrower and its Restricted Subsidiaries on a particular date, that any such Person (a) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is able to pay its debts as they mature, (b) owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liabilities (including contingencies), and (c) does not believe that it will incur debts or liabilities beyond its ability to pay such debts or liabilities as they mature.

        "Subordinated Debt" means the collective reference to (a) Permitted Subordinated Debt and (b) any other Debt of the Borrower or any Restricted Subsidiary subordinated in right and time of payment to the Obligations and containing such other terms and conditions, in each case as are reasonably satisfactory to the Required Lenders.

        "Subsidiary" means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency). Unless otherwise qualified, references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the Borrower.

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        "Subsidiary Guaranteed Obligations" means the collective reference to the guaranteed obligations of each of the Restricted Subsidiaries party to the Subsidiary Guaranty Agreement.

        "Subsidiary Guarantors" means the collective reference to the Domestic Subsidiaries of the Borrower who are Restricted Subsidiaries executing the Subsidiary Guaranty Agreement.

        "Subsidiary Guaranty Agreement" means the unconditional guaranty dated as of September 28, 2001 entered into by each of the Subsidiary Guarantors in favor of the Administrative Agent for the ratable benefit of itself and the Lenders, substantially in the form of Exhibit H, as amended, restated, supplemented or otherwise modified prior to the date hereof, by the Existing Joinder Documents or otherwise, as reaffirmed by the Reaffirmation Agreement and as otherwise amended, restated, supplemented or otherwise modified from time to time hereafter.

        "Supplemental Term Loan Commitment" means (a) as to any Lender, the obligation of such Lender to make Supplemental Term Loans for the account of the Borrower hereunder in an aggregate principal amount not to exceed the amount set forth in the Register and (b) as to all Lenders, the aggregate commitment to make Supplemental Term Loans. As of the Amendment and Restatement Closing Date, the aggregate Supplemental Term Loan Commitment is $75,000,000.

        "Supplemental Term Loans" means the term loans to be made to the Borrower by the Lenders pursuant to Section 4.1(b) on the Amendment and Restatement Closing Date.

        "Swingline Commitment" means the lesser of (a) Five Million Dollars ($5,000,000) and (b) the Revolving Credit Commitment.

        "Swingline Facility" means the swingline facility established pursuant to Section 2.2.

        "Swingline Lender" means Wachovia in its capacity as swingline lender hereunder.

        "Swingline Loan" means any swingline loan made by the Swingline Lender to the Borrower pursuant to Section 2.2, and all such swingline loans collectively as the context requires.

        "Swingline Note" means the swingline promissory note made by the Borrower payable to the order of the Swingline Lender, substantially in the form of Exhibit A-2 hereto, evidencing the Swingline Loans, and any amendments, supplements and modifications thereto, any substitutions therefor, and any replacements, restatements, renewals or extensions thereof, in whole or in part.

        "Swingline Termination Date" means the first to occur of (a) the resignation of Wachovia as Administrative Agent in accordance with Section 13.9 and (b) the Revolving Credit Maturity Date.

        "Taxes" shall have the meaning assigned thereto in Section 5.11(a).

        "Term Loan Commitment" means (a) as to any Lender, the obligation of such Lender to make Initial Term Loans, Supplemental Term Loans and/or Additional Term Loans, as applicable, for the account of the Borrower hereunder in an aggregate principal amount not to exceed the amount set forth in the Register, as such applicable Term Loan Commitment may be increased, reduced or modified at any time or from time to time pursuant to the terms hereof and (b) as to all Lenders, the aggregate commitment to make all such Term Loans.

        "Term Loan Facility" means the term loan facility established pursuant to Article IV.

        "Term Loan Increase Termination Date" means the first to occur of (a) November 26, 2004, (b) the date of termination pursuant to Section 12.2(a), or (c) the date of repayment in full of the outstanding Term Loans pursuant to Section 4.4.

        "Term Loan Maturity Date" means the first to occur of (a) September 30, 2008, (b) the date of termination pursuant to Section 12.2(a), or (c) the date of repayment in full of the outstanding Term Loans pursuant to Section 4.4.

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        "Term Loan Percentage" means, as to any Lender, as applicable, after the applicable Term Loans are made, the ratio of (a) the outstanding principal balance of such Term Loan or Term Loans of such Lender to (b) the aggregate outstanding principal balance of all such Term Loans of all Lenders.

        "Term Loans" means the Initial Term Loans previously made and the Supplemental Term Loans to be made to the Borrower by the Lenders pursuant to Section 4.1 and all Additional Term Loans made to the Borrower pursuant to Section 4.6.

        "Term Notes" means the term promissory notes made by the Borrower payable to the order of each of the Lenders, substantially in the form of Exhibit A-3 hereto, evidencing the Debt incurred by the Borrower pursuant to the Term Loan Facility, and any amendments, modifications and supplements thereto, any substitutions therefor, and any replacement, restatements, renewals or extensions thereof, in whole or in part.

        "Termination Event" means except for any such event or condition that could not reasonably be expected to have a Material Adverse Effect: (a) a "Reportable Event" described in Section 4043 of ERISA for which the notice requirement has not been waived by the PBGC, or (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination, under Section 4041 of ERISA, if the plan assets are not sufficient to pay all plan liabilities, or (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, or (f) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA, or (g) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or (h) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245 of ERISA, or (h) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.

        "Total Leverage Ratio" means, as of any date, the ratio of (a) the sum of (i) Debt outstanding as of such date less (ii) the outstanding amount of all Performance Based Letters of Credit to (b) EBITDA for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date.

        "Uniform Customs" means the Uniform Customs and Practice for Documentary Credits (1993 Revision), effective January, 1994 International Chamber of Commerce Publication No. 500.

        "Unrestricted Subsidiary" means any Subsidiary of the Borrower set forth on Schedule 2 hereto.

        "UCC" means the Uniform Commercial Code as in effect in the State of New York, as amended or modified from time to time.

        "United States" means the United States of America.

        "Wachovia" means Wachovia Bank, National Association, a national banking association, and its successors.

        "Wholly-Owned" means, with respect to a Subsidiary, that all of the shares of capital stock or other ownership interests of such Subsidiary are, directly or indirectly, owned or controlled by the Borrower and/or one or more of its Wholly-Owned Subsidiaries (except for directors' qualifying shares or other shares required by Applicable Law to be owned by a Person other than the Borrower).

        SECTION 1.2    General.    Unless otherwise specified, a reference in this Agreement to a particular article, section, subsection, Schedule or Exhibit is a reference to that article, section, subsection,

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Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Any reference herein to "Charlotte time" shall refer to the applicable time of day in Charlotte, North Carolina.

SECTION 1.3    Other Definitions and Provisions.

        (a)   Use of Capitalized Terms.    Unless otherwise defined therein, all capitalized terms defined in this Agreement shall have the defined meanings when used in this Agreement, the Notes and the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement.

        (b)   Miscellaneous.    The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

ARTICLE II

REVOLVING CREDIT FACILITY

        SECTION 2.1    Revolving Credit Loans.    Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make Revolving Credit Loans to the Borrower from time to time from the Amendment and Restatement Closing Date through, but not including, the Revolving Credit Maturity Date as requested by the Borrower in accordance with the terms of Section 2.3; provided, that (a) the sum of the aggregate amount of all outstanding Revolving Credit Loans (after giving effect to the amount requested and the use of the proceeds thereof to repay Extensions of Credit hereunder), Swingline Loans and L/C Obligations from any Lender to the Borrower shall at no time exceed such Lender's Revolving Credit Commitment and (b) no borrowing of Revolving Credit Loans shall be made if, immediately after giving effect thereto and the use of the proceeds thereof to repay Extensions of Credit hereunder, the aggregate principal amount of Revolving Credit Loans then outstanding plus (i) all outstanding Swingline Loans plus (ii) the aggregate principal amount of all outstanding L/C Obligations would exceed the then applicable Borrowing Limit. Each Revolving Credit Loan by a Lender shall be in a principal amount equal to such Lender's Revolving Credit Commitment Percentage of the aggregate principal amount of Revolving Credit Loans requested on such occasion. Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Revolving Credit Loans hereunder until the Revolving Credit Maturity Date.

SECTION 2.2    Swingline Loans.

        (a)    Availability.    Subject to the terms and conditions of this Agreement, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time from the Amendment and Restatement Closing Date through, but not including, the Swingline Termination Date; provided, that the Swingline Lender shall have no obligation to make any Swingline Loan, if, after giving effect to any amount requested and the use of the proceeds thereof to repay Extensions of Credit hereunder, (a) the aggregate principal amount of all Swingline Loans then outstanding would exceed the Swingline Commitment or (b) the aggregate principal amount of all Revolving Credit Loans then outstanding plus the aggregate principal amount of all Swingline Loans then outstanding plus the L/C Obligations then outstanding would exceed the then applicable Borrowing Limit.

        (b)   Refunding.

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          (i)  Swingline Loans shall be refunded by the Lenders (which for such purpose shall include the Swingline Lender in its capacity as a Lender having a Revolving Credit Commitment) on demand by the Swingline Lender. Subject to clause (a) of the proviso to the initial sentence of Section 2.1 hereof, such refundings shall be made by the Lenders in accordance with their respective Revolving Credit Commitment Percentages and shall thereafter be reflected as Revolving Credit Loans of the Lenders on the books and records of the Administrative Agent. Each Lender shall fund its respective Revolving Credit Commitment Percentage of Revolving Credit Loans (as Base Rate Loans) as required to repay Swingline Loans outstanding to the Swingline Lender upon demand to such Lender by telecopier (or by telephone promptly confirmed by telecopier) by the Swingline Lender but in no event later than 2:00 p.m. (Charlotte time) on the next succeeding Business Day after such demand is made. No Lender's obligation to fund its respective Revolving Credit Commitment Percentage of a Swingline Loan shall be affected by any other Lender's failure to fund its Revolving Credit Commitment Percentage of a Swingline Loan, nor shall any Lender's Revolving Credit Commitment Percentage be increased as a result of any such failure of any other Lender to fund its Revolving Credit Commitment Percentage of a Swingline Loan.

         (ii)  The Borrower shall pay to the Swingline Lender on demand the amount of such Swingline Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swingline Loans requested or required to be refunded. In addition, the Borrower hereby authorizes the Administrative Agent to charge any account maintained by the Borrower with the Swingline Lender (up to the amount available therein) in order to immediately pay the Swingline Lender the amount of such Swingline Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swingline Loans requested or required to be refunded. If any portion of any such amount paid to the Swingline Lender shall be recovered by or on behalf of the Borrower from the Swingline Lender in bankruptcy or otherwise, the loss of the amount so recovered shall be ratably shared among all the Lenders in accordance with their respective Revolving Credit Commitment Percentages (unless the amounts so recovered by or on behalf of the Borrower pertain to a Swingline Loan extended after the occurrence and during the continuance of an Event of Default of which the Administrative Agent has received notice in the manner required pursuant to Section 13.5 and which such Event of Default has not been waived by the Required Lenders or the Lenders, as applicable); provided that with respect to any Swingline Loan, no Lender shall be required to fund more than its Revolving Credit Commitment Percentage of such Swingline Loan.

        (iii)  Each Lender acknowledges and agrees that its obligation to refund Swingline Loans in accordance with the terms of this Section 2.2 is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, non-satisfaction of the conditions set forth in Article VII at the time of refunding. Further, each Lender agrees and acknowledges that if prior to the refunding of any outstanding Swingline Loans pursuant to this Section 2.2, one of the events described in Section 12.1(j) or (k) shall have occurred, each Lender will (subject to clause (a) of the proviso to the initial sentence of Section 2.1 hereof), on the date the applicable Revolving Credit Loan would have been made, purchase an undivided participating interest in the Swingline Loan to be refunded in an amount equal to its Revolving Credit Commitment Percentage of the aggregate amount of such Swingline Loan. Each Lender will immediately transfer to the Swingline Lender, in immediately available funds at the office of the Swingline Lender, the amount of its participation and upon receipt thereof the Swingline Lender will deliver to such Lender a certificate evidencing such participation dated the date of receipt of such funds and for such amount. Whenever, at any time after the Swingline Lender has received from any Lender such Lender's participating interest in a Swingline Loan, the Swingline Lender receives any payment on account thereof, the Swingline Lender will promptly distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest

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payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded).

SECTION 2.3    Procedure for Advances of Revolving Credit and Swingline Loans.

        (a)    Requests for Borrowing.    The Borrower shall give the Administrative Agent irrevocable prior written notice substantially in the form attached hereto as Exhibit B (a "Notice of Borrowing") not later than 11:00 a.m. (Charlotte time) (i) on the same Business Day as each Base Rate Loan and each Swingline Loan and (ii) at least three (3) Business Days before each LIBOR Rate Loan, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (B) the amount of such borrowing, which shall be (x) with respect to Base Rate Loans (other than Swingline Loans) in an aggregate principal amount of $2,500,000 or a whole multiple of $100,000 in excess thereof, (y) with respect to LIBOR Rate Loans in an aggregate principal amount of $2,500,000 or a whole multiple of $100,000 in excess thereof and (z) with respect to Swingline Loans in an aggregate principal amount of $50,000 or a whole multiple of $50,000 in excess thereof, (C) whether such Loan is to be a Revolving Credit Loan or Swingline Loan, (D) whether the Revolving Credit Loans are to be LIBOR Rate Loans or Base Rate Loans, and (E) in the case of a LIBOR Rate Loan, the duration of the Interest Period applicable thereto. A Notice of Borrowing received after 11:00 a.m. (Charlotte time) shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Borrowing by telecopier (or by telephone promptly confirmed by telecopier).

        (b)   Disbursement of Revolving Credit and Swingline Loans.    Not later than 2:00 p.m. (Charlotte time) on the proposed borrowing date, subject to the terms and conditions of this Agreement, (i) each Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, such Lender's Revolving Credit Commitment Percentage of the Revolving Credit Loans to be made on such borrowing date and (ii) the Swingline Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, the Swingline Loans to be made on such borrowing date; provided that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section 2.3 in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrower identified in the most recent notice substantially in the form of Exhibit C hereto (a "Notice of Account Designation") delivered by the Borrower to the Administrative Agent or as may be otherwise agreed upon by the Borrower and the Administrative Agent from time to time. Subject to Section 5.7 hereof, the Administrative Agent shall not be obligated to disburse the portion of the proceeds of any Revolving Credit Loan requested pursuant to this Section 2.3 to the extent that any Lender has not made available to the Administrative Agent its Revolving Credit Commitment Percentage of such Loan. Revolving Credit Loans to be made for the purpose of refunding Swingline Loans shall be made by the Lenders as provided in Section 2.2(b).

SECTION 2.4    Repayment of Loans.

        (a)    Repayment on Termination Date.    The Borrower hereby agrees to repay the outstanding principal amount of (i) all Revolving Credit Loans in full on the Revolving Credit Maturity Date, and (ii) all Swingline Loans in accordance with Section 2.2(b) and otherwise in full on the Revolving Credit Maturity Date, together, in each case, with all accrued but unpaid interest thereon.

        (b)   Mandatory Repayment of Revolving Credit Loans.

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          (i)  If at any time the Asset Coverage Ratio as set forth on the most recently delivered Asset Coverage Ratio Certificate and adjusted on a pro forma basis for all Extensions of Credit made and/or repaid since the date of the financial information used to determine such Asset Coverage Ratio is less than 1.00 to 1.00, the Borrower agrees to immediately repay the principal amount of outstanding Revolving Credit Loans in an amount sufficient to cause the Asset Coverage Ratio (determined on a pro forma basis after giving effect to such payment) to equal or exceed 1.00 to 1.00.

         (ii)  If at any time the outstanding principal amount of all Revolving Credit Loans plus the sum of all outstanding Swingline Loans and L/C Obligations exceeds the Borrowing Limit, the Borrower agrees to repay immediately upon notice from the Administrative Agent, by payment to the Administrative Agent for the account of the Lenders Extensions of Credit in an amount equal to such excess with each such repayment applied first to the principal amount of outstanding Swingline Loans, second to the principal amount of outstanding Revolving Credit Loans and third, with respect to any Letters of Credit then outstanding, a payment of cash collateral into a cash collateral account opened by the Administrative Agent, for the benefit of the Lenders in an amount equal to the aggregate then undrawn and unexpired Dollar Equivalent amount of such Letters of Credit (such cash collateral to be applied in accordance with Section 12.2(b)).

        (c)   Optional Repayments.    The Borrower may at any time and from time to time repay the Revolving Credit Loans and Swingline Loans, in whole or in part, upon at least three (3) Business Days' irrevocable notice to the Administrative Agent with respect to LIBOR Rate Loans and one (1) Business Day's irrevocable notice with respect to Base Rate Loans and Swingline Loans, substantially in the form attached hereto as Exhibit D (a "Notice of Prepayment") specifying the date and amount of repayment and whether the repayment is of LIBOR Rate Loans, Base Rate Loans, Swingline Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender by telecopier (or by telephone promptly confirmed by telecopier). If any such notice is given, the amount specified in such notice shall be due and payable on the date set forth in such notice. Partial repayments shall be in an aggregate amount of $2,500,000 or a whole multiple of $100,000 in excess thereof with respect to Base Rate Loans (other than Swingline Loans), $2,500,000 or a whole multiple of $100,000 in excess thereof with respect to LIBOR Rate Loans and $50,000 or a whole multiple of $50,000 in excess thereof with respect to Swingline Loans. Each such repayment shall be accompanied by an amount required to be paid pursuant to Section 5.9 hereof.

        (d)   Limitation on Repayment of LIBOR Rate Loans.    The Borrower may not repay any LIBOR Rate Loan on any day other than on the last day of the Interest Period applicable thereto unless such repayment is accompanied by any amount required to be paid pursuant to Section 5.9 hereof.

        (e)   Hedging Agreements.    No repayment or prepayment pursuant to this Section 2.4 shall affect any of the Borrower's obligations under any Hedging Agreement.

SECTION 2.5    Notes.

        (a)    Revolving Credit Notes.    Except as otherwise provided in Section 14.10 (a) - (e), each Lender's Revolving Credit Loans and the obligation of the Borrower to repay such Revolving Credit Loans shall be evidenced by a separate Revolving Credit Note executed by the Borrower payable to the order of such Lender.

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        (b)    Swingline Notes.    The Swingline Loans and the obligation of the Borrower to repay such Swingline Loans shall be evidenced by a Swingline Note executed by the Borrower payable to the order of the Swingline Lender.

        SECTION 2.6    Permanent Reduction of the Revolving Credit Commitment.

        (a)    Voluntary Reduction.    The Borrower shall have the right at any time and from time to time, upon at least five (5) Business Days' prior written notice to the Administrative Agent, to permanently reduce, without premium or penalty, (i) the entire Revolving Credit Commitment at any time or (ii) portions of the Revolving Credit Commitment, from time to time, in an aggregate principal amount not less than $2,000,000 or any whole multiple of $1,000,000 in excess thereof. Upon receipt of such notice, the Administrative Agent shall promptly notify each of the Lenders thereof by telecopier (or by telephone promptly confirmed by telecopier). The amount of each partial permanent reduction shall permanently reduce the Lenders' Revolving Credit Commitments pro rata in accordance with their respective Revolving Credit Commitment Percentages.

        (b)    Mandatory Reduction.    The Revolving Credit Commitment shall be permanently reduced on the date of the required prepayment under Section 4.4(b)(vii) by an amount equal to the amount of such Excess Proceeds as referred to in such Section 4.4(b)(vii), to the extent a corresponding prepayment was made pursuant to Section 4.4(b)(iii).

        (c)    Corresponding Payment.    Each permanent reduction permitted or required pursuant to this Section 2.6 shall be accompanied by a payment of principal sufficient to reduce the aggregate outstanding Revolving Credit Loans, Swingline Loans and L/C Obligations, as applicable, after such reduction to the Revolving Credit Commitment as so reduced and if the Revolving Credit Commitment as so reduced is less than the aggregate amount of all outstanding Letters of Credit, the Borrower shall be required to deposit cash collateral in a cash collateral account opened by the Administrative Agent in an amount equal to the aggregate then undrawn and unexpired Dollar Equivalent amount of such Letters of Credit. Such cash collateral shall be applied in accordance with Section 12.2(b). Any reduction of the Revolving Credit Commitment to zero shall be accompanied by payment of all outstanding Revolving Credit Loans and Swingline Loans (and furnishing of cash collateral satisfactory to the Administrative Agent for all L/C Obligations) and shall result in the termination of the Revolving Credit Commitment and the Swingline Commitment and the Revolving Credit Facility. Such cash collateral shall be applied in accordance with Section 12.2(b). If any reduction of the Revolving Credit Commitment requires the repayment of any LIBOR Rate Loan, such repayment shall be accompanied by any amount required to be paid pursuant to Section 5.9 hereof.

        SECTION 2.7    Termination of Revolving Credit Facility.    The Revolving Credit Facility shall terminate on the earliest of (a) September 30, 2006, (b) the date of termination by the Borrower pursuant to Section 2.6, or (c) the date of termination pursuant to Section 12.2(a).

ARTICLE III

LETTER OF CREDIT FACILITY

        SECTION 3.1    L/C Commitment.    Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4(a), agrees to issue standby Letters of Credit for the account of the Borrower on any Business Day from the Amendment and Restatement Closing Date through but not including the ninetieth (90^th) Business Day prior to the Revolving Credit Maturity Date in such form as may be approved from time to time by the Issuing Lender; provided, that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after

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giving effect to such issuance, (a) the L/C Obligations would exceed the L/C Commitment or (b) the aggregate principal amount of outstanding Revolving Credit Loans, plus the aggregate principal amount of outstanding Swingline Loans, plus the aggregate amount of L/C Obligations would exceed the then applicable Borrowing Limit. Each Letter of Credit shall (i) be denominated in Dollars in a minimum amount of $100,000 (other than the Existing Foreign Currency Letter of Credit) or in an amount less than $100,000 if approved in writing by the Administrative Agent in its sole discretion, (ii) be a standby letter of credit issued to support obligations of the Borrower or any of its Restricted Subsidiaries, contingent or otherwise, incurred in the ordinary course of business, (iii) expire on a date satisfactory to the Issuing Lender, which date shall be no later than ninety (90) Business Days prior to the Revolving Credit Maturity Date and (iv) be subject to the Uniform Customs and/or ISP98, as set forth in the Application or as determined by the Issuing Lender and, to the extent not inconsistent therewith, the laws of the State of North Carolina. The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any Applicable Law. References herein to "issue" and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any existing Letters of Credit, unless the context otherwise requires.

        SECTION 3.2    Procedure for Issuance of Letters of Credit.    The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at the Administrative Agent's Office an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to Section 3.1 and Article VII hereof, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three (3) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall promptly furnish to the Borrower a copy of such Letter of Credit and promptly notify each Lender of the issuance and upon request by any Lender, furnish to such Lender a copy of such Letter of Credit and the amount of such Lender's L/C Participation therein by telecopier (or by telephone promptly confirmed by telecopier).

        SECTION 3.3    Commissions and Other Charges.

        (a)    The Borrower shall pay to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, a letter of credit commission with respect to each Letter of Credit in an amount equal to the face amount of such Letter of Credit multiplied by the Applicable Margin with respect to Revolving Credit Loans that are LIBOR Rate Loans (determined on a per annum basis). Such commission shall be payable quarterly in arrears on the last Business Day of each calendar quarter and on the Revolving Credit Maturity Date. The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Lender and the L/C Participants all commissions received pursuant to this Section 3.3(a) in accordance with their respective Revolving Credit Commitment Percentages.

        (b)    In addition to the foregoing commission, the Borrower shall pay the Issuing Lender an issuance fee with respect to each Letter of Credit in an amount equal to the face amount of such Letter of Credit multiplied by 0.125% per annum; provided, that such issuance fee shall not be payable with respect to the Existing Letter of Credit. Such issuance fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter and on the Revolving Credit Maturity Date.

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        (c)    In addition to the foregoing fees and commissions, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit.

        SECTION 3.4    L/C Participations.

        (a)    The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees (subject to clause (a) of the proviso to the initial sentence of Section 2.1 hereof) to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to the Dollar Equivalent of such L/C Participant's Revolving Credit Commitment Percentage in the Issuing Lender's obligations and rights under and in respect of each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower through a Revolving Credit Loan or otherwise in accordance with the terms of this Agreement, such L/C Participant shall (subject to clause (a) of the proviso to the initial sentence of Section 2.1 hereof) pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to the Dollar Equivalent of such L/C Participant's Revolving Credit Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed; provided that with respect to any draft under any Letter of Credit, no Lender shall be required to fund more than its Revolving Credit Commitment Percentage of such draft.

        (b)    Upon becoming aware of any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit, the Issuing Lender shall notify each L/C Participant by telecopier (or by telephone promptly confirmed by telecopier) of the amount and due date (which shall not be less than one (1) Business Day after the giving of such notice) of such required payment and such L/C Participant shall pay to the Issuing Lender the amount specified on the applicable due date. If any such amount is paid to the Issuing Lender after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand, in addition to such amount, the product of (i) such amount, times (ii) the daily average Federal Funds Rate as determined by the Administrative Agent during the period from and including the date such payment is due to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. A certificate of the Issuing Lender with respect to any amounts owing under this Section 3.4(b) shall be conclusive in the absence of manifest error. With respect to payment to the Issuing Lender of the unreimbursed amounts described in this Section 3.4(b) and subject to the second parenthetical of the first sentence of this subsection (b), if the L/C Participants receive notice that any such payment is due (A) prior to 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due that Business Day, and (B) after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due on the following Business Day.

        (c)    Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its Revolving Credit Commitment Percentage of such payment in accordance with this Section 3.4, the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, or any payment of interest on account thereof, the Issuing Lender will promptly distribute to such L/C Participant its pro rata share thereof; provided, that in the event that any such payment received by the Issuing Lender shall be

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required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it.

        SECTION 3.5    Reimbursement Obligation of the Borrower.    In the event of any drawing under any Letter of Credit, the Borrower agrees to reimburse (either with the proceeds of a Revolving Credit Loan or a Swingline Loan as provided for in this Section 3.5 or with funds from other sources), in same day funds, the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft paid under any Letter of Credit for the Dollar Equivalent amount of (a) such draft so paid and (b) any amounts referred to in Section 3.3(c) incurred by the Issuing Lender in connection with such payment. Unless the Borrower shall immediately notify the Issuing Lender that the Borrower intends to reimburse the Issuing Lender for such drawing from other sources or funds, the Borrower shall be deemed to have timely given a Notice of Borrowing to the Administrative Agent requesting that the Lenders make a Revolving Credit Loan or, if less than the minimum amount for such Loan, a Swingline Loan, bearing interest at the Base Rate on such date in the Dollar Equivalent amount of (a) such draft so paid and (b) any amounts referred to in Section 3.3(c) incurred by the Issuing Lender in connection with such payment, and (not later than one (1) Business Day after being given notice thereof by the Administrative Agent by telecopier (or by telephone promptly confirmed by telecopier)) the Lenders shall make a Revolving Credit Loan or, if less than the minimum amount for such Loan, the Swingline Lender shall make a Swingline Loan, bearing interest at the Base Rate in such amount, the proceeds of which shall be applied to reimburse the Issuing Lender for the amount of the related drawing and costs and expenses. Each Lender acknowledges and agrees (or as the case may be, the Swingline Lender) that its obligation to fund a Revolving Credit Loan or, if less than the minimum amount for such Loan, a Swingline Loan, in accordance with this Section 3.5 to reimburse the Issuing Lender for any draft paid under a Letter of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, non-satisfaction of the conditions set forth in Section 2.3(a) or Article VII at the time of funding. If the Borrower has elected to pay the amount of such drawing with funds from other sources and shall fail to reimburse the Issuing Lender as provided above, the unreimbursed amount of such drawing shall bear interest at the rate which would be payable on any outstanding Base Rate Loans which were then overdue from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full.

        SECTION 3.6    Obligations Absolute.    The Borrower's obligations under this Article III (including, without limitation, the Reimbursement Obligation) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender or any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees that the Issuing Lender and the L/C Participants shall not be responsible for, and the Borrower's Reimbursement Obligation under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender or any L/C Participant to the Borrower. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment

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obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit.

        SECTION 3.7    Effect of Application.    To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article III, the provisions of this Article III shall apply.

        SECTION 3.8    Existing Foreign Currency Letter of Credit.    For purposes of calculating the amount of L/C Obligations with respect to the Existing Foreign Currency Letter of Credit under (a) Section 2.1, Section 2.2(a), Section 2.4(b) and Section 3.1, such L/C Obligations shall be calculated at the Dollar Equivalent amount of such L/C Obligations as of the first Business Day of the current calendar month and (b) for all other purposes based on the Dollar Equivalent amount as of the Business Day immediately preceding such date of determination.

ARTICLE IV

TERM LOAN FACILITY

        SECTION 4.1    Term Loans.

        (a)    Initial Term Loans.    Subject to the terms and conditions of this Agreement, each Lender with a Term Loan Commitment on the Original Closing Date, made (on a several basis) an Initial Term Loan to the Borrower on the Original Closing Date. The Initial Term Loans were funded by each such Lender in a principal amount equal to such Lender's Term Loan Percentage (as of the Original Closing Date) of the aggregate principal amount of the Initial Term Loans made on the Original Closing Date, which aggregate principal amount equaled the total Term Loan Commitment in effect as of the Original Closing Date.

        (b)    Supplemental Term Loans.    Subject to the terms and conditions of this Agreement, each Lender with a Supplemental Term Loan Commitment as of the Amendment and Restatement Closing Date severally agrees to make a Supplemental Term Loan to the Borrower on the Amendment and Restatement Closing Date. The Supplemental Term Loans shall be funded by each such Lender in a principal amount equal to such Lender's Supplemental Term Loan Commitment as identified on the Register on the Amendment and Restatement Closing Date.

        SECTION 4.2    Procedure for Advances of Term Loans.

        (a)    Initial Term Loans.    On the Original Closing Date, the Borrower satisfied the procedural requirements applicable to the funding of the Initial Term Loans, and the Borrower hereby acknowledges receipt of the proceeds of the Initial Term Loans on the Original Closing Date.

        (b)    Supplemental Term Loans.    The Borrower shall give the Administrative Agent an irrevocable Notice of Borrowing prior to 11:00 a.m. (Charlotte time) on the Amendment and Restatement Closing Date requesting that the Lenders with a Supplemental Term Loan Commitment make the Supplemental Term Loans as Base Rate Loans on such date. Upon receipt of such Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify, by telecopier (or by telephone promptly confirmed by telecopier), each Lender with a Supplemental Term Loan Commitment to make the Supplemental Term Loans. Not later than 2:00 p.m. (Charlotte time) on the Amendment and Restatement Closing Date, each such Lender will make available to the Administrative Agent for the account of the Borrower, at the office of the Administrative Agent in immediately available funds, the

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amount of such Supplemental Term Loans to be made by such Lender on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of the Supplemental Term Loans in immediately available funds by wire transfer to such Person or Persons as may be designated by the Borrower.

        SECTION 4.3    Repayment of Term Loans.    The Borrower shall repay the aggregate outstanding principal amounts of the Initial Term Loans, the Supplemental Term Loans and Additional Term Loans, if applicable, (with respect to any such outstanding Term Loans, pro rata on the basis of the original aggregate funded amount thereof among the Initial Term Loans, Supplemental Term Loans and Additional Term Loans) in consecutive quarterly installments on the last Business Day of each of March, June, September and December commencing December 31, 2002 as set forth below, except as the amounts of individual installments may be adjusted pursuant to Section 4.4 hereof:

PAYMENT DATE If the Payment Date specified is not a Business Day, the Payment Date shall be deemed to be the Business Day immediately preceding the date.	PRINCIPAL INSTALLMENT ($)		TERM LOAN AMOUNT ($)
December 31, 2002	$	537,500	$	213,062,500
March 31, 2003	$	537,500	$	212,525,000
June 30, 2003	$	537,500	$	211,987,500
September 30, 2003	$	537,500	$	211,450,000
December 31, 2003	$	537,500	$	210,912,500
March 31, 2004	$	537,500	$	210,375,000
June 30, 2004	$	537,500	$	209,837,500
September 30, 2004	$	537,500	$	209,300,000
December 31, 2004	$	537,500	$	208,762,500
March 31, 2005	$	537,500	$	208,225,000
June 30, 2005	$	537,500	$	207,687,500
September 30, 2005	$	537,500	$	207,150,000
December 31, 2005	$	537,500	$	206,612,500
March 31, 2006	$	537,500	$	206,075,000
June 30, 2006	$	537,500	$	205,537,500
September 30, 2006	$	537,500	$	205,000,000
December 31, 2006	$	537,500	$	204,462,500
March 31, 2007	$	537,500	$	203,925,000
June 30, 2007	$	537,500	$	203,387,500
September 30, 2007	$	537,500	$	202,850,000
December 31, 2007	$	50,712,500	$	152,137,500
March 31, 2008	$	50,712,500	$	101,425,000
June 30, 2008	$	50,712,500	$	50,712,500
September 30, 2008	$	50,712,500		0

If not sooner paid, the Term Loans shall be paid in full, together with accrued interest thereon, on the Term Loan Maturity Date.

        SECTION 4.4    Prepayments of Term Loans.

        (a)    Optional Prepayment of Term Loans.    The Borrower shall have the right at any time and from time to time, upon delivery to the Administrative Agent of a Notice of Prepayment at least three (3) Business Days prior to any repayment, to prepay the Term Loans in whole or in part without premium or penalty except as provided in Section 5.9. The Administrative Agent shall promptly give each of the Lenders notice of any such proposed prepayment by telecopier (or by telephone promptly confirmed by telecopier). Each optional prepayment of the Term Loans hereunder shall be in an aggregate principal amount of at least $2,000,000 or any whole multiple of $1,000,000 in excess thereof

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and shall be applied to the outstanding principal installments of the Term Loans (with respect to any such outstanding Term Loans, pro rata on the basis of the original aggregate funded amount thereof, among the Initial Term Loans, the Supplemental Term Loans and the Additional Term Loans) in inverse order of maturity thereof. Each repayment shall be accompanied by any amount required to be paid pursuant to Section 5.9 hereof.

        (b)    Mandatory Prepayment of Term Loans.

        (i)    Debt Proceeds.    The Borrower shall make mandatory principal prepayments of the Term Loans in the manner set forth in Section 4.4(b)(vii) below in amounts equal to one hundred percent (100%) of the aggregate Net Cash Proceeds from any incurrence of Debt (excluding (A) Permitted Subordinated Debt, solely to the extent the proceeds thereof are used within ninety (90) days after receipt thereof to consummate a Permitted Acquisition and costs associated therewith; provided, that any excess proceeds not so used to consummate a Permitted Acquisition shall be applied as a mandatory prepayment as set forth in this Section 4.4(b)(i) and (B) other Debt permitted pursuant to Section 11.1) by the Borrower or any of its Restricted Subsidiaries. Such prepayment shall be made within three (3) Business Days after the date of receipt of Net Cash Proceeds of any such transaction.

        (ii)    Equity Proceeds.    If at any time the Adjusted Leverage Ratio exceeds 2.00 to 1.00, the Borrower shall make mandatory principal prepayments of the Term Loans in the manner set forth in Section 4.4(b)(vii) below in amounts equal to fifty percent (50%) of the aggregate Net Cash Proceeds from any offering of equity securities by the Borrower or any of its Restricted Subsidiaries (excluding (A) offerings of equity securities made in connection with employee stock option or incentive plans or made in connection with compensation or incentive plans for directors and officers, in each case entered into in the ordinary course of business and (B) the exercise of warrants existing on the Amendment and Restatement Closing Date and set forth on Schedule 7.1(b)). Such prepayment shall be made within three (3) Business Days after the date of receipt of Net Cash Proceeds of any such transaction.

        (iii)    Asset Sale Proceeds.    No later than one hundred eighty (180) days following the Borrower's or applicable Restricted Subsidiary's receipt thereof, the Borrower shall make mandatory principal prepayments of the Term Loans in the manner set forth in Section 4.4(b)(vii) below in amounts equal to one hundred percent (100%) of the aggregate Net Cash Proceeds from the sale or other disposition or series of related sales or other dispositions of assets, excluding asset sales and dispositions permitted by Section 11.5(a) through and including Section 11.5(d) (the "Asset Sale Proceeds") by the Borrower or any of its Restricted Subsidiaries which have not been reinvested as of such date in similar replacement assets unless such Asset Sale Proceeds have been committed to be reinvested within such one hundred eighty (180) day period and are thereafter actually reinvested within two hundred seventy (270) days after receipt of such Asset Sale Proceeds. If such Asset Sale Proceeds are not actually reinvested in accordance with the terms of this Section 4.4(b)(iii) by the date which is two hundred seventy (270) days after the receipt thereof, the Borrower shall make a mandatory prepayment in an amount equal to such Asset Sale Proceeds as described above on such date. Notwithstanding any of the foregoing to the contrary, upon and during the continuance of an Event of Default and upon notice from the Administrative Agent, all Asset Sale Proceeds received by the Borrower and its Restricted Subsidiaries shall be applied to make prepayments of the Term Loans pursuant to Section 4.4(b)(vii), such prepayments to be made within three (3) Business Days after the Borrower's receipt of such Asset Sale Proceeds.

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        (iv)  Insurance and Condemnation Proceeds.    No later than one hundred eighty (180) days following the date of receipt by the Borrower or any of its Restricted Subsidiaries of any Net Cash Proceeds under any of the insurance policies maintained pursuant to Section 9.3 or from any condemnation proceeding (the "Insurance and Condemnation Proceeds") which have not been reinvested as of such date in similar replacement assets, the Borrower shall make mandatory principal prepayments of the Term Loans in the manner set forth in Section 4.4(b)(vii) below in amounts equal to one hundred percent (100%) of the aggregate amount of such Insurance and Condemnation Proceeds received by the Borrower or any of its Restricted Subsidiaries unless such Insurance and Condemnation Proceeds have been committed to be reinvested within such one hundred eighty (180) day period and are thereafter actually reinvested within two hundred seventy (270) days after receipt of such Insurance and Condemnation Proceeds. If such Insurance and Condemnation Proceeds are not actually reinvested in accordance with the terms of this Section 4.4(b)(iv) by the date which is two hundred seventy (270) days after the receipt thereof, the Borrower shall make a mandatory prepayment in an amount equal to such Insurance and Condemnation Proceeds as described above on such date. Notwithstanding any of the foregoing to the contrary, upon and during the continuance of an Event of Default and upon notice from the Administrative Agent, all Insurance and Condemnation Proceeds received by the Borrower and its Restricted Subsidiaries shall be applied to make prepayments of the Term Loans, such prepayments to be made within three (3) Business Days after the Borrower's receipt of such Insurance and Condemnation Proceeds.

         (v)  Excess Cash Flow.    No later than ninety (90) days after the end of any Fiscal Year commencing with the Fiscal Year ending March 31, 2002, during the term of this Agreement for which the Adjusted Leverage Ratio exceeds 2.00 to 1.00, the Borrower shall make a mandatory principal repayment of the Term Loans in an amount equal to fifty percent (50%) of Excess Cash Flow, if any, for such Fiscal Year.

        (vi)  Asset Coverage Ratio.    In the event that payments made under Section 2.4(b)(i) are insufficient to cause the pro forma Asset Coverage Ratio to equal or exceed 1.00 to 1.00, then Borrower shall immediately repay remaining principal installments of the Term Loans, in inverse order of maturity, in an amount sufficient to cause the Asset Coverage Ratio (determined on a pro forma basis after giving effect to such payment) to equal or exceed 1.00 to 1.00. Any prepayment pursuant to this Section 4.4(b)(vi) shall be applied to reduce, in inverse order of maturity, the remaining scheduled principal installments of the Term Loans pursuant to Section 4.3.

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       (vii)  Notice; Manner of Payment.    Upon the occurrence of any event triggering the prepayment requirement under Sections 4.4(b)(i) through and including 4.4(b)(v), the Borrower shall promptly deliver a Notice of Prepayment to the Administrative Agent and upon receipt of such notice, the Administrative Agent shall promptly so notify each of the Lenders by telecopier (or by telephone promptly confirmed by telecopier). Each prepayment under this Section 4.4 shall be applied as follows: (A) first to reduce, in inverse order of maturity, the remaining scheduled principal installments of the Term Loans (with respect to any such outstanding Term Loans, pro rata on the basis of the original aggregate funded amount thereof among the Initial Term Loans, the Supplemental Term Loans and the Additional Term Loans) pursuant to Section 4.3, and (B) second to the extent of any excess (the "Excess Proceeds"), to prepay the aggregate outstanding amounts under the Revolving Credit Facility and, to the extent of any prepayments made pursuant to Section 4.4(b)(iii), to permanently reduce the Revolving Credit Commitment; provided, however, that, regardless of whether there are amounts outstanding under the Revolving Credit Facility, each Lender having a Term Loan Commitment shall have the right to refuse its pro rata share (based on its respective applicable Term Loan Percentage) of any such mandatory prepayment at which time the remaining amount shall be applied first, to reduce the Revolving Credit Loans in accordance with the foregoing Section 4.4(b)(vii)(B), and then, to the extent of any remaining funds, to the Borrower; provided that, if at the time of such prepayment there are no outstanding Revolving Credit Loans, the Borrower may (X) elect to have the remaining amount of such mandatory prepayment (if any) applied as an optional prepayment of the Term Loans in accordance with Section 4.4(a) or (Y) retain such amount. No prepayment or repayment pursuant to this Section 4.4 shall affect any of the Borrower's obligations under any Hedging Agreement.

Amounts prepaid under the Term Loans pursuant to this Section 4.4 may not be reborrowed and will constitute a permanent reduction in such Term Loan Commitment. Each prepayment shall be accompanied by any amount required to be paid pursuant to Section 5.9 hereof.

        SECTION 4.5    Term Notes.    Except as otherwise provided in Section 14.10 (a) - (e), each Lender's Term Loan and the obligation of the Borrower to repay such Term Loan shall be evidenced by a separate Term Note executed by the Borrower payable to the order of such Lender.

SECTION 4.6    Optional Increase In Term Loan Commitment.

        (a)   Subject to the conditions set forth below, the Borrower shall have the option, at any time after the Amendment and Restatement Closing Date until the Term Loan Increase Termination Date to incur additional indebtedness under this Agreement in the form of an increase of the Term Loan Commitment of up to Fifty Million ($50,000,000) Dollars. The Borrower, by providing an Increase Notification, may request that additional Term Loans be made on the Additional Term Loan Effective Date pursuant to such increase in the Term Loan Commitment (each such additional Term Loan, an "Additional Term Loan, and collectively, the "Additional Term Loans").

        (b)   Each Additional Term Loan shall be obtained from existing Lenders, entities that qualify as Eligible Assignees, or from other banks, financial institutions or investment funds, in each case in accordance with this Section 4.6. Participation in any Additional Term Loan shall be offered first to each of the existing Lenders; provided that each such Lender shall have no obligation to provide any portion of such Additional Term Loans. If the amount of the Additional Term Loans requested by the Borrower shall exceed the commitments which the existing Lenders are willing to provide with respect to such Additional Term Loans, then the Borrower may invite other banks, financial institutions and investment funds which meet the requirements of an Eligible Assignee to join this Agreement as Lenders for the portion of such Additional Term Loans not committed to by existing Lenders (each such other bank, financial institution or investment fund, a "New Lender" and collectively with the existing Lenders providing increased Commitments, the "Increase Lenders"). The Administrative Agent

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is authorized to enter into, on behalf of the Lenders, any amendment to this Agreement or any other Loan Document as may be necessary to incorporate the terms of any Additional Term Loan herein or therein; provided that such amendment shall not modify this Agreement or any other Loan Document in any manner materially adverse to any Lender and shall otherwise be in accordance with Section 14.11 hereof.

        (c)   The following terms and conditions shall apply to each Additional Term Loan: (i) the Additional Term Loans made under this Section 4.6 shall constitute Obligations of the Borrower and shall be secured and guaranteed with the other Extensions of Credit on a pari passu basis; (ii) any New Lender making Additional Term Loans shall be entitled to the same voting rights as the existing Lenders under the Term Loan Facility and the Additional Term Loans shall receive proceeds of prepayments on the same basis as the Initial Term Loans and the Supplemental Term Loans; (iii) the Borrower shall execute such Term Loan Notes as are necessary to reflect the Additional Term Loans under this Section 4.6; (iv) the Administrative Agent and the Lenders shall have received from the Borrower updated financial projections and an Officer's Compliance Certificate, in each case in form and substance satisfactory to the Administrative Agent, demonstrating that, after giving effect to any such Additional Term Loan, the Borrower will be in pro forma compliance with the financial covenants set forth in Article X; (v) no Default or Event of Default shall have occurred and be continuing hereunder as of the Additional Term Loan Effective Date or after giving effect to the making of any such Additional Term Loans; (vi) the representations and warranties made by the Borrower and contained in Article VII shall be true and correct on and as of the Additional Term Loan Effective Date with the same effect as if made on and as of such date (other than those representations and warranties that by their terms speak as of a particular date, which representations and warranties shall be true and correct as of such particular date); (vii) the Borrower shall demonstrate, on a pro forma basis (as of the date of, and after giving effect to, the making of any such Additional Term Loan), an Asset Coverage Ratio equal to or exceeding 1.00 to 1.00; (viii) the amount of such increase in the Term Loan Commitment and any Additional Term Loans obtained thereunder shall not (A) be less than a minimum principal amount of $10,000,000, or any whole multiple of $5,000,000 in excess thereof and (B) shall not cause the Term Loan Commitment to exceed $265,000,000; (ix) the Borrower and each such Lender or lender not theretofore a Lender shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, a written agreement acknowledged by the Administrative Agent and each Subsidiary Guarantor, in form and substance reasonably satisfactory to the Administrative Agent, and (x) the Administrative Agent shall have received any documents or information, including any joinder agreements, in connection with such increase in the Term Loan Commitment as it may request in its reasonable discretion.

        (d)   Upon the execution of the written agreement referred to in Section 4.6(c) above, from and after the Additional Term Loan Effective Date, each such Increase Lender shall have a Term Loan Commitment as therein set forth and all the rights and obligations of a Lender with such a Term Loan Commitment hereunder. The Increase Lenders shall make Additional Term Loans to the Borrower on the Additional Term Loan Effective Date in an amount equal to each such Lender's Term Loan Commitment.

        (e)   The Administrative Agent shall maintain a copy of each Lender Addition and Acknowledgement Agreement delivered to it in accordance with Section 14.10(d).

        (f)    Within five (5) Business Days after receipt of notice, the Borrower shall execute and deliver to the Administrative Agent, in exchange for any surrendered Term Loan Note or Term Loan Notes of any existing Lender or with respect to any Lender not theretofore a Lender, a new Term Loan Note or Term Loan Notes to the order of the applicable Lenders in amounts equal to the Term Loan Commitment of such Lenders pursuant to the Lender Addition and Acknowledgement Agreement. Such new Term Loan Note or Term Loan Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such Term Loan Commitments, shall be dated as of the Additional Term

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Loan Effective Date and shall otherwise be in substantially the form of the existing Term Loan Notes. Each surrendered Term Loan Note and/or Term Loan Notes shall be canceled and returned to the Borrower.

        (g)   The Applicable Margin and pricing grid, if applicable, for the Additional Term Loans shall be determined on the Additional Term Loan Effective Date. If the Applicable Margin and pricing grid, if applicable, for such Additional Term Loans at such time exceeds the Applicable Margin or existing pricing grid, as applicable, for Term Loans set forth in Section 5.1(c), then the Applicable Margin and pricing grid, if applicable, for all Term Loans shall be increased to be equal to the Applicable Margin and pricing grid, if applicable, for the Additional Term Loans as determined on the Additional Loan Effective Date. In addition, the amortization schedule set forth in Section 4.3 shall be replaced with a new amortization schedule reflecting a pro rata increase in the remaining installment payments and to provide for the repayment of both the existing Term Loans and the Additional Term Loans.

ARTICLE V

GENERAL LOAN PROVISIONS

SECTION 5.1    Interest.

        (a)    Interest Rate Options.    Subject to the provisions of this Section 5.1, at the election of the Borrower, (i) Revolving Credit Loans and Term Loans shall bear interest at (A) the Base Rate plus the Applicable Margin as set forth in Section 5.1(c) or (B) the LIBOR Rate plus the Applicable Margin as set forth in Section 5.1(c) (provided that the LIBOR Rate shall not be available until three (3) Business Days after the Amendment and Restatement Closing Date) and (ii) any Swingline Loan shall bear interest at the Base Rate plus the Applicable Margin as set forth in Section 5.1(c). The Borrower shall select the rate of interest and Interest Period, if any, applicable to any Loan at the time a Notice of Borrowing is given or at the time a Notice of Conversion/Continuation is given pursuant to Section 5.2. Each Loan or portion thereof bearing interest based on the Base Rate shall be a "Base Rate Loan", each Loan or portion thereof bearing interest based on the LIBOR Rate shall be a "LIBOR Rate Loan." Any Loan or any portion thereof as to which the Borrower has not duly specified an interest rate as provided herein shall be deemed a Base Rate Loan.

        (b)   Interest Periods.    In connection with each LIBOR Rate Loan, the Borrower, by giving notice at the times described in Section 5.1(a), shall elect an interest period (each, an "Interest Period") to be applicable to such Loan, which Interest Period shall be a period of one (1), two (2), three (3), or six (6) months with respect to each LIBOR Rate Loan; provided that:

          (i)  the Interest Period shall commence on the date of advance of or conversion to any LIBOR Rate Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the immediately preceding Interest Period expires;

         (ii)  if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest Period with respect to a LIBOR Rate Loan would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day;

        (iii)  any Interest Period with respect to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period;

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        (iv)  no Interest Period shall extend beyond the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable, and Interest Periods shall be selected by the Borrower so as to permit the Borrower to make mandatory reductions of the Revolving Credit Commitment pursuant to Section 2.6(b) and the quarterly principal installment payments pursuant to Section 4.3 without payment of any amounts pursuant to Section 5.9; and

         (v)  there shall be no more than six (6) Interest Periods in effect at any time.

        (c)   Applicable Margin.

          (i)  The Applicable Margin provided for in Section 5.1(a) with respect to any Revolving Credit Loans and Swingline Loans (the "Applicable Margin") shall be based upon the table set forth below and shall be determined and adjusted quarterly on the date (each a "Calculation Date") ten (10) Business Days after the date by which the Borrower is required to provide an Officer's Compliance Certificate for the most recently ended fiscal quarter of the Borrower; provided, however, that (A) the initial Applicable Margin for the Revolving Credit Loans and Swingline Loans shall be based on Pricing Level III (as shown below) and shall remain at Pricing Level III until December 31, 2002, and, thereafter the Pricing Level shall be determined by reference to the Total Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Borrower preceding the applicable Calculation Date, and (B) if the Borrower fails to provide the Officer's Compliance Certificate as required by Section 8.2 for the most recently ended fiscal quarter of the Borrower preceding the applicable Calculation Date, the Applicable Margin for Revolving Credit Loans and Swingline Loans from such Calculation Date shall be based on Pricing Level IV (as shown below) until such time as an appropriate Officer's Compliance Certificate is provided, at which time the Pricing Level shall be determined by reference to the Total Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Borrower preceding such Calculation Date. The Applicable Margin for Revolving Credit Loans and Swingline Loans shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Margin shall be applicable to all Extensions of Credit then existing or subsequently made or issued.

Pricing Level	Total Leverage Ratio	LIBOR	Base Rate
I	<2.00x	2.25%	1.25%
II	>2.00x but <2.50x	2.50%	1.50%
III	>2.50x but <3.00x	2.75%	1.75%
IV	>3.00x	3.00%	2.00%

         (ii)  Subject to the provisions of Section 4.6(g), the Applicable Margin for Term Loans shall be based on the table set forth below and shall be determined and adjusted on each Calculation Date until such time as any change in the Applicable Margin or pricing grid, as applicable for Term Loans pursuant to Section 4.6; provided, however that (A) the initial Applicable Margin for Term Loans shall be based on Pricing Level II until the Calculation Date of December 31, 2002 and (B) if the Borrower fails to provide the Officer's Compliance Certificate as required by Section 8.2 for the most recently ended fiscal quarter of the Borrower preceding the applicable Calculation Date, the Applicable Margin for Term Loans from such Calculation Date shall be based on Pricing Level II (as shown below) until such time as an appropriate Officer's Compliance Certificate is provided, at which time the Pricing Level shall be determined by reference to the Total Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Borrower preceding such Calculation Date. The Applicable Margin for Term Loans shall be effective from

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one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Margin shall be applicable to all Term Loans then existing or subsequently made or issued.

Level	Total Leverage Ratio	Applicable LIBOR Rate Margin (bps)	Applicable Base Rate Margin (bps)
I	<2.50x	300.0	200.0
II	>2.50x	325.0	225.0

        (d)   Default Rate. Subject to Section 13.3, at the discretion of the Required Lenders, upon the occurrence and during the continuance of an Event of Default, (i) the Borrower shall no longer have the option to request LIBOR Rate Loans or Swingline Loans, (ii) all outstanding LIBOR Rate Loans shall bear interest at a rate per annum of two percent (2%) plus the rate then applicable to LIBOR Rate Loans until the end of the applicable Interest Period and thereafter at a rate equal to two percent (2%) plus the rate then applicable to Base Rate Loans, and (iii) all outstanding Base Rate Loans and other Obligations arising hereunder or under any other Loan Document shall bear interest at a rate per annum equal to two percent (2%) plus the rate then applicable to Base Rate Loans or such other Obligations arising hereunder or under any other Loan Document. Interest shall continue to accrue on the Notes after the filing by or against the Borrower of any petition seeking any relief in bankruptcy or under any act or law pertaining to insolvency or debtor relief, whether state, federal or foreign.

        (e)   Interest Payment and Computation.    Interest on each Base Rate Loan shall be payable in arrears on the last Business Day of each calendar quarter commencing with the quarter ending December 31, 2002; and interest on each LIBOR Rate Loan shall be payable on the last day of each Interest Period applicable thereto, and if such Interest Period extends over three (3) months, at the end of each three (3) month interval during such Interest Period. Interest on LIBOR Rate Loans and all fees payable hereunder shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed and interest on Base Rate Loans shall be computed on the basis of a 365/66-day year and assessed for the actual number of days elapsed.

        (f)    Maximum Rate.    In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under any of the Notes charged or collected pursuant to the terms of this Agreement or pursuant to any of the Notes exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent's option (i) promptly refund to the Borrower any interest received by the Lenders in excess of the maximum lawful rate or (ii) apply such excess to the principal balance of the Obligations on a pro rata basis. It is the intent hereof that the Borrower not pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law.

        SECTION 5.2    Notice and Manner of Conversion or Continuation of Loans.    Provided that no Default or Event of Default has occurred and is then continuing, the Borrower shall have the option to (a) convert at any time following the third Business Day after the Amendment and Restatement Closing Date all or any portion of any outstanding Base Rate Loans (other than Swingline Loans) in a principal amount equal to $2,500,000 or any whole multiple of $100,000 in excess thereof into one or more LIBOR Rate Loans and (b) upon the expiration of any Interest Period, (i) convert all or any part of its outstanding LIBOR Rate Loans in a principal amount equal to $2,500,000 or a whole multiple of $100,000 in excess thereof into Base Rate Loans (other than Swingline Loans) or (ii) continue such

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LIBOR Rate Loans as LIBOR Rate Loans. Whenever the Borrower desires to convert or continue Loans as provided above, the Borrower shall give the Administrative Agent irrevocable prior written notice substantially in the form attached hereto as Exhibit E (a "Notice of Conversion/Continuation") not later than 11:00 a.m. (Charlotte time) three (3) Business Days before the day on which a proposed conversion or continuation of such Loan is to be effective specifying (A) the Loans to be converted or continued, and, in the case of any LIBOR Rate Loan to be converted or continued, the last day of the Interest Period therefor, (B) the effective date of such conversion or continuation (which shall be a Business Day), (C) the principal amount of such Loans to be converted or continued, and (D) the Interest Period to be applicable to such converted or continued LIBOR Rate Loan. The Administrative Agent shall promptly notify the Lenders of such Notice of Conversion/Continuation by telecopier (or by telephone promptly confirmed by telecopier).

SECTION 5.3 Fees.

        (a)    Commitment Fee.    Commencing on the Amendment and Restatement Closing Date, the Borrower shall pay to the Administrative Agent, for the account of the Lenders, a non-refundable commitment fee at a rate per annum equal to 0.50% on the average daily unused portion of the Revolving Credit Commitment; provided, that the amount of outstanding Swingline Loans shall not be considered usage of the Revolving Credit Commitment for the purpose of calculating such commitment fee. The commitment fee shall be payable in arrears on the last Business Day of each calendar quarter during the term of this Agreement with the next payment due on December 31, 2002, and on the Revolving Credit Maturity Date. Such commitment fee shall be promptly distributed by the Administrative Agent to the Lenders pro rata in accordance with the Lenders' respective Revolving Credit Commitment Percentages.

        (b)   Administrative Agent's and Other Fees.    In order to compensate the Administrative Agent for structuring and syndicating the Loans and for its obligations hereunder, the Borrower agrees to pay to the Administrative Agent, for its account, the fees set forth in the separate fee letter agreement executed by the Borrower and the Administrative Agent dated October 27, 2002. Furthermore, the Borrower agrees to pay, without duplication, all amendment fees due and payable to the Lenders party to the Original Credit Agreement in connection with the closing of this Agreement.

        SECTION 5.4    Manner of Payment.    Each payment by the Borrower on account of the principal of or interest on the Loans or of any fee, commission or other amounts (including the Reimbursement Obligation) payable to the Lenders under this Agreement or any Note shall be made not later than 1:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Administrative Agent at the Administrative Agent's Office for the account of the Lenders (other than as set forth below) pro rata in accordance with their respective Revolving Credit Commitment Percentages or applicable Term Loan Percentages, as applicable, (except as specified below), in Dollars and in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such date for the purposes of Section 12.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. Upon receipt by the Administrative Agent of each such payment, the Administrative Agent shall promptly distribute to each Lender at its address for notices set forth herein its pro rata share of such payment in accordance with such Lender's Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable (except as specified below), and shall wire advice of the amount of such credit to each Lender. Each payment to the Administrative Agent of the Issuing Lender's fees or L/C Participants' commissions shall be made in like manner, but for the account of the Issuing Lender or the L/C Participants, as the case may be. Each payment to the Administrative Agent of Administrative Agent's fees or expenses shall be made for the account of the Administrative Agent

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and any amount payable to any Lender under Sections 5.8, 5.9, 5.10, 5.11 or 14.2 shall be promptly paid to the Administrative Agent for the account of the applicable Lender. Subject to Section 5.1(b)(ii) if any payment under this Agreement or any Note shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in such case be included in computing any interest if payable along with such payment.

        SECTION 5.5    Crediting of Payments and Proceeds.    In the event that the Borrower shall fail to pay any of the Obligations when due and the Obligations have been accelerated pursuant to Section 12.2, all payments received by the Lenders upon the Notes and the other Obligations and all net proceeds from the enforcement of the Obligations shall be applied: (a) first, to all expenses then due and payable by the Borrower hereunder and under the other Loan Documents, (b) then to all indemnity obligations then due and payable by the Borrower hereunder and under the other Loan Documents, (c) then to all Administrative Agent's and Issuing Lender's fees then due and payable, (d) then to all commitment and other fees and commissions then due and payable, (e) then to accrued and unpaid interest on the Swingline Note to the Swingline Lender, (f) then to the principal amount outstanding under the Swingline Note to the Swingline Lender, (g) then to accrued and unpaid interest on the other Notes, accrued and unpaid interest on the Reimbursement Obligation and any payments (including any termination payments and any accrued and unpaid interest thereon) due in respect of a Hedging Agreement with any Lender or the Administrative Agent (which such Hedging Agreement is permitted or required hereunder) (pro rata in accordance with all such amounts due), (h) then to the principal amount of the other Notes and Reimbursement Obligation (pro rata in accordance with all such amounts due) and (i) then to the cash collateral account described in Section 12.2(b) hereof to the extent of any L/C Obligations then outstanding, in that order.

        SECTION 5.6    Adjustments.    If any Lender (a "Benefited Lender") shall at any time receive any payment of all or part of the Obligations owing to it, or interest thereon, or if any Lender shall at any time receive any collateral in respect to the Obligations owing to it (whether voluntarily or involuntarily, by set-off or otherwise) (other than as a result of the operation of the proviso to Section 4.4(b)(vii) hereof or pursuant to Sections 5.8, 5.9, 5.10, 5.11 or 14.2 hereof) in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of the similar Obligations owing to such other Lender, or interest thereon, such Benefited Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Extensions of Credit, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Extensions of Credit may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.

        SECTION 5.7    Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent.    The obligations of the Lenders under this Agreement to make the Loans and issue or participate in Letters of Credit are several and are not joint or joint and several. Unless the Administrative Agent shall have received written notice from a Lender prior to a proposed borrowing date that such Lender will not make available to the Administrative Agent such Lender's ratable portion of the amount to be borrowed on such date (which notice shall not release such Lender of its obligations hereunder), the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the proposed borrowing date in accordance with Sections 2.3(b) and 4.2, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If such amount is made available to the

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Administrative Agent on a date after such borrowing date, such Lender shall pay to the Administrative Agent on demand an amount, until paid, equal to the product of (a) the amount not made available by such Lender in accordance with the terms hereof, times (b) the daily average Federal Funds Rate during such period as determined by the Administrative Agent, times (c) a fraction the numerator of which is the number of days that elapse from and including such borrowing date to the date on which such amount not made available by such Lender in accordance with the terms hereof shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent with respect to any amounts owing under this Section 5.7 shall be conclusive, absent manifest error. If such Lender's Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable, of such borrowing is not made available to the Administrative Agent by such Lender within three (3) Business Days after such borrowing date, the Administrative Agent shall be entitled to recover such amount made available by the Administrative Agent with interest thereon at the rate per annum applicable to such borrowing hereunder, on demand, from the Borrower. The failure of any Lender to make available its Revolving Credit Commitment Percentage or Term Loan Percentage, as applicable, of any Loan requested by the Borrower shall not relieve it or any other Lender of its obligation, if any, hereunder to make its Revolving Credit Commitment Percentage or Term Loan Percentage, as applicable, of such Loan available on the borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Revolving Credit Commitment Percentage or Term Loan Percentage, as applicable, of such Loan available on the borrowing date. Notwithstanding anything set forth herein to the contrary, any Lender that fails to make available its Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable, shall not (a) have any voting or consent rights under or with respect to any Loan Document or (b) constitute a "Lender" for purposes of the calculation of Required Lenders hereunder for any voting or consent rights under or with respect to any Loan Document; so long as such Lender fails to make available such Revolving Credit Commitment Percentage or applicable Term Loan Percentage. Notwithstanding the foregoing, in no event shall any of the amendments, changes or modifications specifically enumerated in Section 14.11(a) - (d) be effective with respect to any Lender that has not consented thereto.

SECTION 5.8    Changed Circumstances.

        (a)    Circumstances Affecting LIBOR Rate Availability.    If with respect to any Interest Period the Administrative Agent or any Lender (after consultation with the Administrative Agent) shall determine that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars, in the applicable amounts are not being quoted via the Dow Jones Market Screen 3750 or offered to the Administrative Agent or such Lender for such Interest Period, then the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders by telecopier (or by telephone promptly confirmed by telecopier). Thereafter, until the Administrative Agent notifies the Borrower and the Lenders by telecopier (or by telephone promptly confirmed by telecopier) that such circumstances no longer exist, the obligation of the Lenders to make LIBOR Rate Loans and the right of the Borrower to convert any Loan to or continue any Loan as a LIBOR Rate Loan shall be suspended, and the Borrower shall repay in full (or cause to be repaid in full) the then outstanding principal amount of each such LIBOR Rate Loan together with accrued interest thereon, on the last day of the then current Interest Period applicable to such LIBOR Rate Loan or convert the then outstanding principal amount of each such LIBOR Rate Loan to a Base Rate Loan as of the last day of such Interest Period.

        (b)   Laws Affecting LIBOR Rate Availability.    If, after the date hereof, the introduction of, or any change in, any Applicable Law or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of any such

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Governmental Authority, central bank or comparable agency, shall make it unlawful or impossible for any of the Lenders (or any of their respective Lending Offices) to honor their obligations hereunder to make or maintain any LIBOR Rate Loan, such Lender shall promptly give notice thereof to the Administrative Agent and the Administrative Agent shall promptly give notice to the Borrower and the other Lenders by telecopier (or by telephone promptly confirmed by telecopier). Thereafter, until the Administrative Agent notifies the Borrower and the other Lenders by telecopier (or by telephone promptly confirmed by telecopier) that such circumstances no longer exist, (i) the obligations of the Lenders to make LIBOR Rate Loans and the right of the Borrower to convert any Loan to or continue any Loan as a LIBOR Rate Loan shall be suspended and thereafter the Borrower may select only Base Rate Loans hereunder, and (ii) if any of the Lenders may not lawfully continue to maintain a LIBOR Rate Loan to the end of the then current Interest Period applicable thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan shall immediately be converted to a Base Rate Loan for the remainder of such Interest Period and the Borrower shall pay any amount required to be paid under Section 5.9 hereof.

        (c)   Increased Costs.    If, after the date hereof, the introduction of, or any change in, any Applicable Law, or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of such Governmental Authority, central bank or comparable agency:

          (i)  shall (except as provided in Section 5.11(e)) subject any of the Lenders (or any of their respective Lending Offices) to any tax, duty or other charge with respect to any Note, Letter of Credit or Application or shall change the basis of taxation of payments to any of the Lenders (or any of their respective Lending Offices) of the principal of or interest on any Note, L/C Obligation or any other amounts due under this Agreement in respect thereof (except for changes in the rate of franchise tax or tax on the overall net income of any of the Lenders or any of their respective Lending Offices imposed by the jurisdiction in which such Lender is organized or is or should be qualified to do business or such Lending Office is located); provided that the Borrower shall not be obligated to pay any amounts pursuant to this Section 5.8(c)(i) to the extent that such amounts are duplicative of any amounts paid by the Borrower pursuant to Section 5.11; or

         (ii)  shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance or capital or similar requirement against assets of, deposits with or for the account of, or credit extended by any of the Lenders (or any of their respective Lending Offices) or shall impose on any of the Lenders (or any of their respective Lending Offices) or the foreign exchange and interbank markets any other condition affecting any Note; and the result of any of the foregoing events described in clause (i) or (ii) above is to increase the costs to any of the Lenders of maintaining any LIBOR Rate Loan or issuing or participating in Letters of Credit or to reduce the yield or amount of any sum received or receivable by any of the Lenders under this Agreement or under the Notes in respect of a LIBOR Rate Loan or Letter of Credit or Application, then such Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify the Borrower of such fact and demand compensation therefor and, within fifteen (15) days after such notice by the Administrative Agent, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or Lenders for such increased cost or reduction.

The Administrative Agent, or the applicable Lender (with a copy to the Administrative Agent) will promptly notify the Borrower of any event of which it has knowledge which will entitle such Lender to compensation pursuant to this Section 5.8(c); provided, that the Administrative Agent shall incur no liability whatsoever to the Lenders or the Borrower in the event it fails to do so.

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The amount of such compensation shall be determined, in the applicable Lender's sole discretion, based upon the assumption that such Lender funded its Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable, of the LIBOR Rate Loans in the London interbank market and using any reasonable attribution or averaging methods which such Lender deems appropriate and practical. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error.

        SECTION 5.9    Indemnity.    The Borrower hereby indemnifies each of the Lenders against any loss or expense which may arise or be attributable to each Lender's obtaining, liquidating or employing deposits or other funds acquired to effect, fund or maintain any Loan (a) as a consequence of any failure by the Borrower to make any payment when due of any amount due hereunder in connection with a LIBOR Rate Loan, (b) due to any failure of the Borrower to borrow, continue or convert on a date specified therefor in a Notice of Borrowing or Notice of Continuation/Conversion or (c) due to any payment, prepayment or conversion of any LIBOR Rate Loan on a date other than the last day of the Interest Period therefor. The amount of such loss or expense shall be determined, in the applicable Lender's sole discretion, based upon the assumption that such Lender funded its Revolving Credit Commitment Percentage or applicable Term Loan Percentage, as applicable, of the LIBOR Rate Loans in the London interbank market and using any reasonable attribution or averaging methods which such Lender deems appropriate and practical. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error.

        SECTION 5.10    Capital Requirements.    If either (a) the introduction of, or any change in, or in the interpretation of, any Applicable Law or (b) compliance with any guideline or request from any central bank or comparable agency or other Governmental Authority (whether or not having the force of law), has or would have the effect of reducing the rate of return on the capital of, or has affected or would affect the amount of capital required to be maintained by, any Lender or any corporation controlling such Lender as a consequence of, or with reference to the Commitments and other commitments of this type, below the rate which such Lender or such other corporation could have achieved but for such introduction, change or compliance, then within five (5) Business Days after written demand by any such Lender, the Borrower shall pay to such Lender from time to time as specified by such Lender additional amounts sufficient to compensate such Lender or other corporation for such reduction. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender, shall, in the absence of manifest error, be presumed to be correct and binding for all purposes.

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        SECTION 5.11    Taxes.

        (a)    Payments Free and Clear.    Except as otherwise provided in Section 5.11(e), any and all payments by the Borrower hereunder or under the Notes or in respect of the Letters of Credit shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholding, and all liabilities with respect thereto excluding, (i) in the case of each Lender and the Administrative Agent, income and franchise taxes imposed by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or is or should be qualified to do business or any political subdivision thereof and (ii) in the case of each Lender, income and franchise taxes imposed by the jurisdiction of such Lender's Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder or under any Note or in respect of any Letter of Credit to any Lender or the Administrative Agent, (A) except as otherwise provided in Section 5.11(e), the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional sums payable under this Section 5.11) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the amount such party would have received had no such deductions or withholdings been made, (B) the Borrower shall make such deductions or withholdings, (C) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with Applicable Law, and (D) the Borrower shall deliver to the Administrative Agent and such Lender evidence of such payment to the relevant taxing authority or other Governmental Authority in the manner provided in Section 5.11(d).

        (b)    Stamp and Other Taxes.    In addition, the Borrower shall pay any present or future stamp, registration, recordation or documentary taxes or any other similar fees or charges or excise or property taxes, levies of the United States or any state or political subdivision thereof or any applicable foreign jurisdiction which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Loans, the Letters of Credit or the other Loan Documents, or the perfection of any rights or security interest in respect thereof (hereinafter referred to as "Other Taxes").

        (c)    Indemnity.    Except as otherwise provided in Section 5.11(e), the Borrower shall indemnify each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 5.11) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within thirty (30) days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor.

        (d)    Evidence of Payment.    Within thirty (30) days after the date of any payment of Taxes or Other Taxes, the Borrower shall furnish to the Administrative Agent and the applicable Lender, at its address referred to in Section 14.1, the original or a certified copy of a receipt evidencing payment thereof or other evidence of payment satisfactory to the Administrative Agent.

        (e)    Delivery of Tax Forms.    To the extent required by Applicable Law to reduce or eliminate withholding or payment of taxes, each Lender organized under the laws of any jurisdiction other than the United States or any state thereof (a "Foreign Lender") and the Administrative Agent shall deliver to the Borrower, with a copy to the Administrative Agent, on the Amendment and Restatement Closing Date or concurrently with the delivery of the relevant Assignment and Acceptance, as applicable, (i) two United States Internal Revenue Service Forms W-9, Forms W-8ECI or Forms W-8BEN, as applicable (or successor forms) properly completed and certifying in each case that such

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Foreign Lender is entitled to a complete exemption from withholding or deduction for or on account of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8BEN or W-8ECI or successor applicable form, as the case may be, to establish an exemption from United States backup withholding taxes. Each such Foreign Lender further agrees to deliver to the Borrower, with a copy to the Administrative Agent, as applicable, two Form W-9, Form W-8BEN or W-8ECI, or successor applicable forms or manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower, certifying in the case of a Form W-9, Form W-8BEN or W-8ECI (or successor forms) that such Foreign Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders such forms inapplicable or the exemption to which such forms relate unavailable and such Foreign Lender notifies the Borrower and the Administrative Agent that it is not entitled to receive payments without deduction or withholding of United States federal income taxes) and, in the case of a Form W-9, Form W-8BEN or W-8ECI, establishing an exemption from United States backup withholding tax. Notwithstanding anything in any Loan Document to the contrary, the Borrower shall not be required to pay additional amounts to any Lender or the Administrative Agent under Section 5.11 or Section 5.8(c), (i) if such Foreign Lender or the Administrative Agent fails to comply with the requirements of this Section 5.11(e), other than to the extent (i) that such failure is due to a change in law occurring after the date on which such Foreign Lender or the Administrative Agent became a party to this Agreement or (ii) that such additional amounts are the result of such Foreign Lender's or the Administrative Agent's gross negligence or willful misconduct, as applicable.

        (f)    Survival.    Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 5.11 shall survive the payment in full of the Obligations and the termination of the Commitments until the expiration of the applicable statute of limitations.

        SECTION 5.12    Security.    The Obligations of the Borrower and the Subsidiary Guaranteed Obligations shall be secured as provided in the Security Documents.

        SECTION 5.13    Mitigation Obligations/Replacement of Lenders.

        (a)    If any Lender requests compensation under Section 5.8(c), or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.11, then such Lender shall use its reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.8(c) or 5.11, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

        (b)    If any Lender requests compensation under Section 5.8(c), or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.11, or if any Lender defaults in its obligations to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 14.10), all its interests, rights and obligations under this Agreement (other than any indemnification rights pursuant to Sections 5.8, 5.10, 5.11 or 14.2 for the period prior to such assignment) to an Eligible Assignee that shall assume such obligations (which

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Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank and Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in L/C Obligations and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts (including, without limitation, any amounts then payable to such Lender under Section 5.8(c) or Section 5.11 hereof)) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 5.8(c) or payments required to be made pursuant to Section 5.11, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

ARTICLE VI

CLOSING; CONDITIONS OF CLOSING AND BORROWING

        SECTION 6.1    Closing.    The closing shall take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P. at 10:00 a.m. on November 26, 2002, or on such other place, date and time as the parties hereto shall mutually agree.

        SECTION 6.2    Conditions to Closing and Initial Extensions of Credit on the Amendment and Restatement Closing Date.    The obligation of the Lenders to close this Agreement and to make the Loans or issue or participate in the Letters of Credit, if any, to be made or issued on the Amendment and Restatement Closing Date is subject to the satisfaction of each of the following conditions:

        (a)    Executed Loan Documents.    This Agreement, the Revolving Credit Notes, the Term Notes, the Swingline Note, and the Security Documents, together with any other applicable Loan Documents, shall have been duly authorized, executed and delivered to the Administrative Agent by the Administrative Agent, on behalf of certain Lenders, the Borrower and its Subsidiaries party thereto, and the other parties thereto, shall be in full force and effect and no Default or Event of Default shall exist thereunder, and the Borrower shall have delivered original counterparts thereof to the Administrative Agent.

        (b)    Closing Certificates; etc.

        (i)    Officer's Certificate of the Borrower.    The Administrative Agent shall have received a certificate from a Responsible Officer, in form and substance satisfactory to the Administrative Agent, to the effect that all representations and warranties contained in this Agreement and the other Loan Documents are true, correct and complete; that the Borrower and its Subsidiaries are not in violation of any of the covenants contained in this Agreement and the other Loan Documents; that, after giving effect to the transactions contemplated by this Agreement, no Default or Event of Default has occurred and is continuing; and that the Borrower has satisfied each of the closing conditions.

        (ii)    Certificate of Secretary of the Borrower and Subsidiary Guarantors.    The Administrative Agent shall have received a certificate of the secretary or assistant secretary of each of the Borrower and the Subsidiary Guarantors certifying as to the incumbency and genuineness of the signature of each officer of the Borrower or such Subsidiary Guarantor executing the Loan Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the certificate of limited partnership, articles of incorporation or other organizational document of the Borrower or such Subsidiary Guarantor and all amendments

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thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, (B) the bylaws, partnership agreement, operating agreement or other operative document of the Borrower or such Subsidiary Guarantor as in effect on the date of such certifications, (C) resolutions duly adopted by the Board of Directors, partners or members of the Borrower or such Subsidiary Guarantor authorizing the borrowings and other credit extensions contemplated hereunder and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, and (D) each certificate required to be delivered pursuant to Section 6.2(b)(iii).

        (iii)    Certificates of Good Standing.    The Administrative Agent shall have received certificates as of a recent date of the good standing of the Borrower and each Subsidiary Guarantor under the laws of its jurisdiction of organization and, to the extent requested by the Administrative Agent in its reasonable judgment, each other jurisdiction where the Borrower and each Subsidiary Guarantor is qualified to do business and a certificate of the relevant taxing authorities of such jurisdictions certifying that such Person has filed required tax returns and owes no delinquent taxes.

        (iv)    Opinions of Counsel.    The Administrative Agent shall have received favorable opinions of counsel to the Borrower and Subsidiary Guarantors addressed to the Administrative Agent and the Lenders with respect to the Borrower and Subsidiary Guarantors, the Loan Documents and such other matters as the Administrative Agent shall reasonably request.

        (v)    Tax Forms.    The Administrative Agent shall have received copies of the United States Internal Revenue Service forms required by Section 5.11(e) hereof.

        (vi)    Borrowing Base Certificate.    The Administrative Agent shall have received from the Borrower a Borrowing Base Certificate dated as of the last day of the calendar month preceding the Amendment and Restatement Closing Date executed by a Responsible Officer of the Borrower which shall be accurate and complete in all material respects.

        (vii)    Asset Coverage Ratio Certificate.    The Administrative Agent shall have received from the Borrower an Asset Coverage Ratio Certificate dated as of the last day of the quarter preceding the Amendment and Restatement Closing Date executed by a Responsible Officer of the Borrower which shall be accurate and complete in all material respects.

        (c)    Collateral.

        (i)    Filings and Recordings.    All filings and recordations that are necessary to perfect the security interests of the Lenders in the collateral described in the Security Documents shall have been received by the Administrative Agent and the Administrative Agent shall have received evidence satisfactory to the Administrative Agent that upon such filings and recordations such security interests constitute valid and perfected first priority Liens therein.

        (ii)    Pledged Collateral.    The Administrative Agent shall have received (A) original stock certificates or other certificates evidencing the capital stock or other ownership interests pledged pursuant to the Collateral Agreement or the Pledge Agreements together with an undated stock power for each such certificate duly executed in blank by the registered owner thereof and (B) each original promissory note pledged pursuant to the Collateral Agreement or any Pledge Agreement.

        (iii)    Lien Search.    The Administrative Agent shall have received the results of a Lien search (including a search as to judgments and tax matters) made against the Borrower and its Restricted Subsidiaries under the Uniform Commercial Code as in effect in any state in which any of its assets are located, to the extent requested by the Administrative Agent, indicating among other things that its assets are free and clear of any Lien except for Liens permitted hereunder.

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        (iv)    Hazard and Liability Insurance.    The Administrative Agent shall have received certificates of insurance, evidence of payment of all insurance premiums for the current policy year of each, and, if requested by the Administrative Agent, copies (certified by a Responsible Officer) of insurance policies in the form required under the Security Documents and otherwise in form and substance reasonably satisfactory to the Administrative Agent.

        (d)    Consents; Defaults.

        (i)    Governmental and Third Party Approvals.    The Borrower shall have obtained all necessary approvals, authorizations and consents of any Person and of all Governmental Authorities and courts having jurisdiction with respect to the transactions contemplated by this Agreement and the other Loan Documents.

        (ii)    No Injunction, Etc.    No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of (a) this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, which, in the Administrative Agent's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement and such other Loan Documents or (b) the Paravant Tender Offer, which prohibits or imposes materially adverse conditions upon, or makes it economically unfeasible to consummate, the transactions contemplated by this Agreement and such other Loan Documents.

        (iii)    No Event of Default.    No Default or Event of Default shall have occurred and be continuing.

        (e)    Financial Matters.

        (i)    Financial Statements.    The Administrative Agent shall have received unaudited pro forma Consolidated financial statements for (A) the six-month period ended September 30, 2002, for the Borrower and its Subsidiaries and (B) the nine-month period ended June 30, 2002 for Paravant and its Subsidiaries, all in substance satisfactory to the Administrative Agent and in the form of Form 10-Q filed by the Borrower and Paravant, respectively, with the Securities and Exchange Commission.

        (ii)    Closing Balance Sheet.    The Administrative Agent shall have received a closing balance sheet of the Borrower dated as of September 30, 2002 demonstrating that, after giving effect to the Paravant Acquisition, shall not be materially different from the projections previously delivered to the Administrative Agent and otherwise be in form and substance satisfactory to the Administrative Agent.

        (iii)    No Material Adverse Change.    There shall have occurred no material adverse change in the business, properties, prospects, operations or condition (financial or otherwise) of (A) the Borrower and its Subsidiaries, taken as a whole since March 31, 2002, or (B) Paravant and its Subsidiaries, taken as a whole since September 30, 2001.

        (iv)    Financial Condition Certificate.    The Borrower shall have delivered to the Administrative Agent a certificate, in form and substance satisfactory to the Administrative Agent, and certified as accurate by a Responsible Officer, that (A) the Borrower and its Restricted Subsidiaries taken as a whole are Solvent, (B) the Borrower's and its Restricted Subsidiaries' payables are not past due beyond customary trade terms, (C) attached thereto are calculations evidencing compliance with the covenants contained in Article X hereof and an Asset Coverage Ratio equal to or exceeding 1.00 to 1.00, in each case, determined on a pro forma basis, as of the Amendment and Restatement Closing Date and after giving effect to the proposed Extensions of Credit to be made on such date, (D) the financial projections previously delivered to the Administrative Agent represent the

46

good faith estimates (utilizing assumptions believed by the Borrower's management to be reasonable) of the financial condition and operations of the Borrower and its Restricted Subsidiaries and (E) attached thereto is a calculation of the Applicable Margin pursuant to Section 5.1(c).

        (v)    Financial Projections.    The Administrative Agent shall have received management approved four (4) year projected financial statements of the Borrower and its Subsidiaries.

        (vi)    Payment at Closing; Fee Letters.    The Borrower shall have paid to the Administrative Agent and the Lenders the fees set forth or referenced in Section 5.3 and any other accrued and unpaid fees or commissions due hereunder (including, without limitation, legal fees and expenses) and to any other Person such amount as may be due thereto in connection with the transactions contemplated hereby, including all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of any of the Loan Documents.

        (f)    Paravant Tender Offer.

          (i)  The Administrative Agent shall have received the Paravant Merger Agreement and all other documentation (including amendments, modifications, and waivers thereof) relating to the Paravant Tender Offer and the form and substance of such documentation (including the final terms and conditions thereof) shall be reasonably satisfactory to the Administrative Agent.

         (ii)  All conditions to the Paravant Tender Offer shall be satisfied or waived (with the consent of the Administrative Agent, not to be unreasonably withheld) and the shares tendered pursuant to the Paravant Tender Offer shall have been accepted for payment in accordance with the Paravant Tender Offer documentation on or before the Amendment and Restatement Closing Date.

        (iii)  After acquiring the shares to be validly tendered and not withdrawn by Paravant stockholders in the Paravant Tender Offer, the Borrower, or a Subsidiary shall be the record and beneficial owner of not less than a majority of the voting power of all shares of issued and outstanding capital stock of Paravant which percentage is sufficient to enable the Borrower, or its applicable Subsidiary, to approve and consummate the Paravant Merger without the approval of any other stockholder of Paravant.

        (iv)  The Administrative Agent shall have received evidence satisfactory thereto that all governmental (including approvals required under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended), shareholder and third party consents and approvals necessary in connection with the Paravant Tender Offer shall have been obtained and remain in effect.

         (v)  The Administrative Agent shall be satisfied that the proposed tax and accounting treatment of the Paravant Tender Offer and the Paravant Merger and the proposed corporate and capital structure of the Borrower and its Subsidiaries (including Paravant and its Subsidiaries, if any) after giving effect to the Paravant Acquisition, (A) does not differ materially from the treatment and structure previously disclosed in writing by the Borrower to the Administrative Agent or (B) is otherwise satisfactory to the Administrative Agent.

        (g)    Repayment of Certain Amounts Outstanding under Original Credit Agreement.    On the Amendment and Restatement Closing Date, (i) there shall have been paid in cash in full all accrued but unpaid interest due on the Loans outstanding under the Original Credit Agreement to but excluding the Amendment and Restatement Closing Date, and (ii) there shall have been paid in cash in full all accrued but unpaid fees under the Original Credit Agreement due to but excluding the Amendment and Restatement Closing Date and all other amounts, costs and expenses then owing, if any, to any of the Lenders and/or any Agent, as agent under the Original Credit Agreement, in each case to the satisfaction of such Agent or Lender, as the case may be, regardless of whether or not such amounts would otherwise be due and payable at such time pursuant to the terms of the Original Credit

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Agreement. To the extent requested in writing by any Lender, all outstanding Notes issued by the Borrower to such Lender under the Original Credit Agreement shall be exchanged for amended and restated Notes and any such original Note so exchanged shall be deemed canceled and the originally executed copies thereof shall be promptly returned to the Administrative Agent which shall forward such Notes to the Borrower.

        (h)    Miscellaneous.

        (i)    Notice of Borrowing.    The Administrative Agent shall have received a Notice of Borrowing, as applicable, from the Borrower in accordance with Section 2.3(a) and Section 4.2, and a Notice of Account Designation specifying the account or accounts to which the proceeds of any Loans made after the Amendment and Restatement Closing Date are to be disbursed.

        (ii)    Other Documents.    All opinions, certificates and other instruments and all proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Administrative Agent. The Administrative Agent shall have received copies of all other documents, certificates and instruments reasonably requested thereby, with respect to the transactions contemplated by this Agreement.

        SECTION 6.3    Conditions to All Extensions of Credit.    The obligations of the Lenders to make any Extensions of Credit (including the initial Extension of Credit), or convert or continue any Loan and/or the Issuing Lender to issue or extend any Letter of Credit are subject to the satisfaction of the following conditions precedent on the relevant borrowing, continuation, conversion, issuance or extension date:

        (a)    Continuation of Representations and Warranties.    The representations and warranties contained in Article VII and in the other Loan Documents shall be true and correct on and as of such borrowing or issuance date or such date of continuation or conversion with the same effect as if made on and as of such date; except for any representation and warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date.

        (b)    Asset Coverage Ratio.    After giving effect to any requested Extension of Credit on a pro forma basis, the Asset Coverage Ratio of the Borrower and its Restricted Subsidiaries shall be greater than or equal to 1.00 to 1.00.

        (c)    No Existing Default.    No Default or Event of Default shall have occurred and be continuing (i) on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date or (ii) on the issue date with respect to such Letter of Credit or after giving effect to the issuance of such Letter of Credit on such date or on such continuation or conversion date after giving effect to such continuation or conversion.

        (d)    Notices.    The Administrative Agent shall have received a Notice of Borrowing or Notice of Conversion/Continuation, as applicable, from the Borrower in accordance with Section 2.3(a) and Section 4.2.

        (e)    Additional Documents.    The Administrative Agent shall have received each additional document, instrument, legal opinion or other item reasonably requested by it.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF THE BORROWER

        SECTION 7.1    Representations and Warranties.    To induce the Administrative Agent and Lenders to enter into this Agreement and to induce the Lenders to make Extensions of Credit, the Borrower

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hereby represents and warrants to the Administrative Agent and Lenders both before and after giving effect to the transactions contemplated hereunder that:

        (a)    Organization; Power; Qualification.    Each of the Borrower and its Restricted Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation and (ii) except to the extent as could not reasonably be expected to have a Material Adverse Effect, has the power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization. The jurisdictions in which the Borrower and its Restricted Subsidiaries are organized and qualified to do business as of the Amendment and Restatement Closing Date are described on Schedule 7.1(a).

        (b)    Ownership.    Each Subsidiary (other than Paravant and its Subsidiaries) of the Borrower as of the Amendment and Restatement Closing Date is listed on Schedule 7.1(b). As of the Amendment and Restatement Closing Date, the capitalization of the Borrower and its Subsidiaries (other than Paravant and its Subsidiaries) consists of the number of shares, authorized, issued and outstanding, of such classes and series, with or without par value, described on Schedule 7.1(b). All outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and not subject to any preemptive or similar rights. The shareholders of the Subsidiaries of the Borrower (other than Paravant and its Subsidiaries) and the number of shares owned by each as of the Amendment and Restatement Closing Date are described on Schedule 7.1(b). As of the Amendment and Restatement Closing Date, there are no outstanding stock purchase warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever, which are convertible into, exchangeable for or otherwise provide for or permit the issuance of capital stock of the Borrower or its Restricted Subsidiaries, except as described on Schedule 7.1(b).

        (c)    Authorization of Agreement, Loan Documents and Borrowing.    Each of the Borrower and its Restricted Subsidiaries has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and each of the other Loan Documents to which it is a party in accordance with their respective terms, in the case of the Borrower, the Extensions of Credit hereunder, and the transactions contemplated hereby. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of the Borrower and each of its Restricted Subsidiaries party thereto, and each such document constitutes the legal, valid and binding obligation of the Borrower or its Restricted Subsidiary party thereto, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal debtor relief laws from time to time in effect which affect the enforcement of creditors' rights in general and the availability of equitable remedies.

        (d)    Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc.    The execution, delivery and performance by the Borrower and its Restricted Subsidiaries of the Loan Documents to which each such Person is a party, in accordance with their respective terms, the Extensions of Credit hereunder and the transactions contemplated hereby do not and will not, by the passage of time, the giving of notice or otherwise, (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any of its Restricted Subsidiaries, (ii) conflict with, result in a breach of or constitute a default under the articles of incorporation, bylaws or other organizational documents of the Borrower or any of its Restricted Subsidiaries or any indenture, agreement or other instrument to which such Person is a party or by which any of its properties may be bound or any Governmental Approval relating to such Person, (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Person other than Liens arising under the Loan Documents or (iv) require any consent or authorization of, filing with, or other

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act in respect of, an arbitrator or Governmental Authority and no consent of any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement.

        (e)    Compliance with Law; Governmental Approvals.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, each of the Borrower and its Restricted Subsidiaries (i) has all Governmental Approvals required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to the best of its knowledge, threatened attack by direct or collateral proceeding, (ii) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it or any of its respective properties and (iii) has timely filed all material reports, documents and other materials required to be filed by it under all Applicable Laws with any Governmental Authority and has retained all material records and documents required to be retained by it under Applicable Law.

        (f)    Tax Returns and Payments.    Each of the Borrower and its Restricted Subsidiaries has duly filed or caused to be filed all federal, state, local and other tax returns required by Applicable Law to be filed, and has paid, or made adequate provision for the payment of, all federal, state, local and other taxes, assessments and governmental charges or levies upon it and its property, income, profits and assets which are due and payable, except (a) any taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Restricted Subsidiary, as applicable, has set aside on its books adequate reserves in conformity with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Such returns accurately reflect in all material respects all liability for taxes of the Borrower and its Subsidiaries for the periods covered thereby. There is no ongoing audit or examination or, to the knowledge of the Borrower, other investigation by any Governmental Authority of the tax liability of the Borrower and its Restricted Subsidiaries. No Governmental Authority has asserted any Lien or other claim against the Borrower or any Restricted Subsidiary thereof with respect to unpaid taxes which has not been discharged or resolved other than Liens for taxes not yet due and payable. The charges, accruals and reserves on the books of the Borrower and any of its Subsidiaries in respect of federal, state, local and other taxes for all Fiscal Years and portions thereof for all open years of the Borrower and any of its Restricted Subsidiaries are in the judgment of the Borrower adequate, and the Borrower does not anticipate any additional material taxes or assessments for any of such years.

        (g)    Intellectual Property Matters.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, each of the Borrower and its Restricted Subsidiaries owns or possesses rights to use all franchises, licenses, copyright registrations, copyright applications, issued patents, patent applications, trademarks, trademark applications, trademark registrations, trademark rights, service marks, service mark rights, trade names, trade name rights, copyrights and rights with respect to the foregoing which are required to conduct its business. To the knowledge of the Borrower and its Restricted Subsidiaries, no event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such rights (except for the expiration of patents in the ordinary course), and neither the Borrower nor any Restricted Subsidiary thereof is liable to any Person for infringement under Applicable Law with respect to any such rights as a result of its business operations except to the extent any such revocation, termination, or infringement could not reasonably be expected to have a Material Adverse Effect.

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        (h)    Environmental Matters.    Except for any such matter that could not reasonably be expected to create a Material Adverse Effect,

          (i)  The properties presently owned, leased or operated by the Borrower and its Restricted Subsidiaries do not contain, and to their knowledge have not previously contained, any Hazardous Materials in amounts or concentrations which (A) constitute or constituted a violation of applicable Environmental Laws or (B) could reasonably be expected to give rise to liability under applicable Environmental Laws;

         (ii)  The Borrower, each Restricted Subsidiary and such properties and all operations conducted in connection therewith are in compliance, and have been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about such properties or such operations which could interfere with the continued operation of such properties;

        (iii)  Neither the Borrower nor any Restricted Subsidiary thereof has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters, Hazardous Materials, or compliance with Environmental Laws, nor does the Borrower or any Restricted Subsidiary thereof have knowledge or reason to believe that any such notice will be received or is being threatened;

        (iv)  Hazardous Materials have not been transported or disposed of to or from the properties owned, leased or operated by the Borrower and its Restricted Subsidiaries in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, Environmental Laws, nor have any Hazardous Materials been generated, treated, stored or disposed of at, on or under any of such properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Laws; and

         (v)  No judicial proceedings or governmental or administrative action is pending under any Environmental Law to which the Borrower or any Restricted Subsidiary thereof has been named as a potentially responsible party with respect to such properties or operations conducted in connection therewith, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to Borrower or any Restricted Subsidiary.

        (i)    ERISA.

          (i)  As of the Amendment and Restatement Closing Date, neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Employee Benefit Plans other than those identified on Schedule 7.1(i);

         (ii)  The Borrower and each ERISA Affiliate is in material compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired and except where a failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect;

        (iii)  Except for any such matter that could not reasonably be expected to create a Material Adverse Effect, as of the Amendment and Restatement Closing Date, no Pension Plan has been terminated, nor has any accumulated funding deficiency (as defined in Section 412 of the Code)

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been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested with respect to any Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension Plan;

        (iv)  Except where the failure of any of the following representations to be correct in all material respects could not reasonably be expected to have a Material Adverse Effect, neither the Borrower nor any ERISA Affiliate has: (A) engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code, (B) incurred any liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (C) failed to make a required contribution or payment to a Multiemployer Plan, or (D) failed to make a required installment or other required payment under Section 412 of the Code;

         (v)  No Termination Event has occurred or is reasonably expected to occur; and

        (vi)  Except where the failure of any of the following representations to be correct in all material respects could not reasonably be expected to have a Material Adverse Effect, no proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best knowledge of the Borrower after due inquiry, threatened concerning or involving any (A) employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan.

        (j)    Margin Stock.    Neither the Borrower nor any Restricted Subsidiary thereof is engaged principally or as one of its activities in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each such term is defined or used, directly or indirectly, in Regulation U of the Board of Governors of the Federal Reserve System). No part of the proceeds of any of the Loans or Letters of Credit will be used for purchasing or carrying margin stock in violation of, or for any other purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of such Board of Governors.

        (k)    Government Regulation.    Neither the Borrower nor any Restricted Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company" (as each such term is defined or used in the Investment Company Act of 1940, as amended) and neither the Borrower nor any Restricted Subsidiary thereof is, or after giving effect to any Extension of Credit will be, subject to regulation under the Public Utility Holding Company Act of 1935 or the Interstate Commerce Act, each as amended, or any other Applicable Law which limits its ability to incur or consummate the transactions contemplated hereby.

        (l)    Material Contracts.Schedule 7.1(l) sets forth a complete and accurate list of all Material Contracts of the Borrower and its Restricted Subsidiaries in effect as of the Amendment and Restatement Closing Date not listed on any other Schedule hereto; other than as set forth in Schedule 7.1(l), each such Material Contract is, and after giving effect to the consummation of the transactions contemplated by the Loan Documents will be, in full force and effect in accordance with the terms thereof. The Borrower and its Subsidiaries have made available to the Administrative Agent a true and complete copy of each Material Contract required to be listed on Schedule 7.1(l) or any other Schedule hereto. Neither the Borrower nor any Restricted Subsidiary (nor, to the knowledge of the Borrower, any other party thereto) is in breach of or in default under any Material Contract which could reasonably be expected to have a Material Adverse Effect.

        (m)    Employee Relations.    Neither the Borrower nor any of its Restricted Subsidiaries is, as of the Amendment and Restatement Closing Date, party to any collective bargaining agreement nor has any

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labor union been recognized as the representative of its employees except as set forth on Schedule 7.1(m). The Borrower knows of no pending, threatened or contemplated strikes, work stoppage or other collective labor disputes involving its employees or those of its Restricted Subsidiaries.

        (n)    Burdensome Provisions.    Neither the Borrower nor any Restricted Subsidiary thereof is a party to any indenture, agreement, lease or other instrument, or subject to any corporate or partnership restriction, Governmental Approval or Applicable Law which is so unusual or burdensome as in the foreseeable future could be reasonably expected to have a Material Adverse Effect. The Borrower and its Restricted Subsidiaries do not presently anticipate that future expenditures needed to meet the provisions of any statutes, orders, rules or regulations of a Governmental Authority will be so burdensome as could reasonably be expected to have a Material Adverse Effect. No Restricted Subsidiary is party to any agreement or instrument or otherwise subject to any restriction or encumbrance that restricts or limits its ability to make dividend payments or other distributions in respect of its capital stock to the Borrower or any Restricted Subsidiary or to transfer any of its assets or properties to the Borrower or any other Restricted Subsidiary in each case other than existing under or by reason of the Loan Documents or Applicable Law.

        (o)    Financial Statements.    The financial statements required pursuant to Section 6.2(e) and related unaudited interim statements of income and retained earnings, copies of which have been furnished to the Administrative Agent and each Lender, are complete and correct and fairly present on a Consolidated basis the assets, liabilities and financial position of the Borrower and its Restricted Subsidiaries as at such dates, and the results of the operations and changes of financial position for the periods then ended (other than customary year-end adjustments for unaudited financial statements). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP.

        (p)    No Material Adverse Change.    Since March 31, 2002, there has been no material adverse change in the properties, business, operations, prospects, or condition (financial or otherwise) of the Borrower and its Restricted Subsidiaries, taken as a whole. Since September 30, 2001, there has been no material adverse change in the properties, business, operations, or condition (financial or otherwise) of Paravant and its Subsidiaries, taken as a whole and no event has occurred or condition arisen that could reasonably be expected to have a Material Adverse Effect.

        (q)    Solvency.    As of the Amendment and Restatement Closing Date and after giving effect to each Extension of Credit made hereunder, the Borrower and its Restricted Subsidiaries taken as a whole will be Solvent.

        (r)    Titles to Properties.    Each of the Borrower and its Restricted Subsidiaries has such title to the real property owned or leased by it as is necessary or desirable to the conduct of its business and valid and legal title to all of its personal property and assets, including, but not limited to, those reflected on the balance sheets of the Borrower and its Restricted Subsidiaries referred to in Section 7.1(o), except those which have been disposed of by the Borrower or its Restricted Subsidiaries subsequent to such date which dispositions have been in the ordinary course of business or as otherwise expressly permitted hereunder. As of the Amendment and Restatement Closing Date, all real property owned or leased by the Borrower or any Restricted Subsidiary is set forth on Schedule 7.1(r).

        (s)    Liens.    None of the properties and assets of the Borrower or any Restricted Subsidiary thereof is subject to any Lien, except Permitted Liens. No financing statement under the Uniform Commercial Code of any state which names the Borrower or any Restricted Subsidiary thereof or any of their respective trade names or divisions as debtor and which has not been terminated, has been filed in any state or other jurisdiction and neither the Borrower nor any Restricted Subsidiary thereof has signed any such financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement, except to perfect those Liens permitted by Section 11.2 hereof.

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        (t)    Debt and Guaranty Obligations.Schedule 7.1(t) is a complete and correct listing of all Debt, Guaranty Obligations and Bonding Obligations of the Borrower and its Restricted Subsidiaries as of the date set forth on such Schedule 7.1(t) in excess of $1,000,000. The Borrower and its Restricted Subsidiaries have performed and are in compliance with all of the terms of such Debt and Guaranty Obligations and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with notice or lapse of time or both would constitute such a default or event of default on the part of the Borrower or any of its Restricted Subsidiaries exists with respect to any such Debt or Guaranty Obligation.

        (u)    Litigation.    Except for any such matter that could not reasonably be expected to create a Material Adverse Effect, and except for matters existing on the Amendment and Restatement Closing Date and set forth on Schedule 7.1(u), there are no actions, suits or proceedings pending nor, to the knowledge of the Borrower, threatened against or in any other way relating adversely to or affecting the Borrower, any Restricted Subsidiary thereof or Paravant or any of their respective properties in any court or before any arbitrator of any kind or before or by any Governmental Authority.

        (v)    Absence of Defaults.    No event has occurred or is continuing which constitutes a Default or an Event of Default, or which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of default by the Borrower or any Restricted Subsidiary thereof under any Material Contract (which such default under such Material Contract, either individually, or in the aggregate with all other outstanding defaults under other Material Contracts (including, for purposes hereof, the effect of termination of any other Material Contracts that could reasonably be expected to be terminated as a result of such existing default or defaults), could reasonably be expected to have a Material Adverse Effect) or judgment, decree or order to which the Borrower or any of its Restricted Subsidiaries is a party or by which the Borrower or any of its Subsidiaries or any of their respective properties may be bound or which would require the Borrower or any of its Restricted Subsidiaries to make any payment thereunder prior to the scheduled maturity date therefor.

        (w)    Senior Debt Status.    The Obligations of the Borrower and each of its Restricted Subsidiaries under this Agreement, the Subsidiary Guaranteed Obligations and each of the other Loan Documents ranks and shall continue to rank at least senior in priority of payment to all Subordinated Debt and the Obligations of the Borrower and each Restricted Subsidiary under this Agreement are hereby designated as "Senior Indebtedness" under all instruments and documents, now or in the future, relating to all Subordinated Debt.

        (x)    Accuracy and Completeness of Information.    All written information, reports and other papers and data, when taken as a whole, produced by or on behalf of the Borrower or any Restricted Subsidiary thereof (other than financial projections, which shall be subject to the standard set forth in Section 8.1(c)) and furnished to the Lenders were, at the time the same were so furnished, complete and correct in all material respects to the extent necessary to give the recipient a true and accurate knowledge of the subject matter. No document furnished or written statement made to the Administrative Agent or the Lenders by the Borrower or any Restricted Subsidiary thereof in connection with the negotiation, preparation or execution of, or pursuant to, this Agreement or any of the other Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower or its Restricted Subsidiaries or omits or will omit to state a fact necessary in order to make the statements contained therein not misleading. The Borrower is not aware of any facts which it has not disclosed in writing to the Administrative Agent having a Material Adverse Effect, or insofar as the Borrower can now foresee, which could reasonably be expected to have a Material Adverse Effect.

        SECTION 7.2    Survival of Representations and Warranties, Etc.    All representations and warranties set forth in this Article VII and all representations and warranties contained in any certificate, or any of the Loan Documents (including, but not limited to, any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under

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this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Amendment and Restatement Closing Date (except those that are expressly made as of a specific date), shall survive the Amendment and Restatement Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lenders or any Extensions of Credit hereunder.

ARTICLE VIII

FINANCIAL INFORMATION AND NOTICES

        Until all the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 14.11, the Borrower will furnish or cause to be furnished to (a) Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc., (b) Moody's Investors Service, Inc. and (c) the Administrative Agent at the Administrative Agent's Office at the address set forth in Section 14.1 and to each Lender at the respective address as set forth in Section 14.1, or at such other office as may be designated by the Administrative Agent and Lenders from time to time:

        SECTION 8.1    Financial Statements and Projections.

        (a)    Quarterly Financial Statements.    As soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter of each Fiscal Year, an unaudited Consolidated and consolidating balance sheet of the Borrower and its Restricted Subsidiaries as of the close of such fiscal quarter and unaudited Consolidated and consolidating statements of income, retained earnings and cash flows for the fiscal quarter then ended and that portion of the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared by the Borrower in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the period, and certified by the chief financial officer of the Borrower to present fairly in all material respects the financial condition of the Borrower and its Restricted Subsidiaries on a Consolidated and consolidating basis as of their respective dates and the results of operations of the Borrower and its Restricted Subsidiaries for the respective periods then ended, subject to normal year end adjustments.

        (b)    Annual Financial Statements.    As soon as practicable and in any event within ninety (90) days after the end of each Fiscal Year, an audited Consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the close of such Fiscal Year and audited Consolidated statements of income, retained earnings and cash flows for the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the preceding Fiscal Year and prepared by an independent certified public accounting firm acceptable to the Administrative Agent in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the year, and accompanied by a report thereon by such certified public accountants that is not qualified with respect to scope limitations imposed by the Borrower or any of its Restricted Subsidiaries or with respect to accounting principles followed by the Borrower or any of its Restricted Subsidiaries not in accordance with GAAP.

        (c)    Annual Business Plan and Financial Projections.    As soon as practicable and in any event within forty-five (45) days following the beginning of each Fiscal Year, a business plan of the Borrower and its Restricted Subsidiaries for the ensuing four (4) fiscal quarters, such plan to be prepared in accordance with GAAP and to include, on a quarterly basis, the following: a quarterly operating and capital budget, a projected income statement, statement of cash flows and balance sheet and a report containing management's discussion and analysis of such projections, accompanied by a certificate from the chief financial officer of the Borrower to the effect that, to the best of such officer's knowledge,

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such projections are good faith estimates (utilizing assumptions believed by Borrower's management to be reasonable) of the financial condition and operations of the Borrower and its Restricted Subsidiaries for such four (4) quarter period.

        SECTION 8.2    Officer's Compliance Certificate.    At each time financial statements are delivered pursuant to Sections 8.1 (a) or (b) and at such other times as the Administrative Agent shall reasonably request (including, without limitation, in connection with any Permitted Acquisition), a certificate of the chief financial officer or the treasurer of the Borrower in the form of Exhibit F attached hereto (an "Officer's Compliance Certificate").

        SECTION 8.3    Accountants' Certificate.    At each time financial statements are delivered pursuant to Section 8.1(b), a certificate of the independent public accountants certifying such financial statements addressed to the Administrative Agent for the benefit of the Lenders:

        (a)    stating that in making the examination necessary for the certification of such financial statements, they obtained no knowledge of any Default or Event of Default or, if such is not the case, specifying such Default or Event of Default and its nature and period of existence; and

        (b)    including the calculations prepared by such accountants required to establish whether or not the Borrower and its Restricted Subsidiaries are in compliance with the financial covenants set forth in Article X hereof as at the end of each respective period.

        SECTION 8.4    Other Reports.

        (a)    Auditor's Management Letters.    Promptly upon receipt thereof, copies of all reports, if any, submitted to the Borrower or its Board of Directors by its independent public accountants in connection with their auditing function, including, without limitation, any management report and any management responses thereto.

        (b)    Borrowing Base Certificate; Asset Coverage Ratio Certificate.

        (i)    Borrowing Base Certificate.    As soon as available, but in any event within twenty-five (25) days after the end of each fiscal quarter (and, upon the occurrence and during the continuation of an Event of Default, on a more frequent basis if requested by the Administrative Agent or at such other times as required pursuant to the terms of this Agreement) a Borrowing Base Certificate; provided, that so long as the rating on the debt of the Borrower under this Agreement is "BB-" or better by Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc., and "Ba3" or better by Moody's Investors Service, Inc., the Borrower's obligation to deliver the Borrowing Base Certificate following the Amendment and Restatement Closing Date shall be suspended. Such suspension shall be immediately terminated upon a downgrade of the rating on debt issued pursuant to this Agreement and a Borrowing Base Certificate shall be promptly delivered on the earlier to occur of (i) five (5) days after such downgrade or (ii) twenty-five (25) days after the end of the most recent fiscal quarter.

        (ii)    Asset Coverage Ratio Certificate.    As soon as available, but in any event within twenty-five (25) days after the end of each fiscal quarter (and, upon the occurrence and during the continuation of an Event of Default, on a more frequent basis if requested by the Administrative Agent or at such other times as required pursuant to the terms of this Agreement), an Asset Coverage Ratio Certificate which shall include a calculation of the Asset Coverage Ratio as of such date.

        (c)    Accounts Receivable Aging Report.    As soon as available, but in any event within twenty-five (25) days after the end of each fiscal quarter of each Fiscal Year (and, upon the occurrence and during the continuation of an Event of Default, on a more frequent basis if requested by the Administrative Agent), a summary accounts receivable aging report as of the last Business Day of such quarter which report shall include such information as the Administrative Agent may require, all in form and substance satisfactory to the Administrative Agent. Upon the Administrative Agent's reasonable request, the Borrower shall deliver annually on the first day of the second quarter of each Fiscal Year

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and upon the occurrence and during the continuation of a Default or Event of Default, within thirty (30) days upon the request of the Administrative Agent, the name and mailing address of each Account Debtor.

        (d)    Accounts Payable Aging Report.    As soon as available, but in any event within twenty-five (25) days after the end of each fiscal quarter of each Fiscal Year (and, upon the occurrence and during the continuation of an Event of Default, on a more frequent basis if requested by the Administrative Agent), a summary accounts payable aging report which report shall include such information as the Administrative Agent may require, all in form and substance satisfactory to the Administrative Agent.

        (e)    Governmental Contract Report.    Upon the request of the Administrative Agent, which such requests shall be limited to one per fiscal quarter (and, upon the occurrence and during the continuance of an Event of Default, as often as requested by the Administrative Agent), a status report with respect to all Governmental Contracts in excess of $1,000,000 of the Borrower and its Restricted Subsidiaries, in form and substance satisfactory to the Administrative Agent.

        (f)    Acquisition Related Reports.    As soon as available, a copy of any report issued by an Accounting Arbitrator pursuant to the terms of the Sensors Purchase Agreement, including, without limitation, reports issued pursuant to Section 2.5(d) of the Sensors Purchase Agreement.

        (g)    Contract Backlog Report.    As soon as available, but in any event within forty-five (45) days after the close of each fiscal quarter of each Fiscal Year of the Borrower, a contract backlog report for the Borrower, its Restricted Subsidiaries and Affiliates signed by a Responsible Officer of the Borrower.

        (h)    Other Information.    Such other information regarding the operations, business affairs and financial condition of the Borrower or any of its Restricted Subsidiaries, including any reports delivered to the Securities and Exchange Commission as the Administrative Agent or any Lender may reasonably request.

        SECTION 8.5    Notice of Litigation and Other Matters.    Prompt (but in no event later than ten (10) days after an officer of the Borrower obtains knowledge thereof) telephonic and written notice of:

        (a)    Except for any such matter that could not reasonably be expected to create a Material Adverse Effect, the commencement of all proceedings and investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving the Borrower or any Restricted Subsidiary thereof or any of their respective properties, assets or businesses;

        (b)    Except for any such matter that could not reasonably be expected to create a Material Adverse Effect, any notice of any violation received by the Borrower or any Restricted Subsidiary thereof from any Governmental Authority including, without limitation, any notice of violation of Environmental Laws;

        (c)    Except for any such matter that could not reasonably be expected to create a Material Adverse Effect, any labor controversy that has resulted in, or threatens to result in, a strike or other work action against the Borrower or any Restricted Subsidiary thereof;

        (d)    any attachment, judgment, lien, levy or order exceeding $2,500,000 that may be assessed against or threatened in writing against the Borrower or any Restricted Subsidiary thereof;

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        (e)    (i) any Default or Event of Default, (ii) the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default or (iii) any event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default under any Material Contract to which the Borrower or any of its Restricted Subsidiaries is a party or by which the Borrower or any Restricted Subsidiary thereof or any of their respective properties may be bound;

        (f)    (i) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA;

        (g)    any event which makes any of the representations set forth in Section 7.1 or in any other Loan Document inaccurate in any respect; and

        (h)    any change in the government contracting status of the Borrower or its Restricted Subsidiaries with respect to the government of the United States or any department or agency thereof that could reasonably be expected to have a Material Adverse Effect.

        SECTION 8.6    Accuracy of Information.    All written information, reports, statements and other papers and data furnished by or on behalf of the Borrower to the Administrative Agent or any Lender whether pursuant to this Article VIII or any other provision of this Agreement, or any of the Security Documents, shall, at the time the same is so furnished, comply with the representations and warranties set forth in Section 7.1.

ARTICLE IX

AFFIRMATIVE COVENANTS

        Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 14.11, the Borrower will, and will cause each of its Restricted Subsidiaries to:

        SECTION 9.1    Preservation of Corporate Existence and Related Matters.    Except as permitted by Section 11.4, preserve and maintain (a) its separate corporate existence and (b) all rights, franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation and authorized to do business in each jurisdiction where the nature and scope of its activities require it to so qualify under Applicable Law except (with respect to this clause (b) only) to the extent such failure to preserve or maintain could not reasonably be expected to have a Materially Adverse Effect.

        SECTION 9.2    Maintenance of Property.    In addition to the requirements of any of the Security Documents, protect and preserve all properties useful in and material to its business, including copyrights, patents, trade names, service marks and trademarks; maintain in good working order and condition all buildings, equipment and other tangible real and personal property; and from time to time make or cause to be made all renewals, replacements and additions to such property necessary for the conduct of its business, so that the business carried on in connection therewith may be conducted in a commercially reasonable manner.

        SECTION 9.3    Insurance.    Maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as are customarily maintained by similar businesses and as may be required by Applicable Law and as are required by any Security Documents, and on the Amendment and Restatement Closing Date and from time to time thereafter deliver to the Administrative Agent upon its request a reasonably detailed list of the insurance then in effect, stating

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the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby.

        SECTION 9.4    Accounting Methods and Financial Records.    Maintain a system of accounting, and keep such books, records and accounts (which shall be true and complete in all material respects) as may be required or as may be necessary to permit the preparation of financial statements in accordance with GAAP and in compliance with the regulations of any Governmental Authority having jurisdiction over it or any of its properties.

        SECTION 9.5    Payment and Performance of Obligations.    Pay and perform all Obligations under this Agreement and the other Loan Documents, and pay or perform (a) except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its property, and (b) except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, all other indebtedness, obligations and liabilities in accordance with customary trade practices; provided, that the Borrower or such Restricted Subsidiary may contest any item described in clauses (a) or (b) of this Section 9.5 in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP.

        SECTION 9.6    Compliance With Laws and Approvals.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, observe and remain in compliance in all respects with all Applicable Laws and maintain in full force and effect all Governmental Approvals, in each case applicable to the conduct of its business.

        SECTION 9.7    Environmental Laws.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, in addition to and without limiting the generality of Section 9.6, (a) comply with, and make commercially reasonable efforts to ensure such compliance by all tenants and subtenants with all applicable Environmental Laws and obtain and comply with and maintain, and make commercially reasonable efforts to ensure that all tenants and subtenants, if any, obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, and promptly comply with all lawful orders and directives of any Governmental Authority regarding Environmental Laws, and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the presence of Hazardous Materials, or the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of the Borrower or any such Restricted Subsidiary, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor.

        SECTION 9.8    Compliance with ERISA.    In addition to and without limiting the generality of Section 9.6, (a) except where the failure to so comply could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) comply with all material applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans, (ii) not take any action or fail to take action the result of which could be a liability to the PBGC or to a Multiemployer Plan, (iii) not participate in any prohibited transaction that could result in any civil penalty under ERISA or tax under the Code and (iv) operate each Employee Benefit Plan in such a manner that will not incur any tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code and (b) furnish to the Administrative Agent upon the Administrative Agent's request such additional information about any Employee Benefit Plan as may be reasonably requested by the Administrative Agent.

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        SECTION 9.9    Compliance With Agreements.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, comply in all respects with each term, condition and provision of all leases, agreements and other instruments entered into in the conduct of its business including, without limitation, any Material Contract; provided, that the Borrower or any such Restricted Subsidiary may contest any such lease, agreement or other instrument in good faith through applicable proceedings so long as adequate reserves are maintained in accordance with GAAP.

        SECTION 9.10    Inspection of Property; Books and Records; Discussions.    Except for information and records which the Borrower may not under Applicable Law disseminate or disclose to the Administrative Agent and/or the Lenders, the Borrower, its Restricted Subsidiaries and its Affiliates shall permit any authorized representative(s) designated by the Administrative Agent and/or any of the Lenders to visit, to conduct a field audit or to otherwise inspect any of the Borrower's, its Restricted Subsidiaries' and/or its Affiliates' respective properties, including their financial and accounting records, and to make copies and take extracts therefrom, and to discuss the Borrower's, its Restricted Subsidiaries' and/or Affiliates' respective affairs, finances and accounts with the Administrative Agent's and the Lenders' officers, employees, representatives or independent certified public accountants, upon reasonable notice and during normal business hours. All information furnished to the Administrative Agent and/or the Lenders shall be received and maintained by the Administrative Agent and the Lenders in strict confidence and in accordance with Applicable Law, and they shall not disseminate said information to any Person for so long as said information has or retains a confidential or proprietary nature, except where required by and in accordance with Applicable Law, or pursuant to subpoena or other legal process or where contemplated by the Loan Documents (including, without limitation, in connection with the enforcement of any rights or remedies thereunder). Each of the Administrative Agent and the Lenders agrees that it shall not take any action or omit to take any action which would cause or result in the violation of Applicable Law (including without limitation, any export control law) by the Borrower, its Restricted Subsidiaries and its Affiliates. Each such visitation and inspection by or on behalf of the Administrative Agent and/or the Lenders after the occurrence and during the continuance of an Event of Default shall be at the Borrower's own reasonable cost and expense. The Borrower shall, and shall cause its Restricted Subsidiaries and its Affiliates, to keep proper books and records and accounts in accordance with GAAP and Applicable Law.

        SECTION 9.11    Additional Subsidiaries.

        (a)    Within forty-five (45) days after (i) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary in accordance with Section 9.11(c) below or (ii) the creation or acquisition of any Domestic Subsidiary (any such Subsidiary, a "New Subsidiary") of the Borrower or any Restricted Subsidiary (including in connection with any Permitted Acquisition), cause to be executed and delivered to the Administrative Agent (A) a duly executed joinder agreement in form and substance reasonably satisfactory to the Administrative Agent joining such New Subsidiary (to the extent such New Subsidiary is a Restricted Subsidiary) to the Subsidiary Guaranty Agreement, the Collateral Agreement and any other applicable Security Documents, (B) updated Schedules 7.1(a) and 7.1(b) reflecting the creation or acquisition of such Subsidiary, (C) favorable legal opinions covering such matters consistent with opinions for this Agreement and addressed to the Administrative Agent and Lenders in form and substance reasonably satisfactory thereto with respect to such joinder agreement, (D) original stock or other certificates and stock or other transfer powers evidencing the ownership interests of the Borrower or such Restricted Subsidiary, as applicable, in such New Subsidiary, and (E) any other documents and certificates as may be reasonably requested by the Administrative Agent or the Required Lenders (through the Administrative Agent).

        (b)    Within forty-five (45) days after the creation of any first tier Foreign Subsidiary of the Borrower or any Restricted Subsidiary (including in connection with a Permitted Acquisition), cause to be executed and delivered to the Administrative Agent, (A) a supplement to the applicable Security Documents previously executed and delivery by the Borrower or such Restricted Subsidiary, as applicable, to provide for the pledge of sixty-five percent (65%) of the capital stock or other ownership interests of such Foreign Subsidiary, (B) updated Schedules 7.1(a) and 7.1(b) reflecting the creation or

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acquisition of such Subsidiary, (C) favorable legal opinions addressed to the Administrative Agent and Lenders in form and substance reasonably satisfactory thereto with respect to such supplement, (D) original stock or other certificates and stock or other transfer powers evidencing the ownership interests of the Borrower or such Restricted Subsidiary in such Foreign Subsidiary, and (E) any other documents and certificates as may be reasonably requested by the Administrative Agent or the Required Lenders (through the Administrative Agent).

        (c)    The Borrower may, at any time and upon written notice to the Administrative Agent, redesignate an Unrestricted Subsidiary as a Restricted Subsidiary. Further, promptly after the date on which the Borrower or the Administrative Agent determines that:

        (i)    any individual Unrestricted Subsidiary and its respective Subsidiaries (A) represent five percent (5%) or more of (I) the Consolidated assets of the Borrower and its Subsidiaries as of the most recently ended fiscal quarter prior to such date or (II) Consolidated EBITDA (notwithstanding the definition thereof, calculated to include all Unrestricted Subsidiaries) of the Borrower and its Subsidiaries for the four (4) consecutive fiscal quarters most recently ended prior to such date or (B) are or become the obligor on any Debt (notwithstanding the definition thereof, determined by reference to such Unrestricted Subsidiary) which is guaranteed by, credit supported by, or recourse to the Borrower or any Restricted Subsidiary, or

        (ii)    all Unrestricted Subsidiaries and their respective Subsidiaries represent ten percent (10%) or more of (A) the Consolidated assets of the Borrower and its Subsidiaries as of the most recently ended fiscal quarter prior to such date or (B) Consolidated EBITDA (notwithstanding the definition thereof, calculated to include all Unrestricted Subsidiaries) for the four consecutive fiscal quarters most recently ended prior to such date,

then, in the case of clause (i), such Unrestricted Subsidiary shall be redesignated as a Restricted Subsidiary and in the case of clause (ii), the Borrower shall promptly identify in writing to the Administrative Agent such Unrestricted Subsidiaries to be redesignated as Restricted Subsidiaries to cause such remaining Unrestricted Subsidiaries and their Subsidiaries (after giving effect to such redesignation) to represent less than ten percent (10%) of (A) the Consolidated assets of the Borrower and its Subsidiaries as of the most recently ended fiscal quarter prior to such date and (B) Consolidated EBITDA (notwithstanding the definition thereof, calculated to include all Unrestricted Subsidiaries) for the four consecutive fiscal quarters most recently ended prior to such date.

        (d)    So long as no Default or Event of Default has occurred and is continuing, the Borrower shall be permitted, on prior written notice to the Administrative Agent, to redesignate any Restricted Subsidiary as an Unrestricted Subsidiary (or designate any newly formed or acquired Subsidiary as an Unrestricted Subsidiary; provided that such formation or acquisition is otherwise permitted hereunder), so long as the following conditions have been satisfied as reasonably determined by the Administrative Agent:

        (i)    any such individual Subsidiary and its respective Subsidiaries to be designated (or redesignated, as applicable) as an Unrestricted Subsidiary (A) represent less than five percent (5%) of (I) the Consolidated assets of the Borrower and its Subsidiaries as of the most recently ended fiscal quarter prior to such date and (II) Consolidated EBITDA (notwithstanding the definition thereof, calculated to include all Unrestricted Subsidiaries) of the Borrower and its Subsidiaries for the four (4) consecutive fiscal quarters most recently ended prior to such date and (B) are not the obligors on any Debt (notwithstanding the definition thereof, determined by reference to such Unrestricted Subsidiary) which is guaranteed by, credit supported by, or recourse to the Borrower or any Restricted Subsidiary; and

        (ii)    at the time of such proposed designation (or redesignation, as applicable), and after giving effect thereto, all Unrestricted Subsidiaries and their respective Subsidiaries (including the Subsidiary and its respective Subsidiaries to be designated (or redesignated, as applicable) as an Unrestricted Subsidiary) represent less than ten percent (10%) of (A) the Consolidated assets of

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the Borrower and its Subsidiaries as of the most recently ended fiscal quarter prior to such date and (B) Consolidated EBITDA (notwithstanding the definition thereof, calculated to include all Unrestricted Subsidiaries) for the four consecutive fiscal quarters most recently ended prior to such date.

        Such designation (or redesignation, as applicable) shall have an effective date mutually acceptable to the Administrative Agent and Borrower, but in no event earlier than fifteen (15) Business Days following receipt by the Administrative Agent of such written notice.

        SECTION 9.12    Certain Agreements with Respect to the Paravant Merger.    Notwithstanding anything in Section 9.11 to the contrary, as promptly as possible, but in no event later than the fifteenth (15^th) Business Day following the closing of the Paravant Merger, the Borrower shall:

        (a)    Designate each Restricted Paravant Entity as a Restricted Subsidiary;

        (b)    Deliver, or cause to be delivered, to the Administrative Agent (i) a duly executed joinder agreement in form and substance reasonably satisfactory to the Administrative Agent joining such Person to the Subsidiary Guaranty Agreement, the Collateral Agreement and any other applicable Security Documents, and (ii) original stock or other certificates and stock or other transfer powers evidencing the ownership interests of the Borrower or a Subsidiary, as applicable, in each such Person;

        (c)    Deliver, or cause to be delivered, to the Administrative Agent satisfactory evidence that all Debt of each Restricted Paravant Entity other than Debt permitted by Section 11.1 has been repaid in full and any Liens or other security interests related to such repaid Debt have been terminated;

        (d)    Deliver, or cause to be delivered, to the Administrative Agent updated schedules to this Agreement dated as of the closing date of the Paravant Merger to the extent necessary to make such schedules accurate after giving effect to the Paravant Merger and such schedules shall be in form and substance satisfactory to the Administrative Agent;

        (e)    Deliver, or cause to be delivered, to the Administrative Agent a certificate from a Responsible Officer, in form and substance satisfactory to the Administrative Agent, to the effect that, after giving effect to the Paravant Merger, all representations and warranties contained in this Agreement and the other Loan Documents are true, correct and complete and that, after giving effect to the Paravant Merger, no Default or Event of Default has occurred and is continuing;

        (f)    Deliver, or cause to be delivered, to the Administrative Agent a certificate of the secretary or assistant secretary of each of Restricted Paravant Entity as to the incumbency and genuineness of the signature of each officer thereof executing any Loan Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (i) the certificate of limited partnership, articles of incorporation or other organizational document thereof and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, organization or formation, (ii) the bylaws, partnership agreement, operating agreement or other operative document thereof as in effect on the date of such certifications, and (iii) resolutions duly adopted by the Board of Directors, partners or members thereof authorizing the execution, delivery and performance of the Loan Documents to which it is a party;

        (g)    Deliver, or cause to be delivered, to the Administrative Agent certificates as of a recent date of the good standing of each Restricted Paravant Entity under the laws of its jurisdiction of incorporation, organization or formation and, to the extent requested by the Administrative Agent in its reasonable judgment, each other jurisdiction where such Restricted Paravant Entity is qualified to do business and a certificate of the relevant taxing authorities of such jurisdictions certifying that such Person has filed required tax returns and owes no delinquent taxes; and

        (h)    Deliver, or cause to be delivered, to the Administrative Agent favorable opinions of counsel to each Restricted Paravant Entity addressed to the Administrative Agent and the Lenders with respect to such Restricted Paravant Entities, the Loan Documents and such other matters as the Administrative Agent shall reasonably request.

        SECTION 9.13    Use of Proceeds.    The Borrower shall use the proceeds of the Extensions of Credit (a) to finance the Paravant Acquisition (b) to finance Permitted Acquisitions, (c) to refinance

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existing indebtedness of the Borrower, (d) to finance Capital Expenditures of the Borrower, and (e) for working capital and general corporate requirements of the Borrower and its Restricted Subsidiaries, including the payment of certain fees and expenses incurred in connection with the Paravant Acquisition and the other transactions contemplated hereby and refunding Letters of Credit.

        SECTION 9.14    Conduct of Business.    Engage only in businesses in substantially the same fields as the business conducted on the Amendment and Restatement Closing Date and in lines of business reasonably related thereto.

        SECTION 9.15    Account Designation.    Designate only accounts with the Administrative Agent as the location for all deposits and payments required to be made to the Borrower as Buyer pursuant to the terms of the Sensors Purchase Agreement and the Paravant Merger Agreement.

        SECTION 9.16    Debt Rating.    Maintain an up to date debt rating with both Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc., and Moody's Investors Service, Inc. or, in the event one or both such entities cease to provide any such rating, such other rating agency or agencies that are reasonably acceptable to the Administrative Agent.

        SECTION 9.17    Post Closing Covenants; Further Assurances; Existing Letters of Credit.

        (a)    Prior to January 31, 2003, as such date may be extended by the Administrative Agent in its sole discretion, but in no event later than February 28, 2003, deliver such additional (i) Deposit Account Control Agreements pursuant to the Collateral Agreement, (ii) curative intellectual property filings, in each case as previously identified to the Borrower in writing by the Administrative Agent, and (iii) such additional documents, instruments, and agreements as are reasonably requested by the Administrative Agent to confirm any Security Documents governed by the laws of a jurisdiction other than the United States.

        (b)    Make, execute and deliver all such additional and further acts, things, deeds and instruments as the Administrative Agent or the Required Lenders (through the Administrative Agent) may reasonably require to document and consummate the transactions contemplated hereby and to vest completely in and insure the Administrative Agent and the Lenders their respective rights under this Agreement, the Notes, the Letters of Credit and the other Loan Documents.

        (c)    Cause each Existing Letter of Credit to be replaced (if required by the beneficiary thereof) on or before the current expiration date of such Existing Letter of Credit.

ARTICLE X

FINANCIAL COVENANTS

        Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 14.11, the Borrower and its Restricted Subsidiaries on a Consolidated basis will not:

        SECTION 10.1    Maximum Adjusted Leverage Ratio:    As of any fiscal quarter end, permit the Adjusted Leverage Ratio to be greater than the corresponding ratio set forth below:

Period	Ratio
Fiscal quarters ending 12/31/02 through 3/31/04	3.25 to 1.00
Fiscal quarters ending 6/30/04 through 3/31/05	3.00 to 1.00
Fiscal quarters ending 6/30/05 and thereafter	2.75 to 1.00

        SECTION 10.2    Minimum Fixed Charge Coverage Ratio:    As of any fiscal quarter end, permit the ratio of (a) the sum of (i) EBITDA for the period of four (4) consecutive fiscal quarters ending on or

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immediately prior to such date minus (ii) Capital Expenditures for such period to (b) Fixed Charges for the period of four (4) consecutive fiscal quarters ending on or immediately prior to such date to be less than the corresponding ratio set forth below.

Period	Ratio
Fiscal quarters ending 12/31/02 through 12/31/03	1.25 to 1.00
Fiscal quarters ending 3/31/04 through 12/31/04	1.35 to 1.00
Fiscal quarters ending 3/31/05 and thereafter	1.50 to 1.00

        SECTION 10.3    Maximum Capital Expenditures.    Permit Capital Expenditures during any Fiscal Year to exceed an aggregate amount of Thirty-Five Million Dollars ($35,000,000). Notwithstanding the foregoing, the maximum amount of Capital Expenditures permitted by this Section 10.3 in any Fiscal Year shall be increased by an amount equal to the lesser of (a) $5,000,000 and (b) the excess of (i) the amount of Capital Expenditures that were permitted to be made under this Section 10.3 in the immediately preceding Fiscal Year (without giving effect to any carryover amount from prior Fiscal Years) over (ii) the amount of Capital Expenditures actually made during such preceding Fiscal Year.

ARTICLE XI

NEGATIVE COVENANTS

        Until all of the Obligations have been paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 14.11, the Borrower has not and will not and will not permit any of its Restricted Subsidiaries to:

        SECTION 11.1    Limitations on Debt.    Create, incur, assume or suffer to exist any Debt except:

        (a)    the Obligations (excluding Hedging Obligations permitted pursuant to Section 11.1(b));

        (b)    Debt incurred in connection with a Hedging Agreement with a counterparty and upon terms and conditions (including interest rate) reasonably satisfactory to the Administrative Agent; provided, that any counterparty that is a Lender shall be deemed satisfactory to the Administrative Agent.

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        (c)   Debt existing on the Amendment and Restatement Closing Date and not otherwise permitted under this Section 11.1, as set forth on Schedule 7.1(t) and the renewal, refinancing, extensions and replacements (but not the increase in the aggregate principal amount) thereof;

        (d)   Debt of the Borrower and its Restricted Subsidiaries incurred in connection with Capitalized Leases in an aggregate amount not to exceed $25,000,000 on any date of determination;

        (e)   purchase money Debt of the Borrower and its Restricted Subsidiaries in an aggregate amount not to exceed $5,000,000 on any date of determination;

        (f)    Guaranty Obligations in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders;

        (g)   other unsecured Debt in an aggregate principal amount not exceeding $10,000,000 at any time outstanding;

        (h)   Debt of the Borrower to any Restricted Subsidiary and of any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that if requested by the Administrative Agent any such loans and advances made by a Borrower or any other Restricted Subsidiary that are evidenced by a promissory note or other instrument shall be pledged pursuant to the Collateral Agreement;

        (i)    Guaranty Obligations with respect to Debt permitted pursuant to subsections (a) through (f) and subsection (j) of this Section 11.1 (provided that any Guaranty Obligation with respect to subsection (j) is subordinated at least to the same extent as the obligation guaranteed);

        (j)    Permitted Subordinated Debt; provided, that (A) no Default or Event of Default exists and is continuing or would be caused by the issuance of such Permitted Subordinated Debt and (B) the Administrative Agent shall have received satisfactory written evidence that the Borrower would be in compliance with all covenants in this Agreement on a pro forma basis after giving effect to the issuance of such Permitted Subordinated Debt; and

        (k)   Unsecured Debt of DRS Technologies Canada Company in an aggregate amount not to exceed $15,000,000 (US Dollars) on any date of determination;

provided, that no agreement or instrument with respect to Debt permitted to be incurred by this Section shall restrict, limit or otherwise encumber (by covenant or otherwise) the ability of any Restricted Subsidiary of the Borrower to make any payment to the Borrower or any of its Restricted Subsidiaries (in the form of dividends, intercompany advances or otherwise) for the purpose of enabling the Borrower to pay the Obligations.

        SECTION 11.2    Limitations on Liens.    Create, incur, assume or suffer to exist any Lien on or with respect to any of its assets or properties (including, without limitation, shares of capital stock or other ownership interests), real or personal, whether now owned or hereafter acquired, except:

        (a)   Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) not yet due or as to which the period of grace (not to exceed thirty (30) days), if any, related thereto has not expired or which are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP;

        (b)   the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, (i) which are not overdue for a period of more than thirty (30) days or (ii) which are being contested in good faith and by appropriate proceedings;

        (c)   Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, unemployment insurance or similar legislation;

        (d)   Liens constituting encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, detract from the value of such property or impair the use thereof in the ordinary conduct of business;

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        (e)   Liens of the Administrative Agent for the benefit of the Administrative Agent and the Lenders;

        (f)    Liens not otherwise permitted by this Section 11.2 and in existence on the Amendment and Restatement Closing Date and described on Schedule 11.2;

        (g)   Liens securing Debt permitted under Sections 11.1(d) and (e); provided that (i) such Liens shall be created substantially simultaneously with the acquisition or lease of the related asset, (ii) such Liens do not at any time encumber any property other than the property financed by such Debt, (iii) the amount of Debt secured thereby is not increased and (iv) the principal amount of Debt secured by any such Lien shall at no time exceed one hundred percent (100%) of the original purchase price or lease payment amount of such property at the time it was acquired; and

        (h)   any Lien existing on any property or asset (other than properties or assets acquired pursuant to the Paravant Acquisition) prior to the acquisition thereof by the Borrower or any Restricted Subsidiary or existing on any property or asset of any Person that becomes a Restricted Subsidiary after the date of consummation of the Paravant Tender Offer prior to the time such Person becomes a Restricted Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Restricted Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Restricted Subsidiary and (iii) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Restricted Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; and

        (i)    deposits to secure the performance of bids, trade contracts, obligations for utilities, leases, Bonding Obligations permitted pursuant to Section 11.14 and other obligations of a like nature (other than obligations for borrowed money or other Debt), in each case in the ordinary course of business.

        SECTION 11.3    Limitations on Loans, Advances, Investments and Acquisitions.    Purchase, own, invest in or otherwise acquire, directly or indirectly, any capital stock, interests in any partnership or joint venture (including, without limitation, the creation or capitalization of any Restricted Subsidiary), evidence of Debt or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, or make or permit to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of property in, any Person except:

        (a)   (i) investments in Restricted Subsidiaries existing on the Amendment and Restatement Closing Date, (ii) investments in Restricted Subsidiaries formed or acquired after the Amendment and Restatement Closing Date so long as the Borrower and its Restricted Subsidiaries comply with the applicable provisions of Section 9.11 and Section 11.3(d) and (iii) the other loans, advances and investments described on Schedule 11.3 existing on the Amendment and Restatement Closing Date;

        (b)   investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one hundred twenty (120) days from the date of acquisition thereof, (ii) commercial paper maturing no more than one hundred twenty (120) days from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no more than one hundred twenty (120) days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of "A" or better by a nationally recognized rating agency; provided, that the aggregate amount invested in such certificates of deposit shall not at any time exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder; and (v) repurchase agreements with a Lender or a bank or trust company or a

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recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America (such investments described in items (i) through (v) above, "Cash Equivalents");

        (c)   the Paravant Acquisition; provided, that the Paravant Merger shall be subject to the conditions set forth in Section 11.4(d);

        (d)   investments by the Borrower or any Restricted Subsidiary thereof in the form of acquisitions of all or substantially all of the business or a line of business (whether by the acquisition of capital stock, assets or any combination thereof) of any other Person if each such acquisition meets all of the following requirements (such acquisitions being, "Permitted Acquisitions"):

        (i)    the Person to be acquired shall be in a substantially similar line of business as the Borrower,

        (ii)   evidence of approval of the acquisition by the acquiree's board of directors or equivalent governing body or a copy of the opinion of counsel delivered by legal counsel to the acquiree in connection with the acquisition which evidences such approval shall be delivered to the Administrative Agent at the time the documents referred to in clause (vi) of this Section 11.3(d) are required to be delivered;

        (iii)  a description of the acquisition in the form customarily prepared by the Borrower shall have been delivered to the Administrative Agent and the Lenders prior to the consummation of the acquisition;

        (iv)  the Borrower or any Restricted Subsidiary shall be the surviving Person and no Change of Control shall have been effected thereby;

        (v)   the Borrower shall have demonstrated to the Administrative Agent (A) pro forma compliance (as of the date of the proposed acquisition and after giving effect thereto and any Extensions of Credit made or to be made in connection therewith) with each covenant contained in and in the manner set forth in, Article X, (B) a pro forma Asset Coverage Ratio (as of the date of the proposed acquisition and after giving effect thereto and any Extensions of Credit made or to be made in connection therewith) equal to or exceeding 1.00 to 1.00, (C) maintenance of at least $30,000,000 of availability under the Revolving Credit Facility both before and after giving effect to the proposed acquisition; and (D) a pro forma Adjusted Leverage Ratio (as of the date of the proposed acquisition and after giving effect thereto and any Extensions of Credit made or to be made in connection therewith) at least 0.25 below the applicable ratio set forth in Section 10.1, and no Default or Event of Default shall have occurred and be continuing both before and after giving effect to the acquisition;

        (vi)  the Borrower shall have delivered to the Administrative Agent such documents reasonably requested by the Administrative Agent or the Required Lenders (through the Administrative Agent) pursuant to Section 9.11 to be delivered at the time required pursuant to Section 9.11 confirming that such Person is or will be a Subsidiary Guarantor hereunder, and its Subsidiary Guaranteed Obligations incurred in such capacity are secured by the Security Documents, said documents to include a favorable opinion of counsel to the Borrower acceptable to the Administrative Agent addressed to the Administrative Agent and the Lenders with respect to the Borrower, the Person to be acquired and the acquisition in form and substance reasonably acceptable to the Administrative Agent;

        (vii) the aggregate amount of Permitted Acquisition Consideration (A) for any such acquisition (or series of related acquisitions) shall not exceed $75,000,000 payable in cash, Cash Equivalents or Debt and (B) for such acquisition, together with all other acquisitions consummated in the twelve-month period ending on the date of such acquisition shall not exceed $125,000,000 in the aggregate, regardless of the form of such Permitted Acquisition Consideration; provided that any Permitted Acquisition Consideration paid with respect to any acquisition consummated prior to the Amendment and Restatement Closing Date shall not count toward such $125,000,000 limit;

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        (viii) the Person to be acquired shall demonstrate positive EBITDA for the most recent twelve (12) month period then ended, both prior to the acquisition and after giving effect thereto, by providing the Administrative Agent and Lenders copies of the most recent financial statements and projections, all in form and substance reasonably satisfactory to the Administrative Agent and Lenders; and

        (ix)  the Borrower shall provide such other documents and other information as may be reasonably requested by the Administrative Agent or the Required Lenders (through the Administrative Agent) in connection with the proposed acquisition;

        (e)   Hedging Agreements permitted pursuant to Section 11.1;

        (f)    loans or advances made by the Borrower to any Restricted Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; provided that any such loans and advances made by a Borrower or any Restricted Subsidiary that are evidenced by a promissory note or other instrument shall be pledged pursuant to the Collateral Agreement;

        (g)   investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

        (h)   investments made after the Amendment and Restatement Closing Date in joint ventures and other business entities (in each case that are not Subsidiaries of the Borrower) that are engaged in the same line or lines of business as the Borrower and its Restricted Subsidiaries in an aggregate amount not to exceed $5,000,000;

        (i)    loans to employees of the Borrower and the Restricted Subsidiaries in their capacity as such, in an aggregate principal amount not to exceed $1,000,000 at any time outstanding;

        (j)    any investment received as consideration, in whole or in part, for any asset sale otherwise permitted hereunder in an aggregate principal amount not to exceed $5,000,000; provided, that the promissory note issued to DRS Data Systems, Inc. in connection with the sale of certain assets thereof in an original principal amount of approximately $2,813,000 shall not be applied to reduce such $5,000,000 basket; and

        (k)   purchases of assets in the ordinary course of business.

        SECTION 11.4    Limitations on Mergers and Liquidation.    Merge, consolidate or enter into any similar combination with any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) except:

        (a)   any Wholly-Owned Subsidiary of the Borrower may merge with the Borrower or any other Wholly-Owned Restricted Subsidiary of the Borrower; provided that (i) in any merger involving the Borrower, the Borrower shall be the surviving entity and (ii) in any merger involving a Restricted Subsidiary, the Restricted Subsidiary shall be the surviving entity;

        (b)   any Wholly-Owned Subsidiary of the Borrower may merge into the Person such Wholly-Owned Subsidiary was formed to acquire in connection with a Permitted Acquisition (and, in the case of any merger involving a Restricted Subsidiary, such Person is or becomes a Restricted Subsidiary);

        (c)   any Wholly-Owned Subsidiary of the Borrower may wind-up into the Borrower or any other Wholly-Owned Restricted Subsidiary of the Borrower; and

        (d)   the Paravant Merger; provided, that prior to or upon the consummation thereof:

        (i)    Conditions to Paravant Merger.    Each of the conditions to the consummation of the Paravant Merger shall have been satisfied or waived (with the consent of the Administrative Agent, such consent not to be unreasonably withheld);

        (ii)   No Event of Default.    No Default or Event of Default shall have occurred and be continuing or would be in existence after giving effect to the consummation of the Paravant Merger;

        (iii)  No Material Adverse Change.    The Administrative Agent shall be satisfied that no material adverse change has occurred in the business, properties, prospects, operations or

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condition (financial or otherwise) of (A) the Borrower and its Subsidiaries, taken as a whole, or (B) Paravant and its Subsidiaries, taken as a whole; and

        (iv)  Representations and Warranties.    The representations and warranties contained in Article VII and in the other Loan Documents shall be true and correct on and as of the date of consummation of the Paravant Merger and after giving effect to the Paravant Merger, in each case with the same effect as if made on and as of such date.

        SECTION 11.5    Limitations on Sale of Assets.    Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, the sale of any receivables and leasehold interests and any sale-leaseback or similar transaction), whether now owned or hereafter acquired except:

        (a)   the sale of inventory in the ordinary course of business;

        (b)   the sale of obsolete assets no longer used or usable in the business of the Borrower or any of its Subsidiaries;

        (c)   the transfer of assets to the Borrower or any Restricted Subsidiary of the Borrower pursuant to Section 11.4 (c);

        (d)   the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof;

        (e)   the sale of DRS Data Systems, Inc.;

        (f)    the sale of DRS Advanced Programs, Inc.; and

        (g)   the sale, transfer and other disposition of assets of the Borrower or its Restricted Subsidiaries (other than less than 100% of the equity ownership interest in a Subsidiary) that are not permitted by any other clause of this Section 11.5; provided that (i) the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (g) in the aggregate shall not exceed $25,000,000 in a Fiscal Year; provided, that such fair market value shall be determined without regard to any earnout or other contingent payments based on the financial performance or other results of the assets sold and (ii) the Borrower or applicable Restricted Subsidiary complies with the provisions of Section 4.4(b).

        SECTION 11.6    Limitations on Dividends and Distributions.    Declare or pay any dividends upon any of its capital stock; purchase, redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock, or make any distribution of cash, property or assets among the holders of shares of its capital stock, or make any change in its capital structure which such change in its capital structure could reasonably be expected to have a Material Adverse Effect; provided that:

        (a)   the Borrower or any Restricted Subsidiary may pay dividends in shares of its own capital stock;

        (b)   any Restricted Subsidiary may pay cash dividends to the Borrower;

        (c)   the Borrower or any Restricted Subsidiary may make any distribution (whether direct or indirect and whether in the form of cash, property, securities or otherwise) to shareholders, employees or other permitted distributees under Borrower's 1996 Omnibus Plan and other benefit or retirement plans maintained and created by the Borrower, its Restricted Subsidiaries and its Affiliates; and

        (d)   the Borrower and its Subsidiaries may pay the cash consideration payable in the Paravant Tender Offer and the cash consideration payable in the Paravant Merger (including any payments in respect of appraisal rights).

        SECTION 11.7    Limitations on Exchange and Issuance of Capital Stock.    Issue, sell or otherwise dispose of any class or series of capital stock that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or passage of time would be, (a) convertible or exchangeable into Debt or (b) required to be redeemed or repurchased, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, except for any class or series of capital stock that is not required to be redeemed or repurchased prior to the date which is one (1) year and one (1) day following the Term Loan Maturity Date.

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        SECTION 11.8    Transactions with Affiliates.    Except for transactions permitted by Sections 11.6, 11.7 and 11.3 and those listed on Schedule 11.8, directly or indirectly (a) make any loan or advance to, or purchase or assume any note or other obligation to or from, any of its officers, directors, shareholders or other Affiliates, or to or from any member of the immediate family of any of its officers, directors, shareholders or other Affiliates, or subcontract any operations to any of its Affiliates or (b) enter into, or be a party to, any other transaction not described in clause (a) above with any of its Affiliates, except pursuant to the reasonable requirements of its business and upon fair and reasonable terms that are (i) fully disclosed to and approved in writing by (A) the Administrative Agent; provided, that the aggregate of all such transactions approved by the Administrative Agent does not exceed $5,000,000, or (B) the Required Lenders, if the aggregate of all such transactions exceeds $5,000,000, prior to the consummation thereof and (ii) no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not its Affiliate.

        SECTION 11.9    Certain Accounting Changes; Organizational Documents.    (a) Change its Fiscal Year end, or make any change in its accounting treatment and reporting practices except as required by GAAP or (b) amend, modify or change its articles of incorporation (or corporate charter or other similar organizational documents) or amend, modify or change its bylaws (or other similar documents) in any manner materially adverse in any respect to the rights or interests of the Lenders.

        SECTION 11.10    Amendments; Payments and Prepayments of Subordinated Debt.    Amend or modify (or permit the modification or amendment of) any of the terms or provisions of any Subordinated Debt, or cancel or forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value (including, without limitation, by way of depositing with any trustee with respect thereto money or securities before due for the purpose of paying when due) any Subordinated Debt.

        SECTION 11.11    Amendments, Consents and Waivers under the Sensors Purchase Agreement or Paravant Acquisition Documents.    Materially amend, modify, waive (or permit the material amendment, modification of or waiver of) any of the terms or provisions of (a) the Sensors Purchase Agreement, (b) the offer to purchase filed in connection with the Paravant Tender Offer or (c) the Paravant Merger Agreement, in each case, without the prior written approval of the Administrative Agent and Required Lenders, which shall not be unreasonably withheld. Notwithstanding Section 2.2 of the Paravant Merger Agreement, the Borrower will not agree to any Closing Date (as defined therein) later than the second Business Day following satisfaction of the closing conditions set forth in Article VII of the Paravant Merger Agreement as in effect on the date hereof without the consent of the Administrative Agent.

        SECTION 11.12    Restrictive Agreements.

        (a)   Enter into any Debt which (i) contains any negative pledge on assets or any covenants more restrictive than the provisions of Articles IX, X, or XI hereof, or (ii) restricts, limits or otherwise encumbers its ability to incur Liens on or with respect to any of its assets or properties other than the assets or properties securing such Debt (excluding the Permitted Subordinated Debt solely for the purposes of this Section 11.12(a)(ii) so long as such Permitted Subordinated Debt does not restrict, limit or otherwise encumber the ability of the Borrower or any Restricted Subsidiary to incur Liens in favor of the Administrative Agent or any Lender).

        (b)   Enter into or permit to exist any agreement which impairs or limits the ability of any Restricted Subsidiary of the Borrower to pay dividends to the Borrower.

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        SECTION 11.13    Nature of Business.    Alter in any material respect the character or conduct of the business conducted by the Borrower and its Restricted Subsidiaries as of the Amendment and Restatement Closing Date.

        SECTION 11.14    Limitation on Bonding Obligations.    Create, incur, assume or suffer to exist Bonding Obligations in an aggregate amount in excess of $5,000,000 outstanding at any time during the term hereof.

        SECTION 11.15    Impairment of Security Interests.    Take or omit to take any action, which might or would have the result of materially impairing the security interests in favor of the Administrative Agent for the ratable benefit of itself and the Lenders with respect to the Collateral or grant to any Person (other than the Administrative Agent for the benefit of itself and the Lenders pursuant to the Security Documents) any interest whatsoever in the Collateral, except for Liens permitted under Section 11.2 and asset sales permitted under Section 11.5.

ARTICLE XII

DEFAULT AND REMEDIES

        SECTION 12.1    Events of Default.    Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or otherwise:

        (a)    Default in Payment of Principal of Loans and Reimbursement Obligations.    The Borrower shall default in any payment of principal of any Loan, Note or Reimbursement Obligation when and as due (whether at maturity, by reason of acceleration or otherwise).

        (b)    Other Payment Default.    The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Loan, Note or Reimbursement Obligation or the payment of any other Obligation and such default shall continue for a period of three (3) Business Days.

        (c)    Misrepresentation.    Any representation or warranty made or deemed to be made by the Borrower or any of its Restricted Subsidiaries under this Agreement, any other Loan Document or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made or deemed made.

        (d)    Default in Performance of Certain Covenants.    The Borrower shall default in the performance or observance of any covenant or agreement contained in Sections 8.1, 8.2, 8.4(b), (c) or (d) or 8.5(e)(i) or Articles X or XI of this Agreement.

        (e)    Default in Performance of Other Covenants and Conditions.    The Borrower or any Restricted Subsidiary thereof shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for otherwise in this Section 12.1) or any other Loan Document and such default shall continue for a period of thirty (30) days after written notice thereof has been given to the Borrower by the Administrative Agent.

        (f)    Hedging Agreement.    The Borrower or any of its Restricted Subsidiaries shall default in the performance or observance of any terms, covenant, condition or agreement (after giving effect to any applicable grace or cure period) under any Hedging Agreement and such default causes the termination of such Hedging Agreement or permits any counterparty to such Hedging Agreement to terminate any such Hedging Agreement.

        (g)    Debt Cross-Default.    The Borrower or any of its Restricted Subsidiaries shall (i) default in the payment of any Debt (other than the Notes or any Reimbursement Obligation) the aggregate outstanding amount of which Debt is in excess of $5,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such Debt was created, or (ii) default in the

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observance or performance of any other agreement or condition relating to any Debt (other than the Notes or any Reimbursement Obligation) the aggregate outstanding amount of which Debt is in excess of $5,000,000 or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, any such Debt to become due prior to its stated maturity (any applicable grace period having expired).

        (h)    Other Cross-Defaults.    The Borrower or any of its Restricted Subsidiaries shall default in the payment when due, or in the performance or observance, of any obligation or condition of any Material Contract (including, without limitation, the Paravant Merger Agreement), which such default, either individually, or in the aggregate with all other outstanding defaults under other Material Contracts (including, for purposes hereof, the effect of termination of any other Material Contracts that could reasonably be expected to be terminated as a result of such existing default or defaults), could reasonably be expected to have a Material Adverse Effect.

        (i)    Change in Control.    Any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) shall obtain ownership or control in one or more series of transactions of more than thirty percent (30%) of the common stock or thirty percent (30%) of the voting power of the Borrower entitled to vote in the election of members of the board of directors of the Borrower or there shall have occurred under any indenture or other instrument evidencing any Debt in excess of $5,000,000 any "change in control" (as defined in such indenture or other evidence of Debt) obligating the Borrower to repurchase, redeem or repay all or any part of the Debt or capital stock provided for therein (any such event, a "Change in Control").

        (j)    Voluntary Bankruptcy Proceeding.    The Borrower or any Restricted Subsidiary thereof shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) be generally unable to, or admit in writing its inability to, pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing.

        (k)    Involuntary Bankruptcy Proceeding.    A case or other proceeding shall be commenced against the Borrower or any Restricted Subsidiary thereof in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for the Borrower or any Restricted Subsidiary thereof or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered.

        (l)    Failure of Agreements.    Any provision of this Agreement or any provision of any other Loan Document shall for any reason cease to be valid and binding on the Borrower or any Restricted Subsidiary party thereto or any such Person shall so state in writing, or any Loan Document shall for any reason cease to create a valid and perfected first priority Lien on, or security interest in, any of the collateral purported to be covered thereby, in each case other than in accordance with the express terms hereof or thereof.

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        (m)    Termination Event.    Except where the failure to do so could not reasonably be expected to create a Material Adverse Effect, the occurrence of any of the following events: (i) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Pension Plan or Section 412 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto, (ii) an accumulated funding deficiency occurs or exists, whether or not waived, with respect to any Pension Plan, (iii) a Termination Event or (iv) the Borrower or any ERISA Affiliate as employers under one or more Multiemployer Plans makes a complete or partial withdrawal from any such Multiemployer Plan and the plan sponsor of such Multiemployer Plans notifies such withdrawing employer that such employer has incurred a withdrawal liability.

        (n)    Judgment.    A judgment or order for the payment of money which causes the aggregate amount of all such judgments to exceed $5,000,000 in any Fiscal Year shall be entered against the Borrower or any of its Restricted Subsidiaries by any court and such judgment or order shall continue without discharge or stay for a period of thirty (30) days.

        (o)    Environmental.    Any one or more Environmental Claims shall have been asserted against the Borrower or any of its Restricted Subsidiaries; the Borrower and its Restricted Subsidiaries would be reasonably likely to incur liability as a result thereof; and such liability would be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect.

        (p)    Government Contracts.    Any of the Borrower, its Restricted Subsidiaries or its Affiliates, (i) is debarred or suspended by any Governmental Authority, or has been issued a notice of proposed debarment or notice of proposed suspension by any Governmental Authority; (ii) is the subject of an investigation by any Governmental Authority (other than a normal and customary review) involving or possibly involving fraud or willful misconduct which could reasonably be expected to result in criminal liability, civil liability or expense in excess of $250,000, suspension, debarment or any other adverse administrative action; and (iii) is a party to any Material Contract with any Governmental Authority which has been actually terminated due to the Borrower's, such Restricted Subsidiary's or such Affiliate's alleged fraud or willful misconduct.

        SECTION 12.2    Remedies.    Upon the occurrence of an Event of Default (which such Event of Default has not previously been cured or waived in accordance with Section 14.11), with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower:

        (a)    Acceleration; Termination of Facilities.    Declare the principal of and interest on the Loans, the Notes and the Reimbursement Obligations at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents (including, without limitation, all L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented or shall be entitled to present the documents required thereunder) and all other Obligations (other than Hedging Obligations), to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility and any right of the Borrower to request borrowings or Letters of Credit thereunder; provided, that upon the occurrence of an Event of Default specified in Section 12.1(j) or (k), the Credit Facility shall be automatically terminated and all Obligations (other than Hedging Obligations) shall automatically become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or in any other Loan Document to the contrary notwithstanding.

        (b)    Letters of Credit.    With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired Dollar Equivalent amount of such Letters

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of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the other Obligations on a pro rata basis. After all such Letters of Credit shall have expired or been fully drawn upon, the Reimbursement Obligation shall have been satisfied and all other Obligations shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower.

        (c)    Rights of Collection.    Exercise on behalf of the Lenders all of its other rights and remedies under this Agreement, the other Loan Documents and Applicable Law, in order to satisfy all of the Borrower's Obligations.

        SECTION 12.3    Rights and Remedies Cumulative; Non-Waiver; etc.    The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the other Loan Documents or that may now or hereafter exist at law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default.

ARTICLE XIII

THE ADMINISTRATIVE AGENT

        SECTION 13.1    Appointment.    Each of the Lenders hereby irrevocably designates and appoints Wachovia as Administrative Agent of such Lender under this Agreement and the other Loan Documents for the term hereof and each such Lender irrevocably authorizes Wachovia, as Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against the Administrative Agent. Any reference to the Administrative Agent in this Article XIII shall be deemed to refer to the Administrative Agent solely in its capacity as Administrative Agent and not in its capacity as a Lender. In performing its functions and duties under this Agreement and each of the other Loan Documents or in connection with them and in respect of anything relating to them, the Administrative Agent shall act solely as the administrative agent of (but not as trustee for (except to the extent specifically required pursuant to the Security Documents)) the Lenders, and the Administrative Agent shall not have any fiduciary duty towards any Person (except as expressly referred to above) or be under any obligation other than those expressly provided for in this Agreement and any of the other Loan Documents.

        The Administrative Agent shall not in any way whatsoever assume, nor shall it be deemed to have assumed, any obligation as agent of or trustee for, or any relationship of agency or trust with or for, the Borrower or any Subsidiary thereof.

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        SECTION 13.2    Delegation of Duties.    The Administrative Agent may execute any of its respective duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by the Administrative Agent with reasonable care.

        SECTION 13.3    Exculpatory Provisions.    Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for actions occasioned solely by its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its Subsidiaries or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or for any failure of the Borrower or any of its Subsidiaries to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries.

        SECTION 13.4    Reliance by the Administrative Agent.    The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 14.10. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders (or, when expressly required hereby or by the relevant other Loan Documents, all the Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action except for its own gross negligence or willful misconduct. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes in accordance with a request of the Required Lenders (or, when expressly required hereby, all the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes.

        SECTION 13.5    Notice of Default.    The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless it has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, it shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, when expressly required hereby, all the Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders, except to the extent that other provisions of this Agreement expressly require that any such action be taken or not be

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taken only with the consent and authorization or the request of the Lenders or Required Lenders, as applicable.

        SECTION 13.6    Non-Reliance on the Administrative Agent and Other Lenders.    Each Lender expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries and made its own decision to make its Loans and issue or participate in Letters of Credit hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder or by the other Loan Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrower or any of its Subsidiaries which may come into the possession of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.

        SECTION 13.7    Indemnification.    The Lenders severally agree to indemnify the Administrative Agent in its capacity as such and (to the extent that the Administrative Agent shall be entitled to be, and shall not have been, reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their Revolving Credit Commitment Percentages and/or applicable Term Loan Percentages, as applicable, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes or any Reimbursement Obligation) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents, reports or other information provided to the Administrative Agent or any Lender or contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's bad faith, gross negligence or willful misconduct. The agreements in this Section 13.7 shall survive the payment of the Notes, any Reimbursement Obligation and all other amounts payable hereunder and the termination of this Agreement.

        SECTION 13.8    The Administrative Agent in Its Individual Capacity.    The Administrative Agent and its respective Subsidiaries and Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to any Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued by it or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent,

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and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.

        SECTION 13.9    Resignation of the Administrative Agent; Successor Administrative Agent.    Subject to the appointment and acceptance of a successor as provided below, the Administrative Agent may resign at any time by giving thirty (30) days notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, which successor shall have minimum capital and surplus of at least $500,000,000 and (so long as no Default or Event of Default has occurred and is continuing) be reasonably acceptable to the Borrower. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the Administrative Agent's giving of notice of resignation, then the Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which successor shall have minimum capital and surplus of at least $500,000,000 and be reasonably acceptable to the Borrower (so long as no Default or Event of Default has occurred and is continuing). Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 13.9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

        SECTION 13.10    Trustee Powers.    Except as otherwise expressly provided in this Agreement and any of the other Loan Documents, in its capacity as trustee under certain of the Security Documents the Administrative Agent shall have:

(a)

the benefit of all the provisions in this Article XIII and all other agency, indemnification and exculpatory provisions set forth in any other Loan Documents;



(b)

all the powers of an absolute owner of the Lien constituted by such Security Documents;



(c)

the power of appointing new and/or additional trustees; and



(d)

all the powers and discretions conferred on trustees by the Trustee Act 1925 of the laws of England (to the extent not inconsistent with this Agreement and the other Loan Documents) and on the Administrative Agent by this Agreement and the other Loan Documents (including without limitation the power to invest all monies which are received by the Administrative Agent under the trusts contained in such Security Documents in its name or under its control in any investment for the time being authorized by United States, English or other applicable law for the investment by trustees of trust money or in any other investments which may be selected by the Administrative Agent). Additionally, the Administrative Agent shall have the power to place such monies on deposit in its name or under its control at such bank or institution (including at the Administrative Agent) and on such terms as the Administrative Agent may determine.

        SECTION 13.11    Documentation and Syndication Agent.    The Documentation and Syndication Agents, in their respective capacities as documentation and syndication agents, shall have no duties or responsibilities under this Agreement or any other Loan Document.

ARTICLE XIV

MISCELLANEOUS

        SECTION 14.1    Notices.

        (a)    Method of Communication.    Except as otherwise provided in this Agreement, all notices and communications hereunder shall be in writing, or by telephone subsequently confirmed in writing. Any

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notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Administrative Agent as understood by the Administrative Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice.

        (b)    Addresses for Notices.    Notices to any party shall be sent to it at the following addresses, or any other address as to which all the other parties are notified in writing.

If to the Borrower:	DRS Technologies, Inc. Corporate Headquarters 5 Sylvan Way Parsippany, New Jersey 07054 Attention: Richard Schneider, Executive Vice-President Telephone No.: (973) 898-6021 Telecopy No.: (973) 898-0952
If to Wachovia as     Administrative Agent:	Wachovia Bank, National Association Charlotte Plaza, CP-8 201 South College Street Charlotte, North Carolina 28288-0680 Attention: Syndication Agency Services Telephone No.: (704) 374-2698 Telecopy No.: (704) 383-0288
If to any Lender:	To the address set forth in the Register

        (c)    Administrative Agent's Office.    The Administrative Agent hereby designates its office located at the address set forth above, or any subsequent office which shall have been specified for such purpose by written notice to the Borrower and Lenders, as the Administrative Agent's Office referred to herein, to which payments due are to be made and at which Loans will be disbursed and Letters of Credit issued.

        SECTION 14.2    Expenses; Indemnity.    The Borrower will (a) pay all reasonable out-of-pocket expenses of the Administrative Agent in connection with (i) the preparation, execution and delivery of this Agreement and each other Loan Document, whenever the same shall be executed and delivered, including, without limitation, all out-of-pocket syndication and due diligence expenses and reasonable fees and disbursements of counsel for the Administrative Agent and (ii) the preparation, execution and delivery of any waiver, amendment or consent by the Administrative Agent or the Lenders relating to this Agreement or any other Loan Document, including, without limitation, reasonable fees and disbursements of counsel for the Administrative Agent, (b) after the occurrence and during the continuance of an Event of Default, pay all reasonable out-of-pocket expenses of the Administrative Agent and each Lender actually incurred in connection with the administration and enforcement of any rights and remedies of the Administrative Agent and Lenders under the Credit Facility including, without limitation, in connection with any workout, restructuring, bankruptcy or other similar proceeding, creating and perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant to any Security Document, enforcing any Obligations of or collecting any payments due from the Borrower or any Subsidiary Guarantor by reason of an Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty Agreement, consulting with appraisers, accountants, engineers, attorneys and other Persons concerning the nature, scope or value of any right or remedy of the Administrative Agent or any Lender hereunder or under any other Loan Document or any factual matters in

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connection therewith, which expenses shall include without limitation the reasonable fees and disbursements of such Persons, and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, settlements, damages, costs and expenses, suffered by any such Person in connection with any claim (including, without limitation, any Environmental Claims), investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with the Loans, this Agreement, any other Loan Document, or any documents, reports or other information provided to the Administrative Agent or any Lender or contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby, including, without limitation, reasonable attorney's and consultant's fees, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor.

        SECTION 14.3    Set-off.    In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon and after the occurrence of any Event of Default and during the continuance thereof, the Lenders and any assignee or participant of a Lender in accordance with Section 14.10 are hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, time or demand, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Lenders, or any such assignee or participant to or for the credit or the account of the Borrower against and on account of the Obligations irrespective of whether or not (a) the Lenders shall have made any demand under this Agreement or any of the other Loan Documents or (b) the Administrative Agent shall have declared any or all of the Obligations to be due and payable as permitted by Section 12.2 and although such Obligations shall be contingent or unmatured. Notwithstanding the preceding sentence, each Lender agrees to notify within three (3) Business Days the Borrower and the Administrative Agent after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application.

        SECTION 14.4    Governing Law.    This Agreement, the Notes and the other Loan Documents, unless otherwise expressly set forth therein, shall be governed by, construed and enforced in accordance with, the laws of the State of New York (including Section 5-1401 and Section 5-1402 of the General Obligations Law of the State of New York), without regard to the conflicts of law provisions of such state.

        SECTION 14.5    Jurisdiction and Venue.

        (a)    Jurisdiction.    The Borrower hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in New York, New York (and any courts from which an appeal from any of such courts must or may be taken), in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Notes and the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. The Borrower hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Administrative Agent or any Lender in connection with this Agreement, the Notes or the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner specified in Section 14.1. Nothing in this Section 14.5 shall affect the right of the Administrative Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of the Administrative Agent or any Lender to bring any action or proceeding against the Borrower or its properties in the courts of any other jurisdictions.

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        (b)    Venue.    The Borrower hereby irrevocably waives any objection it may have now or in the future to the laying of venue in the aforesaid jurisdiction in any action, any dispute, claim or controversy arising out of, connected with or relating to this Agreement or any other Loan Document ("Disputes") or the rights and obligations of the parties hereunder or thereunder. The Borrower irrevocably waives, in connection with such action, claim or proceeding, any plea or claim that the action, claim or other proceeding has been brought in an inconvenient forum.

        SECTION 14.6    Waiver of Jury Trial.

(a)

[Reserved]

        (b)    Jury Trial.THE ADMINISTRATIVE AGENT, EACH LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

        (c)    Preservation of Certain Remedies.    Notwithstanding the preceding binding arbitration provisions, the parties hereto and the other Loan Documents preserve, without diminution, certain remedies that such Persons may employ or exercise freely, either alone, in conjunction with or during a Dispute. Each such Person shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under Applicable Law or by judicial foreclosure and sale, including a proceeding to confirm the sale, (ii) all rights of self help including peaceful occupation of property and collection of rents, set off, and peaceful possession of property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute.

        SECTION 14.7    Reversal of Payments.    To the extent the Borrower makes a payment or payments to the Administrative Agent for the ratable benefit of the Lenders or the Administrative Agent receives any payment or proceeds of the collateral which payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or otherwise required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause (whether by demand, settlement, litigation or otherwise), then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Administrative Agent.

        SECTION 14.8    Injunctive Relief; Punitive Damages.

        (a)   The Borrower recognizes that, in the event the Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders. Therefore, the Borrower agrees that the Lenders, at the Lenders' option, shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

        (b)   The Administrative Agent, the Lenders and the Borrower (on behalf of itself and its Subsidiaries) hereby agree that no such Person shall have a remedy of punitive or exemplary damages against any other party to a Loan Document and each such Person hereby waives any right or claim to punitive or exemplary damages that they may now have or may arise in the future in connection with any Dispute, whether such Dispute is resolved through arbitration or judicially.

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        SECTION 14.9    Accounting Matters.    Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance therewith.

        SECTION 14.10    Successors and Assigns; Participations.

        (a)    Benefit of Agreement.    This Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and the Lenders, all future holders of the Notes, and their respective successors and assigns, except that the Borrower shall not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender (and any attempted such assignment or transfer without such consent shall be null and void).

        (b)    Assignment by Lenders.    Each Lender may, in the ordinary course of its business and in accordance with Applicable Law, sell or assign to any Lender, any Affiliate of a Lender or in the case of the Term Loans any Approved Fund and with the consent of the Borrower (so long as no Default or Event of Default has occurred and is continuing) and the consent of the Administrative Agent, which consents shall not be unreasonably withheld or delayed, assign to one or more other Eligible Assignees (any of the forgoing assignees or purchasers, a "Purchasing Lender") all or a portion of its interests, rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of the Extensions of Credit at the time owing to it and the Notes held by it); provided that:

        (i)    each such assignment shall be of a constant, and not a varying, percentage of the Revolving Credit Commitment and/or the Term Loan Commitment, as applicable, of the assigning Lender's rights and obligations under this Agreement;

        (ii)   if less than all of the assigning Lender's Revolving Credit Commitment or Term Loan Commitment, as applicable, is to be assigned, the Commitment so assigned shall not be less than $5,000,000 with respect to the Revolving Credit Facility and $1,000,000 with respect to the Term Loan Facility (or otherwise agreed by the Administrative Agent and Borrower), unless such sale or assignment is made to an existing Lender, to an Affiliate thereof, or (with respect to any Term Loan) to an Approved Fund, in which case no minimum amount shall apply;

        (iii)  the Purchasing Lender shall have delivered to the Administrative Agent all United States Internal Revenue Service Forms required pursuant to Section 5.11(e) and all of the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance substantially in the form of Exhibit G attached hereto (an "Assignment and Acceptance"), together with (to the extent requested by any Purchasing Lender) any Note or Notes subject to such assignment;

        (iv)  no assignment of a Revolving Credit Commitment, or participation in L/C Obligations or Swingline Loans shall be made without the prior written consent of the Administrative Agent, the Swingline Lender, the Issuing Lender and (so long as no Default or Event of Default has occurred and is continuing) the Borrower (which consents shall not be unreasonably withheld);

        (v)   where consent of the Borrower to an assignment to a Purchasing Lender is required hereunder (including consent to an assignment to an Approved Fund), the Borrower shall be deemed to have given its consent five (5) Business Days after the date written notice thereof has

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been delivered by the assigning Lender (through the Administrative Agent) unless such consent is expressly refused by the Borrower prior to such fifth (5^th) Business Day;

        (vi)  such assignment shall not, without the consent of the Borrower, require the Borrower to file a registration statement with the Securities and Exchange Commission or apply to or qualify the Loans or the Notes under the blue sky laws of any state; and

        (vii) the assigning Lender shall pay to the Administrative Agent an assignment fee of $2,500 upon the execution by such Lender of the Assignment and Acceptance; provided that no such fee shall be payable upon any assignment by a Lender to an Affiliate thereof; and provided further that, in any case of contemporaneous assignments by a Lender (including a group of affiliated Lenders that are funds managed by the same investment advisor) to a single assignee or more than one fund managed by the same investment advisor (which funds are not then Lenders hereunder), only a single $2,500 fee shall be payable for all such contemporaneous assignments.

Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof (unless otherwise agreed to by the Administrative Agent), (A) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement.

        (c)    Rights and Duties Upon Assignment.    By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Purchasing Lender thereunder confirm to and agree with each other and the other parties hereto as set forth in such Assignment and Acceptance.

        (d)    Register.    The Administrative Agent shall maintain a copy of each Assignment and Acceptance and each Lender Addition and Acknowledgment delivered to it and a register for the recordation of the names and addresses of the Lenders and the amount of the Extensions of Credit with respect to each Lender from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

        (e)    Issuance of New Notes.    Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and a Purchasing Lender together with any Note or Notes (if applicable) subject to such assignment and (if applicable) the written consent to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit G:

(i)

accept such Assignment and Acceptance;



(ii)

record the information contained therein in the Register;



(iii)

give prompt notice thereof to the Lenders and the Borrower; and



(iv)

promptly deliver a copy of such Assignment and Acceptance to the Borrower.

Within five (5) Business Days after receipt of notice, the Borrower shall execute and deliver to the Administrative Agent, in exchange for the surrendered Note or Notes, a new Note or Notes to the order of such Purchasing Lender (to the extent requested thereby) in amounts equal to the Revolving Credit Commitment and/or Term Loan Commitment assumed by it pursuant to such Assignment and Acceptance and a new Note or Notes to the order of the assigning Lender (to the extent requested thereby) in an amount equal to the Revolving Credit Commitment and/or Term Loan Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to

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the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes delivered to the assigning Lender. Each surrendered Note or Notes shall be canceled and returned to the Borrower. Notwithstanding anything in this Agreement to the contrary, any Lender which has not been issued a Note or Notes hereunder may at any time deliver a written request for a Note or Notes to the Administrative Agent and Borrower. Within five (5) Business Days after receipt of notice, the Borrower shall execute and deliver to the Administrative Agent, a Note or Notes (as applicable) to the order of such Lender in amounts equal to the Revolving Credit Commitment and/or Term Loan Commitment of such Lender. Upon receipt thereby, the Administrative Agent shall promptly deliver such Note or Notes to such Lender.

        (f)    Participations.    Each Lender may, without notice to or the consent of the Borrower or the Administrative Agent, in the ordinary course of its commercial banking business and in accordance with Applicable Law, sell participations to one or more banks or other entities (any such bank or other entity, a "Participant") in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Extensions of Credit and the Notes held by it); provided that:

        (i)    such Lender's obligations under this Agreement (including, without limitation, its Revolving Credit Commitment and/or Term Loan Commitment, as applicable) shall remain unchanged;

        (ii)   such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations;

        (iii)  such Lender shall remain the holder of the Notes held by it for all purposes of this Agreement;

        (iv)  the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement;

        (v)   such Lender shall not permit such Participant the right to approve any waivers, amendments or other modifications to this Agreement or any other Loan Document other than waivers, amendments or modifications which would reduce the principal of or the interest rate on any Loan or Reimbursement Obligation, extend the term or increase the amount of the Revolving Credit Commitment and/or Term Loan Commitment of such Lender, reduce the amount of any fees to which such Participant is entitled, extend any scheduled payment date for principal of or interest on any Loan or any fee or Reimbursement Obligation or, except as expressly contemplated hereby or thereby, release substantially all of the Collateral or release any Subsidiary Guarantor (except as expressly contemplated hereby); and

        (vi)  any such disposition shall not, without the consent of the Borrower, require the Borrower to file a registration statement with the Securities and Exchange Commission or apply to qualify the Loans or the Notes under the blue sky law of any state.

        The Borrower agrees that each Participant shall be entitled to the benefits of Section 5.7, Section 5.8, Section 5.9, Section 5.10, Section 5.11 and Section 14.3 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 14.10; provided that a Participant shall not be entitled to receive any greater payment under Section 5.7, Section 5.8, Section 5.9, Section 5.10, and Section 5.11 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent and such Participant shall have delivered to the Administrative Agent all United States Internal Revenue Service Forms required pursuant to Section 5.11(e).

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        (g)    Disclosure of Information; Confidentiality.    The Administrative Agent and the Lenders shall hold all non-public information with respect to the Borrower obtained pursuant to the Loan Documents (or any Hedging Agreement with a Lender or the Administrative Agent) in accordance with their customary procedures for handling confidential information; provided, that the Administrative Agent may disclose information relating to this Agreement to Gold Sheets and other similar bank trade publications, such information to consist of deal terms and other information customarily found in such publications and provided further, that the Administrative Agent or any Lender may disclose any such information to the extent such disclosure is (i) required by law or requested or required pursuant to any legal process, (ii) requested by, or required to be disclosed to, any rating agency, or regulatory or similar authority (including, without limitation, the National Association of Insurance Commissioners) or (iii) used in any suit, action or proceeding for the purpose of defending itself, reducing its liability or protecting any of its claims, rights, remedies or interests under or in connection with the Loan Documents (or any Hedging Agreement with a Lender or the Administrative Agent). Any Lender may, in connection with any assignment, proposed assignment, participation or proposed participation pursuant to this Section 14.10, disclose to the Purchasing Lender, proposed Purchasing Lender, Participant, proposed Participant, or to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided, that prior to any such disclosure, each such Purchasing Lender, proposed Purchasing Lender, Participant, proposed Participant, contractual counterparty or professional advisor shall agree to be bound by the provisions of this Section 14.10(g).

        (h)    Certain Pledges or Assignments.    Any Lender may at any time pledge or assign or grant a security interest in, all or any portion of its rights under this Agreement or any other Loan Document to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment or grant of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

        SECTION 14.11    Amendments, Waivers and Consents.    Except as set forth below or as specifically provided in any Loan Document, any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Lenders, and any consent given by the Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and delivered to the Administrative Agent and, in the case of an amendment, signed by the Borrower; provided, that no amendment, waiver or consent shall:

        (a)   (i) increase the Revolving Credit Commitment of any Lender, (ii) reduce the rate of, or forgive any, interest payable on any Revolving Credit Loan or Reimbursement Obligation, or any fees, (iii) reduce or forgive the principal amount of any Revolving Credit Loan or Reimbursement Obligation, (iv) extend the originally scheduled time or times of payment of the principal of any Revolving Credit Loan or Reimbursement Obligation or the time or times of payment of interest on any Revolving Credit Loan or Reimbursement Obligation or any fee or commission with respect hereto, (v) permit any subordination of the principal or interest on any Revolving Credit Loan or Reimbursement Obligation or (vi) extend the time of the obligation of the Revolving Credit Commitment Lenders to make or issue or participate in Letters of Credit or Swingline Loans, in any case, without the written consent of each Lender holding Revolving Credit Loans or a Revolving Credit Commitment;

        (b)   (i) except as otherwise provided in Section 4.6, increase the Term Loan Commitment of any Lender, (ii) reduce the rate of, or forgive any, interest payable on any Term Loan, or any fees, (iii) reduce or forgive the principal amount of any Term Loan, (iv) permit any subordination of the principal or interest on, or any Lien securing, any Term Loan or (v) extend the originally

84

scheduled time or times of payment of the principal of any Term Loan or the time or times of payment of interest on any Term Loan or any fee or commission with respect thereto, in any case, without the written consent of each Lender holding a Term Loan or a Term Loan Commitment;

        (c)   release any material portion of the Collateral or release any Security Document or release any Subsidiary Guarantor (other than in connection with the redesignation of a Restricted Subsidiary as an Unrestricted Subsidiary in accordance with Section 9.11, with a sale of assets permitted pursuant to Section 11.5, or as otherwise specifically permitted in this Agreement or the applicable Security Document), amend the provisions of this Section 14.11, or amend the definition or percentage of Required Lenders or amend the definition, or any percentage therein, of Borrowing Base without the written consent of each Lender; or

        (d)   release any Borrower from all or any material portion of the Obligations (other than Hedging Obligations) hereunder or under any other Loan Document or permit any assignment (other than as specifically permitted or contemplated in this Agreement or any other Loan Document) of any Borrower's rights and obligations hereunder or under any other Loan Document without the written consent of each Lender.

In addition, no amendment, waiver or consent to the provisions of (a) Article XIII shall be made without the written consent of the Administrative Agent and (b) Article III without the written consent of the Issuing Lender.

        SECTION 14.12    Performance of Duties.    The Borrower's obligations under this Agreement and each of the other Loan Documents shall be performed by the Borrower at its sole cost and expense.

        SECTION 14.13    [Reserved].

        SECTION 14.14    All Powers Coupled with Interest.    All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement (including, without limitation, Sections 5.8, 5.9, 5.10, 9.7 and 14.2) or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied, any of the Commitments remain in effect or the Credit Facility has not been terminated.

        SECTION 14.15    Survival of Indemnities.    Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the Lenders are entitled under the provisions of this Article XV and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before.

        SECTION 14.16    Titles and Captions.    Titles and captions of Articles, Sections and subsections in, and the table of contents of, this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.

        SECTION 14.17    Severability of Provisions.    Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

        SECTION 14.18    Counterparts.    This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement.

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        SECTION 14.19    Term of Agreement.    This Agreement shall remain in effect from the Amendment and Restatement Closing Date through and including the date upon which all Obligations arising hereunder or under any other Loan Document shall have been indefeasibly and irrevocably paid and satisfied in full and all Commitments have been terminated. The Administrative Agent is hereby permitted to release all Liens on the Collateral in favor of the Administrative Agent, for the ratable benefit of itself and the Lenders, upon repayment of the outstanding principal of and all accrued interest on the Loans, payment of all outstanding fees and expenses hereunder and the termination of the Lenders' Commitments. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination or in respect of any provision of this Agreement which survives such termination.

        SECTION 14.20    Advice of Counsel.    Each of the parties represents to each other party hereto that it has discussed this Agreement with its counsel.

        SECTION 14.21    No Strict Construction.    The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

        SECTION 14.22    Inconsistencies with Other Documents; Independent Effect of Covenants.

        (a)   In the event there is a conflict or inconsistency between this Agreement and any other Loan Document, the terms of this Agreement shall control; provided, that any provision of the Security Documents which imposes additional burdens on the Borrower or its Subsidiaries or further restricts the rights of the Borrower or its Subsidiaries or gives the Administrative Agent or Lenders additional rights shall not be deemed to be in conflict or inconsistent with this Agreement and shall be given full force and effect.

        (b)   This Agreement constitutes an amendment and restatement of the Original Credit Agreement, as amended by the Prior Amendments, effective from and after the Amendment and Restatement Closing Date. The execution and delivery of this Agreement shall not constitute a novation of any Debt or other obligations owing to the Lenders or the Administrative Agent under the Original Credit Agreement based on facts or events occurring or existing prior to the execution and delivery of this Agreement. On the Amendment and Restatement Closing Date, the credit facilities described in the Original Credit Agreement, as amended by the Prior Amendments, shall be amended, supplemented, modified and restated in their entirety by the facilities described herein, and all loans and other obligations of the Borrower outstanding as of such date under the Original Credit Agreement, as amended by the Prior Amendments, shall be deemed to be loans and obligations outstanding under the corresponding facilities described herein, without any further action by any Person, except that the Administrative Agent shall make such transfers of funds as are necessary in order that the outstanding balance of such Loans, together with any Loans funded on the Amendment and Restatement Closing Date, reflect the Commitments of the Lenders hereunder.

        (c)   The Borrower expressly acknowledges and agrees that each covenant contained in Articles IX, X and XI hereof shall be given independent effect. Accordingly, the Borrower shall not engage in any transaction or other act otherwise permitted under any covenant contained in Articles IX, X and XI if, before or after giving effect to such transaction or act, the Borrower shall or would be in breach of any other covenant contained in Articles IX, X, or XI.

[Signature pages to follow]

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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers, all as of the day and year first written above.

[CORPORATE SEAL]	DRS TECHNOLOGIES, INC., as Borrower
	By:

Name:

Title:

87

WACHOVIA BANK,
NATIONAL ASSOCIATION,
as Administrative Agent,
on behalf of itself and the Lenders

By:

Name:

Title:

88

Acknowledged and Agreed by the Subsidiary Guarantors:

[CORPORATE SEAL] DRS TECHNOLOGIES CANADA, INC.

DRS INTERNATIONAL, INC. DRS COMMUNICATIONS COMPANY, LLC         By: DRS Technologies, Inc., its Sole                 Member and Manager DRS INFRARED TECHNOLOGIES, LP         By: DRS FPA, Inc., its General Partner DRS FPA, INC.     as Subsidiary Guarantors
By:	Name:  Mark S. Newman Title:    President

[CORPORATE SEAL]
DRS ELECTRONIC SYSTEMS, INC.

DRS TECHNICAL SERVICES, INC. LAUREL TECHNOLOGIES PARTNERSHIP         By: DRS Systems Management Corporation, a                 General Partner DRS SURVEILLANCE SUPPORT SYSTEMS, INC. DRS SYSTEMS MANAGEMENT CORPORATION NAI TECHNOLOGIES, INC. DRS POWER AND CONTROL TECHNOLOGIES, INC.     as Subsidiary Guarantors
By:	Name:  Terrence L. DeRosa Title:    President

[CORPORATE SEAL]
LAUREL TECHNOLOGIES PARTNERSHIP

By: Sunburst Management Corporation, a         General Partner
By:	Name:  Kim Kunkle Title:    President

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[CORPORATE SEAL]
DRS PHOTRONICS, INC.

DRS PRECISION ECHO, INC. DRS UNMANNED TECHNOLOGIES, INC.     as Subsidiary Guarantors
By:	Name:  Paul G. Casner, Jr. Title:    President

[CORPORATE SEAL]
DRS OPTRONICS, INC.

DRS SENSOR SYSTEMS, INC. DRS SENSORS & TARGETING SYSTEMS, INC. DRS NYTECH IMAGING SYSTEMS, INC.     as Subsidiary Guarantors
By:	Name:  Fred Marion Title:    President

[CORPORATE SEAL]
DRS DATA SYSTEMS, INC., as Subsidiary Guarantor

By:
Name:  Rich Schneider
Title:    President

[CORPORATE SEAL]
DRS SYSTEMS, INC., as Subsidiary Guarantor

By:
Name:  Robert Russo
Title:    President

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TABLE OF CONTENTS
STATEMENT OF PURPOSE
ARTICLE I DEFINITIONS
ARTICLE II
REVOLVING CREDIT FACILITY
ARTICLE III LETTER OF CREDIT FACILITY
ARTICLE IV TERM LOAN FACILITY
ARTICLE V
GENERAL LOAN PROVISIONS
ARTICLE VI CLOSING; CONDITIONS OF CLOSING AND BORROWING
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE BORROWER
ARTICLE VIII FINANCIAL INFORMATION AND NOTICES
ARTICLE IX AFFIRMATIVE COVENANTS
ARTICLE X FINANCIAL COVENANTS
ARTICLE XI NEGATIVE COVENANTS
ARTICLE XII DEFAULT AND REMEDIES
ARTICLE XIII THE ADMINISTRATIVE AGENT
ARTICLE XIV MISCELLANEOUS

EX-21

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EXHIBIT 21

DRS TECHNOLOGIES, INC.
SUBSIDIARIES OF THE COMPANY AS OF MARCH 31, 2003

SUBSIDIARY	STATE OR COUNTRY OF INCORPORATION
DRS Electronic Systems, Inc	Delaware
DRS Technical Services, Inc	Delaware
DRS Systems Management Corporation	Delaware
Laurel Technologies Partnership	Delaware
DRS Surveillance Support Systems, Inc	Delaware
DRS Technologies Canadian Capital Corporation	Canada (Nova Scotia)
DRS Technologies Capital Company, Inc	Canada (Nova Scotia)
DRS Tactical Systems, Ltd	United Kingdom
DRS Data Systems (Europe) Ltd	United Kingdom
DRS Rugged Systems (Europe) Products Ltd	United Kingdom
DRS Rugged Systems (Australia) Pty. Ltd	Australia
DRS Power & Control Technologies, Inc	Delaware
DRS Electric Power Technologies, Inc	Delaware
DRS Power Technology, Inc	Delaware
NAI Technologies, Inc	New York
Paravant Inc	Florida
DRS Tactical Systems, Inc	Florida
DRS Tactical Systems (West), Inc	Colorado
DRS Engineering Development Labs, Inc	Ohio
DRS Signal Technologies, Inc	Ohio
DRS Signal Recording Technologies, Inc	Maryland
DRS Optronics, Inc	Delaware
DRS Sensors & Targeting Systems, Inc	Delaware
DRS Nytech Imaging Systems, Inc	California
DRS FPA, Inc	Delaware
DRS Infrared Technologies, LP	Delaware
DRS Unmanned Technologies, Inc	Delaware
DRS Data & Imaging Systems, Inc	Delaware
DRS Data & Imaging Systems Limited	United Kingdom
DRS Hadland Ltd	United Kingdom
DRS Hadland GmbH	Federal Republic of Germany
DRS Hadland, Inc	Massachusetts
DRS Technologies Canada, Inc	Delaware
DRS Technologies Canada Company	Canada (Nova Scotia)
DRS Systems, Inc	Delaware
DRS International, Inc	Delaware
DRS Communications Company LLC	Delaware

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DRS TECHNOLOGIES, INC. SUBSIDIARIES OF THE COMPANY AS OF MARCH 31, 2003

EX-23.1

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EXHIBIT 23.1

Independent Auditors' Consent

The Board of Directors
DRS Technologies, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-14487, 333-69751 and 333-83700) on Form S-8 of DRS Technologies, Inc. of our report dated May 13, 2003, with respect to the consolidated balance sheets of DRS Technologies, Inc. as of March 31, 2003 and 2002, and the related consolidated statements of earnings, stockholders' equity and comprehensive earnings, and cash flows for each of the years in the three-year period ended March 31, 2003, and the related financial statement schedule, which report appears in the March 31, 2003, annual report on Form 10-K of DRS Technologies, Inc. Our report refers to the Company's adoption of Statement of Financial Accounting Standards No. 141, "Business Combinations," effective July 1, 2001 and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective April 1, 2001.

/s/ KPMG LLP

Short Hills, New Jersey
June 24, 2003

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Independent Auditors' Consent

EX-99.1

Exhibit No. 99.1

Certification of CEO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

        In connection with the Annual Report of DRS Technologies, Inc. on Form 10-K for the year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark S. Newman, Chief Executive Officer of DRS Technologies, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of DRS Technologies, Inc.

/s/ MARK S. NEWMAN

Mark S. Newman
Chief Executive Officer
June 24, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO DRS TECHNOLOGIES, INC. AND WILL BE RETAINED BY DRS TECHNOLOGIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-99.2

Exhibit No. 99.2

Certification of CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

        In connection with the Annual Report of DRS Technologies, Inc. on Form 10-K for the year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard A. Schneider, Chief Financial Officer of DRS Technologies, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(3)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(4)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of DRS Technologies, Inc.

/s/ RICHARD A. SCHNEIDER

Richard A. Schneider
Chief Financial Officer
June 24, 2003

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO DRS TECHNOLOGIES, INC. AND WILL BE RETAINED BY DRS TECHNOLOGIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.