<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- -------------------------------------------------------------------------------
L-3 COMMUNICATIONS HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC.
[GRAPHIC OMITTED]
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Stockholders of L-3 Communications Holdings, Inc., to be held
at 2:30 p.m., eastern standard time, on Tuesday, April 27, 1999, at the Rihga
Royal Hotel located at 151 West 54th Street, New York, NY. The formal notice
and proxy statement for the Annual Meeting are attached to this letter.
To have your vote recorded, you should sign, date and return your proxy
card in the enclosed envelope as soon as possible, even if you currently plan
to attend the Annual Meeting. By doing so, you will ensure that your shares are
represented and voted at the meeting. If you decide to attend, you can still
vote your shares in person, if you wish.
On behalf of the Board of Directors, I thank you for your cooperation and
look forward to seeing you on April 27th.
Very truly yours,
[GRAPHIC OMITTED]
Frank C. Lanza
Chairman and Chief Executive Officer
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC.
[GRAPHIC OMITTED]
NOTICE OF 1999 ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of L-3 Communications Holdings, Inc. (the "Company") will be
held at the Rihga Royal Hotel, 151 West 54th Street, New York, NY, on Tuesday,
the 27th day of April, 1999, at 2:30 p.m., eastern standard time, for the
following purposes:
1. Election of four Class I Directors whose terms expire in 2002; of four
Class II Directors whose terms expire in 2001; and of three Class III
Directors whose terms expire in 2000;
2. Ratification of the appointment of the Company's independent auditors
for 1999;
3. Consideration, and if deemed advisable, ratification and approval of the
Company's 1999 Long Term Performance Plan; and
4. Transaction of such other business as may properly come before the
Annual Meeting and any adjournments thereof.
By Order of the Board of Directors,
[GRAPHIC OMITTED]
Vice President, Secretary and
General Counsel
April 6, 1999
IMPORTANT
WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,
PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED FOR THAT PURPOSE. YOU MAY REVOKE YOUR PROXY IF YOU DECIDE TO
ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES IN PERSON.
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
----------------
PROXY STATEMENT
This Proxy Statement is furnished to the holders of the Common Stock, par
value $0.01 per share ("Common Stock"), of L-3 Communications Holdings, Inc.
(the "Company") in connection with the solicitation of proxies for use at the
1999 Annual Meeting of Stockholders to be held at the Rihga Royal Hotel, 151
West 54th Street, New York, NY at 2:30 p.m., eastern standard time, on Tuesday,
April 27, 1999 (the "Annual Meeting").
RECORD DATE
The Board of Directors has fixed the close of business on Friday, March
26, 1999 as the record date for the Annual Meeting (the "Record Date"). Only
stockholders of record at the Record Date (the "Stockholders") are entitled to
notice of and to vote at the Annual Meeting or at any adjournments thereof, in
person or by proxy. At the Record Date, there were 32,466,643 shares of Common
Stock outstanding. This Proxy Statement, the accompanying proxy card and the
Company's Annual Report to Stockholders are intended to be mailed on or about
April 6, 1999 to each Stockholder entitled to vote at the Annual Meeting.
PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board of Directors of the Company for use at the Annual Meeting and any
adjournments thereof, and the expenses of solicitation of proxies will be borne
by the Company. The solicitation will be made primarily by mail, but officers
and regular employees of the Company may also solicit proxies by telephone,
telegraph, facsimile or in person. The Company also has retained First Chicago
Trust Company of New York to assist in soliciting proxies. Each holder of
Common Stock is entitled to one vote for each share of such stock held. The
holders in person or by proxy of a majority of the Common Stock entitled to be
voted at the Annual Meeting shall constitute a quorum.
Each Stockholder may appoint a person (who need not be a shareholder)
other than the persons named in the enclosed proxy to represent him or her at
the meeting by completing another proper proxy. In either case, such completed
proxy should be returned in the enclosed envelope provided for that purpose for
delivery before the meeting or should be delivered to the Secretary of the
Company at 600 Third Avenue, New York, New York 10016, not later than 5 p.m. on
Monday, April 26, 1999.
Any proxy delivered pursuant to this solicitation is revocable at the
option of the person(s) executing the same upon receipt by the Company, prior
to the time the proxy is voted, of a duly executed instrument revoking it, or
of a duly executed proxy bearing a later date, or in the case of death or
incapacity of the person(s) executing the same, of written notice thereof, or
by such person(s) voting in person at the Annual Meeting. Unless revoked, all
proxies representing shares entitled to vote which are delivered pursuant to
this solicitation will be voted at the Annual Meeting and, where a choice has
been specified on the proxy card, will be voted in accordance with such
specification. WHERE A CHOICE HAS NOT BEEN SPECIFIED ON THE PROXY CARD, THE
PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF YOUR BOARD OF
DIRECTORS.
Assuming a quorum is present, a majority of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting is required for
the election of directors and for approval of all other items submitted to
Stockholders for their consideration. Abstentions and instances where brokers
are prohibited from exercising discretionary authority for beneficial owners
who have not returned a proxy (so-called "broker non-votes") will be counted
for purposes of determining a quorum, but will not be counted as either voting
for or against any proposal.
1
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company
provides for a Board of Directors whose number shall be fixed from time to time
exclusively pursuant to a resolution adopted by the Board of Directors.
Currently, the number of directors of the Company is set at eleven. All eleven
directors' terms will expire as of the Annual Meeting or until their respective
successors are elected and qualified. The Company's Amended and Restated
Certificate of Incorporation provides for a classified Board of Directors
divided into three classes. Stockholders will elect four directors to Class I,
whose term will end in 2002 or until their respective successors are elected
and qualified. Nominees for Class I are Frank C. Lanza, Robert V. LaPenta,
Robert B. Millard and John M. Shalikashvili. Stockholders will also elect four
directors to Class II, whose term will expire in 2001 or until their respective
successors are elected and qualified. Nominees for Class II are David J. Brand,
Thomas A. Corcoran, John E. Montague and Alan H. Washkowitz. Lastly,
Stockholders will elect three directors to Class III, whose term will expire in
2000 or until their respective successors are elected and qualified. Nominees
for Class III are Alberto M. Finali, Eliot M. Fried and Frank H. Menaker, Jr.
Accordingly, action will be taken at the Annual Meeting for the election of all
eleven directors. At each subsequent annual meeting after 1999, the successors
to directors whose terms will then expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election and until their successors have been duly elected or qualified, or
until their earlier resignation or removal, if any. Each nominee is currently
serving as a director.
It is intended that the proxies delivered pursuant to this solicitation
will be voted in favor of the election of Frank C. Lanza, Robert V. LaPenta,
David J. Brand, Thomas A. Corcoran, Alberto M. Finali, Eliot M. Fried, Frank H.
Menaker, Jr., Robert B. Millard, John E. Montague, John M. Shalikashvili and
Alan H. Washkowitz, except in cases of proxies bearing contrary instructions.
In the event that these nominees should become unavailable for election for any
presently unforeseen reason, the person named in the proxy will have the right
to use his discretion to vote for a substitute.
The following information details offices held, other business
directorships, the classes and terms of all nominees in each class. Beneficial
ownership of equity securities of the nominees is shown under the caption
"Security Ownership of Management" on page 10.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS IN 1999
CLASS I -- TERM EXPIRING IN 2002
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ---------------- ----- ---------------------------------------------------------------------
<S> <C> <C>
Frank C. Lanza 67 Chairman and Chief Executive Officer of the Company since
April 1997. From April 1996, when Loral Corporation ("Loral")
was acquired by Lockheed Martin Corporation ("Lockheed
Martin"), until April 1997, Mr. Lanza was Executive Vice President
of Lockheed Martin, a member of Lockheed Martin's Executive
Council and Board of Directors and President and Chief Operating
Officer of Lockheed Martin's command, control, communications
and intelligence ("C3I") and Systems Integration Sector, which
comprised many of the businesses acquired by Lockheed Martin
from Loral. Prior to the April 1996 acquisition of Loral, Mr. Lanza
was President and Chief Operating Officer of Loral, a position he
held since 1981. He joined Loral in 1972 as President of its largest
division, Electronic Systems. His earlier experience was with
Dalmo Victor and Philco Western Development Laboratory.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------- ----- ----------------------------------------------------------------------
<S> <C> <C>
Robert V. LaPenta 53 President and Chief Financial Officer the Company since
April 1997. From April 1996, when Loral was acquired by Lockheed
Martin, until April 1997, Mr. LaPenta was a Vice President of
Lockheed Martin and was Vice President and Chief Financial
Officer of Lockheed Martin's C3I and Systems Integration Sector.
Prior to the April 1996 acquisition of Loral, he was Loral's Senior
Vice President and Controller, a position he held since 1981. He
joined Loral in 1972 and was named Vice President and Controller
of its largest division in 1974. He became Corporate Controller in
1978 and was named Vice President in 1979.
Robert B. Millard 48 Director since April 1997. Chairman of the Compensation
Committee. Mr. Millard is a Managing Director of Lehman
Brothers Holdings Inc. ("Lehman Brothers"), head of Lehman
Brothers' Principal Trading & Investments Group and principal of
the Merchant Banking Group. Mr. Millard joined Kuhn Loeb &
Co. in 1976 and became a Managing Director of Lehman Brothers
in 1983. Mr. Millard is currently a director of GulfMark Offshore,
Inc. and Weatherford International, Inc.
John M. Shalikashvili 62 Director since August 1998. General Shalikashvili (U.S. Army-ret.)
was the senior officer of the United States military and principal
military advisor to the President of the United States, the Secretary
of Defense and National Security Council by serving as the
thirteenth Chairman of the Joint Chiefs of Staff, Department of
Defense, for two terms from 1993 to 1997. Prior to his tenure as
Chairman of the Joint Chiefs of Staff, he served as the Commander
in Chief of all United States forces in Europe and as NATO's tenth
Supreme Allied Commander, Europe (SACEUR). He has also
served in a variety of command and staff positions in the continental
United States, Alaska, Belgium, Germany, Italy, Korea, Turkey
and Vietnam. General Shalikashvili is currently a director of
United Defense Industries Inc.
CLASS II -- TERM EXPIRING IN 2001
David J. Brand 37 Director since April 1997. Member of the Audit Committee. Mr.
Brand is a Managing Director of Lehman Brothers and a principal
in the Global Mergers & Acquisitions Group, leading Lehman
Brothers' Technology Mergers and Acquisitions business. Mr.
Brand joined Lehman Brothers in 1987 and has been responsible
for merger and corporate finance advisory services for many of
Lehman Brothers' technology and defense industry clients. Mr.
Brand is currently a director of K&F Industries, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- -------------------- ----- ---------------------------------------------------------------------
<S> <C> <C>
Thomas A. Corcoran 54 Director since July 1997. Mr. Corcoran has been the President and
Chief Operating Officer of the Space & Strategic Missiles Sector of
Lockheed Martin since August 1998. From March 1995 to
August 1998, he was the President and Chief Operating Officer of
Lockheed Martin's Electronic System Sector. From 1993 to 1995,
Mr. Corcoran was President of the Electronics Group of Martin
Marietta Corporation. Prior to that he worked for General Electric
Company for 26 years and from 1983 to 1993 he held various
management positions with GE Aerospace; he was a company
officer from 1990 to 1993. Mr. Corcoran is a member of the Board
of Trustees of Worcester Polytechnic Institute, the Board of
Trustees of Stevens Institute of Technology, the Board of Governors
of the Electronic Industries Association, a Director of the U.S.
Navy Submarine League and a Director of REMEC Corporation.
John E. Montague 44 Director since April 1997. Member of Compensation Committee.
Mr. Montague has been Vice President and Chief Financial Officer
of Lockheed Martin Global Telecommunications, Inc., a wholly
owned subsidiary of Lockheed Martin, since August 1998. He
served as Vice President, Financial Strategies at Lockheed Martin
responsible for mergers, acquisitions and divestiture activities and
shareholder value strategies from March 1995 until August 1998.
Previously, he was Vice President, Corporate Development and
Investor Relations at Martin Marietta Corporation from 1991 to
1995. From 1988 to 1991, he was Director of Corporate
Development at Martin Marietta Corporation, which he joined in
1977 as a member of the engineering staff. Mr. Montague is a
director of Rational Software Corporation.
Alan H. Washkowitz 58 Director since April 1997. Member of Compensation Committee.
Mr. Washkowitz is a Managing Director of Lehman Brothers and
head of the Merchant Banking Group, and is responsible for the
oversight of Lehman Brothers Merchant Banking Portfolio
Partnership L.P. Mr. Washkowitz joined Lehman Brothers in 1978
when Kuhn Loeb & Co. was acquired by Lehman Brothers. Mr.
Washkowitz is currently a director of Illinois Central Corporation,
K&F Industries, Inc., McBride plc. and Peabody Coal Co.
</TABLE>
4
<PAGE>
CLASS III -- TERM EXPIRING IN 2000
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ----------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Alberto M. Finali 44 Director since April 1997. Mr. Finali is a Managing Director of
Lehman Brothers and principal of the Merchant Banking Group,
based in New York. Prior to joining the Merchant Banking Group,
Mr. Finali spent four years in Lehman Brothers' London office as
a senior member of the Mergers & Acquisitions Group. Mr. Finali
joined Lehman Brothers in 1987 as a member of the M&A Group
in New York and became a Managing Director in 1997. Prior to
joining Lehman Brothers, Mr. Finali worked in the Pipelines and
Production Technology Group of Bechtel, Inc. in San Francisco.
Eliot M. Fried 66 Director since April 1997. Member of Audit Committee. Mr. Fried
is a Managing Director of Lehman Brothers. Mr. Fried joined
Shearson, Hayde Stone, a predecessor firm, in 1976 and became a
Managing Director in 1982. Mr. Fried is currently a director of
Bridgeport Machines, Inc. and Axsys Technologies, Inc.
Frank H. Menaker, Jr. 58 Director since April 1997. Chairman of Audit Committee. Mr.
Menaker has served as Senior Vice President and General Counsel
of Lockheed Martin since July 1996. He served as Vice President
and General Counsel of Lockheed Martin from March 1995 to
July 1996, as Vice President of Martin Marietta Corporation from
1982 until 1995 and as General Counsel of Martin Marietta
Corporation from 1981 until 1995. He is a director of Martin
Marietta Materials, Inc.
</TABLE>
The nominees for election to the Board of Directors is hereby proposed for
approval by the Stockholders. The affirmative vote of the holders of a majority
of the shares present or represented and entitled to vote at the Annual Meeting
will be necessary to approve each nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSED NOMINEES
FOR ELECTION TO THE BOARD OF DIRECTORS.
5
<PAGE>
THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD
The Board of Directors of the Company directs the management of the
business and affairs of the Company, as provided by Delaware law, and conducts
its business through meetings of the Board and two standing committees: the
Audit and Compensation Committees. In addition, from time to time, special
committees may be established under the direction of the Board when necessary
to address specific issues. The Company has no nominating or similar committee.
Each executive officer serves at the discretion of the Board of Directors.
During the fiscal year ended December 31, 1998, the Board of Directors held
five regularly scheduled meetings and one special meeting. All of the Company's
directors attended at least 75% of the combined number of Board of Directors
meetings and committee meetings during the past fiscal year, with the exception
of Mr. Corcoran, who was not present for two meetings of the Board of
Directors.
The Audit Committee consists of Messrs. Brand, Fried and Menaker
(Chairman). This committee, which met twice during 1998, is responsible
generally for recommending to the Board of Directors the independent
accountants to be nominated to audit the financial statements of the Company;
approving the compensation of the independent accountants; meeting with the
Company's independent accountants to review the proposed scope of the annual
audit of the Company's financial statements; reviewing the findings of the
independent accountants with resect to the annual audit; and supervising the
implementation of the Company's management integrity policies and reporting
annually to the Board of Directors with respect thereto.
The Compensation Committee consists of Messrs. Millard (Chairman),
Montague and Washkowitz. This Committee, which acted by written consent three
times during 1998, is responsible for administering the Company's 1997 Stock
Option Plan for Key Employees of Holdings (the "1997 Stock Option Plan") and
has limited authority to adopt amendments to that plan. This Committee is also
responsible for recommending to the Board of Directors the salaries to be paid
to the Chief Executive Officer and the President of the Company, and reviewing
and approving the Chief Executive Officer's and the President's other annual
cash compensation and long-term incentives and the total compensation to be
paid to certain other officers of the Company.
COMPENSATION OF DIRECTORS
The directors who are employees of the Company or its affiliates do not
receive compensation for their services as directors. The non-affiliated
directors receive annual compensation of $30,000 for service on the Board of
Directors, of which $25,000 is paid in cash, and $5,000 is paid in shares of
Common Stock. In addition, non-affiliated directors receive an annual stock
option grant of 1,500 shares of Common Stock, which will vest in three equal
annual installments. The non-affiliated directors are entitled to reimbursement
for their reasonable out-of-pocket expenses in connection with their travel to
and attendance at meetings of the Board of Directors or committees thereof. In
addition, the non-affiliated directors will be compensated $1,000 per meeting
attended, including committee meetings, up to a maximum of $2,000 per day.
Non-affiliated directors may defer up to 100 percent of the cash portion
of the fees (including meeting fees) otherwise payable to the director. Subject
to certain limitations, a participating director's deferred fees will be
distributed in a lump sum on, or distribution in annual installments commencing
on, the 30th day following the date he or she ceases to be a director. Deferral
elections are irrevocable during any calendar year and must be made before the
beginning the calendar year in which fees are earned. Earnings are accrued on
deferred amounts. Depending on a director's investment election, deferred
amounts earn interest at a rate based on the 90-day U.S. Government Treasury
Bill or the performance of the Common Stock.
6
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of the current
executive officers of the Company, other than Messrs. Lanza and LaPenta who are
presented under "Election of Directors -- Class I -- Term Expiring in 2002".
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ------------------------ ----- --------------------------------------------------------------------
<S> <C> <C>
Michael T. Strianese 43 Vice President -- Finance and Controller. Mr. Strianese joined the
Company in April 1997. From April 1996, when Loral was
acquired by Lockheed Martin, until April 1997, Mr. Strianese was
Vice President and Controller of Lockheed Martin's C3I and
Systems Integration Sector. From 1991 to the April 1996 acquisition
of Loral, he was Director of Special Projects at Loral. Prior to
joining Loral, he spent 11 years with Ernst & Young. Mr. Strianese
is a Certified Public Accountant.
Christopher C. Cambria 40 Vice President -- Secretary and General Counsel. Mr. Cambria
joined the Company in June 1997. From 1994 until joining the
Company, Mr. Cambria was an associate with Fried, Frank, Harris,
Shriver & Jacobson. From 1986 until 1993, he was an associate
with Cravath, Swaine & Moore.
Robert F. Mehmel 36 Vice President -- Planning and Assistant Secretary. Mr. Mehmel
joined the Company in April 1997. From April 1996, when Loral
was acquired by Lockheed Martin, until April 1997, Mr. Mehmel
was the Director of Financial Planning and Capital Review for
Lockheed Martin's C3I and Systems Integration Sector. From 1984
to 1996, Mr. Mehmel held several accounting and financial analysis
positions at Loral Electronic Systems and Loral. At the time of
Lockheed Martin's acquisition of Loral, he was Corporate Manager
of Business Analysis.
Lawrence W. O'Brien 49 Vice President -- Treasurer. Mr. O'Brien joined the Company in
June 1997. Prior to joining the Company, he was the Vice President
and Treasurer of Pechiney Corporation, the North American arm
of the Pechiney Group of France, where he held a number of
financial positions since 1981.
Joseph S. Paresi 43 Vice President -- Product Development. Mr. Paresi joined the
Company in April 1997. From April 1996 until April 1997, Mr.
Paresi was Corporate Director of Technology for Lockheed Martin's
C3I and System Integration Sector. Prior to the April 1996
acquisition of Loral, Mr. Paresi was Corporate Director of
Technology for Loral, a position he held since 1993. From 1978 to
1993, Mr. Paresi was a Systems Engineer, Director of Marketing
and Director of International Programs at Loral Electronic Systems.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- ---------------------- ----- ----------------------------------------------------------------------
<S> <C> <C>
Lawrence H. Schwartz 61 Vice President -- Business Development. Mr. Schwartz joined the
Company in May 1997. From April 1996 until May 1997, Mr.
Schwartz was Vice President of Technology for the C3I and System
Integration Sector of Lockheed Martin. Prior to the April 1996
acquisition of Loral, he was Corporate Vice President of
Technology for Loral, a position he held since 1987. Between 1976
and 1987, Mr. Schwartz was Vice President of Engineering, Senior
Vice President of Business Development, Senior Vice President of
the Rapport Program and Senior Vice President of Development
Programs at Loral Electronic Systems.
Jimmie V. Adams 62 Vice President -- Washington, D.C. Operations. General Jimmie
V. Adams (U.S.A.F.-ret.) joined the Company in April 1997. From
April 1996 until April 1997, he was Vice President of Lockheed
Martin's Washington Operations for the C3I and Systems
Integration Sector. Prior to the April 1996 acquisition of Loral, he
had held the same position at Loral since 1993. Before joining
Loral in 1993, he was Commander in Chief, Pacific Air Forces,
Hickam Air Force Base, Hawaii, capping a 35-year career with the
U.S. Air Force. He was also Deputy Chief of Staff for plans and
operation for U.S. Air Force headquarters and Vice Commander
of Headquarters Tactical Air Command and Vice Commander in
Chief of the U.S. Air Forces Atlantic at Langley Air Force Base.
He is a command pilot with more than 141 combat missions.
Robert RisCassi 62 Vice President -- Washington, D.C. Operations. General Robert
W. RisCassi (U.S. Army-ret.) joined the Company in April 1997.
From April 1996 until April 1997, he was Vice President of Land
Systems for Lockheed Martin's C3I and Systems Integration
Sector. Prior to the April 1996 acquisition of Loral, he had held the
same position for Loral since 1993. He joined Loral in 1993 after
retiring as U.S. Army Commander in Chief, United Nations
Command/Korea. His 35-year military career included posts as
Army Vice Chief of Staff; Director, Joint Staff, Joint Chiefs of
Staff; Deputy Chief of Staff for Operations and Plans; and
Commander of the Combined Arms Center.
</TABLE>
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 26, 1999, there were 32,466,643 shares of Common Stock
outstanding. The Company knows of no person who, as of March 26, 1999,
beneficially owned more than five percent of the Common Stock, except as set
forth below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------ ------------------------- -----------
<S> <C> <C>
Lehman Brothers Capital Partners III, L.P.
and affiliates (1)
c/o Lehman Brothers Holdings Inc.
Three World Financial Center
New York, New York 10285 ................ 8,020,000 24.7%
Lockheed Martin Corporation
6802 Rockledge Drive
Bethesda, Maryland 20817-1877 ........... 2,300,000 7.1%
Frank C. Lanza (2)
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016 ................ 1,929,142(3)(4) 5.9%
Robert V. LaPenta (2)
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016 ................ 1,929,179(4) 5.9%
</TABLE>
- ----------
(1) David J. Brand, Alberto M. Finali, Eliot M. Fried, Robert B. Millard and
Alan H. Washkowitz, each of whom is director of the Company, are each
Managing Directors of Lehman Brothers. As limited partners of Lehman
Brothers Capital Partners III, L.P. or other affiliated partnerships
sponsored by Lehman Brothers, all such individuals may be deemed to have
shared beneficial ownership of shares of the Common Stock held by Lehman
Brothers Capital Partners III, L.P. and such affiliated partnerships.
Such individuals disclaim any such beneficial ownership.
(2) Excluding the number of shares exercisable within 60 days after March 26,
1999 under employee stock options, Mr. Lanza and Mr. LaPenta each hold
options to purchase an additional 685,715 shares of the Common Stock.
(3) Includes 75,000 shares held by Mr. Lanza on behalf of his sons, Anthony
Lanza, James Lanza and Louis Lanza, of which Mr. Lanza disclaims
beneficial ownership.
(4) The shares of Common Stock beneficially owned include 228,571 shares
exercisable within 60 days after March 26, 1999 under employee stock
options for each of Mr. Lanza and Mr. LaPenta and 37 shares allocated to
the account of Mr. LaPenta under the Company's savings plans.
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the amount of Common Stock beneficially owned
(unless otherwise indicated) by the executive officers of the Company named in
the Summary Compensation Table below, the Company's directors, and by all
current executive officers and directors of the Company as a group. Except as
otherwise indicated, all information is as of March 26, 1999.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF
STOCK BENEFICIALLY SHARES OF COMMON
OWNED(1)(2) STOCK OUTSTANDING(3)
---------------------- ---------------------
<S> <C> <C>
Frank C. Lanza ............................ 1,929,142(2) 5.9%
Robert V. LaPenta ......................... 1,929,179 5.9%
Michael T. Strianese ...................... 36,795 --
Christopher C. Cambria .................... 26,052 --
Lawrence H. Schwartz ...................... 23,450 --
David J. Brand ............................ --(4) --
Thomas A. Corcoran ........................ -- --
Alberto M. Finali ......................... --(4) --
Eliot M. Fried ............................ --(4) --
Frank H. Menaker, Jr. ..................... -- --
Robert B. Millard ......................... --(4) --
John E. Montague .......................... -- --
John M. Shalikashvili ..................... -- --
Alan M. Washkowitz ........................ --(4) --
Directors and Executive
Officers as a Group (19 persons) ......... 4,039,456(5) 12.5%
</TABLE>
- ----------
(1) The shares of Common Stock beneficially owned include the number of
shares (i) exercisable within 60 days after March 26, 1999 under employee
stock options and (ii) allocated to the accounts of executive officers
under the Company's savings plans. Of the number of shares shown above,
(i) the following represent shares that may be acquired upon exercise of
employee stock options for the accounts of: Mr. Lanza, 228,571 shares;
Mr. LaPenta, 228,571 shares; Mr. Strianese, 10,750 shares; Mr. Cambria,
7,000 shares; and Mr. Schwartz, 5,950 shares, and (ii) the following
represent shares allocated under the Company's saving plans to the
accounts of: Mr. LaPenta, 37 shares; Mr. Strianese, 45 shares; and Mr.
Cambria, 52 shares.
(2) The number of shares shown above include shares that are individually or
jointly owned, as well as shares over which the individual has either
sole or shared investment or voting authority. Mr. Lanza's holdings of
the Common Stock includes 75,000 shares held by Mr. Lanza on behalf of
his sons, Anthony Lanza, James Lanza and Louis Lanza, of which Mr. Lanza
disclaims beneficial ownership.
(3) Share ownership does not exceed one percent of the class unless otherwise
indicated.
(4) David J. Brand, Alberto M. Finali, Eliot M. Fried, Robert B. Millard and
Alan H.Washkowitz, each of whom is director of the Company, are each
Managing Directors of Lehman Brothers. As limited partners of Lehman
Brothers Capital Partners III, L.P. or other affiliated partnerships
sponsored by Lehman Brothers, all such individuals may be deemed to share
beneficial ownership of 8,020,000 shares of common stock of the Company
held by Lehman Brothers Capital Partners III, L.P. and such affiliated
partnerships. Such individuals disclaim any such beneficial ownership.
(5) Includes 506,042 shares exercisable under employee stock options within
60 days after March 26, 1999, and 272 shares allocated to the accounts of
executive officers under the Company's savings plans.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
----------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) OPTIONS (#) COMPENSATION ($)(2)
- ------------------------------- ------ --------------- ----------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Frank C. Lanza
(Chairman and Chief Executive 1998 $750,000 -- -- $11,341
Officer) ..................... 1997 542,654 -- 1,142,857 --
Robert V. LaPenta
(President and Chief Financial 1998 500,000 -- -- 27,591
Officer) ..................... 1997 356,538 -- 1,142,857 --
Lawrence H. Schwartz
(Vice President, Business 1998 229,000 85,000 -- 22,090
Development) ................. 1997 145,327 80,000 17,000 --
Christopher C. Cambria
(Vice President, Secretary 1998 190,000 140,000 -- 7,351
and General Counsel) ......... 1997 97,596 75,000 20,000 --
Michael T. Strianese
(Vice President, Finance and 1998 165,000 140,000 -- 69,993
Controller) .................. 1997 107,386 95,000 35,000 1,956
</TABLE>
- ----------
(1) Fiscal 1997 only included the pay periods ending during the nine months
ended December 31, 1997.
(2) Amounts for 1998 include (a) Company matching contributions of $3,200
under the Company's savings plan for Messrs. LaPenta, Cambria and
Strianese; (b) the value of supplemental life insurance programs in the
amounts of $11,341 for Mr. Lanza, $24,391 for Mr. LaPenta, $22,090 for
Mr. Schwartz, $3,676 for Mr. Cambria and $6,397 for Mr. Strianese; and
(c) a special bonus of $60,000 for Mr. Strianese related to the Company's
formation, which amount is also payable to Mr. Strianese in each of 1999
and 2000.
11
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1998
There were no options to purchase Common Stock granted in fiscal year 1998
to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1998 by
the Named Executive Officers and the value of each such executive officer's
unexercised options to acquire the Common Stock at December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
VALUE AT F-Y END (#) F-Y END ($)(2)
REALIZED ----------------------------- ----------------------------
NAME AND PRINCIPAL POSITION EXERCISES(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- -------------- ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Lanza
(Chairman and Chief Executive
Officer) ..................... 228,571 $578,285 -- 914,286 -- $36,656,011
Robert V. LaPenta
(President and Chief Financial
Officer) ..................... 228,571 578,285 -- 914,286 -- 36,656,011
Lawrence H. Schwartz
(Vice President, Business
Development) ................. -- -- 5,950 11,050 $238,550 443,022
Christopher C. Cambria
(Vice President, Secretary and
General Counsel) ............. -- -- 7,000 13,000 280,648 521,203
Michael T. Strianese
(Vice President, Finance and
Controller) .................. -- -- 8,750 26,250 350,809 897,128
</TABLE>
- ----------
(1) Based on the estimated fair value of the Common Stock at the exercise
date.
(2) The value of unexercised in-the-money options at fiscal year end was
calculated based on the December 31, 1998 closing stock price of the
Common Stock of $46.5625 less the exercise prices of the options.
12
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing the design of, and
pay levels generated by, the Company's compensation and benefit programs for
the executive officers of the Company. The Committee is also responsible for
administering the Company's stock option program.
The Committee is committed to ensuring an executive compensation program
that supports the Company's mission -- to maximize stockholder value. Thus, the
executive compensation is structured around the following tenets:
o Total compensation programs should strengthen the relationship between
pay and performance by emphasizing variable, at-risk compensation that is
dependent on the achievement of Company and individual performance goals.
o Management should be focused on the long-term interests of
stockholders. Thus, a significant portion of the compensation opportunity
should be long-term, at-risk pay in the form of stock options.
o The Company must maintain its ability to attract, retain, and encourage
the development of qualified, capable executives. Total compensation
opportunities will mirror those offered by comparably sized organizations
within the secure, space, satellite, and military communications
industries -- for those positions where the labor market is not limited
to these industries, the Company will reference broader general industry
information for similarly sized organizations.
The comparative group used for compensation purposes will generally be
broader than the group that comprises the published industry index in the
Performance Graph included in this proxy statement. The Compensation Committee
believes that the Company's competition for executive talent is not limited to
the companies included in the published industry index established for
comparing stockholder returns.
The key elements of the Company's executive compensation program are base
salary, annual incentives, and long-term compensation. These key elements are
addressed separately below.
BASE SALARIES
The Committee will regularly review the base salary for the Chief
Executive Officer and the President. The Company has established internal
relationships of other senior executive positions to those of the Chief
Executive Officer and the President, and base salaries for these other
positions flow from those relationships. Base salaries will be targeted at the
median of market levels with adjustments above or below market to recognize
varying levels of responsibility, prior experience, breadth of knowledge, as
well as external pay practices.
Increases to base salaries will be driven primarily by individual
performance. Individual performance will be evaluated based on sustained levels
of individual contribution to the Company.
As reflected in the Summary Compensation Table, Mr. Lanza's base salary
was $750,000 in 1998 as provided for in his employment agreement. In
determining future increases to Mr. Lanza's base salary, the Committee will
consider his individual performance as measured by short-term achievements as
well as his contributions to long-term organizational success. The Committee
will also compare Mr. Lanza's base salary to base salaries of chief executive
officers among comparable companies.
ANNUAL INCENTIVES
The Annual Incentive Plan is structured to provide a variable pay
opportunity based on performance. For the Named Executive Officers, target
payouts are 40% of base pay. Actual bonuses are based on an assessment of the
participant's contributions toward organizational success.
Messrs. Lanza and LaPenta received no bonus in 1998. Instead, on April 30,
1997 at the time Messrs. Lanza and LaPenta entered into their respective
employment agreements they were each granted a stock option on 1,142,857 shares
of Common Stock, 50% of which vested over time and 50% of which the vesting
date was determined based on the Company's achievement of certain annual or
cumulative performance
13
<PAGE>
targets. In granting these options to Messrs. Lanza and LaPenta, the Company
considered their ineligibility for 1997 and 1998 bonuses. On April 5, 1999, in
recognition of their superior performance, the Compensation Committee amended
the option grants to Messrs. Lanza and LaPenta to eliminate the performance
targets and to provide that the unvested portion of the performance options
will vest and become exercisable as of April 30, 2000, if employment continues
through and including such date. In determining to amend the option grants, the
Compensation Committee also took into account the fact that the existing
performance targets were no longer applicable as a result of the acquisitions
completed by the Company in 1998 and of the Company's ongoing acquisition
activities. See "Employment Agreements."
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Company's 1997 Stock
Option Plan.
Stock options will be granted at a price not less than the fair market
value of the Common Stock on the date of grant. The ultimate value of an option
grant to the recipient depends on the shareholder value created between the
date of grant and the date of exercise. Option award size will be based
primarily on competitive practice but may also be adjusted to reflect factors
such as individual and Company performance.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to the Named Executive Officers to $1 million,
unless certain requirements are met. The Compensation Committee will consider
the impact of this provision when making compensation decisions. However, the
Committee will weigh all pertinent factors to determine appropriate plan design
and incentive awards.
Members of the Compensation Committee:
Robert B. Millard (Chairman)
John E. Montague
Alan H. Washkowitz
14
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Common Stock
with the cumulative total return of the Standard & Poor's 500 Composite Stock
Index and a Peer Group index, for the period from May 19, 1998 (the first
trading date following the Company's initial public offering (the "IPO")) to
December 31, 1998. These figures assume that all dividends paid over the
performance period were reinvested, and that the starting value of each index
and the investment in the Common Stock was $100 on May 19, 1998. The starting
point for the measurement of the Common Stock cumulative total return was the
IPO price of $22.00 per share. The Peer Group index is composed of Alliant
Techsystems Inc., General Dynamics Corporation, Litton Industries, Inc. and
Northrup Grumman Corporation. The graph is not, and is not intended to be,
indicative of future performance of the Common Stock.
L-3 COMMUNICATIONS HOLDINGS, INC.
CUMULATIVE TOTAL SHAREHOLDER RETURN FOR
PERIOD OF MAY 19, 1998 THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
BASE QUARTER ENDING
PERIOD --------------------------------------------------------
MAY 19, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L-3 Communications ---()--- 100 147.73 180.40 211.65
- ------------------------------------------------------------------------------------------------------
S&P 500 Index ---[]--- 100 102.31 92.13 111.75
- ------------------------------------------------------------------------------------------------------
Peer Group ---()--- 100 98.64 89.97 99.51
- ------------------------------------------------------------------------------------------------------
</TABLE>
(as prepared by Standard & Poor's Compustat)
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1998 fiscal year, Messrs. Millard, Montague and Washkowitz
served as members of the Compensation Committee. None of these individuals has
served at any time as an officer or employee of the Company or any subsidiary
of the Company. Messrs. Millard and Washkowitz are affiliated with the Lehman
Brothers Capital Partners III and its affiliates (collectively the "Lehman
Partnership") which in aggregate hold 24.7% of the Common Stock outstanding as
of the date of this Proxy Statement. Pursuant to a stockholders agreement among
the Company, the Lehman Partnership, Lockheed Martin and Messrs. Lanza and
LaPenta (the "Stockholders Agreement"), the Lehman Partnership has the right,
from time to time subject to certain conditions, to require the Company to
register under the Securities Act of 1933, as amended, shares of the Common
Stock held by it. The Lehman Partnership has the right to request up to four
demand registrations and also has piggyback registration rights. The Company
has agreed in the Stockholders Agreement to pay expenses in connection with,
among other things, (i) up to three demand registrations requested by the
Lehman Partnership and (ii) any registration in which the existing stockholders
participate through piggyback registration rights granted under such agreement.
In February 1999, the Lehman Partnership sold 2 million shares of Common Stock
through the exercise of its piggyback registration right in a public offering
of Common Stock by the Company. The Stockholders Agreement also provides that
Lehman Brothers has the exclusive right to provide investment banking services
to the Company for the five-year period through April 30, 2002 (except that the
exclusivity period is through April 30, 2000 as to cash acquisitions undertaken
by the Company or L-3 Communications Corporation) so long as the Lehman
Partnership owns at least 10% of the outstanding Common Stock. In the event
that Lehman Brothers agrees to provide any investment banking services to the
Company or L-3 Communications Corporation, it will be paid fees that are
mutually agreed upon based on similar transactions and practices in the
investment banking industry. See "Certain Relationships and Related
Transactions".
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
1997 STOCK OPTION PLAN
In April 1997, the Company adopted the 1997 Stock Option Plan which
authorizes the Compensation Committee to grant options to key employees of the
Company and its subsidiaries. On March 10, 1998, the 1997 Stock Option Plan was
amended to increase the shares available for option grants to 4,255,815 shares
of Common Stock, of which 3,400,794 shares had been granted and were
outstanding as of December 31, 1998. The Compensation Committee of the Board of
Directors of the Company, in its sole discretion, determines the terms of
option agreements, including without limitation the treatment of option grants
in the event of a change of control. The 1997 Stock Option Plan remains in
effect for 10 years following the date of approval.
On April 30, 1997, the Company granted each of Messrs. Lanza and LaPenta
options to purchase 1,142,857 shares of Common Stock. See "Employment
Agreements" below for a description of the terms of these grants. On July 1,
1997 and November 11, 1997, the Compensation Committee authorized grants of
options to employees of the Company and its subsidiaries, other than Messrs.
Lanza and LaPenta, to acquire an aggregate of 689,500 shares of Common Stock at
an exercise price of $6.47 per share (the "Employee Options"). Each Employee
Option was granted pursuant to an individual agreement that provides (i) 20% of
shares underlying the option will become exercisable on the first anniversary
of the grant date, 50% will become exercisable on the second anniversary of the
grant date and 30% will become exercisable on the third anniversary of the
grant date; provided that, after the IPO 15% of the shares underlying the
option (which would otherwise become exercisable on the second anniversary of
the grant date) became exercisable; (ii) all shares underlying the option will
become exercisable upon certain events constituting a change of control; and
(iii) the option will expire upon the earliest to occur of (A) the tenth
anniversary of the grant date, (B) one year after termination of employment due
to the optionee's death or permanent disability, (C) immediately upon
termination of the optionee's employment for cause and (D) three months after
termination of optionee's employment for any other reason. On May 1, 1998, the
16
<PAGE>
Company granted options to employees of the Company and its subsidiaries, other
than Messrs. Lanza and LaPenta, to purchase 285,370 shares of Common Stock at
an exercise price of $22.00 per share and on terms substantially similar to the
Employee Options. On August 13, 1998, the Company granted options to purchase
142,200 shares of Common Stock at an exercise price of $32.75 per share
primarily to employees of recently acquired companies, and on January 19, 1999,
the Company granted options to purchase 414,150 shares of Common Stock at an
exercise price of $40.50 per share to employees who received the Employee
Options during 1997 and to employees of recently acquired companies. The terms
of such stock options were substantially similar to the Employee Options except
that such options vest in equal installments over a period of three years.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Employment
Agreements") effective on April 30, 1997 with each of Mr. Lanza, Chairman and
Chief Executive Officer of the Company, who will receive a base salary of
$750,000 per annum and appropriate executive level benefits, and Mr. LaPenta,
President and Chief Financial Officer of the Company, who will receive a base
salary of $500,000 per annum and appropriate executive level benefits. The
Employment Agreements provide for an initial term of five years, which will
automatically renew for one-year periods thereafter, unless a party thereto
gives notice of its intent to terminate at least 90 days prior to the
expiration of the term.
Upon a termination without cause or resignation for good reason, the
Company will be obligated, through the end of the term, to (i) continue to pay
the base salary and (ii) continue to provide life insurance and medical and
hospitalization benefits comparable to those provided to other senior
executives; provided, however, that any such coverage shall terminate to the
extent that Mr. Lanza or Mr. LaPenta, as the case may be, is offered or obtains
comparable benefits coverage from any other employer. The Employment Agreements
provide for confidentiality during employment and at all times thereafter.
There is also a noncompetition and non-solicitation covenant which is effective
during the employment term and for one year thereafter; provided, however, that
if the employment terminates following the expiration of the initial term, the
noncompetition covenant will only be effective during the period, if any, that
the Company pays the severance described above.
The Company has granted each of Messrs. Lanza and LaPenta (together, the
"Equity Executives") nonqualified options to purchase, at $6.47 per share,
1,142,857 shares of Common Stock. In each case, half of the options were
structured as "Time Options" and half were structured initially as "Performance
Options" (collectively, the "Options"). The Time Options became exercisable
with respect to 20% of the shares subject to the Time Options on March 2, 1998
and will become exercisable with respect to an additional 20% of the shares
subject to the Time Options on each of April 30, 1999, 2000, 2001 and 2002 if
employment continues through and including such date. The Performance Options
were initially structured to become exercisable nine years after the Closing,
but became exercisable with respect to up to 20% of the shares subject to the
Performance Options on March 2, 1998 and will become exercisable with respect
to an additional 20% of the shares subject to the Performance Options on each
of April 30, 1999, 2000, 2001 and 2002, to the extent certain targets for the
Company's earnings before interest, income taxes, depreciation and amortization
are achieved. On March 2, 1998, each of Mr. Lanza and Mr. LaPenta exercised
options to acquire 228,571 shares of Common Stock. On April 5, 1999, the
Company amended the Performance Options to eliminate the performance target
acceleration provisions and to provide that the unvested portion of the
Performance Options will vest and become exercisable as of April 30, 2000, if
employment continues through and including such date. The Options will become
fully exercisable under certain circumstances, including a change in control.
The Option term is ten years through April 30, 2007; except that if (i) the
Equity Executive is fired for cause or resigns without good reason, the Options
will expire upon termination of employment or (ii) the Equity Executive is
fired without cause, resigns for good reason, dies, becomes disabled or
retires, the Options will expire one year after termination of employment.
Unexercisable Options will terminate upon termination of employment, unless
acceleration is expressly provided for. Upon a change of control, Holdings may
terminate the Options, so long as the Equity Executives are cashed out or
permitted to exercise their Options prior to such change of control.
17
<PAGE>
The Company also has entered into a split-dollar life insurance agreement
with Mr. LaPenta. Under the split-dollar agreement, the Company owns and pays
the premiums on the life insurance policy, and Mr. LaPenta has the right to
designate a beneficiary to receive a fixed portion of the policy death benefit.
The balance of the death benefit will be payable to the Company as a recovery
of its investment.
PENSION PLAN TABLE
The following table shows the estimated annual pension benefits payable
under the L-3 Communications Corporation Pension Plan and Supplemental Employee
Retirement Plan to a covered participant upon retirement at normal retirement
age (65), based on the career average compensation (salary and bonus) and years
of credited service with the Company.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
--------------------------------------------------------------
CAREER AVERAGE
COMPENSATION 15 20 25 30 35
- ------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000 ......... $ 18,981 $ 24,937 $ 29,833 $ 33,856 $ 37,164
150,000 ......... 23,172 30,408 36,355 41,243 45,260
175,000 ......... 27,364 35,879 42,877 48,629 53,357
200,000 ......... 31,556 41,349 49,399 56,015 61,454
225,000 ......... 35,747 46,820 55,921 63,402 69,550
250,000 ......... 39,939 52,291 62,444 70,788 77,647
300,000 ......... 48,322 63,233 75,488 85,561 93,840
400,000 ......... 65,089 85,116 101,577 115,106 126,226
450,000 ......... 73,472 96,057 114,621 129,879 142,420
500,000 ......... 81,855 106,999 127,665 144,651 158,613
750,000 ......... 123,772 161,707 192,887 218,515 239,579
</TABLE>
As of December 31, 1998, the current annual compensation and current years
of credited service (including for Messrs. LaPenta and Strianese, years of
credited service as an employee of Loral and Lockheed Martin) for each of the
following persons were: Mr. Lanza, $750,000 and 2 years; Mr. LaPenta, $500,000
and 27 years; Mr. Strianese, $305,000 and 9 years; Mr. Cambria, $330,000 and 2
years; and Mr. Schwartz, $314,000 and 2 years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Lehman Partnership owns 24.7% of the Common Stock. Certain affiliates
of the Lehman Partnership provide services to the Company. In 1998, Lehman
Brothers provided underwriting and investment banking services to the Company,
for which services it received fees of $15.5 million. In addition, Lehman
Brothers Commercial Paper Inc., an affiliate of Lehman Brothers, is a lender to
the Company under the Company's bank credit facilities, for which it received
fees of $0.4 million in 1998.
In connection with the acquisition by the Company of its initial ten
business units (the "Businesses") from Lockheed Martin (the "L-3 Acquisition"),
Lockheed Martin has agreed to indemnify the Company and L-3 Communications
Corporation, subject to certain limitations, for Lockheed Martin's breach of
representations and warranties and the Company and L-3 Communications
Corporation have assumed certain obligations relating to environmental matters
and benefits plans. These obligations include certain on-site and off-site
environmental liabilities related to events or activities of the Businesses
occurring prior to the L-3 Acquisition. Lockheed Martin has agreed to indemnify
the Company, subject to certain limitations, for its breach of (i)
non-environmental representations and warranties up to $50 million (subject to
a $5 million threshold) and (ii) through April 30, 2005, to pay 50% of all
costs incurred by the Company above those reserved for on the Company's balance
sheet at April 1997 relating to certain Company-assumed environmental
liabilities and, for the seven years thereafter, 40% of certain reasonable
operation and maintenance costs relating to any environmental remediation
projects undertaken in the first eight years (subject to a $6 million
threshold).
18
<PAGE>
Lockheed Martin provides to certain divisions of the Company certain
management information systems services at Lockheed Martin's fully-burdened
cost but without profit. The Company, L-3 Communications Corporation and
Lockheed Martin have entered into certain subleases of real property and
cross-licenses of intellectual property.
In addition, the Company and Lockheed Martin have entered into a Limited
Noncompetition Agreement (the "Noncompetition Agreement") which, for up to
three years from April 1997, in certain circumstances, precludes Lockheed
Martin from engaging in the sale of any products that compete with the products
of the Company that are set forth in the Noncompetition Agreement for
specifically identified application of the products. Under the Noncompetition
Agreement, Lockheed Martin is prohibited, with certain exceptions, from
acquiring any business engaged in the sale of the specified products referred
to in the preceding sentence, although Lockheed Martin may acquire such a
business under circumstances where the exceptions do not apply provided that it
offers to sell such business to the Company within 90 days of its acquisition.
The Noncompetition Agreement does not, among other exceptions, (i) apply to
businesses operated and managed by Lockheed Martin on behalf of the U.S.
government, (ii) prohibit Lockheed Martin from engaging in any existing
businesses and planned businesses as of the closing of the L-3 Acquisition or
businesses that are reasonably related to existing or planned businesses or
(iii) apply to selling competing products where such products are part of a
larger system sold by Lockheed Martin.
The Company and its predecessor sell products to Lockheed Martin and its
affiliates. Such net sales amounted to $70,401 for 1998 and $60,402 for the
nine-month period ended December 31, 1997; $21,171 for the three-month period
ended March 31, 1997 and $70,658 for 1996, respectively.
Sales of products to Lockheed Martin, excluding those under intercompany
work transfer agreements existing at the time of the L-3 Acquisition, are made
on terms no less favorable than those which would be available from
non-affiliated third party customers. A significant portion of the Company's
sales to Lockheed Martin are either based on competitive bidding or catalog
prices.
STOCKHOLDERS AGREEMENT
In connection with the L-3 Acquisition, the Company, Lockheed Martin, the
Lehman Partnership and Messrs. Lanza and LaPenta entered into the Stockholders
Agreement which, except for the terms relating to (i) the registration rights,
(ii) provision of services by Lehman Brothers and (iii) the standstill
agreement by Lockheed Martin, terminated upon the completion of the IPO.
Pursuant to the Stockholders Agreement, Messrs. Lanza and LaPenta,
Lockheed Martin and the Lehman Partnership have the right, from time to time
and subject to certain conditions, to require Holdings to register under the
Securities Act of 1933 shares of common stock held by them. Lockheed Martin,
the Lehman Partnership and each of the Messrs. Lanza and LaPenta has three,
four and one demand registration rights, respectively. In addition, the
Stockholders Agreement also provides certain existing stockholders with certain
piggyback registration rights. The Stockholders Agreement provides, among other
things, that the Company will pay expenses in connection with (i) up to two
demand registrations requested by Lockheed Martin, up to three demand
registrations requested by the Lehman Partnership and the two demand
registrations requested by Messrs. Lanza and LaPenta and (ii) any registration
in which the existing stockholders participate through piggyback registration
rights granted under such agreement. In February, 1999, Lockheed Martin and the
Lehman Partnership sold 4.5 million shares and 2 million shares, respectively,
through the exercise of their piggyback registration rights in a public
offering of Common Stock by the Company.
The Stockholders Agreement also provides that Lehman Brothers has the
exclusive right to provide investment banking services to the Company through
April 30, 2002 (except that the exclusivity period through April 30, 2000 as to
cash acquisitions undertaken by the Company or L-3 Communications Corporation)
so long as the Lehman Partnership owns at least 10% of the outstanding Common
Stock. In the event that Lehman Brothers agrees to provide any investment
banking services to the Company or L-3 Communications Corporation, it will be
paid fees that are mutually agreed upon based on similar transactions and
practices in the investment banking industry.
19
<PAGE>
Under the Stockholders Agreement, Lockheed Martin is subject to a
standstill arrangement which generally prohibits any increase in its share
ownership percentage over 34.9%.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the NYSE. Officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
The following officers of the Company inadvertently failed to file a Form
4 regarding one transaction involving the acquisition of Common Stock in the
IPO: Michael T. Strianese, Christopher C. Cambria, Robert F. Mehmel, Lawrence
W. O'Brien, Joseph S. Paresi, Lawrence W. Schwartz, Jimmie V. Adams and Robert
RisCassi. John M. Shalikashvili failed to file a Form 3 within ten days of
becoming a director of the Company. These oversights for the fiscal year 1998
were cured by corrective Form 5 filings.
PROPOSAL 2. SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP to act as
independent auditors for the Company for the 1999 fiscal year, and a proposal
to ratify this selection will be submitted to the Annual Meeting.
PricewaterhouseCoopers LLP has acted as independent auditors for the Company
since its formation in 1997 and management believes it desirable and in the
best interests of the Company to continue the employment of that firm.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting. Such representatives will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to
appropriate questions.
If the foregoing proposal is not approved by the holders of a majority of
the shares represented at the Annual Meeting and voting on the proposal, the
selection of independent auditors will be reconsidered by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS.
PROPOSAL 3. RATIFY AND APPROVE THE 1999 LONG TERM PERFORMANCE PLAN
On March 26, 1999, the Board of Directors authorized and approved the 1999
Long Term Performance Plan (the "1999 Plan"). The purpose of the 1999 Plan is
to benefit the Company's stockholders by encouraging high levels of performance
by individuals who contribute to the success of the Company and its
subsidiaries and to enable the Company and its subsidiaries to attract,
motivate, retain and reward talented and experienced individuals. This purpose
is to be accomplished by providing eligible individuals with an opportunity to
obtain or increase a proprietary interest in the Company and/or by providing
eligible individuals with additional incentives to join or remain with the
Company and its subsidiaries. The Company has reserved 1,000,000 shares of
Common Stock for issuance under the 1999 Plan, subject to approval of the 1999
Plan by the Stockholders. A copy of the 1999 Plan is attached hereto as ANNEX A
to this Proxy Statement.
If the 1999 Plan is approved by the Stockholders, it will become effective
as of April 27, 1999. Unless terminated earlier by the Company's Board of
Directors, the 1999 Plan will terminate on April 27, 2009.
The 1999 Plan is hereby proposed for approval by the Stockholders. The
affirmative vote of the holders of a majority of the shares present or
represented and entitled to vote at the Annual Meeting will be necessary to
approve the 1999 Plan.
20
<PAGE>
DESCRIPTION OF THE 1999 PLAN
ELIGIBILITY
Awards under the 1999 Plan may be granted to any employee, including any
officer, of the Company or any of its subsidiaries and to any other individual
who provides services to or on behalf of the Company or any of its
subsidiaries, subject to the discretion of the Committee (as defined below) to
determine the particular employees and other individuals who, from time to
time, will be selected to receive awards.
TYPES OF AWARDS
Awards under the 1999 Plan may be in the form of non-qualified stock
options, incentive stock options, stock appreciation rights (SARs), restricted
stock and other incentive awards, such as performance units. Awards may be
granted singly or in combination with other awards, consistent with the terms
of the 1999 Plan. Each award will be evidenced by an award agreement entered
into between the Company and the recipient setting forth the specific terms and
conditions applicable to that award. Awards under the 1999 Plan generally will
be nontransferable by a holder (other than by will or the laws of descent and
distribution) and rights thereunder generally will be exercisable during the
holder's lifetime only by the holder, except that awards, other than awards of
incentive stock options, may be transferred to and exercised by a family member
or family members of a participant or transferred to an irrevocable trust
established for the benefit a participant's family members during the
participant's lifetime. The maximum term of unvested or unexercised awards
under the 1999 Plan is ten years from the initial date of grant.
Stock options authorized under the 1999 Plan are rights to purchase a
specified number of shares of the Common Stock at an exercise price of not less
than 100% of the fair market value of the stock on the date of grant (or date
of amendment of the exercise price, if any) during the period set forth in the
award agreement. Stock options that are granted as incentive stock options will
be granted with such additional terms as are necessary to satisfy the
applicable requirements of Section 422 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code"). The fair market value of the Common
Stock for which incentive stock options are exercisable for the first time by
an optionee during any calendar year can not exceed $100,000 (measured as of
the date of grant) under current tax laws. Other awards are not limited in this
manner.
SARs entitle the recipient to receive, upon exercise of the SAR, an amount
(payable in cash and/or stock or other property) equal to the amount of the
excess, if any, of the fair market value of a share of the Common Stock on the
date the SAR is exercised (or some lesser ceiling amount) over the base price
of the SAR, which cannot be less than the fair market value of a share of the
Common Stock on the date the SAR was awarded or the exercise price of a related
stock option. SARs may be granted on a freestanding basis, in relation to a
stock option or in "tandem" with a stock option, such that the exercise of
either the option or the SAR cancels the recipient's rights under the tandem
award with respect to the number of shares so exercised.
Restricted stock is Common Stock issued to the recipient, typically for
minimal lawful consideration and subject to certain risks of forfeiture and
restrictions and limitations on transfer, the vesting of which may depend on
individual or corporate performance, continued service or other criteria.
Other incentive awards might include phantom stock or units, performance
stock or units, bonus stock or units, dividend equivalent units, similar
securities or rights and other awards payable in or with a value derived from
or a price related to the fair market value of the Common Stock, payable in
Common Stock and/or cash, all on such terms as the Committee may approve. Such
awards may be granted, become vested or be payable based upon the continued
employment of a participant, or upon the attainment of specified corporate or
individual performance goals (as in the case of performance stock or units).
Under Section 162(m) of the Code, the Company may not deduct certain
compensation over $1,000,000 in any year to the Chief Executive Officer or any
of the four other most highly compensated executive officers of the Company
unless, among other things, this compensation qualifies as "performance-
21
<PAGE>
based compensation" under Section 162(m), and the material terms of the plan
for such compensation are approved by stockholders. With reference to awards
intended to qualify as performance-based compensation under Section 162(m), the
material terms of the 1999 Plan include the eligible class of participants, the
performance goal or goals and the maximum annual amount payable thereunder to
any individual participant. Stock options and SARs that are granted under the
1999 Plan at a fair market value exercise price are intended to qualify as
performance-based compensation ("Qualifying Options and SARs"). In addition,
other awards (such as restricted stock and performance units) may be granted
under the 1999 Plan to qualify as performance-based compensation under Section
162(m).
The eligible class of persons for performance-based awards under the 1999
Plan is all employees of the Company and its subsidiaries. Awards that are
intended to qualify as performance-based awards under the Plan (other than
Qualifying Options and SARs) may be granted only in accordance with the
performance-based requirements of Section 162(m), as set forth below.
The performance goals for performance-based awards under the Plan are any
one or a combination of earnings per share, return on equity, total stockholder
return and cash flow (each as defined in the Plan) or such other performance
goal or goals that the Committee, in its discretion, establishes in accordance
with the requirements of Section 162(m). These goals will be applied over
either consecutive or rolling cycles of more than one but not more than five
fiscal years. Specific cycles, weightings of more than one performance goal and
target levels of performance upon which actual payments will be based, as well
as the award levels payable upon achievement of specified levels of
performance, will be determined by the Committee not later than the applicable
deadline under Section 162(m) and in any event at a time when achievement of
such targets is substantially uncertain. These variables may change from cycle
to cycle. Appropriate adjustments to the performance goals and targets in
respect of performance-based awards may be made by the Committee based upon
objective criteria in the case of significant acquisitions or dispositions by
the Company, extraordinary gains or losses, material changes in accounting
principles or practices, or certain other events that in any case were not
anticipated (or the effects of which were not anticipated) at the time goals
were established, in order to neutralize the effect of such events on the
performance-based awards. The Company believes that specific performance
targets (when established) are likely to constitute confidential business
information, the disclosure of which may adversely affect the Company or
mislead the public.
The Committee must certify the achievement of the applicable performance
goals and the actual amount payable to each participant under the
performance-based awards prior to payment. The Committee may retain discretion
to reduce, but not increase, the amount payable under a performance-based award
to any participant, notwithstanding the achievement of targeted performance
goals. Awards may be accelerated in the event of a Change in Control of the
Company, as described below.
Subject to adjustment as described below, (i) the maximum number of shares
of Common Stock with respect to which Options and Stock Appreciation Rights may
be granted to any employee of the Company or any subsidiary in any fiscal year
shall not exceed 500,000 and (ii) the maximum number of shares of Common Stock
with respect to which performance-based awards (other than Qualifying Options
and SARs) may be granted to any employee of the Company or any subsidiary in
any fiscal year shall be 500,000 or, in the event such performance-based award
is paid in cash, the equivalent cash value thereof as of the date of payment of
such performance-based award.
The Committee also has the authority to grant awards under the Plan in
substitution for or as the result of the assumption of stock incentive awards
held by employees of other entities who become employees of the Company or a
subsidiary as a result of a merger or acquisition of the entity.
Awards may be granted in connection with the surrender or cancellation of
previously granted awards, or may be amended, under such terms and conditions,
including numbers of shares and exercise price, exercisability or termination,
that are the same as or different from the existing awards, all as the
Committee may approve.
ADMINISTRATION; CHANGE IN CONTROL
The Plan provides that it shall be administered by the Compensation
Committee or another committee of the Board of Directors ("Committee"),
constituted so as to permit the plan to comply with
22
<PAGE>
the "non-employee director" provisions of Rule 16b-3 under the Exchange Act and
the "outside director" requirements of Section 162(m). The Committee has the
authority within the terms and limitations of the Plan to designate recipients
of awards, determine or modify the form, amount, terms, conditions,
restrictions, and limitations of awards, including vesting provisions, terms of
exercise of an award, expiration dates and the treatment of an award in the
event of the retirement, disability, death or other termination of a
participant's employment with the Corporation, and to construe and interpret
the 1999 Plan. Such authority includes the discretion to accelerate, extend and
reduce (subject to the limitations noted above) the exercise price of
outstanding awards.
The Committee is authorized to include specific provisions in award
agreements relating to the treatment of awards in the event of a "Change in
Control" of the Company and is authorized to take certain other actions in such
an event. Change in Control under the Plan is defined generally to include a
change in ownership involving 51 percent or more of the outstanding voting
securities of the Company (or a combined entity), a transfer of substantially
all of its assets of the Company, or L-3 Communications Corporation or any
successor thereto, or a change, during any period of 24 months or less, of 50
percent or more of the members of its Board of Directors.
The Committee may delegate to the officers or employees of the Company or
its subsidiaries the authority to execute and deliver such instruments and
documents and to take actions necessary, advisable or convenient for the
effective administration of the 1999 Plan. It is intended generally that the
awards under the 1999 Plan and the 1999 Plan itself comply with and be
interpreted in a manner that, in the case of participants who are subject to
Section 16 of the Exchange Act and for whom (or whose awards) the benefits of
Rule 16b-3 are intended, satisfy the applicable requirements of Rule 16b-3, so
that such persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under that Section. The 1999 Plan provides that neither the
Company nor any member of the Board of Directors or of the Committee shall have
any liability to any person for any action taken or not taken in good faith
under the 1999 Plan.
AMENDMENT AND TERMINATION
The Board of Directors has the authority to amend, suspend or discontinue
the 1999 Plan at any time, provided that no such action will affect any
outstanding award in any manner adverse to the participant without the consent
of the participant. The 1999 Plan may be amended by the Board of Directors
without further stockholder approval, and no guidelines have been established
relating to the nature of the amendments that may be made to the 1999 Plan
without stockholder approval. Such approval, however, may be required (e.g., in
the case of amendments that materially increase the available number of shares
under the 1999 Plan) to satisfy tax rules applicable to performance-based
compensation under Section 162(m) or to subsequent grants of incentive stock
options, or to satisfy other applicable legal requirements. Amendments made
without stockholder approval could increase the costs to the Company under the
1999 Plan, although the amount thereof is not determinable. Because the
Committee retains the discretion to set and change the specific targets for
each performance period under a performance-based award intended to be exempt
from Section 162(m), stockholder ratification of the performance goals will be
required, in any event at five-year intervals in the future to exempt awards
granted under the 1999 Plan from the limitations on deductibility.
AUTHORIZED SHARES; OTHER PROVISIONS; NON-EXCLUSIVITY
The number of shares of the Common Stock that may be issued in respect of
awards under the 1999 Plan may not exceed 1,000,000 shares. The number of
shares that may be issued in respect of restricted stock awards under the 1999
Plan may not exceed 2% of the outstanding shares of Common Stock at the time of
a grant. Shares of Common Stock subject to awards (whether at the discretion of
the Company or the participant) will initially be counted against each of the
share limit and the share unit limit. When payment is ultimately made in
respect to the award in either shares or cash, a number of shares or share
units relating to the alternative form of consideration not so paid will be
recredited to the applicable limit.
The number and kind of shares available for grant and the shares subject
to outstanding awards (as well as individual share and share unit limits on
awards, performance targets and exercise prices of
23
<PAGE>
awards) may be adjusted to reflect the effect of a stock dividend, split,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, extraordinary dividend or other distribution or other
similar transaction. Any unexercised or undistributed portion of any expired,
cancelled, terminated or forfeited award, or alternative form of consideration
under an award that is not paid in connection with the settlement of any
portion of an award, will again be available for award under the 1999 Plan,
whether or not the participant has received benefits of ownership (such as
dividends or dividend equivalents or voting rights) during the period in which
the participant's ownership was restricted or otherwise not vested. Although
shares subject to repriced or cancelled options or SARs will be counted against
the individual award limits to the extent required by Section 162(m), only
shares actually issued or share units actually paid will be charged against the
aggregate share or share unit limits, respectively, under the Plan. UPON
APPROVAL OF THE 1999 PLAN BY THE STOCKHOLDERS, THE COMPANY INTENDS TO REGISTER
UNDER THE SECURITIES ACT OF 1933 THE 1,000,000 OF THE COMMON STOCK AUTHORIZED
FOR ISSUANCE UNDER THE 1999 PLAN.
Full payment for shares purchased on exercise of any option, along with
payment of any required tax withholding, must be made at the time of such
exercise in cash or, if permitted by the Committee, in exchange for a
promissory note in favor of the Company, in shares of Common Stock having a
fair market value equivalent to the exercise price and withholding obligation,
or any combination thereof, or pursuant to such "cashless exercise" procedures
as may be permitted by the Committee. Any payment required in respect of other
awards may be in such amount and in any lawful form of consideration as may be
authorized by the Committee.
The 1999 Plan does not impose any minimum vesting periods on options or
other awards. However, shares of stock acquired after exercise of an option may
not, in the ordinary course, be sold before the expiration of six months from
the date of grant. The maximum term of an option or any other award is ten
years.
The 1999 Plan is not exclusive and does not limit the authority of the
Board or Directors or its committees to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of Federal income tax consequences
to participants and the Company relating to nonqualified and incentive stock
options and certain other awards that may be granted under the 1999 Plan. This
discussion does not purport to cover all tax consequences relating to stock
options and other awards.
An optionee will not recognize income upon the grant of a nonqualified
stock option to purchase shares of Common Stock. Upon exercise of the option,
the optionee will recognize ordinary compensation income equal to the excess of
the fair market value of the Common Stock on the date the option is exercised
over the option price for such stock. The tax basis of the stock acquired by
exercising an option in the hands of the optionee will equal the option price
for the stock plus the amount of ordinary compensation income the optionee
recognizes upon exercise of the option, and the holding period for the stock
will commence on the day the option is exercised. An optionee who sells option
stock will recognize capital gain or loss measured by the difference between
the tax basis of the stock and the amount realized on the sale. Such gain or
loss will be long-term if the stock is held for more than 12 months after
exercise and short-term if held for 12 months or less after exercise. The
Company or a subsidiary will be entitled to a deduction equal to the amount of
ordinary compensation income recognized by the optionee. The deduction will be
allowed at the same time the optionee recognizes the income.
An optionee will not recognize income upon the grant of an incentive stock
option to purchase shares of Common Stock, and will not recognize income upon
exercise of the option, provided such optionee was an employee of the Company
or a subsidiary at all times from the date of grant until three months prior to
exercise (or one year prior to exercise in the event of disability). Generally,
the amount by which the fair market value of the Common Stock on the date of
exercise exceeds the option price will be includable in alternative minimum
taxable income for purposes of determining alternative minimum tax and such
24
<PAGE>
amount will be added to the tax basis of such stock for purposes of determining
alternative minimum taxable income in the year the stock is sold. Where an
optionee who has exercised an incentive stock option sells the shares acquired
upon exercise more than two years after the grant date and more than one year
after exercise, long-term capital gain or loss will be recognized equal to the
difference between the sales price and the option price. An optionee who sells
such shares within two years after the grant date or within one year after
exercise will recognize ordinary compensation income in an amount equal to the
lesser of (a) the difference between the fair market value of the shares on the
date of exercise and the amount paid for the shares, or (b) the excess of the
amount realized on the sale over the adjusted basis in the shares. Any
remaining gain or loss will be treated as a capital gain or loss. The Company
or a subsidiary will be entitled to a deduction equal to the amount of ordinary
compensation income recognized by the optionee in this case. The deduction will
be allowable at the same time the optionee recognizes the income.
The current federal income tax consequences of other awards authorized
under the plan generally follow certain basic patterns: SARs are taxed to the
individuals and deductible by the Company in substantially the same manner as
nonqualified stock options; and nontransferable restricted stock subject to a
substantial risk of forfeiture results in income recognition equal to the
excess of the fair market value of the stock over the purchase price (if any)
at the time the restrictions lapse (unless the recipient elects to accelerate
recognition as of the date of grant); in each of the foregoing cases, the
Company will generally have (at the time the participant recognizes income) a
corresponding deduction.
If, as a result of a change in control event, a participant's options or
SARs or other rights become immediately exercisable, or restrictions
immediately lapse on an award, or cash, shares or other benefits covered by
another type of award are immediately vested or issued, the additional economic
value, if any, attributable to the acceleration or issuance may be deemed a
"parachute payment" under Section 280G of the Code. In such case, the
participant may be subject to a 20% non-deductible excise tax as to all or a
portion of such economic value, in addition to any income tax payable. The
Company will not be entitled to a deduction for that portion of any parachute
payment that is subject to the excise tax.
Notwithstanding any of the foregoing discussions with respect to the
deductibility of compensation under the Plan, Section 162(m) would render
non-deductible to the Company certain compensation in excess of $1,000,000 in
any year to the Named Executive Officers, unless such excess compensation is
"performance-based" (as defined) or is otherwise exempt from Section 162(m).
The applicable conditions of an exemption for a performance-based compensation
plan include, among others, a requirement that the stockholders approve the
material terms of the plan. Stock options, SARs and certain (but not all) other
types of awards that may be granted to executive officers as contemplated by
the Plan are intended to qualify for the exemption for performance-based
compensation under Section 162(m).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1999 LONG
TERM PERFORMANCE PLAN.
STOCKHOLDER PROPOSALS
Any Stockholder desiring to submit a proposal to be presented for
consideration in the Company's 2000 Proxy Statement must submit such proposal
to the Company no later than the close of business on December 8, 1999. Such
proposals should be sent by Certified Mail -- Return Receipt Requested to the
attention of the Secretary, L-3 Communications Holdings, Inc., 600 Third
Avenue, New York, New York 10016.
Under the current rules of the Securities and Exchange Commission, a
Stockholder submitting a proposal is required to be a record or beneficial
owner of at least 1% or $1,000 in market value of the Company's Common Stock
and to have held such stock for at least one year prior to the date of
submission of the proposal, and he or she must continue to own such securities
through the date on which the meeting is held.
25
<PAGE>
GENERAL AND OTHER MATTERS
At the date of this Proxy Statement, the Company knows of no business that
will be brought before the Annual Meeting other than the matters set forth
above. However, if any further business properly comes before the Annual
Meeting or any adjournments thereof, the persons named as proxies in the
accompanying proxy will vote them in accordance with their discretion and
judgment on such matters.
The Company has herewith provided each Stockholder whose proxy is being
solicited hereby, a copy of the Company's 1998 Annual Report, including
financial statements. Written requests for additional copies should be directed
to: Corporate Communications, L-3 Communications Holdings, Inc., 600 Third
Avenue, New York, New York 10016.
PLEASE COMPLETE, DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED REPLY ENVELOPE. NO POSTAGE IS REQUIRED IF RETURNED IN THE ACCOMPANYING
ENVELOPE AND MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
[GRAPHIC OMITTED]
Christopher C. Cambria
Vice President, Secretary and General
Counsel
New York, New York
April 6, 1999
26
<PAGE>
ANNEX A
L-3 COMMUNICATIONS HOLDINGS, INC.
1999 LONG TERM PERFORMANCE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
SECTION 1. Purpose ....................................................... A-2
SECTION 2. Definitions; Rules of Construction ............................ A-2
SECTION 3. Eligibility ................................................... A-3
SECTION 4. Awards ........................................................ A-4
SECTION 5. Shares of Stock and Share Units Available Under Plan .......... A-6
SECTION 6. Award Agreements .............................................. A-7
SECTION 7. Adjustments; Change in Control; Acquisitions .................. A-8
SECTION 8. Administration ................................................ A-10
SECTION 9. Amendment and Termination of this Plan ........................ A-11
SECTION 10. Miscellaneous ................................................. A-11
</TABLE>
A-1
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC.
1999 LONG TERM PERFORMANCE PLAN
SECTION 1. PURPOSE.
The purpose of this Plan is to benefit the Corporation's stockholders by
encouraging high levels of performance by individuals who contribute to the
success of the Corporation and its Subsidiaries and to enable the Corporation
and its Subsidiaries to attract, motivate, retain and reward talented and
experienced individuals. This purpose is to be accomplished by providing
eligible individuals with an opportunity to obtain or increase a proprietary
interest in the Corporation and/or by providing eligible individuals with
additional incentives to join or remain with the Corporation and its
Subsidiaries.
SECTION 2. DEFINITIONS; RULES OF CONSTRUCTION.
(a) Defined Terms. The terms defined in this Section shall have the
following meanings for purposes of this Plan:
"Award" means an award granted pursuant to Section 4.
"Award Agreement" means an agreement described in Section 6 entered into
between the Corporation and a Participant, setting forth the terms and
conditions of an Award granted to a Participant.
"Beneficiary" means a person or persons (including a trust or trusts)
validly designated by a Participant or, in the absence of a valid
designation, entitled by will or the laws of descent and distribution, to
receive the benefits specified in the Award Agreement and under this Plan
in the event of a Participant's death.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Cash Flow" means cash and cash equivalents derived from either (i) net
cash flow from operations or (ii) net cash flow from operations, financings
and investing activities, as determined by the Committee at the time an
Award is granted.
"Change in Control" means change in control as defined in Section 7(c).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Committee described in Section 8(a).
"Corporation" means L-3 Communications Holdings, Inc.
"Employee" means any person, including an officer (whether or not also a
director) in the regular full-time employment of the Corporation or any of
its Subsidiaries who, in the opinion of the Committee is, or is expected to
be, primarily responsible for the management, growth or protection of some
part or all of the business of the Corporation or any of its Subsidiaries,
but excludes, in the case of an Incentive Stock Option, an Employee of any
Subsidiary that is not a "subsidiary corporation" of the Corporation as
defined in Code Section 424(f).
"EPS" means earnings per common share on a fully diluted basis determined
by dividing (a) net earnings, less dividends on preferred stock of the
Corporation by (b) the weighted average number of common shares and common
share equivalents outstanding.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Executive Officer" means executive officer as defined in Rule 3b-7 under
the Exchange Act. If the Board has designated the executive officers of the
Corporation for purposes of reporting under the Exchange Act, the
designation shall be conclusive for purposes of this Plan.
"Fair Market Value" means the closing price of the relevant security as
reported on the composite tape of New York Stock Exchange issues (or if, at
the date of determination, the security
A-2
<PAGE>
is not so listed or if the principal market on which it is traded is not
the New York Stock Exchange, such other reporting system as shall be
selected by the Committee) on the relevant date, or, if no sale of the
security is reported for that date, the next preceding day for which there
is a reported sale. The Committee shall determine the Fair Market Value of
any security that is not publicly traded, using criteria as it shall
determine, in its sole direction, to be appropriate for the valuation.
"Insider" means any person who is subject to Section 16(b) of the
Exchange Act.
"Option" means a Nonqualified Stock Option or an Incentive Stock Option
as described in Section 4(a)(1) or (2).
"Participant" means a person who is granted an Award, pursuant to this
Plan, that remains outstanding.
"Performance-Based Awards" is defined in Section 4(b).
"Performance Goal" means EPS or ROE or Cash Flow or Total Stockholder
Return or such other Performance Goal or Goals that the Committee in its
sole discretion establishes in accordance with the requirements of Section
162(m) of the Code for which applicable shareholder approval requirements
are met, and "Performance Goals" means any combination thereof.
"ROE" means consolidated net income of the Corporation (less preferred
dividends), divided by the average consolidated common stockholders'
equity.
"Rule 16b-3" means Rule 16b-3 under Section 16 of the Exchange Act, as
amended from time to time.
"Share Units" means the number of units under an Award that is payable
solely in cash or is actually paid in cash, determined by reference to the
number of shares of Stock by which the Award is measured.
"Stock" means shares of Common Stock of the Corporation, par value $0.01
per share, subject to adjustments made under Section 7 or by operation of
law.
"Subsidiary" means, as to any person, any corporation, association,
partnership, joint venture or other business entity of which 50% or more of
the voting stock or other equity interests (in the case of entities other
than corporations), is owned or controlled (directly or indirectly) by that
entity, or by one or more of the Subsidiaries of that entity, or by a
combination thereof.
"Total Stockholder Return" means with respect to the Corporation or other
entities (if measured on a relative basis), the (1) change in the market
price of its common stock (as quoted in the principal market on which it is
traded as of the beginning and ending of the period) plus dividends and
other distributions paid, divided by (ii) the beginning quoted market
price, all of which is adjusted for any changes in equity structure,
including but not limited to stock splits and stock dividends.
(b) Financial and Accounting Terms. Except as otherwise expressly provided
or the context otherwise requires, financial and accounting terms, including
terms defined herein as Performance Goals, are used as defined for purposes of,
and shall be determined in accordance with, generally accepted accounting
principles and as derived from the audited consolidated financial statements of
the Corporation, prepared in the ordinary course of business.
(c) Rules of Construction. For purposes of this Plan and the Award
Agreements, unless otherwise expressly provided or the context otherwise
requires, the terms defined in this Plan include the plural and the singular,
and pronouns of either gender or neuter shall include, as appropriate, the
other pronoun forms.
SECTION 3. ELIGIBILITY.
Any one or more Awards may be granted to any Employee, or any non-Employee
who provides services to or on behalf of the Corporation or any of its
Subsidiaries, who is designated by the Committee to receive an Award.
A-3
<PAGE>
SECTION 4. AWARDS.
(a) Type of Awards. The Committee may from time to time grant any of the
following types of Awards, either singly, in tandem or in combination with
other Awards:
(1) Nonqualified Stock Options. A Nonqualified Stock Option is an Award
in the form of an option to purchase Stock that is not intended to comply
with the requirements of Code Section 422. The exercise price of each
Nonqualified Stock Option granted under this Plan shall be not less than
the Fair Market Value of the Stock on the date that the Option is granted.
All Nonqualified Stock Options granted in accordance with this clause (1)
shall be treated as Performance-Based Awards subject to the applicable
restrictions of Section 4(b).
(2) Incentive Stock Options. An Incentive Stock Option is an Award in the
form of an option to purchase Stock that is intended to comply with the
requirements of Code Section 422 or any successor section of the Code. The
exercise price of each Incentive Stock Option granted under this Plan shall
be not less than the Fair Market Value of the Stock on the date the Option
is granted. If a Participant on the date an Incentive Stock Option is
granted owns, directly or indirectly within the meaning of Section 424(d)
of the Code, stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation, the
exercise price per share of the Incentive Stock Option shall not be less
than one hundred and ten percent (110%) of the Fair Market Value per share
of the Stock at the time of grant, and such Incentive Stock Option shall
not be exercisable after the expiration of five (5) years from the date
such Incentive Stock Option is granted. To the extent that the aggregate
"fair market value" of Stock with respect to which one or more incentive
stock options first become exercisable by a Participant in any calendar
year exceeds $100,000, taking into account both Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock options
under all other plans of the Corporation or of other entities referenced in
Code Section 422(d)(1), the options shall be treated as Nonqualified Stock
Options. For this purpose, the "fair market value" of the Stock subject to
options shall be determined as of the date the Options were awarded. All
Incentive Stock Options granted in accordance with this clause (2) shall be
treated as Performance-Based Awards subject to the applicable restrictions
of Section 4(b).
(3) Stock Appreciation Rights. A Stock Appreciation Right is an Award in
the form of a right to receive, upon surrender of the right, but without
other payment, an amount based on appreciation in the value of Stock over a
base price established in the Award, payable in cash, Stock or such other
form or combination of forms of payout, at times and upon conditions (which
may include a Change in Control), as may be approved by the Committee. The
minimum base price of a Stock Appreciation Right granted under this Plan
shall be not less than the Fair Market Value of the underlying Stock on the
date the Stock Appreciation Right is granted or, in the case of a Stock
Appreciation Right related to an Option (whether already outstanding or
concurrently granted), the exercise price of the related Option. All Stock
Appreciation Rights granted in accordance with this clause (3) shall be
treated as Performance-Based Awards subject to the applicable restrictions
under Section 4(b).
(4) Restricted Stock. Restricted Stock is an Award of shares of Stock of
the Corporation that are issued, but subject to restrictions on transfer
and/or such other restrictions on incidents of ownership as the Committee
may determine. Restricted Stock Awards to Executive Officers that are
either granted or vest upon attainment of one or more of the Performance
Goals shall only be granted as Performance-Based Awards under Section 4(b).
(5) Other Share-Based Awards. The Committee may from time to time grant
Awards under this Plan that provide the Participants with Stock or the
right to purchase Stock, or provide other incentive Awards (including, but
not limited to phantom stock or units, performance stock or units, bonus
stock, dividend equivalent units, or similar securities or rights) that
have a value derived from the value of, or an exercise or conversion
privilege at a price related to, or that are otherwise payable in shares of
Stock. The Awards shall be in a form determined by the Committee, provided
that the Awards shall not be inconsistent with the other express terms of
this Plan. Awards under this Section 4(a)(5) to Executive Officers that are
either granted or become vested, exercisable or payable based on attainment
of one or more of the Performance Goals shall only be granted as
Performance-Based Awards under Section 4(b).
A-4
<PAGE>
(b) Special Performance-Based Awards. Without limiting the generality of
the foregoing, any of the type of Awards listed in Section 4(a) may be granted
as awards that satisfy the requirements for "performance-based compensation"
within the meaning of Code Section 162(m) ("Performance-Based Awards"), the
grant, vesting, exercisability or payment of which depends on the degree of
achievement of the Performance Goals relative to preestablished targeted levels
for the Corporation or any of its Subsidiaries, divisions or other business
units. Notwithstanding anything contained in this Section 4(b) to the contrary,
any Option or Stock Appreciation Right granted in accordance with paragraph (a)
shall be subject only to the requirements of clauses (1) and (3)(A) below in
order for such Awards to satisfy the requirements for Performance-Based Awards
under this Section 4(b) (with such Awards hereinafter referred to as a
"Qualifying Option" or a "Qualifying Stock Appreciation Right", respectively).
With the exception of any Qualifying Option or Qualifying Stock Appreciation
Right, an Award that is intended to satisfy the requirements of this Section
4(b) shall be designated as a Performance-Based Award at the time of grant.
(1) Eligible Class. The eligible class of persons for Awards under this
Section 4(b) shall be all Employees.
(2) Performance Goals. The performance goals for any Awards under this
Section 4(b) (other than Qualifying Options and Qualifying Stock
Appreciation Rights) shall be, on an absolute or relative basis, one or
more of the Performance Goals. The specific performance target(s) with
respect to Performance Goal(s) must be established by the Committee in
advance of the deadlines applicable under Code Section 162(m) and while the
performance relating to the Performance Goal(s) remains substantially
uncertain.
(3) Individual Limits. Subject to adjustment as provided in Section 7,
(A) the maximum number of shares of Stock with respect to which Options and
Stock Appreciation Rights may be granted to any employee in any fiscal year
shall be 500,000 and (B) the maximum number of shares of Stock with respect
to which Performance-Based Awards (other than Qualifying Options and
Qualifying Stock Appreciation Rights) may be granted to any Employee in any
fiscal year shall be 500,000 or, in the event such Performance-Based Award
is paid in cash, the equivalent cash value thereof as of the date of
payment of such Performance-Based Award. Awards that are cancelled or
repriced during the year shall be counted against this limit to the extent
required by Code Section 162(m).
(4) Committee Certification. Before any Performance-Based Award under
this Section 4(b) (other than Qualifying Options and Qualifying Stock
Appreciation Rights) is paid, the Committee must certify in writing (by
resolution or otherwise) that the applicable Performance Goal(s) and any
other material terms of the Performance-Based Award were satisfied;
provided, however, that a Performance-Based Award may be paid without
regard to the satisfaction of the applicable Performance Goal in the event
of a Change in Control as provided in Section 7(b).
(5) Terms and Conditions of Awards; Committee Discretion to Reduce
Performance Awards. The Committee shall have discretion to determine the
conditions, restrictions or other limitations, in accordance with the terms
of this Plan and Code Section 162(m), on the payment of individual
Performance-Based Awards under this Section 4(b). To the extent set forth
in an Award Agreement, the Committee may reserve the right to reduce the
amount payable in accordance with any standards or on any other basis
(including the Committee's discretion), as the Committee may impose.
(6) Adjustments for Material Changes. In the event of (i) a change in
corporate capitalization, a corporate transaction or a complete or partial
corporate liquidation, or (ii) any extraordinary gain or loss or other
event that is treated for accounting purposes as an extraordinary item
under generally accepted accounting principles, or (iii) any material
change in accounting policies or practices affecting the Corporation and/or
the Performance Goals or targets, then, to the extent any of the foregoing
events (or a material effect thereof) was not anticipated at the time the
targets were set, the Committee may make adjustments to the Performance
Goals and/or targets, applied as of the date of the event, and based solely
on objective criteria, so as to neutralize, in the Committee's judgment,
the effect of the event on the applicable Performance-Based Award.
A-5
<PAGE>
(7) Interpretation. Except as specifically provided in this Section 4(b),
the provisions of this Section 4(b) shall be interpreted and administered
by the Committee in a manner consistent with the requirements for exemption
of Performance-Based Awards granted to Executive Officers as
"performance-based compensation" under Code Section 162(m) and regulations
and other interpretations issued by the Internal Revenue Service
thereunder.
(8) Maximum Term of Awards. No Award that contemplates exercise or
conversion may be exercised or converted to any extent, and no other Award
that defers vesting, shall remain outstanding and unexercised, unconverted
or unvested more than ten years after the date the Award was initially
granted.
SECTION 5. SHARES OF STOCK AND SHARE UNITS AVAILABLE UNDER PLAN.
(a) Aggregate Share Limit. The maximum number of shares of Stock that may
be issued pursuant to all Awards (including Incentive Stock Options) is
1,000,000, subject to adjustment as provided in this Section 5 or Section 7.
Any Restricted Stock grant may not exceed, in aggregate with all other
Restricted Stock grants under this Plan, two percent of the shares of Stock
outstanding at the time of grant.
(b) Aggregate Share Unit Limit. The maximum number of Share Units that may
be paid pursuant to all Awards shall not be more than 750,000, subject to
adjustment as provided in this Section 5 or Section 7. Notwithstanding the
foregoing, if an Award paid or payable in Units satisfies the requirements for
an exclusion from the definition of a derivative security under Rule 16a-l(c)
that does not require that the Award be made under a Rule 16b-3 plan, the Share
Units that may be paid under the Award shall not be counted against the Share
Unit limit of this Section 5(b).
(c) Reissue of Shares and Share Units. Any unexercised, unconverted or
undistributed portion of any expired, cancelled, terminated or forfeited Award,
or any alternative form of consideration under an Award that is not paid in
connection with the settlement of an Award or any portion of an Award, shall
again be available for Award under Section 5(a) or 5(b), as applicable, whether
or not the Participant has received benefits of ownership (such as dividends or
dividend equivalents or voting rights) during the period in which the
Participant's ownership was restricted or otherwise not vested. Shares of Stock
that are issued pursuant to Awards and subsequently reacquired by the
Corporation pursuant to the terms and conditions of the Awards shall be
available for reissuance under the Plan.
(d) Interpretive Issues. Additional rules for determining the number of
shares of Stock or Share Units authorized under this Plan may be adopted by the
Committee, as it deems necessary or appropriate.
(e) Treasury Shares; No Fractional Shares. The Stock which may be issued
(which term includes Stock reissued or otherwise delivered) pursuant to an
Award under this Plan may be treasury or authorized but unissued Stock or Stock
acquired, subsequently or in anticipation of a transaction under this Plan, in
the open market or in privately negotiated transactions to satisfy the
requirements of this Plan. No fractional shares shall be issued but fractional
interests may be accumulated.
(f) Consideration. The Stock issued under this Plan maybe issued (subject
to Section 10(d)) for any lawful form of consideration, the value of which
equals the par value of the Stock or such greater or lesser value as the
Committee, consistent with Sections 10(d) and 4(a)(1), (2) and (3), may
require.
(g) Purchase or Exercise Price; Withholding. The exercise or purchase
price (if any) of the Stock issuable pursuant to any Award and any withholding
obligation under applicable tax laws shall be paid in cash or, subject to the
Committee's express authorization and the restrictions, conditions and
procedures as the Committee may impose, any one or combination of (i) cash,
(ii) the delivery of shares of Stock, (iii) a reduction in the amount of Stock
or other amounts otherwise issuable or payable pursuant to such Award, or (iv)
the delivery of a promissory note, or other obligation for the future payment
in money, the terms and conditions of which shall be determined (subject to
Section 10(d)) by the Committee. In the case of a payment by the means
described in clause (ii) or (iii) above, the Stock to be so delivered or offset
shall be determined by reference to the Fair Market Value of the Stock on the
date as of which the payment or offset is made.
A-6
<PAGE>
(h) Cashless Exercise. The Committee may permit the exercise of the Award
and payment of any applicable withholding tax in respect of an Award by
delivery of written notice, subject to the Corporation's receipt of a third
party payment in full in cash for the exercise price and the applicable
withholding prior to issuance of Stock, in the manner and subject to the
procedures as may be established by the Committee.
SECTION 6. AWARD AGREEMENTS.
Each Award under this Plan shall be evidenced by an Award Agreement in a
form approved by the Committee setting forth the number of shares of Stock or
Share Units, as applicable, subject to the Award, and the price (if any) and
term of the Award and, in the case of Performance-Based Awards, the applicable
Performance Goals. The Award Agreement shall also set forth (or incorporate by
reference) other material terms and conditions applicable to the Award as
determined by the Committee consistent with the limitations of this Plan.
(a) Incorporated Provisions. Award Agreements shall be subject to the
terms of this Plan and shall be deemed to include the following terms, unless
the Committee in the Award Agreement otherwise (consistent with applicable
legal considerations) provides:
(1) Transferability: An Award shall not be assignable nor transferable,
except by will or by the laws of descent and distribution, and during the
lifetime of a Participant the Award shall be exercised only by such
Participant or by his or her guardian or legal representative, except that
Awards other than Incentive Stock Options may be transferred to and
exercised by a family member or family members of a Participant, or
transferred to an irrevocable trust or trusts established for the benefit
of a Participant's family members, during the Participant's lifetime. The
designation of a Beneficiary hereunder shall not constitute a transfer
prohibited by the foregoing provisions.
(2) Rights as Stockholder: A Participant shall have no rights as a holder
of Stock with respect to any unissued securities covered by an Award until
the date the Participant becomes the holder of record of these securities.
Except as provided in Section 7, no adjustment or other provision shall be
made for dividends or other stockholder rights, except to the extent that
the Award Agreement provides for dividend equivalents or similar economic
benefits.
(3) Withholding: The Participant shall be responsible for payment of any
taxes or similar charges required by law to be withheld from an Award or an
amount paid in satisfaction of an Award and these obligations shall be paid
by the Participant on or prior to the payment of the Award. In the case of
an Award payable in cash, the withholding obligation shall be satisfied by
withholding the applicable amount and paying the net amount in cash to the
Participant. In the case of an Award paid in shares of Stock, a Participant
shall satisfy the withholding obligation as provided in Section 5(g).
(4) Option Holding Period: Subject to the authority of the Committee
under Section 7, a minimum six-month period shall elapse between the date
of initial grant of any Option and the sale of the underlying shares of
Stock, and the Corporation may impose legend and other restrictions on the
Stock issued on exercise of the Options to enforce this requirement.
(b) Other Provisions. Award Agreements may include other terms and
conditions as the Committee shall approve, including but not limited to the
following:
(1) Termination of Employment: A provision describing the treatment of an
Award in the event of the retirement, disability, death or other
termination of a Participant's employment with or services to the Company,
including any provisions relating to the vesting, exercisability,
forfeiture or cancellation of the Award in these circumstances, subject, in
the case of Performance-Based Awards, to the requirements for
"performance-based compensation" under Code Section 162(m).
(2) Vesting; Effect of Termination; Change in Control: Any other terms
consistent with the terms of this Plan as are necessary and appropriate to
effect the Award to the Participant, including but not limited to the
vesting provisions, any requirements for continued employment, any other
restrictions or conditions (including performance requirements) of the
Award, and the method by which (consistent with Section 7) the restrictions
or conditions lapse, and the effect on the Award of a Change in Control.
A-7
<PAGE>
(3) Replacement and Substitution: Any provisions permitting or requiring
the surrender of outstanding Awards or securities held by the Participant
in whole or in part in order to exercise or realize rights under or as a
condition precedent to other Awards, or in exchange for the grant of new or
amended Awards under similar or different terms.
(4) Reloading: Any provisions for successive or replenished Awards,
including but not limited to reload Options.
(c) Contract Rights, Forms and Signatures. Any obligation of the
Corporation to any Participant with respect to an Award shall be based solely
upon contractual obligations created by this Plan and an Award Agreement. No
Award shall be enforceable until the Award Agreement or a receipt has been
signed by the Participant and on behalf of the Corporation by an Executive
Officer (other than the recipient) or his or her delegate. By executing the
Award Agreement or receipt, a Participant shall be deemed to have accepted and
consented to the terms of this Plan and any action taken in good faith under
this Plan by and within the discretion of the Committee, the Board of Directors
or their delegates. Unless the Award Agreement otherwise expressly provides,
there shall be no third party beneficiaries of the obligations of the
Corporation to the Participant under the Award Agreement.
SECTION 7. ADJUSTMENTS; CHANGE IN CONTROL; ACQUISITIONS.
(a) Adjustments. If there shall occur any recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse stock split,
merger, combination, consolidation, or other reorganization or any
extraordinary dividend or other extraordinary distribution in respect of the
Stock (whether in the form of cash, Stock or other property), or any split-up,
spin-off, extraordinary redemption, or exchange of outstanding Stock, or there
shall occur any other similar corporate transaction or event in respect of the
Stock, or a sale of substantially all the assets of the Corporation as an
entirety, then the Committee shall, in the manner and to the extent, if any, as
it deems appropriate and equitable to the Participants and consistent with the
terms of this Plan, and taking into consideration the effect of the event on
the holders of the Stock:
(1) proportionately adjust any or all of
(A) the number and type of shares of Stock and Share Units which
thereafter may be made the subject of Awards (including the specific maxima
and numbers of shares of Stock or Share Units set forth elsewhere in this
Plan),
(B) the number and type of shares of Stock, other property, Share Units
or cash subject to any or all outstanding Awards,
(C) the grant, purchase or exercise price, or conversion ratio of any or
all outstanding Awards, or of the Stock, other property or Share Units
underlying the Awards,
(D) the securities, cash or other property deliverable upon exercise or
conversion of any or all outstanding Awards,
(E) subject to Section 4(b), the performance targets or standards
appropriate to any outstanding Performance-Based Awards, or
(F) any other terms as are affected by the event; and
(2) subject to any applicable limitations in the case of a transaction to
be accounted for as a pooling of interests under generally accepted accounting
principles, provide for
(A) an appropriate and proportionate cash settlement or distribution, or
(B) the substitution or exchange of any or all outstanding Awards, or the
cash, securities or property deliverable on exercise, conversion or vesting
of the Awards.
Notwithstanding the foregoing, in the case of an Incentive Stock Option,
no adjustment shall be made which would cause this Plan to violate Section
424(a) of the Code or any successor provisions thereto, without the written
consent of the Participant adversely affected thereby. The Committee may act
prior
A-8
<PAGE>
to an event described in this paragraph (a) (including at the time of an Award
by means of more specific provisions in the Award Agreement) if deemed
necessary or appropriate to permit the Participant to realize the benefits
intended to be conveyed by an Award in respect of the Stock in the case of an
event described in paragraph (a).
(b) Change in Control. The Committee may, in the Award Agreement, provide
for the effect of a Change in Control on an Award. Such provisions may include,
but are not limited to any one or more of the following with respect to any or
all Awards: (i) the specific consequences of a Change in Control on the Awards;
(ii) a reservation of the Committee's right to determine in its discretion at
any time that there shall be full acceleration or no acceleration of benefits
under the Awards; (iii) that only certain or limited benefits under the Awards
shall be accelerated; (iv) that the Awards shall be accelerated for a limited
time only; or (v) that acceleration of the Awards shall be subject to
additional conditions precedent (such as a termination of employment following
a Change in Control).
In addition to any action required or authorized by the terms of an Award,
the Committee may take any other action it deems appropriate to ensure the
equitable treatment of Participants in the event of or in anticipation of a
Change in Control, including but not limited to any one or more of the
following with respect to any or all Awards: (i) the acceleration or extension
of time periods for purposes of exercising, vesting in, or realizing gain from,
the Awards; (ii) the waiver of conditions on the Awards that were imposed for
the benefit of the Corporation, (iii) provision for the cash settlement of the
Awards for their equivalent cash value, as determined by the Committee, as of
the date of the Change in Control; or (iv) such other modification or
adjustment to the Awards as the Committee deems appropriate to maintain and
protect the rights and interests of Participants upon or following the Change
in Control. The Committee also may accord any Participant a right to refuse any
acceleration of exercisability, vesting or benefits, whether pursuant to the
Award Agreement or otherwise, in such circumstances as the Committee may
approve.
Notwithstanding the foregoing provisions of this Section 7(b) or any
provision in an Award Agreement to the contrary, (i) in no event shall the
Committee be deemed to have discretion to accelerate or not accelerate or make
other changes in or to any or all Awards, in respect of a transaction, if such
action or inaction would be inconsistent with or would otherwise frustrate the
intended accounting for a proposed transaction as a pooling of interests under
generally accepted accounting principles; and (ii) if any Award to any Insider
is accelerated to a date that is less than six months after the date of the
Award, the Committee may prohibit a sale of the underlying Stock (other than a
sale by operation or law in exchange for or through conversion into other
securities), and the Corporation may impose legend and other restrictions on
the Stock to enforce this prohibition.
(c) Change in Control Definition. For purposes of this Plan, with respect
to any Award other than an Award issued pursuant to an Award Agreement that
separately defines the term "change of control," a change of control shall
include and be deemed to occur upon the following events:
(1) The acquisition by any person or group (including a group within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, other than the
Corporation or any of its Subsidiaries, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 51 percent or more of the
combined voting power of the Corporation's then outstanding voting
securities, other than by any employee benefit plan maintained by the
Corporation;
(2) The sale of all or substantially all of the assets of the Corporation
or of L-3 Communications Corporation or any successor thereto; or
(3) The election, including the filling of vacancies, during any period
of 24 months or less, of 50 percent or more, of the members of the Board,
without the approval of Continuing Directors, as constituted at the
beginning of such period. "Continuing Directors" shall mean any director of
the Company who either (i) is a member of the Board on the date of grant of
the relevant Award, or (ii) is nominated for election to the Board by a
majority of the Board which is comprised of Directors who were, at the time
of such nomination, Continuing directors.
A-9
<PAGE>
(d) Business Acquisitions. Awards may be granted under this Plan on the
terms and conditions as the Committee considers appropriate, which may differ
from those otherwise required by this Plan to the extent necessary to reflect a
substitution for or assumption of stock incentive awards held by employees of
other entities who become employees of the Corporation or a Subsidiary as the
result of a merger of the employing entity with, or the acquisition of the
property or stock of the employing entity by, the Corporation or a Subsidiary,
directly or indirectly.
SECTION 8. ADMINISTRATION.
(a) Committee Authority and Structure. This Plan and all Awards granted
under this Plan shall be administered by the Compensation Committee of the
Board or such other committee of the Board or subcommittee of the Compensation
Committee as may be designated by the Board and constituted so as to permit
this Plan to comply with the disinterested administration requirements of Rule
16b-3 under the Exchange Act and the "outside director" requirement of Code
Section 162(m). The members of the Committee shall be designated by the Board.
A majority of the members of the Committee (but not fewer than two) shall
constitute a quorum. The vote of a majority of a quorum or the unanimous
written consent of the Committee shall constitute action by the Committee.
(b) Selection and Grant. The Committee shall have the authority to
determine the individuals (if any) to whom Awards will be granted under this
Plan, the type of Award or Awards to be made, and the nature, amount, pricing,
timing, and other terms of Awards to be made to any one or more of these
individuals, subject to the terms of this Plan.
(c) Construction and Interpretation. The Committee shall have the power to
interpret and administer this Plan and Award Agreements, and to adopt, amend
and rescind related rules and procedures. All questions of interpretation and
determinations with respect to this Plan, the number of shares of Stock, Stock
Appreciation Rights, or units or other Awards granted, and the terms of any
Award Agreements, the adjustments required or permitted by Section 7, and other
determinations hereunder shall be made by the Committee and its determination
shall be final and conclusive upon all parties in interest. In the event of any
conflict between an Award Agreement and any non-discretionary provisions of
this Plan, the terms of this Plan shall govern.
(d) Express Authority to Change Terms of Awards. The Committee may at any
time alter or amend any or all Award Agreements under this Plan in any manner
that would be authorized for a new Award under this Plan, including but not
limited to any manner set forth in Section 8(d) (subject to any applicable
limitations thereunder) except that no amendment may reduce the exercise price
or base price of an Award to a price less than Fair Market Value on the date of
the amendment. Without limiting the Committee's authority under this Plan
(including Sections 7 and 9), but subject to any express limitations of this
Plan (including under Sections 7 and 9), the Committee shall have the authority
to accelerate the exercisability or vesting of an Award, to extend the term or
waive early termination provisions of an Award (subject to the maximum ten-year
term under Section 4(b)), to waive the Corporation's rights with respect to an
Award or restrictive conditions of an Award (including forfeiture conditions),
and, except as set forth above, to reduce by amendment the exercise or purchase
price of an outstanding Award, with or without adjusting any holding period or
other terms of the Award, in any case in such circumstances as the Committee
deems appropriate.
(e) Rule 16b-3 Conditions; Bifurcation of Plan. It is the intent of the
Corporation that this Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
any applicable requirements of Rule 16b-3, so that these persons will be
entitled to the benefits of Rule 16b-3 or other exemptive rules under Section
16 under the Exchange Act and will not be subjected to avoidable liability
thereunder as to Awards intended to be entitled to the benefits of Rule 16b-3.
If any provision of this Plan or of any Award would otherwise frustrate or
conflict with the intent expressed in this Section 8(e), that provision to the
extent possible shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with this
intent, the provision shall be deemed disregarded as to Awards intended as Rule
16b-3 exempt Awards. Notwithstanding anything to the contrary in this Plan, the
provisions of this Plan may at any time be bifurcated by the Board or the
Committee in any manner so that certain provisions of this Plan or any
A-10
<PAGE>
Award Agreement intended (or required in order) to satisfy the applicable
requirements of Rule 16b-3 are only applicable to Insiders and to those Awards
to Insiders intended to satisfy the requirements of Rule 16b-3.
(f) Delegation and Reliance. The Committee may delegate to the officers or
employees of the Corporation the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the effective
administration of this Plan in accordance with its terms and purpose, except
that the Committee may not delegate any discretionary authority to grant or
amend an award or with respect to substantive decisions or functions regarding
this Plan or Awards as these relate to the material terms of Performance-Based
Awards to Executive Officers or to the timing, eligibility, pricing, amount or
other material terms of Awards to Insiders. In making any determination or in
taking or not taking any action under this Plan, the Board and the Committee
may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer, employee or agent of the
Corporation shall be liable for any such action or determination taken or made
or omitted in good faith.
(g) Exculpation and Indemnity. Neither the Corporation nor any member of
the Board of Directors or of the Committee, nor any other person participating
in any determination of any question under this Plan, or in the interpretation,
administration or application of this Plan, shall have any liability to any
party for any action taken or not taken in good faith under this Plan or for
the failure of an Award (or action in respect of an Award) to satisfy Code
requirements as to incentive stock options or to realize other intended tax
consequences, to qualify for exemption or relief under Rule 16b-3 or to comply
with any other law, compliance with which is not required on the part of the
Corporation.
SECTION 9. AMENDMENT AND TERMINATION OF THIS PLAN.
The Board of Directors may at any time amend, suspend or discontinue this
Plan, subject to any stockholder approval that may be required under applicable
law. Notwithstanding the foregoing, no such action by the Board or the
Committee shall, in any manner adverse to a Participant other than as expressly
permitted by the terms of an Award Agreement, affect any Award then outstanding
and evidenced by an Award Agreement without the consent in writing of the
Participant or a Beneficiary, a Participant's family member or a trust
established for the benefit of a Participant's family member entitled to an
Award.
SECTION 10. MISCELLANEOUS.
(a) Unfunded Plans. This Plan shall be unfunded. Neither the Corporation
nor the Board of Directors nor the Committee shall be required to segregate any
assets that may at any time be represented by Awards made pursuant to this
Plan. Neither the Corporation, the Committee, nor the Board of Directors shall
be deemed to be a trustee of any amounts to be paid or securities to be issued
under this Plan.
(b) Rights of Employees.
(1) No Right to an Award. Status as an Employee shall not be construed as
a commitment that any one or more Awards will be made under this Plan to an
Employee or to Employees generally. Status as a Participant shall not
entitle the Participant to any additional Award.
(2) No Assurance of Employment. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon any
Employee or Participant any right to continue in the employ or other
service of the Corporation or any Subsidiary or constitute any contract (of
employment or otherwise) or limit in any way the right of the Corporation
or any Subsidiary to change a person's compensation or other benefits or to
terminate the employment of a person with or without cause.
(c) Effective Date; Duration. This Plan has been adopted by the Board of
Directors of the Corporation. This Plan shall become effective upon and shall
be subject to the approval of the stockholders the Corporation. This Plan shall
remain in effect until any and all Awards under this Plan
A-11
<PAGE>
have been exercised, converted or terminated under the terms of this Plan and
applicable Award Agreements. Notwithstanding the foregoing, no Award may be
granted under this Plan after April 27, 2009. Notwithstanding the foregoing,
any Award granted prior to such date may be amended after such date in any
manner that would have been permitted prior to such date, except that no such
amendment shall increase the number of shares subject to, comprising or
referenced in such Award.
(d) Compliance with Laws. This Plan, Award Agreements, and the grant,
exercise, conversion, operation and vesting of Awards, and the issuance and
delivery of shares of Stock and/or other securities or property or the payment
of cash under this Plan, Awards or Award Agreements, are subject to compliance
with all applicable federal and state laws, rules and regulations (including
but not limited to state and federal insider trading, registration, reporting
and other securities laws and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions (and the person acquiring such securities shall, if requested by
the Corporation, provide such evidence, assurance and representations to the
Corporation as to compliance with any thereof) as the Corporation may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
(e) Applicable Law. This Plan, Award Agreements and any related documents
and matters shall be governed in accordance with the laws of the State of New
York, except as to matters of Federal law.
(f) Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed
to limit the authority of the Corporation, the Board or the Committee to grant
awards or authorize any other compensation, with or without reference to the
Stock, under any other plan or authority.
A-12
<PAGE>
PROXY
L-3 COMMUNICATIONS HOLDINGS, INC.
P
R
O
X
Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF L-3
COMMUNICATIONS HOLDINGS, INC. (THE "COMPANY") FOR THE ANNUAL MEETING
OF STOCKHOLDERS OF THE COMPANY TO BE HELD APRIL 27, 1999, AND SHOULD
BE READ IN CONJUNCTION WITH THE NOTICE OF MEETING AND PROXY STATEMENT
PERTAINING THERETO.
The undersigned shareholder hereby appoints Frank C. Lanza, Robert V.
LaPenta, Christopher C. Y Cambria or Michael T. Strianese, or any one
of them, or instead of any of them the undersigned hereby appoints,
attorneys and agents, or proxy or proxies, with full power of
substitution, in the name and on behalf of the undersigned, to
attend, vote and act at the Annual Meeting of Stockholders to be held
on April 27, 1999, at the Rihga Royal Hotel, 151 West 54th Street,
New York, New York, and at any and all adjournments thereof, upon the
matters set forth below and in accordance with their discretion on
any other matters that may properly come before the meeting or
adjournment thereof:
A STOCKHOLDER DESIRING TO APPOINT SOME OTHER PERSON, WHO NEED NOT BE
A STOCKHOLDER, TO REPRESENT HIM AT THE MEETING MAY DO SO by inserting
such other person's name in the space provided above.
This proxy, when properly executed, will be voted in accordance with
the directions of the undersigned shareholder. IN THE ABSENCE OF SUCH
DIRECTIONS, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ON THE
REVERSE HEREOF, FOR THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS AND FOR THE COMPANY'S 1999 LONG TERM PERFORMANCE
PLAN.
PLEASE COMPLETE, DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY
IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF RETURNED IN THE ENVELOPE AND
MAILED IN THE UNITED STATES.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- FOLD AND DETACH HERE -
<PAGE>
---
3 2 1 8
X PLEASE MARK YOUR
CHOICES LIKE THIS IN
BLUE OR BLACK INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS A, B AND C
- -----------------------------------------------------------------------------
(a) Election of FOR WITHHELD
Directors [ ] [ ]
FOR, except vote withheld from the following nominee(s):
Class I Nominees:
Frank C. Lanza, Robert V. LaPenta, Robert M.
Millard and General John M. Shalikashvili
Class II Nominees:
David J. Brand, Thomas A. Corcoran, John E.
Montague and Alan H. Washkowitz
Class III Nominees:
Alberto M. Finali, Eliot M. Fried
and Frank H. Menaker, Jr.
(b) Appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP [ ] [ ] [ ]
(c) Ratification and FOR AGAINST ABSTAIN
Approval of the Company's 1999 [ ] [ ] [ ]
Long Term Performace Plan
Note: Please sign exactly as names appears hereon. When signing as attorney,
executor, administrator, trustee, authorized officer of a corporation or in any
representative capacity, please insert your named and title as such. Joint
owners should each sign individually.
- ----------------------------------------------------
- ----------------------------------------------------
SIGNATURE OF SHAREHOLDER(S) DATE
(If not dated, this proxy is deemed to bear the date when mailed by the
Company.)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- FOLD AND DETACH HERE -
