AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2002
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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L-3 COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
13-3937436
(I.R.S. Employer Identification Number)
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(212) 697-1111
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------
SEE TABLE OF ADDITIONAL REGISTRANTS
---------------
CHRISTOPHER C. CAMBRIA, ESQ.
600 THIRD AVENUE
NEW YORK, NY 10016
(212) 697-1111
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
---------------
Copy to:
VINCENT PAGANO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017-3954
(212) 455-2000
---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________________
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________________________
---------------
CALCULATION OF REGISTRATION FEE

====================================================================================================================================
PROPOSED MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------------------

7 5/8% Series B Senior Subordinated Notes due 2012(2) .... $750,000,000 100% $750,000,000 $69,000.00
- ------------------------------------------------------------------------------
Guarantees of 7 5/8% Series B Senior Subordinated Notes
due 2012 ............................................... (2) (2) (2) None(2)
====================================================================================================================================

- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.

(2) No separate consideration will be received for the guarantees. Pursuant
to Rule 457(n) of the Securities Act of 1933, as amended, there is no
filing fee with respect to the guarantees.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
---------------
================================================================================

TABLE OF ADDITIONAL REGISTRANTS

STATE OR OTHER ADDRESS, INCLUDING ZIP CODE,
JURISDICTION OF IRS EMPLOYER AND TELEPHONE NUMBER, INCLUDING
EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------------------------ ------------------ ---------------- --------------------------------

AMI Instruments, Inc. Oklahoma 73-1122637 600 Third Avenue
New York, NY 10016
(212) 697-1111
Apcom, Inc. Maryland 52-1291447 600 Third Avenue
New York, NY 10016
(212) 697-1111
Celerity Systems Incorporated California 77-0365380 600 Third Avenue
New York, NY 10016
(212) 697-1111
Coleman Research Corporation Florida 59-2039476 600 Third Avenue
New York, NY 10016
(212) 697-1111
EER Systems, Inc. Virginia 54-1349668 600 Third Avenue
New York, NY 10016
(212) 697-1111
Electrodynamics, Inc Arizona 36-3140903 600 Third Avenue
New York, NY 10016
(212) 697-1111
Henschel, Inc. Delaware 23-2554418 600 Third Avenue
New York, NY 10016
(212) 697-1111
Hygienetics Environmental Services, Inc. Delaware 13-3992505 600 Third Avenue
New York, NY 10016
(212) 697-1111
Interstate Electronics Corporation California 95-1912832 600 Third Avenue
New York, NY 10016
(212) 697-1111
KDI Precision Products, Inc. Delaware 31-0740721 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications AIS GP Corporation Delaware 13-4137187 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Analytics Corporation California 54-1035921 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Atlantic Science and New Jersey 22-2547554 600 Third Avenue
Technology Corporation New York, NY 10016
(212) 697-1111
L-3 Communications Aydin Corporation Delaware 23-1686808 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications ESSCO, Inc. Delaware 04-2281486 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications ILEX Systems, Inc. Delaware 13-3992952 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Investments Inc. Delaware 51-0260723 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Security and Detection Delaware 04-3054475 600 Third Avenue
Systems Corporation Delaware New York, NY 10016
(212) 697-1111
L-3 Communications SPD Technologies, Inc. Delaware 23-2869511 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Storm Control Systems, Inc. California 77-0268547 600 Third Avenue
New York, NY 10016
(212) 697-1111
L-3 Communications Integrated Systems L.P. Delaware 03-0391841 600 Third Avenue
New York, NY 10016
(212) 697-1111
MCTI Acquisition Corporation Maryland 13-4109777 600 Third Avenue
New York, NY 10016
(212) 697-1111

STATE OR OTHER ADDRESS, INCLUDING ZIP CODE,
JURISDICTION OF IRS EMPLOYER AND TELEPHONE NUMBER, INCLUDING
EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION AREA CODE, OF REGISTRANT'S
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ----------------------------------------- ------------------ ---------------- --------------------------------

Microdyne Communications Technologies Maryland 59-3500774 600 Third Avenue
Incorporated New York, NY 10016
(212) 697-1111
Microdyne Corporation Maryland 52-0856493 600 Third Avenue
New York, NY 10016
(212) 697-1111
Microdyne Outsourcing Incorporated Maryland 33-0797639 600 Third Avenue
New York, NY 10016
(212) 697-1111
MPRI, Inc. Delaware 54-1439937 600 Third Avenue
New York, NY 10016
(212) 697-1111
Pac Ord, Inc. Delaware 23-2523436 600 Third Avenue
New York, NY 10016
(212) 697-1111
Power Paragon, Inc. Delaware 33-0638510 600 Third Avenue
New York, NY 10016
(212) 697-1111
Southern California Microwave, Inc. California 13-0478540 600 Third Avenue
New York, NY 10016
(212) 697-1111
SPD Holdings, Inc. Delaware 23-2977238 600 Third Avenue
New York, NY 10016
(212) 697-1111
SPD Electrical Systems, Inc. Delaware 23-2457758 600 Third Avenue
New York, NY 10016
(212) 697-1111
SPD Switchgear, Inc. Delaware 23-2510039 600 Third Avenue
New York, NY 10016
(212) 697-1111

(sidebar start)
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
(sidebar end)

SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2002

PROSPECTUS

$750,000,000

[GRAPHIC OMITTED]L3 COMMUNICATIONS
L-3 COMMUNICATIONS CORPORATION

Offer to Exchange All Outstanding 7 5/8% Senior Subordinated Notes due 2012 for
an equal amount of 7 5/8% Series B Senior Subordinated Notes due 2012, which
have been registered under the Securities Act of 1933

THE EXCHANGE OFFER

o We will exchange all outstanding notes that are validly tendered and
not validly withdrawn for an equal principal amount of exchange notes
that are freely tradeable.

o You may withdraw tenders of outstanding notes at any time prior to
the expiration of the exchange offer.

o The exchange offer expires at 5:00 p.m., New York City time, on
,2002, unless extended. We do not currently intend to extend the
expiration date.

o The exchange of outstanding notes for exchange notes in the exchange
offer will not be a taxable event for U.S. federal income tax
purposes.

o We will not receive any proceeds from the exchange offer.

THE EXCHANGE NOTES

o The exchange notes are being offered in order to satisfy certain of
our obligations under the registration rights agreement entered into
in connection with the placement of the outstanding notes.

o The terms of the exchange notes to be issued in the exchange offer
are substantially identical to the outstanding notes, except that the
exchange notes will be freely tradeable.

RESALES OF EXCHANGE NOTES

o The exchange notes may be sold in the over-the-counter market, in
negotiated transactions or through a combination of such methods. We
do not plan to list the exchange notes on a national market.

If you are a broker-dealer and you receive exchange notes for your own account,
you must acknowledge that you will deliver a prospectus in connection with any
resale of such exchange notes. By making such acknowledgment, you will not be
deemed to admit that you are an "underwriter" under the Securities Act of 1933.
Broker-dealers may use this prospectus in connection with any resale of
exchange notes received in exchange for outstanding notes where such
outstanding notes were acquired by the broker-dealer as a result of
market-making activities or trading activities. We have agreed that, for a
period of 180 days after the expiration of the exchange offer or until any
broker-dealer has sold all registered notes held by it, we will make this
prospectus available to such broker-dealer for use in connection with any such
resale. A broker-dealer may not participate in the exchange offer with respect
to outstanding notes acquired other than as a result of market-making
activities or trading activities. See "Plan of Distribution."

If you are an affiliate of L-3 Communications Corporation or are engaged in, or
intend to engage in, or have an agreement or understanding to participate in, a
distribution of the exchange notes, you cannot rely on the applicable
interpretations of the Securities and Exchange Commission and you must comply
with the registration requirements of the Securities Act of 1933 in connection
with any resale transaction.

YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 15 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this prospectus is September , 2002

TABLE OF CONTENTS

PAGE PAGE
----- -----

Where You Can Find More Information ............ i Certain Relationships and Related
Prospectus Summary ............................. 1 Transactions ................................ 92
Risk Factors ................................... 15 Management ..................................... 94
Forward-Looking Statements ..................... 24 Ownership of Capital Stock ..................... 102
Use of Proceeds ................................ 26 Description of Other Indebtedness .............. 105
Capitalization ................................. 27 The Exchange Offer ............................. 116
Unaudited Pro Forma Condensed Description of the Notes ....................... 126
Consolidated Financial Information .......... 28 Certain United States Federal Income Tax
Selected Financial Information ................. 37 Considerations .............................. 166
Management's Discussion and Analysis of Plan of Distribution ........................... 167
Results of Operations and Financial Legal Matters .................................. 167
Condition ................................... 38 Experts ........................................ 168
Business ....................................... 67 Index to Financial Statements .................. F-1

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WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, file reports and other
information with the SEC. Such reports and other information can be inspected
and copied at the Public Reference Section of the SEC located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at a
regional public reference facility maintained by the SEC located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the SEC at
prescribed rates. Such material may also be accessed electronically by means of
the SEC's home page on the Internet (http://www.sec.gov).

So long as we are subject to the periodic reporting requirements of the
Securities Exchange Act, we are required to furnish the information required to
be filed with the SEC to the trustee and the holders of the exchange notes. We
have agreed that, even if we are not required under the Securities Exchange Act
to furnish such information to the SEC, we will nonetheless continue to furnish
information that would be required to be furnished by us by Section 13 of the
Securities Exchange Act to the trustee and the holders of the exchange notes as
if we were subject to such periodic reporting requirements.

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

ABOUT THIS PROSPECTUS

As used in this prospectus, (1) "L-3 Holdings" refers to L-3
Communications Holdings, Inc., (2) "L-3 Communications" refers to L-3
Communications Corporation, a wholly-owned operating subsidiary of L-3 Holdings
and the issuer of the outstanding notes and the exchange notes, and (3)
"Guarantors" refers to our current and future domestic restricted subsidiaries,
which are or will be guaranteeing the obligations of L-3 Communications under
the outstanding notes and the exchange notes. The obligations of the guarantors
are referred to herein as the "guarantees." "L-3," "we," "us" and "our" refer
to L-3 Communications and its subsidiaries. "Senior credit facilities" refers
to our 364-day revolving credit facility together with our five-year revolving
credit facility. Unless the context otherwise requires, "notes" refers to the
outstanding notes and the exchange notes.

[THIS PAGE INTENTIONALLY LEFT BLANK]

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus and does not contain all of the information you need to consider.
You should read carefully this entire prospectus.

L-3

For the twelve months ended June 30, 2002, we had sales of $2,975.9
million and operating income of $336.9 million. For the twelve months ended
June 30, 2002, on a pro forma basis for our acquisitions, we would have had
sales of $3,881.3 million and operating income of $403.4 million.

At December 31, 2001, we had two reportable segments: Secure Communication
Systems and Specialized Products. Effective as of January 1, 2002, primarily as
a result of our recent acquisitions, including our acquisition of Aircraft
Integration Systems business from Raytheon Company, we began to present our
businesses with the following four reportable segments: (1) Secure
Communications & ISR; (2) Training, Simulation & Support Services; (3) Aviation
Products & Aircraft Modernization; and (4) Specialized Products.

Secure Communications & ISR. This segment provides products and services
for the global ISR market, specializing in signals intelligence and
communications intelligence systems, which provide the unique ability to
collect and analyze unknown electronic signals from command centers,
communication nodes and air defense systems for real-time situation awareness
and response in real-time to the warfighter. This segment also provides secure,
high data rate communications systems for military and other U.S. Government
and foreign government reconnaissance and surveillance applications. We believe
our systems and products are critical elements of virtually all major
communication, command and control, intelligence gathering and space systems.
Our systems and products are used to connect a variety of airborne, space,
ground and sea-based communication systems and are used in the transmission,
processing, recording, monitoring and dissemination functions of these
communication systems. The major secure communication programs and systems
include:

o secure data links for airborne, satellite, ground and sea-based remote
platforms for real time information collection and dissemination to
users;

o highly specialized fleet management and support, including procurement,
systems integration, sensor development, modifications and maintenance
for signals intelligence and ISR special mission aircraft and airborne
surveillance systems;

o strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information;

o secure telephone and network equipment and encryption management; and

o communication systems for surface and undersea vessels and manned space
flights.

Training, Simulation & Support Services. This segment provides a full
range of services, including:

o services designed to meet customer training requirements for aircrews,
navigators, mission operators, gunners and maintenance technicians for
virtually any platform, including military fixed and rotary wing
aircraft, air vehicles and various ground vehicles;

o communication software support, information services and a wide range of
engineering development services and integration support;

o high-end engineering and information support services used for command,
control, communications, computers and ISR architectures, as well as for
air warfare modeling and simulation tools for applications used by the
U.S. Department of Defense and U.S. Government intelligence agencies,
including missile and space systems, Unmanned Aerial Vehicles and
military aircraft;

o developing and managing extensive programs in the United States and
internationally, focusing on teaching, training and education, logistics,
strategic planning, organizational design, democracy transition and
leadership development; and

o design, prototype development and production of ballistic missile
targets for present and future threat scenarios.

Aviation Products & Aircraft Modernization. This segment provides aviation
products and aircraft modernization services, including:

o airborne traffic and collision avoidance systems;

o commercial, solid-state, crash-protected cockpit voice recorders and
flight data recorders (known as "black boxes") and cruise ship hardened
voyage recorders;

o ruggedized displays for military and high-end commercial applications;

o turnkey aviation life cycle management services that integrate custom
developed and commercial off-the-shelf products for various military and
commercial wide-body and rotary wing aircraft, including heavy
maintenance and structural modifications and Head-of-State and commercial
interior completions; and

o engineering, modification, maintenance, logistics and upgrades for U.S.
Special Operations Command aircraft, vehicles and personal equipment.

Specialized Products. This segment supplies products to military and
commercial customers in several niche markets. The products include:

o ocean products, including acoustic undersea warfare products for mine
hunting, dipping sonars and anti-submarine and naval power distribution,
conditioning, switching and protection equipment for surface and undersea
platforms;

o telemetry, instrumentation, space and guidance products including
tracking and flight termination;

o premium fuzing products;

o microwave components;

o detection systems for aviation, port and border applications to detect
explosives, concealed weapons, contraband and illegal narcotics,
inspection of agricultural products and examination of cargo;

o high performance antennas and ground based radomes; and

o training devices and motion simulators which produce advanced virtual
reality simulation and high-fidelity representations of cockpits and
mission stations for aircraft and land vehicles.

DEVELOPING COMMERCIAL OPPORTUNITIES

Our growth strategy includes identifying and exploiting commercial
applications from select products and technologies currently sold to defense
customers. We have currently identified two vertical markets where we believe
there are significant opportunities to expand our existing commercial sales:
Transportation Products and Broadband Wireless Communications Products. We
believe that these vertical markets, together with our existing commercial
products, provide us with the opportunity for substantial commercial growth in
future years.

Within the transportation market, we are offering (1) an explosive
detection system for checked baggage at airports, displays and power propulsion
systems for rail transportation and power switches for internet service
providers, all of which are part of our Specialized Products segment, and (2)
cruise ship voyage recorders and an enhanced aviation collision avoidance
product that incorporates ground proximity warning, which are part of our
Aviation Products & Aircraft Modernization segment.

Within the communications product market, we are offering local fixed
wireless access equipment for voice, DSL and internet access, transceivers for
LMDS (Local Multipoint Distribution Service) and a broad range of commercial
components and digital test equipment for broadband communications providers,
which are part of our Secure Communications & ISR and Specialized Products
segments.

We have developed the majority of our commercial products employing
technology used in our defense businesses. Sales generated from our developing
commercial opportunities have not yet been material to us.

THE AIS ACQUISITION

On March 8, 2002, we acquired the Aircraft Integration Systems business
(AIS) from Raytheon Company for $1,152.7 million in cash, subject to a purchase
price adjustment. The acquisition was financed using cash on hand, borrowings
under our senior credit facilities and a $500.0 million senior subordinated
interim loan.

AIS is a long-standing, sole-source provider of critical communications
intelligence, signals intelligence and unique systems for special customers
within the U.S. Government and has become an integral part of the U.S.
Military's ISR infrastructure. These systems collect, decode and transmit data,
providing the war fighter with real-time battlefield situational awareness.
AIS' major customers are increasingly focusing on these methods of intelligence
gathering and information distribution, suggesting excellent operating
prospects for the foreseeable future. This acquisition provides us with
platforms to capitalize on significant pull-through prospects related to the
sale of our secure communications and aviation products, including
communication links, signal processing, antennas, data recorders, displays and
traffic control and collision avoidance systems. AIS has been included in our
Secure Communications & ISR and our Aviation Products & Aircraft Modernization
reportable segments.

THE DETECTION SYSTEMS BUSINESS ACQUISITION

PerkinElmer's Detection Systems Business. On June 14, 2002, we acquired
the detection systems business of PerkinElmer for $100.0 million in cash plus
acquisition costs subject to adjustment based on closing date net working
capital, as defined. PerkinElmer's detection systems business offers X-ray
screening for three major security applications: aviation systems for checked
and oversized baggage, break bulk cargo and air freight; port and border
applications including pallets, break bulk and air

freight; and facility protection, such as parcels, mail and cargo.
PerkinElmer's detection systems have a broad range of systems and technologies,
with an installed base of over 16,000 units. PerkinElmer's detection systems
business customer base includes major airlines and airports, a number of
domestic agencies, such as the U.S. Customs Service, U.S. Marshals Service,
U.S. Department of Agriculture and U.S. Department of State, and international
authorities throughout Europe, Asia and South America.

OUR STRATEGY

We intend to grow our sales, enhance our profitability and build on our
position as a leading merchant supplier of communication systems and products
to the major aerospace and defense contractors as well as the U.S. Government.
We also intend to leverage our expertise and products into selected new
commercial business areas where we can adapt our existing products and
technologies. Our strategy to achieve our objectives includes:

EXPAND MERCHANT SUPPLIER RELATIONSHIPS. As an independent merchant
supplier, we intend to identify opportunities where we are able to use our
strong relationships to increase our business presence and allow customers to
reduce their costs.

SUPPORT CUSTOMER REQUIREMENTS. We intend to continue to align our
research and development, manufacturing and new business efforts to complement
our customers' requirements and provide state-of-the-art products.

ENHANCE OPERATING MARGINS. We intend to continue to enhance our operating
performance by reducing overhead expenses, continuing consolidation and
increasing productivity.

LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. We are applying our
technical expertise and capabilities to several closely aligned commercial
business markets and applications such as transportation and broadband wireless
communications and we expect to continue to explore other similar commercial
opportunities.

CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. We intend to enhance
our existing product base through internal research and development efforts and
selective acquisitions that will add new products in areas that complement our
present technologies. Since January 1, 2001, we acquired 16 businesses for an
aggregate adjusted purchase price of $1,771.1 million. We regularly evaluate
opportunities for future acquisitions. See "Risk Factors -- Our acquisition
strategy involves risks, and we may not successfully implement our strategy."

DEBT TENDER OFFER AND REDEMPTION

On July 3, 2002, we completed a tender offer to purchase for cash any and
all of our $225.0 million aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2007. As of 5:00 p.m., New York City time, on Wednesday,
July 3, 2002, the expiration date of the tender offer, we had accepted tender
of notes from holders of $177,195,000 (or approximately 79%) of the
$225,000,000 outstanding principal amount of the notes pursuant to the Offer to
Purchase, dated June 6, 2002, and the related letter of transmittal.

The tender offer provided that the 10 3/8% Senior Subordinated Notes due
2007 would be purchased at 103.35% of the aggregate principal amount of the
notes, plus accrued interest up to the date of purchase. The tender offer also
provided that holders of the 10 3/8% Senior Subordinated Notes due 2007 that
tendered their notes on or before 5:00 p.m., New York City time, on June 24,
2002 would receive a premium of 2.0% of the aggregate principal amount of the
notes. Payment for notes

tendered prior to 5:00 p.m., New York City time, on June 24, 2002, was made on
June 28, 2002. Payment for the notes tendered after 5:00 p.m., New York City
time, on June 24, 2002 was made on July 5, 2002.

We initiated full redemption of the remaining $47,805,000 of notes that
were not tendered by 5:00 p.m., New York City time, on Wednesday, July 3, 2002.
All such remaining notes were redeemed on July 25, 2002 at a redemption price of
105.188% of the principal amount thereof, plus accrued and unpaid interest to
July 25, 2002.

A portion of the net proceeds from the offering of the outstanding notes
were used to finance the tender offer and the subsequent redemption.

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

We are incorporated in Delaware, and the address of our principal
executive offices is 600 Third Avenue, New York, New York 10016. Our telephone
number is (212) 697-1111.

SUMMARY OF TERMS OF THE EXCHANGE OFFER

On June 28, 2002, we completed the private offering of the outstanding
notes. References to the "notes" in this prospectus are references to both the
outstanding notes and the exchange notes. This prospectus is part of a
registration statement covering the exchange of the outstanding notes for the
exchange notes.

We and the guarantors entered into a registration rights agreement with
the initial purchasers in the private offering in which we and the guarantors
agreed to deliver to you this prospectus as part of the exchange offer and we
agreed to complete the exchange offer within 210 days after the date of
original issuance of the outstanding notes. You are entitled to exchange in the
exchange offer your outstanding notes for exchange notes which are identical in
all material respects to the outstanding notes except:

o the exchange notes have been registered under the Securities Act;

o the exchange notes are not entitled to certain registration rights which
are applicable to the outstanding notes under the registration rights
agreement; and

o certain contingent interest rate provisions are no longer applicable.

The Exchange Offer.......... We are offering to exchange up to $750,000,000
aggregate principal amount of our 7 5/8% Series B
Senior Subordinated Notes due 2012, which we
refer to in this prospectus as the exchange
notes, for up to $750,000,000 million aggregate
principal amount of our 7 5/8% Senior
Subordinated Notes due 2012, which we refer to in
this prospectus as the outstanding notes.
Outstanding notes may be exchanged only in
integral multiples of $1,000.

Resale...................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the exchange notes
issued pursuant to the exchange offer in exchange
for outstanding notes may be offered for resale,
resold and otherwise transferred by you (unless
you are an "affiliate" of L-3 Communications
Corporation, within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that you are
acquiring the exchange notes in the ordinary
course of your business and that you have not
engaged in, do not intend to engage in, and have
no arrangement or understanding with any person
to participate in, a distribution of the exchange
notes.

Each participating broker-dealer that receives
exchange notes for its own account pursuant to
the exchange offer in exchange for outstanding
notes that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange
notes. See "Plan of Distribution."

Any holder of outstanding notes who:

o is an affiliate of L-3 Communications
Corporation;

o does not acquire exchange notes in the ordinary
course of its business; or

o tenders in the exchange offer with the
intention to participate, or for the purpose of
participating, in a distribution of exchange
notes;

cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the absence
of an exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the exchange notes.

Expiration Date; Withdrawal
of Tender.................. The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2002, or such
later date and time to which we extend it (the
"expiration date"). We do not currently intend to
extend the expiration date. A tender of
outstanding notes pursuant to the exchange offer
may be withdrawn at any time prior to the
expiration date. Any outstanding notes not
accepted for exchange for any reason will be
returned without expense to the tendering holder
promptly after the expiration or termination of
the exchange offer.

Certain Conditions to the
Exchange Offer............. The exchange offer is subject to customary
conditions, which we may waive. Please read the
section captioned "The Exchange Offer -- Certain
Conditions to the Exchange Offer" of this
prospectus for more information regarding the
conditions to the exchange offer.

Procedures for Tendering
Outstanding Notes.......... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal according to the
instructions contained in this prospectus and the
letter of transmittal. You must also mail or
otherwise deliver the letter of transmittal, or a
facsimile of the letter of transmittal, together
with the outstanding notes and any other required
documents, to the exchange agent at the address
set forth on the cover page of the letter of
transmittal. If you hold outstanding notes
through The Depository Trust Company, or DTC, and
wish to participate in the exchange offer, you
must comply with the Automated Tender Offer
Program procedures of DTC, by which you will
agree to be bound by the letter of transmittal.
By signing, or agreeing to be bound by the letter
of transmittal, you will represent to us that,
among other things:

o any exchange notes that you receive will be
acquired in the ordinary course of your
business;

o you have no arrangement or understanding with
any person or entity to participate in a
distribution of the exchange notes;

o if you are a broker-dealer that will receive
exchange notes for your own account in exchange
for outstanding notes that were acquired as a
result of market-making activities, that you
will deliver a prospectus, as required by law,
in connection with any resale of such exchange
notes; and

o you are not an "affiliate," as defined in Rule
405 of the Securities Act, of L-3 or, if you
are an affiliate, you will comply with any
applicable registration and prospectus delivery
requirements of the Securities Act.

Special Procedures for
Beneficial Owners.......... If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender such
outstanding notes in the exchange offer, you
should contact such registered holder promptly
and instruct such registered holder to tender on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership of
the outstanding notes in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the expiration date.

Guaranteed Delivery
Procedures.................. If you wish to tender your outstanding notes and
your outstanding notes are not immediately
available or you cannot deliver your outstanding
notes, the letter of transmittal or any other
documents required by the letter of transmittal
or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to the
expiration date, you must tender your outstanding
notes according to the guaranteed delivery
procedures set forth in this prospectus under
"The Exchange Offer -- Guaranteed Delivery
Procedures."

Effect on Holders of
Outstanding Notes.......... As a result of the making of, and upon
acceptance for exchange of all validly tendered
outstanding notes pursuant to the terms of the
exchange offer, we will have fulfilled a covenant
contained in the registration rights agreement
and, accordingly, there will be no increase in
the interest rate on the outstanding notes under
the circumstances described in the registration
rights agreement. If you are a holder of
outstanding notes and you do not tender your
outstanding notes in the exchange offer, you will
continue to hold such outstanding notes and you
will be entitled to all the rights

and limitations applicable to the outstanding
notes in the indenture, except for any rights
under the registration rights agreement that by
their terms terminate upon the consummation of
the exchange offer.

To the extent that outstanding notes are
tendered and accepted in the exchange offer, the
trading market for outstanding notes could be
adversely affected.

Consequences of Failure to
Exchange................... All untendered outstanding notes will continue
to be subject to the restrictions on transfer
provided for in the outstanding notes and in the
indenture. In general, the outstanding notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. Other than in connection with
the exchange offer, we do not currently
anticipate that we will register the outstanding
notes under the Securities Act.

Certain Income
Tax Considerations.......... The exchange of outstanding notes for exchange
notes in the exchange offer will not be a taxable
event for United States federal income tax
purposes. See "Certain United States Federal
Income Tax Considerations."

Use of Proceeds............. We will not receive any cash proceeds from the
issuance of exchange notes pursuant to the
exchange offer.

Exchange Agent.............. The Bank of New York is the exchange agent for
the exchange offer. The address and telephone
number of the exchange agent are set forth in the
section captioned "The Exchange Offer -- Exchange
Agent" of this prospectus.

SUMMARY OF TERMS OF THE EXCHANGE NOTES

Issuer...................... L-3 Communications Corporation

Securities Offered.......... $750,000,000 in aggregate principal amount of
7 5/8% Series B Senior Subordinated Notes due
2012

Maturity.................... June 15, 2012

Interest Payment Dates...... June 15 and December 15, beginning December 15,
2002. The initial interest payment will include
accrued interest from June 28, 2002.

Interest Rate............... 7 5/8% per year

Ranking..................... The outstanding notes are, and the exchange
notes will be, unsecured senior subordinated
obligations of L-3 Communications Corporation.
They rank behind all of our and the guarantors'
current and future indebtedness (other than trade
payables), except indebtedness that expressly
provides that it is on parity with or
subordinated in right of payment to these notes
and the guarantees. As of June 30, 2002, on a pro
forma basis giving effect to the (1) application
of the net proceeds of the offering of the
outstanding notes as intended, (2) application of
the net proceeds of the concurrent offering by
L-3 Communications Holdings of 14,000,000 shares
of common stock as intended, and (3) exchange of
the outstanding notes for the exchange notes, the
exchange notes and the related guarantees would:

o not have been subordinated to any senior debt
(excluding outstanding letters of credit); and

o have ranked equally with $1,100.0 million of
other senior subordinated debt.

In addition, as of June 30, 2002, L-3
Communications Corporation had the ability to
borrow up to $577.7 million (after reductions
for outstanding letters of credit of $172.3
million) under its senior credit facilities,
which if borrowed would be senior debt. See
"Description of the Notes--Subordination."

Subsidiary Guarantees....... The outstanding notes are, and the exchange
notes will be, jointly and severally guaranteed
on a senior subordinated basis by our current and
future domestic restricted subsidiaries as
described under "Description of the
Notes--Subsidiary Guarantees."

The guarantees of the outstanding notes are, and
the guarantees of the exchange notes will be,
subordinated in right of payment to all existing
and future senior debt of the guarantors. The
guarantees of the outstanding notes are, and the
guarantees of the exchange notes will be, pari
passu with

other senior subordinated indebtedness of the
guarantors, including (1) the 8 1/2% Senior
Subordinated Notes due 2008 and the 8% Senior
Subordinated Notes due 2008, in each case issued
by L-3 Communications Corporation and guaranteed
by the guarantors and (2) the 5 1/4% Convertible
Senior Subordinated Notes due 2009 and the 4%
Senior Subordinated Convertible Contingent Debt
Securities (CODES) due 2011, in each case issued
by L-3 Communications Holdings and guaranteed by
L-3 Communications Corporation and the other
guarantors. Information regarding the guarantors
is included in the notes to the financial
statements included elsewhere herein.

As of June 30, 2002, we had $1,850.0 million of
indebtedness outstanding (excluding $48.1
million of indebtedness relating to our 10 3/8%
Senior Subordinated Notes due 2007, which was
redeemed with a portion of the net proceeds from
the offering of the outstanding notes). In
addition, as of June 30, 2002, we had the
ability to borrow up to $577.7 million (after
reductions for outstanding letters of credit of
$172.3 million) under our senior credit
facilities, which if borrowed would be senior
debt and would be guaranteed on a senior basis
by the guarantors.

See "Description of the Notes--Subsidiary
Guarantees" and "--Subordination of Subsidiary
Guarantees."

Sinking Fund................ None

Optional Redemption......... On or after June 15, 2007, we may redeem some
or all of the notes at the redemption prices set
forth under "Description of the Notes--Optional
Redemption."

Before June 15, 2005, we may redeem up to 35% of
the outstanding notes and the exchange notes
with the proceeds of certain equity offerings by
L-3 Communications Corporation or L-3
Communications Holdings at the redemption prices
set forth under "Description of the
Notes--Optional Redemption."

Mandatory Offer
to Repurchase............... If we experience specific kinds of changes in
control, we must offer to repurchase the
outstanding notes and the exchange notes at the
prices set forth under "Description of the
Notes--Repurchase at Option of Holders."

Use of Proceeds............. There will be no cash proceeds to us from the
exchange offer.

Basic Covenants
of Indenture................ The indenture governing the outstanding notes and
the exchange notes, among other things, restricts
our ability and the ability of our restricted
subsidiaries to:

o borrow money;

o pay dividends on or purchase our stock or our
restricted subsidiaries' stock;

o make investments;

o use assets as security in other transactions;

o sell certain assets or merge with or into other
companies; and

o enter into transactions with affiliates.

Certain of our subsidiaries are not subject to
the covenants in the indenture. In the event
that the notes are assigned a rating of Baa3 or
better by Moody's and BBB- or better by S&P and
no event of default has occurred and is
continuing, certain convenants in the indenture
will be suspended. If the ratings should
subsequently decline to below Baa3 or BBB-, the
suspended covenants will be reinstituted. For
more details, see the section "Description of
the Notes--Certain Covenants."

Absence of a Public Market
for the Exchange Notes..... The exchange notes generally will be freely
transferable but will also be new securities for
which there will not initially be a market.
Accordingly, we cannot assure you whether a
market for the exchange notes will develop or as
to the liquidity of any market. We do not intend
to apply for a listing of the exchange notes on
any securities exchange or automated dealer
quotation system. The initial purchasers in the
private offering of the outstanding notes have
advised us that they currently intend to make a
market in the exchange notes. However, they are
not obligated to do so, and any market making
with respect to the exchange notes may be
discontinued without notice.

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

Unless otherwise stated, all share and per share data with respect to L-3
Communications Holdings' common stock contained in this prospectus reflect a
two-for-one stock split declared by L-3 Communications Holdings' board of
directors on April 23, 2002.

SUMMARY FINANCIAL DATA

We derived the summary financial data presented below from our financial
statements. The financial statement data for the years ended December 31, 2001,
2000 and 1999 are derived from our audited consolidated financial statements
included elsewhere in this prospectus. We derived the balance sheet data
presented below at December 31, 2001 and 2000 from our audited consolidated
financial statements included elsewhere in this prospectus. We derived the
balance sheet data at December 31, 1999 from our audited consolidated financial
statements not included in this prospectus. We derived the financial statement
data for the twelve months ended June 30, 2002 from our unaudited pro forma
condensed consolidated financial information included elsewhere in this
prospectus. We derived the balance sheet data at June 30, 2002 from our
unaudited condensed consolidated financial statements included elsewhere in
this prospectus. Our unaudited condensed consolidated financial statements for
the six months and twelve months ended June 30, 2002 include, in our opinion,
all adjustments consisting of normal recurring adjustments, necessary for a
fair presentation of the results for the period.

The pro forma data for the twelve months ended June 30, 2002 were derived
from our unaudited pro forma condensed consolidated financial information
included elsewhere herein, and gives effect to our material acquisitions, the
offering of the outstanding notes and the concurrent offering by L-3
Communications Holdings of 14,000,000 shares of common stock. The pro forma
data are presented for illustrative purposes only, and are not indicative of
the results or the financial position we would have had if these transactions
had been completed on January 1, 2001, nor are such data indicative of results
we may expect in the future.

HISTORICAL
PRO FORMA -------------------------------------------------------
FOR TWELVE TWELVE
MONTHS MONTHS YEARS ENDED DECEMBER 31,(2)
ENDED ENDED -----------------------------------------
JUNE 30, JUNE 30,
2002(1) 2002 2001 2000 1999
------------- ------------- ------------- ------------- -------------
(in millions)

STATEMENT OF OPERATIONS DATA:
Sales ................................................. $ 3,881.3 $ 2,975.9 $ 2,347.4 $ 1,910.1 $ 1,405.5
Operating income ...................................... 403.4 336.9 275.3 222.7 150.5
Interest expense, net ................................. 130.6 96.4 84.5 88.6 55.1
Minority interest ..................................... 5.6 5.6 4.5 -- --
Provision for income taxes ............................ 108.1 86.1 70.8 51.4 36.7
Income from continuing operations ..................... 159.1 148.8 115.5 82.7 58.7
Income from continuing operations, as adjusted(3) ..... 177.2 166.9 149.4 112.3 76.2
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............................. $ 466.1 $ 361.0 $ 32.7 $ 42.8
Working capital ....................................... 1,224.3 717.8 360.9 255.5
Total assets .......................................... 4,949.2 3,339.2 2,463.5 1,628.7
Total debt ............................................ 1,898.1 1,325.0 1,095.0 605.0
Shareholders' equity .................................. 2,088.2 1,213.9 692.6 583.2
OTHER DATA:
Net cash from operating activities .................... 253.1 173.0 113.8 99.0
Net cash (used in) investing activities ............... (1,599.5) (424.9) (608.2) (284.8)
Net cash from financing activities .................... 1,744.2 580.3 484.3 202.4
Depreciation expense .................................. 50.5 40.4 36.2 29.5
Amortization expense .................................. 28.3 46.6 38.1 24.2
Cash interest expense(4) .............................. 91.3 80.0 87.3 56.7
Capital expenditures .................................. 51.7 48.1 33.6 23.5

(1) The table below presents the calculation of certain pro forma financial
data for the twelve months ended June 30, 2002, which was derived from
our unaudited pro forma condensed consolidated financial information
contained elsewhere herein.

PRO FORMA DATA
------------------------------------------------------------------
SIX SIX TWELVE
YEAR ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, 2001 JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002
------------------- --------------- --------------- --------------
(IN MILLIONS)

Sales ..................................... $ 3,643.4 $ 1,928.6 $ 1,690.7 $ 3,881.3
Operating income .......................... 365.8 177.7 140.1 403.4
Interest expense, net ..................... 149.7 59.7 78.8 130.6
Minority interest ......................... 4.5 2.7 1.6 5.6
Provision for income taxes ................ 87.3 43.5 22.7 108.1
Income from continuing operations ......... 124.3 71.8 37.0 159.1
Income from continuing operations, as
adjusted ................................. 158.2 71.8 52.8 177.2

(2) Our results of operations are impacted significantly by our acquisitions,
some of which are described elsewhere in this prospectus.

(3) Income from continuing operations, as adjusted excludes goodwill
amortization expense, net of any income tax effects, recognized in those
periods related to goodwill that is no longer being amortized.

(4) Cash interest expense is defined as total interest expense, less
amortization of deferred debt issuance costs included in interest
expense.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges and deficiency of earnings to cover
fixed charges presented below should be read together with our consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" contained elsewhere
in this prospectus. In calculating the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes and extraordinary items
plus fixed charges. Fixed charges consist of interest on indebtedness plus the
amortization of deferred debt issuance costs and that portion of lease rental
expense representative of the interest element.

PREDECESSOR
L-3 COMPANY
------------------------------------------------------------------------------ -----------
NINE THREE
MONTHS MONTHS
SIX MONTHS YEAR ENDED DECEMBER 31,(2) ENDED ENDED
ENDED ------------------------------------------ DECEMBER 31, MARCH 31,
JUNE 30, 2002(2) 2001 2000 1999 1998 1997(2)(3) 1997
------------------ --------- --------- --------- --------- -------------- ------------

Ratio of Earnings to Fixed Charges: 2.6x 2.8x 2.3x 2.4x 2.0x 1.7x --(4)

- ----------
(1) Predecessor company refers to the ten initial business units we purchased
from Lockheed Martin Corporation in 1997.

(2) Our results of operations are impacted significantly by our acquisitions,
some of which are described in this prospectus.

(3) Reflects the acquisition of our predecessor company and the commencement
of our operations effective April 1, 1997.

(4) Earnings were insufficient to cover fixed charges by $0.5 million for the
three months ended March 31, 1997.

RISK FACTORS

You should carefully consider the following factors and other information
contained in this prospectus before deciding to tender outstanding notes in the
exchange offer. The risk factors set forth below are generally applicable to
the outstanding notes as well as the exchange notes. Any of these risks could
materially adversely affect our business, financial condition and results of
operations, which could in turn materially adversely affect the price of the
notes.

RISKS RELATED TO THE EXCHANGE OFFER

IF YOU CHOOSE NOT TO EXCHANGE YOUR OUTSTANDING NOTES, THE PRESENT TRANSFER
RESTRICTIONS WILL REMAIN IN FORCE AND THE MARKET PRICE OF YOUR OUTSTANDING
NOTES COULD DECLINE.

If you do not exchange your outstanding notes for exchange notes under the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the offering memorandum
distributed in connection with the private offering of the outstanding notes.
In general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act. You should refer to "Prospectus Summary -- Summary of Terms of
the Exchange Offer" and "The Exchange Offer" for information about how to
tender your outstanding notes.

The tender of outstanding notes under the exchange offer will reduce the
principal amount of the outstanding notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
outstanding notes due to reduction in liquidity.

RISKS RELATED TO L-3

OUR SIGNIFICANT LEVEL OF DEBT MAY ADVERSELY AFFECT OUR FINANCIAL AND OPERATING
ACTIVITY.

We have incurred substantial indebtedness to finance our acquisitions. As
of June 30, 2002, we had $1,850.0 million of outstanding debt, excluding $48.1
million of indebtedness relating to our 103/8% Senior Subordinated Notes due
2007, which was repurchased and redeemed in the third quarter of 2002 and
outstanding letters of credit (which aggregated approximately $172.3 million)
under our 364-day and five-year revolving credit facilities. In addition,
available borrowings under our senior credit facilities after reductions for
outstanding letters of credit were $577.7 million as of June 30, 2002. For the
six months ended June 30, 2002, our ratio of earnings to fixed charges,
adjusted on a pro forma basis to give effect to our acquisitions, related
financings, the offering of the outstanding notes and the concurrent offering
by L-3 Communications Holdings of 14,000,000 shares of its common stock, would
have been 2.7 to 1.0. In the future we may borrow more money, subject to
limitations imposed on us by our debt agreements.

Our ability to make scheduled payments of principal and interest on our
indebtedness and to refinance our indebtedness depends on our future
performance. We do not have complete control over our future performance
because it is subject to economic, political, financial, competitive,
regulatory and other factors affecting the aerospace and defense industry. It
is possible that in the future our business may not generate sufficient cash
flow from operations to allow us to service our debt and make necessary capital
expenditures. If this situation occurs, we may have to sell assets, restructure
debt or obtain additional equity capital. We may not be able to do so or do so
without additional expense.

Our level of indebtedness has important consequences to you and your
investment in the notes. These consequences may include:

o requiring a substantial portion of our cash flow from operations to be
used to pay interest and principal on our debt and therefore be
unavailable for other purposes including capital expenditures, research
and development and other investments;

o limiting our ability to obtain additional financing for acquisitions or
working capital to make investments or other expenditures, which may
limit our ability to carry out our acquisition strategy;

o higher interest expenses due to increases in interest rates on our
borrowings that have variable interest rates;

o heightening our vulnerability to downturns in our business or in the
general economy and restricting us from making acquisitions, introducing
new technologies and products or exploiting business opportunities; and

o covenants that limit our ability to borrow additional funds, dispose of
assets or pay cash dividends. Failure to comply with such covenants could
result in an event of default which, if not cured or waived, could result
in the acceleration of our outstanding indebtedness.

Additionally, on December 31, 2001, we had contractual obligations,
including outstanding indebtedness, of $1,680.2 million and contingent
commitments, including outstanding letters of credit under our senior credit
facilities, of $261.1 million. These contractual obligations and contingent
commitments are described elsewhere herein.

OUR ACQUISITION STRATEGY INVOLVES RISKS, AND WE MAY NOT SUCCESSFULLY IMPLEMENT
OUR STRATEGY.

We seek to acquire companies that complement our business. We may not be
able to continue to identify acquisition candidates on commercially reasonable
terms or at all. If we make additional acquisitions, we may not realize the
benefits anticipated from the acquisitions. Likewise, we may not be able to
obtain additional financing for acquisitions. Such additional financing could
be restricted by the terms of our debt agreements.

The process of integrating acquired operations, including our recent
acquisitions, into our existing operations may result in unforeseen operating
difficulties and may require significant financial and managerial resources
that would otherwise be available for the ongoing development or expansion of
our existing operations. Possible future acquisitions could result in the
incurrence of additional debt and related interest expense, contingent
liabilities and amortization expenses related to certain purchased intangible
assets, all of which could result in an increase to our already significant
level of outstanding debt. We consider and execute strategic acquisitions on an
ongoing basis and may be evaluating acquisitions or engaged in acquisition
negotiations at any given time. We regularly evaluate potential acquisitions
and joint venture transactions, and, except as disclosed herein, we have not
entered into any agreements with respect to any material transactions.

WE RELY ON SALES TO U.S. GOVERNMENT ENTITIES, AND THE LOSS OF SUCH CONTRACTS
WOULD RESULT IN A SIGNIFICANT DECREASE TO OUR REVENUE AND PROFITS.

Our government sales are predominantly derived from contracts with
agencies of, and prime contractors to, the U.S. Government. Approximately
64.7%, or $1,519 million, of our sales for the year ended December 31, 2001
were made directly or indirectly to the U.S. Department of Defense. At December
31, 2001, the number of contracts with a value exceeding $1.0 million was
approximately 575. Our largest program is a long-term, fixed-priced contract
for secure terminal equipment that we sell to the U.S. Armed Services,
intelligence and securities agencies that provided approximately 3.9% of our
sales for the year ended December 31, 2001. No other program provided more than
3.2% of our sales for the year ended December 31, 2001. The loss of all or a
substantial portion of our sales to the U.S. Government would result in a
significant decrease to our revenue and profits.

OUR GOVERNMENT CONTRACTS ENTAIL CERTAIN RISKS.

o Government contracts are dependent upon the U.S. defense budget.

The reduction in the U.S. defense budget in the early 1990s caused most
defense-related government contractors to experience decreased sales, increased
downward pressure on operating

margins and, in certain cases, net losses. Our predecessor company experienced
a substantial decline in sales during that period. A significant decline in
U.S. military expenditures in the future could result in a material decrease to
our sales, earnings and cash flow. The loss or significant reduction in
government funding of a large program in which we participate could also result
in a material decrease to our future sales, earnings and cash flows and thus
limit our ability to satisfy our financial obligations, including those
relating to the notes. U.S. Government contracts are also conditioned upon the
continuing approval by Congress of the amount of necessary spending. Congress
usually appropriates funds for a given program each fiscal year even though
contract periods of performance may exceed one year. Consequently, at the
beginning of a major program, the contract is usually partially funded, and
additional monies are normally committed to the contract only if appropriations
are made by Congress for future fiscal years.

o Government contracts contain unfavorable termination provisions and are
subject to audit and modification.

Companies engaged primarily in supplying defense-related equipment and
services to U.S. Government agencies are subject to certain business risks
peculiar to the defense industry. These risks include the ability of the U.S.
Government to unilaterally:

o suspend us from receiving new contracts pending resolution of alleged
violations of procurement laws or regulations;

o terminate existing contracts;

o reduce the value of existing contracts;

o audit our contract-related costs and fees, including allocated indirect
costs; and

o control and potentially prohibit the export of our products.

All of our U.S. Government contracts can be terminated by the U.S.
Government either for its convenience or if we default by failing to perform
under the contract. Termination for convenience provisions provide only for our
recovery of costs incurred or committed, settlement expenses and profit on the
work completed prior to termination. Termination for default provisions provide
for the contractor to be liable for excess costs incurred by the U.S.
Government in procuring undelivered items from another source. Our contracts
with foreign governments generally contain similar provisions relating to
termination at the convenience of the customer.

The U.S. Government may review our costs and performance on their
contracts, as well as our accounting and general business practices. Based on
the results of such audits, the U.S. Government may adjust our contract-related
costs and fees, including allocated indirect costs. In addition, under U.S.
Government purchasing regulations, some of our costs, including most financing
costs, amortization of goodwill, portions of research and development costs,
and certain marketing expenses may not be reimbursable under U.S. Government
contracts. Further, as a U.S. Government contractor, we are subject to
investigation, legal action and/or liability that would not apply to a
commercial company.

o Government contracts are subject to competitive bidding and we are
required to obtain licenses for non-U.S. sales.

We obtain many of our U.S. Government contracts through a competitive
bidding process. We may not be able to continue to win competitively awarded
contracts. In addition, awarded contracts may not generate sales sufficient to
result in our profitability. We are also subject to risks associated with the
following:

o the frequent need to bid on programs in advance of the completion of
their design, which may result in unforeseen technological difficulties
and/or cost overruns;

o the substantial time and effort including the relatively unproductive
design and development required to prepare bids and proposals for
competitively awarded contracts that may not be awarded to us;

o design complexity and rapid technological obsolescence; and

o the constant need for design improvement.

In addition to these U.S. Government contract risks, we are required to
obtain licenses from U.S. Government agencies to export many of our products
and systems. Additionally, we are not permitted to export some of our products.
Failure to receive required licenses would eliminate our ability to sell our
products outside the United States.

OUR FIXED-PRICE AND COST-REIMBURSABLE CONTRACTS MAY COMMIT US TO UNFAVORABLE
TERMS.

We provide our products and services primarily through fixed-price or
cost-reimbursable contracts. Fixed-price contracts provided 68.3% of our sales
for the year ended December 31, 2001. Under a fixed-price contract we agree to
perform the scope of work required by the contract for a predetermined contract
price. Although a fixed-price contract generally permits us to retain profits
if the total actual contract costs are less than the estimated contract costs,
we bear the risk that increased or unexpected costs may reduce our profit or
cause us to sustain losses on the contract. Therefore, we fully absorb cost
overruns on fixed-price contracts and this reduces our profit margin on the
contract. Those cost overruns may result in a loss. A further risk associated
with fixed-price contracts is the difficulty of estimating sales and costs that
are related to performance in accordance with contract specifications and the
possibility of obsolescence in connection with long-term procurements. Failure
to anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed-price contract may reduce our profitability or
cause a loss.

Cost-reimbursable contracts provided 31.7% of our sales for the year ended
December 31, 2001. On a cost-reimbursable contract we are paid up to
predetermined funding levels determined by our customers, our allowable
incurred costs and generally a fee representing a profit on those costs, which
can be fixed or variable depending on the contract's pricing arrangement.
Therefore, unless costs exceed specified funding limitations, on a
cost-reimbursable contract we usually do not bear the risks of unexpected cost
overruns. However, U.S. Government regulations require that we notify our
customer of any cost overruns or underruns on a cost-reimbursable contract on a
timely basis. If we incur costs in excess of the funding limitation specified
in a cost-reimbusable contract, we may not be able to recover those cost
overruns.

We record sales and profits on substantially all of our contracts using
percentage-of-completion methods of accounting. As a result, revisions made to
our estimates of sales and profits are recorded in the period in which the
conditions that require such revisions become known and can be estimated;
accordingly, the revisions may have a material impact in any one period. Our
provisions for losses for our fixed-price contracts are based on estimates. To
the extent our actual contract losses exceed our estimates, our contract loss
provisions will not be adequate to cover all actual future losses.

OUR OPERATIONS INVOLVE RAPIDLY EVOLVING PRODUCTS AND TECHNOLOGICAL CHANGE.

The rapid change of technology is a key feature of all of the industries
in which our businesses operate, including the commercial communication
industry in particular. To succeed in the future, we will need to continue to
design, develop, manufacture, assemble, test, market and support new products
and enhancements on a timely and cost-effective basis. Historically, our
technology has been developed through both customer-funded and internally
funded research and development. We may not be able to continue to maintain
comparable levels of research and development. In the past we have allocated
substantial funds to capital expenditures, programs and other investments. This
practice will continue to be required in the future. Even so, we may not be
able to successfully identify new opportunities and may not have the needed
financial resources to develop new products in a timely or cost-effective
manner. At the same time, products and technologies developed by others may
render our products and systems obsolete or non-competitive.

WE MAY NOT SUCCESSFULLY IMPLEMENT OUR PLAN TO EXPAND INTO COMMERCIAL MARKETS.

Our revenues have primarily come from business with the U.S. Department of
Defense and other U.S. Government agencies. In addition to continuing to pursue
these market areas, we will continue

applying our technical capabilities and expertise to related commercial
markets. Some of our commercial products, such as airport security equipment,
voyage recorders and Prime Wave fixed wireless loop products, have only
recently been introduced.

These new commercial products are subject to certain risks and may require
us to:

o develop and maintain marketing, sales and customer support capabilities;

o secure sales and customer support capabilities;

o obtain customer and/or regulatory certification;

o respond to rapidly changing technologies including those developed by
others that may render our products and systems obsolete or
non-competitive; and

o obtain customer acceptance of these products and product performance.

Our efforts to expand our presence in commercial markets require
significant resources, including additional working capital and capital
expenditures, as well as the use of our management's time. Our ability to sell
certain commercial products, particularly our broadband wireless communications
products, depends to a significant degree on the efforts of independent
distributors or communications service providers and on the financial viability
of our existing and target customers for the commercial products. Certain of
our existing and target customers are agencies or affiliates of governments of
emerging and under-developed countries or private business enterprises
operating in those countries. In addition, we have made equity investments in
entities that plan to commence operations as communications service providers
using some of our commercial products. These distributors and service providers
may not be able to market our products or their services successfully and we
may not be able to realize a return of investment in them. We also may not be
successful in addressing these risks or in developing these commercial business
opportunities.

CONSOLIDATION AND INTENSE COMPETITION IN THE INDUSTRIES IN WHICH OUR BUSINESSES
OPERATE COULD LIMIT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.

The communications equipment industry and the other industries in which
our businesses operate, and the market for defense applications, is highly
competitive. The defense industry has experienced substantial consolidation due
to declining defense budgets and increasing pressures for cost reductions. We
expect that the U.S. Department of Defense's increased use of commercial
off-the-shelf products and components in military equipment will continue to
encourage new competitors to enter the market. We also expect that competition
for original equipment manufacturing business will increase due to the
continued emergence of merchant suppliers. Our ability to compete for defense
contracts largely depends on the following factors:

o the effectiveness and innovations of our research and development
programs;

o our ability to offer better performance than our competitors at a lower
cost to the U.S. Government; and

o the readiness of our facilities, equipment and personnel to undertake the
programs for which we compete.

In some instances, the U.S. Government directs all work for a particular
project to a single supplier, commonly known as a sole-source project. In such
cases, other suppliers who may otherwise be able to compete for the programs
involved can only do so if the U.S. Government chooses to reopen the particular
program to competition. Additionally, many of our competitors are larger than
us and have substantially greater financial and other resources than we have.

OUR DEBT AGREEMENTS RESTRICT OUR ABILITY TO FINANCE OUR FUTURE OPERATIONS AND,
IF WE ARE UNABLE TO MEET OUR FINANCIAL RATIOS, COULD CAUSE OUR EXISTING DEBT TO
BE ACCELERATED.

Our debt agreements contain a number of significant provisions that, among
other things, restrict our ability to:

o sell assets;

o incur more indebtedness;

o repay certain indebtedness;

o pay dividends;

o make certain investments or acquisitions;

o repurchase or redeem capital stock;

o engage in mergers or consolidations; and

o engage in certain transactions with subsidiaries and affiliates.

These restrictions could hurt our ability to finance our future operations
or capital needs or engage in other business activities that may be in our
interest. In addition, some of our debt agreements also require us to maintain
compliance with certain financial ratios, including total consolidated earnings
before interest, taxes, depreciation and amortization to total consolidated
cash interest expense and total consolidated debt to total consolidated
earnings before interest, taxes, depreciation and amortization, and to limit
our capital expenditures. Our ability to comply with these ratios and limits
may be affected by events beyond our control. A breach of any of these
agreements or our inability to comply with the required financial ratios or
limits could result in a default under those debt agreements. In the event of
any such default, the lenders under those debt agreements could elect to:

o declare all outstanding debt, accrued interest and fees to be due and
immediately payable;

o require us to apply all of our available cash to repay our outstanding
senior debt; and

o prevent us from making debt service payments on our other debt.

If we were unable to repay any of these borrowings when due, the lenders
under our senior credit facilities could proceed against their collateral,
which consists of a first priority security interest in our outstanding shares
of common stock and the capital stock of our material subsidiaries. If the
indebtedness under the existing debt agreements were to be accelerated, our
assets may not be sufficient to repay such indebtedness in full.

IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT AND PERSONNEL, WE MAY
BECOME UNABLE TO OPERATE OUR BUSINESS EFFECTIVELY.

Our future success depends to a significant degree upon the continued
contributions of our management, including Messrs. Lanza and LaPenta, and our
ability to attract and retain other highly qualified management and technical
personnel. We do not maintain any key person life insurance policies for
members of our management. As of September 1, 2002, Messrs. Lanza and LaPenta
beneficially owned, in the aggregate, 10.2% of the outstanding common stock of
L-3 Communications Holdings. We have an employment agreement with Mr. Lanza. We
face competition for management and technical personnel from other companies
and organizations. Failure to attract and retain such personnel would damage
our prospects.

ENVIRONMENTAL LAWS AND REGULATION MAY SUBJECT US TO SIGNIFICANT LIABILITY.

Our operations are subject to various U.S. federal, state and local as
well as certain foreign environmental laws and regulations within the countries
in which we operate relating to the discharge, storage, treatment, handling,
disposal and remediation of certain materials, substances and wastes used in
our operations.

New laws and regulations, stricter enforcement of existing laws and
regulations, the discovery of previously unknown contamination or the
imposition of new clean-up requirements may require us to incur a significant
amount of additional costs in the future and could decrease the amount of free
cash flow available to us for other purposes, including capital expenditures,
research and development and other investments.

TERMINATION OF OUR BACKLOG OF ORDERS COULD NEGATIVELY IMPACT OUR SALES.

We currently have a backlog of orders, primarily under contracts with the
U.S. Government. The U.S. Government may unilaterally modify or terminate these
contracts. Accordingly, most of our backlog could be modified or terminated by
the U.S. Government. Therefore, existing backlog may not result in sales.
Further, any margin we record on sales from any contract included in backlog
may not be profitable.

OUR PENSION PLAN LIABILITIES MAY RESULT IN SIGNIFICANT EXPENSES.

We have assumed certain liabilities relating to defined benefit pension
plans for present and former employees and retirees of certain businesses which
we acquired. Prior to our formation, Lockheed Martin received a letter from the
Pension Benefit Guaranty Corporation (the "PBGC") which requested information
regarding the transfer of these pension plans and indicated that the PBGC
believed certain of these pension plans were underfunded using its actuarial
assumptions. These assumptions resulted in a larger liability for accrued
benefits than the assumptions used for financial reporting under Statement of
Financial Accounting Standards No. 87.

With respect to these plans, Lockheed Martin entered into an agreement
with us and the PBGC dated as of April 30, 1997. Under that agreement, Lockheed
Martin agreed, upon the occurrence of certain circumstances, either to:

o assume sponsorship of the subject plans; or

o provide another form of financial support.

If Lockheed Martin did assume sponsorship of these plans, it would be
primarily liable for the costs associated with funding these plans or any costs
associated with the termination of them, but we would be required to reimburse
Lockheed Martin for its obligations. Should Lockheed Martin assume sponsorship
of the subject plans, or if these plans were terminated, the impact of any
increased pension expenses or funding requirements could reduce the amount of
free cash flow available to us.

RISKS RELATED TO THE NOTES

WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE
EXCHANGE NOTES, WHICH MAY REDUCE THEIR MARKET PRICE.

We are offering the exchange notes to the holders of the outstanding
notes. The outstanding notes were offered and sold in June 2002 to a small
number of institutional investors and are eligible for trading in the Private
Offerings, Resale and Trading through Automatic Linkages (PORTAL) Market.

We do not intend to apply for a listing of the exchange notes on a
securities exchange or on any automated dealer quotation system. There is
currently no established market for the exchange notes and we cannot assure you
as to the liquidity of markets that may develop for the exchange notes, your
ability to sell the exchange notes or the price at which you would be able to
sell the exchange notes. If such markets were to exist, the exchange notes
could trade at prices that may be lower than their principal amount or purchase
price depending on many factors, including prevailing interest rates and the
markets for similar securities. The initial purchasers have advised us that
they currently intend to make a market with respect to the exchange notes.
However, the initial purchasers are not obligated to do so, and any market
making with respect to the exchange notes may be discontinued at any time
without notice. In addition, such market making activity may be limited during
the pendency of the exchange offer or the effectiveness of a shelf registration
statement in lieu thereof.

The liquidity of, and trading market for, the exchange notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of our financial performance and prospects.

THE NOTES ARE SUBORDINATED TO ALL OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS,
WHICH MAY INHIBIT OUR ABILITY TO REPAY YOU.

The notes are contractually subordinated in right of payment to our
existing and future senior indebtedness. As of June 30, 2002, we had no
outstanding senior debt, and had the ability to borrow up to $577.7 million
(after reductions for outstanding letters of credit of $172.3 million) under
our senior credit facilities, which if borrowed would be senior debt.

Any incurrence of additional indebtedness may materially adversely impact
our ability to service our debt, including the notes. Due to the subordination
provisions of our senior indebtedness, in the event of our insolvency, funds
that would otherwise be used to pay the holders of the notes will be used to
pay the holders of senior indebtedness to the extent necessary to pay the
senior indebtedness in full. As a result of these payments, general creditors
may recover less, ratably, than the holders of senior indebtedness and the
general creditors may recover more, ratably, than the holders of the notes or
other subordinated indebtedness. In addition, the holders of senior
indebtedness may, under certain circumstances, restrict or prohibit us from
making payments on the notes.

THE TERMS OF OUR INDEBTEDNESS COULD RESTRICT OUR FLEXIBILITY AND LIMIT OUR
ABILITY TO SATISFY OBLIGATIONS UNDER THE NOTES.

We are subject to operational and financial covenants and other
restrictions contained in the bank loan documents evidencing our senior
indebtedness and the indentures evidencing our senior subordinated notes. These
covenants could limit our operational flexibility and restrict our ability to
borrow additional funds, if necessary, to finance operations and to make
principal and interest payments on the notes. Additionally, failure to comply
with these operational and financial covenants could result in an event of
default under the terms of this indebtedness which, if not cured or waived,
could result in this indebtedness becoming due and payable. The effect of these
covenants, or our failure to comply with them, could have a material adverse
effect on our ability to operate our business, finance our operations and make
principal and interest payments on our outstanding indebtedness, including the
notes.

OUR ABILITY TO REPURCHASE NOTES WITH CASH UPON A CHANGE OF CONTROL MAY BE
LIMITED.

In specific circumstances involving a change of control, you may require
us to repurchase some or all of your notes. We cannot assure you that we will
have sufficient financial resources at such time or would be able to arrange
financing to pay the repurchase price of the notes in cash. Our ability to
repurchase the notes in such event may be limited by law, by our indentures, by
the terms of other agreements relating to our senior indebtedness and by such
indebtedness and agreements as may be entered into, replaced, supplemented or
amended from time to time. We may be required to refinance our senior
indebtedness in order to make such payments. We may not have the financial
ability to repurchase the notes in cash if payment for our senior indebtedness
is accelerated.

THE GUARANTEES MAY BE UNENFORCEABLE DUE TO FRAUDULENT CONVEYANCE STATUTES, AND
ACCORDINGLY, YOU COULD HAVE NO CLAIM AGAINST THE GUARANTORS.

Although laws differ among various jurisdictions, a court could, under
fraudulent conveyance laws, further subordinate or avoid the guarantees if it
found that the guarantees were incurred with actual intent to hinder, delay or
defraud creditors, or the guarantor did not receive fair consideration or
reasonably equivalent value for the guarantees and that the guarantor was any
of the following:

o insolvent or rendered insolvent because of the guarantees;

o engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or

o intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.

If a court voided a guaranty by one or more of our subsidiaries as the
result of a fraudulent conveyance, or held it unenforceable for any other
reason, holders of the notes would cease to have a

claim against the subsidiary based on the guaranty and would solely be
creditors of L-3 Communications Corporation and any guarantor whose guarantee
was not similarly held unenforceable.

NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS, AND YOUR CLAIMS WILL BE
SUBORDINATED TO ALL OF THE CREDITORS OF THE NON-GUARANTOR SUBSIDIARIES.

Many, but not all, of our direct and indirect subsidiaries will guarantee
the notes. In the event of a bankruptcy, liquidation or reorganization of any
of the non-guarantor subsidiaries, holders of their indebtedness and their
trade creditors will generally be entitled to payment of their claims from the
assets of those non-guarantor subsidiaries before any assets of the
non-guarantor subsidiaries are made available for distribution to us. As of
June 30, 2002, assuming the exchange of the outstanding notes for the exchange
notes was completed prior to such date, the exchange notes would have been
effectively junior to $98.7 million of indebtedness and other liabilities
(including trade payables) of these non-guarantor subsidiaries. The
non-guarantor subsidiaries generated 8.0% of our sales, generated earnings of
$14.4 million and cash from operating activities of $1.0 million for the six
months ended June 30, 2002. The non-guarantor subsidiaries held 13.5% of our
consolidated assets as of June 30, 2002.

THE GUARANTEES WILL BE SUBORDINATED TO THE SENIOR DEBT OF THE GUARANTORS.

The guarantees are subordinated to all existing and future senior debt of
the guarantors, which shall consist of all of the indebtedness and other
liabilities of the guarantors designated as senior, including guarantees of
borrowings under the senior credit facilities. The guarantees issued in
connection with the offering of the outstanding notes and the exchange of the
exchange notes will be pari passu with the guarantees of the senior
subordinated notes sold by L-3 Communications Corporation in May 1998 and
December 1998, and with the guarantees, including the guarantee by L-3
Communications Corporation, of the 5 1/4% Convertible Senior Subordinated Notes
due 2009 sold by L-3 Communications Holdings in November 2000 and of the 4%
Senior Subordinated Convertible Contingent Notes due 2011 sold by L-3
Communications Holdings in October 2001. As of June 30, 2002, we had no senior
debt outstanding under our senior credit facilities, all of which has been
guaranteed by our subsidiaries. As of June 30, 2002, L-3 Communications
Corporation had the ability to borrow up to $577.7 million (after reduction for
outstanding letters of credit of $172.3 million) under its senior credit
facilities, which if borrowed would be senior debt. Any right of L-3
Communications Corporation to receive the assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the notes to participate in those assets) will be subject to the
claims of that subsidiary's creditors, including trade creditors. To the extent
that L-3 Communications Corporation is recognized as a creditor of that
subsidiary, L-3 Communications Corporation may have such claim, but it would
still be subordinate to any security interests in the assets of that subsidiary
and any indebtedness and other liabilities of that subsidiary senior to that
held by L-3 Communications Corporation.

THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS, WHICH MAY NOT BE CORRECT.

Certain of the matters discussed concerning our operations, economic
performance and financial condition, including in particular, the likelihood of
our success in developing and expanding our business and the realization of
sales from backlog, include forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates" and similar expressions are
forward-looking statements. Although we believe that these statements are based
upon reasonable assumptions, we can give no assurance that their goals will be
achieved.

FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this prospectus contain some
forward-looking statements. Certain of the matters discussed concerning our
operations, cash flows, financial position, economic performance and financial
condition, including, in particular, the likelihood of our success in
developing and expanding our business and the realization of sales from backlog
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Statements that are predictive in nature, that depend upon or refer to
future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including projections of
orders, sales, operating margins, earnings, cash flows, research and
development costs, working capital, capital expenditures and other projections,
they are subject to several risks and uncertainties, and therefore, we can give
no assurance that these statements will be achieved.

Our forward-looking statements will also be influenced by factors such as:

o our dependence on the defense industry and the business risks peculiar to
that industry, including changing priorities or reductions in the U.S.
Government defense budget;

o our reliance on contracts with a limited number of agencies of, or
contractors to, the U.S. Government and the possibility of termination of
government contracts by unilateral government action or for failure to
perform;

o our ability to obtain future government contracts on a timely basis;

o the availability of government funding and changes in customer
requirements for our products and services;

o our significant amount of debt and the restrictions contained in our debt
agreements;

o collective bargaining agreements and labor disputes;

o economic conditions, competitive environment, international business and
political conditions, timing of international awards and contracts;

o our extensive use of fixed-price contracts as compared to
cost-reimbursable contracts;

o our ability to identify future acquisition candidates or to integrate
acquired operations;

o the rapid change of technology and high level of competition in the
communications equipment industry;

o our introduction of new products into commercial markets or our
investments in commercial products or companies;

o pension, environmental or legal matters or proceedings and various other
market, competition and industry factors, many of which are beyond our
control; and

o the fair values of assets including goodwill and other intangibles of
our business can be impaired or reduced by the other factors discussed
above.

You are cautioned that our forward-looking statements are not guarantees
of future performance and the actual results or developments may differ
materially from the expectations expressed in the forward-looking statements.

As for the forward-looking statements that relate to future financial
results and other projections, actual results will be different due to the
inherent uncertainty of estimates, forecasts and projections and may be better
or worse than projected. Given these uncertainties, you should not place any
reliance on these forward-looking statements. These forward-looking statements
also represent our

estimates and assumptions only as of the date that they were made. We expressly
disclaim a duty to provide updates to these forward-looking statements, and the
estimates and assumptions associated with them, after the date of this
prospectus to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.

We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
You are advised however, to consult any additional disclosures we make in our
Form 10-K, Form 10-Q and Form 8-K reports to the Securities and Exchange
Commission. Also note that we provide a cautionary discussion of risk and
uncertainties under the caption "Risk Factors" in this prospectus. These are
factors that we think could cause our actual results to differ materially from
expected results. Other factors besides those listed here could also adversely
affect us. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange a like principal amount of outstanding
notes, the terms of which are identical in all material respects to the
exchange notes. The outstanding notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the exchange notes will not result in any change in our
capitalization.

We received net proceeds of approximately $731.8 million from the offering
of the outstanding notes, after deducting the discounts, commissions and
estimated expenses payable by us. Concurrently with that offering, L-3
Communications Holdings consummated a common stock offering from which it
received net proceeds of approximately $767.6 million, after deducting related
discounts, commissions and estimated expenses.

The net proceeds from the offering of the outstanding notes and the
concurrent sale of common stock were used to (1) repay the $500.0 million of
indebtedness outstanding under our senior subordinated interim loan agreement,
(2) repay $151.0 million of indebtedness outstanding under our 364-day
revolving credit facility and $200.0 million of indebtedness outstanding under
our five-year revolving credit facility, (3) repurchase and redeem the $225.0
million 10 3/8% Senior Subordinated Notes due 2007 for approximately $237.4
million and (4) increase our cash and cash equivalents, which will be used for
general corporate purposes, including acquisitions. The 364-day revolving
facility matures on February 25, 2003 and the five-year revolving credit
facility matures on May 15, 2006. Amounts paid under each of our revolving
credit facilities are available (subject to compliance with covenants) to be
reborrowed by us from time to time for, among other reasons, general corporate
purposes including potential acquisitions.

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2002.

AS OF JUNE 30, 2002
--------------------
(in millions)

Cash and cash equivalents ........................................ $ 466.1
=========
Long-term debt:
Senior credit facilities(1) ..................................... $ --
10 3/8% Senior Subordinated Notes due 2007(2) ................... 48.1
8 1/2% Senior Subordinated Notes due 2008 ....................... 180.0
8% Senior Subordinated Notes due 2008 ........................... 200.0
7 5/8% Senior Subordinated Notes due 2012 ....................... 750.0
5 1/4% Convertible Senior Subordinated Notes due 2009(3) ........ 300.0
4% Senior Subordinated Convertible Contingent Debt Securities
due 2011(4) ................................................... 420.0
---------
Total debt .................................................... $ 1,898.1
Minority interest ................................................ $ 71.8
Shareholders' equity:
Common stock .................................................... $ 1,755.1
Retained earnings ............................................... 362.6
Unearned compensation ........................................... (4.5)
Accumulated other comprehensive loss ............................ (25.0)
---------
Total shareholders' equity .................................... $ 2,088.2
---------
Total capitalization .......................................... $ 4,058.1
=========

- ----------
(1) As of June 30, 2002, our availability under the senior credit facilities
at any given time was $750.0 million (subject to compliance with
covenants), less the amount of outstanding borrowings and outstanding
letters of credit (which amounted to $172.3 million for outstanding
letters of credit and no outstanding borrowings at June 30, 2002).

(2) In July of 2002, L-3 redeemed $48.1 million of 103/8% Senior Subordinated
Notes due 2007 with a portion of the net proceeds from the offering of
the outstanding notes, which were included in cash and cash equivalents
at June 30, 2002.

(3) The 5 1/4% Convertible Senior Subordinated Notes due June 1, 2009 were
issued by L-3 Communications Holdings in November 2000. The 5 1/4%
Convertible Senior Subordinated Notes are, subject to adjustment,
convertible into 7,361,964 shares of common stock of L-3 Communications
Holdings and are unconditionally guaranteed, on an unsecured senior
subordinated basis, jointly and severally by L-3 Communications
Corporation and substantially all of L-3 Communications Corporation's
domestic restricted subsidiaries.

(4) The 4% Senior Subordinated Convertible Contingent Debt Securities (CODES)
due September 15, 2011 were issued by L-3 Communications Holdings in
October 2001. The CODES are, subject to adjustment, convertible into
7,804,878 shares of common stock of L-3 Communications Holdings and are
unconditionally guaranteed, on an unsecured senior subordinated basis,
jointly and severally by L-3 Communications Corporation and substantially
all of L-3 Communications Corporation's domestic restricted subsidiaries.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated statements of
operations ("pro forma statement of operations") data gives effect to the
following transactions as if they had occurred on January 1, 2001: (1) our
acquisition of AIS, which was completed on March 8, 2002, our acquisition of
the detection systems business of PerkinElmer, which was completed on June 14,
2002 and the acquisitions of KDI Precision Products, Inc., EER Systems, Inc.,
Spar Aerospace Limited, Emergent Government Services Group, Bulova
Technologies, and SY Technology, Inc., which we completed during the year ended
December 31, 2001, and their related financings (collectively, the
"Acquisitions"), (2) the offering of the outstanding notes and the concurrent
sale of common stock by L-3 Communications Holdings, Inc. (collectively, the
"Offerings") and (3) the application of the net proceeds of those offerings to
repay $500.0 million of indebtedness outstanding under our senior subordinated
interim loan agreement incurred in connection with our acquisition of AIS,
repay the $445.6 million of indebtedness outstanding under our senior credit
facilities, to repurchase and redeem our 10 3/8% Senior Subordinated Notes due
2007 for approximately $237.4 million and increase our cash and cash
equivalents, which will be used for general corporate purposes, including
potential acquisitions. All of the Acquisitions described above are included in
our consolidated balance sheet as of June 30, 2002, and therefore, an unaudited
pro forma condensed consolidated balance sheet is not provided.

The pro forma statements of operations do not include an extraordinary
pre-tax charge of $16.2 million ($9.9 million after-tax) related to the
repurchase and redemption of our $225.0 million 10 3/8% Senior Subordinated
Notes due 2007. The extraordinary charge includes the call premium of 5.188% or
approximately $11.7 million and fees and other expenses of approximately $4.5
million, including the write-off of unamortized deferred debt issue costs
relating to the $225.0 million 10 3/8% Senior Subordinated Notes due 2007. The
extraordinary charge is not included in the pro forma statements of operations
because it is not a component of income (loss) from continuing operations.

The pro forma adjustments related to our Acquisitions are based on
preliminary purchase prices and purchase price allocations. Actual adjustments
will be based on final purchase prices, audited historical net assets for the
Acquisitions, and final appraisals and other analyses of fair values of
contracts in process, inventories, estimated costs in excess of billings to
complete contracts in process, identifiable intangibles, pension and
postretirement benefit obligations and deferred tax assets and liabilities,
which will be completed after we obtain and review all of the data required for
the acquired assets and liabilities and complete our valuations of them.
Differences between the preliminary and final purchase price allocations could
have a material impact on our results of operations and financial position. The
unaudited pro forma condensed consolidated statement of operations does not
reflect any cost savings that we believe would have resulted had the
Acquisitions occurred on January 1, 2001.

The unaudited pro forma condensed consolidated financial information
should be read in conjunction with (1) our unaudited condensed consolidated
financial statements for the six months ended June 30, 2002 and 2001, and our
audited consolidated financial statements for the year ended December 31, 2001
included elsewhere in this prospectus; and (2) the audited combined financial
statements of AIS for the year ended December 31, 2001 included elsewhere in
this prospectus. The other historical statement of operations data for the
Acquisitions are based on unaudited financial statement data not included
herein. The unaudited pro forma condensed consolidated financial information
may not be indicative of the results of operations that actually would have
occurred had the Acquisitions, the offering of the outstanding notes and the
concurrent sale of common stock by L-3 Communications Holdings been completed
on January 1, 2001 or the results of our operations that may be obtained in the
future.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN MILLIONS)

PRO FORMA
PRO FORMA FOR OUR
L-3 ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
AS ACQUISITION FOR OUR FOR OUR FOR THE AND THE
REPORTED HISTORICAL(1)(2) ACQUISITIONS ACQUISITIONS OFFERINGS OFFERINGS
------------- ------------------ -------------- -------------- --------------- -------------

Sales ............................ $ 1,652.0 $ 276.6 $ -- $ 1,928.6 $ -- $ 1,928.6
Costs and expenses ............... 1,483.0 267.9 -- 1,750.9 -- 1,750.9
---------- -------- ------- ---------- ------- ----------
Operating income ............... 169.0 8.7 -- 177.7 -- 177.7
Interest and other income
(expense) ....................... 0.8 -- (1.5)(3) (0.7) -- ( 0.7)
Interest expense ................. 57.7 -- 8.1 (4) 65.8 (6.8)(5) 59.0
Minority interest ................ 2.7 -- -- 2.7 -- 2.7
---------- -------- ------- ---------- ------- ----------
Income (loss) before income
taxes and extraordinary
item .......................... 109.4 8.7 (9.6) 108.5 6.8 115.3
Provision (benefit) for income
taxes(6) ........................ 38.6 6.0 (3.8) 40.8 2.7 43.5
---------- -------- ------- ---------- ------- ----------
Income (loss) from
continuing operations ......... $ 70.8 $ 2.7 $ (5.8) $ 67.7 $ 4.1 $ 71.8
========== ======== ======= ========== ======= ==========

See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN MILLIONS)

PRO FORMA
PRO FORMA FOR OUR
L-3 ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
AS ACQUISITIONS FOR OUR FOR OUR FOR THE AND THE
REPORTED HISTORICAL(1)(7) ACQUISITIONS ACQUISITIONS OFFERINGS OFFERINGS
------------- ------------------ ---------------- -------------- ------------------ -------------

Sales ............................ $ 1,023.5 $ 667.2 $ -- $ 1,690.7 $ -- $ 1,690.7
Costs and expenses ............... 916.1 649.3 (14.8)(8) 1,550.6 -- 1,550.6
---------- -------- --------- ---------- ---------- ----------
Operating income ............... 107.4 17.9 14.8 140.1 -- 140.1
Interest and other income
(expense) ....................... 1.4 (5.9) (1.4)(3) (5.9) -- (5.9)
Interest expense ................. 46.4 0.4 46.1 (4) 92.9 (20.0) (5) 72.9
Minority interest ................ 1.6 -- -- 1.6 -- 1.6
---------- -------- --------- ---------- ---------- ----------
Income (loss) before income
taxes ......................... 60.8 11.6 (32.7) 39.7 20.0 59.7
Provision (benefit) for income
taxes(6) ........................ 23.3 5.3 (13.9) 14.7 8.0 22.7
---------- -------- --------- ---------- ---------- ----------
Income (loss) from
continuing operations ......... 37.5 6.3 (18.8) 25.0 12.0 37.0
Goodwill amortization expense,
net of tax ...................... 15.8 -- -- 15.8 -- 15.8
---------- -------- --------- ---------- ---------- ----------
Income (loss) from
continuing operations, as
adjusted ...................... $ 53.3 $ 6.3 $ (18.8) $ 40.8 $ 12.0(9) $ 52.8
========== ======== ========= ========== ============ ==========

See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN MILLIONS)

PRO FORMA
PRO FORMA FOR OUR
L-3 ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
AS ACQUISITIONS FOR OUR FOR OUR FOR THE AND THE
REPORTED HISTORICAL(1)(10) ACQUISITIONS ACQUISITIONS OFFERINGS OFFERINGS
------------- ------------------- ---------------- -------------- ------------------ -------------

Sales ........................... $ 2,347.4 $ 1,296.0 $ -- $ 3,643.4 $ -- $ 3,643.4
Costs and expenses .............. 2,072.1 1,235.5 (30.0)(8) 3,277.6 -- 3,277.6
---------- ---------- --------- ---------- ---------- ----------
Operating income .............. 275.3 60.5 30.0 365.8 -- 365.8
Interest and other income
(expense) ...................... 1.8 (11.3) (3.8)(3) (13.3) -- (13.3)
Interest expense ................ 86.3 0.5 82.0 (4) 168.8 (32.4)(5) 136.4
Minority interest ............... 4.5 -- -- 4.5 -- 4.5
---------- ---------- --------- ---------- ---------- ----------
Income (loss) before income
taxes ........................ 186.3 48.7 (55.8) 179.2 32.4 211.6
Provision (benefit) for income
taxes(6) ....................... 70.8 24.7 (21.2) 74.3 13.0 87.3
---------- ---------- --------- ---------- ---------- ----------
Income (loss) from
continuing operations ........ 115.5 24.0 (34.6) 104.9 19.4 124.3
Goodwill amortization expense,
net of tax ..................... 33.9 -- -- 33.9 -- 33.9
---------- ---------- --------- ---------- ---------- ----------
Income (loss) from
continuing operations, as
adjusted ..................... $ 149.4 $ 24.0 $ (34.6) $ 138.8 $ 19.4(9) $ 158.2
========== ========== ========= ========== ============ ==========

See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

1. On March 8, 2002, we acquired AIS for $1,152.7 million in cash which
includes $1,130.0 million for the original contract purchase price, $4.0
million for estimated acquisition costs and an increase to the contract
purchase price of $18.7 million related to additional assets contributed by
Raytheon to AIS. The purchase price is subject to adjustment based on the
AIS closing date net tangible book value, as defined. The AIS acquisition
was financed using cash on hand as well as available borrowings under our
senior credit facilities and a $500.0 million senior subordinated interim
loan. On June 14, 2002, we acquired the detection systems business of
PerkinElmer ("PKI") for $100.0 million in cash plus acquisition costs,
subject to adjustment based on closing date net working capital, as
defined. During the year ended December 31, 2001, we also made the
following acquisitions:

o in May 2001, all the outstanding common stock of KDI Precision Products,
Inc. ("KDI") for $79.4 million in cash including acquisition costs.

o in May 2001, all the outstanding common stock of EER Systems, Inc.
("EER") for $119.5 million in cash including acquisition costs, and
subject to an additional purchase price not to exceed $5.0 million which
is contingent upon the financial performance of EER for the year ending
December 31, 2002.

o in November and December 2001, 70.3% of the outstanding common stock of
Spar Aerospace Limited ("Spar") for $105.1 million in cash including
acquisition costs. We acquired and paid for the remaining outstanding
common stock of Spar in January 2002 for $43.6 million.

o in November 2001, all the outstanding common stock of Emergent Government
Services Group ("EMG") for $39.8 million, subject to adjustment based on
closing date net working capital. Following the acquisition, we changed
Emergent Government Services Group's name to L-3 Communications
Analytics.

o in December 2001, the net assets of Bulova Technologies for $49.5
million, subject to adjustment based on closing date net assets.
Following the acquisition, we changed Bulova Technologies name to BT Fuze
Products ("BT Fuze").

o in December 2001, the net assets of SY Technology Inc. ("SY") for $49.8
million, subject to adjustment based on closing date net assets, and
additional purchase price not to exceed $3.0 million, which is contingent
upon the financial performance of SY for the years ending December 31,
2002 and 2003.

The aggregate purchase price of these acquisitions, including acquisition
costs, is $1,739.4 million.

2. The pro forma statement of operations for the six months ended June 30,
2002 includes the following unaudited historical financial data for our
Acquisitions.

AIS(a) PKI(b) ACQUISITIONS
----------- ---------- -------------
(IN MILLIONS)

Sales ....................................... $ 213.4 $ 63.2 $ 276.6
Costs and expenses .......................... 209.1 58.8 267.9
-------- ------- --------
Operating income ........................... 4.3 4.4 8.7
Interest and other income ................... -- -- --
Interest expense ............................ -- -- --
-------- ------- --------
Income before income taxes and extraordinary
item ..................................... 4.3 4.4 8.7
Income tax provision ........................ 2.4 3.6 6.0
-------- ------- --------
Income from continuing operations .......... $ 1.9 $ 0.8 $ 2.7
======== ======= ========

- ----------
(a) Represents historical results of operations for the two-month period
ended February 28, 2002.

(b) Represents historical results of operations for the period from
January 1, 2002 to June 14, 2002.

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

3. Our historical interest income has been eliminated because the cash and
cash equivalents which earned the interest income were obtained from the
net proceeds from the CODES (as defined below) offering and the May 2001
Common Stock Offering (as defined below) that were assumed entirely to be
used to finance the Acqusitions. Such eliminations amounted to $1.5 million
for the six months ended June 30, 2002, $1.4 million for the six months
ended June 30, 2001 and $3.8 million for the year ended December 31, 2001.

4. The aggregate purchase prices, including acquisition costs, for the
Acquisitions of $1,739.4 million were assumed to be financed at January 1,
2001 using (1) borrowings under our senior credit facilities of $445.6
million, (2) borrowings of $500.0 million under the senior subordinated
interim loan, (3) cash on hand of $32.7 million, (4) the net proceeds from
the sale of $420.0 million of 4% Senior Subordinated Convertible Contingent
Debt Securities due September 15, 2011 ("CODES") in October and November of
2001, which amounted to $407.5 million, and (5) the net proceeds from L-3
Holdings' public offering of 9,150,000 shares of its common stock in May
2001 (the "May 2001 Common Stock Offering") which amounted to $353.6
million. The borrowings under the senior credit facilities and the senior
subordinated interim loan that we made to finance the AIS acquisition were
included in our historical results of operations effective March 1, 2002.

The adjustments to our historical interest expense for the six months ended
June 30, 2002 and 2001 and the year ended December 31, 2001 to give effect
to the financing of the Acquisitions are presented below.

SIX MONTHS ENDED
JUNE 30, YEAR ENDED
-------------------- DECEMBER 31,
2002 2001 2001
--------- ---------- -------------
(IN MILLIONS)

Interest on borrowings under the senior credit
facilities (on $445.6 million) for the periods prior
to March 1, 2002(a) .................................. $ 3.6 $ 15.8 $ 29.3
Interest on senior subordinated interim loan (on
$500.0 million) for the periods prior to March 1,
2002(a) .............................................. 4.5 21.6 38.0
Interest on the CODES offering for the periods
prior to October 31, 2001 (4% on $420.0 million
for 10 months). ...................................... -- 8.4 14.0
Amortization of deferred debt issue costs incurred
on the CODES for periods prior to October 31,
2001 ................................................. -- 0.7 1.2
Eliminate historical interest expense for the KDI
and SY Technology acquisitions ....................... -- (0.4) (0.5)
------ ------- -------
Total pro forma adjustments to interest
expense ........................................... $ 8.1 $ 46.1 $ 82.0
====== ======= =======

- ----------
(a) The adjustments to pro forma interest for the pro forma adjustments for
borrowings under the senior credit facilities and senior subordinated
interim loan are based on the average prevailing interest rates that we
would have paid on those borrowings for the periods presented had such
borrowings been outstanding at the beginning of each of the periods
presented. The average prevailing interest rates on the senior credit
facilities would have been 4.86% for the six months ended June 30,
2002, 7.11% for the six months ended June 30, 2001 and 6.57% for the
year ended December 31, 2001. The average prevailing interest rates on
the senior subordinated interim loan would have been 5.36% for the six
months ended June 30, 2002, 8.65% for the six months ended June 30,
2001, and 7.59% for the year ended December 31, 2001.

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

5. Assuming the offering of the outstanding notes and the concurrent sale of
common stock by L-3 Communications Holdings of 14,000,000 million shares
were completed on January 1, 2001, the net aggregate proceeds from the
Offerings of $1,499.4 million, after deductions for underwriting
commissions and discounts and other offering expenses totaling $43.0
million, would have been applied to repay all of the borrowings under the
senior subordinated interim loan of $500.0 million, repurchase and redeem
our 10 3/8% Senior Subordinated Notes due 2007, repay $445.6 million of
borrowings outstanding under the senior credit facilities and $316.4
million would have been invested in cash and cash equivalents. Total
interest expense after the pro forma adjustments for our Acquisitions but
prior to the Offerings amounted to $65.8 million for the six months ended
June 30, 2002, $92.9 million for the six months ended June 30, 2001, and
$168.8 million for the year ended December 31, 2001. As a result of the
Offerings, total pro forma interest expense would have decreased by $6.8
million for the six months ended June 30, 2002, $20.0 million for the six
months ended June 30, 2001 and $32.4 million for the year ended December
31, 2001. The details of the changes to interest expense are described in
the table below.

SIX MONTHS ENDED JUNE 30,
--------------------------- YEAR ENDED
2002 2001 DECEMBER 31, 2001
---------- -------------- ------------------
(IN MILLIONS)

Estimated interest on $750.0 million 7 5/8%
Senior Subordinated Notes offered
hereby ..................................... $ 28.6 $ 28.6 $ 57.2
Amortization of deferred debt issue costs
incurred on $750.0 million Senior
Subordinated Notes offered hereby .......... 0.9 0.9 1.8
Eliminate interest on the senior
subordinated interim loan(a) ............... (13.4) (21.6) (38.0)
Eliminate interest on $225.0 million 10 3/8%
Senior Subordinated Notes due 2007 ......... (11.7) (11.7) (23.3)
Eliminate amortization of deferred debt
issue costs incurred on $225.0 million
10 3/8% Senior Subordinated Notes due
2007 ....................................... (0.4) (0.4) (0.8)
Eliminate interest on borrowings under the
senior credit facilities (on $445.6
million)(a) ................................ (10.8) (15.8) (29.3)
------- ------- -------
Total adjustments to pro forma interest
expense ................................... $ (6.8) $ (20.0) $ (32.4)
======= ======= =======

- ----------
(a) The adjustments to pro forma interest expense for the pro forma
adjustments for borrowings under the senior credit facilities and
senior subordinated interim loan are based on the average prevailing
interest rates that we would have paid on those borrowings for the
periods presented had such borrowings been outstanding at the beginning
of each of the periods presented. The average prevailing interest rates
on the senior credit facilities would have been 4.86% for the six
months ended June 30, 2002, 7.11% for the six months ended June 30,
2001 and 6.57% for the year ended December 31, 2001. The average
prevailing interest rates on the senior subordinated interim loan would
have been 5.36% for the six months ended June 30, 2002, 8.65% for the
six months ended June 30, 2001, and 7.59% for the year ended December
31, 2001.

The pro forma statements of operations do not reflect interest income on
the $316.4 million pro forma cash balance at January 1, 2001 that we would
have had after the Offerings.

6. The pro forma adjustments for our Acquisitions and Offerings were all
tax-effected, as appropriate, using an estimated statutory (federal and
state) tax rate of 40.0%. The pro forma adjustments also include an income
tax (benefit) provision (($0.8) million for the six months ended June 30,
2001 and $1.1 million for the year ended December 31, 2001) to record the
aggregate income tax expense for the historical results of operations of
KDI, EER, BT Fuze and

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

SY to the statutory income tax rate of 40.0% that they would have incurred
had we acquired them on January 1, 2001, but did not because they were not
subject to income tax prior to their acquisition by us.

7. The pro forma statement of operations for the six months ended June 30,
2001 includes the following unaudited historical financial data for our
Acquisitions.

BT SY
KDI(a) EER(a) SPAR EMG FUZE TECHNOLOGY AIS
--------------- --------------- ---------- ---------- ---------- ------------ -----------
(IN MILLIONS)

Sales ............................ $ 16.2 $ 49.3 $ 48.1 $ 33.0 $ 13.4 $ 30.6 $ 435.5
Costs and expenses ............... 16.6 47.4 41.5 30.4 13.7 27.9 428.2
-------- -------- ------- ------- ------ ------- --------
Operating income (loss) ......... (0.4) 1.9 6.6 2.6 (0.3) 2.7 7.3
Interest and other income
(expense) ....................... (1.6)(b) (4.0)(c) 0.5 -- -- -- (0.7)
Interest expense ................. 0.3 -- -- -- -- 0.1 --
-------- -------- ------- ------- ------ ------- --------
Income (loss) before
income taxes .................. (2.3) (2.1) 7.1 2.6 (0.3) 2.6 6.6
Income tax provision
(benefit) ....................... -- -- 2.7 -- -- -- 3.6
-------- -------- ------- ------- ------ ------- --------
Income (loss) from
continuing operations ......... $ (2.3) $ (2.1) $ 4.4 $ 2.6 $ (0.3) $ 2.6 $ 3.0
======== ======== ======= ======= ======= ======= ========

PKI ACQUISITIONS
---------- -------------

Sales ............................ $ 41.1 $ 667.2
Costs and expenses ............... 43.6 649.3
------ --------
Operating income (loss) ......... (2.5) 17.9
Interest and other income
(expense) ....................... (0.1) (5.9)
Interest expense ................. -- 0.4
------ --------
Income (loss) before
income taxes .................. (2.6) 11.6
Income tax provision
(benefit) ....................... (1.0) 5.3
------ --------
Income (loss) from
continuing operations ......... $ (1.6) $ 6.3
======= ========

- ----------

(a) Represents historical results of operations for the four-month period
ended April 30, 2001.

(b) Includes a charge to write-down excess inventory of $1.7 million.

8. Adjustments to costs and expenses relating to the Acquisitions are
presented in the table below:

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2001 DECEMBER 31, 2001
--------------- ------------------
(IN MILLIONS)

Eliminate historical goodwill amortization
for AIS, EMG, Spar and PKI(a) .................. $ (15.5) $ (30.7)
Increase to goodwill amortization for KDI and EER
for higher goodwill recorded by L-3 than their
historical amounts of goodwill(a) .............. 0.7 0.7
------- -------
Total pro forma adjustments to costs and
expenses .................................... $ (14.8) $ (30.0)
======= =======

- ----------

(a) In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, no goodwill amortization expenses would have been recorded by
us in 2001 for the acquisitions of EMG, Spar, BT Fuze, SY, AIS and PKI
because these acquisitions were completed after June 30, 2001.
Additionally, in accordance with SFAS No. 142, effective January 1,
2002 goodwill amortization is no longer being recorded for any of the
Acquisitions.

The assets and liabilities recorded in connection with the purchase price
allocations for the Acquisitions are all based upon preliminary estimates
of fair values for contracts in process, estimated costs in excess of
billings to complete contracts in process, inventories, identifiable
intangibles and deferred taxes. Actual adjustments will be based on the
final purchase prices and final appraisals and other analyses of fair
values which are in process. With the exception of the AIS acquisition, we
do not expect the differences between the preliminary and final purchase

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

price allocations for the acquisitions to be material. Material differences
between the preliminary and final purchase price allocations for the AIS
acquisition could result from the valuation of contracts in process,
estimated costs in excess of billings to complete contracts in process,
identifiable intangibles, deferred income taxes and pension and
postretirement benefits and other items. A review of the contracts in
process and identifiable intangible assets included in the AIS acquisition
is being performed. All of the data required to prepare this review and the
related valuations is not currently available and at this time it is not
practicable to reasonably estimate these valuations. In addition, no
adjustment has been made to contracts in process which will be valued at
their estimated contract prices less the estimated costs to complete and an
allowance for a normal profit on the effort to complete such contracts.
Although the final purchase price allocation for the contracts in process,
estimated costs in excess of billings to complete contracts in process,
deferred taxes and pension and postretirement benefits of AIS could
materially affect the amount of goodwill recorded for AIS, such final
purchase price allocations are not expected to have a material effect on
our results of operations. Furthermore, any allocation of purchase price to
identifiable intangible assets with finite lives will result in additional
amortization expense and a reduction to the estimated goodwill for AIS. For
example, an allocation of $50.0 million to identifiable intangible assets
with a 10 year life would result in an increase of $5.0 million per annum
to costs and expenses and a decrease of $3.0 million per annum to income
from continuing operations.

9. The pro forma adjustments for the Offerings for the six months ended June
30, 2001 and the year ended December 31, 2001 do not include an
extraordinary charge of $16.2 million ($9.9 million after-tax) related to
the repurchase and redemption of our $225.0 million 10 3/8% Senior
Subordinated Notes due 2007. The extraordinary charge includes the call
premium of 5.188% or approximately $11.7 million and fees and other
expenses of approximately $4.5 million, including the write-off of the
unamortized deferred debt issue costs on the $225.0 million 10 3/8% Senior
Subordinated Notes due 2007. The extraordinary charge is not included in
the pro forma adjustments because it is not a component of income (loss)
from continuing operations.

10. The pro forma statement of operations for the year ended December 31, 2001
includes the following unaudited historical financial data for our
Acquisitions.

KDI(a) EER(a) SPAR(b)
--------------- --------------- ---------------
(IN MILLIONS)

Sales ............................ $ 16.2 $ 49.3 $ 76.9
Costs and expenses ............... 16.6 47.4 67.8
-------- -------- --------
Operating income (loss) ......... (0.4) 1.9 9.1
Interest and other income
(expense) ....................... (1.6)(d) (4.0)(e) (0.4)(f)
Interest expense ................. 0.3 -- --
-------- -------- --------
Income (loss) before
income taxes .................. (2.3) (2.1) 8.7
Income tax provision
(benefit) ....................... -- -- 3.3
-------- -------- --------
Income (loss) from
continuing operations ......... $ (2.3) $ (2.1) $ 5.4
======== ======== ========

BT SY
EMG(b) FUZE(c) TECHNOLOGY(c) AIS PKI ACQUISITIONS
--------------- --------- --------------- ----------- ---------- -------------
(IN MILLIONS)

Sales ............................ $ 52.2 $ 34.7 $ 62.0 $ 918.6 $ 86.1 $ 1,296.0
Costs and expenses ............... 49.1 32.8 56.5 876.7 88.6 1,235.5
-------- ------- ------- -------- ------ ----------
Operating income (loss) ......... 3.1 1.9 5.5 41.9 (2.5) 60.5
Interest and other income
(expense) ....................... (3.8)(g) -- -- (1.4) (0.1) (11.3)
Interest expense ................. -- -- 0.2 -- -- 0.5
-------- ------- ------- -------- ------ ----------
Income (loss) before
income taxes .................. (0.7) 1.9 5.3 40.5 (2.6) 48.7
Income tax provision
(benefit) ....................... 0.3 -- -- 22.1 (1.0) 24.7
-------- ------- ------- -------- ------ ----------
Income (loss) from
continuing operations ......... $ (1.0) $ 1.9 $ 5.3 $ 18.4 $ (1.6) $ 24.0
======== ======= ======= ======== ======= ==========

- ----------
(a) Represents historical results of operations for the four-month period
ended April 30, 2001.

(b) Represents historical results of operations for the ten-month period
ended October 31, 2001.

(d) Includes a charge to write-down excess inventory of $1.7 million.

(e) Includes a charge of $4.2 million for investment banking fees and other
non-recurring charges.

(f) Includes a $1.4 million restructuring charge.

(g) Includes a $3.8 million restructuring charge.

The historical results of operations for KDI, EER, BT Fuze and SY do not
include a provision for income taxes because they each were either an S
Corporation or a Limited Liability Company and the income taxes on their
income were paid by their individual stockholders rather than the entities.

SELECTED FINANCIAL INFORMATION

We derived the selected financial data presented below as of December 31,
2001 and 2000 and for each of the three years ended December 31, 2001 from our
audited consolidated financial statements included elsewhere herein. We derived
the selected financial data presented below as of June 30, 2002 and for the six
months ended June 30, 2002 and June 30, 2001 from our unaudited consolidated
financial statements included elsewhere herein. We derived the selected
financial data presented below as of December 31, 1999, 1998 and 1997 and for
the nine months ended December 31, 1997 from our audited consolidated financial
statements not included herein. We derived the selected financial data
presented below for the three months ended March 31, 1997 from the audited
combined financial statements of our predecessor company not included herein.
You should read the selected financial data together with our "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
our audited consolidated financial statements.

L-3
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------------- -------------------------------------------------------
2002 2001 2001(1) 2000(1) 1999(1) 1998(1)
------------- ------------- ------------- ------------- ------------- -------------
(in millions, except per share data)

STATEMENT OF
OPERATIONS DATA:
Sales ..................... $ 1,652.0 $ 1,023.5 $ 2,347.4 $ 1,910.1 $ 1,405.5 $ 1,037.0
Operating income .......... 169.0 107.4 275.3 222.7 150.5 100.3
Interest expense, net ..... 56.9 45.0 84.5 88.6 55.1 46.9
Minority interest ......... 2.7 1.6 4.5 -- -- --
Provision (benefit) for
income taxes ............. 38.6 23.3 70.8 51.4 36.7 20.9
Income from continuing
operations ............... 70.8 37.5 115.5 82.7 58.7 32.6
Income from continuing
operations, as
adjusted(5) .............. $ 70.8 $ 53.3 $ 149.4 $ 112.3 $ 76.2 $ 43.7
BALANCE SHEET DATA (AT
PERIOD END):
Working capital ........... $ 1,224.3 $ 456.2 $ 714.3 $ 360.9 $ 255.5 $ 157.8
Total assets .............. 4,949.2 2,728.1 3,335.4 2,463.5 1,628.7 1,285.4
Total debt ................ 1,898.1 905.0 1,315.3 1,095.0 605.0 605.0
Shareholders' equity ...... 2,088.2 1,131.4 1,213.9 692.6 583.2 300.0

PREDECESSOR
COMPANY(3)
------------
THREE
NINE MONTHS MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997(2) 1997
---------------- ------------
(in millions, except per share
data)

STATEMENT OF
OPERATIONS DATA:
Sales ..................... $ 546.5 $ 158.9
Operating income .......... 51.5 (4) 7.9
Interest expense, net ..... 28.5 8.4
Minority interest ......... -- --
Provision (benefit) for
income taxes ............. 10.7 (0.2)
Income from continuing
operations ............... 12.3 (4) (0.3)
Income from continuing
operations, as
adjusted(5) .............. $ 16.7 (0.3)
BALANCE SHEET DATA (AT
PERIOD END):
Working capital ........... $ 143.2 --
Total assets .............. 697.0 --
Total debt ................ 392.0 --
Shareholders' equity ...... 113.7 --

- ----------

(1) Our results of operations are impacted significantly by our acquisitions,
some of which are described elsewhere herein.

(2) Reflects the acquisition of our predecessor company and the commencement
of our operations effective April 1, 1997.

(3) The Predecessor Company refers to the ten initial business units we
purchased from Lockheed Martin Corporation in 1997.

(4) Includes a nonrecurring, noncash compensation charge of $4.4 million
($0.22 per share) related to our initial capitalization, which we
recorded effective April 1, 1997.

(5) Represents income from continuing operations, adjusted to exclude
goodwill amortization expense, net of any income tax effects, recognized
in those years related to goodwill that is no longer amortized.

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

OVERVIEW

Our Secure Communications & ISR segment provides products and services for
the global ISR market as well as secure, high data rate communications systems
for military and other U.S. Government reconnaissance and surveillance
applications. We believe our systems and products are critical elements of
virtually all major communication, command and control, intelligence gathering
and space systems. Our systems and products are used to connect a variety of
airborne, space, ground and sea-based communication systems and are used in
transmission, processing, recording, monitoring and dissemination functions of
these communication systems. Our Training, Simulation & Support Services
segment produces training systems, programs and related support services, and
provides a wide range of engineering development and integration support, a
full range of teaching, training, logistic and communication software support
services and custom ballistic targets. Our Aviation Products & Aircraft
Modernization segment provides TCAS products, cockpit voice, flight data and
cruise ship hardened voyage recorders, displays and specialized aircraft
modernization, upgrade and maintenance services. Our Specialized Products
segment provides ocean products, telemetry, instrumentation, space and guidance
products, premium fuzing products, detection systems, training devices and
microwave components.

In recent years, domestic and worldwide political and economic
developments have significantly affected the markets for defense systems,
products and services. Two events in 2001 had a dramatic impact on the domestic
and international political and economic landscape. They impacted L-3 and the
defense industry generally. First, the events of September 11 created
uncertainty and exposed vulnerabilities in security and the overall defense of
our homeland. Second, in the conclusions of the U.S. Quadrennial Defense Review
(QDR) that was completed in 2001, there was a fundamental and philosophical
shift in focus from a "threat-based" model to one that emphasizes the
capabilities needed to defeat a full spectrum of adversaries. Transforming the
nation's defense posture to a capabilities-based approach involves creating the
ability for a more flexible response, with greater force mobility, stronger
space capabilities, missile defense, improved and network-centric
communications, intelligence and information systems security and an increased
emphasis on homeland defense.

The current U.S. defense budget and the proposed U.S. defense budgets for
fiscal years 2003 through 2006 have each been increased by approximately 20%
over their previous budgets for those same years with increased focus on
command, control, communications, intelligence, surveillance and reconnaissance
(C3ISR), precision-guided weapons, unmanned aerial vehicles (UAVs),
communications networks and missile defense. We believe we are well positioned
to benefit from increased spending in those areas. In addition, increased
emphasis on homeland defense may increase demand for our capabilities in areas
such as airport security systems, information security, crisis management,
preparedness and prevention services, and civilian security operations. While
there is no assurance that the proposed increased DoD budget levels will be
approved by Congress, after over a

decade of downward trends, the current outlook is one of increased spending,
which we believe should positively affect our future sales and could
potentially favorably affect our future operating profits because of increased
sale volumes.

All of our domestic government contracts and subcontracts are subject to
audit and various cost controls, and include standard provisions for
termination for the convenience of the U.S. Government. Multiyear U.S.
Government contracts and related orders are subject to cancellation if funds
for contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the relevant foreign government.

ACQUISITIONS

The table below summarizes the material acquisitions that we have
completed during the year ended December 31, 2001 and the six-month period
ended June 30, 2002.

PURCHASE
ACQUIRED COMPANY DATE ACQUIRED PRICE(1)
- ------------------------------------ ------------------- -----------------------

KDI Precision Products May 4, 2001 $ 78.9
EER Systems May 31, 2001 $ 119.4(2)
Spar Aerospace Limited November 23, 2001 $ 146.8(3)
Emergent Government Services Group November 30, 2001 $ 39.7(4)
BT Fuze Products December 19, 2001 $ 49.5(5)
SY Technology December 31, 2001 $ 58.5(6)
Aircraft Integration Systems March 8, 2002 $1,148.7(5)(7)
Detection Systems June 14, 2002 $ 100.0(5)

- ----------
(1) Purchase price represents the contractual consideration for the acquired
business, excluding adjustments for net cash acquired and acquisition
costs.

(2) Excludes additional purchase price, not to exceed $5.0 million, which is
contingent upon the financial performance of EER for the year ending
December 31, 2002.

(3) Includes $43.6 million for the remaining 29.7% of the outstanding common
stock of Spar that we acquired and paid for in January 2002.

(4) Following the acquisition we changed Emergent Government Services Group's
name to L-3 Communications Analytics.

(5) Purchase price is subject to adjustment based on actual closing date net
assets or net working capital of the acquired business.

(6) Excludes additional purchase price, not to exceed $3.0 million, which is
contingent upon the financial performance of SY for the years ending
December 31, 2002 and 2003.

(7) Includes $18.7 million related to additional assets contributed by
Raytheon Company to AIS. Following the acquisition, we changed AIS's name
to L-3 Integrated Systems ("IS").

- ----------
Additionally, we purchased other businesses during 2002 and 2001, which
individually and in the aggregate were not material to our consolidated results
of operations, financial position or cash flows in the year acquired.

All of our acquisitions have been accounted for as purchase business
combinations and are included in our consolidated results of operations from
their respective effective dates.

We regularly evaluate potential acquisitions and joint venture
transactions, but we have not entered into any agreements with respect to any
material transactions at this time.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 to the
consolidated financial statements. The preparation of financial statements in
conformity with accounting principles generally

accepted in the United States of America requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and costs and expenses during the
reporting period. The most significant of these estimates and assumptions
relate to contract estimates of sales and estimated costs to complete contracts
in process, estimates of market values for inventories reported at lower of
cost or market, estimates of pension and postretirement benefit obligations,
recoverability of recorded amounts of fixed assets and goodwill, income taxes,
including the valuations of deferred tax assets, litigation and environmental
obligations. Actual results could differ from these estimates. We believe the
following critical accounting policies contain the more significant judgements
and estimates used in the preparation of our financial statements.

Revenue Recognition on Contracts and Contract Estimates. The substantial
majority of our direct and indirect sales to the U.S. Government and certain of
our sales to foreign governments and commercial customers are made pursuant to
written contractual arrangements or "contracts" to design, develop, manufacture
and or modify complex products, and to the specifications of the buyers
(customers) or to provide services related to the performance of such
contracts. These contracts are within the scope of the American Institute of
Certified Public Accountants Statement of Position 81-1 Accounting for
Performance of Construction-Type and Certain Production-Type Contracts ("SOP
81-1"), and sales and profits on them are recognized using
percentage-of-completion methods of accounting. Sales and profits on
fixed-price production contracts whose units are produced and delivered in a
continuous or sequential process are recorded as units are delivered based on
their selling prices (the "units-of-delivery" method). Sales and profits on
other fixed-price contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each contract (the
"cost-to-cost method"). Sales and fees on cost-reimbursable contracts are
recognized as costs are incurred. Amounts representing contract change orders
or claims are included in sales only when they can be reliably estimated and
their realization is reasonably assured. Under the percentage-of-completion
methods of accounting, a single estimated total profit margin is used to
recognize profit for each contract over its entire period of performance which
can exceed one year. The impact of revisions in profit estimates are recognized
on a cumulative catch-up basis in the period in which the revisions are made.
Provisions for anticipated losses on contracts are recorded in the period in
which they become evident. The revisions in contract estimates, if significant,
can materially affect our results of operations and cash flows, as well as our
valuations of Contracts in Process.

Accounting for the sales and profit on a contract requires estimates of
(1) the contract value or total contract revenue, (2) the total costs at
completion, which is equal to the sum of the actual incurred costs to date on
the contract and the estimated costs to complete the contract's scope of work
and (3) the measurement of progress towards completion. The estimated profit or
loss on a contract is equal to the difference between the total contract value
and the estimated total cost at completion. Under the units-of-delivery
percentage of completion method, sales on a contract are recorded as the units
are delivered during the period at an amount equal to the contractual selling
price of those units. Under the cost-to-cost percentage of completion method,
sales on a contract are recorded at amounts equal to the ratio of cumulative
costs incurred to date to total estimated costs at completion multiplied by the
contract value, less the cumulative sales recognized in prior periods. The
profit recorded on a contract under both the units-of-delivery method and
cost-to-cost method is equal to the estimated total profit margin for the
contract stated as a percentage of contract revenue multiplied by the sales
recorded on the contract during the period. Adjustments to original estimates
for a contract's revenues, estimated costs at completion and estimated total
profit are often required as work progresses under a contract, as experience is
gained and as more information is obtained, even though the scope of work
required under the contract may not change, or if contract modifications occur.
Sales on a cost-reimbursable contract are recorded as costs are incurred at an
amount equal to the costs incurred plus the fee (profit) on the contract which
is determined according to the contract's fee arrangement.

For the year ended December 31, 2001: (1) sales recognized using the
units-of-delivery percentage of completion method accounted for 17.9% of total
sales, (2) sales recognized using the cost-to-cost

percentage of completion method accounted for 36.8% of total sales, and (3)
sales on cost-reimbursable contracts, which are recognized as costs are
incurred, accounted for 26.4% of total sales. The remaining 18.9% of sales for
the year ended December 31, 2001 pertain to sales on arrangements that are not
within the scope of SOP 81-1, which are recorded when products are delivered
and services are performed.

Valuation of Deferred Tax Assets and Liabilities. At December 31, 2001, we
had net deferred tax assets of $160.8 million, including $32.5 million for net
operating loss carryforwards and $31.9 million for tax credit carryforwards
which are subject to various limitations and will expire if unused within their
respective carryforward periods. Deferred taxes are determined separately for
each of our tax-paying entities in each tax jurisdiction. Future realization of
deferred tax assets ultimately depends on the existence of sufficient taxable
income of the appropriate character (for example, ordinary income or capital
gain) within the carryback and carryforward periods available under the tax
law. Based on our estimates of the amounts and timing of future taxable income,
we believe that we will realize our recorded deferred tax assets. A change in
the ability of our operations to continue to generate future taxable income
could affect our ability to realize the future tax deductions underlying our
net deferred tax assets, and require us to provide a valuation allowance
against our net deferred tax assets. Such changes, if significant, could have a
material impact in our effective tax rate, results of operations and financial
position in any given period.

RESULTS OF OPERATIONS

The following information should be read in conjunction with our unaudited
condensed consolidated financial statements and our consolidated financial
statements and the accompanying notes included herein. See Note 3 in both our
unaudited condensed consolidated financial statements and our consolidated
financial statements for a discussion of our acquisitions, including pro forma
sales, net income and diluted earnings per share data.

THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001

The tables below provide our selected statement of operations data for the
three-month period ended June 30, 2002, which we refer to as the 2002 Second
Quarter, and the three-month period ended June 30, 2001, which we refer to as
the 2001 Second Quarter.

THREE MONTHS ENDED JUNE 30,
--------------------------------
2002 2001
----------- ------------------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 278.2 $ 88.9
Training, Simulation & Support Services ............ 197.2 151.7
Aviation Products & Aircraft Modernization ......... 203.5 70.8
Specialized Products ............................... 276.3 250.2
-------- -------
Total ............................................ $ 955.2 $ 561.6
======== =======
Operating income:
Secure Communications & ISR ........................ $ 29.7 $ 4.8 (2)
Training, Simulation & Support Services ............ 22.3 19.4 (2)
Aviation Products & Aircraft Modernization ......... 32.2 24.9 (2)
Specialized Products ............................... 13.5 11.4 (2)
-------- --------------
Total ............................................ $ 97.7 $ 60.5 (2)
======== ==============

- ----------
(1) Sales are after intersegment eliminations. See Note 10 to the Unaudited
Condensed Consolidated Financial Statements.

(2) Operating income for the three months ended June 30, 2001, includes
goodwill amortization expense of $0.9 million for Secure Communications
and ISR, $1.7 million for Training, Simulation & Support Services, $2.0
million for Aviation Products & Aircraft Modernization, and $6.0 million
for Specialized Products, which aggregated $10.6 million for all of L-3.
In accordance with SFAS No. 142, after December 31, 2001, goodwill is not
amortized to expense.
- ------------

Consolidated sales increased $393.6 million to $955.2 million in the 2002
Second Quarter from sales of $561.6 million for the 2001 Second Quarter. Sales
to the U.S. Government, foreign governments and other customers that are made
pursuant to written contractual arrangements or "contracts" for products and/or
services according to the specifications of the customer are within the scope
of SOP 81-1, Accounting for Performance of Construction--type and certain
Production-type contracts, and are presented on the statement of operations
under the caption "Contracts, primarily long-term U.S. Government." Sales from
"Contracts, primarily long-term U.S. Government", increased $408.3 million to
$862.1 million in the 2002 Second Quarter from $453.8 million in the 2001
Second Quarter. The KDI, EER, Spar, Analytics, SY, BT Fuze, and IS acquisitions
contributed $343.7 million of the increase in sales. The remaining increase was
primarily attributable to volume increases of (1) $60.2 million for secure
telephone equipment (STE) and secure data links, (2) $15.7 million for
explosive detection systems, (3) $5.5 million for guidance products, and (4)
$3.9 million for displays. These increases were partially offset by declines of
(1) $4.8 million on naval power equipment, (2) $9.1 million for acoustic
undersea warfare products, and (3) $6.8 million principally for simulation and
support services. Sales arrangements that are not within the scope of SOP 81-1
are recognized in accordance with the SEC's SAB No. 101, Revenue Recognition in
Financial Statements, and are presented on the statement of operations under
the caption "Commercial, primarily products." Sales from "Commercial, primarily
products" decreased $14.7 million to $93.1 million in the 2002 Second Quarter
from $107.8 million in the 2001 Second Quarter. The decline was principally
caused by lower volume of $15.8 million on commercial aviation products and
$6.8 million on telemetry, space, microwave and other communications products.
These decreases were partially offset by sales from the Detection Systems
acquired business of $7.9 million.

Consolidated costs and expenses increased $356.4 million to $857.5 million
in the 2002 Second Quarter from $501.1 million in the 2001 Second Quarter
primarily as a result of the increase in sales. Costs and expenses for
"Contracts, primarily long-term U.S. Government" increased $351.4 million to
$759.7 million in the 2002 Second Quarter from $408.3 million in the 2001
Second Quarter primarily as a result of the increase in sales. Costs and
expenses for "Commercial, primarily products" increased $5.0 million to $97.8
million in the 2002 Second Quarter from $92.8 million in the 2001 Second
Quarter primarily due to higher expenses for the Prime Wave business.

Consolidated operating income increased by $37.2 million to $97.7 million
for the 2002 Second Quarter from $60.5 million for the 2001 Second Quarter
primarily because of higher sales, which were partially offset by lower
operating margins. Consolidated operating income as a percentage of sales
("operating margin") declined by 0.6 percentage points to 10.2% from 10.8% in
the 2001 Second Quarter. The impact of not amortizing goodwill to expense
beginning on January 1, 2002 in accordance with SFAS No. 142 increased
operating margin by 1.1 percentage points. The remaining decline in
consolidated operating margin of 1.7 percentage points was attributable to
lower margins for the Training, Simulation & Support Services, Aviation
Products & Aircraft Modernization and Specialized Products segments, which were
partially offset by higher margins for the Secure Communications & ISR segment.
The changes in the operating margins of the segments are discussed below.
Additionally, in the 2002 Second Quarter a loss of $3.0 million was recorded
for the settlement of certain litigations assumed as part of the acquisition of
Aydin Corporation in April 1999, because the settlement amounts exceeded the
original estimates of the acquired litigation liabilities. This loss was
partially offset by a foreign currency related net gain of $1.9 million in the
2002 Second Quarter. Operating income for "Contracts, primarily long-term U.S.
Government" increased $56.9 million to $102.4 million in the 2002 Second
Quarter from $45.5 million in the 2001 Second Quarter. Operating margin for
"Contracts, primarily long-term U.S. Government" increased 1.9 percentage
points to 11.9% in the 2002 Second Quarter from 10.0% in the 2001 Second
Quarter, and the increase was principally due to the impact of not amortizing
goodwill to expense in accordance with SFAS No. 142. Operating income for
"Commercial, primarily products" declined $19.7 million to a loss of $4.7
million in the 2002 Second Quarter from operating income of $15.0 million in
the 2001 Second Quarter. Operating margin for "Commercial, primarily products"
declined 18.9 percentage points to a negative 5.0% in the 2002 Second Quarter
from 13.9% in the 2001 Second Quarter. The decline was principally attributable
to lower margins on commercial aviation products, microwave, space and
broadband

communication products because of volume declines in sales, as well as
continued marketing, selling and development expenses for the Prime Wave
business, which were partially offset by not amortizing goodwill to expense in
accordance with SFAS No. 142.

Interest expense increased $9.6 million to $31.6 million for the 2002
Second Quarter from $22.0 million for the 2001 Second Quarter, because of the
higher outstanding debt principally related to the borrowings incurred to
finance the IS acquisition, which was partially offset by savings of $3.7
million from the interest rate swap agreements we entered into in July 2001 and
November 2001, as well as lower interest rates on our variable rate borrowings.

Interest and other income (expense) decreased $1.2 million to a $0.2
million expense from the 2001 Second Quarter to the 2002 Second Quarter. The
2001 Second Quarter included a net gain of $0.6 million related to a gain on
the sale of a 30% interest in the ACSS business offset by the write-down of the
carrying value of an investment in the common stock of a telecommunications
company because the decline in value was determined to be other than temporary.
Additionally, losses on an equity method investment increased.

The income tax provision for the 2002 Second Quarter is based on the
estimated effective income tax rate for 2002 of 35.3%, compared with the
effective tax rate of 38.3% for the 2001 Second Quarter. The decrease in the
effective income tax rate is primarily attributable to the exclusion of
goodwill amortization expense that is non-deductible for income tax purposes
from the annual estimated effective income tax rate calculation as a result of
goodwill not being amortized beginning on January 1, 2002 in accordance with
SFAS No. 142.

Basic earnings per share ("EPS") of L-3 Communications Holdings before
extraordinary items increased $0.21 to $0.52 for the 2002 Second Quarter from
$0.31 for the 2001 Second Quarter, and diluted EPS before extraordinary items
increased $0.19 to $0.49 from $0.30 for the 2001 Second Quarter. The impact of
not amortizing goodwill to expense beginning on January 1, 2002 in accordance
with SFAS No. 142 increased both basic EPS before extraordinary items and
diluted EPS before extraordinary items each by $0.11. Excluding the impact of
not amortizing goodwill to expense, basic EPS before extraordinary items grew
23.8% and diluted EPS before extraordinary items grew 19.5%. Basic EPS was
$0.40 and diluted EPS was $0.38 after an extraordinary loss of $9.9 million,
net of income taxes, on the early extinquishment of debt arising from the
retirement of our $225.0 million of 103/8% senior subordinated notes. Diluted
weighted-average common shares outstanding increased 16.3% principally
reflecting the dilutive effect of the convertible notes.

The 2002 Second Quarter diluted EPS computation did not include the effect
of the 7.8 million shares of L-3 Communications Holdings common stock that are
issuable upon conversion of the CODES (See Notes 5 and 7 to the unaudited
condensed consolidated financial statements) because the conditions for their
conversion were not satisfied. However, if the CODES had been convertible for
the 2002 Second Quarter, reported diluted EPS would not have changed.

SECURE COMMUNICATIONS & ISR

Sales for the Secure Communications & ISR segment increased $189.3 million
or 212.9% to $278.2 million in the 2002 Second Quarter from $88.9 million for
the 2001 Second Quarter. The increase was principally attributed to $126.6
million from the IS-Tactical Reconnaissance Systems (TRS) and Airborne
Surveillance & Control (ASC) acquired businesses and $62.7 million of increased
volume principally on STE, secure data links and military communications
products, which was attributable to greater demand for secure communications
from the DoD and U.S. Government intelligence agencies. Additionally, the
increase in STE volume of $21.0 million was partially related to lower volume
in the 2001 Second Quarter arising from software development enhancements on
STE made in 2001 which caused production and delivery delays in 2001.

Operating income increased by $24.9 million to $29.7 million in the 2002
Second Quarter because of higher sales and operating margin. Operating margin
improved by 5.3 percentage points to 10.7% from 5.4%. The impact of not
amortizing goodwill to expense beginning on January 1, 2002 in accordance with
SFAS No. 142 increased operating margin by 0.4 percentage points. Increased
volume

and cost improvements on STE accounted for 1.9 percentage points of the
increase. A provision to increase the allowance for doubtful accounts by $3.0
million for certain commercial receivables decreased operating margin by 1.1
percentage points. The remaining increase in operating margins was principally
attributable to margins from the IS-TRS and ASC acquired businesses, which were
higher then the Secure Communications & ISR segment operating margins for the
2001 Second Quarter. Additionally, the Prime Wave business continued to
generate losses in the 2002 Second Quarter because of lower sales volume as
well as continued marketing, selling and development expenses. We expect
margins for the segment to improve in the second half of 2002 because of
expected volume increases and additional cost improvements on DoD business, as
well as lower losses for the Prime Wave business arising from anticipated
increases in sales.

TRAINING, SIMULATION & SUPPORT SERVICES

Sales for the Training, Simulation & Support Services segment increased
$45.5 million or 30.0% to $197.2 million for the 2002 Second Quarter from
$151.7 million for the 2001 Second Quarter. The EER, SY and Analytics acquired
businesses contributed $50.7 million to sales. The remaining net decrease of
$5.2 million was principally attributable to lower sales on a ballistic missile
target services contract which is approaching its scheduled completion.

Operating income increased by $2.9 million to $22.3 million in the 2002
Second Quarter because of higher sales, which were partially offset by lower
operating margins. Operating margin declined by 1.5 percentage points to 11.3%
for the 2002 Second Quarter from 12.8% for the 2001 Second Quarter. The impact
of not amortizing goodwill to expense beginning on January 1, 2002 in
accordance with SFAS No. 142 increased operating margin by 0.9 percentage
points. This increase was offset by a decline in operating margin of 2.4
percentage points, which was principally attributable to the expected lower
margins for the SY and Analytics acquired businesses, as well as lower margins
on training services in the current period compared to the prior period as a
result of profit improvements on certain contracts during 2001. We do not
expect margins for the segment to change significantly during the second half
of 2002.

AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales for the Aviation Products & Aircraft Modernization segment increased
$132.7 million or 187.4% to $203.5 million for the 2002 Second Quarter from
$70.8 million for the 2001 First Quarter. The IS-Aircraft Modification &
Maintenance (AMM) and Spar acquired businesses contributed $143.2 million to
sales. The remaining decline in sales of $10.5 million was principally
attributable to lower volume of $15.8 million on traffic collision and
avoidance systems (TCAS) and aviation recorders used primarily for commercial
applications, that were partially offset by an increase in volume for displays
used in military applications. The decline in sales of commercial aviation
products was caused by a decline in orders and customer-deferred delivery
schedules stemming from the continued downturn in the commercial aircraft
industry that began in 2001. We expect the sales volume for all of 2002 on
commercial aviation products to be lower than 2001 volumes; however, the amount
of the declines are expected to be smaller during the second half of 2002 than
they were in the 2002 First Half when compared to the same periods in the prior
year.

Operating income increased by $7.3 million to $32.2 million for the 2002
Second Quarter from $24.9 million for the 2001 Second Quarter because of higher
sales, which were partially offset by lower operating margins. Operating margin
declined by 19.3 percentage points to 15.9% for the 2002 Second Quarter from
35.2% for the 2001 Second Quarter. The impact of not amortizing goodwill to
expense beginning on January 1, 2002 in accordance with SFAS No. 142 increased
operating margin by 1.0 percentage points. Lower volumes on TCAS and aviation
recorders which generated lower gross margin contributions, as well as
increased development expenses for a terrain awareness warning system and a
commercial displays product-line which are planned to be introduced later this
year reduced operating margin by 5.7 percentage points. The remaining decrease
in operating margin of 14.6 percentage points was principally attributable to
margins from the IS-AMM and Spar acquired businesses, which were lower than the
Aviation Products & Aircraft Modernization segment operating

margins for the 2001 Second Quarter. Operating margins benefited from a foreign
currency gain recorded from the Spar acquisition. We expect the operating
margins on commercial aviation products to increase during the second half of
2002 arising from expected increases in volumes.

SPECIALIZED PRODUCTS

Sales for the Specialized Products segment increased $26.1 million or 10.4%
to $276.3 million in the 2002 Second Quarter from $250.2 million for the 2001
Second Quarter. The increase was principally related to the acquisitions of KDI,
BT Fuze and Detection Systems, which accounted for $31.1 million in sales, and
higher volume of $5.5 million for guidance products and $15.7 million for
explosive detection systems. The increase in volume for explosive detection
systems was substantially all from a contract with the Transportation Security
Administration (TSA) of the U.S. Department of Transportation that was awarded
to us in April 2002. The initial contract value for the TSA award is $162
million and includes full-funding for 100 units of our examiner 3DX(TM) 6000
explosive detection systems and long-lead funding for an additional 200 systems
plus production ramp-up funding. The contract value for this TSA award is
expected to be about $250 million if all of these additional units are fully
funded. This increase was partially offset by a decrease in sales that was
principally attributable to lower volume of (1) $4.8 million on naval power
equipment arising from lower shipments caused by production capacity diverted to
fixing quality control problems and the related rework activities, (2) $9.1
million for acoustic undersea warfare products arising from the timing of
shipments, and (3) $12.3 million principally on telemetry and space products and
microwave components arising from continued softness and declining demand in the
space, broadband and wireless commercial communications markets. We expect our
sales of explosive detection systems to increase substantially in the second
half of 2002 as we increase our production for the TSA contract. Additionally,
we expect to return to normal production levels for naval power equipment in the
second half of 2002, and anticipate an increase in volume for space, broadband
and wireless communications products.

Operating income increased by $2.1 million to $13.5 million for the 2002
Second Quarter from $11.4 million for the 2001 Second Quarter primarily because
of higher sales. Operating margin increased by 0.3 percentage points to 4.9%
for the 2002 Second Quarter from 4.6% for the 2001 Second Quarter. The impact
of not amortizing goodwill to expense beginning on January 1, 2002 in
accordance with SFAS No. 142 increased operating margin by 2.2 percentage
points. Higher margins from the KDI and BT Fuze acquired businesses related to
new contracts entering production caused an increase in operating margin of 1.5
percentage points. A loss of $3.0 million recorded in June 2002 for the
settlement of certain litigations assumed as part of the acquisition of Aydin
Corporation in April 1999 caused a decline in operating margin of 1.1
percentage points. The remaining decline was principally attributable to lower
margins resulting from lower shipments and rework efforts for naval power
equipment and lower volume on microwave components and acoustic undersea
warfare products. We expect the operating margin for Specialized Products to
improve in the second half of 2002 arising from expected volume increases for
explosive detection systems, naval power equipment, telemetry and space
products and microwave components.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001

The tables below provide our selected statement of operations data for the
six-month period ended June 30, 2002, which we refer to as the 2002 First Half,
and the six-month period ended June 30, 2001, which we refer to as the 2001
First Half.

SIX MONTHS ENDED JUNE 30,
-----------------------------------
2002 2001
------------ --------------------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 435.6 $ 171.6
Training, Simulation & Support Services ............ 392.0 268.7
Aviation Products & Aircraft Modernization ......... 310.8 131.4
Specialized Products ............................... 513.6 451.8
--------- ------------
Total ............................................ $ 1,652.0 $ 1,023.5
========= ============
Operating income:
Secure Communications & ISR ........................ $ 46.1 $ 11.1 (2)
Training, Simulation & Support Services ............ 43.8 28.6 (2)
Aviation Products & Aircraft Modernization ......... 49.7 47.6 (2)
Specialized Products ............................... 29.4 20.1 (2)
--------- -------------
Total ............................................ $ 169.0 $ 107.4 (2)
========= =============

- ----------
(1) Sales are after intersegment eliminations. See Note 10 to the Unaudited
Condensed Consolidated Financial Statements.

(2) Operating income for the six months ended June 30, 2001, includes
goodwill amortization expense $1.9 million for Secure Communications and
ISR, $3.0 million for Training, Simulation & Support Services, $3.9
million for Aviation Products & Aircraft Modernization, and $11.7 million
for Specialized Products, which aggregated $20.5 million for all of L-3.
In accordance with SFAS No. 142, after December 31, 2001, goodwill is not
amortized to expense.

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

Consolidated sales increased $628.5 million to $1,652.0 million for the
2002 First Half from $1,023.5 million for the 2001 First Half. Sales from
"Contracts, primarily long-term U.S. Government" increased $653.4 million to
$1,478.5 million for the 2002 First Half from $825.1 million for the 2001 First
Half. The KDI, EER, Spar, Analytics, SY, BT Fuze, and IS acquired businesses
contributed $544.9 million of the increase in sales. The remaining increase was
primarily attributable to volume increases of (1) $96.6 million on STE, secure
data links and military communications products, (2) $15.5 million for
explosive detection systems, (3) $14.8 million on guidance products, and (4)
$5.2 million for displays. These sales increases were partially offset by
declines of (1) $18.4 million on naval power equipment and (2) $5.2 million
principally for acoustic undersea warfare products. Sales from "Commercial,
primarily products" decreased $24.9 million to $173.5 million in the 2002 First
Half from $198.4 million in the 2001 First Half. The decline was principally
caused by lower volume of $28.7 million on commercial aviation products and
$4.1 million on telemetry, space, microwave and other communications products.
These decreases were partially offset by sales from the Detection Systems
acquired business of $7.9 million.

Consolidated costs and expenses increased $566.9 million to $1,483.0
million in the 2002 First Half from $916.1 million in the 2001 First Half,
primarily as a result of the increase in sales. Costs and expenses for
"Contracts, primarily long-term U.S. Government" increased $558.6 million to
$1,304.7 million in the 2002 First Half from $746.1 million in the 2001 First
Half primarily as a result of the increase in sales. Costs and expenses for
"Commercial, primarily products" increased $8.3 million to $178.3 million in
the 2002 First Half from $170.0 million in the 2001 First Half primarily due to
higher expenses for the Prime Wave business.

Consolidated operating income increased by $61.6 million to $169.0 million
in the 2002 First Half from $107.4 for the 2001 First Half primarily because of
higher sales. Consolidated operating margin declined by 0.3 percentage points
to 10.2% from 10.5% in the 2001 First Half. The impact of not amortizing
goodwill to expense beginning on January 1, 2002 in accordance with SFAS No.
142 increased operating margin by 1.2 percentage points. The remaining decline
in operating margin of 1.5 percentage points was due to declines in the
Training, Simulation & Support Services, Aviation Products & Aircraft
Modernization and the Specialized Products segments, which were partially
offset

by increases in the Secure Communications & ISR segment. The changes in the
operating margins of the segments are discussed below. Additionally, a loss of
$3.0 million was recorded in June 2002 for the settlement of certain
litigations assumed as part of a prior acquisition. This loss was partially
offset by a foreign currency related net gain of $1.9 million. Operating income
for "Contracts, primarily long-term U.S Government increased $94.8 million to
$173.8 million in the 2002 First Half from $79.0 million in the 2001 First
Half. Operating margin for "Contracts, primarily long-term U.S. Government
increased 2.2 percentage points to 11.8% in the 2002 First Half from 9.6% in
the 2001 First Half, and the increase was principally due to the impact of not
amortizing goodwill to expense in accordance with SFAS No. 142. Operating
income for "Commercial, primarily products" declined $33.2 million to a loss of
$4.8 million in the 2002 First Half from operating income of $28.4 million in
the 2001 First Half. Operating margin for "Commercial, primarily products"
declined 17.1 percentage points to a negative 2.8% in the 2002 First Half from
14.3% in the 2001 First Half. The decline was principally attributable to lower
margins on commercial aviation products, microwave, space and broadband
communication products because of volume declines in sales, as well as
continued marketing, selling and development expenses for the Prime Wave
business, which were partially offset by not amortizing goodwill to expense in
accordance with SFAS No. 142.

Interest expense increased $11.3 million to $57.7 million in the 2002
First Half from $46.4 for the 2001 First Half, because of the higher
outstanding debt, partially offset by savings of $6.6 million from the interest
rate swap agreements we entered into in 2001 and lower interest rates on our
variable rate borrowings.

Interest and other income decreased $0.7 million to $0.8 million for the
2002 First Half from $1.5 million for the 2001 First Half, principally because
the 2001 First Half included a net gain of $0.6 million. The net gain relates
to a gain on the sale of a 30% interest in the ACSS business offset by the
write-down of the carrying value of an investment in the common stock of a
telecommunications company because the decline in value was determined to be
other than temporary.

The income tax provision for the 2002 First Half is based on our estimated
effective income tax rate for 2002 of 35.3%, compared with the effective tax
rate of 38.3% for the 2001 First Half, as discussed above in the 2002 Second
Quarter discussion.

Basic EPS of L-3 Communications Holdings before extraordinary items
increased $0.37 to $0.89 in the 2002 First Half from $0.52 in the 2001 First
Half, and diluted EPS increased $0.34 to $0.84 in the 2002 First Half from
$0.50 in the 2001 First Half. The impact of not amortizing goodwill to expense
beginning on January 1, 2002 in accordance with SFAS No. 142 increased basic
EPS before extraordinary items by $0.23 and diluted EPS before extraordinary
items by $0.21. Excluding the impact of not amortizing goodwill to expense,
basic EPS before extraordinary items grew 18.7% and diluted EPS before
extraordinary items grew 18.3%. Basic EPS was $0.77 and diluted EPS was $0.73
after an extraordinary loss of $9.9 million, net of taxes, on the early
extinquishment of debt arising from the retirement of our $225.0 million of 10
3/8% senior subordinated notes. Diluted weighted-average common shares
outstanding increased 20.5% principally reflecting the dilutive effect of the
convertible notes and the sale of 9.2 million shares of our common stock in May
2001.

The 2002 First Half diluted EPS computation did not include the effect of
the 7.8 million shares of L-3 Communications Holdings common stock that are
issuable upon conversion of the CODES (See Notes 5 and 7 to the unaudited
condensed consolidated financial statements) because the conditions for their
conversion were not satisfied. However, if the CODES had been convertible for
the 2002 First Half, reported diluted EPS would have not changed.

SECURE COMMUNICATIONS & ISR

Sales for the Secure Communications & ISR segment increased $264.0 million
or 153.8% to $435.6 million for the 2002 First Half from $171.6 million for the
2001 First Half. The increase was principally attributed to $165.0 million from
the IS-TRS and ASC acquired businesses and $99.0 million of increased volume
principally on STE, secure data links and military communications

products, which was attributable to greater demand for secure communications
from the DoD and U.S. Government intelligence agencies. Additionally, the
increase in STE volume of $41.6 million was partially related to lower volume
in the 2001 First Half arising from software development enhancements on STE
made in 2001 which caused production and delivery delays in 2001.

Operating income increased by $35.0 million to $46.1 million in the 2002
First Half from $11.1 million for the 2001 First Half, because of higher sales
and operating margin. Operating margin improved by 4.1 percentage points to
10.6% in the 2002 First Half compared to 6.5% in the 2001 First Half. The
impact of not amortizing goodwill to expense beginning on January 1, 2002 in
accordance with SFAS No. 142 increased operating margin by 0.4 percentage
points. Increased volume and cost improvements on STE accounted for 3.1
percentage points of the increase. A provision to increase the allowance for
doubtful accounts by $3.0 million for certain commercial customers decreased
operating margin by 0.7 percentage points. The remaining increase in operating
margins was principally attributable to margins from the ISTRS and ASC acquired
businesses, which were higher than the Secure Communications & ISR segment
operating margins for the 2001 First Half. Additionally, the Prime Wave
business continued to generate losses in the 2002 Second Half because of low
sales volume as well as higher marketing, selling and development expenses.

TRAINING, SIMULATION & SUPPORT SERVICES

Sales for the Training, Simulation & Support Services segment increased
$123.3 million or 45.9% to $392.0 million for the 2002 First Half from $268.7
million for the 2001 First Half. The EER, SY and Analytics acquired businesses
contributed $115.8 million of the increase in sales. The remaining net increase
of $7.5 million was principally attributable to volume increases at our
training and simulation business attributable to new contracts competitively
awarded during 2001, that were partially offset by lower sales on a ballistic
missiles target services contract which is approaching its scheduled
completion.

Operating income increased by $15.2 million to $43.8 million in the 2002
First Half from $28.6 million for the 2001 First Half, principally because of
higher sales and operating margin. Operating margin increased by 0.6 percentage
points to 11.2% in the 2002 First Half compared to 10.6% in the 2001 First
Half. The impact of not amortizing goodwill to expense beginning on January 1,
2002 in accordance with SFAS No. 142 increased operating margin by 0.8
percentage points. The remaining decrease in operating margin of 0.2 percentage
points was principally attributable to slightly lower margins from the acquired
businesses, as well as lower margins on training services in the current period
compared to the prior period as a result of profit improvements on certain
contracts during 2001.

AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales for the Aviation Products & Aircraft Modernization segment increased
$179.4 million or 136.5% to $310.8 million for the 2002 First Half from $131.4
million for the 2001 First Half. The IS-AMM and Spar acquired businesses
contributed $201.7 million to sales. The remaining decline in sales of $22.3
million was principally attributable to lower volume of $28.7 million on TCAS
and aviation recorders used primarily for commercial applications, that were
partially offset by an increase in volume for displays used in military
applications. The decline in sales of commercial aviation products was due to
reduced demand and customer-deferred delivery schedules stemming from the
continued downturn in the commercial aircraft industry that began in 2001.

Operating income increased by $2.1 million to $49.7 million for the 2002
First Half from $47.6 million for the 2001 First Half, because of higher sales,
which were largely offset by lower operating margins. Operating margin declined
by 20.2 percentage points to 16.0% for the 2002 First Half from 36.2% for the
2001 First Half. The impact of not amortizing goodwill to expense beginning on
January 1, 2002 in accordance with SFAS No. 142 increased operating margin by
1.3 percentage points. Lower volumes on TCAS and aviation recorders which
generated lower gross margin contributions, as well as increased development
expenses for a terrain awareness warning system and

a commercial displays product-line which are planned to be introduced later
this year reduced operating margin by 7.6 percentage points. The remaining
decrease in operating margins of 13.9 percentage points was principally
attributable to margins from the IS-AMM and Spar acquired businesses, which
were lower than the Aviation Products & Aircraft Modernization segment
operating margins for the 2001 First Half.

SPECIALIZED PRODUCTS

Sales for the Specialized Products segment increased $61.8 million or
13.7% to $513.6 million for the 2002 First Half from $451.8 million for the
2001 First Half. The increase was principally related to the acquisitions of
KDI, BT Fuze and Detection Systems, which accounted for $70.3 million in sales
and higher volume of $14.8 million for guidance products and $15.5 million for
explosive detection systems. This increase was partially offset by a decrease
in sales that was principally attributable to lower volume of (1) $18.4 million
on naval power equipment arising from lower shipments caused by production
capacity diverted to fixing quality control problems, (2) $4.4 million for
acoustic undersea warfare products arising from the timing of shipments, and
(3) $16.0 million on telemetry and space products and microwave components
arising from continued softness and declining demand in the space, broadband
and wireless commercial communications markets.

Operating income increased by $9.3 million to $29.4 million in the 2002
First Half from $20.1 million for the 2001 First Half, because of higher sales
and operating margin. Operating margin improved by 1.2 percentage points to
5.7% in the 2002 First Half compared to 4.5% in the 2001 First Half. The impact
of not amortizing goodwill to expense beginning on January 1, 2002 in
accordance with SFAS No. 142 increased operating margin by 2.3 percentage
points. Higher margins from the KDI and BT Fuze acquired businesses related to
new contracts entering production caused an increase in operating margin of 1.6
percentage points. A loss of $3.0 million recorded in June 2002 for the
settlement of certain litigations assumed as part of the acquisition of Aydin
caused a decline in operating margin of 0.6 percentage points. The remaining
decline was principally attributable to lower shipments and rework efforts for
naval power equipment.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

The tables below provide our selected statement of operations data for the
years ended December 31, 2001 and 2000.

SEGMENT OPERATING DATA

YEAR ENDED DECEMBER 31,
--------------------------
2001 2000
------------ -----------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 450.5 $ 393.0
Training, Simulation & Support Services ............ 596.8 283.4
Aviation Products & Aircraft Modernization ......... 263.3 209.1
Specialized Products ............................... 1,036.8 1,024.6
--------- ---------
Total ........................................... $ 2,347.4 $ 1,910.1
========= =========
Operating income:
Secure Communications & ISR ........................ $ 32.0 $ 54.1
Training, Simulation & Support Services ............ 65.7 23.5
Aviation Products & Aircraft Modernization ......... 85.6 66.9
Specialized Products ............................... 92.0 78.2
--------- ---------
Total ........................................... $ 275.3 $ 222.7
========= =========

- ----------
(1) Sales are after intersegment eliminations. See Note 16 to the
consolidated financial statements.

Sales increased $437.3 million to $2,347.4 million in 2001 compared with
2000. Sales to the U.S. Government, foreign governments and other customers
that are made pursuant to written contractual arrangements or "contracts" for
products and or services according to the specifications of the customer are
within the scope of SOP 81-1 and are presented on the statement of operations
under the caption "Contracts, primarily long-term U.S. Government." Sales from
"Contracts, primarily long-term U.S. Government", increased $367.2 million to
$1,903.7 million in 2001 from $1,536.5 million in 2000. The MPRI, Coleman, KDI,
and EER acquisitions contributed $335.6 million of the sales increase in 2001.
The remaining sales increase in 2001 was primarily attributable to volume
increases of (1) $66.0 million on secure telephone equipment and secure data
links, (2) $21.2 million on training devices and services, (3) $16.2 million on
acoustic undersea warfare products and (4) $4.4 million on airport security
systems. These sales increases were partially offset by declines of $56.7
million on naval power equipment arising from lower shipments caused by
production quality control problems and customer-directed reductions in
delivery requirements, and volume declines of $19.5 million primarily on
telemetry and space products related to the continued decline in the telemetry,
space and broadband markets. Sales arrangements that are not within the scope
of SOP 81-1 are recognized in accordance with the SEC's SAB No. 101 and are
presented on the statement of operations under the caption "Commercial,
primarily products." Sales from "Commercial, primarily products", increased
$70.1 million to $443.7 million in 2001 from $373.6 million in 2000. The
increase in 2001 was primarily attributable to volume increases of (1) $53.1
million on aviation products, (2) $20.8 million in microwave components and (3)
$13.5 million from fixed wireless access products. These sales increases were
partially offset by declines $17.3 million primarily on telemetry and space
products related to the continued decline in the commercial telemetry, space
and broadband communications markets.

The total increase in costs and expenses of $384.7 million to $2,072.1
million in 2001 from $1,687.4 million in 2000 is consistent with the increases
in sales. In 2001, costs and expenses were $1,674.4 million for "Contracts,
primarily long-term U.S. Government" and $397.7 million for "Commercial,
primarily products."

The liabilities and expenses for our pension plans are based on several
actuarial assumptions including discount rates and expected returns on plan
assets. Current market conditions including changes in interest rates and
actual returns on plan assets are considered when selecting these assumptions.
During 2001, these assumptions were not realized, which when combined with
previous experience resulted in an aggregate unrecognized actuarial loss of
$69.7 million at December 31, 2001. This actuarial loss combined with the
reduction in the discount rate and the decline in the pension assets (before
transfers of assets from acquisitions) is expected to increase our pension
expense, which is included in our cost and expenses, by about $14.0 million for
2002 before the impact from the acquisition of AIS. Future actuarial gains
would reduce or eliminate this unrecognized actuarial loss and future actuarial
losses would increase it.

Operating income increased because of higher sales by $52.6 million to
$275.3 million in 2001 compared with 2000. Operating income as a percentage of
sales ("operating margin") remained unchanged at 11.7%. Operating margins
improved at our Training, Simulation & Support Services segment, our Aviation
Products & Aircraft Modernization segment and our Specialized Products segment.
These margin improvements were offset by a margin decline at our Secure
Communications & ISR segment. The change in operating margin for each of our
segments is discussed below.

Interest expense decreased $6.6 million to $86.4 million in 2001 because
of lower interest rates, changes in the components and levels of our debt, and
savings of $4.1 million from the interest rate swap agreements we entered into
in July 2001 and November 2001. The interest rate swap agreements exchange the
fixed interest rate of 8% on our $200.0 million Senior Subordinated Notes due
2008 and the fixed interest rate of 81/2% on our $180.0 million Senior
Subordinated Notes due 2008 to variable interest rates determined using the six
month LIBOR rate. See "--Liquidity and Capital Resources."

Interest and other income decreased $2.6 million to $1.8 million. Interest
and other income for 2001 includes a net pre-tax gain of $0.6 million ($0.01
per diluted share), consisting of an after-tax gain

of $4.3 million from the sale of a 30% interest in ACSS to Thales Avionics and
an after-tax charge of $3.9 million to write-down the carrying amount of an
investment in common stock of a telecommunications company because the decline
of its value was determined to be other than temporary. Also included in
interest and other income for 2001 is a pre-tax charge of $0.5 million to
account for the increase, in accordance with the Financial Accounting Standards
Board's ("FASB") SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, in the fair value assigned to the embedded derivatives in
the $420.0 million 4% Senior Subordinated Convertible Contingent Debt
Securities due 2011 ("CODES"), L-3 Communications Holdings sold in the fourth
quarter of 2001 (See "--Liquidity and Capital Resources"), and a pre-tax loss
of $0.8 million from an equity method investment. Interest and other income for
2000 includes a net pre-tax gain of $2.5 million ($0.02 per diluted share),
consisting of an after-tax gain of $9.2 million from the sale of our interests
in certain businesses and an after-tax charge of $7.6 million on the write-down
in the carrying amount of an investment in a telecommunications venture that is
no longer a going concern, the carrying amount of an investment in a
telecommunications equipment provider that was determined to be permanently
impaired and a related intangible asset. Excluding these net gains from both
2001 and 2000, diluted EPS increased 25.9% to $1.46 in 2001 from $1.16 in 2000.

The income tax provision for 2001 is based on an effective income tax rate
for 2001 of 38.0% which declined slightly from the effective tax rate of 38.3%
for 2000.

L-3 Communications Holdings' EPS grew 24.2% to $1.54 in 2001 and diluted
EPS grew 24.6% to $1.47 in 2001. Diluted weighted-average common shares
outstanding increased 22.2% in 2001, primarily because of the sale of common
stock in May 2001, and the dilutive effect of the Convertible Notes (as defined
below) sold by L-3 Communications Holdings in the fourth quarter of 2000. See
"--Liquidity and Capital Resources."

SECURE COMMUNICATIONS & ISR

Sales within our Secure Communications & ISR segment increased $57.5
million or 14.6% to $450.5 million in 2001 compared with 2000. The increase in
sales was attributed to increased sales of $46.4 million from secure telephone
equipment arising from an increase in demand for secure communications, and
$13.6 million from Prime Wave fixed wireless access products related to a
contract for a customer in Argentina. The remaining net decrease in sales was
principally attributable to a decline in communication subsystems for the
International Space Station partially offset by higher volume for secure data
links.

Operating income decreased by $22.1 million to $32.0 million in 2001 from
$54.1 million in 2000 because of lower operating margins that were partially
offset by higher operating income from higher sales. Operating margin declined
6.7 percentage points from 13.8% in 2000 to 7.1% in 2001. Negative contract
margins and increased SG&A and development expenditures and bad debt provisions
associated with our Prime Wave business reduced operating margin by 3.7
percentage points. Volume declines and cost overruns related to design and
manufacturing problems on certain signal collection and processing equipment
reduced operating margin by 1.7 percentage points. The remaining decline in
operating margin was principally attributable to lower volumes on certain
military communication systems programs caused by contract deliveries that were
completed or approaching completion in 2001. The declines were partially offset
by higher operating margins on secure telephone equipment attributable to
increased volumes and cost improvements.

TRAINING, SIMULATION & SUPPORT SERVICES

Sales within our Training, Simulation & Support Services segment increased
$313.4 million or 110.6% to $596.8 million in 2001 compared with 2000. The
Coleman, MPRI, and EER acquisitions contributed $277.0 million of the increase
in sales. The remaining increase in sales was attributable to various training,
simulation and communications software support services.

Operating income increased by $42.2 million to $65.7 million in 2001
because of higher sales and operating margins. Operating margin increased 2.7
percentage points from 8.3% in 2000 to 11.0% in

2001. Volume increases and cost improvements from the Link Training Services
business increased operating margin by 1.6 percentage points. The remaining
increase was principally attributable to higher margins from acquired
businesses.

AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales within our Aviation Products & Aircraft Modernization segment
increased $54.2 million or 25.9% to $263.3 million in 2001 compared with 2000.
Volume increased $44.9 million on TCAS products and was attributable to
increased customer demand and the timing of the TCAS acquisition completed in
April 2000. Volume also increased by $8.2 million for aviation recorders
because of commercial customer retrofit deliveries. The remaining increase was
primarily attributable to the Spar Aerospace business acquired in November 2001
offset by volume declines of $8.7 million for displays sold to military
customers related to the timing of contractual shipments. We expect sales of
aviation products to decline by approximately 20% in 2002 from 2001 because of
the downturn in the commercial aircraft industry that began this year.

Operating income increased by $18.7 million to $85.6 million in 2001 from
$66.9 million in 2000 primarily because of higher sales. Operating margin
increased 0.5 percentage points from 32.0% in 2000 to 32.5% in 2001. Operating
margin increased by 5.2 percentage points because of higher volume of TCAS
products with higher gross margin contributions. Lower margins on display
products related to volume declines reduced operating margin by 3.3 percentage
points. Lower margins from the Spar Aerospace acquired business, which we
expected, caused the remaining change in the operating margin.

SPECIALIZED PRODUCTS

Sales within our Specialized Products segment increased $12.2 million or
1.2% to $1,036.8 million in 2001 compared with 2000. The increase in sales was
principally attributable to the KDI acquired business and increases in volume
for microwave components and acoustic undersea warfare products, partially
offset by decreases in sales of telemetry and space products and naval power
equipment. We expect sales of our telemetry and space products for 2002 to
remain essentially unchanged as compared to 2001, due to continued softness in
the space and broadband commercial communications markets.

Operating income increased by $13.8 million in 2001 to $92.0 million
because of higher operating margin. Operating margin increased 1.3 percentage
points to 8.9% in 2001 from 7.6% in 2000. Reductions in contract costs related
to favorable performance on the AVCATT contract, arising from engineering
design changes, material sourcing changes and unit price reductions on several
parts in the contract bill of materials that occurred during 2001 increased
operating margin by 1.3 percentage points. Cost improvements from increased
volume and product sales mix on microwave components resulted in an increase of
1.0 percentage points. Higher margins from fuzing products resulted in an
increase of 0.7 percentage points. The remaining increase in operating margin
was primarily attributable to overhead cost reductions and other cost
improvements for training devices, volume increases for explosive detection
systems and reduced losses on voice and data communication products. These
improvements in operating margin were partially offset by continued unfavorable
performance on certain contracts and lower production levels for naval power
equipment which caused a decrease of 3.2 percentage points in operating margin.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

The tables below provide our selected statement of operations data for the
years ended December 31, 2000 and 1999.

SEGMENT OPERATING DATA

YEAR ENDED DECEMBER 31,
--------------------------
2000 1999
------------ -----------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 393.0 $ 435.3
Training, Simulation & Support Services ............ 283.4 91.7
Aviation Products & Aircraft Modernization ......... 209.1 119.4
Specialized Products ............................... 1,024.6 759.1
--------- ---------
Total ........................................... $ 1,910.1 $ 1,405.5
========= =========
Operating income:
Secure Communications & ISR ........................ $ 54.1 $ 37.7
Training, Simulation & Support Services ............ 23.5 6.8
Aviation Products & Aircraft Modernization ......... 66.9 27.8
Specialized Products ............................... 78.2 78.2
--------- ---------
Total ........................................... $ 222.7 $ 150.5
========= =========

- ----------
(1) Sales are after intersegment eliminations. See Note 16 to the consolidated
financial statements.

Sales increased $504.6 million to $1,910.1 million in 2000 compared with
1999. Our sales from "Contracts, primarily long-term U.S. Government", increased
$403.8 million to $1,536.5 million in 2000 from $1,132.7 million in 1999. The
TDTS, MPRI and Space and Navigation Systems acquisitions contributed $367.8
million of the increase in sales. The remaining increase in sales during 2000
was principally attributable to volume increases of (1) $25.1 million on display
products, (2) $17.7 million on communications software support services, (3)
$15.2 million on acoustic undersea warfare products, (4) $6.6 million on airport
security systems, and (5) $9.4 million on secure telephone equipment. These
sales increases were partially offset by declines on certain secure date links
programs and $17.1 million in sales on naval power equipment. Sales from
"Commercial, primarily products", increased $100.8 million to $373.6 million in
2000 from $272.8 million in 1999. The TCAS acquired business contributed $61.3
million of the increase in sales. The remaining increase in sales during 2000
was principally attributable to volume increases on microwave components,
aviation recorders and fixed wireless access products.

The total increase in costs and expenses of $432.4 million to $1,687.4
million in 2000 from $1,255.0 million in 1999 is consistent with the increases
in sales. In 2000, costs and expenses were $1,343.4 million for "Contracts,
primarily long-term U.S. Government" and $344.0 million for "Commercial,
primarily products."

Operating income increased $72.2 million to $222.7 million in 2000.
Operating margin improved to 11.7% from 10.7%, which was attributable to
improvements in our Secure Communications & ISR segment, our Training,
Simulation & Support Services segment and our Aviation Products & Aircraft
Modernization segment, which was partially offset by a decline in our
Specialized Products segment, the details of which are described below.

Interest expense increased $32.4 million to $93.0 million in 2000
principally because of the higher average outstanding debt during 2000.
Interest and other income decreased $1.1 million to $4.4 million. Interest and
other income for 2000 includes a net pre-tax gain of $2.5 million ($0.02 per
diluted share), consisting of an after-tax gain of $9.2 million from the sale
of our interests in certain businesses and an after-tax charge of $7.6 million
on the write-down in the carrying amount of an investment in a
telecommunications venture that is no longer a going concern, the carrying
amount of an investment in a telecommunications equipment provider that was
determined to be permanently impaired and a related intangible asset. Excluding
the net gain, L-3 Communications Holdings' diluted EPS was $1.16, an increase
of 31.8% in 2000 compared with 1999.

The income tax provision for 2000 is based on an effective income tax rate
for 2000 of 38.3% which declined slightly from the effective tax rate of 38.5%
for 1999.

L-3 Communications Holdings' basic EPS grew 36.3% to $1.24 in 2000 and
diluted EPS grew 34.1% to $1.18 in 2000. Basic weighted-average common shares
outstanding increased 3.9% in 2000, and diluted weighted-average common shares
outstanding increased 4.3% in 2000, primarily because of common stock issued by
L-3 Communications Holdings for exercises of employee stock options.

SECURE COMMUNICATIONS & ISR

Sales within our Secure Communications & ISR segment decreased $42.3
million to $393.0 million in 2000 compared with 1999. We attribute the decrease
in sales principally to less support required on the U-2 and Guardrail
programs, as well as completion of the primary development contract on the
communications subsystems for the International Space Station. These declines
in sales were partially offset by increased sales of secure telephone
equipment, secure data links and Prime Wave fixed access wireless products.

Operating income increased by $16.4 million to $54.1 million because of
higher operating margin. Operating margin improved 5.1 percentage points from
8.7% in 1999 to 13.8% in 2000. Cost improvements on secure data links and
military communication systems accounted for 4.3 percentage points of the
increase. Our divestiture in March 2000 of the Network Security Systems
business accounted for another 1.9 percentage points of the increase in
operating margin. Operating margin decreased by 1.5 percentage points because
of higher marketing and development costs for our Prime Wave business. The
remaining net operating margin increase was attributable to our other products.

TRAINING, SIMULATION & SUPPORT SERVICES

Sales within our Training, Simulation & Support Services segment increased
$191.7 million or 209.1% to $283.4 million in 2000 compared with 1999. The
Training Services and MPRI acquisitions contributed $159.6 million of the
increase in sales. The remaining increase of $32.1 million in sales during 2000
was principally attributable to increased sales of communication software
support services.

Operating income increased by $16.7 million to $23.5 million in 2000
because of higher sales and operating margin. Operating margin increased 0.9
percentage points from 7.4% in 1999 to 8.3% in 2000. The increase in operating
margin was principally attributable to higher margins from the acquired
businesses.

AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales within our Aviation Products & Aircraft Modernization segment
increased $89.7 million or 75.1% to $209.1 million in 2000 compared with 1999.
The TCAS acquisition contributed $61.3 million of the increase in sales. The
remaining net increase of $28.4 million in sales during 2000 was principally
attributable to increased sales of aviation recorders and display products.

Operating income increased by $39.1 million to $66.9 million in 2001
because of higher sales and operating margin. Operating margin increased 8.7
percentage points from 23.3% in 1999 to 32.0% in 2000. Higher operating margin
from the TCAS acquired business accounted for 3.7 percentage points of the
increase and the remaining increase of 5.0 percentage points was principally
attributable to increased volume and cost improvements in aviation recorders
and display products.

SPECIALIZED PRODUCTS

Sales within our Specialized Products segment increased $265.5 million or
35.0% to $1,024.6 million in 2000 compared with 1999. The Training Devices and
Space & Navigation Systems acquisitions contributed $208.2 million of the
increase in sales. The remaining net increase of $57.3 million in sales during
2000 was principally attributable to volume increases on acoustic undersea
warfare products and microwave components. These increases in sales were
partially offset by decreased shipments of naval power equipment in 2000
compared with 1999 principally due to the slippage of certain sales into 2001
which were previously anticipated to occur in 2000. Sales of our telemetry
products were essentially unchanged in 2000 compared with 1999 due to continued
softness in the space and broadband commercial communications markets.

Operating income remained unchanged at $78.2 million, despite higher sales
due to lower operating margin. Operating margin declined 2.7 percentage points
to 7.6% in 2000 from 10.3% in 1999. Lower shipments on our naval power
equipment resulted in a 2.7 percentage point decrease in operating margin.
Reduced volumes and a change in the sales mix to lower margin products in
telemetry and space products and microwave components resulted in a 2.2
percentage point decrease. These decreases were partially offset by higher
margins at our acquired businesses, which resulted in a 2.0 percentage point
increase, and by increased volume and cost improvements in acoustic undersea
warfare products, which resulted in a 1.1 percentage point increase. The
remaining net operating margin decrease was attributable to our other
businesses.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, the senior credit facilities were comprised of a
$400.0 million five-year revolving credit facility maturing on May 15, 2006 and
a $200.0 million 364-day revolving facility maturing on May 15, 2002 under
which at the maturity date we may (1) at our request and subject to approval of
the lenders, extend the maturity date, in whole or in part, for an additional
364-day period, or (2) at our election, convert the outstanding principal
amount thereunder into a term loan which would be repayable in a single payment
two years from the conversion date or, if earlier, May 15, 2006. On February
26, 2002, the lenders approved a $150.0 million increase in the amount of our
senior credit facilities. The five-year revolving credit facility increased by
$100.0 million to $500.0 million. The 364-day revolving credit facility
increased by $50.0 million to $250.0 million. Additionally, the maturity date
of the 364-day revolving credit facility was extended to February 25, 2003.

At June 30, 2002, available borrowings under our senior credit facilities
were $577.7 million after reductions for outstanding letters of credit of
$172.3 million. There were no outstanding borrowings at June 30, 2002.

The senior credit facilities, Senior Subordinated Notes (as defined
below), Convertible Notes and CODES agreements contain financial covenants and
other restrictive covenants which remain in effect so long as any amount is
owed or any commitment to lend exists thereunder. We and L-3 Holdings, as
applicable, are in compliance with those covenants in all material respects.
The borrowings under the senior credit facilities are unconditionally
guaranteed by L-3 Holdings and by substantially all of the material domestic
subsidiaries of L-3 Communications on a senior basis. The payments of principal
and premium, if any, and interest on the Senior Subordinated Notes are
unconditionally guaranteed, on an unsecured senior subordinated basis, jointly
and severally, by all of L-3 Communications' direct and indirect restricted
subsidiaries other than its foreign subsidiaries. The guarantees of the Senior
Subordinated Notes are junior to the guarantees of the senior credit facilities
and rank pari passu with the guarantees of the Convertible Notes and the CODES.
The Convertible Notes and CODES are unconditionally guaranteed, on an unsecured
senior subordinated basis, jointly and severally, by L-3 Communications and all
of its direct and indirect restricted subsidiaries other than its foreign
subsidiaries. These guarantees rank junior to the guarantees of the senior
credit facilities and rank pari passu with each other and the guarantees of the
Senior Subordinated Notes. See "Description of Other Indebtedness."

Based upon our current level of operations, we believe that our cash from
operating activities, together with available borrowings under the senior
credit facilities, will be adequate to meet our anticipated requirements for
working capital, capital expenditures, commitments, research and development
expenditures, contingent purchase prices, program and other discretionary
investments, and interest payments for the foreseeable future. There can be no
assurance, however, that our business will continue to generate cash flow at
current levels, or that currently anticipated improvements will be achieved. If
we are unable to generate sufficient cash flow from operations to service our
debt, we may be required to sell assets, reduce capital expenditures, refinance
all or a portion of our existing debt or obtain additional financing. Our
ability to make scheduled principal payments or to pay interest on or to
refinance our indebtedness depends on our future performance and financial
results, which, to a certain extent, are subject to general conditions in or
affecting the defense industry and to general economic, political, financial,
competitive, legislative and regulatory

factors beyond our control. There can be no assurance that sufficient funds
will be available to enable us to service our indebtedness, or make necessary
capital expenditures and to make discretionary investments. See "Risk Factors."

BALANCE SHEET

Contracts in process increased $502.4 million from December 31, 2001 to
June 30, 2002. The increase included $398.4 million related to acquired
businesses and $104.0 million principally from:

o increases of $54.9 million in billed receivables due to higher sales from
aircraft modifications, secure data links, displays, explosive detection
systems and ocean products;

o increases of $24.9 million in inventoried contract costs, primarily for
explosive detection systems for the TSA contract, secure data links,
ocean products, and telemetry products;

o increases of $22.9 million in unbilled contract receivables, net of
unliquidated progress payments, due to increases on training devices and
motion simulators, fuzing products and secure communications products
partially offset by higher billings for aircraft modifications, display
systems and training, simulation and support services; and

o increases of $1.3 million in inventories at lower of cost or market
primarily for aviation products.

Included in contracts in process at June 30, 2002, are net billed
receivables of $12.8 million and net inventories of $28.1 million related to
our Prime Wave business. At December 31, 2001, we had $15.8 million of net
billed receivables and $30.2 million of net inventories related to our Prime
Wave business.

The increase in property, plant and equipment (PP&E) during the 2002 First
Half was principally related to the acquisition of IS. The percentage of
depreciation expense to average gross PP&E declined to 6.5% for the 2002 First
Half from 7.8% for the 2001 First Half. The decline was attributable to (1) the
impact from current acquisitions, for which the balance sheet reflects all of
the PP&E of the acquired businesses, but the statement of operations only
includes depreciation expense from the date of acquisition rather than for the
entire period, and (2) fully depreciated PP&E in certain of our operations
which are still being used despite having carrying values of zero (after
accumulated depreciation) and which are not derecognized from the balance sheet
until they are retired or otherwise disposed.

Goodwill increased $766.5 million to $2,474.2 million at June 30, 2002
from $1,707.7 million at December 31, 2001. The increase was principally due to
the IS and Detection Systems acquisitions as well as net purchase price
increases based on the closing date balance sheets for acquisitions completed
prior to January 1, 2002.

The increases in accounts payable, accrued employment costs, accrued
expenses and pension and postretirement liabilities were primarily due to the
timing of payments as well as the acquisitions of IS and Detection Systems. The
decrease in other current liabilities is primarily attributable to the payment
in January 2002 of $43.6 million for the remaining outstanding common stock of
Spar that was not tendered to L-3 as of December 31, 2001.

STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001

The following table provides cash flow data:

SIX MONTHS ENDED JUNE 30,
--------------------------
2002 2001
------------- ----------
(in millions)

Net cash from operating activities ............ $ 112.8 $ 32.7
Net cash used in investing activities ......... (1,338.8) (164.2)
Net cash from financing activities ............ 1,331.1 167.2
---------- --------
Net increase in cash .......................... $ 105.1 $ 35.7
========== ========

OPERATING ACTIVITIES

During the 2002 First Half, we generated $112.8 million of cash from our
operating activities, an increase of $80.1 million over the $32.7 million
generated during the 2001 First Half. Earnings adjusted for non-cash items and
deferred income taxes increased $40.0 million to $150.1 million in the 2002
First Half from $110.1 million in the 2001 First Half. Deferred income taxes
for the 2002 First Half compared with the 2001 First Half increased primarily
because of larger estimated tax deductions arising from our recently completed
acquisitions, including our acquisition of IS. We expect our deferred income
taxes to be higher in 2002 than they were in 2001. During the 2002 First Half,
our working capital and operating assets and liabilities increased $37.3
million compared with an increase of $77.4 million in the 2001 First Half. Our
cash flows from operating activities during the 2002 First Half reflect
increases in inventories, billed receivables and unbilled contract receivables
as described above.

The use of cash arising from the decrease in customer advances was a
result of deliveries on contracts for acoustic undersea warfare products.
Customer advances are generally used to finance contracts with foreign
customers, and the timing of their receipts and liquidations, which are based
on the timing of contract awards specific contract terms, has no effect on
reported revenues and profits.

The change in other current liabilities was due to uses of cash relating
to performance on certain contracts in process, for which estimated costs
exceed the estimated billings. The uses of cash declined in the 2002 First Half
compared to the 2001 First Half.

The timing of payments to vendors, as well as the timing of payments to
employees for salaries and wages, was a source of cash reflected in the change
in accounts payable and accrued expenses.

The source of cash from the change in pension and postretirement benefits
was due to pension and postretirement expenses for the 2002 First Half
exceeding related cash contributions and funding. We expect to contribute $8.0
million to our pension plan for the remainder of 2002.

The source of cash generated from the change in other liabilities was
primarily attributable to the long-term portion of the deferred gain recorded
in connection with unwinding the interest rate swap agreements on $200.0
million of 8% Senior Subordinated Notes due 2008. See Financing Activities
below.

INVESTING ACTIVITIES

During the 2002 First Half, we invested $1,316.1 million to acquire
businesses, including (1) our acquisitions of IS and Detection Systems, (2) the
payment of $43.6 million for the remaining outstanding common stock of Spar
which were not tendered to L-3 at December 31, 2001 and (3) acquisition costs
and net purchase price increases based on the closing date balance sheets for
certain acquisitions completed prior to January 1, 2002. During the 2001 First
Half we invested $211.0 million to acquire businesses. The IS acquisition was
financed using approximately $229.0 million of cash on hand, borrowings under
our senior credit facilities of $420.0 million and a $500.0 million senior
subordinated bridge loan. We used a portion of the proceeds from the sale in

June 2002 of $750.0 million of senior subordinated notes and 14.0 million
shares of common stock to repay borrowings under the senior credit facilities
and the senior subordinated interim loan as discussed below in Financing
Activities.

We make capital expenditures for the improvement of manufacturing
facilities and equipment. We expect that capital expenditures for the full year
of 2002 will be between $75.0 million and $80.0 million.

FINANCING ACTIVITIES

In June 2002, L-3 Communications sold $750.0 million of 7 5/8% Senior
Subordinated Notes due June 15, 2012 (the "June 2002 Notes") with interest
payable semi-annually on June 15 and December 15 of each year commencing
December 15, 2002. The net proceeds from that offering amounted to $732.8
million.

On June 28, 2002, L-3 Communications Holdings sold 14.0 million shares of
its common stock in a public offering for $56.60 per share. Upon closing, L-3
Communications Holdings received net proceeds of $768.4 million after deducting
discounts, commissions and estimated expenses.

The net proceeds from these offerings were used to (1) repay $500.0
million borrowed on March 8, 2002, under our senior subordinated interim loan
facility, (2) repay the indebtedness outstanding under our senior credit
facilities, (3) repurchase and redeem the 10 3/8% Senior Subordinated Notes due
2007 and (4) increase cash and cash equivalents.

On June 6, 2002 we commenced a tender offer to purchase any and all of our
$225.0 million aggregate principal amount of 10 3/8% Senior Subordinated Notes
due 2007. The tender offer expired on July 3, 2002. On June 25, 2002 we sent a
notice of redemption for all of our $225.0 million aggregate principal amount
of 10 3/8% Senior Subordinated Notes due 2007 that remained outstanding after
the expiration of the tender offer. Upon sending the notice, the remaining
notes became due and payable at the redemption price as of July 25, 2002. At
June 30, 2002, we had purchased for cash $176.9 million of these notes plus
premiums, fees and other transaction costs of $9.5 million and accrued
interest. The remaining principal amount of these notes of $48.1 million was
purchased and redeemed in July 2002 plus premiums, fees and other transaction
costs of $3.0 million and accrued interest. In connection with the
extinguishment of these notes, we recorded a pre-tax extraordinary loss of
$16.2 million ($9.9 million after-tax), including premiums, fees and other
transaction costs of $12.5 million and $3.7 million to write-off the remaining
balance of debt issue costs relating to these notes.

In June 2002, we unwound the interest rate swap agreements on $200.0
million of our 8% Senior Subordinated Notes due 2008 and received cash of $8.7
million. We recorded a reduction in interest expense for the six months ended
June 30, 2002 of $3.4 million, which represented the value of the interest
savings that was earned prior to the unwinding of these swap agreements. The
remaining $5.2 million was recorded as a deferred gain and will be amortized as
a reduction of interest expense over the remaining life of the $200.0 million
of 8% Senior Subordinated Notes due 2008 at an amount of $0.2 million per
quarter, or $0.9 million annually.

In June 2002, we entered into interest rate swap agreements on $200.0
million of our 7 5/8% Senior Subordinated Notes due 2012. These swap agreements
exchange the fixed interest rate for a variable interest rate on $200.0 million
of the $750.0 million principal amount outstanding. Under these swap
agreements, we will pay or receive the difference between the fixed interest
rate of 7 5/8% on the senior subordinated notes and a variable interest rate
determined two business days prior to the beginning of the interest period
equal to (1) the six month LIBOR rate, plus (2) an average of 215.25 basis
points. The difference to be paid or received on these swap agreements as
interest rates change is recorded as an adjustment to interest expense. The
swap agreements are accounted for as fair value hedges.

For every basis point (0.01%) that the six month LIBOR interest rate is
greater than 5.47%, we will incur an additional $20,000 of interest expense
above the fixed coupon rate on $200.0 million of our 75/8% Senior Subordinated
Notes due 2012 calculated on a per annum basis until maturity.

Conversely, for every basis point that the six month LIBOR interest rate is
less than 5.47%, we will recognize $20,000 of interest income on $200.0 million
of our 7 5/8% Senior Subordinated Notes due 2012 calculated on a per annum basis
until maturity.

On April 23, 2002, L-3 Communications Holdings announced that its Board of
Directors had authorized a two-for-one stock split on all shares of our common
stock. The stock split entitled all shareholders of record at the close of
business on May 6, 2002 to receive one additional share of our common stock for
every share held on that date. The additional shares were distributed to
shareholders in the form of a stock dividend on May 20, 2002. Upon completion
of the stock spilt, we had approximately 80 million shares of common stock
outstanding. Additionally, all of our historical as reported EPS data has been
restated to give effect to the stock split.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEARS ENDED DECEMBER 31, 2000 AND
1999

The following table provides cash flow statement data:

YEARS ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
----------- ----------- ----------
(in millions)

Net cash from operating activities ............ $ 173.0 $ 113.8 $ 99.0
Net cash used in investing activities ......... (424.9) (608.2) (284.8)
Net cash from financing activities ............ 580.3 484.3 202.4

OPERATING ACTIVITIES

During 2001, we generated $173.0 million of cash from our operating
activities, an increase of $59.2 million from the $113.8 million generated
during 2000. Earnings adjusted for non-cash items and deferred income taxes
increased $83.2 million to $283.5 million in 2001 from $200.3 million in 2000.
During 2001, our working capital and operating assets and liabilities increased
$110.5 million compared with an increase of $86.5 million in 2000.

In 2001, we used cash for increases in inventories, receivables and
negative operating margins related to our Prime Wave business and naval power
equipment products, as well as for incurred contract costs in excess of
billings for the continued effort on the AVCATT contract. These uses of cash
were partially offset by a settlement of certain items related to a services
agreement and lower income tax payments related to an increase in tax
deductions for temporary differences between the tax basis and financial
reporting amounts for inventoried costs, income recognition on contracts in
process, and long-lived assets including goodwill and other intangibles. We
expect the amount of our deferred income tax provision for 2002, excluding any
additional income tax benefits arising from the acquisition of AIS, to be
consistent with that for 2001.

During 2000, we generated $113.8 million of cash from our operating
activities, an increase of $14.8 million from the $99.0 million generated
during 1999. Earnings adjusted for non-cash items and deferred taxes increased
$48.5 million to $200.3 million in 2000 from $151.8 million in 1999. During
2000, our working capital and operating assets and liabilities increased $86.5
million compared with an increase of $52.8 million in 1999. Our cash flows from
operating activities during 2000 include uses of cash relating to performance
on certain contracts in process including the AVCATT contract that were assumed
in the TDTS acquisition for which the estimated costs exceed the estimated
billings to complete these contracts.

INVESTING ACTIVITIES

In 2001, we invested $446.9 million to acquire businesses, compared with
$599.6 million in 2000 and $272.2 million in 1999.

We make capital expenditures for the improvement of manufacturing
facilities and equipment. We expect that our capital expenditures for the year
ending December 31, 2002 will be between $75 million and $80 million, including
Aircraft Integration Systems, compared with $48.1 million for

the year ended December 31, 2001. The anticipated increase is principally due
to capital expenditures for our acquired businesses. Dispositions of property,
plant and equipment for 2000 includes net proceeds of $13.3 million related to
a facility located in Hauppauge, NY which we sold and leased back in December
2000.

On May 31, 2001, we sold a 30% interest in ACSS to Thales Avionics for
$75.2 million in cash. In 2000, we sold our interests in two businesses for net
cash proceeds of $19.6 million, which are included in other investing
activities.

On January 14, 2002, we agreed to acquire AIS for $1.13 billion in cash
plus acquisition costs. The acquisition was completed on March 8, 2002. The
acquisition was financed using cash on hand, borrowings under our senior credit
facilities and a $500 million senior subordinated interim loan.

FINANCING ACTIVITIES

DEBT. In the fourth quarter of 2001, L-3 Holdings sold $420.0 million of
4% Senior Subordinated Convertible Contingent Debt Securities due 2011
("CODES"). The net proceeds from that offering amounted to approximately $407.5
million after underwriting discounts and commissions and other offering
expenses. Interest is payable semi-annually on March 15 and September 15 of
each year commencing March 15, 2002. The CODES are convertible into L-3
Holdings' common stock at a conversion price of $53.81 per share (7,804,878
shares) under any of the following circumstances: (1) during any Conversion
Period (defined below) if the closing sales price of the common stock of L-3
Holdings is more than 120% of the conversion price ($64.58) for at least 20
trading days in the 30 consecutive trading-day period ending on the first day
of the respective Conversion Period, (2) during the five business day period
following any 10 consecutive trading-day period in which the average of the
trading prices for the CODES was less than 105% of the conversion value, (3) if
the credit ratings assigned to the CODES by either Moody's or Standard & Poor's
are below certain specified ratings, (4) if they have been called for
redemption by L-3 Holdings, or (5) upon the occurrence of certain specified
corporate transactions. A Conversion Period is the period from and including
the thirtieth trading day in a fiscal quarter to, but not including, the
thirtieth trading day of the immediately following fiscal quarter. There are
four Conversion Periods in each fiscal year. Additionally, holders of the CODES
have a right to receive contingent interest payments, not to exceed a per annum
rate of 0.5% of the outstanding principal amount of the CODES, which will be
paid on the CODES during any six-month period following a six-month period in
which the average trading price of the CODES is above 120% of the principal
amount of the CODES. The contingent interest payment provision as well as the
ability of the holders of the CODES to exercise the conversion features as a
result of changes in the credit ratings assigned to the CODES have been
accounted for as embedded derivatives.

In the fourth quarter of 2000, L-3 Holdings sold $300.0 million of 5 1/4%
Convertible Senior Subordinated Notes due 2009 (the "Convertible Notes"). The
net proceeds from that offering amounted to $290.5 million after underwriting
discounts and commissions and other offering expenses, and were used to repay
revolver borrowings outstanding under our senior credit facilities. The
Convertible Notes may be converted at any time into L-3 Holdings' common stock
at a conversion price of $40.75 per share (7,361,964 shares).

In April 1997, May 1998 and December 1998, L-3 Communications sold $225.0
million of 10 3/8% Senior Subordinated Notes due 2007, $180.0 million of 8 1/2%
Senior Subordinated Notes due 2008, and $200.0 million of 8% Senior
Subordinated Notes due 2008 (collectively, the "Senior Subordinated Notes"),
whose aggregate net proceeds amounted to $576.0 million after underwriting
discounts and commissions and other offering expenses. We used the net proceeds
of the offering of the outstanding notes to repurchase and redeem all of the
outstanding 10 3/8% Senior Subordinated Notes due 2007. See "Use of Proceeds."

In November 2001, we entered into interest rate swap agreements on our
$180.0 million of 8 1/2% Senior Subordinated Notes due 2008. These swap
agreements exchange our fixed interest rate for a variable interest rate on the
entire principal amount. Under these swap agreements, we will pay or

receive the difference between the fixed interest rate of 8 1/2% on the senior
subordinated notes and a variable interest rate, set in arrears, determined two
business days prior to the interest payment date of the related senior
subordinated notes equal to (1) the six month LIBOR rate plus (2) an average of
350.8 basis points. In July 2001, we entered into interest rate swap agreements
on our $200.0 million of 8% Senior Subordinated Notes due 2008. These swap
agreements exchange our fixed interest rate for a variable interest rate on the
entire principal amount. Under these swap agreements, we will pay or receive
the difference between the fixed interest rate of 8% on the senior subordinated
notes and a variable interest rate, set in arrears, determined two business
days prior to the interest payment date of the related senior subordinated
notes equal to (1) the six month LIBOR rate plus (2) an average of 192 basis
points. The difference to be paid or received on these swap agreements is
recorded as an adjustment to interest expense. The swap agreements are
accounted for as fair value hedges.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

Our EBITDA was $362.3 million for 2001, $297.0 million for 2000 and $204.2
million for 1999. We define EBITDA as operating income plus depreciation
expense and amortization expense. Other than our amount of debt and interest
expense, EBITDA is the major component in the calculation of the debt ratio and
interest coverage ratio which are part of the financial covenants for our debt.
The debt ratio is defined as the ratio of consolidated total debt to
consolidated EBITDA. The interest coverage ratio is equal to the ratio of
consolidated EBITDA to consolidated cash interest expense. The higher our
EBITDA is on a relative basis to our outstanding debt, the lower our debt ratio
will be. A lower debt ratio indicates a higher borrowing capacity. Similarly,
an increase in our EBITDA on a relative basis to consolidated cash interest
expense, results in a higher interest coverage ratio, which indicates a greater
capacity to service debt.

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

CONTRACTUAL OBLIGATIONS AND CONTINGENT COMMITMENTS

The tables below present our contractual obligations and contingent
commitments as of December 31, 2001.

YEARS ENDING DECEMBER 31,
-------------------------------------------------
2005 AND
CONTRACTUAL OBLIGATIONS: TOTAL 2002 2003 2004 THEREAFTER
- -------------------------------------------- ------------- --------- --------- --------- -------------
(in millions)

Principal amount of long-term debt ......... $ 1,325.0 $ -- $ -- $ -- $ 1,325.0
Non-cancelable operating leases ............ 350.5 61.9 49.3 33.1 206.2
Capital leases ............................. 4.7 1.7 1.4 0.9 0.7
---------- ----- ----- ----- ----------
Total ..................................... $ 1,680.2 $ 63.6 $ 50.7 $ 34.0 $ 1,531.9
========== ====== ====== ====== ==========

YEARS ENDING DECEMBER 31,
-------------------------------------------------
2005 AND
CONTINGENT COMMITMENTS: TOTAL 2002 2003 2004 THEREAFTER
- ----------------------------------------------------- ----------- ---------- ---------- --------- -----------
(in millions)

Outstanding letters of credit under our senior credit
facilities ......................................... $ 102.4 $ 86.5 $ 10.6 $ 3.6 $ 1.7
Other outstanding letters of credit ................. 20.0 12.5 7.3 -- 0.2
Construction agency agreement ....................... 43.5 43.5 -- -- --
Simulator systems operating leases .................. 89.2 -- 4.2 5.2 79.8
Guarantees of affiliate debt ........................ 1.0 1.0 -- -- --
Capital contributions for limited partnership
investments ........................................ 5.0 5.0 -- -- --
-------- ------- ------- ------ ------
Total .............................................. $ 261.1 $ 148.5 $ 22.1 $ 8.8 $ 81.7
======== ======= ======= ====== ======

EQUITY. On May 2, 2001, L-3 Communications Holdings sold 9.2 million
shares of its common stock in a public offering for $40.00 per share. In
addition, as part of the transaction, other selling stockholders including
affiliates of Lehman Brothers Inc. sold 4.7 million secondary shares. Upon
closing, we received net proceeds of $353.6 million, which we used to repay
borrowings outstanding under our senior credit facilities, pay for the KDI and
EER acquisitions and to increase cash and cash equivalents.

On February 4, 1999, L-3 Communications Holdings sold 10.0 million shares
of its common stock in a public offering for $21.00 per share which generated
net proceeds of $201.6 million. In addition, as part of the same transaction,
13.0 million shares of L-3 Holdings common stock were sold by Lehman Brothers
Capital Partners III, L.P. and its affiliates ("the Lehman Partnership") and
Lockheed Martin in a secondary public offering. In October 1999, Lockheed
Martin sold its remaining L-3 Holdings common stock. In December 1999, the
Lehman Partnership distributed approximately 7.6 million shares of its shares
of common stock of L-3 Holdings to its partners. On December 31, 2001, the
Lehman Partnership owned approximately 4.4% of the outstanding common stock of
L-3 Holdings.

DERIVATIVE FINANCIAL INSTRUMENTS

Included in our derivative financial instruments are interest rate swap
agreements, caps, floors, foreign currency forward contracts and the embedded
derivatives related to the issuance of the CODES. All of our derivative
financial instruments that are sensitive to market risk are entered into for
purposes other than trading.

EMBEDDED DERIVATIVES. The contingent interest payment and contingent
conversion features of the CODES are embedded derivatives which were bifurcated
from the CODES, and a portion of the net proceeds received from the CODES equal
to their aggregate fair value of $2.5 million was ascribed to the embedded
derivatives as required by SFAS No. 133. The subsequent changes in the fair
values of the embedded derivatives are recorded in the statement of operations.
Their fair values at June 30, 2002 were $3.2 million.

INTEREST RATE RISK. Our financial instruments that are sensitive to
changes in interest rates include borrowings under the senior credit facilities
and interest rate swap agreements, all of which are denominated in U.S.
dollars. The interest rates on the Senior Subordinated Notes, Convertible Notes
and CODES are fixed-rate and are not affected by changes in interest rates.

In 2001, we entered into interest rate swap agreements on $380.0 million
of our senior subordinated notes to convert their fixed interest rates to
variable rates and to take advantage of the current low interest rate
environment. In 2002, we unwound $200.0 million of these interest rate swap
agreements and entered into new swap agreements on $200.0 million of our senior
subordinated notes. These swap agreements are described above. For every basis
point (0.01%) that the six month LIBOR interest rate is greater than 4.99%, we
will incur an additional $18,000 of interest expense above the fixed interest
rate on $180.0 million of senior subordinated notes calculated on a per annum
basis until maturity. For every basis point that the six month LIBOR interest
rate is greater than 5.47%, we will

incur an additional $20,000 of interest expense above the fixed interest rate
on $200.0 million of senior subordinated notes calculated on a per annum basis
until maturity. Conversely, for every basis point that the six month LIBOR
interest rate is less than 4.99%, we will recognize $18,000 of interest income
on $180.0 million of senior subordinated notes calculated on a per annum basis
until maturity. For every basis point that the six month LIBOR interest rate is
less than 5.47%, we will recognize $20,000 of interest income on $200.0 million
of senior subordinated notes calculated on a per annum basis until maturity.
The six month LIBOR rate at June 30, 2002 was 1.96%.

We attempt to manage exposure to counterparty credit risk by entering into
interest rate agreements only with major financial institutions that are
expected to perform fully under the terms of such agreements. Cash payments
between us and the counterparties are made at the end of each quarter on the
caps and floors and on the interest payment dates of the senior subordinated
notes on the interest rate swap agreements. Such payments are recorded as
adjustments to interest expense. Additional data on our debt obligations, our
applicable borrowing spreads included in the interest rates we pay on
borrowings under the senior credit facilities and interest rate agreements are
provided in "Description of Other Indebtedness" and Notes 7 and 8 to our
consolidated financial statements.

The table below presents significant contract terms and fair values as of
June 30, 2002 for our interest rate agreements.

INTEREST RATE SWAP AGREEMENTS
-------------------------------------
(in millions)

Notional amount ............. $ 200.0 $ 180.0
Interest rate ............... 7 5/8% 8 1/2%
Reference rate .............. 6 month LIBOR 6 month LIBOR
Designated maturity ......... Semi-Annual Semi-Annual
Expiration date ............. June 15, 2012 May 15, 2008
Fair value .................. $(--) $(3.3)

FOREIGN CURRENCY EXCHANGE RISK. We conduct some of our operations outside
the U.S. in functional currencies other than the U.S. dollar. Additionally,
some of our U.S. operations have contracts with foreign customers denominated
in foreign currencies. To mitigate the risk associated with certain of these
contracts denominated in foreign currency we have entered into foreign currency
forward contracts. At June 30, 2002, the notional value of foreign currency
forward contracts was $7.3 million and the fair value of these contracts was
$(0.3) million. We account for these contracts as cash flow hedges.

EQUITY PRICE RISK. Our investments in common equities are subject to
equity price risk. The fair values of our investments are based on quoted
market prices, as available, and on historical cost for investments which it is
not practicable to estimate fair value. Both the carrying values and estimated
fair values of such instruments amounted to $16.5 million at the end of 2001.

BACKLOG AND ORDERS

We define funded backlog as the value of contract awards received from the
U.S. Government, which the U.S. Government has appropriated funds, plus the
value of contract awards and orders received from customers other than the U.S.
Government which have yet to be recognized as sales. Our funded backlog as of
December 31, 2001 was $1,719.3 million and as of December 31, 2000 was $1,354.0
million. We expect to record as sales approximately 69.7% of our December 31,
2001 funded backlog during 2002. However, there can be no assurance that our
funded backlog will become sales in any particular period, if at all. Our
funded orders were $2,456.1 million for 2001, $2,013.7 million for 2000 and
$1,423.1 million for 1999.

Our funded backlog does not include the full value of our contract awards
including those pertaining to multi-year, cost-plus reimbursable contracts,
which are generally funded on an annual basis. Funded backlog also excludes the
sales value of unexercised contract options that may be exercised by customers
under existing contracts and the sales value of purchase orders that may be
issued under indefinite quantity contracts or basic ordering agreements.

RESEARCH AND DEVELOPMENT

Company-sponsored research and development costs including bid and
proposal costs were $107.5 million for 2001, $101.9 million for 2000 and $76.1
million for 1999. Customer-funded research and development costs were $319.4
million for 2001, $299.3 million for 2000 and $226.3 million for 1999.

CONTINGENCIES

We are engaged in providing products and services under contracts with the
U.S. Government and to a lesser degree, under foreign government contracts,
some of which are funded by the U.S. Government. All such contracts are subject
to extensive legal and regulatory requirements, and, periodically, agencies of
the U.S. Government investigate whether such contracts were and are being
conducted in accordance with these requirements. Under government procurement
regulations, an indictment by a federal grand jury could result in the
suspension for a period of time from eligibility for awards of new government
contracts. A conviction could result in debarment from contracting with the
federal government for a specified term. Additionally, in the event that U.S.
Government expenditures for products and services of the type we manufacture
and provide are reduced, and not offset by greater commercial sales or other
new programs or products, or acquisitions, there may be a reduction in the
volume of contracts or subcontracts awarded to us.

We continually assess our obligations with respect to applicable
environmental protection laws. While it is difficult to determine the timing
and ultimate cost to be incurred in order to comply with these laws, based upon
available internal and external assessments, with respect to those
environmental loss contingencies of which we are aware, we believe that even
without considering potential insurance recoveries, if any, there are no
environmental loss contingencies that, individually or in the aggregate, would
be material to our consolidated financial position, results of operations or
cash flows. Also, we have been periodically subject to litigation, claims or
assessments and various contingent liabilities incidental to our business. We
accrue for these contingencies when it is probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.

With respect to those investigative actions, items of litigation, claims
or assessments of which we are aware, we are of the opinion that the
probability is remote that, after taking into account certain provisions that
have been made with respect to these matters, the ultimate resolution of any
such investigative actions, items of litigation, claims or assessments will
have a material adverse effect on our consolidated financial position, results
of operations or cash flows.

On August 6, 2002, Aviation Communication & Surveillance Systems, LLC
(ACSS), a subsidiary of L-3 Communications Corporation, was sued by Honeywell
International, Inc. and Honeywell Intellectual Properties, Inc. for alleged
infringement of patents that relate to terrain awareness avionics. The lawsuit
was filed in the Unites States District Court for the District of Delaware. We
had previously investigated the Honeywell patents and believe that it has valid
defenses to Honeywell's claim. In addition, ACSS has been indemnified to a
certain extent by Thales Avionics, which has provided to ACSS the alleged
infringing technology. In the opinion of management, the ultimate disposition of
Honeywell's pending claim will not result in a material liability to us.

RECENTLY ISSUED AND PROPOSED ACCOUNTING STANDARDS

goodwill recorded for these businesses is approximately $21.0 million, net of
related income taxes. We expect to complete the valuation of the assets and
liabilities for these businesses and to determine the amount of the goodwill
impairment in the second half of 2002. Any resulting impairment would be a
non-cash charge, recorded effective January 1, 2002, as a cumulative effect of
a change in accounting principle in accordance with the adoption provisions of
SFAS No. 142.

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

In October of 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB No. 30), for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 144 expands the scope of
accounting for disposals to include all components of an entity, including
reportable segments and operating segments, reporting units, subsidiaries and
certain asset groups. It requires the gain or loss on disposal to be measured
as the difference between (1) the fair value less the costs to sell and (2) the
carrying value of the component, and such gain or loss cannot include the
estimated future operating losses of the component, which were included in the
gain or loss determination under APB No. 30. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidate a subsidiary for which control is likely
to be temporary. The provisions of SFAS No. 144 became effective on January 1,
2002, SFAS No. 144 did not have a material effect on our consolidated results
of operations and financial position.

In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. Under the provisions of SFAS No. 145, gains
and losses from extinguishment of debt can only be classified as extraordinary
items if they meet the criteria in APB Opinion No. 30. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Earlier application is permitted. This
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are similar and is
effective for transactions occurring after May 15, 2002. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions and are effective for financial statements issued on or after May
15, 2002. SFAS No. 145 is not expected to have a material effect on our
consolidated results of operations, financial position or cash flows.

activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan as was required by EITF No. 94-3. Examples of costs
covered by SFAS No. 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied to exit or disposal activities initiated after December 31, 2002.
SFAS No. 146 is not expected to have a material effect on our consolidated
results of operations and financial position.

INFLATION

The effect of inflation on our sales and earnings has not been
significant. Although a majority of our sales are made under long-term
contracts, the selling prices of such contracts, established for deliveries in
the future, generally reflect estimated costs to be incurred in these future
periods. In addition, some contracts provide for price adjustments through
escalation clauses.

BUSINESS

OVERVIEW

We are a leading merchant supplier of secure communications and
intelligence, surveillance and reconnaissance (ISR) systems, training,
simulation and support services, aviation products and aircraft modernization,
as well as specialized products. Our businesses employ proprietary technologies
and capabilities, and we believe our businesses have leading positions in their
respective primary markets. Our customers include the U.S. Department of
Defense ("DoD") and prime contractors thereof, certain U.S. Government
intelligence agencies, major aerospace and defense contractors, foreign
governments, commercial customers and certain other U.S. federal, state and
local government agencies. For the year ended December 31, 2001, direct and
indirect sales to the DoD provided 64.7% of our sales, and sales to commercial
customers, foreign governments and U.S. federal, state and local government
agencies other than the DoD provided 35.3% of our sales. For the year ended
December 31, 2001, we had sales of $2,347.4 million, of which U.S. customers
accounted for 82.1% and foreign customers accounted for 17.9%, and operating
income of $275.3 million. At December 31, 2001, we had two reportable segments:
Secure Communication Systems and Specialized Products. Effective as of January
1, 2002, primarily as a result of our recent acquisitions, including our
acquisition of Aircraft Integration Systems business from Raytheon Company on
March 8, 2002, we began to present our businesses with the following four
reportable segments: (1) Secure Communications & ISR; (2) Training, Simulation
& Support Services; (3) Aviation Products & Aircraft Modernization; and (4)
Specialized Products. The descriptions of our reportable segments below include
the products and services provided by our Aircraft Integration Systems
business. Financial information on our reportable segments is included in
Management's Discussion and Analysis of Result of Operations and Financial
Condition and in Note 16 of our consolidated financial statements, each
included elsewhere herein.

Secure Communications & ISR

This segment provides products and services for the global ISR market,
specializing in signals intelligence and communications intelligence systems,
which provide the unique ability to collect and analyze unknown electronic
signals from command centers, communication nodes and air defense systems for
real-time situation awareness and response in real-time to the warfighter. This
segment also provides secure, high data rate communications systems for
military and other U.S. Government and foreign government reconnaissance and
surveillance applications. We believe our systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems. Our systems and products are used to
connect a variety of airborne, space, ground and sea-based communication
systems and are used in the transmission, processing, recording, monitoring and
dissemination functions of these communication systems. The major secure
communication programs and systems include:

o secure data links for airborne, satellite, ground and sea-based remote
platforms for real time information collection and dissemination to
users;

o highly specialized fleet management and support including procurement,
systems integration, sensor development, modifications and maintenance
for signals intelligence and ISR special mission aircraft and airborne
surveillance systems;

o strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information;

o secure telephone and network equipment and encryption management; and

o communication systems for surface and undersea vessels and manned space
flights.

Training, Simulation & Support Services. This segment provides a full
range of services, including:

o communication software support, information services and a wide range of
engineering development services and integration support;

o high-end engineering and information support services used for command,
control, communications and ISR architectures, as well as for air warfare
modeling and simulation tools for applications used by the DoD and U.S.
Government intelligence agencies, including missile and space systems,
Unmanned Aerial Vehicles (UAVs) and military aircraft;

o design, prototype development and production of ballistic missile targets
for present and future threat scenarios.

Aviation Products & Aircraft Modernization. This segment provides aviation
products and aircraft modernization services including:

o airborne traffic and collision avoidance systems (TCAS);

o commercial, solid-state, crash-protected cockpit voice recorders and
flight data recorders (known as "black boxes") and cruise ship hardened
voyage recorders;

o ruggedized displays for military and high-end commercial applications;

o engineering, modification, maintenance, logistics and upgrade for U.S.
Special Operations Command aircraft, vehicles and personal equipment.

Specialized Products. This segment supplies products to military and
commercial customers in several niche markets. The products include:

o telemetry, instrumentation, space and guidance products including
tracking and flight termination;

o premium fuzing products;

o microwave components;

o explosive detection systems for checked baggage at airports;

o high performance antennas and ground based radomes; and

o training devices and motion simulators which produce advanced virtual
reality simulation and high-fidelity representations of cockpits and
mission stations for aircraft and land vehicles.

DEVELOPING COMMERCIAL OPPORTUNITIES

Our growth strategy includes identifying and exploiting commercial
applications from select products and technologies currently sold to defense
customers. We have currently identified two

vertical markets where we believe there are significant opportunities to expand
our existing commercial sales: Transportation Products and Broadband Wireless
Communications Products. We believe that these vertical markets, together with
our existing commercial products, provide us with the opportunity for
substantial commercial growth in future years.

Within the transportation market, we are offering (1) an explosives
detection system for checked baggage at airports, displays and power propulsion
systems for rail transporation and power switches for internet service
providers, all of which are part of our Specialized Products segment, and (2)
cruise ship voyage recorders and an enhanced aviation collision avoidance
product that incorporates ground proximity warning which are part of our
Aviation Products & Aircraft Modernization segment.

INDUSTRY OVERVIEW

The U.S. defense industry has undergone significant changes precipitated
by ongoing U.S. federal budget pressures and adjustments in political roles and
missions to reflect changing strategic and tactical threats. From the mid-1980s
to the late 1990s, the U.S. defense budget experienced a decline in real
dollars. This trend was reversed by an increase in defense spending in 1999,
followed by current dollar increases in fiscal 2000, 2001 and 2002 with an
anticipated increase in fiscal 2003 to $379.0 billion. In addition, the DoD
philosophy has focused on its transformation strategy that balances
modernization and recapitalization (or upgrading existing platforms) while
enhancing readiness and joint operations which include digital command and
control communications capabilities by incorporating advanced electronics to
improve performance, reduce operating costs, and extend the life expectancy of
its existing and future platforms. As a result, defense budget program
allocations continue to favor advanced information technologies related to
command, control and communications, (C(3)), intelligence, surveillance and
reconnaissance (ISR). In addition, the DoD's emphasis on system
interoperability, force multipliers and providing battlefield commanders with
real-time data is increasing the electronic content of nearly all major
military procurement and research programs. As a result, it is expected that
the DoD's budget for communications and defense electronics will continue to
grow.

The U.S. defense industry has also undergone dramatic consolidation
resulting in the emergence of five dominant prime system contractors: The
Boeing Company, Lockheed Martin Corporation, Northrop Grumman Corporation,
Raytheon Company and General Dynamics Corporation. We believe that one outcome
of this consolidation is that the DoD wants to ensure that continued vertical
integration does not further diminish the fragmented, yet critical DoD vendor
base. Additionally, we believe it has become uneconomical for the prime
contractors to design, develop and manufacture numerous essential products,
components and subsystems for their own use. We believe this situation has and
will continue to create opportunities for merchant suppliers such as L-3. As
the prime contractors continue to evaluate their core competencies and
competitive positions, focusing their resources on larger programs and
platforms, we expect the prime contractors to continue to exit non-strategic
business areas and procure these needed elements on more favorable terms from
independent, commercially oriented merchant suppliers. Examples of this trend
include recent divestitures of certain non-core defense-related businesses by
several of the prime contractors.

The focus on cost reduction by the prime contractors and DoD is also
driving increased use of commercial off-the-shelf products for upgrades of
existing systems and in new systems. We believe the prime contractors will
continue to be under pressure to reduce their costs and will increasingly seek
to focus their resources and capabilities on major platforms and systems,
turning to commercially

oriented "best of breed" merchant suppliers to produce subsystems, components
and products. We believe successful merchant suppliers will continue to use
their resources to complement and support, rather than compete with, the prime
contractors. We anticipate that the relationships between the major prime
contractors and their primary suppliers will continue to evolve in a fashion
similar to those employed in the automotive and commercial aircraft industries.
We expect that these relationships will be defined by critical partnerships
encompassing increasingly greater outsourcing of non-core products and systems
by the prime contractors to their key merchant suppliers and increasing
supplier participation in the development of future programs. We believe early
involvement in the upgrading of existing systems and the design and engineering
of new systems incorporating these outsourced products will provide merchant
suppliers, including us, with a competitive advantage in securing new business
and provide the prime contractors with significant cost reduction opportunities
through coordination of the design, development and manufacturing processes.

BUSINESS STRATEGY

We intend to grow our sales, enhance our profitability and build on our
position as a leading merchant supplier of communication systems and products
to the major contractors in the aerospace and defense industry as well as the
U.S. Government. We also intend to leverage our expertise and products into
selected new commercial business areas where we can adapt our existing products
and technologies. Our strategy to achieve our objectives includes:

EXPAND MERCHANT SUPPLIER RELATIONSHIPS. We have developed strong
relationships with the DoD, several other U.S. Government agencies and all of
the major U.S. defense prime contractors, enabling us to identify new business
opportunities and anticipate customer needs. As an independent merchant
supplier, we anticipate that our growth will be driven by expanding our share
of existing programs and by participating in new programs. We identify
opportunities where we are able to use our strong relationships to increase our
business presence and allow customers to reduce their costs. We also expect to
benefit from increased outsourcing by prime contractors who in the past may
have limited their purchases to captive suppliers and who are now expected to
view our capabilities on a more favorable basis due to our status as an
independent company, which positions us to be a merchant supplier to multiple
bidders on prime contract bids.

SUPPORT CUSTOMER REQUIREMENTS. A significant portion of our sales is
derived from strategic, long-term programs and from programs for which we have
been the incumbent supplier, and in many cases acted as the sole provider over
many years. Our customer satisfaction and excellent performance record are
evidenced by our performance-based award fees exceeding an average of 90% of
the available award fees since our inception in April 1997. We believe that
prime contractors will increasingly award long-term, outsourcing contracts to
the best-of-breed merchant suppliers they believe to be most capable on the
basis of quality, responsiveness, design, engineering and program management
support as well as cost. We intend to continue to align our research and
development, manufacturing and new business efforts to complement our
customers' requirements and provide state-of-the-art products.

ENHANCE OPERATING MARGINS. We have a history of improving the operating
performance of the businesses we acquire through the reduction of corporate
administrative expenses and facilities costs, increasing sales, improving
contract bidding and proposals controls and practices and increasing
competitive contract award win rates. We have a tradition of enhancing
operating margins, primarily due to efficient management and elimination of
significant corporate expense allocations. We intend to continue to enhance our
operating performance by reducing overhead expenses, continuing consolidation
and increasing productivity.

LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. We have developed
strong, proprietary technical capabilities that have enabled us to capture the
number one or number two market position in most of our key business areas,
including secure, high data rate communications systems, solid state aviation
recorders, telemetry, instrumentation and space products, advanced antenna
products and high performance microwave components. We continue to invest in
company-sponsored independent research and development, including bid and
proposal costs, in addition to making substantial

investments in our technical and manufacturing resources. Further, we have a
highly skilled workforce, including approximately 7,600 engineers. We are
applying our technical expertise and capabilities to several closely aligned
commercial business markets and applications such as transportation and
broadband wireless communications and we expect to continue to explore other
similar commercial opportunities.

MAINTAIN DIVERSIFIED BUSINESS MIX. We have a diverse and broad business
mix with limited reliance on any particular program, a balance of
cost-reimbursable and fixed-price contracts, a significant follow-on business
and an attractive customer profile. Our largest program represented 3.9% of our
sales for the year ended December 31, 2001 and is a long term, firm-fixed price
contract for intelligence agencies and the DoD. No other program represented
more than 3.2% of sales for the year ended December 31, 2001. Furthermore,
31.7% of our sales for the same period were from cost-reimbursable contracts,
and 68.3% were from fixed-price contracts, providing us with a mix of
predictable profitability (cost-reimbursable) and higher margin (fixed-price)
business. We also enjoy a mix of defense and non-defense business, with direct
and indirect sales to the DoD accounting for 64.7%, and sales to commercial
customers, foreign governments and U.S. federal, state and local government
agencies other than the DoD accounting for 35.3% of our sales for the year
ended December 31, 2001. We intend to leverage this business profile to expand
our merchant supplier business base.

CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. Recent U.S. defense
industry consolidation has dramatically reduced the number of traditional
middle-tier aerospace and defense companies, which are smaller than the five
dominant prime system contractors and larger than the many smaller publicly and
privately owned companies, as well as non-core aerospace and defense businesses
of the prime contractors. We intend to enhance our existing product base
through internal research and development efforts and selective acquisitions
that will add new products in areas that complement our present technologies.
We intend to continue acquiring potential targets with the following criteria:

o significant market position(s) in their business area(s);

o product offerings which complement and/or extend our product offerings;
and

o positive future growth and earnings prospects.

Since January 1, 2001, we acquired sixteen businesses for an aggregate
adjusted purchase price of $1,771.1 million, twelve of which were acquired for
an aggregate adjusted purchase price of $516.4 million during 2001. For certain
of these acquisitions, the purchase price may be subject to further adjustment
based on actual closing date net assets or net working capital of the acquired
business and the post-acquisition financial performance of the acquired
business. The table below summarizes our primary acquisitions completed since
January 1, 2001.

SELECTED RECENT ACQUISITIONS

PRICE
BUSINESS NAME DATE ACQUIRED ACQUIRED FROM ($ MN) BUSINESS DESCRIPTION
- ----------------------- ------------------- --------------------- ----------- ----------------------------------

Detection Systems June 14, 2002 PerkinElmer $ 100.0 Manufactures a range of
detection and imaging products
used to detect explosives,
concealed weapons, contraband
and illegal narcotics, inspection
of agricultural products and
examination of cargo.
Aircraft Integration March 8, 2002 Raytheon Company 1,148.7 Provides products and services
Systems for the global Intelligence,
Surveillance and Reconnaissance
(ISR) market, specializing in
signals intelligence (SIGINT)
and communications intelligence
(COMINT) systems, which
provide the unique ability to
collect, decode and analyze
electronic signals from command
centers, communication nodes
and air defense for real-time
communication and response to
the warfighter. Also provides
complete aircraft and mission
system engineering integration,
test and support capability.
SY Technology December 31, 2001 SY Technology, Inc. 58.5 Specializes in air warfare
simulation; command, control,
communications, computers and
intelligence architectures; and
missile defense and space
systems technologies.
BT Fuze Products December 19, 2001 Bulova Technologies 49.5 Produces military fuzes that
prevent the inadvertent firing
and detonation of weapons
during handling.
Government Services November 30, 2001 Emergent 39.7 Provides high-end engineering
Group (renamed L-3 Technologies and information services to the
Communications U.S. Air Force, Army, Navy and
Analytics) intelligence agencies.
Spar Aerospace November 23, 2001 Spar Stockholders 146.8 Provides turnkey aviation life
Limited cycle management services for
wide body and rotary wing
aircraft. Also providing
value-added engineering and
modernization for selected
military and commercial aviation
programs.
EER Systems May 31, 2001 EER Systems 119.4 Provides a wide range of
Stockholders engineering development and
integration support to the DoD,
Federal civilian agencies, state
and local governments and
commercial customers.
KDI Precision May 4, 2001 KDI Precision 78.9 Produces military fuzes that
Products Stockholders prevent the inadvertent firing
and detonation of weapons
during handling.

PRODUCTS AND SERVICES

SECURE COMMUNICATIONS & ISR

The systems and products, selected applications and selected platforms or
end users of our Secure Communications & ISR segment at December 31, 2001 are
summarized in the table below.

SYSTEMS/PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USERS
- ---------------------------------------- ------------------------------------- --------------------------------------

High Data Rate Communications
o Wideband data links and ground o High performance, wideband o Manned and unmanned aircraft,
terminals secure communication links for naval ships, terminals and
relaying of intelligence and satellites
reconnaissance information

Satellite Communication Terminals
o Ground-based satellite o Interoperable, transportable o Remote personnel provided with
communication terminals and ground terminals communication links to distant
payloads forces

Space Communication and Satellite Control
o Satellite communication and o On-board satellite external o International Space Station,
tracking system communications, video systems, Space Shuttle and various
solid state recorders and ground satellites
support equipment

o Satellite command and control o Software integration, test and o U.S. Air Force Satellite Control
sustainment and support maintenance support satellite Network and rocket launch
control network and engineering system
support for satellite launch
system

Military Communications
o Shipboard communications o Internal and external o Naval vessels
systems communications (radio room)

Information Security Systems
o STE (Secure Terminal o Secure and non-secure voice, o U.S. Armed services, intelligence
Equipment) data and video communication and security agencies
for office and battlefield utilizing
ISDN and ATM commercial
network technologies

We are an established leader in the development, construction and
installation of communication systems for high performance intelligence
collection, imagery processing and ground, air, sea and satellite
communications for the DoD and other U.S. Government agencies. We provide
secure, high data rate, real-time communication systems for surveillance,
reconnaissance and other intelligence collection systems. We also design,
develop, produce and integrate communication systems and support equipment for
space, ground and naval applications, as well as provide communication software
support services to military and related government intelligence markets.
Product lines of the Secure Communications & ISR business include high data
rate communications links, satellite communications terminals, naval vessel
communication systems, space communications and satellite control systems,
signal intelligence information processing systems, information security
systems, tactical battlefield sensor systems and commercial communication
systems.

High Data Rate Communications

We are a technology leader in high data rate, covert, jam-resistant
microwave communications used in military and other national agency
reconnaissance and surveillance applications. Our product line covers a full
range of tactical and strategic secure point-to-point and relay data
transmission systems, products and support services that conform to military
and intelligence specifications. Our systems and products are capable of
providing battlefield commanders with real-time, secure surveillance and
targeting information and were used extensively by U.S. armed forces in the
Persian Gulf War and during operations in Bosnia, Kosovo and Afghanistan.

Our current family of strategic and tactical data links or CDL (Common
Data Link) systems are considered DoD standards for data link hardware. Our
primary focus is spread spectrum secure communication links technology, which
involves transmitting a data signal with a high-rate noise signal making it
difficult to detect by others, and then re-capturing the signal and removing
the noise. Our data links are capable of providing information at over 300
megabytes per second and use point-to-point and point-to-multipoint
architectures.

We provide these secure high bandwidth products to the U.S. Air Force, the
U.S. Navy, the U.S. Army and various U.S. Government agencies, many through
long-term programs. The scope of these programs include air-to-ground,
air-to-air, ground-to-air and satellite communications such as the U-2 Support
Program, GUARDRAIL, ASTOR and major UAV (unmanned aerial vehicle) programs,
such as Predator, Global Hawk and Fire Scout.

We remain the industry leader in the mobile airborne satellite terminal
product market, delivering mobile satellite communication services to many
airborne platforms. These services provide real time connectivity between the
battlefield and non-local exploiters of ISR data.

Satellite Communication Terminals

We provide ground-to-satellite, high availability, real-time global
communications capability through a family of transportable field terminals
used to communicate with commercial, military and international satellites.
These terminals provide remote personnel with constant and effective
communication capability and provide communications links to distant forces.
Our TSS (TriBand SATCOM Subsystem) employs a 6.25 meter tactical dish with a
single point feed that provides C, Ku and X band communication to support the
U.S. Army. We also offer an 11.3 meter antenna satellite terminal which is
transportable on two C-130 aircraft. The SHF PTS (Portable Terminal System) is
a lightweight (28 pounds), portable terminal, which communicates through DSCS,
NATO or SKYNET satellites and brings connectivity to small military tactical
units and mobile command posts.

We provide System Engineering and Software/Life-cycle support to the Air
Force Satellite control network as well as the Eastern and Western Test
Rangers. These contracts were recently won and last well beyond 2010.

Space Communications and Satellite Control

We produced and are delivering three communication subsystems for the ISS
(International Space Station). These systems will control all ISS radio
frequency communications and external video activities. We also provide
solid-state recorders and memory units for data capture, storage, transfer and
retrieval for space applications. Our standard NASA tape recorder has completed
over five million hours of service without a mission failure. Our recorders are
on National Oceanic & Atmospheric Administration weather satellites, the Earth
Observing Satellite, AM spacecraft and Landsat-7 Earth-monitoring spacecraft.
We have extended this technology to our Strategic Tactical Airborne Recorder
(S/TAR (Trade Mark) ) which was selected for the New Shared Reconnaissance Port
(SHARD) Program. We also provide space and satellite system simulation,
satellite operations and computer system training, depot support, network
engineering, resource scheduling, launch system engineering, support, software
integration and test through cost-plus contracts with the U.S. Air Force.

Military Communications

We provide integrated, computer controlled switching systems for the
interior and exterior voice and data needs of naval vessels. Our products
include the MarCom Integrated Voice Communication Systems for Aegis class
destroyers and for the LPD amphibious ship class. We produced the MarCom
Baseband Switch for Los Angeles class submarines. Our MarCom secure digital
switching system provides an integrated approach to the specialized voice and
data communications needs of shipboard environment for internal and external
communications, command and control and air traffic control. Along with the
Keyswitch Integrated Terminals, MarCom provides automated switching of
radio/cryptocircuits, which results in significant timesavings. We also offer
on-board, high data rate

communications systems, which provide a data link for carrier battle groups,
which are interoperable with the U.S. Air Force's Surveillance/reconnaissance
terminals. We supply the "communications on the move" capability needed for the
digital battlefield by packaging advanced communications into the U.S. Army's
Interim Brigade Combat Team Commander's Vehicle.

Information Security Systems

We believe we are a leader in the development of secure communications
equipment for both military and commercial applications. We are producing the
next generation digital, ISDN-compatible STE (secure telephone equipment). STE
provides clearer voice and thirteen-times faster data/fax transmission
capabilities than the previous generation secure telecommunications equipment.
STE also supports secure conference calls and secure video teleconferencing.
STE uses a CryptoCard security system which consists of a small, portable,
cryptographic module holding the algorithms, keys and personalized credentials
to identify its user for secure communications access. We also provide the
workstation component of the U.S. Government's EKMS (Electronic Key Management
System), the next generation of information security systems. EKMS is the
government's system to replace current "paper" encryption keys used to secure
government communications with "electronic" encryption keys. The component we
provide produces and distributes the electronic keys. We also develop
specialized strategic and tactical signal intelligence systems to detect,
acquire, collect, and process information derived from electronic sources.
These systems are used by classified customers for intelligence gathering and
require high-speed digital signal processing and high-density custom hardware
designs.

TRAINING, SIMULATION & SUPPORT SERVICES

The products and services, selected applications and selected platforms or
end users of our Training, Simulation & Support Services segment at December
31, 2001 are summarized in the table below.

PRODUCTS/SERVICES SELECTED APPLICATIONS SELECTED PLATFORMS/END USERS
- ---------------------------------- -------------------------------------- --------------------------------------

Training and Simulation
o Battlefield and Weapon o Missile system modeling and o U.S. Army Missile Command
Simulation simulation
o Design and manufacture custom o U.S. Army Missile Command
ballistic missile targets that are
ground launched and air
launched for threat replication
targets
o Training o Training for soldiers on complex o DoD
command and control systems
o Training and logistics services o DoD and foreign governments
and training device support
o Human Patient Simulators o Medical training o Medical schools, nursing schools,
and DoD

Engineering Development and
Integration Support
o System Support o C(3)ISR (Command, Control, o U.S. Armed services, intelligence
Communications, Intelligence, and security agencies, Ballistic
Surveillance and Missile Defense Organization,
Reconnaissance), modeling and NASA and other U.S.
simulation Government agencies
o Communication software o Value-added, critical software o DoD, FAA and NASA
support services support for C(3)I (Command,
Control, Communication and
Intelligence) systems and other
engineering and technical
services

Training and Simulation

We believe we are a leading provider of training, simulation and support
services to the U.S. and foreign military agencies.

Our products and services are designed to meet customer training
requirements for aircrews, navigators, mission operators, gunners and
maintenance technicians for virtually any platform, including military fixed
and rotary wing aircraft, air vehicles and various ground vehicles. As one of
the leading suppliers of training services, we believe we are able to leverage
our unique full-service capabilities to develop fully-integrated, innovative
solutions for training systems, propose and provide program upgrades and
modifications, as well as provide hands-on, best-in-class training operations
in accordance with virtually any customer requirement in a timely manner. In
addition, we are developing, demonstrating, evaluating and transitioning
training technologies and methods for use by warfighters at the US Air Force's
Fighter Training Research Division.

We also design and develop prototypes of ballistic missile targets for
present and future threat scenarios. We provide high-fidelity custom targets to
the DoD that are complementary to the U.S. Government's growing focus and
priority on national missile defense and space programs. We are the only
provider of Ballistic Missile targets that have successfully launched a
Ballistic Missile Target from an Air Force Cargo Aircraft.

We also develop and manage extensive programs in the United States and
internationally focusing on training and education, strategic planning,
organizational design, democracy transition and leadership development. To
provide these services, we utilize a pool of experienced former armed service,
law enforcement and other national security professionals. In the United
States, our personnel

are instructors in the U.S. Army's Force Management School and other schools
and courses and are also involved in recruiting for the U.S. Army. In addition,
we own a one-third interest in Medical Education Technologies, Inc., which has
developed and is producing human patient simulators for sale to medical
teaching and training institutions and the DoD.

Engineering Development and Integration Support

We are a premier provider of numerous air campaign modeling and simulation
tools for applications, such as Thunder, Storm and Brawler, for the U.S. Air
Force Studies and Analysis Agency and of space science research for NASA. We
also provide high-end systems support for the HAWK and PATRIOT missile systems,
Unmanned Aerial Vehicles (UAVs), the Cooperative Engagement Capacity (CEC)
Program, and the F/A-18.

Our products and services specialize in communication systems, training
and simulation equipment and a broad range of hardware and software for the
U.S. Army, Air Force and Navy, the Federal Aviation Administration and the
Ballistic Missile Defense Organization (BMDO). As one of the leading suppliers
of high-end engineering and information support, we believe we are able to
provide value-added C4ISR engineering support, wargames simulation and modeling
of battlefield communications.

Our Ilex Systems business provides systems and software engineering
products and services for military applications. We specialize in the
innovative application of state-of-the-art software technology and software
development methodologies to produce comprehensive real-time solutions
satisfying our customers' systems and software needs. We specialize in
providing engineering services to the U.S. Army military intelligence community
including the Communications-Electronics Command (CECOM) Software Engineering
Center, for the development and maintenance of Intelligence, Electronic
Warfare, Fusion and Sensor systems and software.

AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

The systems and products, selected applications and selected platforms or
end users of our Aviation Products & Aircraft Modernization segment at December
31, 2001, are summarized in the table below.

SYSTEM/PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USERS
- -------------------------------------- ------------------------------------- -------------------------------------

Aviation Products
o Solid state crash protected o Voice recorders continuously o Business and commercial aircraft
cockpit voice and flight data record most recent 30-120 and certain military transport
recorders minutes of voice and sounds aircraft; sold to both aircraft
from cockpit and aircraft manufacturers and airlines under
intercommunications. Flight data the Fairchild brand name
recorders record the last 25
hours of flight parameters
o TCAS (Traffic Alert and o Reduce the potential for midair o Commercial, business, regional
Collision Avoidance System) aircraft collisions by providing and military transport aircraft
visual and audible warnings and
maneuvering instructions to
pilots

Display Products
o Cockpit and mission displays o High performance, ruggedized o Military aircraft including
and controls flat panel and cathode ray tube surveillance, fighters and
displays and processors bombers, attack helicopters,
transport aircraft and land
vehicles

Aircraft Modernization
o High end aviation product o Turnkey aviation life cycle o Various military and commercial
modernization services management services wide body and rotary wing
aircraft

Aviation and Maritime Recorders

We manufacture commercial, solid-state, crash-protected recorders,
commonly known as black boxes, under the Fairchild brand name for the aviation
and maritime industries, and have delivered nearly 55,000 flight recorders to
aircraft manufacturers and airlines around the world. We believe we are the
leading manufacturer of commercial cockpit voice recorders and flight data
recorders. The hardened voyage recorder, launched from our state-of-the-art
aviation technology, and expanded to include cutting edge internet
communication protocols, has taken an early leadership position within the
maritime industry. We offer three types of recorders:

o the cockpit voice recorder, which records the last 30 to 120 minutes of
crew conversation and ambient sounds from the cockpit;

o the flight data recorder, which records the last 25 hours of aircraft
flight parameters such as speed, altitude, acceleration and thrust from
each engine and direction of the flight in its final moments; and

o the hardened voyage recorder, which stores and protects 12 hours of
voice, radar, radio and shipboard performance data on solid state memory.

Recorders are highly ruggedized instruments, designed to absorb the shock
equivalent to that of an object traveling at 268 knots stopping in 18 inches,
fire resistant to 1,100 degrees centigrade and pressure resistant to 20,000
feet undersea for 30 days. Our recorders are mandated and regulated by various
worldwide agencies for use in commercial airlines and a large portion of
business aviation aircraft. In addition, our aviation recorders are certified
and approved for installation at the world's

leading aircraft original equipment manufacturers ("OEM's"), while our maritime
recorders are an integral component to a mandated recording system for numerous
vessels that travel on international waters. The U.S. military has recently
required the installation of black boxes in military transport aircraft. We
believe this development will provide us with new opportunities for expansion
into the military market.

We have completed development of a combined voice and data recorder and
are developing an enhanced recorder that monitors engine and other aircraft
parameters for use in maintenance and safety applications.

Traffic Alert and Collision Avoidance Systems (TCAS)

TCAS is an avionics safety system that was developed to reduce the
potential for mid-air collisions. The system is designed to operate
independently from the air traffic control ("ATC") system to provide a
complementary supplement to the existing ATC system. TCAS operates by
transmitting interrogations that elicit replies from transponders in nearby
aircraft. The system tracks aircraft within certain range and altitude bands to
determine whether they have the potential to become a collision threat.

There are two levels of TCAS protection currently in operation: TCAS I and
TCAS II. In the United States, passenger aircraft with 10 to 30 seats must be
equipped with a TCAS I system. The TCAS II system is required for passenger
aircraft with more than 30 seats. These aircraft, as well as aircraft used in
all-cargo operations, must also be equipped with transponders, either Mode S or
Mode C. The transponder provides altitude and airplane identification to
TCAS-equipped aircraft as well as to the ATC system.

If the TCAS I system calculates that an aircraft may be a threat, it
provides the pilot with a visual and audible traffic advisory. The advisory
information provides the intruder aircraft's range and relative
altitude/bearing. In addition to traffic advisories, a TCAS II system will
provide the pilot a resolution advisory ("RA"). This resolution advisory
recommends a vertical maneuver to provide separation from the intruder
aircraft.

TCAS systems have proven to be very effective, with many documented
successful RA's. TCAS II has been in worldwide operation in many aircraft types
since 1990. Today, over 16,000 airline, corporate and military aircraft are
equipped with TCAS II-type systems, logging over 100 million hours of
operation. The number of reported near mid-air collisions in the U.S. has
decreased significantly since 1989, a period during which both passenger and
cargo air traffic has increased substantially.

Display Products

We design, develop and manufacture ruggedized displays for military and
high-end commercial applications. Our current product line includes a family of
high performance display processing systems, which use either a cathode ray
tube or active matrix liquid crystal display. Our displays are used in numerous
airborne, ship-board and ground based platforms and are designed to survive in
military and harsh environments.

Aircraft Modernization

We are a leading global provider of turnkey aviation life cycle management
services, providing value-added engineering and upgrades for selected military
and commercial aviation programs, component repair and overhaul and support
services. Our major programs include high-end aviation product modernization
and services on the C-130 for a number of military organizations around the
world, including the Canadian Department of National Defense, U.S. Coast Guard,
Mexican Air Force, Royal Malaysian Air Force and Royal Australian Air Force. We
also provide avionics maintenance, repair and overhaul for the Sikorsky
S-61/H-3 Sea King helicopter for a number of military organizations including
the Canadian military, the U.S. Navy and the Brazilian Air Force. We are also a
full service provider for the Boeing 727 and 737 to a number of airlines,
including Canada's WestJet.

SPECIALIZED PRODUCTS

The products, selected applications and selected platforms or end users of
our Specialized Products segment at December 31, 2001 are summarized in the
table below.

PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USERS
- ----------------------------------------- -------------------------------------- --------------------------------------

Ocean Products
o Airborne dipping sonars o Submarine detection and o Various military helicopters
localization
o Submarine and surface ship o Submarine and surface ship o U.S. Navy and foreign navies
towed arrays detection and localization
o Naval and commercial power o Switching, distribution and o All naval combatants:
delivery and switching products protection, as well as frequency submarines, surface ships and
and voltage conversion aircraft carriers
o Commercial transfer switches, o Production and maintenance of o Federal Aviation
uninterruptible power supplies systems and high-speed switches Administration, internet service
and power products for power interruption providers, financial institutions
prevention and rail transportation

Telemetry, Instrumentation and Space Products
o Aircraft, missile and satellite o Real-time data acquisition, o Aircraft, missiles and satellites
telemetry and instrumentation measurement, processing,
systems simulation, distribution, display
and storage for flight testing
o Global satellite communications o Satellite transmission of voice, o Rural telephony or private
systems video and data networks, direct to home
uplinks, satellite news gathering
and wideband applications

Guidance Products
o GPS (Global Positioning o Location tracking o Guided projectiles and precision
Systems) receivers munitions
o Navigation systems and o Space navigation o Hubble Space Telescope,
subsystems, gyroscopes, reaction Delta IV launch vehicle and
wheels, star sensor satellites

Premium Fuzing Products
o Fuzing products o Munitions and electronic and o Various DoD and foreign
electro-mechanical safety and military customers
arming devices (ESADs)
Microwave Components
o Passive components, switches o Radio transmission, switching o DoD, telephony service
and wireless assemblies and conditioning, antenna and providers and original
base station testing and equipment manufacturers
monitoring, broad-band and
narrow-band applications (PCS,
cellular, SMR and paging
infrastructure)
o Safety products o Radio frequency monitoring and o Monitor cellular base station and
measurement for safety industrial radio frequency
emissions
o Satellite and wireless o Satellite transponder control, o Communications satellites and
components (channel amplifiers, channel and frequency wireless communications
transceivers, converters, filters separation equipment
and multiplexers)

PRODUCTS SELECTED APPLICATIONS SELECTED PLATFORMS/END USERS
- ------------------------------------------ -------------------------------------- -------------------------------------

o Amplifiers and amplifier based o Automated test equipment, o DoD and commercial satellite
components (amplifiers, up/down military electronic warfare, operators
converters and Ka assemblies) ground and space
communications
Antenna Products
o Ultra-wide frequency and o Surveillance and radar detection o Military aircraft including
advanced radar antennas and surveillance, fighters and
rotary joints bombers, attack helicopters and
transport
o Precision antennas serving major o Antennas for high frequency, o Various military and commercial
military and commercial millimeter satellite customers including scientific
frequencies, including Ka band communications astronomers

Training Devices and Motion
Simulators
o Military Aircraft Flight o Training for pilots, navigators, o Military fixed and rotary winged
Simulators flight engineers, gunners and aircraft and ground vehicles
operators
Security Systems
o Explosives detection systems o Rapid scanning of passenger o Airports
checked baggage

Ocean Products

We are one of the world's leading suppliers of acoustic undersea warfare
systems. Our experience spans a wide range of platforms, including helicopters,
submarines and surface ships. Our products include towed array sonar, hull
mounted sonar, airborne dipping sonar and ocean mapping sonar for navies around
the world.

We are also a leading provider of state-of-the-art power electronics
systems and electrical power delivery systems and subsystems. We provide
communications and control systems for the military and commercial customers.
We offer the following:

o military power propulsion, distribution and conversion equipment and
components which focus on motor drives switching, distribution and
protection, providing engineering design and development, manufacturing
and overhaul and repair services; and

o ship control and interior communications equipment.

We have been able to apply our static transfer switch technology, which we
developed for the U.S. military, to commercial applications. Our commercial
customers for static transfer switches are primarily financial institutions and
internet service providers, including American Express, AOL-Time Warner, AT&T,
Charles Schwab and the Federal Aviation Administration. In addition, we provide
electrical products for rail transportation and utilities businesses.

Telemetry, Instrumentation and Space Products

We are a leader in the development and marketing of component products and
systems used in telemetry and instrumentation for airborne applications such as
satellites, aircraft, UAVs, launch vehicles, guided missiles, projectiles and
targets. Telemetry involves the collection of data for various equipment
performance parameters and is required when the object under test is moving too
quickly or is of too great a distance to use a direct connection. Telemetry
products measure, process, receive and collect thousands of parameters of a
platform's operation including heat, vibration, stress and operational
performance and transmits this data to the ground.

Additionally, our satellite telemetry equipment transmits data necessary
for ground processing. These applications demand high reliability of components
because of the high cost of satellite repair

and the need for uninterrupted service. Telemetry products also provide the
data used to terminate the flight of missiles and rockets under errant
conditions and/or at the end of a mission. These telemetry and command/control
products are currently used for a variety of missile and satellite programs.

We offer value-added solutions that provide our customers with complex
product integration and comprehensive support. We focus on the following niches
within the satellite ground segment equipment market: telephony, video
broadcasting and multimedia. Our customers include foreign communications
companies, domestic and international prime communications infrastructure
contractors, telecommunications or satellite service providers, broadcasters
and media-related companies. We also provide space products for advanced
guidance and control systems including gyroscopes, controlled momentum devices
and star sensors. These products are used on satellites, launch vehicles, the
Hubble Telescope, the Space Shuttle and the International Space Station.

Guidance Products

We provide airborne equipment and data link systems that gather critical
information and then process, format and transmit the data to the ground from
communications satellites, spacecraft, aircraft and missiles. These products
are available in both commercial off-the-shelf and custom configurations and
include software and software engineering services. Primary customers include
many of the major defense contractors who manufacture aircraft, missiles,
warheads, launch vehicles and munitions. Our ground station instrumentation
receives, encrypts and/or decrypts the serial stream of combined data in
real-time as it is received from the airborne platform. We are a leader in
digital GPS (Global Positioning System) receiver technology for high
performance military applications. These GPS receivers are currently in use on
aircraft, cruise missiles and precision guided bombs and provide highly
accurate positioning and navigational information. Additionally, we provide
navigation systems for high performance weapon pointing and positioning systems
for programs such as MLRS (Multiple Launch Rocket System) and MFCS (Mortar Fire
Control System).

Premium Fuzing Products

We are a leading provider of premium fuzing products, including proximity
fuzes, electronic and electro-mechanical safety and arming devices (ESADs) and
self-destruct/sub-munition grenade fuzes. ESADs prevent the inadvertent firing
and detonation of guided missiles during handling, flight operations and the
initial phases of launch. Our proximity fuzes are used in smart munitions. All
are considered to be critical safety and arming products. Additionally, during
missile flight the ESAD independently analyzes flight conditions and determines
safe separation distance after a missile launch.

Microwave Components

We are premier worldwide supplier of commercial off-the-shelf and custom,
high performance RF (radio frequency) microwave components, assemblies and
instruments supplying the wireless communications, industrial and military
markets. We are also a leading provider of state-of-the-art space-qualified
commercial satellite and strategic military RF products and millimeter
amplifier based products. We sell many of these components under the
well-recognized Narda brand name through a comprehensive catalog of standard,
stocked hardware. We also sell our products through a direct sales force and an
extensive network of market representatives. Specific catalog offerings include
wireless products, Electro-mechanical switches, power dividers and hybrids,
couplers/detectors, attenuators, terminations and phase shifters, isolators and
circulators, adapters, control products, sources, mixers, waveguide components,
RF safety products, power meters/monitors and custom passive products. Passive
components are generally purchased in both narrow and broadband frequency
configurations by wireless equipment manufacturers, wireless service providers
and military equipment suppliers. Commercial applications include cellular and
PCS base station automated test equipment, and equipment for the paging
industry. Military applications include electronic surveillance and
countermeasure systems.

Our space-qualified and wireless components separate various signals and
direct them to sections of the satellites' payload. Our main satellite products
are channel amplifiers and linearizers, payload products, transponders and
antennas. Channel amplifiers amplify the weak signals received from earth
stations, and then drive the power amplifier tubes that broadcast the signal
back to earth. Linearizers, used either in conjunction with a channel amplifier
or by themselves, pre-distort a signal to be transmitted back to earth before
it enters a traveling wave tube for amplification. This pre-distortion is
exactly the opposite of the distortion created at peak power by the traveling
wave tube and, consequently, has a cancellation effect that keeps the signal
linear over a much larger power band of the tube. The traveling wave tube and
area covered by the satellite is significantly increased.

Narda is the world's largest supplier of non-ionizing radiation safety
detection equipment. These devices are used to quantify and alarm of exposure
to excessive RF radiation. This equipment is used by wireless tower operators
and the military to protect personnel, and insure compliance to various
published standards. We design and manufacture both broad and narrow band
amplifiers and amplifier-based products in the microwave and millimeter wave
frequencies. We use these amplifiers in defense and communications
applications. These devices can be narrow band for communication needs or
broadband for electronic warfare.

We offer standard packaged amplifiers for use in various test equipment
and system applications. We design and manufacture millimeter range (at least
20 to 38GHz) amplifier products for use in emerging communication applications
such as back haul radios, LMDS (Local Multipoint Distribution Service) and
ground terminals for LEO satellites. Narda filters are sold to some of the
world's leading service providers and base station OEM's. Robust demand
continues for Narda filters due to ongoing system upgrades by service providers
for 2.5G and 3.0G applications geared toward providing higher data rate
capabilities for the commercial cellular and PCS marketplace.

We also design, manufacture and market solid state, broadband wireless
communications infrastructure equipment, subsystems and modules used to provide
point-to-Multipoint ("PMP") and point-to-point ("PTP") terrestrial and
satellite-based distribution services in frequency bands from 24 to 38
Gigahertz. Our products include solid-state power amplifiers, hub transmitters,
active repeaters, cell-to-cell relays, Internet access systems and other
millimeter wave-based modules and subsystems. These products are used in
various applications, such as broadband communications, local loop services and
Ka-band satellite communications.

Antenna Products

We produce high performance antennas under the Randtron brand name which
are designed for:

o surveillance of high-resolution, ultra-wide frequency bands;

o detection of low radar cross-section targets and low radar cross-section
installations;

o severe environmental applications; and

o polarization diversity.

Our primary product is a sophisticated 24-foot diameter antenna used on
all E-2C surveillance aircraft. This airborne antenna is a rotating aerodynamic
radome containing a UHF surveillance radar antenna, an IFF antenna, and forward
and aft auxiliary antennas. Production is planned beyond 2001 for the E-2C, P-3
and C-130 AEW aircraft. We have been funded to begin the development of the
next generation for this antenna. We also produce broadband antennas for a
variety of tactical aircraft, as well as rotary joints for the AWAC antenna. We
have delivered over 2,000 sets of antennas for aircraft and have a backlog of
orders through 2004.

We are a leading supplier of ground based radomes used for air traffic
control, weather radar, defense and scientific purposes. These radomes enclose
an antenna system as a protective shield against the environment and are
intended to enhance the performance of an antenna system.

Training Devices and Motion Simulators

Our training devices and motion simulators business designs, develops and
manufacturers advanced virtual reality simulation and high-fidelity
representations of cockpits and mission stations

for aircraft and land vehicles. We have developed flight simulators for most of
the U.S. military aircraft in active operation. We have numerous proprietary
technologies and fully-developed systems integration capabilities that provide
competitive advantages. Our proprietary software is used for visual display
systems, high-fidelity system models, database production, digital radar land
mass image simulation and creation of synthetic environments. We are also a
leader in developing training systems which allow multiple trainees at multiple
sites to engage in networked group, unit and task force training and combat
simulations.

DEVELOPING COMMERCIAL OPPORTUNITIES

Part of our growth strategy is to identify commercial applications for
select products and technologies currently sold to defense customers. We have
initially identified two vertical markets where we believe there are
significant opportunities to expand our products: transportation and broadband
wireless communications.

Transportation. Our products, designed to meet strict government quality
and reliability standards, are easily adapted to the commercial transportation
marketplace. Our aircraft voice recorders, designed to meet FAA requirements,
have been successfully marketed to the cruise ship, marine shipping and
railroad industries. Similarly, our state-of-the-art power propulsion products,
originally designed for the U.S. Navy, meet the needs of commuter railroads,
including Philadelphia's regional rail system and New York City's Metropolitan
Transportation Authority. Our explosives detection system, the eXaminer 3DX(TM)
6000, enables the rapid scanning of passenger checked baggage at airports using
state-of-the-art technology. The new Transportation Security Administration
(TSA), of the Department of Transportation, created as a result of the Aviation
and Transportation Security Act enacted by Congress on January 3, 2002, has
expressed requirements for as many as 500 examiner units. In April 2002, we
received an order from the TSA that included funding for 100 examiner units and
long-lead material funding for an additional 200 examiner units.

Communications. The wireless communications technology we developed for
our military customers also meets the needs of a growing commercial marketplace
for technologically advanced communications products. Some of the products we
have developed or are developing to exploit this market include wireless loop
products, transceivers, LMDS, compression products, remote sensing internet
networks, microwave links and products for microwave base stations. Our Prime
Wave fixed wireless loop products are an example of our expanding involvement
in the commercial communications industry. Using synchronous CDMA technology
that supports terrestrial, space, fixed and mobile communications, we produce
wireless loop equipment for use in areas that do not have an adequate
telecommunications infrastructure, including emerging market countries and
customers in rural areas.

In the expanding broadband wireless commercial communications market, we
also have developed a broad assortment of other products including
transponders, payloads, uplinks- downlinks, fly-away SATCOM terminals,
telemetry tracking and control and test equipment and waveform generators.

These new commercial products are subject to certain risks and may require
us to:

o develop and maintain marketing, sales and customer support capabilities;

o secure sales and customer support capabilities;

o obtain customer and/or regulatory certification;

o respond to rapidly changing technologies including those developed by
others that may render our products and systems obsolete or
non-competitive; and

o obtain customer acceptance of these products and product performance.

products, depends to a significant degree on the efforts of independent
distributors or communications service providers and on the financial viability
of our existing and target customers for the commercial products. Certain of
our existing and target customers are agencies or affiliates of governments of
emerging and under-developed countries or private business enterprises
operating in those countries. In addition, we have made equity investments in
entities that plan to commence operations as communications service providers
using some of our commercial products. We can give no assurance that these
distributors or service providers will be able to market our products or their
services successfully or that we will be able to realize a return of investment
in them. We also cannot assure you that we will be successful in addressing
these risks or in developing these commercial business opportunities.

MAJOR CUSTOMERS

For the year ended December 31, 2001, direct and indirect sales to the DoD
provided 64.7% of our sales, and sales to commercial, foreign governments and
U.S. federal, state and local government agencies other than the DoD provided
35.3% of our sales.

Our U.S. Government sales are predominantly derived from contracts with
agencies of, and prime contractors to, the U.S. Government. Various U.S.
Government agencies and contracting entities exercise independent and
individual purchasing decisions, subject to annual appropriations by the U.S.
Congress. As of December 31, 2001, we had approximately 575 contracts each with
a value exceeding $1.0 million. For the year ended December 31, 2001, sales of
our five largest programs amounted to $249.7 million or 10.6% of our sales.

RESEARCH AND DEVELOPMENT

We conduct research and development activities that consist of projects
involving basic research, applied research, development, and systems and other
concept studies. We employ scientific, engineering and other personnel to
improve our existing product lines and develop new products and technologies.
As of December 31, 2001, we employed approximately 7,600 engineers, a
substantial portion of whom hold advanced degrees. For the year ended December
31, 2001, we incurred $319.4 million on research and development costs for
customer-funded contracts and spent $107.5 million on company-sponsored
research and development projects, including bid and proposal costs.

COMPETITION

We encounter intense competition in all of our businesses. We believe that
we are a significant supplier of many of the products that we manufacture and
services we provide in our defense and government businesses, as well as in our
commercial businesses.

Defense and Government Business

Our ability to compete for defense contracts depends on a variety of
factors, including:

o the effectiveness and innovation of our research and development
programs;

o our ability to offer better program performance than our competitors at a
lower cost; and

o the availability of our facilities, equipment and personnel to undertake
the programs for which we compete.

In some instances, we are the incumbent supplier or have been the sole
provider for many years for certain programs. We refer to such contracts as
"sole-source" contracts. In such cases, there may be other suppliers who have
the capability to compete for the programs involved, but they can only enter or
reenter the market if the customer chooses to reopen the particular program to
competition. Sole-source contracts accounted for approximately 62.4% and
competitive contracts accounted for approximately 37.6% of our total sales for
the year ended December 31, 2001. The majority of our sales are derived from
contracts with the U.S. Government and its prime contractors, which are
principally awarded on the basis of negotiations or competitive bids.

We believe that the U.S. defense industry structure contains three tiers
of defense contractors. The first tier is dominated by five prime system
contractors: The Boeing Company, Lockheed Martin Corporation, Northrop Grumman
Corporation, Raytheon Company and General Dynamics Corporation, all of whom
compete for major platform programs. The second tier defense contractors are
smaller products and niche subsystems contractors and are comprised of
traditional aerospace and defense companies, as well as, the non-core aerospace
and defense sectors of certain industrial conglomerates and include L-3,
Honeywell Inc., Rockwell Collins Inc., Harris Corporation, TRW Inc., ITT
Industries, Inc., Alliant Techsystems Inc., United Technologies Corporation,
and United Defense Industries Inc. The third tier, which represents the vendor
base and supply chain for niche products, is comprised of numerous smaller
publicly and privately owned aerospace and defense contractors.

We believe we are the aerospace and defense "merchant supplier" with the
broadest and most diverse product portfolio. We supply our products to all of
the five prime system contractors and in some cases directly to the end
customer. We primarily compete with third tier contractors and certain of the
second tier contractors and to a lesser extent with the prime system
contractors in certain niche areas. Some of the second tier contractors are
larger than we are and have greater resources than we have available to us. We
are larger than all of the third tier contractors and believe we have greater
resources than all of them. We believe that most of our businesses enjoy the
number one or number two competitive position in their respective market
niches. We believe that the primary competitive factors for our businesses are:
technology, quality, cost, market position and past performance. In addition,
our ability to compete for non "sole source" contracts often requires us to
"team" with one or more of the prime system contractors that bids and competes
for major platform programs. Furthermore, our ability to "team" with a prime
system contractor is often dependent upon the outcome of a competitive process.

We believe that we will continue to be a successful participant in the
business areas in which we compete, based upon the quality and cost
competitiveness of our products and services.

Commercial Activities

Our commercial activities have become an increasingly significant portion
of our business mix, and comprised 22.6% of our total sales for the year ended
December 31, 2001. Our ability to compete for commercial business depends on a
variety of factors, including:

o Pricing;

o Product features and performance;

o Reliability, scalability and compatibility;

o Customer relationships, service and support; and

o Brand recognition.

In these markets, we compete with various companies, several of which are
listed below.

o Agilent Technologies, Inc.;

o ViaSat, Inc.;

o Honeywell Inc.;

o Globecomm Systems, Inc.;

o Smiths Industries; and

o Airspan Networks, Inc.

We believe that our sales in these business areas will continue to grow as
a percentage of our total sales, even though several of our competitors may
have greater resources and technologies than we have available to us.

PATENTS AND LICENSES

We do not believe that our patents, trademarks and licenses are material
to our operations. Furthermore, our U.S. Government contracts generally permit
us to use patents owned by others. Similar provisions in U.S. Government
contracts awarded to other companies make it impossible for us to prevent the
use of our patents in most domestic work performed by other companies for the
U.S. Government.

RAW MATERIALS

In manufacturing our products, we use our own production capabilities as
well as a diverse base of third party suppliers and sub-contractors. Although
aspects of certain of our businesses require relatively scarce raw materials,
we have not experienced difficulty in our ability to procure raw materials,
components, sub-assemblies and other supplies required in our manufacturing
processes.

CONTRACTS

A significant portion of our sales are derived from strategic, long-term
programs and from sole-source contracts. Approximately 62.4% of our sales for
the year ended December 31, 2001 were generated from sole-source contracts. Our
customer satisfaction and performance record are evidenced by our receipt of
performance-based award fees exceeding 91% of the available award fees on
average during the year ended December 31, 2001. We believe that our customers
will award long-term, sole-source, outsourcing contracts to the most capable
merchant supplier in terms of quality, responsiveness, design, engineering and
program management support as well as cost. As a consequence of our strong
competitive position, for the year ended December 31, 2001, we won contract
awards in excess of 50% on new competitive contracts that we bid on, and in
excess of 90% on the contracts we rebid for which we were the incumbent
supplier.

We have a diverse business mix with limited reliance on any single
program, a balance of cost-plus and fixed price contracts, a significant
sole-source follow-on business and an attractive customer profile. For the year
ended December 31, 2001, 31.7% of our sales were generated from
cost-reimbursable contracts and 68.3% from fixed-price contracts, providing us
with a sales mix of predictable profitability (cost-reimbursable) and higher
profit margin (fixed-price) business.

Generally, contracts are either fixed-price or cost-reimbursable. Under a
fixed-price contract we agree to perform the scope of work required by the
contract for a predetermined contract price. Although a fixed-price contract
generally permits us to retain profits if the total actual contract costs are
less than the estimated contract costs, we bear the risk that increased or
unexpected costs may reduce our profit or cause us to sustain losses on the
contract. Conversely, on a cost-reimbursable contract we are paid up to
predetermined funding levels determined by our customers, our allowable
incurred costs and generally a fee representing a profit on those costs, which
can be fixed or variable depending on the contract's pricing arrangement.
Therefore, on a cost-reimbursable contract we do not bear the risks of
unexpected cost overruns. Generally, a fixed-price contract offers higher
profit margins than a cost-reimbursable contract which is commensurate with the
greater levels of risk assumed on a fixed-price contract.

Most of our U.S. Government business is subject to unique procurement and
administrative rules based on both laws and regulations, including various
profit and cost controls, allocations of costs to contracts and
non-reimbursement of unallowable costs such as lobbying expenses and interest
expenses. Our contract administration and cost accounting policies and
practices are subject to oversight by government inspectors, technical
specialists and auditors.

Certain of our sales are under foreign military sales agreements directly
between the U.S. Government and foreign governments. In such cases, because we
serve only as the supplier, we do not have unilateral control over the terms of
the agreements. These contracts are subject to extensive legal and regulatory
requirements and, from time to time, agencies of the U.S. Government
investigate whether our operations are being conducted in accordance with these
laws and regulations.

Investigations could result in administrative, civil, or criminal liabilities,
including repayments, disallowance of certain costs, or fines and penalties.

Certain of our sales are direct commercial sales to foreign governments.
These sales are subject to U.S. Government approval and licensing under the
Arms Export Control Act. Legal restrictions on sales of sensitive U.S.
technology also limit the extent to which we can sell our products to foreign
governments or private parties.

U.S. Government contracts are, by their terms, subject to termination by
the U.S. Government either for its convenience or default by the contractor if
the contractor fails to perform the contracts' scope of work. Upon termination
other than for a contractor's default, the contractor will normally be entitled
to reimbursement for allowable costs and an allowance for profit. Foreign
defense contracts generally contain comparable provisions permitting
termination at the convenience of the government. To date, none of our
significant fixed price contracts have been terminated.

Companies supplying defense-related equipment to the U.S Government are
subject to certain additional business risks peculiar to the U.S. defense
industry. Among these risks are the ability of the U.S. Government to
unilaterally suspend a company from new contracts pending resolution of alleged
violations of procurement laws or regulations. In addition, U.S. Government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds for a given program on a
September 30 fiscal year basis, even though contract performance may take
years. Consequently, at the outset of a major program, the contract is usually
partially funded, and additional monies are normally committed to the contract
by the procuring agency only as appropriations are made by Congress for future
fiscal years.

As is common in the U.S. defense industry, we are subject to business
risks, including changes in the U.S. Government's procurement policies (such as
greater emphasis on competitive procurement), governmental appropriations,
national defense policies or regulations, service modernization plans, and
availability of funds. A reduction in expenditures by the U.S. Government for
products and services of the type we manufacture and provide, lower margins
resulting from increasingly competitive procurement policies, a reduction in
the volume of contracts or subcontracts awarded to us or if we incur
substantial contract cost overruns could materially adversely affect our
business.

PROPERTIES

The table below sets forth information with respect to our significant
facilities and properties as of December 31, 2001.

LOCATION OWNED LEASED
- -------------------------------------------------- --------- ---------
(THOUSANDS OF SQUARE
FEET)

L-3 Corporate Offices, New York, NY .............. -- 35.4
L-3 Washington Operations, Arlington, VA ......... -- 6.3
SECURE COMMUNICATION SYSTEMS:
Camden, NJ ...................................... -- 575.0
Binghamton, NY .................................. -- 428.0
Arlington, TX ................................... 82.0 182.6
Grand Prairie, TX ............................... -- 125.0
Salt Lake City, UT .............................. -- 487.5
Orlando, FL ..................................... -- 193.6
SPECIALIZED PRODUCTS:
Phoenix, AZ ..................................... -- 90.0
Anaheim, CA ..................................... -- 474.2
Folsom, CA ...................................... -- 59.4
Menlo Park, CA .................................. -- 97.5
San Diego, CA ................................... 196.0 87.1
Sylmar, CA ...................................... -- 253.0
Ocala, FL ....................................... 111.7 --
Sarasota, FL .................................... -- 143.7
Alpharetta, GA .................................. 93.0 --
Concord, MA ..................................... -- 60.0
Newburyport, MA ................................. -- 82.5
Teterboro, NJ ................................... -- 250.0
Hauppauge, NY ................................... 90.0 150.0
Cincinnati, OH .................................. 222.6 --
Lancaster, PA ................................... -- 146.8
Newton, PA ...................................... 80.0 --
Philadelphia, PA ................................ -- 231.9
Alberta, Canada ................................. 163.0 107.9
Ontario, Canada ................................. -- 73.8
Quebec, Canada .................................. 165.2 54.9
Kiel, Germany ................................... -- 67.2
Leer, Germany ................................... 32.2 33.2

In total, at December 31, 2001, we owned approximately 1.4 million square
feet and leased approximately 5.7 million square feet of manufacturing
facilities and properties.

LEGAL PROCEEDINGS

From time to time we are involved in legal proceedings arising in the
ordinary course of our business. We believe that we are adequately reserved for
these liabilities and that there is no litigation pending that could have a
material adverse effect on our consolidated results of operations, financial
condition or cash flows.

Honeywell's claim. In addition, ACSS has been indemnified to a certain extent by
Thales Avionics, which has provided to ACSS the alleged infringing technology.
In the opinion of management, the ultimate disposition of Honeywell's pending
claim will not result in a material liability to us.

ENVIRONMENTAL MATTERS

Our operations are subject to various federal, state and local
environmental laws and regulations relating to the discharge, storage,
treatment, handling, disposal and remediation of certain materials, substances
and wastes used in our operations. We continually assess our obligations and
compliance with respect to these requirements. We have also assessed the risk
of environmental contamination on various manufacturing facilities of our
acquired businesses and, where appropriate, have obtained indemnification,
either from the sellers of those acquired businesses or through pollution
liability insurance. We believe that our current operations are in substantial
compliance with all existing applicable environmental laws and permits. We
believe our current expenditures will allow us to continue to be in compliance
with applicable environmental laws and regulations. While it is difficult to
determine the timing and ultimate cost to be incurred in order to comply with
these laws, based upon available internal and external assessments, with
respect to those environmental loss contingencies of which we are aware, we
believe that even without considering potential insurance recoveries, if any,
there are no environmental loss contingencies that, individually or in the
aggregate, would be material to our consolidated results of operations.

Despite our current level of compliance, new laws and regulations,
stricter enforcement of existing laws and regulations, the discovery of
previously unknown contamination or the imposition of new clean-up requirements
may require us to incur costs in the future that could have a negative effect
on our financial condition or results of operations.

PENSION PLANS

In connection with our acquisition of the predecessor company, we assumed
certain liabilities relating to defined benefit pension plans for present and
former employees and retirees of certain businesses which were transferred from
Lockheed Martin to us. Prior to the consummation of our acquisition of the
predecessor company, Lockheed Martin received a letter from the Pension Benefit
Guaranty Corporation (the "PBGC") which requested information regarding the
transfer of such pension plans and indicated that the PBGC believed certain of
such pension plans were underfunded using the PBGC's actuarial assumptions. The
PBGC assumptions result in a larger liability for accrued benefits than the
assumptions used for financial reporting under Statement of Financial
Accounting Standards No. 87. The PBGC underfunding is related to the
Communication Systems -- West and Aviation Recorders pension plans (the
"Subject Plans").

With respect to the Subject Plans, Lockheed Martin entered into an
agreement (the "Lockheed Martin Commitment") among Lockheed Martin, L-3
Communications and the PBGC dated as of April 30, 1997. The material terms and
conditions of the Lockheed Martin Commitment include a commitment by Lockheed
Martin to the PBGC to, under certain circumstances, assume sponsorship of the
Subject Plans or provide another form of financial support for the Subject
Plans. The Lockheed Martin Commitment will continue with respect to any Subject
Plan until such time as such Subject Plan is no longer underfunded on a PBGC
basis for two consecutive years or, at any time after May 31, 2002, if we
achieve investment grade credit ratings. Pursuant to the Lockheed Martin
Commitment, the PBGC agreed that it would take no further action in connection
with our acquisition of the predecessor company.

Upon the occurrence of certain events, Lockheed Martin, at its option, has
the right to decide whether to cause us to transfer sponsorship of any or all
of the Subject Plans to Lockheed Martin, even if the PBGC has not sought to
terminate the Subject Plans. Such a triggering event occurred in 1998, but
reversed in 1999, relating to a decrease in the PBGC-mandated discount rate in
1998 that had resulted in an increase in the underlying liability. We notified
Lockheed Martin of the 1998 triggering event, and in February 1999, Lockheed
Martin informed us that it had no present intention

to exercise its right to cause us to transfer sponsorship of the Subject Plans.
If Lockheed Martin did assume sponsorship of these plans, it would be primarily
liable for the costs associated with funding the Subject Plans or any costs
associated with the termination of the Subject Plans, but we would be required
to reimburse Lockheed Martin for these costs. To date, there has been no impact
on pension expense and funding requirements resulting from this arrangement. In
the event Lockheed Martin assumes sponsorship of the Subject Plans we would be
required to reimburse Lockheed Martin for all amounts that it contributes to, or
costs it incurs with respect to, the Subject Plans. For the year ended December
31, 2001, no pension contributions were required to be made by us to the Subject
Plans. For subsequent years, our funding requirements will depend upon
prevailing interest rates, return on plan assets and underlying actuarial
assumptions.

We have performed our obligations under the letter agreement with Lockheed
Martin and the Lockheed Martin Commitment and have not received any
communications from the PBGC concerning actions which the PBGC contemplates
taking in respect of the Subject Plans.

EMPLOYEES

As of December 31, 2001, we employed approximately 18,000 full-time and
part-time employees, the majority of whom are located in the United States. Of
these employees, approximately 11.1% are covered by 35 separate collective
bargaining agreements with various labor unions. We have a continuing need for
skilled and professional personnel to meet contract schedules and obtain new
and ongoing orders for our products. We believe that relations with our
employees are good.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of September 13, 2002 the Lehman Partnership owned 2.4% of our common
stock; and prior to their sale of our common stock pursuant to Rule 144 on
September 17, 2001, the Lehman Partnership beneficially owned more than five
percent of our common stock.

STOCKHOLDERS AGREEMENT

In connection with L-3 Holdings' incorporation, L-3 Holdings, Lehman
Bothers Capital Partners III, L.P. and certain of its affiliates, Messrs. Lanza
and LaPenta and Lockheed Martin entered into a Stockholders Agreement, which
terminated upon the completion of L-3 Holdings' initial public offering and
upon the sale of L-3 Holdings' common stock to less than 10% of L-3 Holdings
outstanding common stock, except for the term relating to:

o registration rights; and

o the standstill agreement by Lockheed Martin.

Pursuant to the Stockholders Agreement, at this time Messrs. Lanza and
LaPenta and the Lehman Partnership have the right, subject to certain
conditions, to require L-3 Holdings to register their shares of L-3 Holdings'
common stock under the Securities Act of 1933. The Lehman Partnership has four
demand rights and each of Messrs. Lanza and LaPenta has one demand registration
right. Lockheed Martin sold all of its shares of L-3 Holdings' common stock in
1999. In addition, the Stockholders Agreement also provides some existing
stockholders with piggyback registration rights. The Stockholders Agreement
provides, among other things, that L-3 Holdings will pay expenses incurred in
connection with:

o up to three demand registrations requested by the Lehman Partnership and
the two demand registration requested by each of Messrs. Lanza and
LaPenta; and

o any registration in which those parties participate through piggyback
registration rights granted under the agreement.

The Lehman Partnership sold 4.0 million of their shares of L-3 Holdings'
common stock through the exercise of their piggyback registration rights in L-3
Holdings' February 1999 common stock offering.

TRANSACTION WITH AFFILIATES

One provision of the Stockholders Agreement which expired after the Lehman
Partnership no longer owned 10% of L-3 Holdings' common stock, gave Lehman
Brothers Inc. the exclusive right to provide investment banking services to L-3
Holdings, other than in connection with cash acquisitions undertaken, through
April 2002.

Over the past three years, Lehman Brothers Inc. has entered into various
transactions with L-3 Holdings and its subsidiaries. As required by the
Stockholders Agreement, all fees paid in connection with such transactions and
services were mutually agreed upon and, in our opinion, based on similar
transactions and practices in the investment banking industry. We believe that
all of these transactions were entered into on terms and conditions at least as
favorable to us as they would have been had we entered into these transactions
with other investment banks.

CAPITAL MARKET SERVICE

In May 1998, Lehman Brothers Inc. acted as one of several initial
purchasers and placement agents of $180.0 million of 8 1/2% Senior Subordinated
Notes due 2008 issued by us. In May 1998, Lehman Brothers Inc. acted as lead
underwriter of L-3 Holdings' common stock sold in L-3 Holdings' initial public
offering. Lehman Brothers Inc. also acted as one of several initial purchasers
and placement agents of $200.0 million of 8% Senior Subordinated Notes due 2008
issued by us in December 1998. In February 1999, Lehman Brothers Inc. acted as
lead underwriter of the 10.0 million

shares L-3 Holdings sold in a follow-on public offering. Additionally, as part
of that transaction, the Lehman Partnership sold 13.0 million shares of their
shares of L-3 Holdings' common stock in a secondary public offering. In
November and December 2000, Lehman Brothers Inc. was the sole initial purchaser
of $300.0 million of our 5.25% Convertible Senior Subordinated Notes due 2009.
In May 2001, Lehman Brothers Inc. acted as lead underwriter in L-3 Holdings'
sale of 9.15 million shares of L-3 Holdings' common stock. In addition, the
Lehman partnership sold 4.35 million shares of their shares of L-3 Holdings'
common stock as part of that transaction. In October 2001, Lehman Brothers Inc.
acted as one of several initial purchasers of $420.0 million of our 4% Senior
Subordinated Convertible Contingent Debt Securities due 2011. In each of these
financing transactions, Lehman Brothers Inc. received customary fees,
underwriting discounts and commissions.

In addition, Lehman Brothers Inc. acted as joint book running manager and
joint book running initial purchaser of our offering of the outstanding notes
and sole book-running manager and sole lead underwriter of the concurrent
offering by L-3 Holdings of 14,000,000 shares of its common stock.

MERGERS AND ACQUISITIONS ADVISORY SERVICES

In January 1999, Lehman Brothers Inc. acted as our advisor in connection
with the acquisition of Microdyne Corporation. In April 1999, Lehman Brothers
Inc. acted as our advisor in connection with the acquisition of Aydin
Corporation. In 2002, Lehman Brothers Inc. acted as our advisor in connection
with the acquisition of all of the assets of Aircraft Integration Systems, a
division of Raytheon Company. For these services, Lehman Brothers Inc. received
customary fees.

SENIOR CREDIT FACILITIES

In May 1998, Lehman Brothers Inc. acted as joint lead arranger and joint
book manager and Lehman Commercial Paper Inc., an affiliate of Lehman Brothers
Inc., acted as documentation agent, syndicate agent and lender in connection
with two of L-3 Communications' senior credit facilities. In connection with
those transactions both Lehman Brothers Inc. and Lehman Commercial Paper Inc.
received customary fees and interest. In connection with L-3 Communications'
$250 million 364-day revolving senior credit facility entered into in April
2000, Lehman Brothers Inc. acted as joint lead arranger and joint book manager
and Lehman Commercial Paper Inc. acted as documentation agent, syndicate agent
and lender. L-3 Communications entered into its senior credit facilities after
arms-length negotiations and on the same terms with all of the other parties
thereunder. During the twelve-month period ended December 31, 2001 Lehman
Brothers Inc. and Lehman Commercial Paper Inc. received interest payments and
fees under these senior credit facilities totaling approximately $0.8 million.

In connection with the acquisition of AIS, Lehman Brothers Inc. acted as
joint book running manager and joint lead arranger and Lehman Commercial Paper
Inc. acted as administrative agent with respect to our senior subordinated
interim loan facility entered into in March 2002. In connection with those
transactions both Lehman Brothers Inc. and Lehman Commercial Paper Inc.
received customary fees and interest.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information concerning the directors and
executive officers of L-3 Communications as of September 1, 2002:

NAME AGE POSITION
- ----------------------------------- ----- -----------------------------------------------------

Frank C. Lanza .................... 70 Chairman, Chief Executive Officer and Director
Robert V. LaPenta ................. 57 President, Chief Financial Officer and Director
Michael T. Strianese .............. 47 Senior Vice President, Finance
Christopher C. Cambria ............ 44 Senior Vice President, General Counsel and Secretary
Jimmie V. Adams ................... 66 Vice President -- Washington D.C. Operations
David T. Butler III ............... 46 Vice President -- Planning
Ralph G. D'Ambrosio ............... 34 Vice President -- Controller
Joseph S. Paresi .................. 47 Vice President -- Product Development
Robert W. RisCassi ................ 66 Vice President -- Washington D.C. Operations
Charles J. Schafer ................ 55 Vice President -- Business Operations
Stephen M. Souza .................. 49 Vice President -- Treasurer
Dr. Jill J. Wittels ............... 53 Vice President -- Business Development
Thomas A. Corcoran(1) ............. 58 Director
Robert B. Millard(2) .............. 51 Director
John E. Montague(2) ............... 47 Director
John M. Shalikashvili(1) .......... 66 Director
Arthur L. Simon(1) ................ 70 Director
Alan H. Washkowitz(2) ............. 62 Director

- ----------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

Frank C. Lanza, Chairman and Chief Executive Officer and Director since
April 1997. From April 1996, when Loral Corporation was acquired by Lockheed
Martin Corporation, 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 Lockheed Martin
acquired 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.

Robert V. LaPenta, President and Chief Financial Officer and Director
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. Mr. LaPenta is on the Board of Trustees of Iona College, the
Board of Trustees of The American College of Greece and the Board of Directors
of Core Software Technologies.

Michael T. Strianese, Senior Vice President--Finance. Mr. Strianese became
a Senior Vice President in March 2001. He joined us in April 1997 as Vice
President--Finance and Controller and was our Controller until July 2000. 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. Mr. Strianese is a Certified
Public Accountant.

Christopher C. Cambria, Senior Vice President--Secretary and General
Counsel. Mr. Cambria became a Senior Vice President in March 2001. He joined us
in June 1997 as Vice President--General Counsel and Secretary. From 1994 until
joining us, Mr. Cambria was an associate with Fried, Frank, Harris, Shriver &
Jacobson. From 1986 until 1993, he was an associate with Cravath, Swaine &
Moore.

Jimmie V. Adams, Vice President--Washington, D.C. Operations. General
Jimmie V. Adams (U.S.A.F.-ret.) joined us in May 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.

David T. Butler III, Vice President--Planning. Mr. Butler became a Vice
President in December 2000. He joined us in 1997 as our corporate Director of
Planning and Strategic Development. Prior to joining us, he was the Controller
for Lockheed Martin Fairchild Systems from 1996 to 1997. Prior to the
acquisition of Loral, Mr. Butler was Controller of Loral Fairchild Systems from
1992 to 1996. From 1981 to 1992 Mr. Butler held a number of financial positions
with Loral Electronic Systems.

Ralph G. D'Ambrosio, Vice President and Controller. Mr. D'Ambrosio became
Vice President in 2001 and Controller in August 2000. He joined us in August
1997, and until July 2000 was our Assistant Controller. Prior to joining us, he
was a senior manager at Coopers & Lybrand L.L.P., where he held a number of
positions since 1989. Mr. D'Ambrosio is a Certified Public Accountant.

Joseph S. Paresi, Vice President--Product Development and President of the
Security Systems Division. Mr. Paresi joined us 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.

Robert W. Riscassi, Vice President--Washington, D.C. Operations. General
Robert W. RisCassi (U.S. Army-ret.) joined us in April 1997. From April 1996
until April 1997, he was Vice President of Land Systems for Lockheed Martin's
C(3) I 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. General
RisCassi is currently a director of Alliant Techsystems Inc.

Charles J. Schafer, Vice President--Business Operations and President of
the Products Group. Mr. Schafer was appointed President of the Products Group
in September 1999. He joined us in August 1998 as Vice President--Business
Operations. Prior to August 1998, he was President of Lockheed Martin's
Tactical Defense Systems Division, a position he also held at Loral since
September 1994. Prior to the April 1996 acquisition of Loral, Mr. Schafer held
various executive positions with Loral, which he joined in 1984.

Stephen M. Souza, Vice President and Treasurer. Mr. Souza joined us in
August 2001. Prior to joining us he was the Treasurer of ASARCO Inc. from 1999
to August 2001 and assistant treasurer from 1992 to 1999.

Jill H. Wittels, Vice President--Business Development. Ms. Wittels joined
us in March 2001. From July 1998 to February 2001 she was president and general
manager of BAE Systems' Information and Electronic Warfare Systems/Infrared and
Imaging Systems division and its predecessor company. From January 1997 to July
1998, Ms. Wittels was Vice President -- Business Development and Operations for
IR Focalplane Products at Lockheed Martin. Ms. Wittels is on the Board of
Overseers for the Department of Energy's Fermi National Accelerator Lab.

Thomas A. Corcoran, Director since July 1997. Member of the audit
committee. Since March 2001, Mr. Corcoran has been the President and Chief
Executive Officer of Gemini Air Cargo. Mr. Corcoran is also president of
Corcoran Enterprises, a private management consulting firm. Mr. Corcoran was
the President and Chief Executive Officer of Allegheny Teledyne Incorporated
from October 1999 to December 2000. From October 1998 to September 1999, he was
President and Chief Operating Officer of the Space & Strategic Missiles Sector
of Lockheed Martin Corporation. From March 1995 to September 1998 he was the
President and Chief Operating Officer of the Electronic Systems Sector of
Lockheed Martin Corporation. From 1993 to 1995, Mr. Corcoran was President of
the Electronics Group of Martin Marietta Corporation. Prior to that he worked
for General Electric for 26 years and from 1983 to 1993 he held various
management positions with GE Aerospace and 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
and the Board of Directors of REMEC Corporation.

Robert B. Millard, Director since April 1997. Chairman of the compensation
committee. Mr. Millard is a Managing Director of Lehman Brothers Inc., 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 Inc. in 1983. Mr. Millard is a director of
GulfMark International, Kirch Media GmbH and Weatherford International, Inc.

John E. Montague, Director since April 1997. Member of the compensation
committee. Mr. Montague has been Vice President, Financial Strategies of
Lockhead Martin Corporation since August 2001. From September 1998 to August
2001, he was Vice President and Chief Financial Officer of Lockheed Martin
Global Telecommunications, Inc., a wholly owned subsidiary of Lockheed Martin.
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 September 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.

John M. Shalikashvili, Director since August 1998. Chairman of the audit
committee. General Shalikashvili (U.S. Army-ret.) is an independent consultant
and a Visiting Professor at Stanford University. General Shalikashvili 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 a director of The
Boeing Company, United Defense Industries Inc., and Frank Russell Trust
Company.

Arthur L. Simon, Director since April 2000. Member of the audit committee.
Mr. Simon is an independent consultant. Before his retirement, Mr. Simon was a
partner at Coopers & Lybrand L.L.P., Certified Public Accountants, from 1968 to
1994. He is a director of Loral Space & Communications, Inc.

Alan H. Washkowitz, Director since April 1997. Member of the compensation
committee. Mr. Washkowitz is a Managing Director of Lehman Brothers Inc. and
head of the Merchant Banking Group, and is responsible for the oversight of
Lehman Brothers Inc. Merchant Banking Portfolio Partnership L.P. Mr. Washkowitz
joined Lehman Brothers Inc. in 1978 when Kuhn Loeb & Co. was acquired by Lehman
Brothers. Mr. Washkowitz is a director of Peabody Energy Corporation.

L-3 Holdings' certificate of incorporation provides for a classified board
of directors divided into three classes. Class I will expire at the annual
meeting of the stockholders to be held in 2005; Class II will expire at the
annual meeting of the stockholders to be held in 2004; and Class III will
expire at the annual meeting of the stockholders to be held in 2003. At each
annual meeting, L-3 Holdings' stockholders will elect the successors to
directors whose terms will then expire to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been elected and qualified, or until their resignation or
removal, if any. Increases or decreases in the number of directorships will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors.

Our executive officers and key employees serve at the discretion of our
board of directors.

THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors directs the management of our business and affairs,
as provided by Delaware law, and conducts its business through meetings of the
board of directors 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 of directors when necessary to
address specific issues. We have no nominating committee; however, the audit
committee has agreed to perform the functions of the nominating committee. Each
executive officer serves at the discretion of the board of directors. During
the fiscal year ended December 31, 2001, the board of directors held four
regularly scheduled meetings and one special meeting. All of our directors
attended at least 75% of the combined number of board of directors meetings and
committee meetings during the past fiscal year.

The audit committee currently consists of Messrs. Corcoran, Shalikashvili
(Chairman) and Simon. This committee, which met five times during 2001, is
responsible generally for (1) recommending to the board of directors the
independent accountants to be nominated to audit our financial statements; (2)
approving the compensation of the independent accountants; (3) meeting with our
independent accountants to review the proposed scope of the annual audit of our
financial statements; (4) reviewing the findings of the independent accountants
with respect to the annual audit; and (5) reviewing with management and the
independent accountants our periodic financial reports prior to our filing them
with the SEC and reporting annually to the board of directors with respect
thereto. In addition, the audit committee, acting as the nominating committee,
nominated the Class I members for reelection to the board of directors.

The compensation committee consists of Messrs. Millard (Chairman),
Montague and Washkowitz. This committee, which met one time and acted by
written consent three times during 2001, is responsible for administering our
1997 Stock Option Plan for Key Employees (the "1997 Plan") and our 1999 Long
Term Performances Plan (the "1999 Plan") and has limited authority to adopt
amendments to those plans. This committee is also responsible for recommending
to the board of directors the salaries to be paid to our Chief Executive
Officer and the President, 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 of our other
executive officers.

COMPENSATION OF DIRECTORS

The directors who are also our employees or employees of our subsidiaries
or 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 L-3 Holdings' common stock. In addition, non-affiliated directors
receive an

annual stock option grant of 3,000 shares of L-3 Holdings' 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 their annual cash compensation (including meeting fees) otherwise payable to
the director. Subject to certain limitations, a participating director's
deferred compensation 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 his/her
compensation is earned. Interest is 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 L-3 Holdings'
common stock.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table provides summary information concerning compensation
paid or accrued by us to or on behalf of our Chief Executive Officer and each
of our four other most highly compensated executive officers who served in such
capacities as of December 31, 2001, collectively referred to herein as the
named executive officers, for services rendered to us during each of the last
three years.

LONG TERM
COMPENSATION
AWARD
-------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL OTHER
-------------------------- STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- ------------------------------ ------ ------------ ----------- ------------- -------------

Frank C. Lanza 2001 $750,000 $750,000 -- $ 11,125
(Chairman and Chief 2000 750,000 500,000 -- 6,858
Executive Officer) ......... 1999 750,000 200,000 -- 9,536
Robert V. LaPenta 2001 545,577 650,000 -- 34,306
(President and Chief 2000 500,000 400,000 -- 32,907
Financial Officer) ......... 1999 500,000 200,000 -- 27,900
Michael T. Strianese 2001 255,000 300,000 54,000 13,790
(Senior Vice President, 2000 209,673 225,000 -- 73,515
Finance) ................... 1999 180,000 175,000 95,000 69,969
Christopher C. Cambria
(Senior Vice President, 2001 235,000 300,000 54,000 10,838
Secretary and General 2000 228,025 225,000 -- 10,827
Counsel) ................... 1999 207,000 190,000 95,000 7,317
Charles J. Schafer
(Vice President, Business 2001 248,230 250,000 36,000 118,438
Operations and President of 2000 230,000 175,000 -- 118,368
the Products Group) ........ 1999 212,608 85,000 45,000 215,873

- ----------
(1) Amounts for the year ended December 31, 2001 include: (a) our matching
contributions of $6,800 under our savings plan for Messrs. LaPenta,
Strianese, Cambria and Schafer; (b) the value of supplemental life
insurance programs in the amounts of $11,125 for Mr. Lanza, $27,506 for
Mr. LaPenta, $6,990 for Mr. Strianese, $4,038 for Mr. Cambria and $8,638
for Mr. Schafer; and (c) an employment signing bonus of $103,000 for Mr.
Schafer.

OPTION GRANTS IN FISCAL YEAR 2001

The following table shows the options to purchase L-3 Holdings' common
stock granted in fiscal year 2001 to the named executive officers.

% TOTAL GRANT
OPTIONS OPTIONS SHARE EXPIRATION DATE
NAME GRANTED (#) GRANTED PRICE ($) DATE VALUE ($)
- -------------------------------- ------------- --------- ----------- ------------ -------------

Frank C. Lanza ................. -- 0.00% -- --
Robert V. LaPenta .............. -- 0.00% -- --
Michael T. Strianese ........... 54,000 2.44% $ 39.70 11/15/11 $ 877,410
Christopher C. Cambria ......... 54,000 2.44% 39.70 11/15/11 877,410
Charles J. Schafer ............. 36,000 1.63% 39.70 11/15/11 584,940
------ ----------
144,000 $2,339,760
======= ==========

OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table provides information on options to purchase L-3
Holdings' common stock that were exercised during fiscal year 2001 by our named
executive officers; the total numbers of exercisable and non-exercisable
options to purchase L-3 Holdings' common stock owned by our named executive
officers at December 31, 2001, and the aggregate dollar value of such options
that were in-the-money at December 31, 2001.

VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED VALUE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($) (1)
ON REALIZED --------------------------------- --------------------------------
NAME AND PRINCIPAL POSITION EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE (2) EXERCISABLE UNEXERCISABLE (2)
- ----------------------------- ------------- ------------- ------------- ------------------- ------------- ------------------

Frank C. Lanza
(Chairman and Chief
Executive Officer) ......... -- -- 1,600,000 228,572 $66,824,000 $9,546,310

Robert V. LaPenta
(President and Chief
Financial Officer) ......... -- -- 1,400,000 228,572 58,471,000 9,546,310

Michael T. Strianese
(Senior Vice President,
Finance) ................... 34,000 $1,192,295 75,332 85,668 2,045,467 1,105,255

Christopher C. Cambria
(Senior Vice President,
Secretary and General
Counsel) ................... 50,000 1,552,136 40,132 85,668 1,028,467 1,105,255

Charles J. Schafer
(Vice President,
Business Operations and
President of the
Products Group) ............ 35,000 124,750 27,000 51,000 801,750 584,730

- ----------
(1) In accordance with SEC rules, the values of the in-the-money options were
calculated by subtracting the exercise prices of the options from the
December 31, 2001 closing stock price of L-3 Holdings' common stock of
$45.00.

(2) These options are unexercisable because they have not yet vested under
their terms.

PENSION PLAN

The following table shows the estimated annual pension benefits payable
under the L-3 Communications Corporation Pension Plan and Supplemental
Executive 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 us.

AVERAGE YEAR OF CREDITED SERVICE
COMPENSATION -----------------------------------------------------------------------------
AT RETIREMENT 5 10 15 20 25 30 35
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------

$ 300,000............... $19,000 $ 34,244 $ 46,461 $ 60,403 $ 71,670 $ 80,793 $88,154
400,000 .............. 25,652 46,235 62,735 81,492 96,621 108,844 118,693
500,000 .............. 32,305 58,225 79,009 102,577 121,568 136,890 149,226
600,000 .............. 38,954 70,212 95,278 123,664 146,519 164,944 179,765
700,000 .............. 45,607 82,203 111,553 144,749 171,467 192,988 210,297
800,000 .............. 52,259 94,193 127,827 165,838 196,418 221,038 240,837
900,000 .............. 58,911 106,182 144,099 186,923 221,365 249,086 271,370
1,000,000 .............. 65,564 118,174 160,374 208,011 246,313 277,135 301,907
1,100,000 .............. 72,214 130,162 176,646 229,097 271,263 305,183 332,442
1,200,000 .............. 78,867 142,153 192,920 250,184 296,212 333,232 362,979
1,300,000 .............. 85,519 154,143 209,194 271,270 321,161 361,280 393,513
1,400,000 .............. 92,171 166,132 225,466 292,357 346,112 389,331 424,053
1,500,000 .............. 98,823 178,123 241,741 313,445 371,062 417,380 454,587

As of December 31, 2001, 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, $1,250,000 and five years; Mr. LaPenta,
$945,577 and 30 years; Mr. Strianese, $480,000 and 12 years; Mr. Cambria,
$460,000 and five years; and Mr. Schafer, $423,320 and three years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the 2001 fiscal year, Messrs. Robert Millard, John Montague and
Alan Washkowitz served as members of the compensation committee of the board of
directors. None of these individuals has served us or any of our subsidiaries
as an officer or employee. Messrs. Millard and Washkowitz are limited partners
of Lehman Brothers Capital Partners III, L.P., which, together with Lehman
Brothers Holdings, Inc. and certain of their affiliates, owned 15.9 % of L-3
Holdings' outstanding common stock as of March 12, 2001 and, as of March 15,
2002 owned less than five percent of L-3 Holdings' outstanding common stock.

Pursuant to a Stockholders Agreement entered into in connection with L-3
Holdings' incorporation, Lehman Brothers Capital Partners III, L.P. and its
affiliates that directly own L-3 Holdings' common stock, have the right from
time to time subject to certain conditions, to require L-3 Holdings to register
under the Securities Act shares of L-3 Holdings' common stock that the Lehman
Partnership holds. The Lehman Partnership has the right to request up to four
demand registrations and also has piggyback registration rights. L-3 Holdings
has agreed in the Stockholders Agreement to pay expenses in connection with,
among other things, (i) up to three demand registrations requested by the
Lehman Partnership and (ii) any registration in which the existing stockholders
participate through piggyback registration rights granted under such
agreement.

None of our executive officers 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 our board of directors or
compensation committee.

EMPLOYMENT AGREEMENTS

L-3 Holdings has entered into employment agreements (the "Employment
Agreements") effective on April 30, 1997 with each of Mr. Lanza, our Chairman
and Chief Executive Officer, who

100

will receive a base salary of $750,000 per annum and appropriate executive
level benefits, and Mr. LaPenta, our President and Chief Financial Officer, 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. Mr. LaPenta gave the requisite notice to terminate
his respective Employment Agreement effective May 1, 2002. Mr. LaPenta has
continued as an employee of L-3 Holdings with the same compensation and benefits
as were provided in his Employment Agreement, but is no longer party to an
employment agreement with L-3 Holdings, except with respect to those provisions
of his Employment Agreement that survive termination. Mr. Lanza did not give
such notice to terminate his respective Employment Agreement, which was
automatically renewed for a one-year period beginning on April 30, 2002 in
accordance with its terms.

Upon a termination of Mr. Lanza without cause or his resignation for good
reason, L-3 Holdings will be obligated, through the end of the term, to (i)
continue to pay the base salary and (ii) continue to provide life insurance and
medical and hospitalization benefits comparable to those provided to other
senior executives; provided, however, that any such coverage shall terminate to
the extent that Mr. Lanza 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 L-3 Holdings pays the
severance described above.

L-3 Holdings has granted each of Messrs. Lanza and LaPenta nonqualified
options to purchase, at $3.24 per share, 2,285,714 shares of L-3 Holdings'
common stock. In each case, half of the options were structured as "time
options" and half were structured initially as "performance options,"
collectively referred to herein as the options. The time options became
exercisable with respect to 20% of the shares subject to the time options on
each of March 2, 1998, April 30, 1999 and April 30, 2000 and will become
exercisable with respect to an additional 20% of the shares subject to the time
options on each of April 30, 2001 and 2002 if employment continues through and
including these dates. The performance options were initially structured to
become exercisable nine years after the grant date, but became exercisable
earlier if certain targets for our earnings before interest, income taxes,
depreciation and amortization were achieved. On April 5, 1999, L-3 Holdings
amended the performance options to eliminate the performance target
acceleration provisions and to provide that the unvested portion of the
performance options vest and become exercisable as of April 30, 2000. The
option term is ten years through April 30, 2007; except that if (i) the
option-holder is fired for cause or resigns without good reason, the options
will expire upon termination of employment or (ii) the option-holder 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, L-3 Holdings may terminate
the options, so long as the option-holders are cashed out or permitted to
exercise their options prior to this change of control.

L-3 Holdings also has entered into a split-dollar life insurance agreement
with Mr. LaPenta. Under the split-dollar agreement, L-3 Holdings 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 us as a recovery of our
investment.

101

OWNERSHIP OF CAPITAL STOCK

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

All outstanding capital stock of L-3 Communications is owned by L-3
Holdings. As of September 1, 2002, there were 94,270,004 shares of L-3
Holdings' common stock outstanding. We know of no person who, as of September
1, 2002, beneficially owned more than five percent of the common stock, except
as set forth below.

AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS (1)
- -------------------------------------- ------------------ -------------

Citigroup Inc.(2)
153 East 53rd Street
New York, New York 10043. ........... 10,852,048 11.5%

Frank C. Lanza(3)
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016. ........... 4,779,914 5.0%

Robert V. LaPenta(4)
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016. ........... 5,135,274 5.4%

- ----------
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote
or the power to dispose of the shares). In addition, shares are deemed to
be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person
(and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of common stock
actually outstanding at September 1, 2002.

(2) Based on a Schedule 13G/A filed with the S.E.C., dated January 24, 2002,
in which Citigroup Inc. reported that it had shared voting and
dispositive power over 10,852,048 shares of common stock.

(3) The shares of common stock beneficially owned includes 1,828,572 shares
issuable under employee stock options and exercisable within 60 days of
September 1, 2002.

(4) The shares of common stock beneficially owned includes 1,528,572 shares
issuable under employee stock options and exercisable within 60 days of
September 1, 2002 and 760 shares allocated to the account of Mr. LaPenta
under our savings plans.

SECURITY OWNERSHIP OF MANAGEMENT

The following table shows the amount of L-3 Holdings' common stock
beneficially owned (unless otherwise indicated) by L-3 Holdings' executive
officers, L-3 Holdings' directors, and by all of L-3 Holdings' current
executive officers and directors as a group. Except as otherwise indicated, all
information listed below is as of September 1, 2002.

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SHARES OF PERCENTAGE OF
COMMON SHARES OF
STOCK COMMON
BENEFICIALLY STOCK
NAME OF BENEFICIAL OWNER OWNED (1)(2) OUTSTANDING (3)
- --------------------------------------------------------------------- -------------- ----------------

Directors and Executive Officers
Frank C. Lanza ..................................................... 4,779,914 5.0%
Robert V. LaPenta .................................................. 5,135,274 5.4%
Michael T. Strianese ............................................... 57,630 --
Christopher C. Cambria ............................................. 72,440 --
Charles J. Schafer ................................................. 27,688 --
Thomas A. Corcoran(5) .............................................. 6,667 --
Robert B. Millard(4)(6) ............................................ 139,845 --
John E. Montague(5) ................................................ 6,667 --
John M. Shalikashvili(5) ........................................... 7,243 --
Arthur L. Simon(5) ................................................. 9,819 --
Alan M. Washkowitz(4)(7) ........................................... 271,389 --
Directors and Executive Officers as a Group (18 persons)(8) ......... 10,678,263 10.9%

- ----------
(1) The shares of our common stock beneficially owned include the number of
shares (i) issuable under employee stock options and exercisable within
60 days of September 1, 2002 and (ii) allocated to the accounts of
executive officers under 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,
1,828,572 shares; Mr. LaPenta, 1,528,572 shares; Mr. Strianese, 57,000
shares, Mr. Cambria, 71,800 shares and Mr. Schafer, 27,000 shares; and
(ii) the following represent shares allocated under saving plans to the
accounts of: Mr. LaPenta, 760 shares; Mr. Strianese, 630 shares; Mr.
Cambria, 640 shares; and Mr. Schafer, 688 shares.

(2) The number of shares shown includes shares that are individually or
jointly owned, as well as shares over which the individual has either
sole or shared investment or voting authority.

(3) Share ownership does not exceed one percent of the class unless otherwise
indicated. Under Rule 13d-3, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons
share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the person's actual ownership or voting power with respect to the number
of shares of common stock actually outstanding at September 1, 2002.

(4) Robert B. Millard and Alan H. Washkowitz, each of whom is a member of our
board of directors, are each a Managing Director of Lehman Brothers Inc.
As limited partners of Lehman Brothers Capital Partners III, L.P.,
Messrs. Millard and Washkowitz may be deemed to share beneficial
ownership of shares of L-3 Holdings' common stock held by Lehman Brothers
Capital Partners III, L.P. Such individuals disclaim any such beneficial
ownership.

(5) Includes 6,667 shares issuable and exercisable under director stock
options within 60 days of September 1, 2002 in the case of Messrs.
Corcoran, Montague, and Shalikashvili, 3,667 shares in the case of Mr.
Simon and 1,667 shares in the case of Messrs. Millard and Washkowitz.

(6) Includes 105,278 shares owned by a charitable foundation of which Mr.
Millard and his wife are the sole trustees, and as to which Mr. Millard
disclaims beneficial ownership.

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(7) Includes 111,330 shares in trust, for the benefit of Mr. Washkowitz's
children, for which Mr. Washkowitz and his wife are co-trustees and as to
which Mr. Washkowitz disclaims beneficial ownership.

(8) Includes 3,688,279 shares issuable under employee stock options and
exercisable under employee stock options within 60 days of September 1,
2002, and 12,376 shares allocated to the accounts of executive officers
under savings plans.

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DESCRIPTION OF OTHER INDEBTEDNESS

SENIOR CREDIT FACILITIES OF L-3 COMMUNICATIONS CORPORATION

The senior credit facilities of L-3 Communications Corporation have been
provided by a syndicate of banks led by Bank of America, N.A., as
administrative agent. The senior credit facilities provide for:

(A) $500 million in revolving credit loans which must be repaid by May 15,
2006 (the "Revolving Credit Facility"); and

(B) $250 million in revolving credit loans which must be repaid by
February 25, 2003 (the "Revolving 364 Day Facility" and, together with (A)
above, the "senior credit facilities").

However, all or a portion of the Revolving 364 Day Facility may be extended
annually on the maturity date of the Revolving 364 Day Facility for a period of
364 days with the consent of lenders holding at least 50% of the commitments to
make 364-day loans (February 25, 2003, as extended in accordance with the
foregoing, the "364 Day Termination Date"). L-3 Communications Corporation may
also convert the outstanding principal amount of any or all of the loans
outstanding under the Revolving 364 Day Facility to term loans on the 364 Day
Termination Date if it meets certain conditions. The senior credit facilities
include availability for letters of credit, and the Revolving Credit Facility
allows borrowings up to a specified amount on same-day notice (the "Swingline
Loans").

All borrowings under the senior credit facilities bear interest, at L-3
Communications Corporation's option, at either:

(A) a "base rate" equal to, for any day, the higher of:

o 0.50% per annum above the latest federal funds effective rate; and

o the rate of interest in effect for such day as publicly announced from
time to time by Bank of America, N.A. as its "reference rate,"

plus a spread ranging from 2.00% to 0.50% per annum, and adjusted
periodically, depending on L-3 Communications Corporation's Debt Ratio (as
defined below) at the time of determination or

(B) "LIBOR" equal to, for any interest period (as defined in the senior
credit facilities), the London interbank offered rate for such interest period
as determined in accordance with the senior credit facilities and as adjusted
to reflect any reserve requirements, plus a spread ranging from 3.00% to 1.50%
per annum, and adjusted periodically, depending on the Debt Ratio at the time
of determination, provided that Swingline Loans can only bear interest at the
"base rate" plus the applicable spread.

The Debt Ratio is defined in the senior credit facilities as the ratio of
Consolidated Total Debt to Consolidated EBITDA. Consolidated Total Debt is
equal to outstanding indebtedness for borrowed money or the deferred purchase
price of property, including capitalized lease obligations, plus permitted
convertible securities guaranteed by L-3 Communications Corporation or its
subsidiaries minus the lesser of actual unrestricted cash or $50 million.
Consolidated EBITDA is equal to consolidated net income (excluding
extraordinary gains and losses and gains and losses in connection with asset
dispositions and discontinued operations) for the most recent four quarters,
plus consolidated interest expense (including consolidated interest expense of
L-3 Holdings for permitted convertible securities guaranteed by L-3
Communications Corporation or its subsidiaries), income taxes, depreciation and
amortization minus depreciation and amortization related to minority interest.

L-3 Communications Corporation will pay commitment fees calculated at a
rate ranging from 0.50% to 0.35% per annum for the Revolving Credit Facility
and 0.45% to 0.30% per annum for the Revolving 364 Day Facility, depending on
the Debt Ratio in effect at the time of determination, on the daily amount of
the available unused commitment under the senior credit facilities. These
commitment fees are payable quarterly in arrears and upon termination of the
senior credit facilities.

105

L-3 Communications Corporation will pay a letter of credit fee calculated
at a rate ranging from (A) 1.50% to 0.75% per annum in the case of performance
letters of credit and (B) 3.00% to 1.50% per annum in the case of all other
letters of credit, in each case depending on the Debt Ratio at the time of
determination. L-3 Communications Corporation will also pay a fronting fee
equal to 0.125% per annum on the aggregate face amount of all outstanding
letters of credit. Such fees will be payable quarterly in arrears and upon the
termination of the senior credit facilities. In addition, L-3 Communications
Corporation will pay customary transaction charges in connection with any
letters of credit. The senior credit facilities provide for the issuance of
letters of credit in currencies other than United States dollars.

The above interest rates are adjusted for changes in the Debt Ratio and
reach their maximum if the Debt Ratio is greater than 4.25 to 1.0 and reach
their minimum if that ratio is less than 2.75 to 1.0.

In the event that we convert any or all of the outstanding principal
amount under the Revolving 364 Day Facility into term loans (the "Applicable
Converted Commitment") on any 364 Termination Date, we would have to repay the
principal amount of the resulting term loans by May 16, 2006 or, if earlier,
the second anniversary of the effective date of such conversion into term
loans.

Borrowings under the senior credit facilities are subject to mandatory
prepayment (i) with the net proceeds of any incurrence of indebtedness that is
not permitted under the senior credit facilities and (ii) with the proceeds of
asset sales, in both cases subject to certain exceptions.

L-3 Communications Corporation's obligations under the senior credit
facilities are secured by:

o a pledge by L-3 Communications Holdings of the stock of L-3
Communications Corporation; and

o a pledge by L-3 Communications Corporation and its material direct and
indirect subsidiaries of all of the stock of their respective material
domestic subsidiaries and 65% of the stock of their material first-tier
foreign subsidiaries.

In addition, indebtedness under the senior credit facilities is guaranteed
by L-3 Communications Holdings and by all of L-3 Communications Corporation's
direct and indirect material domestic subsidiaries.

The senior credit facilities contain customary covenants and restrictions
on L-3 Communications Corporation's ability to engage in certain activities. In
addition, the senior credit facilities provide that L-3 Communications
Corporation must meet or exceed an interest coverage ratio and must not exceed
the Debt Ratio. The senior credit facilities also include customary events of
default.

Under the senior credit facilities, each of the following items
constitutes an event of default:

o L-3 Communications Corporation fails to pay principal or amounts drawn
under letters of credit when due;

o L-3 Communications Corporation fails to pay interest within five days
after that amount becomes due;

o any representation or warranty made is incorrect in any material respect;

o L-3 Communications Corporation does not comply with its financial and
other covenants (and, for some of other covenants, the default continues
for 30 days);

o L-3 Communications Corporation or any of its subsidiaries defaults under
any indebtedness, guarantee obligation or interest rate hedging agreement
in the aggregate amount of at least $15.0 million for more than 10 days
and that default would enable the holder of the obligation to accelerate
the obligation;

o certain events of bankruptcy, insolvency or reorganization occur with
respect to L-3 Communications Corporation or any of its subsidiaries;

106

o certain events occur with respect to any employee benefit plan of L-3
Communications Corporation or its affiliates covered by ERISA that would
have a material adverse effect;

o L-3 Communications Holdings, L-3 Communications Corporation or any of the
subsidiaries of L-3 Communications Corporation fails to pay judgments
aggregating in excess of $15.0 million, which judgments are not paid,
covered by insurance, discharged or stayed for a period of 60 days;

o any of the pledge agreements ceases to be in full force and effect or L-3
Communications Corporation or any party to any pledge agreement so
asserts, or the lien under any of the pledge agreements ceases to be an
enforceable first priority lien (subject to a grace period in certain
cases);

o the guarantees of the senior credit facilities are held to be enforceable
or invalid or cease to be in full force and effect, or any guarantor
denies its obligations under its guarantee; and

o a change of control.

If an event of default occurs involving certain events of bankruptcy,
insolvency or reorganization of L-3 Communications Corporation, the commitments
under the senior credit facilities will automatically terminate and the loans,
including accrued interest, and all other amounts owed under the agreements
will become immediately due and payable. If any other event of default occurs,
then lenders holding the majority in aggregate principal amount of the loans
under any senior credit facility may declare the commitments under that
facility to be terminated and the loans, including accrued interest, and all
other amounts owed under that facility to be immediately due and payable. Upon
any acceleration, L-3 Communications Corporation must cash collateralize any
undrawn letters of credit under the senior credit facilities.

8 1/2% SENIOR SUBORDINATED NOTES DUE 2008

L-3 Communications Corporation has outstanding $180.0 million in aggregate
principal amount of 8 1/2% Senior Subordinated Notes due 2008 (the "May 1998
Notes"). The May 1998 Notes are subject to the terms and conditions of an
Indenture (the "May 1998 Indenture") dated as of May 22, 1998, among L-3
Communications Corporation, the guarantors named in supplements thereto and The
Bank of New York as trustee. The following summary of the material provisions
of the May 1998 Indenture does not purport to be complete, and is subject to,
and qualified in its entirety by reference to, all of the provisions of the May
1998 Indenture and those terms made a part of the May 1998 Indenture by the
Trust Indenture Act of 1939, as amended. All terms defined in the May 1998
Indenture and not otherwise defined herein are used below with the meanings set
forth in the May 1998 Indenture.

General

The May 1998 Notes will mature on May 15, 2008 and bear interest at 8 1/2%
per annum, payable semi-annually on May 15 and November 15 of each year. The
May 1998 Notes are general unsecured obligations of L-3 Communications
Corporation and are subordinated in right of payment to all existing and future
senior debt of L-3 Communications Corporation and rank pari passu with the
December 1998 Notes. The May 1998 Notes are unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally by all of L-3
Communications Corporation's restricted subsidiaries other than its foreign
subsidiaries.

Optional Redemption

The May 1998 Notes are subject to redemption at any time, at the option of
L-3 Communications Corporation, in whole or in part, on or after May 15, 2003
at redemption prices (plus accrued and unpaid interest) starting at 104.250% of
principal (plus accrued and unpaid interest) during the 12-month period
beginning May 15, 2003 and declining annually to 100% of principal (plus
accrued and unpaid interest) on May 15, 2006 and thereafter.

107

Change of Control

Upon the occurrence of a change of control, each holder of the May 1998
Notes may require L-3 Communications Corporation to repurchase all or a portion
of the holder's May 1998 Notes at a purchase price equal to 101% of the
principal amount (plus accrued and unpaid interest). Generally, a change of
control means the occurrence of any of the following:

o the disposition of all or substantially all of L-3 Communications
Corporation's assets to any person;

o the adoption of a plan relating to the liquidation or dissolution of L-3
Communications Corporation;

o the consummation of any transaction in which a person other than the
principals and their related parties becomes the beneficial owner of more
than 50% of the voting stock of L-3 Communications Corporation; or

o the first day on which a majority of the members of the Board of
Directors of L-3 Communications Corporation are not continuing directors.

Subordination

The May 1998 Notes are general unsecured obligations of L-3 Communications
Corporation and are subordinate to all existing and future senior debt of L-3
Communications Corporation. The May 1998 Notes rank senior in right of payment
to all subordinated indebtedness of L-3 Communications Corporation. The
guarantees of L-3 Communications Corporation subsidiaries under the May 1998
Notes are general unsecured obligations of the guarantors and are subordinated
to the senior debt and to the guarantees of senior debt of those guarantors.
These guarantees under the May 1998 Notes rank senior in right of payment to
all subordinated indebtedness of those guarantors.

Certain Covenants

The May 1998 Indenture contains a number of covenants restricting the
operations of L-3 Communications Corporation. They limit the ability of L-3
Communications Corporation to incur additional indebtedness, pay dividends or
make distributions, sell assets, issue subsidiary stock, restrict distributions
from Subsidiaries, create certain liens, enter into certain consolidations or
mergers and enter into certain transactions with affiliates.

Events of Default

Events of Default under the May 1998 Indenture include the following:

o a default for 30 days in the payment when due of interest on the May 1998
Notes;

o default in payment when due of the principal of or premium, if any, on
the May 1998 Notes;

o failure by L-3 Communications Corporation to comply with certain
provision of the May 1998 Indenture (subject, in some but not all cases,
to notice and cure periods);

o default under indebtedness for money borrowed by L-3 Communications
Corporation or any of its Restricted Subsidiaries in excess of $10.0
million, which default results in the acceleration of such indebtedness
prior to its express maturity;

o failure by L-3 Communications Corporation or any Restricted Subsidiary
that would be a Significant Subsidiary to pay final judgments aggregating
in excess of $10.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days;

o except as permitted by the May 1998 Indenture, any guarantee under the
May 1998 Notes shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any guarantor, or any person acting on behalf of any
guarantor under the May 1998 Notes, shall deny or disaffirm its
obligations under its guarantee; or

108

o certain events of bankruptcy or insolvency with respect to L-3
Communications Corporation or any of its restricted subsidiaries.

Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding May 1998 Notes may accelerate the maturity of all the May 1998
Notes as provided in the May 1998 Indenture.

8% SENIOR SUBORDINATED NOTES DUE 2008

L-3 Communications Corporation has outstanding $200.0 million in aggregate
principal amount of 8% Senior Subordinated Notes due 2008 (the "December 1998
Notes"). The December 1998 Notes are subject to the terms and conditions of an
Indenture dated as of December 11, 1998, among L-3 Communications Corporation,
the guarantors named therein and in supplements thereto and The Bank of New
York as trustee (the "December 1998 Indenture"). The following summary of the
material provisions of the December 1998 Indenture does not purport to be
complete, and is subject to and qualified in its entirety by reference to, all
of the provisions of the December 1998 Indenture and those terms made a part of
the December 1998 Indenture by the Trust Indenture Act of 1939, as amended. All
terms defined in the December 1998 Indenture and not otherwise defined herein
are used below with the meanings set forth in the December 1998 Indenture.

General

The December 1998 Notes will mature on August 1, 2008 and bear interest at
8% per annum, payable semi-annually on February 1 and August 1 of each year.
The December 1998 Notes are general unsecured obligations of L-3 Communications
Corporation and are subordinated in right of payment to all existing and future
senior debt of L-3 Communications Corporation and rank pari passu with the May
1998 Notes. The December 1998 Notes are unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally by all of L-3
Communications Corporation's restricted subsidiaries other than its foreign
subsidiaries.

Optional Redemption

The December 1998 Notes are subject to redemption at any time, at the
option of L-3 Communications Corporation, in whole or in part, on or after
August 1, 2003 at redemption prices (plus accrued and unpaid interest) starting
at 104% of principal (plus accrued and unpaid interest) during the 12-month
period beginning August 1, 2003 and declining annually to 100% of principal
(plus accrued and unpaid interest) on August 1, 2006 and thereafter.

Change of Control

Upon the occurrence of a change of control, each holder of the December
1998 Notes may require L-3 Communications Corporation to repurchase all or a
portion of such holder's December 1998 Notes at a purchase price equal to 101%
of the principal amount (plus accrued and unpaid interest and liquidated
damages, if any). Generally, a change of control means the occurrence of any of
the following:

o the disposition of all or substantially all of L-3 Communications
Corporation's assets to any person;

o the adoption of a plan relating to the liquidation or dissolution of L-3
Communications Corporation;

109

o the first day on which a majority of the members of the Board of
Directors of L-3 Communications Corporation are not continuing directors.

Subordination

The December 1998 Notes are general unsecured obligations of L-3
Communications Corporation and are subordinate to all existing and future
senior debt of L-3 Communications Corporation. The December 1998 Notes rank
senior in right of payment to all subordinated indebtedness of L-3
Communications Corporation. The guarantees of L-3 Communications Corporation's
subsidiaries under the December 1998 Notes are general unsecured obligations of
the guarantors and are subordinated to the senior debt and to the guarantees of
senior debt of those guarantors. These guarantees under the December 1998 Notes
rank senior in right of payment to all subordinated Indebtedness of those
guarantors.

Certain Covenants

The December 1998 Indenture contains a number of covenants restricting the
operations of L-3 Communications Corporation, limiting the ability of L-3
Communications Corporation to incur additional Indebtedness, pay dividends or
make distributions, sell assets, issue subsidiary stock, restrict distributions
from subsidiaries, create certain liens, enter into certain consolidations or
mergers and enter into certain transactions with affiliates.

Events of Default

Events of Default under the December 1998 Indenture include the following:

o a default for 30 days in the payment when due of interest on, or
liquidated damages with respect to the December 1998 Notes;

o default in payment when due of the principal of or premium, if any, on
the December 1998 Notes;

o failure by L-3 Communications Corporation to comply with certain
provision of the December 1998 Indenture (subject, in some but not all
cases, to notice and cure periods);

o default under indebtedness for money borrowed by L-3 Communications
Corporation or any of its restricted subsidiaries in excess of $10.0
million, which default results in the acceleration of such indebtedness
prior to its express maturity;

o failure by L-3 Communications Corporation or any restricted subsidiary
that would be a significant subsidiary to pay final judgments aggregating
in excess of $10.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days;

o except as permitted by the December 1998 Indenture, any guarantee under
the December 1998 Notes shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any guarantor, or any person acting on behalf of any
guarantor under the December 1998 Notes, shall deny or disaffirm its
obligations under its guarantee; or

o certain events of bankruptcy or insolvency with respect to L-3
Communications Corporation or any of its restricted subsidiaries.

Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding December 1998 Notes may accelerate the maturity of all the December
1998 Notes as provided in the December 1998 Indenture.

5 1/4% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2009

L-3 Communications Holdings has outstanding $300.0 million in aggregate
principal amount of 5 1/4% Convertible Senior Subordinated Notes due 2009 (the
"2000 Convertible Notes"). The 2000

110

Convertible Notes are subject to the terms and conditions of an Indenture dated
as of November 21, 2000, among L-3 Communications Holdings, L-3 Communications
Corporation, as a guarantor, the other guarantors named therein and in
supplements thereto and The Bank of New York as trustee (the "2000 Indenture").
The following summary of the material provisions of the 2000 Indenture does not
purport to be complete, and is subject to and qualified in its entirety by
reference to, all of the provisions of the 2000 Indenture and those terms made
a part of the 2000 Indenture by the Trust Indenture Act of 1939, as amended.
All terms defined in the 2000 Indenture and not otherwise defined herein are
used below with the meanings set forth in the 2000 Indenture.

General

The 2000 Convertible Notes will mature on June 1, 2009 and bear interest
at 5 1/4% per annum, subject to certain adjustments, payable semi-annually on
June 1 and December 1 of each year. The 2000 Convertible Notes are unsecured
senior subordinated obligations of L-3 Communications Holdings and are
subordinated in right of payment to all existing and future senior debt of L-3
Communications Holdings. The 2000 Convertible Notes are unconditionally
guaranteed, on an unsecured senior subordinated basis, jointly and severally by
all of L-3 Communications Holdings' restricted subsidiaries, including L-3
Communications Corporation, other than its foreign subsidiaries. These
guarantees are pari passu with the guarantees of the May 1998 Notes, the
December 1998 Notes and the CODES. Holders of the 2000 Convertible Notes may
convert the 2000 Convertible Notes into shares of L-3 Communications Holdings'
common stock at a conversion rate of $40.75 per share (equal to a conversion
rate of 24.5398 shares per $1,000 principal amount of 2000 Convertible Notes),
subject to adjustment under certain circumstances.

Optional Redemption

The 2000 Convertible Notes are subject to redemption at any time, at the
option of L-3 Communications Holdings, in whole or in part, on or after
December 1, 2003 at redemption prices (plus accrued and unpaid interest)
starting at 102.625% of principal (plus accrued and unpaid interest) during the
12-month period beginning December 1, 2003 and declining annually to 100% of
principal (plus accrued and unpaid interest) on December 1, 2005 and
thereafter. No interest will be paid on the 2000 Convertible Notes that are
converted into common stock of L-3 Communications Holdings, except the 2000
Convertible Notes that are called for redemption on a date that is after a
record date but prior to the corresponding interest payment date if the 2000
Convertible Notes are converted into common stock after the record date.

Change of Control

Upon the occurrence of a change of control, each holder of the 2000
Convertible Notes may require L-3 Communications Holdings to repurchase all or
a portion of such holder's 2000 Convertible Notes at a purchase price equal to
100% of the principal amount (plus accrued and unpaid interest and liquidated
damages, if any). Generally, a change of control means the occurrence of any of
the following:

o the disposition of all or substantially all of the assets of L-3
Communications Holdings and certain of its subsidiaries to any person;

o the first day on which a majority of the members of the Board of
Directors of L-3 Communications Holdings are not continuing directors; or

o the consolidation or merger of L-3 Communications Holdings with or into
any other person, the merger of another person into L-3 Communications
Holdings or any conveyance, transfer, sale, lease, or other disposition
of all or substantially all of the properties and assets of L-3
Communications Holdings to another person, subject to certain exceptions.

111

Subordination

The 2000 Convertible Notes are unsecured senior subordinated obligations
of L-3 Communications Holdings and are subordinate to all existing and future
senior debt of L-3 Communications Holdings. The guarantees of L-3
Communications Holdings' subsidiaries under the 2000 Convertible Notes,
including the guarantee by L-3 Communications Corporation, are general
unsecured obligations of the guarantors and are subordinated to the senior debt
and to the guarantees of senior debt of those guarantors. These guarantees
under the 2000 Convertible Notes rank pari passu with all senior subordinated
indebtedness of those guarantors.

Antilayering Provision

The 2000 Indenture provides that (i) L-3 Communications Holdings will not
incur, create, issue, assume, guarantee or otherwise become liable for any
indebtedness that is subordinate or junior in right of payment to any senior
debt and senior in any respect in right of payment to the 2000 Convertible
Notes, and (ii) no guarantor of the 2000 Convertible Notes will incur, create,
issue, assume, guarantee or otherwise become liable for any indebtedness that
is subordinate or junior in right of payment to any senior debt of a guarantor
and senior in any respect in right of payment to any of the subsidiary
guarantees of the 2000 Convertible Notes.

Events of Default

Events of Default under the 2000 Indenture include the following:

o a default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the 2000 Convertible Notes;

o default in payment when due of the principal of or premium, if any, on
the 2000 Convertible Notes;

o failure by L-3 Communications Holdings for 60 days after notice to comply
with certain provisions of the 2000 Convertible Indenture (subject, in
some but not all cases, to notice and cure periods);

o default under indebtedness for money borrowed by L-3 Communications
Holdings or any of its restricted subsidiaries that would be a
significant subsidiary in excess of $10.0 million, which default results
in the acceleration of such indebtedness prior to its express maturity;

o failure by L-3 Communications Holdings or any restricted subsidiary that
would be a significant subsidiary to pay final judgments aggregating in
excess of $10.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days;

o except as permitted by the 2000 Indenture, any guarantee under the 2000
Convertible Notes shall be held in any judicial proceeding to be
unenforceable or invalid; and

o certain events of bankruptcy, insolvency or reorganization with respect
to L-3 Communications Holdings.

Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding 2000 Convertible Notes may accelerate the maturity of all the 2000
Convertible Notes as provided in the 2000 Indenture.

4.00% SENIOR SUBORDINATED CONVERTIBLE CONTINGENT DEBT SECURITIES (CODES) DUE
2011

L-3 Communications Holdings has outstanding $420.0 million in aggregate
principal amount of 4.00% Senior Subordinated Convertible Contingent Debt
SecuritiesSM (CODESSM) due 2011 (the "CODES"). The CODES are subject to the
terms and conditions of an Indenture dated as of October 24, 2001, among L-3
Communications Holdings, L-3 Communications Corporation, as a guarantor, the
other guarantors named therein and in supplements thereto and The Bank of New
York as trustee (the "2001 Indenture"). The following summary of the material
provisions of the 2001

112

Indenture does not purport to be complete, and is subject to and qualified in
its entirety by reference to, all of the provisions of the 2001 Indenture and
those terms made a part of the 2001 Indenture by the Trust Indenture Act of
1939, as amended. All terms defined in the 2001 Indenture and not otherwise
defined herein are used below with the meanings set forth in the 2001
Indenture.

General

The CODES will mature on September 15, 2011 and bear interest at 4.00% per
annum, subject to certain adjustments, payable semi-annually on March 15 and
September 15 of each year. Holders of CODES are entitled to contingent interest
not to exceed a per annum rate of 0.50% during any six months period from March
15 to September 14 and from September 15 to March 14 if the average trading
price of the CODES for the five trading days ending on the second trading day
immediately preceding the relevant six month period equals 120% or more of the
principal amount of the CODES. The CODES are unsecured senior subordinated
obligations of L-3 Communications Holdings and are subordinated in right of
payment to all existing and future senior debt of L-3 Communications Holdings.
The CODES are unconditionally guaranteed, on an unsecured senior subordinated
basis, jointly and severally by all of L-3 Communications Holdings' restricted
subsidiaries, including L-3 Communications Corporation, other than its foreign
subsidiaries. These guarantees are pari passu with the guarantees of the May
1998 Notes, the December 1998 Notes and the 2000 Convertible Notes. Holders of
the CODES may convert the CODES into shares of L-3 Communications Holdings'
common stock at a conversion rate of $53.8125 per share (equal to a conversion
rate of 18.583 shares per $1,000 principal amount of CODES), subject to
adjustment under any of the following circumstances:

o during any quarterly conversion period, if the closing sale price of our
common stock for a period of at least 20 trading days in the period of 30
consecutive days ending on the first day of such conversion period is
more than 120% of the conversion price on that thirtieth day;

o during the five business day period following any 10 consecutive
trading-day period in which the average of the trading prices (as
defined) for the CODES was less than 105% of the average sale prices (as
defined) of our common stock multiplied by the number of shares into
which such CODES are then convertible;

o during any period in which the credit rating assigned to the CODES by
either Moody's Investors Service, Inc., or Moody's, or Standard & Poor's
Rating Services, or Standard & Poor's, is below B3 and B-, respectively,
or in which the credit rating assigned to the CODES is suspended or
withdrawn by either rating agency or in which neither rating agency
continues to rate the CODES or provide ratings services or coverage to
us;

o if the CODES have been called for redemption; or

o upon the occurrence of specified corporate transactions described.

Optional Redemption

The CODES are subject to redemption at any time, at the option of L-3
Communications Holdings, in whole or in part, on or after October 24, 2004 at
redemption prices (plus accrued and unpaid interest, including contingent
interest, if any) starting at 102.0% of principal (plus accrued and unpaid
interest, including contingent interest, if any) and declining annually to 100%
of principal (plus accrued and unpaid interest, including contingent interest,
if any) on September 15, 2006 and thereafter. No interest, including contingent
interest, will be paid on the CODES that are converted into common stock of L-3
Communications Holdings, except the CODES that are called for redemption on a
date that is after a record date but prior to the corresponding interest
payment date if the CODES are converted into common stock after the record
date, provided, however, the holders of CODES are entitled to interest,
including contingent interest, if any, accrued for a period beginning September
15, 2004 through October 23, 2004 if such holders convert subsequent to October
23, 2004.

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Change of Control

Upon the occurrence of a change of control, each holder of the CODES may
require L-3 Communications Holdings to repurchase all or a portion of such
holder's CODES at a purchase price equal to 100% of the principal amount (plus
accrued and unpaid interest, including contingent interest, if any and
additional amounts, if any). Generally, a change of control means the
occurrence of any of the following:

o the disposition of all or substantially all of the assets of L-3
Communications Holdings and certain of its subsidiaries to any person;

o the first day on which a majority of the members of the Board of
Directors of L-3 Communications Holdings are not continuing directors; or

Subordination

The CODES are unsecured senior subordinated obligations of L-3
Communications Holdings and are subordinate to all existing and future senior
debt of L-3 Communications Holdings. The guarantees of L-3 Communications
Holdings' subsidiaries under the CODES, including the guarantee by L-3
Communications Corporation, are general unsecured obligations of the guarantors
and are subordinated to the senior debt and to the guarantees of senior debt of
those guarantors. These guarantees under the CODES rank pari passu with all
senior subordinated indebtedness of those guarantors.

Antilayering Provision

The 2001 Indenture provides that (i) L-3 Communications Holdings will not
incur, create, issue, assume, guarantee or otherwise become liable for any
indebtedness that is subordinate or junior in right of payment to any senior
debt and senior in any respect in right of payment to the CODES, and (ii) no
guarantor of the CODES will incur, create, issue, assume, guarantee or
otherwise become liable for any indebtedness that is subordinate or junior in
right of payment to any senior debt of a guarantor and senior in any respect in
right of payment to any of the subsidiary guarantees of the CODES.

Events of Default

Events of Default under the 2001 Indenture include the following:

o a default for 30 days in the payment when due of interest (including
contingent interest, if any) on, or additional amounts with respect to,
the CODES;

o default in payment when due of the principal of or premium, if any, on
the CODES;

o failure by L-3 Communications Holdings for 60 days after notice to comply
with certain provisions of the 2001 Indenture (subject, in some but not
all cases, to notice and cure periods);

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o except as permitted by the 2001 Indenture, any guarantee under the CODES
shall be held in any judicial proceeding to be unenforceable or invalid;
and

o certain events of bankruptcy, insolvency or reorganization with respect
to L-3 Communications Holdings or any of its restricted subsidiaries that
would be significant subsidiaries.

Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding CODES may accelerate the maturity of all the CODES as provided in
the 2001 Indenture.

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THE EXCHANGE OFFER

GENERAL

L-3 hereby offers, upon the terms and subject to the conditions set forth
in this prospectus and in the accompanying letter of transmittal (which
together constitute the exchange offer), to exchange up to $750.0 million
aggregate principal amount of our 7 5/8% Senior Subordinated Notes due 2012,
which we refer to in this prospectus as the outstanding notes, for a like
aggregate principal amount of our 7 5/8% Series B Senior Subordinated Notes due
2012, which we refer to in this prospectus as the exchange notes, properly
tendered on or prior to the expiration date and not withdrawn as permitted
pursuant to the procedures described below. The exchange offer is being made
with respect to all of the outstanding notes.

As of the date of this prospectus, $750.0 million aggregate principal
amount of the outstanding notes is outstanding. This prospectus, together with
the letter of transmittal, is first being sent on or about September , 2002,
to all holders of outstanding notes known to L-3. L-3's obligation to accept
outstanding notes for exchange pursuant to the exchange offer is subject to
certain conditions set forth under "Certain Conditions to the Exchange Offer"
below. L-3 currently expects that each of the conditions will be satisfied and
that no waivers will be necessary.

PURPOSE AND EFFECT OF THE EXCHANGE OFFER

We have entered into a registration rights agreement with the initial
purchasers of the outstanding notes in which we agreed, under some
circumstances, to file a registration statement relating to an offer to
exchange the outstanding notes for exchange notes. We also agreed to use all
commercially reasonable efforts to cause the exchange offer registration
statement to become effective under the Securities Act as promptly as
practicable, but in no event later than 180 days after the closing date and
keep the exchange offer registration statement effective for not less than 20
business days. The exchange notes will have terms substantially identical to
the outstanding notes, except that the exchange notes will not contain terms
with respect to transfer restrictions, registration rights and additional
interest for failure to observe certain obligations in the registration rights
agreement. The outstanding notes were issued on June 28, 2002.

Under certain circumstances set forth in the registration rights
agreement, we will use all commercially reasonable efforts to cause the SEC to
declare effective a shelf registration statement with respect to the resale of
the outstanding notes and keep the statement, effective for up to two years
after the closing date.

If we fail to comply with certain obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the outstanding notes.

Each holder of outstanding notes that wishes to exchange outstanding notes
for transferable exchange notes in the exchange offer will be required to make
the following representations:

o any exchange notes will be acquired in the ordinary course of its
business;

o the holder will have no arrangements or understanding with any person to
participate in the distribution of the outstanding notes or the exchange
notes within the meaning of the Securities Act;

o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of L-3 or if it is an affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act to the extent applicable;

o if the holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of the exchange notes; and

o if the holder is a broker-dealer, that it will receive exchange notes for
its own account in exchange for outstanding notes that were acquired as a
result of market-making activities or

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other trading activities and that it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of the
exchange notes. See "Plan of Distribution."

RESALE OF EXCHANGE NOTES

Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for outstanding notes may be offered for resale,
resold and otherwise transferred by any exchange note holder without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:

o the holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;

o the exchange notes are acquired in the ordinary course of the holder's
business; and

o the holder does not intend to participate in the distribution of the
exchange notes.

Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:

o cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation or similar interpretive letters; and

o must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.

This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired
the outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives exchange notes for its own account in exchange for outstanding notes,
where the outstanding notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
outstanding notes properly tendered and not withdrawn prior to the expiration
date. We will issue $1,000 principal amount of exchange notes in exchange for
each $1,000 principal amount of outstanding notes surrendered under the
exchange offer. Outstanding notes may be tendered only in integral multiples of
$1,000.

The form and terms of the exchange notes will be substantially identical
to the form and terms of the outstanding notes except the exchange notes will
be registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any additional amounts upon our failure to
fulfill our obligations under the registration rights agreement to file, and
cause to be effective, a registration statement. The exchange notes will
evidence the same debt as the outstanding notes. The exchange notes will be
issued under and entitled to the benefits of the same indenture that authorized
the issuance of the outstanding notes.

The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.

As of the date of this prospectus, $750.0 million aggregate principal
amount of the outstanding notes are outstanding. This prospectus and a letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.

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We intend to conduct the exchange offer in accordance with the provisions
of the exchange offer and registration rights agreement, the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the SEC. Outstanding notes that are not tendered
for exchange in the exchange offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits the holders
have under the indenture relating to the outstanding notes, except for any
rights under the exchange offer and registration rights agreement that by their
terms terminate upon the consummation of the exchange offer.

We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance
to the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to the holders. Under the terms of the exchange offer and
registration rights agreement, we reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any outstanding notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "--Certain Conditions to the Exchange Offer."

Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "--Fees and Expenses" below for
more details regarding fees and expenses incurred in the exchange offer.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The exchange offer will expire at 5:00 p.m., New York City time on ,
2002, unless in our sole discretion we extend it.

In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.

We reserve the right, in our sole discretion:

o to delay accepting for exchange any outstanding notes;

o to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of the
delay, extension or termination to the exchange agent; or

o under the terms of the exchange offer and registration rights agreement,
to amend the terms of the exchange offer in any manner.

Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of outstanding notes. If we amend the exchange offer in a manner that
we determine constitutes a material change, we will promptly disclose the
amendment in a manner reasonably calculated to inform the holder of outstanding
notes of the amendment.

Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.

CERTAIN CONDITIONS TO THE EXCHANGE OFFER

Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment:

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o the exchange notes to be received will not be tradable by the holder.
without restriction under the Securities Act, the Securities Exchange Act
and without material restrictions under the blue sky or securities laws
of substantially all of the states of the United States;

o the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC: or

o any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.

In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us:

o the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution"; and

o such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
it an appropriate form for registration of the exchange notes under the
Securities Act.

We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we
may delay acceptance of any outstanding notes by giving oral or written notice
of the extension to their holders. During any such extensions, all notes
previously tendered will remain subject to the exchange offer, and we may
accept them for exchange. We will return any outstanding notes that we do not
accept for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.

We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, nonacceptance, or termination to the holders of the outstanding
notes as promptly as practicable.

These conditions are for our sole benefit and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any or at various times in our sole discretion. If we fail
at any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of this right. Each right will be deemed an ongoing right
that we may assert at any time or at various times.

In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any outstanding
notes, if at the time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act.

PROCEDURES FOR TENDERING

Only a holder of outstanding notes may tender the outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:

o complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the letter
of transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver the letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or

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o comply with DTC's Automated Tender Offer Program procedures described
below.

In addition, either:

o the exchange agent must receive the outstanding notes along with the
accompanying letter of transmittal; or

o the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of the outstanding notes into the
exchange agent's account at DTC according to the procedures for
book-entry transfer described below or a properly transmitted agent's
message; or

o the holder must comply with the guaranteed delivery procedures described
below.

To be tendered effectively, the exchange agent must receive any physical
delivery of a letter of transmittal and other required documents at the address
set forth below under "-- Exchange Agent" prior to the expiration date.

The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.

The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.

Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the owners behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the accompanying letter
of transmittal and delivering its outstanding notes either:

o make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or

o obtain a properly completed bond power from the registered holder of
outstanding notes.

The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.

Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the outstanding notes are tendered:

o by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or

o for the account of an eligible institution.

If the accompanying letter of transmittal is signed by a person other than
the registered holder of any outstanding notes listed on the outstanding notes,
the outstanding notes must be endorsed or accompanied by a properly completed
bond power. The bond power must be signed by the registered holder as the
registered holder's name appears on the outstanding notes and an eligible
institution must guarantee the signature on the bond power.

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If the accompanying letter of transmittal or any outstanding notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing. Unless
waived by us, they should also submit evidence satisfactory to us of their
authority to deliver the accompanying letter of transmittal.

The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may. instead of physically
completing and signing the accompanying letter of transmittal and delivering it
to the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the outstanding notes
to the exchange agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the exchange agent. The term "agent's message"
means a message transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, to the effect that:

o DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of the book-entry confirmation;

o the participant has received and agrees to be bound by the terms of the
accompanying letter of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and

o the agreement may be enforced against that participant.

We will determine in our sole discretion all outstanding questions as to
the validity, form, eligibility, including time or receipt, acceptance of
tendered outstanding notes and withdrawal of tendered outstanding notes. Our
determination will be final and binding. We reserve the absolute right to
reject any outstanding notes not properly tendered or any outstanding notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the
accompanying letter of transmittal, will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within such time as we will determine. Although
we intend to notify holders of defects or irregularities with respect to
tenders of outstanding notes, neither we, the exchange agent, nor any other
person will incur any liability for failure to give the notification. Tenders
of outstanding notes will not be deemed made until any defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.

In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:

o outstanding notes or a timely book-entry confirmation of the outstanding
notes into the exchange agent's account at DTC; and

o a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.

By signing the accompanying letter of transmittal or authorizing the
transmission of the agent's message, each tendering holder of outstanding notes
will represent or be deemed to have represented to us that, among other things:

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o any exchange notes that the holder receives will be acquired in the
ordinary course of its business;

o the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;

o if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;

o if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for outstanding notes that were acquired as a
result of market-making activities or other trading activities. that it
will deliver a prospectus, as required by law, in connection with any
resale of any exchange notes. See "Plan of Distribution"; and

o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.

BOOK-ENTRY TRANSFER

The exchange agent will make a request to establish an account with
respect to the outstanding notes at DTC for purposes of the exchange offer
promptly after the date of this prospectus. Any financial institution
participating in DTC's system may make book-entry delivery of outstanding notes
by causing DTC to transfer the outstanding notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. Holders of
outstanding notes who are unable to deliver confirmation of the book-entry
tender of their outstanding notes into the exchange agent's account at DTC or
all other documents required by the letter of transmittal to the exchange agent
on or prior to the expiration date must tender their outstanding notes
according to the guaranteed delivery procedures described below.

GUARANTEED DELIVERY PROCEDURES

Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the accompanying letter of transmittal or any other available required
documents to the exchange agent or comply with the applicable procedures under
DTC's Automated Tender Offer Program prior to the expiration date may tender
if:

o the tender is made through an eligible institution;

o prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and duly executed notice
of guaranteed delivery, by facsimile transmission, mail or hand delivery,
or a properly transmitted agent's message and notice of guaranteed
delivery:

o setting forth the name and address of the holder, the registered
number(s) of the outstanding notes and the principal amount of
outstanding notes tendered:

o stating that the tender is being made thereby; and

o guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the accompanying letter of transmittal, or
facsimile thereof, together with the outstanding notes or a book-entry
confirmation, and any other documents required by the accompanying
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and

o the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation. and all
other documents required by the accompanying letter of transmittal,
within three New York Stock Exchange trading days after the expiration
date.

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Upon request to the exchange agent, a notice of guaranteed delivery will
be sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.

For a withdrawal to be effective:

o the exchange agent must receive a written notice of withdrawal, which
notice may be by telegram, telex, facsimile transmission or letter of
withdrawal at one of the addresses set forth below under "-- Exchange
Agent", or

o holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.

Any notice of withdrawal must:

o specify the name of the person who tendered the outstanding notes to be
withdrawn;

o identify the outstanding notes to be withdrawn, including the principal
amount of the outstanding notes; and

o where certificates for outstanding notes have been transmitted, specify
the name in which the outstanding notes were registered, if different
from that of the withdrawing holder.

If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit:

o the serial numbers of the particular certificates to be withdrawn; and

o a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.

If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of that facility. We
will determine all questions as to the validity, form and eligibility,
including time of receipt, of the notices, and our determination will be final
and binding on all parties. We will deem any outstanding notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder, or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, the outstanding notes will be credited to an account maintained with DTC
for outstanding notes, as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn, outstanding
notes may be retendered by following one of the procedures described under "--
Procedures for Tendering" above at any time on or prior to the expiration date.

EXCHANGE AGENT

The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or for the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent as
follows:

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BY MAIL OR OVERNIGHT DELIVERY: BY FACSIMILE: BY HAND DELIVERY:
The Bank of New York The Bank of New York The Bank of New York
Reorganization Unit Reorganization Unit Reorganization Unit
101 Barclay Street - 7 East 101 Barclay Street - 7 East 101 Barclay Street
New York, NY 10286 New York, NY 10286 Lobby Level - Corp. Trust Window
Attention: Kin Lau Attention: Kin Lau New York 10286
(212) 298-1915 Attention: Kin Lau
CONFIRM RECEIPT OF
FACSIMILE BY TELEPHONE
(212) 815-3750

DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.

FEES AND EXPENSES

We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional
solicitations by telephone or in person by our officers and regular employees
and those of our affiliates.

We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.

We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$400,000. They include:

o SEC registration fees;

o fees and expenses of the exchange agent and trustee;

o accounting and legal fees and printing costs; and

o related fees and expenses.

TRANSFER TAXES

We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:

o certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;

o tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or

o a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.

If satisfactory evidence of payment of the taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed to that
tendering holder.

Holders who tender their outstanding notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct us to
register exchange notes in the name of, or request that outstanding notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be required to pay any applicable
transfer tax.

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CONSEQUENCES OF FAILURE TO EXCHANGE

Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of the outstanding notes:

o as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes under the exemption from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and

o otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the outstanding notes.

In general, you may not offer or sell the outstanding notes unless they
are registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued under the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders (other than any holder that is our "affiliate" within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holders
acquired the exchange notes in the ordinary course of the holders' business and
the holders have no arrangement or understanding with respect to the
distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:

o cannot rely on the applicable interpretations of the SEC; and

o must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.

ACCOUNTING TREATMENT

We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will record the expenses of the exchange
offer as incurred.

OTHER

Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that
are not tendered in the exchange offer or to file a registration statement to
permit resales of any untendered outstanding notes.

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DESCRIPTION OF THE NOTES

The outstanding notes were issued and the exchange notes offered hereby
will be issued under an indenture (the "Indenture") among the Company, as
issuer, the Guarantors and The Bank of New York, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof.

The following summary of the material provisions of the Indenture
describes the material terms of the Indenture but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to
the Trust Indenture Act. For definitions of certain capitalized terms used in
the following summary, see "-- Certain Definitions."

For purposes of this summary, the term "Company" refers only to L-3
Communications Corporation and not to any of its Subsidiaries.

BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES

The Notes:

o are general unsecured obligations of the Company;

o rank pari passu in right of payment with the 1997 Notes, the May 1998
Notes and the December 1998 Notes;

o rank pari passu in right of payment with the obligations of the Company
under Holdings' outstanding 2000 Convertible Notes and 2001 CODES;

o are subordinated in right of payment to all current and future Senior
Debt; and

o are senior in right of payment to any future Indebtedness of the Company
that expressly provides that it is not senior to the Notes.

The Subsidiary Guarantees:

o are general unsecured obligations of the Guarantors;

o rank pari passu in right of payment with the guarantees of the 1997
Notes, the May 1998 Notes and the December 1998 Notes;

o rank pari passu in right of payment with the obligations of the
Guarantors under Holdings' outstanding 2000 Convertible Notes and 2001
CODES;

o are subordinated in right of payment to all current and future Senior
Debt of the Guarantors; and

o are senior in right of payment to any future Indebtedness of the
Guarantors that expressly provides that it is not senior to the
Subsidiary Guarantees.

At June 30, 2002, the Company did not have any Senior Debt outstanding
(excluding letters of credit). The Indenture permits the incurrence of
additional Senior Debt in the future. See "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock."

THE SUBSIDIARY GUARANTEES

The Indenture provides that the Company's payment obligations under the
Notes are jointly and severally guaranteed (the "Subsidiary Guarantees") by all
of the Company's present and future Restricted Subsidiaries, other than Foreign
Subsidiaries. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk Factors --
The guarantees may

126

be unenforceable due to fraudulent conveyance statutes, and accordingly, you
could have no claim against the guarantors." The Subsidiary Guarantee of each
Guarantor will be subordinated to the prior payment in full of all Senior Debt
of such Guarantor, which would include the guarantees of amounts borrowed under
the Senior Credit Facilities.

Upon the release of a Guarantee by a Restricted Subsidiary under all then
outstanding Credit Facilities, at any time after the suspension of certain
covenants as provided below under the caption "-- Certain Covenants -- Changes
in Covenants when Notes Rated Investment Grade," the Subsidiary Guarantee of
such Restricted Subsidiary under the Indenture will be released and discharged
at such time. In the event that any such Restricted Subsidiary thereafter
Guarantees any Indebtedness of the Company under any Credit Facility (or if any
released Guarantee under any Credit Facility is reinstated or renewed), or if
at any time certain covenants are reinstituted as provided below under the
caption "-- Certain Covenants -- Changes in Covenants when Notes Rated
Investment Grade," then such Restricted Subsidiary will Guarantee the Notes on
the terms and conditions set forth in the Indenture.

As of the date of this prospectus, not all of the Company's subsidiaries
are "Restricted Subsidiaries." Aviation Communications & Surveillance Systems,
LLC, Digital Technics, L.L.C., Digital Technics, L.P., L-3 Communications
Secure Information Technology, Inc., Logimetrics, Inc. and mmTech, INC. are
currently Unrestricted Subsidiaries. In addition, under the circumstances
described below under the subheading "-- Certain Covenants -- Restricted
Payments", the Company is permitted to designate certain of the Company's
subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries are not
subject to many of the restrictive covenants in the Indenture. Unrestricted
Subsidiaries do not guarantee these Notes.

PRINCIPAL, MATURITY AND INTEREST

The exchange notes will be limited in aggregate principal amount to $750.0
million. The Company may issue additional Notes from time to time after the
offering of exchange notes. Any offering of additional Notes is subject to the
covenant described below under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock." The Notes and any additional
Notes subsequently issued under the Indenture will be treated as a single class
for all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase.

The Notes will mature on June 15, 2012. Interest on the Notes will accrue
at the rate of 7 5/8% per annum and will be payable semi-annually in arrears on
June 15 and December 15, commencing on December 15, 2002, to Holders of record
on the immediately preceding June 1 and December 1.

Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.

METHODS OF RECEIVING PAYMENTS ON THE NOTES

Principal, premium and Additional Amounts, if any, and interest on the
Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Additional Amounts, if any, may be made by
check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments of
principal, premium, interest and Additional Amounts with respect to Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof if such Holders shall be registered
Holders of at least $250,000 in principal amount of Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The exchange notes will
be issued in denominations of $1,000 and integral multiples thereof.

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OPTIONAL REDEMPTION

The Notes will not be redeemable at the Company's option prior to June 15,
2007. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Additional Amounts, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on June 15 of the years indicated
below:

YEAR PERCENTAGE
- ----------------------- -------------

2007 103.813%
2008 102.542%
2009 101.271%
2010 and thereafter 100.000%

Notwithstanding the foregoing, before June 15, 2005, the Company may on
any one or more occasions redeem up to an aggregate of 35% of the Notes
originally issued at a redemption price of 107.625% of the principal amount
thereof, plus accrued and unpaid interest and Additional Amounts, if any, to
the redemption date, with the net cash proceeds of one or more Equity Offerings
by the Company or the net cash proceeds of one or more Equity Offerings by
Holdings that are contributed to the Company as common equity capital; provided
that at least 65% of the Notes originally issued remain outstanding immediately
after the occurrence of each such redemption; and provided, further, that any
such redemption must occur within 120 days of the date of the closing of such
Equity Offering.

SUBORDINATION

The payment of principal of, premium and Additional Amounts, if any, and
interest on the Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash of all Senior Debt, whether
outstanding on the Issue Date or thereafter incurred.

Upon any distribution to creditors of the Company:

(1) in a liquidation or dissolution of the Company;

(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;

(3) in an assignment for the benefit of creditors; or

(4) in any marshalling of the Company's assets and liabilities,

the holders of Senior Debt will be entitled to receive payment in full in cash
of all Obligations due in respect of such Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Debt, whether or not an allowable claim in any such proceeding) before
the Holders of Notes will be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full in cash, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Debt (except, in each case, that Holders
of Notes may receive Permitted Junior Securities and payments made from the
trust described under "-- Legal Defeasance and Covenant Defeasance").

The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if:

(1) a default in the payment of the principal of, premium, if any, or
interest on Designated Senior Debt occurs and is continuing; or

(2) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to
which such default relates to accelerate

128

its maturity (or that would permit such holders to accelerate with the
giving of notice or the passage of time or both) and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt.

Payments on the Notes may and shall be resumed:

(1) in the case of a payment default, upon the date on which such default
is cured or waived; and

(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.

No new period of payment blockage may be commenced unless and until:

(1) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice; and

(2) all scheduled payments of principal, premium and Additional Amounts, if
any, and interest on the Notes that have come due have been paid in
full in cash.

No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 days.

The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.

As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. At June 30, 2002, the
Company did not have any Senior Debt outstanding.

MANDATORY REDEMPTION

Except as set forth below under "-- Repurchase at the Option of Holders",
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Additional Amounts, if any, to the date of purchase (the "Change
of Control Payment"). Within ten days following any Change of Control, the
Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.

On the Change of Control Payment Date, the Company will, to the extent
lawful:

(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;

(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and

129

(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company.

The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.

The Indenture provides that, prior to mailing a Change of Control Offer,
but in any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or offer to repay all Senior Debt and
terminate all commitments thereunder of each lender who has accepted such offer
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Notes required by this
covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.

The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.

The Senior Credit Facilities prohibits the Company from purchasing any
Notes, and also provides that certain change of control events with respect to
the Company constitutes a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture and under the documentation governing certain of our other
Indebtedness which would, in turn, constitute a default under the Senior Credit
Facilities. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes. See "Risk
Factors -- Our ability to repurchase notes with cash upon a change of control
may be limited."

Finally, the Company's ability to pay cash to the holders of Notes upon a
purchase may be limited by the Company's then-existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required purchases. Even if sufficient funds were
otherwise available, the terms of the Senior Credit Facilities will prohibit,
subject to certain exceptions, the Company's prepayment of Notes prior to their
scheduled maturity. Consequently, if the Company is not able to prepay
indebtedness outstanding under the Senior Credit Facilities and any other
Senior Debt containing similar restrictions or obtain requisite consents, the
Company will be unable to fulfill its repurchase obligations if holders of
Notes exercise their purchase rights following a Change of Control, thereby
resulting in a default under the Indenture and under the documentation
governing certain of our other Indebtedness, which would, in turn, constitute a
default under our Senior Credit Facilities. Furthermore, the Change of Control
provisions of the Indenture and under the documentation governing certain of
our other Indebtedness may in certain circumstances make more difficult or
discourage a takeover of the Company.

The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.

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The definition of Change of Control contains, with respect to the
disposition of assets, the phrase "all or substantially all," which varies
according to the facts and circumstances of the subject transaction and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of the
Company and its Restricted Subsidiaries, and therefore it may be unclear as to
whether a Change of Control has occurred and whether the holders have the right
to require the Company to purchase the Notes. In the event that the Company
were to determine that a Change of Control did not occur because not "all or
substantially all" of the assets of the Company and its Restricted Subsidiaries
had been sold and the holders of the Notes disagreed with such determination,
the holders and/or the Trustee would need to seek a judicial determination of
the issue.

ASSET SALES

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless:

(1) the Company or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by an Officers' Certificate delivered to the
Trustee which will include a resolution of the Board of Directors with
respect to such fair market value in the event such Asset Sale involves
aggregate consideration in excess of $10.0 million) of the assets or
Equity Interests issued or sold or otherwise disposed of; and

(2) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary, as the case may be, consists of cash, Cash
Equivalents and/or Marketable Securities;

provided, however, that:

(a) the amount of any Senior Debt of the Company or such Restricted
Subsidiary that is assumed by the transferee in any such
transaction; and

(b) any consideration received by the Company or such Restricted
Subsidiary, as the case may be, that consists of (1) all or
substantially all of the assets of one or more Similar Businesses,
(2) other long-term assets that are used or useful in one or more
Similar Businesses and (3) Permitted Securities shall be deemed to
be cash for purposes of this provision.

Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option:

(1) to repay Indebtedness under a Credit Facility;

(2) to the acquisition of Permitted Securities;

(3) to the acquisition of all or substantially all of the assets of one or
more Similar Businesses;

(4) to the making of a capital expenditure; or

(5) to the acquisition of other long-term assets in a Similar Business.

Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Indebtedness under a Credit Facility or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0
million, the 1997 Indenture provides that the Company will be required to make
an offer to all holders of 1997 Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of 1997 Notes that may be purchased out of the Excess
Proceeds, at an

131

offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest to the date of purchase, in accordance with
the procedures set forth in the 1997 Indenture.

To the extent that (1) there are no outstanding 1997 Notes at the time an
Asset Sale Offer is required to be made or (2) the aggregate amount of 1997
Notes tendered pursuant to an Asset Sale Offer is less than the remaining
Excess Proceeds ("Remaining Excess Proceeds") and the sum of:

(a) such amount of Remaining Excess Proceeds; and

(b) the Remaining Excess Proceeds from any subsequent Asset Sale Offers
exceeds $10.0 million,

the Company will be required to make an offer to all Holders of Notes and any
other Indebtedness that ranks pari passu with the Notes (including, without
limitation, the December 1998 Notes and May 1998 Notes) that, by its terms,
requires the Company to offer to repurchase such Indebtedness with such Excess
Proceeds or Remaining Excess Proceeds, as the case may be, (a "Secondary Asset
Sale Offer") to purchase the maximum principal amount of Notes and pari passu
Indebtedness that may be purchased out of such Excess Proceeds or Remaining
Excess Proceeds, as the case may be, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes or
pari passu Indebtedness tendered pursuant to a Secondary Asset Sale Offer is
less than the Excess Proceeds or Remaining Excess Proceeds, as the case may be,
the Company may use any Excess Proceeds or Remaining Excess Proceeds, as the
case may be, for general corporate purposes. If the aggregate principal amount
of Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the
amount of Excess Proceeds or Remaining Excess Proceeds, as the case may be, in
a Secondary Asset Sale Offer, the Company shall repurchase such Indebtedness on
a pro rata basis and the Trustee shall select the Notes to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.

The Senior Credit Facilities will substantially limit the Company's
ability to purchase subordinated Indebtedness, including the Notes. Any future
credit agreements relating to Senior Debt may contain similar restrictions. See
"Description of Other Indebtedness -- Senior Credit Facilities of L-3
Communications Corporation."

SELECTION AND NOTICE

If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee as follows:

(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or

(2) if the Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.

No Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.

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CERTAIN COVENANTS

CHANGES IN COVENANTS WHEN NOTES RATED INVESTMENT GRADE

If on any date following the date of the Indenture:

(1) the Notes are rated Baa3 or better by Moody's and BBB- or better by S&P
(or, if either such entity ceases to rate the notes for reasons outside
of the control of the Company, the equivalent investment grade credit
rating from any other "nationally recognized statistical rating
organization" within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
Exchange Act selected by Company as a replacement agency); and

(2) no Default or Event of Default shall have occurred and be continuing,

then, beginning on that day and subject to the provisions of the following
paragraph, the provisions and covenants specifically listed under the following
captions in this prospectus will be suspended:

(a) "-- Repurchase at the Option of Holders-Asset Sales;"

(b) "-- Restricted Payments;"

(d) "-- Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries;"

(e) "-- Transactions with Affiliates;"

(f) clauses (4)(a) and (b) of the covenant listed under "-- Merger,
Consolidation or Sale of Assets;"

(g) "-- Payments for Consent;" and

(h) clauses (3)(a) and (b) of the covenant listed under "-- Future
Subsidiary Guarantees."

In addition, following the achievement of such investment grade ratings,
(1) the Subsidiary Guarantees of the Company's Restricted Subsidiaries will be
released at the time of the release of Guarantees under all outstanding Credit
Facilities as described above under the caption "-- The Subsidiary Guarantees"
and, (2) as described below under the caption "-- Future Subsidiary
Guarantees," no Restricted Subsidiary thereafter acquired or created will be
required to execute a Subsidiary Guarantee unless such Subsidiary Guarantees
Indebtedness of the Company under a Credit Facility.

Notwithstanding the foregoing, if the rating assigned by any such rating
agency should subsequently decline to below Baa3 or BBB-, respectively, the
foregoing covenants shall be reinstituted as of and from the date of such
rating decline. For purposes of determining whether a Restricted Payment
exceeds the allowable amount under the calculation described in paragraphs 3(a)
through (d) of "--Restricted Payments" below, the covenant described under the
caption "--Restricted Payments" will be interpreted as if it had been in effect
since the date of the Indenture. However, no default will be deemed to have
occurred as a result of the provisions and covenants listed in 2(a) through (h)
above while those provisions and covenants were suspended. There can be no
assurance that the Notes will ever achieve an investment grade rating or that
any such rating will be maintained.

RESTRICTED PAYMENTS

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its
Restricted

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Subsidiaries' Equity Interests in their capacity as such (other than
(A) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or (B) dividends or distributions by
a Restricted Subsidiary so long as, in the case of any dividend or
distribution payable on or in respect of any class or series of
securities issued by a Restricted Subsidiary other than a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary receives
at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests in such class or series of
securities);

(2) purchase, redeem or otherwise acquire or retire for value (including
without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any
direct or indirect parent of the Company;

(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes except a payment of interest or principal at
Stated Maturity; or

(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and

(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock"; and

(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries since April 30, 1997 (excluding Restricted Payments
permitted by clauses (2) through (8) of the next succeeding paragraph
or of the kind contemplated by such clauses that were made prior to the
date of the Indenture), is less than the sum of:

(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from July 1, 1997 to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit); plus

(b) 100% of the aggregate net cash proceeds received by the Company
since April 30, 1997 as a contribution to its common equity capital
or from the issue or sale of Equity Interests of the Company (other
than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into
Disqualified Stock); plus

(c) to the extent that any Restricted Investment that was made after
April 30, 1997 is sold for cash or otherwise liquidated or repaid
for cash, the amount of cash received in connection therewith (or
from the sale of Marketable Securities received in connection
therewith); plus

(d) to the extent not already included in such Consolidated Net Income
of the Company for such period and without duplication;

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(A) 100% of the aggregate amount of cash received as a dividend
from an Unrestricted Subsidiary;

(B) 100% of the cash received upon the sale of Marketable
Securities received as a dividend from an Unrestricted
Subsidiary; and

As of June 30, 2002, the amount that would have been available to the Company
for Restricted Payments pursuant to this paragraph (3) would have been $1,322
million.

The foregoing provisions will not prohibit:

(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;

(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other
Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3) (b) of the
preceding paragraph;

(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness (other than intercompany Indebtedness) in
exchange for, or with the net cash proceeds from an incurrence of,
Permitted Refinancing Indebtedness;

(4) the repurchase, retirement or other acquisition or retirement for value
of common Equity Interests of the Company or Holdings held by any
future, present or former employee, director or consultant of the
Company or any Subsidiary or Holdings issued pursuant to any management
equity plan or stock option plan or any other management or employee
benefit plan or agreement; provided, however, that the aggregate amount
of Restricted Payments made under this clause (4) does not exceed $1.5
million in any calendar year and provided further that cancellation of
Indebtedness owing to the Company from members of management of the
Company or any of its Restricted Subsidiaries in connection with a
repurchase of Equity Interests of the Company will not be deemed to
constitute a Restricted Payment for purposes of this covenant or any
other provision of the Indenture;

(5) repurchases of Equity Interests deemed to occur upon exercise of stock
options upon surrender of Equity Interests to pay the exercise price of
such options;

(6) payments to Holdings (A) in amounts equal to the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its
legal existence and provide for other operating costs of up to $500,000
per fiscal year and (B) in amounts equal to amounts required for
Holdings to pay federal, state and local income taxes to the extent
such income taxes are actually due and owing; provided that the
aggregate amount paid under this clause (B) does not exceed the amount
that the Company would be required to pay in respect of the income of
the Company and its Subsidiaries if the Company were a stand alone
entity that was not owned by Holdings;

(7) dividends paid to Holdings in amounts equal to amounts required for
Holdings to pay interest and/or principal on Indebtedness that has been
guaranteed by, or is otherwise considered Indebtedness of, the Company;
and

(8) other Restricted Payments in an aggregate amount since May 22, 1998 not
to exceed $20.0 million.

The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such

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determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.

The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.

INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and
any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or
issue shares of preferred stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such preferred stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.

The foregoing limitation will not apply to the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Debt"):

(1) the incurrence by the Company of additional Indebtedness under Credit
Facilities (and the guarantee thereof by the Guarantors) in an
aggregate principal amount outstanding pursuant to this clause (1) at
any one time (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder), including all Permitted
Refinancing Indebtedness then outstanding incurred to refund, refinance
or replace any other Indebtedness incurred pursuant to this clause (1),
not to exceed $750.0 million less the aggregate amount of all Net
Proceeds of Asset Sales applied to repay any such Indebtedness pursuant
to the covenant described above under the caption "-- Asset Sales";

(2) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;

(3) the incurrence by the Company and the Guarantors of $750.0 million in
aggregate principal amount of each of the outstanding notes and the
Exchange Notes and the Subsidiary Guarantees thereof;

(4) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount,

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including all Permitted Refinancing Indebtedness then outstanding
incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (4), not to exceed $100.0 million at
any time outstanding;

(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by
the prior owner of such assets or such Restricted Subsidiary prior to
such acquisition by the Company or one of its Restricted Subsidiaries
and was not incurred in connection with, or in contemplation of, such
acquisition by the Company or one of its Restricted Subsidiaries; and
provided further that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (5) does not exceed $50.0
million;

(6) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness that
was permitted by the Indenture to be incurred (other than intercompany
Indebtedness or Indebtedness incurred pursuant to clause (1) above);

(7) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business in respect
of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims; provided, however, that upon the drawing
of such letters of credit or the incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or
incurrence;

(8) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or
any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that:

(a) such Indebtedness is not reflected on the balance sheet of the
Company or any Restricted Subsidiary (contingent obligations
referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected
on such balance sheet for purposes of this clause (a)); and

(b) the maximum assumable liability in respect of all such Indebtedness
shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and
its Restricted Subsidiaries in connection with such disposition;

(9) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:

(a) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the Notes; and

(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
the Company or one of its Restricted Subsidiaries and (2) any sale
or other transfer of any such Indebtedness to a Person that is not
either the Company or one of its Restricted Subsidiaries shall be
deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the
case may be;

137

(10) the incurrence by the Company or any of the Guarantors of Hedging
Obligations that are incurred for the purpose of:

(a) fixing, hedging or capping interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding; or

(b) protecting the Company and its Restricted Subsidiaries against
changes in currency exchange rates;

(11) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;

(12) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company that was not permitted by this
clause (12), and the issuance of preferred stock by Unrestricted
Subsidiaries;

(13) obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any Restricted Subsidiaries in
the ordinary course of business; and

(14) the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness then outstanding incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (14), not to exceed $100.0 million.

For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify, or later reclassify, such item
of Indebtedness in any manner that complies with this covenant. Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.

LIENS

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (other than Permitted Liens) securing
Indebtedness on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
unless all payments due under the Indenture and the Notes are secured on an
equal and ratable basis with the Obligations so secured until such time as such
Obligations are no longer secured by a Lien.

ANTILAYERING PROVISION

The Indenture provides that (A) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (B) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of a Guarantor and senior in any respect in right of payment to any of the
Subsidiary Guarantees.

DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:

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(1) (A) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (1) on its Capital Stock or (2)
with respect to any other interest or participation in, or measured
by, its profits, or (B) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries;

(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or

(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.

However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

(1) the provisions of security agreements that restrict the transfer of
assets that are subject to a Lien created by such security agreements;

(2) the provisions of agreements governing Indebtedness incurred pursuant
to clause (5) of the second paragraph of the covenant described above
under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock";

(3) the Senior Credit Facilities, the Indenture, the Notes, the Exchange
Notes, the December 1998 Indenture, the December 1998 Notes, the May
1998 Indenture, the May 1998 Notes, the 1997 Indenture and the 1997
Notes;

(4) applicable law;

(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred;

(6) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past
practices;

(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) of the preceding paragraph;

(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness
being refinanced;

(9) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock or assets of such
Subsidiary;

(10) agreements relating to secured Indebtedness otherwise permitted to be
incurred pursuant to the covenants described under "Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock" and
"Liens" that limit the right of the debtor to dispose of the assets
securing such Indebtedness;

(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; or

(12) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.

MERGER, CONSOLIDATION OR SALE OF ASSETS

The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to another
Person unless:

139

(1) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;

(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration
Rights Agreement, the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee;

(3) immediately after such transaction no Default or Event of Default
exists; and

(4) except in the case of a merger of the Company with or into a Wholly
Owned Restricted Subsidiary of the Company, the Company or the Person
formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made, after giving pro
forma effect to such transaction as if such transaction had occurred
at the beginning of the most recently ended four full fiscal quarters
for which internal financial statements are available immediately
preceding such transaction either:

(a) would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under
the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock"; or

(b) would have a pro forma Fixed Charge Coverage Ratio that is greater
than the actual Fixed Charge Coverage Ratio for the same
four-quarter period without giving pro forma effect to such
transaction.

Notwithstanding the foregoing clause (4):

(1) any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its properties and assets to the Company; and

(2) the Company may merge with an Affiliate that has no significant assets
or liabilities and was incorporated solely for the purpose of
reincorporating the Company in another State of the United States so
long as the amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby.

TRANSACTIONS WITH AFFILIATES

The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:

(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person; and

(2) the Company delivers to the Trustee:

(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors set forth
in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (1) above and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors; and

140

(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $15.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking
firm of national standing.

The foregoing provisions will not prohibit:

(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business;

(2) any transaction with a Lehman Investor;

(3) any transaction between or among the Company and/or its Restricted
Subsidiaries;

(4) transactions between the Company or any of its Restricted
Subsidiaries, on the one hand, and a Permitted Joint Venture, on the
other hand, on terms that are not materially less favorable to the
Company or the applicable Restricted Subsidiary of the Company than
those that could have been obtained from an unaffiliated third party;
provided that:

(a) in the case of any such transaction or series of related
transactions pursuant to this clause (4) involving aggregate
consideration in excess of $5.0 million but less than $25.0
million, such transaction or series of transactions (or the
agreement pursuant to which the transactions were executed) was
approved by the Company's Chief Executive Officer or Chief
Financial Officer; and

(b) in the case of any such transaction or series of related
transactions pursuant to this clause (4) involving aggregate
consideration equal to or in excess of $25.0 million, such
transaction or series of related transactions (or the agreement
pursuant to which the transactions were executed) was approved by
a majority of the disinterested members of the Board of Directors;

(5) any transaction pursuant to and in accordance with the provisions of
the Transaction Documents as the same are in effect on the Issue Date;
and

(6) any Restricted Payment that is permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments."

PAYMENTS FOR CONSENT

The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.

REPORTS

Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the SEC, the
Indenture requires the Company to file with the Commission (and provide the
Trustee and Holders with copies thereof, without cost to each Holder, within 15
days after it files them with the Commission):

(1) within 90 days after the end of each fiscal year, annual reports on
Form 10-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such
successor or comparable form);

(2) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor
or comparable form);

141

(3) promptly from time to time after the occurrence of an event required
to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and

(4) any other information, documents and other reports which the Company
would be required to file with the Commission if it were subject to
Section 13 or 15(d) of the Exchange Act;

provided, however, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective
purchasers of Notes, in addition to providing such information to the Trustee
and the Holders, in each case within 15 days after the time the Company would
be required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act.

FUTURE SUBSIDIARY GUARANTEES

The Company's payment obligations under the Notes are jointly and
severally guaranteed by all of the Company's existing and future Restricted
Subsidiaries, other than Foreign Subsidiaries. The Indenture provides that if
the Company or any of its Subsidiaries shall acquire or create a Subsidiary
(other than a Foreign Subsidiary or an Unrestricted Subsidiary) after the Issue
Date, then such Subsidiary shall execute a Subsidiary Guarantee and deliver an
opinion of counsel, in accordance with the terms of the Indenture. The
Subsidiary Guarantee of each Guarantor ranks pari passu with the guarantees of
the 2001 CODES, the 2000 Convertible Notes, the December 1998 Notes, the May
1998 Notes and the 1997 Notes and is subordinated to the prior payment in full
of all Senior Debt of such Guarantor, which would include the guarantees of
amounts borrowed under the Senior Credit Facilities. The obligations of each
Guarantor under its Subsidiary Guarantee are limited so as not to constitute a
fraudulent conveyance under applicable law.

The Indenture also provides that, notwithstanding the foregoing, for so
long as certain covenants are suspended as provided above under the caption "--
Certain Covenants -- Changes in Covenants when Notes Rated Investment Grade,"
no newly acquired or created Subsidiary will be required to execute a
Subsidiary Guarantee unless such Subsidiary Guarantees Indebtedness of the
Company under a Credit Facility. However, any Subsidiary (other than a Foreign
Subsidiary or an Unrestricted Subsidiary) that Guarantees any Indebtedness of
the Company under a Credit Facility will become a Subsidiary Guarantor and, if
at any time certain covenants are reinstituted as provided above under the
caption "-- Certain Covenants -- Changes in Covenants when Notes Rated
Investment Grade," any newly acquired or created Subsidiary (other than a
Foreign Subsidiary or an Unrestricted Subsidiary) will Guarantee the Notes on
the terms and conditions set forth in the Indenture.

The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
Person (except the Company or another Guarantor) unless:

(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than
such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the
Notes and the Indenture;

(2) immediately after giving effect to such transaction, no Default or
Event of Default exists; and

(3) the Company:

(a) would be permitted by virtue of the Company's pro forma Fixed
Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; or

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Notwithstanding the foregoing clause (3):

(1) any Guarantor may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or to another Guarantor;
and

(2) any Guarantor may merge with an Affiliate that has no significant
assets or liabilities and was incorporated solely for the purpose of
reincorporating such Guarantor in another State of the United States
so long as the amount of Indebtedness of the Company and its
Restricted Subsidiaries is not increased thereby.

The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock
of such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at the Option of Holders -- Asset Sales."

EVENTS OF DEFAULT AND REMEDIES

The Indenture provides that each of the following constitutes an Event of
Default:

(1) default for 30 days in the payment when due of interest or Additional
Amounts, if any, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture);

(2) default in payment when due of the principal of or premium, if any, on
the Notes (whether or not prohibited by the subordination provisions
of the Indenture);

(3) failure by the Company to comply with the provisions described under
the captions "-- Repurchase at the Option of Holders -- Change of
Control", "-- Repurchase at the Option of Holders -- Asset Sales" or
"-- Merger, Consolidation or Sale of Assets";

(4) failure by the Company for 60 days after notice to comply with any of
its other agreements in the Indenture or the Notes;

(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the Issue
Date, which default results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of any
other such Indebtedness the maturity of which has been so accelerated,
aggregates $25.0 million or more;

(6) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days;

(7) certain events of bankruptcy or insolvency with respect to the Company
or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary; and

(8) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid.

143

If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however,
that so long as any Designated Senior Debt is outstanding, such declaration
shall not become effective until the earlier of:

(1) the day which is five Business Days after receipt by the
Representatives of Designated Senior Debt of such notice of
acceleration; or

(2) the date of acceleration of any Designated Senior Debt.

Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Significant Subsidiary or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.

In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to June
15, 2007 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to June 15, 2007, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.

The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.

The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for:

(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium and Additional Amounts, if any,
and interest on such Notes when such payments are due from the trust
referred to below;

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(2) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment
and money for security payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and

(4) the Legal Defeasance provisions of the Indenture.

In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium and Additional Amounts, if any, and interest on
the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular
redemption date;

(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:

(a) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling; or

(b) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;

(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;

(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the
Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound;

145

(6) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;

(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and

(8) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.

TRANSFER AND EXCHANGE

A Holder may transfer or exchange Notes in accordance with the Indenture.
The registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.

The registered Holder of a Note will be treated as the owner of it for all
purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).

Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder):

(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders");

(3) reduce the rate of or change the time for payment of interest on any
Note;

(4) waive a Default or Event of Default in the payment of principal of or
premium and Additional Amounts, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration);

(5) make any Note payable in money other than that stated in the Notes;

(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium and Additional Amounts, if any, or interest
on the Notes;

(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"); or

146

(8) make any change in the foregoing amendment and waiver provisions.

In addition, any amendment to the provisions of Article 10 of the
Indenture (which relates to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.

Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:

(1) to cure any ambiguity, defect or inconsistency;

(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;

(3) to provide for the assumption of the Company's obligations to Holders
of Notes in the case of a merger or consolidation;

(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or

(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.

CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.

The Holders of a majority in principal amount of the then outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of such person's affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.

ADDITIONAL INFORMATION

Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to L-3 Communications
Corporation, 600 Third Avenue, New York, New York 10016, Attention: Vice
President -- Finance.

BOOK-ENTRY, DELIVERY AND FORM

The Exchange Notes will be represented by one or more global notes in
registered, global form without interest coupons (collectively, the "Global
Exchange Note"). The Global Exchange Note initially will be deposited upon
issuance with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to an account of a direct or indirect
participant as described below.

Except as set forth below, the Global Exchange Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Exchange Notes may not
be exchanged for Exchange Notes in certificated form except in the limited
circumstances described below. See "-- Exchange of Book-Entry Notes for
Certificated

147

Notes." In addition, transfer of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants (including, if applicable, those of Euroclear and
Clearstream), which may change from time to time.

The Notes may be presented for registration of transfer and exchange at
the offices of the registrar.

DEPOSITORY PROCEDURES

DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
"Indirect Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.

DTC has also advised the Company that pursuant to procedures established
by it:

(1) upon deposit of the Global Exchange Note, DTC will credit the accounts
of Participants with portions of the principal amount of Global
Exchange Note; and

(2) ownership of such interests in the Global Exchange Note will be shown
on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to Participants) or
by Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Exchange Note).

Investors in the Global Exchange Note may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Clearstream) that are
Participants in such system. All interests in a Global Exchange Note, including
those held through Euroclear or Clearstream, may be subject to the procedures
and requirements of DTC. Those interests held by Euroclear or Clearstream may
also be subject to the procedures and requirements of such system.

The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in a Global Exchange Note to such
persons may be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having a beneficial interest in a Global
Exchange Note to pledge such interest to persons or entities that do not
participate in DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of physical certificate evidencing such
interests. For certain other restrictions on the transferability of the Notes
see, "-- Exchange of Book-Entry Notes for Certificated Notes."

EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE
NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.

Payments in respect of the principal and premium and Additional Amounts,
if any, and interest on a Global Exchange Note registered in the name of DTC or
its nominee will be payable by the Trustee to DTC or its nominee in its
capacity as the registered Holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee will treat the persons in whose names
the

148

Exchange Notes, including the Global Exchange Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company, the Trustee nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for:

(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Exchange Notes; or

(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.

DTC has advised the Company that its current practices, upon receipt of
any payment in respect of securities such as the Exchange Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Exchange Notes as shown on the records of DTC.
Payments by Participants and the Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or its Participants
in identifying the beneficial owners of the Exchange Notes, and the Company and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Exchange
Notes for all purposes.

Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Exchange Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants.

Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the
Exchange Notes described herein, crossmarket transfers between Participants in
DTC, on the one hand, and Euroclear or Clearstream participants, on the other
hand, will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective depository;
however, such cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Exchange Note in DTC, and making or receiving payment in accordance with
normal procedures for same-day fund settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the Depositaries for Euroclear or Clearstream.

Because of time zone differences, the securities accounts of a Euroclear
or Clearstream participant purchasing an interest in a Global Exchange Note
from a Participant in DTC will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business day for
Euroclear or Clearstream) immediately following the settlement date of DTC.
Cash received in Euroclear or Clearstream as a result of sales of interests in
a Global Exchange Note by or through a Euroclear or Clearstream participant to
a Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC's
settlement date.

149

DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC interests in the Global Exchange Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Exchange Notes for legended Exchange
Notes in certificated form, and to distribute such Exchange Notes to its
Participants.

The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.

Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Exchange Note
among participants in DTC, Euroclear and Clearstream, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time, None of the Company, the initial
purchasers or the Trustee will have any responsibility for the performance by
DTC, Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES

A Global Exchange Note is exchangeable for definitive Exchange Notes in
registered certificated form if:

(1) DTC (A) notifies the Company that it is unwilling or unable to
continue as depository for the Global Exchange Note and the Company
thereupon fails to appoint a successor depository or (B) has ceased to
be a clearing agency registered under the Exchange Act; or

(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause issuance of the Exchange Notes in certificated form.

In addition, beneficial interests in a Global Exchange Note may be
exchanged for certificated Exchange Notes upon request but only upon at least
20 days prior written notice given to the Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated Exchange Notes
delivered in exchange for any Global Exchange Note or beneficial interest
therein will be registered in names, and issued in any approved denominations,
requested by or on behalf of DTC (in accordance with its customary procedures).

CERTIFICATED NOTES

Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of certificated Exchange
Notes. Upon any such issuance, the Trustee is required to register such
certificated Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if (i)
the Company notifies the Trustee in writing that DTC is no longer willing or
able to act as a depository and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Exchange Notes in
the form of certificated Exchange Notes under the Indenture, then, upon
surrender by the Global Exchange Note Holder of its Global Note, Notes in such
form will be issued to each person that the Global Exchange Note Holder and DTC
identify as being the beneficial owner of the related Exchange Notes.

Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or DTC in identifying the beneficial owners of
Exchange Notes and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Exchange Note
Holder or DTC for all purposes.

150

SAME DAY SETTLEMENT AND PAYMENT

The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Note (including principal, premium, if any,
interest and Additional Amounts, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Exchange
Note Holder. With respect to certificated Exchange Notes, the Company will make
all payments of principal, premium, if any, interest and Additional Amounts, if
any, by wire transfer of immediately available funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. The Company expects that secondary
trading in the certificated Exchange Notes will also be settled in immediately
available funds.

REGISTRATION RIGHTS; ADDITIONAL AMOUNTS

The Company, the Guarantors and the initial purchasers entered into the
Registration Rights Agreement on June 28, 2002. Pursuant to the Registration
Rights Agreement, the Company and the Guarantors agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If:

(1) the Company and the Guarantors are not required to file the Exchange
Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy; or

(2) any Holder of Transfer Restricted Securities notifies the Company
prior to the 20th day following consummation of the Exchange Offer
that:

(a) it is prohibited by law or Commission policy from participating in
the Exchange Offer; or

(b) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales; or

the Company and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company and the
Guarantors will use their reasonable best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission.

For purposes of the foregoing, "Transfer Restricted Securities" means each
outstanding note until:

(1) the date on which such outstanding note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer;

(2) following the exchange by a broker-dealer in the Exchange Offer of an
outstanding note for an Exchange Note, the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in
the Exchange Offer Registration Statement;

(3) the date on which such outstanding note has been effectively
registered under the Securities Act and disposed of in accordance with
the Shelf Registration Statement; or

(4) the date on which such outstanding note is distributed to the public
pursuant to Rule 144 under the Act.

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The Registration Rights Agreement provides that:

(1) the Company and the Guarantors will file an Exchange Offer
Registration Statement with the Commission on or prior to 90 days
after the Issue Date;

(2) the Company and the Guarantors will use all commercially reasonable
efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 180 days after the Issue
Date;

(3) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company and the Guarantors will commence the
Exchange Offer and use all commercially reasonable efforts to issue on
or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Commission,
Exchange Notes in exchange for all Notes tendered prior thereto in the
Exchange Offer; and

(4) if obligated to file the Shelf Registration Statement, the Company and
the Guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 30 days
after such filing obligation arises and to use all commercially
reasonable efforts to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 90 days after such
obligation arises.

If:

(a) the Company and the Guarantors fail to file any of the
Registration Statements required by the Registration Rights
Agreement on or before the date specified above for such filing;

(b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date");

(c) the Company and the Guarantors fail to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement; or

(d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter
ceases, subject to certain exceptions, to be effective or usable
in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a
"Registration Default"),

then the Company and the Guarantors will pay Additional Amounts to each Holder
of outstanding notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal
to $.05 per week per $1,000 principal amount of outstanding notes held by such
Holder.

The amount of the Additional Amounts will increase by an additional $.05
per week per $1,000 principal amount of outstanding notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Additional Amounts of $.50 per week per $1,000 principal
amount of outstanding notes.

All accrued Additional Amounts will be paid by the Company and the
Guarantors on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of certificated outstanding notes by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified.

Following the cure of all Registration Defaults, the accrual of Additional
Amounts will cease.

Holders of outstanding notes will be required to make certain
representations to the Company and the Guarantors (as described in the
Registration Rights Agreement) in order to participate in the

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Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their outstanding notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Amounts set forth above.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.

"1997 Indenture" means the indenture, dated as of April 30, 1997, among
The Bank of New York, as trustee, and the Company, with respect to the 1997
Notes.

"1997 Notes" means the $225,000,000 in aggregate principal amount of the
Company's 10 3/8% Senior Subordinated Notes due 2007, issued pursuant to the
1997 Indenture on April 30, 1997.

"2000 Convertible Notes" means the $300,000,000 in aggregate principal
amount of Holdings' 5.25% Convertible Senior Subordinated Notes due 2009,
issued pursuant to the 2000 Convertible Note Indenture in November and December
of 2000 and guaranteed by the Company and the other guarantors thereof.

"2000 Convertible Note Indenture" means the indenture, dated as of
November 21, 2000, among The Bank of New York, as trustee, Holdings, the
Company, as a guarantor, and the other guarantors named therein, with respect
to the 2000 Convertible Notes.

"2001 CODES" means the $420,000,000 in aggregate principal amount of
Holdings' 4.00% Senior Subordinated Convertible Contingent Debt Securities
(CODES) due 2011, issued pursuant to the 2001 CODES Indenture in October and
November 2001 and guaranteed by the Company and the other guarantors thereof.

"2001 CODES Indenture" means the indenture, dated as of October 24, 2001,
among The Bank of New York, as trustee, Holdings, the Company, as a guarantor,
and the other guarantors named therein, with respect to the 2001 CODES.

"Acquired Debt" means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such
specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

"Additional Amounts" means all additional amounts then owing pursuant to
Section 5 of the Registration Rights Agreement.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.

"Asset Sale" means:

(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary

153

course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described above under the caption "--
Change of Control" and/or the provisions described above under the
caption "-- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and

(2) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries,

in the case of either clause (1) or (2), whether in a single transaction or a
series of related transactions (A) that have a fair market value in excess of
$5.0 million or (B) for net proceeds in excess of $5.0 million.

Notwithstanding the foregoing:

(1) a transfer of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to another Restricted
Subsidiary;

(2) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;

(3) a Restricted Payment that is permitted by the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments"; and

(4) a disposition of Cash Equivalents in the ordinary course of business
will not be deemed to be an Asset Sale.

"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.

"Capital Stock" means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and

(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

"Cash Equivalents" means:

(1) United States dollars;

(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
having maturities of not more than one year from the date of
acquisition;

(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months

154

and overnight bank deposits, in each case with any domestic financial
institution to the Senior Credit Facilities or with any domestic
commercial bank having capital and surplus in excess of $500.0 million
and a Thompson Bank Watch Rating of "B" or better;

(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;

(5) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within six months after the date of
acquisition;

(6) investment funds investing 95% of their assets in securities of the
types described in clauses (1)-(5) above; and

(7) readily marketable direct obligations issued by any State of the
United States of America or any political subdivision thereof having
maturities of not more than one year from the date of acquisition and
having one of the two highest rating categories obtainable from either
Moody's or S&P.

"Change of Control" means the occurrence of any of the following:

(1) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act) other than
the Principals or their Related Parties (as defined below);

(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;

(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
(as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the Voting Stock of the Company
(measured by voting power rather than number of shares); or

(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.

"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:

(1) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income); plus

(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net
Income; plus

(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus

(4) depreciation, amortization (including amortization of goodwill, debt
issuance costs and other intangibles but excluding amortization of
other prepaid cash expenses that were paid in a

155

prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted
in computing such Consolidated Net Income; minus

(5) non-cash items (excluding any items that were accrued in the ordinary
course of business) increasing such Consolidated Net Income for such
period, in each case, on a consolidated basis and determined in
accordance with GAAP.

"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:

(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted
Subsidiary thereof;

(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;

(4) the cumulative effect of a change in accounting principles shall be
excluded;

(5) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Restricted
Subsidiaries; and

(6) the Net Income of any Restricted Subsidiary shall be calculated after
deducting preferred stock dividends payable by such Restricted
Subsidiary to Persons other than the Company and its other Restricted
Subsidiaries.

"Consolidated Tangible Assets" means, with respect to the Company, the
total consolidated assets of the Company and its Restricted Subsidiaries, less
the total intangible assets of the Company and its Restricted Subsidiaries, as
shown on the most recent internal consolidated balance sheet of the Company and
such Restricted Subsidiaries calculated on a consolidated basis in accordance
with GAAP.

"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:

(1) was a member of such Board of Directors on the date of the Indenture;
or

(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.

"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facilities) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.

156

"December 1998 Indenture" means the indenture, dated as of December 11,
1998, between The Bank of New York, as trustee, the Company and the guarantors
party thereto, with respect to the December 1998 Notes.

"December 1998 Notes" means the $200,000,000 in aggregate principal amount
of the Company's 8% Senior Subordinated Notes due 2008, issued pursuant to the
December 1998 Indenture on December 11, 1998.

"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

"Designated Senior Debt" means:

(1) any Indebtedness outstanding under the Senior Credit Facilities; and

(2) any other Senior Debt permitted under the Indenture the principal
amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of
a Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments"; and provided further,
that if such Capital Stock is issued to any plan for the benefit of employees
of the Company or its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Company in order to satisfy applicable
statutory or regulatory obligations.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of the Company or Holdings, other than any
private sales to an Affiliate of the Company or Holdings.

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

"Existing Indebtedness" means any Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Senior Credit
Facilities and the Notes) in existence on the date of the Indenture, until such
amounts are repaid.

"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:

(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations, but excluding
amortization of debt issuance costs);

157

(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period;

(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon);
and

(4) the product of:

(a) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, times

(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal,

in each case, on a consolidated basis and in accordance with GAAP.

"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above:

(1) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;

(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and

(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.

"Foreign Subsidiary" means a Restricted Subsidiary of the Company that was
not organized or existing under the laws of the United States, any state
thereof, the District of Columbia or any territory thereof or has not
guaranteed or otherwise provided credit support for any Indebtedness of the
Company.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which were in effect on April 30, 1997.

158

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.

"Guarantors" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.

"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under:

(1) currency exchange or interest rate swap agreements, interest rate cap
agreements and currency exchange or interest rate collar agreements;
and

(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or interest rates.

"Holdings" means L-3 Communications Holdings, Inc., a Delaware
corporation.

"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be:

(1) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest; and

(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.

"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, moving and
similar loans or advances to officers and employees made in the ordinary course
of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in the last paragraph of the covenant described above under the
caption "-- Restricted Payments."

"Issue Date" means June 28, 2002.

"Lehman Investor" means Lehman Brothers Holdings Inc. and any of its
Affiliates.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).

159

"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are:

(1) traded on The New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market; and

(2) issued by a corporation having a total equity market capitalization of
not less than $250.0 million;

provided that the excess of:

(a) the aggregate amount of securities of any one such corporation
held by the Company and any Restricted Subsidiary; over

(b) ten times the average daily trading volume of such securities
during the 20 immediately preceding trading days

shall be deemed not to be Marketable Securities; as determined on the date of
the contract relating to such Asset Sale.

"May 1998 Indenture" means the indenture, dated as of May 22, 1998,
between the Bank of New York, as trustee, and the Company, with respect to the
May 1998 Notes.

"May 1998 Notes" means the $180,000,000 in aggregate principal amount of
the Company's 8 1/2% Senior Subordinated notes due 2008, issued pursuant to the
May 1998 Indenture on May 22, 1998.

"Moody's" means Moody's Investors Services, Inc.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:

(1) any gain or loss, together with any related provision for taxes
thereon, realized in connection with:

(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions); or

(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries; and

(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss; and

(3) the cumulative effect of a change in accounting principles.

"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.

"Non-Recourse Debt" means Indebtedness:

(1) as to which neither the Company nor any of its Restricted
Subsidiaries:

(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);

160

(b) is directly or indirectly liable (as a guarantor or otherwise); or

(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness (other than Indebtedness
incurred under Credit Facilities) of the Company or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and

(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.

"Obligations" means any principal, premium (if any), Additional Amounts
(if any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization, whether or not a claim for
post-filing interest is allowed in such proceeding), penalties, fees, charges,
expenses, indemnifications, reimbursement obligations, damages, guarantees and
other liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereto.

"Permitted Investment" means:

(1) any Investment in the Company or in a Restricted Subsidiary of the
Company that is a Guarantor;

(2) any Investment in cash or Cash Equivalents;

(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:

(a) such Person becomes a Restricted Subsidiary of the Company and a
Guarantor; or

(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the
Company that is a Guarantor;

(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders -- Asset Sales" or any disposition
of assets not constituting an Asset sale;

(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;

(6) advances to employees not to exceed $2.5 million at any one time
outstanding;

(7) any Investment acquired in connection with or as a result of a workout
or bankruptcy of a customer or supplier;

(8) Hedging Obligations permitted to be incurred under the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock";

(9) any Investment in a Similar Business that is not a Restricted
Subsidiary; provided that the aggregate fair market value of all
Investments outstanding pursuant to this clause (9) (valued on the
date each such Investment was made and without giving effect to
subsequent changes in value) may not at any one time exceed 10% of the
Consolidated Tangible Assets of the Company; and

(10) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (10) that are at the
time outstanding, not to exceed $30.0 million.

161

"Permitted Joint Venture" means any joint venture, partnership or other
Person designated by the Board of Directors (until designation by the Board of
Directors to the contrary); provided that:

(1) at least 25% of the Capital Stock thereof with voting power under
ordinary circumstances to elect directors (or Persons having similar
or corresponding powers and responsibilities) is at the time owned
(beneficially or directly) by the Company and/or by one or more
Restricted Subsidiaries of the Company; and

(2) such joint venture, partnership or other Person is engaged in a
Similar Business. Any such designation or designation to the contrary
shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with
the foregoing provisions.

"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes and the Subsidiary Guarantees are
subordinated to Senior Debt under the Indenture.

"Permitted Liens" means:

(1) Liens securing Senior Debt of the Company or any Guarantor that was
permitted by the terms of the Indenture to be incurred;

(2) Liens in favor of the Company or any Guarantor;

(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or
consolidated with the Company;

(4) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens
were in existence prior to the contemplation of such acquisition and
do not extend to any other assets of the Company or any of its
Restricted Subsidiaries;

(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant
entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;

(7) Liens existing on the Issue Date;

(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;

(9) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $50.0 million at any one time outstanding;

(10) Liens on assets of Guarantors to secure Senior Debt of such Guarantors
that was permitted by the Indenture to be incurred;

(11) Liens securing Permitted Refinancing Indebtedness, provided that any
such Lien does not extend to or cover any property, shares or debt
other than the property, shares or debt securing the Indebtedness so
refunded, refinanced or extended;

162

(12) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature, in each case incurred in the ordinary
course of business (exclusive of obligations for the payment of
borrowed money);

(13) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods in the ordinary course of business;

(14) Liens encumbering customary initial deposits and margin deposits, and
other Liens incurred in the ordinary course of business that are
within the general parameters customary in the industry, in each case
securing Indebtedness under Hedging Obligations; and

(15) Liens encumbering deposits made in the ordinary course of business to
secure nondelinquent obligations arising from statutory or regulatory,
contractual or warranty requirements of the Company or its
Subsidiaries for which a reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made.

"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that:

(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses and
prepayment premiums incurred in connection therewith);

(2) such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;

(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and

(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.

"Permitted Securities" means, with respect to any Asset Sale, Voting Stock
of a Person primarily engaged in one or more Similar Businesses; provided that
after giving effect to the Asset Sale such Person shall become a Restricted
Subsidiary and, unless the Asset Sale relates to a Foreign Subsidiary, a
Guarantor.

"Principals" means any Lehman Investor, Frank C. Lanza and Robert V.
LaPenta.

"Related Party" with respect to any Principal means:

(1) any controlling stockholder, 50% (or more) owned Subsidiary, or spouse
or immediate family member (in the case of an individual) of such
Principal; or

(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a more than 50% controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1).

163

"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" means, with respect to any Person, each Subsidiary
of such Person that is not an Unrestricted Subsidiary.

"Senior Credit Facilities" means the Second Amended and Restated 364 Day
Credit Agreement, dated as of May 16, 2001, as in effect on the date of the
Indenture among the Company, the lenders party thereto, Banc of America, N.A.,
as administrative agent, and Lehman Commercial Paper Inc., as syndication agent
and documentation agent, and the Third Amended and Restated Credit Agreement,
dated as of May 16, 2001, as in effect on the date of the Indenture among the
Company, the lenders party thereto, Banc of America, N.A., as administrative
agent, and Lehman Commercial Paper Inc., as syndication agent and documentation
agent, and any related notes, collateral documents, letters of credit and
guarantees, including any appendices, exhibits or schedules to any of the
foregoing (as the same may be in effect from time to time), in each case, as
such agreements may be amended, modified, supplemented or restated from time to
time, or refunded, refinanced, restructured, replaced, renewed, repaid or
extended from time to time (whether with the original agents and lenders or
other agents and lenders or otherwise, and whether provided under the original
credit agreement or other credit agreements or otherwise).

"Senior Debt" means:

(1) all Indebtedness of the Company or any of its Restricted Subsidiaries
outstanding under Credit Facilities and all Hedging Obligations with
respect thereto;

(2) any other Indebtedness permitted to be incurred by the Company or any
of its Restricted Subsidiaries under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in
right of payment to the Notes; and

(3) all Obligations with respect to the foregoing.

Notwithstanding anything to the contrary in the foregoing, Senior Debt
will not include:

(1) any liability for federal, state, local or other taxes owed or owing
by the Company;

(2) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates;

(3) any trade payables; or

(4) any Indebtedness that is incurred in violation of the Indenture. The
1997 Notes, the May 1998 Notes, the December 1998 Notes, the 2000
Convertible Notes and the 2001 CODES will be pari passu with the Notes
and will not constitute Senior Debt.

"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" within the meaning of Rule 405 under the Securities Act.

"Similar Business" means a business, a majority of whose revenues in the
most recently ended calendar year were derived from:

(1) the sale of defense products, electronics, communications systems,
aerospace products, avionics products and/or communications products;

(2) any services related thereto;

(3) any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary
thereto; and

(4) any combination of any of the foregoing.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the

164

original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.

"Subsidiary" means, with respect to any Person:

(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof); and

(2) any partnership (A) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (B)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).

"S&P" means Standard and Poor's Corporation.

"Transaction Documents" means the Indenture, the Notes, the Purchase
Agreement and the Registration Rights Agreement.

"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary:

(1) has no Indebtedness other than Non-Recourse Debt;

(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless
the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company;

(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation:

(a) to subscribe for additional Equity Interests; or

(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;

(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and

(5) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries.

Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
the covenant described above under the caption "-- Certain Covenants --
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock", the Company shall be in default of such
covenant).

The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:

165

(1) such Indebtedness is permitted under the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if
such designation had occurred at the beginning of the four-quarter
reference period; and

(2) no Default or Event of Default would be in existence following such
designation.

"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.

"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (A) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity,
in respect thereof, by (B) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making
of such payment; by

(2) the then outstanding principal amount of such Indebtedness.

"Wholly Owned" means, when used with respect to any Subsidiary or
Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as
appropriate) of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Subsidiaries
(or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and
one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries,
as appropriate) of such Person.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

EXCHANGE OF NOTES

The exchange of outstanding notes for exchange notes in the exchange offer
will not constitute a taxable event to holders for United States federal income
tax purposes. Consequently, no gain or loss will be recognized by a holder upon
receipt of an exchange note, the holding period of the exchange note will
include the holding period of the outstanding note exchanged therefor and the
basis of the exchange note will be the same as the basis of the outstanding
note immediately before the exchange.

IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.

166

PLAN OF DISTRIBUTION

Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where the outstanding notes were acquired as a
result of market-making activities or other trading activities. To the extent
any such broker-dealer participates in the exchange offer and so notifies L-3,
or causes L-3 to be so notified in writing, L-3 has agreed that for a period of
180 days after the date of this prospectus, it will make this prospectus, as
amended or supplemented, available to such broker-dealer for use in connection
with any such resale, and will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal.

We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own
accounts pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to the prevailing market prices or negotiated prices. Any resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
or the purchasers of any exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the outstanding notes,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of outstanding notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.

By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer hereby agrees to notify L-3 prior
to using the prospectus in connection with the sale or transfer of exchange
notes, and acknowledges and agrees that, upon receipt of notice from L-3 of the
happening of any event which makes any statement in this prospectus untrue in
any material respect or which requires the making of any changes in this
prospectus in order to make the statements therein not misleading or which may
impose upon L-3 disclosure obligations that may have a material adverse effect
on L-3 (which notice L-3 agrees to deliver promptly to such broker-dealer) such
broker-dealer will suspend use of this prospectus until L-3 has notified such
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to this prospectus to such broker-dealer.

LEGAL MATTERS

The validity of the exchange notes offered by this prospectus will be
passed upon for us by Simpson Thacher & Bartlett, New York, New York.

167

EXPERTS

The following financial statements have been included in this prospectus
in reliance of the reports of PricewaterhouseCoopers LLP, independent
accountants, giving on their authority as experts in accounting and auditing:

o Our consolidated financial statements as of December 31, 2001 and 2000,
and the three years ended December 31, 2001 included in this prospectus;
and

o The combined financial statements of Aircraft Integration Systems
Business as of December 31, 2001 and 2000 and for the three years ended
December 31, 2001 included in this prospectus.

168

INDEX TO FINANCIAL STATEMENTS

L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 AND
DECEMBER 31, 2001 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 ....... F-2

Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31,
2001 ............................................................................. F-3

Condensed Consolidated Statements of Operations for the Three and Six Months
ended June 30, 2002 and June 30, 2001 ............................................ F-4

Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2002 and June 30, 2001 .................................................. F-6

Notes to Unaudited Condensed Consolidated Financial Statements ..................... F-7

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000 AND FOR THE YEARS
ENDED DECEMBER 31, 2001, 2000 AND 1999 ................................................ F-25

Report of Independent Auditors ..................................................... F-26

Consolidated Balance Sheets as of December 31, 2001 and 2000 ....................... F-27

Consolidated Statements of Operations for the Years ended December 31, 2001,
2000 and 1999 .................................................................... F-28

Consolidated Statements of Shareholders' Equity for the Years ended
December 31, 2001, 2000 and 1999 ................................................. F-29

Consolidated Statements of Cash Flows for the Years ended December 31, 2001,
2000 and 1999 .................................................................... F-30

Notes to Consolidated Financial Statements ......................................... F-31

AIRCRAFT INTEGRATION SYSTEMS BUSINESS

COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000 AND FOR THE YEARS
ENDED DECEMBER 31, 2001, 2000 AND 1999 ................................................ F-65

Report of Independent Accountants .................................................. F-66

Combined Balance Sheets as of December 31, 2001 and 2000 ........................... F-67

Combined Statements of Operations and Comprehensive Income for the years
ended December 31, 2001, 2000 and 1999 ........................................... F-68

Combined Statements of Parent Company Investment for the years ended
December 31, 2001, 2000 and 1999 ................................................. F-69

Combined Statements of Cash Flows for the years ended December 31, 2001, 2000
and 1999 ......................................................................... F-70

Notes to Combined Financial Statements ............................................. F-71

F-1

L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2002 AND
DECEMBER 31, 2001 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

F-2

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

JUNE 30, DECEMBER 31,
2002 2001
-------------- -------------

ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 466,118 $ 361,022
Contracts in process ............................................ 1,304,177 801,824
Deferred income taxes ........................................... 51,282 62,965
Other current assets ............................................ 22,239 16,590
---------- ----------
Total current assets .......................................... 1,843,816 1,242,401
---------- ----------
Property, plant and equipment, net ............................... 385,201 203,374
Goodwill ......................................................... 2,474,221 1,707,718
Deferred income taxes ............................................ 125,711 97,883
Deferred debt issue costs ........................................ 51,573 40,190
Other assets ..................................................... 68,704 47,683
---------- ----------
Total assets .................................................. $4,949,226 $3,339,249
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................... $ 48,075 $ --
Accounts payable, trade ......................................... 168,003 129,538
Accrued employment costs ........................................ 176,837 126,981
Accrued expenses ................................................ 58,616 38,823
Customer advances ............................................... 71,427 74,060
Accrued interest ................................................ 16,241 13,288
Income taxes .................................................... 6,568 16,768
Other current liabilities ....................................... 73,701 125,113
---------- ----------
Total current liabilities ..................................... 619,468 524,571
---------- ----------
Pension and postretirement benefits .............................. 264,712 155,052
Other liabilities ................................................ 60,651 60,585
Long-term debt ................................................... 1,844,332 1,315,252
---------- ----------
Total liabilities ............................................. 2,789,163 2,055,460
Minority interest ................................................ 71,839 69,897
Commitments and contingencies

Shareholders' equity:
L-3 Holdings' common stock $.01 par value; authorized 300,000,000
shares, issued and outstanding 93,707,083 and 78,496,626 shares
(L-3 Communications common stock: $.01 par value, 100 shares
authorized, issued and outstanding) ........................... 1,755,072 939,037
Retained earnings ............................................... 362,649 301,730
Unearned compensation ........................................... (4,541) (3,205)
Accumulated other comprehensive loss ............................ (24,956) (23,670)
---------- ----------
Total shareholders' equity ....................................... 2,088,224 1,213,892
---------- ----------
Total liabilities and shareholders' equity .................... $4,949,226 $3,339,249
========== ==========

See notes to unaudited condensed consolidated financial statements.

F-3

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED JUNE 30,
---------------------------
2002 2001
----------- -------------

Sales:
Contracts, primarily long-term U.S. Government ................... $862,122 $ 453,813
Commercial, primarily products ................................... 93,067 107,747
-------- ---------
Total sales ................................................... 955,189 561,560
-------- ---------
Costs and expenses:
Contracts, primarily long-term U.S. Government ................... 759,675 408,261
Commercial, primarily products:
Cost of sales .................................................. 62,620 59,850
Selling, general and administrative ............................ 35,206 32,982
-------- ---------
Total costs and expenses ...................................... 857,501 501,093
-------- ---------
Operating income .................................................. 97,688 60,467
Interest and other income (expense) ............................... (203) 972
Interest expense .................................................. 31,570 22,031
Minority interest ................................................. 1,776 1,585
-------- ---------
Income before income taxes and extraordinary item ................. 64,139 37,823
Provision for income taxes ........................................ 22,641 14,487
-------- ---------
Income before extraordinary item .................................. 41,498 23,336
Extraordinary item -- loss on extinguishment of debt, net of income
taxes of $6,329................................................... (9,858) --
-------- ---------
Net income ........................................................ $ 31,640 $ 23,336
======== =========
L-3 Holdings' earnings per common share before extraordinary item:
Basic ............................................................ $ 0.52 $ 0.31
======== =========
Diluted .......................................................... $ 0.49 $ 0.30
======== =========
L-3 Holdings' earnings per common share:
Basic ............................................................ $ 0.40 $ 0.31
======== =========
Diluted .......................................................... $ 0.38 $ 0.30
======== =========
L-3 Holdings' weighted average common shares outstanding:
Basic ............................................................ 79,968 74,770
======== =========
Diluted .......................................................... 90,719 78,026
======== =========

See notes to unaudited condensed consolidated financial statements.

F-4

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

SIX MONTHS ENDED JUNE 30,
------------------------------
2002 2001
------------- --------------

Sales:
Contracts, primarily long-term U.S. Government .................. $1,478,497 $ 825,057
Commercial, primarily products .................................. 173,532 198,404
---------- -----------
Total sales .................................................. 1,652,029 1,023,461
---------- -----------
Costs and expenses:
Contracts, primarily long-term U.S. Government .................. 1,304,734 746,121
Commercial, primarily products:
Cost of sales ................................................. 108,133 107,452
Selling, general and administrative ........................... 70,167 62,552
---------- -----------
Total costs and expenses ..................................... 1,483,034 916,125
---------- -----------
Operating income ................................................. 168,995 107,336
Interest and other income ........................................ 824 1,454
Interest expense ................................................. 57,663 46,436
Minority interest ................................................ 2,764 1,585
---------- -----------
Income before income taxes and extraordinary item ................ 109,392 60,769
Provision for income taxes ....................................... 38,615 23,275
---------- -----------
Income before extraordinary item ................................. 70,777 37,494
Extraordinary item-loss on extinguishment of debt, net of income
taxes of $6,329.................................................. (9,858) --
---------- -----------
Net income ....................................................... $ 60,919 $ 37,494
========== ===========
L-3 Holdings' earnings per common share before extraordinary item:
Basic ........................................................... $ 0.89 $ 0.52
========== ===========
Diluted ......................................................... $ 0.84 $ 0.50
========== ===========
L-3 Holdings' earnings per common share:
Basic ........................................................... $ 0.77 $ 0.52
========== ===========
Diluted ......................................................... $ 0.73 $ 0.50
========== ===========
L-3 Holdings' weighted average common shares outstanding:
Basic ........................................................... 79,436 71,486
========== ===========
Diluted ......................................................... 90,110 74,790
========== ===========

See notes to unaudited condensed consolidated financial statements.

F-5

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)
(UNAUDITED)

SIX MONTHS ENDED JUNE 30,
------------------------------
2002 2001
--------------- ------------

OPERATING ACTIVITIES:
Net income .......................................................... $ 60,919 $ 37,494
Extraordinary item-loss on extinguishment of debt ................... 9,858 --
Depreciation ........................................................ 29,874 19,833
Goodwill amortization ............................................... -- 20,510
Amortization of deferred debt issue costs ........................... 3,470 3,642
Amortization of intangibles and other assets ........................ 4,546 2,293
Deferred income taxes ............................................... 29,619 16,467
Minority interest ................................................... 2,764 1,585
Other non-cash items ................................................ 9,109 8,306
Changes in operating assets and liabilities, net of amounts acquired:
Contracts in process ............................................... (103,971) (36,848)
Other current assets ............................................... 1,412 (2,584)
Other assets ....................................................... (6,006) (5,293)
Accounts payable ................................................... 17,951 (15,842)
Customer advances .................................................. (7,605) 5,982
Accrued expenses ................................................... 56,947 (2,819)
Other current liabilities .......................................... (19,569) (25,899)
Pension and postretirement benefits ................................ 19,846 3,864
Other liabilities .................................................. 3,212 2,534
All other operating activities, net ................................. 450 (547)
------------ ----------
Net cash from operating activities .................................. 112,826 32,678
------------ ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired ..................... (1,316,105) (211,019)
Proceeds from sale of interest in subsidiary ........................ -- 72,060
Capital expenditures ................................................ (24,074) (20,517)
Disposition of property, plant and equipment ........................ 209 247
Other investing activities .......................................... 1,187 (5,001)
------------ ----------
Net cash used in investing activities ............................... (1,338,783) (164,230)
------------ ----------
FINANCING ACTIVITIES:
Borrowings under revolving credit facilities ........................ 566,000 235,200
Repayment of borrowings under revolving credit facilities ........... (566,000) (425,200)
Borrowings under bridge loan facility ............................... 500,000 --
Repayment of borrowings under bridge loan facility .................. (500,000) --
Proceeds from sale of senior subordinated notes ..................... 750,000 --
Redemption of senior subordinated notes ............................. (186,399) --
Proceeds from sale of common stock, net ............................. 768,435 353,783
Debt issuance costs ................................................. (18,571) (3,813)
Employee stock purchase plan contributions .......................... 7,625 --
Proceeds from exercise of stock options ............................. 14,390 10,044
Distributions paid to minority interest ............................. (822) --
Other financing activities, net ..................................... (3,605) (2,809)
------------ ----------
Net cash from financing activities .................................. 1,331,053 167,205
------------ ----------
Net increase in cash ................................................ 105,096 35,653
Cash and cash equivalents, beginning of the period .................. 361,022 32,680
------------ ----------
Cash and cash equivalents, end of the period ........................ $ 466,118 $ 68,333
============ ==========

See notes to unaudited condensed consolidated financial statements.

F-6

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. DESCRIPTION OF BUSINESS

L-3 Communications Holdings, Inc. derives all its operating income and
cash flow from its wholly owned subsidiary L-3 Communications Corporation ("L-3
Communications"). L-3 Communications Holdings, Inc. ("L-3 Holdings" and
together with its subsidiaries, "L-3" or "the Company") is a merchant supplier
of secure communications and intelligence, surveillance and reconnaissance
("ISR") systems, training, simulation and support services, aviation products
and aircraft modernization, as well as specialized products. The Company's
customers include the U.S. Department of Defense ("DoD"), prime contractors to
the DoD, certain U.S. Government intelligence agencies, major aerospace and
defense contractors, foreign governments, commercial customers and certain
other U.S. federal, state and local government agencies.

As a result of recently completed acquisitions (see Note 3) and their
effect on the Company's operations, effective January 1, 2002, the Company
began to present its businesses with the following four reportable segments:
(1) Secure Communications & ISR; (2) Training, Simulation & Support Services;
(3) Aviation Products & Aircraft Modernization and (4) Specialized Products.
Prior to December 31, 2001, the Company had two reportable segments: Secure
Communications Systems and Specialized Products. Prior year segment data have
been reclassified to conform to the current year presentation of segments.

Secure Communications & ISR. This segment provides products and services
for the global ISR market, specializing in signals intelligence (SIGINT) and
communications intelligence (COMINT) systems, which provide the unique ability
to collect and analyze unknown electronic signals from command centers,
communication nodes and air defense systems for real-time situation awareness
and response in real-time to the warfighter. This segment also provides secure,
high data rate communications systems for military and other U.S. Government
and foreign government reconnaissance and surveillance applications. These
systems and products are critical elements of virtually all major
communication, command and control, intelligence gathering and space systems.
The Company's systems and products are used to connect a variety of airborne,
space, ground and sea-based communication systems and are used in the
transmission, processing, recording, monitoring and dissemination functions of
these communication systems. The major secure communication programs and
systems include:

o secure data links for airborne, satellite, ground and sea-based remote
platforms for real time information collection and dissemination to
users;

o strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information;

o secure telephone and network equipment and encryption management; and

o communication systems for surface and undersea vessels and manned space
flights.

Training, Simulation & Support Services. This segment provides a full
range of services, including:

F-7

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

o communication software support, information services and a wide range of
engineering development services and integration support;

o high-end engineering and information support services used for command,
control, communications and ISR architectures, as well as for air
warfare modeling and simulation tools for applications used by the DoD
and U.S. Government intelligence agencies, including missile and space
systems, Unmanned Aerial Vehicles (UAVs) and military aircraft;

o developing and managing extensive programs in the United States and
internationally, focusing on teaching, training and education,
logistics, strategic planning, organizational design, democracy
transition and leadership development; and

o design, prototype development and production of ballistic missile
targets for present and future threat scenarios.

Aviation Products & Aircraft Modernization. This segment provides aviation
products and aircraft modernization services including:

o airborne traffic and collision avoidance systems (TCAS);

o commercial, solid-state, crash-protected cockpit voice recorders and
flight data recorders (known as "black boxes") and cruise ship hardened
voyage recorders;

o ruggedized displays for military and high-end commercial applications;

o engineering, modification, maintenance, logistics and upgrades for U.S.
Special Operations Command aircraft, vehicles and personal equipment.

Specialized Products. This segment supplies products to military and
commercial customers in several niche markets. The products include:

o ocean products, including acoustic undersea warfare products for mine
hunting, dipping sonars, anti-submarine and naval power distribution,
conditioning, switching and protection equipment for surface and
undersea platforms;

o telemetry, instrumentation, space and guidance products including
tracking and flight termination;

o premium fuzing products;

o microwave components;

o detection systems for aviation, port and border applications to detect
explosives, concealed weapons, contraband and illegal narcotics,
inspection of agricultural products and examination of cargo;

o high performance antennas and ground based radomes; and

o training devices and motion simulators which produce advanced virtual
reality simulation and high-fidelity representations of cockpits and
mission stations for aircraft and land vehicles.

F-8

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
comprise the unaudited condensed consolidated financial statements of L-3
Holdings and L-3 Communications. The only obligations of L-3 Holdings are the
5 1/4% Convertible Senior Subordinated Notes due 2009 (the "Convertible Notes")
and the 4% Senior Subordinated Convertible Contingent Debt Securities due 2011
("CODES"). L-3 Holdings has also guaranteed the borrowings under the senior
credit facilities of L-3 Communications. Because the debt obligations of L-3
Holdings have been jointly, severally, fully and unconditionally guaranteed by
L-3 Communications and certain of its domestic subsidiaries, such debt
obligations have been reported as debt of L-3 Communications in its unaudited
condensed consolidated financial statements in accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 54. In addition, all
issuances of equity securities including grants of stock options and restricted
stock by L-3 Holdings to employees of L-3 Communications have also been
reported in the unaudited condensed consolidated financial statements of L-3
Communications. As a result, the unaudited condensed consolidated financial
positions, results of operations and cash flows of L-3 Holdings and L-3
Communications are substantially the same.

L-3 Holdings has no independent assets or operations other than through
its wholly owned subsidiary L-3 Communications. L-3 Communications and all of
the guarantor subsidiaries of L-3 Communications are guarantor subsidiaries of
L-3 Holdings. Financial information of the subsidiaries of L-3 Communications
is presented in Note 12.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles in
the United States of America for a complete set of financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results for the
interim periods presented have been included. The results of operations for the
interim periods are not necessarily indicative of results for the full year.

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of sales and
costs and expenses during the reporting period. The most significant of these
estimates and assumptions relate to contract estimates of sales and estimated
costs to complete contracts in process, estimates of market values for
inventories reported at lower of cost or market, estimates of pension and
postretirement benefit obligations, recoverability of recorded amounts of fixed
assets and goodwill, income taxes, litigation and environmental obligations.
Changes in estimates are reflected in the periods during which they become
known. Actual results could differ from these estimates.

Certain reclassifications have been made to conform prior period amounts
to the current period presentation.

These interim financial statements should be read in conjunction with the
Consolidated Financial Statements of L-3 Holdings and L-3 Communications for
the fiscal year ended December 31, 2001, included in their Annual Reports on
Form 10-K for the fiscal year ended December 31, 2001.

F-9

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3. ACQUISITIONS AND DIVESTITURES AND OTHER TRANSACTIONS

Aircraft Integration Systems. On March 8, 2002, the Company acquired the
assets of Aircraft Integration Systems ("AIS"), a division of Raytheon Company,
for $1,148,700 in cash which includes $1,130,000 for the original contract
purchase price, an increase to the contract purchase price of $18,700 related
to additional assets contributed by Raytheon to AIS, plus acquisition costs.
Following the acquisition, the Company changed AIS's name to L-3 Integrated
Systems ("IS"). The purchase price is subject to adjustment based on the IS
closing date net tangible book value, as defined. The acquisition was financed
using approximately $229,000 of cash on hand, borrowings under the Company's
senior credit facilities of $420,000 and a $500,000 senior subordinated bridge
loan. (See Note 5.)

The Company acquired IS because it is a long-standing, sole-source
business provider of critical communications intelligence (COMINT), signals
intelligence (SIGINT) and unique sensor systems for special customers within
the U.S. Government. The Company believes that IS has excellent operating
prospects as its major customers increasingly focus on intelligence gathering
and information distribution to the battlefield. The Company also believes
there are significant opportunities to apply its proven business integration
and cost control skills to further enhance IS's operating and financial
performance. The Company also believes that IS also creates significant
opportunities for the sale of the Company's secure communications and aviation
products, including communication links, signal processing, antennas, data
recorders, displays and traffic control and collision avoidance systems. The
table below presents a summary of the initial preliminary estimates of fair
values of the assets acquired and liabilities assumed on the acquisition date.

Contracts in process .................. $ 360,567
Other current assets .................. 1,678
Property, plant and equipment ......... 182,307
Goodwill .............................. 663,215
Other non-current assets .............. 54,852
----------
Total assets acquired .............. 1,262,619
----------
Current liabilities ................... 17,020
Long-term liabilities ................. 96,279
----------
Total liabilities assumed .......... 113,299
----------
Net assets acquired ................ $1,149,320
==========

Based on the initial preliminary purchase price allocation for IS, goodwill, of
which approximately $611,000 is expected to be deductible for income tax
purposes, in the amount of $464,250 was assigned to the Secure Communications &
ISR segment and $198,965 was assigned to the Aviation Products & Aircraft
Modernization segment.

Detection Systems. On June 14, 2002, the Company successfully completed
the acquisition of the detection systems business of PerkinElmer ("Detection
Systems") for $100,000 in cash plus acquisition costs, subject to adjustment
based on closing date net working capital, as defined. Detection Systems
business offers X-ray screening for several major security applications: (1)
aviation systems for checked and oversized baggage, break bulk cargo and air
freight; (2) port and border applications including pallets, break bulk and air
freight; and (3) facility protection such as parcels, mail and cargo. Detection
Systems has a broad range of systems and technology, and an installed base of
over 16,000 units. Detection Systems' customer base includes major airlines and
airports, a number of domestic

F-10

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

agencies, such as the U.S. Customs Service, U.S. Marshals Service, U.S.
Department of Agriculture and U.S. Department of State, and international
authorities throughout Europe, Asia and South America. The acquisition broadens
L-3's capabilities and product offerings in the rapidly growing areas of
airport security and other homeland defense markets, including explosive
detection systems ("EDS"). The acquisition provides L-3 with enhanced
manufacturing and marketing capabilities, which will be used as the Company
works to meet growing demand for its EDS products.

In connection with a letter of intent entered into with OSI Systems, Inc.
("OSI"), the Company intends to sell the ARGUS and conventional product lines
of Detection Systems to OSI. The sale is subject to clearance under the
Hart-Scott-Rodino Antitrust Improvements Act.

Spar Aerospace. At December 31, 2001, the Company had acquired 70.3% of
the outstanding common stock of Spar Aerospace Limited ("Spar"), a leading
provider of high-end aviation product modernization, for $105,078 in cash and
acquired control of Spar and the ability to require the remaining stockholders
to tender their shares. During January 2002, the Company completed the
acquisition and paid $43,641 for the remaining outstanding common stock of Spar
which was not tendered to the Company at December 31, 2001.

SY Tech, BT Fuze and Emergent. During the fourth quarter of 2001, the
Company acquired three other businesses for an aggregate purchase price of
$147,695 in cash plus acquisition costs, reflecting net purchase price
increases of $8,605 based on the closing date balance sheets of the acquired
businesses and, $1,800 of additional purchase price based on the financial
performance of the acquired companies for the year ended December 31, 2001. The
Company acquired:

(1) the net assets of SY Technology, Inc. ("SY"), a provider of air
warfare simulation services, on December 31, 2001. This acquisition is
subject to additional purchase price not to exceed $3,000 which is
contingent upon the financial performance of SY for the years ending
December 31, 2002 and 2003;

(2) the net assets of Bulova Technologies, a producer of military fuzes
that prevent the inadvertent firing and detonation of weapons during
handling, on December 19, 2001. Bulova Technologies was later renamed
BT Fuze Products ("BT Fuze"). The purchase price is subject to
adjustment based on the closing date net assets of BT Fuze; and

(3) the common stock of Emergent Government Services Group ("Emergent"), a
provider of engineering and information services to the U.S. Air
Force, Army, Navy and intelligence agencies, on November 30, 2001.
Following the acquisition, the Company changed Emergent's name to L-3
Communications Analytics.

KDI and EER. On May 4, 2001, the Company acquired all of the outstanding
common stock of KDI Precision Products ("KDI") for $79,460 in cash including
acquisition costs. On May 31, 2001, the Company acquired all of the outstanding
common stock of EER Systems ("EER") for $119,774 in cash including acquisition
costs, and additional purchase price not to exceed $5,000 which is contingent
upon the financial performance of EER for the year ending December 31, 2002.

All of the Company's acquisitions have been accounted for as purchase
business combinations and are included in the Company's results of operations
from their respective effective dates. The Company values acquired contracts in
process at their estimated contract selling prices less the estimated costs to
complete and a reasonable profit allowance for the Company's effort to complete
such contracts. The assets and liabilities recorded in connection with the
purchase price allocations for the acquisitions of Spar, Emergent, BT Fuze, SY,
IS and Detection Systems are based upon

F-11

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

preliminary estimates of fair values for contracts in process, estimated costs
in excess of billings to complete contracts in process, inventories,
identifiable intangibles and deferred income taxes. Actual adjustments will be
based on the final purchase prices and final appraisals and other analyses of
fair values which are in process, as well as audited historical net assets
acquired for the IS acquisition as of March 8, 2002. With the exception of the
IS acquisition, the Company does not expect the differences between the
preliminary and final purchase price allocations for the acquisitions to be
material. Material differences between the preliminary and final purchase price
allocations for the IS acquisition could result from the valuation of contracts
in process, including the recoverability of unbilled contract receivables and
inventories, estimated costs in excess of billings to complete acquired
contracts in process in a loss position, capitalized costs for internal-use
software and management information systems, identifiable intangibles,
goodwill, deferred income taxes and pension and postretirement benefits
liabilities. The Company expects to complete the purchase price allocation for
IS in the second half of 2002.

Had the acquisitions of IS and Detection Systems and the related financing
transactions occurred on January 1, 2002, the unaudited pro forma sales, net
income and diluted earnings per share for the six months ended June 30, 2002,
would have been approximately $1,928,600, $56,500 and $0.68. Had the
acquisitions of KDI, EER, SY, BT Fuze, Emergent, Spar, IS and Detection Systems
and the related financing transactions occurred on January 1, 2001, the
unaudited pro forma sales, net income and diluted earnings per share for the
six months ended June 30, 2001, would have been approximately $1,690,700,
$26,600 and $0.33. The pro forma results are based on various assumptions and
are not necessarily indicative of the result of operations that would have
occurred had the acquisitions and the related financing transactions occurred
on January 1, 2001 and 2002.

In March 2001, the Company settled certain items with a third party
provider related to a services agreement. In connection with the settlement,
L-3 received a net cash payment of $14,200. The payment represents a credit for
fees paid over the term of the services agreement and incremental costs
incurred by the Company over the same period arising from performance
deficiencies under the services agreement. These incremental costs included
additional operating costs for material management, vendor replacement, rework,
warranty, manufacturing and engineering support, and administrative activities.
The credit was amortized in 2001 as a reduction to costs and expenses over the
period in which the services were provided.

4. CONTRACTS IN PROCESS

The components of contracts in process are presented in the table below.

JUNE 30, 2002 DECEMBER 31, 2001
--------------- ------------------

Billed receivables, less allowances of $15,045 and
$11,649......................................... $ 466,070 $ 330,795
---------- ----------
Unbilled contract receivables .................... 750,057 353,262
Less: unliquidated progress payments ............. (221,405) (102,739)
---------- ----------
Unbilled contract receivables, net ............. 528,652 250,523
---------- ----------
Inventoried contract costs, gross ................ 203,800 122,211
Less: unliquidated progress payments ............. (38,887) (6,575)
---------- ----------
Inventoried contract costs, net ................ 164,913 115,636
Inventories at lower of cost or market ........... 144,542 104,870
---------- ----------
Total contracts in process ..................... $1,304,177 $ 801,824
========== ==========

F-12

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5. DEBT

The components of long-term debt are presented in the table below.

JUNE 30, 2002 DECEMBER 31, 2001
--------------- ------------------

Borrowings under Senior Credit Facilities ................ $ -- $ --
10 3/8% Senior Subordinated Notes due 2007 ................ 48,075 225,000
8 1/2% Senior Subordinated Notes due 2008 ................. 180,000 180,000
8% Senior Subordinated Notes due 2008 .................... 200,000 200,000
7 5/8% Senior Subordinated Notes due 2012 ................. 750,000 --
5 1/4% Convertible Senior Subordinated Notes due
2009 ................................................... 300,000 300,000
4% Senior Subordinated Convertible Contingent Debt
Securities due 2011 (CODES) ............................ 420,000 420,000
---------- ----------
Principal amount of long-term debt ....................... $1,898,075 $1,325,000
---------- ----------
Less: Current portion of long-term debt ................. 48,075 --
Unamortized discount on CODES ........................ 2,375 2,502
Fair value of interest rate swap agreements .......... 3,293 7,246
---------- ----------
Carrying amount of long-term debt ........................ $1,844,332 $1,315,252
========== ==========

On February 26, 2002, the Company's lenders approved a $150,000 increase
in the amount of the senior credit facilities. The five-year revolving credit
facility which matures on May 15, 2006 was increased by $100,000 to $500,000
and the 364-day revolving credit facility increased by $50,000 to $250,000.
Additionally, the maturity date of the $250,000 364-day revolving credit
facility was extended to February 25, 2003.

Available borrowings under the Company's senior credit facilities at June
30, 2002 were $577,707, after reductions for outstanding letters of credit of
$172,293. There were no outstanding borrowings under the senior credit
facilities at June 30, 2002.

In June 2002, L-3 Communications sold $750,000 of 7 5/8% Senior
Subordinated Notes due June 15, 2012 (the "June 2002 Notes") with interest
payable semi-annually on June 15 and December 15 of each year commencing
December 15, 2002. The net proceeds from this offering and the concurrent sale
of common stock by L-3 Holdings (see Note 7) were used to (1) repay $500,000
borrowed on March 8, 2002, under the Company's senior subordinated bridge loan
facility, (2) repay the indebtedness outstanding under the Company's senior
credit facilities, (3) repurchase and redeem the 10 3/8% Senior Subordinated
Notes due 2007 and (4) increase cash and cash equivalents. The June 2002 Notes
are general unsecured obligations of L-3 Communications and are subordinated in
right of payment to all existing and future senior debt of L-3 Communications.
The June 2002 Notes are subject to redemption at any time, at the option of L-3
Communications, in whole or in part, on or after June 15, 2007 at redemption
prices (plus accrued and unpaid interest) starting at 103.813% of the principal
amount (plus accrued and unpaid interest) during the 12-month period beginning
June 15, 2007 and declining annually to 100% of principal (plus accrued and
unpaid interest) on June 15, 2010 and thereafter. Prior to June 15, 2005, L-3
Communications may redeem up to 35% of the June 2002 Notes with the proceeds of
certain equity offerings at a redemption price of 107.625% of the principal
amount (plus accrued and unpaid interest).

On June 6, 2002, L-3 Communications commenced a tender offer to purchase
any and all of its $225,000 aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2007. The tender offer

F-13

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

expired on July 3, 2002. On June 25, 2002, L-3 Communications sent a notice of
redemption for all of its $225,000 aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2007 that remained outstanding after the expiration of
the tender offer. Upon sending the notice, the remaining notes became due and
payable at the redemption price as of July 25, 2002. At June 30, 2002, L-3
Communications had purchased for cash $176,925 of these notes plus premiums,
fees and other transaction costs of $9,474 and accrued interest. The remaining
principal amount of these notes of $48,075 was purchased and redeemed in July
2002 plus premiums, fees and other transaction costs of $2,995 and accrued
interest. In connection with the extinguishment of these notes, L-3
Communications recorded a pre-tax extraordinary loss of $16,187 ($9,858
after-tax), including premiums, fees and other transaction costs of $12,469 and
$3,718 to write-off the remaining balance of debt issue costs relating to these
notes.

In June 2002, L-3 Communications unwound the interest rate swap agreements
on $200,000 of its 8% Senior Subordinated Notes due 2008 and received cash of
$8,675. L-3 Communications recorded a reduction in interest expense for the six
months ended June 30, 2002 of $3,446, which represented the value of the
interest savings that was earned prior to the unwinding of these swap
agreements. The remaining $5,229 was recorded as a deferred gain and will be
amortized as a reduction of interest expense over the remaining life of the
$200,000 of 8% Senior Subordinated Notes due 2008 at an amount of $215 per
quarter, or $860 annually.

In June 2002, L-3 Communications entered into interest rate swap
agreements on $200,000 of its 7 5/8% Senior Subordinated Notes due 2012. These
swap agreements exchange the fixed interest rate for a variable interest rate
on $200,000 of the $750,000 principal amount outstanding. Under these swap
agreements, L-3 Communications will pay or receive the difference between the
fixed interest rate of 7 5/8% on the senior subordinated notes and a variable
interest rate determined two business days prior to the beginning of the
interest period equal to (1) the six month LIBOR rate, plus (2) 215.25 basis
points. The difference to be paid or received on these swap agreements as
interest rates change is recorded as an adjustment to interest expense. The
swap agreements are accounted for as fair value hedges.

Pursuant to a registration rights agreement that L-3 Communications
entered into with the initial purchasers of the June 2002 Notes, L-3
Communications agreed to file a registration statement with the SEC within 90
days after the closing of the offering to exchange the June 2002 Notes for
substantially identical notes that are registered under the Securities Act. If
L-3 Communications does not file the registration statement with the SEC on or
before September 26, 2002, L-3 Communications will pay to each holder of the
June 2002 Notes an amount equal to $0.05 per week per $1,000 principal amount
for the first 90-day period until all registration defaults have been cured.
The amount that L-3 Communications will pay will increase by an additional
$0.05 per week per $1,000 principal amount for each subsequent 90-day period
until all registration defaults have been cured, up to a maximum amount of
$0.50 per week per $1,000 principal amount.

F-14

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

6. COMPREHENSIVE INCOME

Comprehensive income for the three and six months ended June 30, 2002 and
2001 is presented in the tables below.

THREE MONTHS ENDED JUNE
30,
-----------------------
2002 2001
---------- ----------

Net income ............................................................. $31,640 $23,336
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax benefits ......... (812) (242)
Unrealized gains (losses) on securities:
Unrealized losses arising during the period, net of tax
benefit of $45...................................................... -- (66)
Reclassification adjustment for losses included in net
income, net of tax expense of $2,323................................ -- 3,743
Unrealized gains (losses) on hedging instruments:
Unrealized gains (losses) arising during the period, net of
tax benefit of $156 and tax expense of $131......................... (290) 213
------- -------
Comprehensive income ................................................... $30,538 $26,984
======= =======

SIX MONTHS ENDED JUNE 30,
-------------------------

2002 2001
---- ----
Net income ............................................................. $ 60,919 $ 37,494
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax benefits ......... (1,245) (540)
Unrealized gains (losses) on securities:
Unrealized losses arising during the period, net of tax
benefit of $111..................................................... -- (180)
Reclassification adjustment for losses included in net
income, net of tax expense of $2,274................................ -- 3,632
Unrealized gains (losses) on hedging instruments:
Cumulative adjustment at January 1, 2001, net of tax benefit
of $25.............................................................. -- (41)
Unrealized gains (losses) arising during the period, net of
tax benefit of $196 and tax expense of $116 ........................ (364) 189
Reclassification adjustment for losses included in net
income, net of tax expense of $198.................................. 323 --
-------- --------
Comprehensive income ................................................... $ 59,633 $ 40,554
======== ========

F-15

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Accumulated other comprehensive balances at June 30, 2002 and December 31,
2001 are presented in the table below.

UNREALIZED
FOREIGN GAINS UNREALIZED MINIMUM ACCUMULATED
CURRENCY (LOSSES) LOSSES ON PENSION OTHER
TRANSLATION ON HEDGING LIABILITY COMPREHENSIVE
ADJUSTMENTS SECURITIES INSTRUMENTS ADJUSTMENTS LOSS
------------- ------------ ------------- ------------- --------------

JUNE 30, 2002
Balance January 1, 2002 ............ $ (2,852) $ (246) $ (163) $ (20,409) $ (23,670)
Period change ...................... (1,245) -- (41) -- (1,286)
-------- -------- ------ ---------- ---------
Balance June 30, 2002 .............. $ (4,097) $ (246) $ (204) $ (20,409) $ (24,956)
======== ======== ====== ========== =========
DECEMBER 31, 2001
Balance January 1, 2001 ............ $ (2,584) $ (3,698) $ -- $ (890) $ (7,172)
Period change ...................... (268) 3,452 (163) (19,519) (16,498)
-------- -------- ------ ---------- ---------
Balance December 31, 2001. ......... $ (2,852) $ (246) $ (163) $ (20,409) $ (23,670)
======== ======== ====== ========== =========

7. L-3 HOLDINGS EARNINGS PER SHARE

A reconciliation of basic and diluted earnings per share ("EPS") is
presented in the table below.

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------- ------------ -------------

BASIC:
Income before extraordinary item ............ $ 41,498 $ 23,336 $ 70,777 $ 37,494
Extraordinary item, net of income taxes ..... (9,858) -- (9,858) --
-------- --------- -------- ---------
Net income .................................. $ 31,640 $ 23,336 $ 60,919 $ 37,494
======== ========= ======== =========
Weighted average common shares
outstanding ................................ 79,968 74,770 79,436 71,486
======== ========= ======== =========
Basic earnings per share before
extraordinary item ......................... $ 0.52 $ 0.31 $ 0.89 $ 0.52
======== ========= ======== =========
Basic earnings per share .................... $ 0.40 $ 0.31 $ 0.77 $ 0.52
======== ========= ======== =========
DILUTED:
Income before extraordinary item ............ $ 41,498 $ 23,336 $ 70,777 $ 37,494
After-tax interest expense savings on the
assumed conversion of Convertible
Notes ...................................... 2,579 -- 5,158 --
-------- --------- -------- ---------
Income before extraordinary item
including assumed conversion ............... 44,077 23,336 75,935 37,494
Extraordinary item, net of income taxes ..... (9,858) -- (9,858) --
-------- --------- -------- ---------
Net income including assumed conversion...... $ 34,219 $ 23,336 $ 66,077 $ 37,494
======== ========= ======== =========
Common and potential common shares:
Weighted average common shares
outstanding .............................. 79,968 74,770 79,436 71,486
Assumed exercise of stock options .......... 8,887 7,470 8,465 7,634
Assumed purchase of common shares
for treasury ............................. (5,498) (4,214) (5,153) (4,330)
Assumed conversion of Convertible
Notes .................................... 7,362 -- 7,362 --
-------- --------- -------- ---------
Common and potential common shares ......... 90,719 78,026 90,110 74,790
======== ========= ======== =========
Diluted earnings per share before
extraordinary item ......................... $ 0.49 $ 0.30 $ 0.84 $ 0.50
======== ========= ======== =========
Diluted earnings per share .................. $ 0.38 $ 0.30 $ 0.73 $ 0.50
======== ========= ======== =========

F-16

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The 7,361,964 shares of L-3 Holdings common stock that are issuable upon
conversion of the Convertible Notes were not included in the computation of
diluted EPS for the three and six months ended June 30, 2001 because the effect
of the assumed conversion would have been anti-dilutive.

The 7,804,878 shares of L-3 Holdings' common stock that are issuable upon
conversion of the CODES were not included in the computation of diluted EPS for
the three and six months ended June 30, 2002 because the conditions required
for the CODES to become convertible were not satisfied.

On April 23, 2002, the Company announced that its Board of Directors had
authorized a two-for-one stock split on all shares of L-3 Holdings common
stock. The stock split entitled all shareholders of record at the close of
business on May 6, 2002 to receive one additional share of L-3 Holdings common
stock for every share held on that date. The additional shares were distributed
to shareholders in the form of a stock dividend on May 20, 2002. Upon
completion of the stock split, L-3 Holdings had approximately 80 million shares
of common stock outstanding. All of L-3 Holdings' historical as reported share
and EPS data has been restated to give effect to the stock split

On June 28, 2002, L-3 Holdings sold 14,000,000 shares of its common stock
in a public offering for $56.60 per share. Upon closing, L-3 Holdings received
net proceeds after deducting discounts, commissions and estimated expenses of
$768,435. The net proceeds of this offering and the concurrent sale of senior
subordinated notes by L-3 Communications (see Note 5) were used to (1) repay
$500,000 borrowed on March 8, 2002, under the Company's senior subordinated
bridge loan facility, (2) repay the indebtedness outstanding under the
Company's senior credit facilities, (3) repurchase and redeem the 10 3/8% Senior
Subordinated Notes due 2007 and (4) increase cash and cash equivalents.

8. TRANSITIONAL DISCLOSURE REQUIRED BY SFAS NO. 142

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and
Other Intangible Assets, which supersedes Accounting Principles Board ("APB")
Opinion No. 17, Intangible Assets. SFAS No. 142 revised the standards for
accounting for goodwill and other intangible assets. SFAS No. 142 requires that
goodwill and indefinite lived identifiable intangible assets no longer be
amortized, but be tested for impairment at least annually based on their
estimated fair values. The provisions of SFAS No. 142 became effective on
January 1, 2002, and require full implementation of the impairment measurement
provisions by December 31, 2002. Effective January 1, 2002, the Company is not
recording goodwill amortization expense. Based on the estimated fair values of
the Company's reporting units using a discounted cash flows valuation, the
goodwill for certain space and broadband commercial communications businesses
included in the Specialized Products segment may be impaired. The aggregate
amount of goodwill recorded for these businesses is approximately $21.0
million, net of related income taxes. The Company expects to complete the
valuation of the assets and liabilities for these businesses and to determine
the amount of the goodwill impairment in the second half of 2002. Any resulting
impairment would be a non-cash charge, recorded effective January 1, 2002, as a
cumulative effect of a change in accounting principle in accordance with the
adoption provisions of SFAS No. 142.

The table below presents net income and basic and diluted EPS for the
three and six months ended June 30, 2002 compared with those amounts for the
same periods in 2001, adjusted to exclude goodwill amortization expense, net of
income taxes.

F-17

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------- ----------- ------------ ------------

Reported income before extraordinary
item ........................................ $ 41,498 $23,336 $ 70,777 $ 37,494
Add: Goodwill amortization expense, net
of tax ...................................... -- 8,482 -- 15,855
Less: Incremental minority interest .......... -- (80) -- (80)
--------- ------- -------- --------
Adjusted income before extraordinary
item ........................................ $ 41,498 $31,738 $ 70,777 $ 53,269
========= ======= ======== ========
Adjusted net income .......................... $ 31,640 $31,738 $ 60,919 $ 53,269
========= ======= ======== ========
BASIC EPS:
Reported before extraordinary item ........... $ 0.52 $ 0.31 $ 0.89 $ 0.52
Goodwill amortization expense, net of tax..... -- 0.11 -- 0.23
Incremental minority interest ................ -- -- -- --
--------- ------- -------- --------
Adjusted before extraordinary item ........... $ 0.52 $ 0.42 $ 0.89 $ 0.75
========= ======= ======== ========
Adjusted after extraordinary item ............ $ 0.40 $ 0.42 $ 0.77 $ 0.75
========= ======= ======== ========
DILUTED EPS:
Reported before extraordinary item ........... $ 0.49 $ 0.30 $ 0.84 $ 0.50
Goodwill amortization expense, net of tax..... -- 0.11 -- 0.21
Incremental minority interest ................ -- -- -- --
--------- ------- -------- --------
Adjusted before extraordinary item ........... $ 0.49 $ 0.41 $ 0.84 $ 0.71
========= ======= ======== ========
Adjusted after extraordinary item ............ $ 0.38 $ 0.41 $ 0.73 $ 0.71
========= ======= ======== ========

9. CONTINGENCIES

The Company is engaged in providing products and services under contracts
with the U.S. Government and to a lesser degree, under foreign government
contracts, some of which are funded by the U.S. Government. All such contracts
are subject to extensive legal and regulatory requirements, and, from time to
time, agencies of the U.S. Government investigate whether such contracts were
and are being conducted in accordance with these requirements. Under U.S.
Government procurement regulations, an indictment of the Company by a federal
grand jury could result in the Company being suspended for a period of time
from eligibility for awards of new government contracts. A conviction could
result in debarment from contracting with the federal government for a
specified term. Additionally, in the event that U.S. Government expenditures
for products and services of the type manufactured and provided by the Company
are reduced, and not offset by greater commercial sales or other new programs
or products, or acquisitions, there may be a reduction in the volume of
contracts or subcontracts awarded to the Company.

Management continually assesses the Company's obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Company in order to comply
with these laws, based upon available internal and external assessments, with
respect to those environmental loss contingencies of which management is aware,
the Company believes that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material

F-18

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

to the Company's results of operations. The Company accrues for these
contingencies when it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated.

The Company has been periodically subject to litigation, claims or
assessments and various contingent liabilities incidental to its business. With
respect to those investigative actions, items of litigation, claims or
assessments of which they are aware, management of the Company is of the
opinion that the probability is remote that, after taking into account certain
provisions that have been made with respect to these matters, the ultimate
resolution of any such investigative actions, items of litigation, claims or
assessments will have a material adverse effect on the financial position,
results of operations or cash flows of the Company.

10. SEGMENT INFORMATION

The Company has four reportable segments: (1) Secure Communications & ISR,
(2) Training, Simulation & Support Services (3) Aviation Products & Aircraft
Modernization and (4) Specialized Products which are described in Note 1. The
Company evaluates the performance of its operating segments and reportable
segments based on their sales and operating income.

The table below presents sales, operating income and assets by reportable
segment.

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ---------------------------------
2002 2001 2002 2001
------------ ------------- --------------- ---------------

SALES:
Secure Communications & ISR ................ $ 278,570 $ 89,404 $ 436,306 $ 172,689
Training, Simulation & Support Services..... 201,000 151,774 398,302 268,760
Aviation Products & Aircraft
Modernization ............................ 203,483 70,873 310,792 131,454
Specialized Products ....................... 277,213 251,756 514,926 454,387
Elimination of intersegment sales .......... (5,077) (2,247) (8,297) (3,829)
--------- --------- ----------- -----------
Consolidated total ....................... $ 955,189 $ 561,560 $ 1,652,029 $ 1,023,461
========= ========= =========== ===========
OPERATING INCOME:
Secure Communications & ISR ................ $ 29,656 $ 4,824 $ 46,065 $ 11,144
Training, Simulation & Support Services..... 22,315 19,344 43,785 28,510
Aviation Products & Aircraft
Modernization ............................ 32,252 24,866 49,722 47,545
Specialized Products ....................... 13,465 11,433 29,423 20,137
--------- --------- ----------- -----------
Consolidated total ....................... $ 97,688 $ 60,467 $ 168,995 $ 107,336
========= ========= =========== ===========

JUNE 30, 2002 DECEMBER 31, 2001
--------------- ------------------

ASSETS:
Secure Communications & ISR ........................ $1,108,705 $ 366,482
Training, Simulation & Support Services ............ 544,497 497,368
Aviation Products & Aircraft Modernization ......... 1,047,348 545,517
Specialized Products ............................... 1,532,344 1,382,010
Corporate .......................................... 716,332 547,872
---------- ----------
Consolidated total ............................... $4,949,226 $3,339,249
========== ==========

F-19

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table presents the changes in goodwill allocated to the
reportable segments during the six months ended June 30, 2002.

AVIATION
SECURE TRAINING, PRODUCTS
COMMUNICATIONS SIMULATION & & AIRCRAFT SPECIALIZED CONSOLIDATED
& ISR SUPPORT SERVICES MODERNIZATION PRODUCTS TOTAL
---------------- ------------------ --------------- ------------- -------------

BALANCE JANUARY 1, 2002 ......... $181,215 $377,127 $371,222 $778,154 $1,707,718
Acquired ....................... 491,098 4,916 222,063 48,426 766,503
-------- -------- -------- -------- ----------
BALANCE JUNE 30, 2002 ........... $672,313 $382,043 $593,285 $826,580 $2,474,221
======== ======== ======== ======== ==========

The Company's sales by product and services are summarized in the table
below.

THREE MONTHS ENDED JUNE
30, SIX MONTHS ENDED JUNE 30,
------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ------------- -------------

Avionics and ocean systems ........................ $ 138,123 $160,871 $ 250,466 $ 292,674
Aircraft modernization and maintenance ............ 143,241 -- 201,672 --
Intelligence, surveillance and
reconnaissance products .......................... 126,583 -- 165,027 --
Telemetry and instrumentation ..................... 81,788 82,897 162,759 156,045
Military and high data rate
communications ................................... 80,628 51,746 143,116 100,279
Detection systems and premium fuzing
products ......................................... 61,756 13,030 104,942 16,554
Information security systems ...................... 51,069 24,500 94,730 43,866
Training devices and motion simulators ............ 37,881 35,784 67,260 66,813
Microwave components .............................. 20,749 30,715 42,782 55,538
Space and commercial communications,
satellite control and tactical sensor
systems .......................................... 24,509 14,994 41,291 32,434
--------- -------- ---------- ----------
Subtotal products .............................. 766,327 414,537 1,274,045 764,203
Training, simulation and support services ......... 201,000 151,774 398,302 268,760
--------- -------- ---------- ----------
Subtotal ....................................... 967,327 566,311 1,672,347 1,032,963
Intercompany eliminations ......................... (12,138) (4,751) (20,318) (9,502)
--------- -------- ---------- ----------
Total .......................................... $ 955,189 $561,560 $1,652,029 $1,023,461
========= ======== ========== ==========

11. NEW ACCOUNTING PRONOUNCEMENTS

F-20

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

retired. These provisions will be applied to existing asset retirement
obligations as of the adoption date as a cumulative effect of a change in
accounting principle. SFAS No. 143 is effective for the Company's fiscal years
beginning January 1, 2003. SFAS No. 143 is not expected to have a material
effect on the Company's consolidated results of operations and financial
position.

In October of 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB No. 30), for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 144 expands the scope of
accounting for disposals to include all components of an entity, including
reportable segments and operating segments, reporting units, subsidiaries and
certain asset groups. It requires the gain or loss on disposal to be measured
as the difference between (1) the fair value less the costs to sell and (2) the
carrying value of the component, and such gain or loss cannot include the
estimated future operating losses of the component, which were included in the
gain or loss determination under APB No. 30. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidate a subsidiary for which control is likely
to be temporary. The provisions of SFAS No. 144 became effective on January 1,
2002. SFAS No. 144 did not have a material effect on the Company's consolidated
results of operation and financial position.

In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002.
SFAS No. 145, rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt made to
Satisfy Sinking-Fund Requirements. Under the provisions of SFAS No. 145, gains
and losses from extinguishment of debt can only be classified as extraordinary
items if they meet the criteria in APB Opinion No. 30. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Earlier application is permitted. This
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are similar and is
effective for transactions occurring after May 15, 2002. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions and are effective for financial statements issued on or after May
15, 2002. SFAS No. 145 is not expected to have a material effect on the
Company's consolidated results of operations, financial position or cash flows.

In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces EITF No.
94-3 "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan as was required by EITF No. 94-3.
Examples of costs covered by SFAS No. 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied to exit or disposal activities initiated after
December 31, 2002. SFAS No. 146 is not expected to have a material effect on
the Company's consolidated results of operations and financial position.

F-21

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12. UNAUDITED FINANCIAL INFORMATION OF L-3 COMMUNICATIONS AND ITS SUBSIDIARIES

L-3 Communications is a wholly owned subsidiary of L-3 Holdings. The debt
of L-3 Communications, including its outstanding senior subordinated notes and
borrowings under amounts drawn against the senior credit facilities, are
guaranteed, on a joint and several, full and unconditional basis, by certain of
its wholly owned domestic subsidiaries (the "Guarantor Subsidiaries"). The
foreign subsidiaries and certain domestic subsidiaries of L-3 Communications
(the "Non-Guarantor Subsidiaries") do not guarantee the debt of L-3
Communications. None of the debt of L-3 Communications has been issued by its
subsidiaries. There are no restrictions on the payment of dividends from the
Guarantor Subsidiaries to L-3 Communications.

The following unaudited condensed combining financial information present
the results of operations, financial position and cash flows of (i) L-3
Communications excluding its consolidated subsidiaries (the "Parent") (ii) the
Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries and (iv) the
eliminations to arrive at the information for L-3 Communications on a
consolidated basis.

L-3 CONSOLIDATED
COMMUNICATIONS GUARANTOR NON-GUARANTOR L-3
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMMUNICATIONS
---------------- -------------- --------------- ---------------- ---------------

CONDENSED COMBINING BALANCE SHEETS:
- -----------------------------------
AS OF JUNE 30, 2002
- -------------------
Total current assets .................... $ 991,005 $ 643,545 $ 209,266 $ -- $1,843,816
Other long-term assets .................. 1,015,846 1,631,442 458,122 -- 3,105,410
Investment in and amounts due from
(to) consolidated subsidiaries ......... 2,425,949 290,091 (26,287) (2,689,753) --
---------- ---------- --------- ------------ ----------
Total assets ......................... $4,432,800 $2,565,078 $ 641,101 $ (2,689,753) $4,949,226
========== ========== ========= ============ ==========
Total current liabilities ............... $ 322,954 $ 206,832 $ 89,682 $ -- $ 619,468
Other long-term liabilities ............. 177,290 139,078 8,995 -- 325,363
Long-term debt .......................... 1,844,332 -- -- -- 1,844,332
Minority interest ....................... -- -- 71,839 -- 71,839
Shareholders' equity .................... 2,088,224 2,219,168 470,585 (2,689,753) 2,088,224
---------- ---------- --------- ------------ ----------
Total liabilities and shareholders
equity .............................. $4,432,800 $2,565,078 $ 641,101 $ (2,689,753) $4,949,226
========== ========== ========= ============ ==========

F-22

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

AS OF DECEMBER 31, 2001
- -----------------------
Total current assets ..................... $ 786,498 $ 300,585 $155,318 $ -- $1,242,401
Other long-term assets ................... 965,566 701,887 429,395 -- 2,096,848
Investment in and amounts due from
consolidated subsidiaries ............... 1,229,572 150,580 43,236 (1,423,388) --
---------- ---------- -------- ------------ ----------
Total assets .......................... $2,981,636 $1,153,052 $627,949 $ (1,423,388) $3,339,249
========== ========== ======== ============ ==========
Total current liabilities ................ $ 278,598 $ 136,579 $109,394 $ -- $ 524,571
Other long-term liabilities .............. 173,894 31,080 10,663 -- 215,637
Long-term debt ........................... 1,315,252 -- -- -- 1,315,252
Minority interest ........................ -- -- 69,897 -- 69,897
Shareholders' equity ..................... 1,213,892 985,393 437,995 (1,423,388) 1,213,892
---------- ---------- -------- ------------ ----------
Total liabilities and shareholders'
equity ............................... $2,981,636 $1,153,052 $627,949 $ (1,423,388) $3,339,249
========== ========== ======== ============ ==========
CONDENSED COMBINING STATEMENTS OF
- ---------------------------------
OPERATIONS:
-----------
FOR THE SIX MONTHS ENDED
- ------------------------
JUNE 30, 2002
-------------
Sales .................................... $ 748,768 $ 779,368 $131,964 $ (8,071) $1,652,029
---------- ---------- -------- ------------ ----------
Operating income ......................... 68,431 72,818 27,746 -- 168,995
Interest and other income (expense) ...... 3,646 (198) 181 (2,805) 824
Interest expense ......................... 56,127 1,396 2,945 (2,805) 57,663
Minority interest ........................ -- -- 2,764 -- 2,764
Provision for income taxes ............... 5,630 25,142 7,843 -- 38,615
Equity in net income of consolidated
subsidiaries ............................ 60,457 -- -- (60,457) --
Extraordinary item-loss on
extinguishment of debt, net of taxes..... (9,858) -- -- -- (9,858)
---------- ---------- -------- ------------ ----------
Net income ............................... $ 60,919 $ 46,082 $ 14,375 $ (60,457) $ 60,919
========== ========== ======== ============ ==========
FOR THE SIX MONTHS ENDED
- ------------------------
JUNE 30, 2001
-------------
Sales .................................... $ 597,558 $ 165,947 $262,195 $ (2,239) $1,023,461
---------- ---------- -------- ------------ ----------
Operating income (loss) .................. 88,913 (7,729) 26,152 -- 107,336
Interest and other income (expense) ...... 7,997 (306) (6,237) -- 1,454
Interest expense ......................... 46,415 17 4 -- 46,436
Minority interest ........................ -- -- 1,585 -- 1,585
Provision (benefit) for income taxes ..... 19,340 (3,084) 7,019 -- 23,275
Equity in net income (loss) of
consolidated subsidiaries ............... 6,339 -- -- (6,339) --
---------- ---------- -------- ------------ ----------
Net income (loss) ........................ $ 37,494 $ (4,968) $ 11,307 $ (6,339) $ 37,494
========== ========== ======== ============ ==========
FOR THE THREE MONTHS ENDED
- --------------------------
JUNE 30, 2002
-------------
Sales .................................... $ 408,065 $ 476,668 $ 75,330 $ (4,874) $ 955,189
---------- ---------- -------- ------------ ----------
Operating income ......................... 27,427 51,161 19,100 -- 97,688
Interest and other income (expense) ...... 2,824 (273) 51 (2,805) (203)
Interest expense ......................... 31,367 135 2,873 (2,805) 31,570

F-23

L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE THREE MONTHS ENDED
- --------------------------
JUNE 30, 2002 (CONTINUED)
- --------------------------
Minority interest ......................... -- -- 1,776 -- 1,776
Provision (benefit) for income taxes ...... (394) 17,916 5,119 -- 22,641
Equity in net income of consolidated
subsidiaries ............................. 42,220 -- -- (42,220) --
Extraordinary item-loss on
extinguishment of debt, net of taxes...... (9,858) -- -- -- (9,858)
------------ ------------ ---------- ------------ ------------
Net income ................................ $ 31,640 $ 32,837 $ 9,383 $ (42,220) $ 31,640
============ ============ ========== ============ ============
FOR THE THREE MONTHS ENDED
- --------------------------
JUNE 30, 2001
-------------
Sales ..................................... $ 316,673 $ 86,068 $ 159,951 $ (1,132) $ 561,560
------------ ------------ ---------- ------------ ------------
Operating income .......................... 44,318 (4,054) 20,203 -- 60,467
Interest and other income (expense) ....... 7,614 (306) (6,336) -- 972
Interest expense .......................... 22,283 (256) 4 -- 22,031
Minority interest ......................... -- -- 1,585 -- 1,585
Provision (benefit) for income taxes ...... 11,356 (1,572) 4,703 -- 14,487
Equity in net income (loss) of
consolidated subsidiaries ................ 5,043 -- -- (5,043) --
------------ ------------ ---------- ------------ ------------
Net income (loss) ......................... $ 23,336 $ (2,532) $ 7,575 $ (5,043) $ 23,336
============ ============ ========== ============ ============
CONDENSED COMBINING STATEMENTS OF
- ---------------------------------
CASH FLOWS:
-----------
FOR THE SIX MONTHS ENDED
- ------------------------
JUNE 30, 2002
-------------
Net cash from (used in) operating
activities ............................... $ (7,861) $ 119,705 $ 982 $ -- $ 112,826
------------ ------------ ---------- ------------ ------------
Net cash used in investing activities ..... (1,325,593) (1,168,458) (149,669) 1,304,937 (1,338,783)
------------ ------------ ---------- ------------ ------------
Net cash from financing activities ........ 1,476,293 1,034,273 125,424 (1,304,937) 1,331,053
------------ ------------ ---------- ------------ ------------
Net increase (decrease) in cash ........... 142,839 (14,480) (23,263) -- 105,096
Cash and cash equivalents, beginning
of period ................................ 320,210 (4,412) 45,224 -- 361,022
------------ ------------ ---------- ------------ ------------
Cash and cash equivalents, end of
period ................................... $ 463,049 $ (18,892) $ 21,961 $ -- $ 466,118
============ ============ ========== ============ ============
FOR THE SIX MONTHS ENDED
- ------------------------
JUNE 30, 2001
-------------
Net cash from (used in) operating
activities ............................... $ 20,806 $ (23,583) $ 35,455 $ -- $ 32,678
------------ ------------ ---------- ------------ ------------
Net cash used in investing activities ..... (151,123) (5,232) (216,621) 208,746 (164,230)
------------ ------------ ---------- ------------ ------------
Net cash from financing activities ........ 160,929 26,974 188,048 (208,746) 167,205
------------ ------------ ---------- ------------ ------------
Net increase (decrease) in cash ........... 30,612 (1,841) 6,882 -- 35,653
Cash and cash equivalents, beginning
of period ................................ 18,708 4,911 9,061 -- 32,680
------------ ------------ ---------- ------------ ------------
Cash and cash equivalents, end of
period ................................... $ 49,320 $ 3,070 $ 15,943 $ -- $ 68,333
============ ============ ========== ============ ============

F-24

L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000
AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

F-25

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
L-3 Communications Holdings, Inc.

We have audited the accompanying consolidated balance sheets of L-3
Communications Holdings, Inc. ("L-3 Holdings") and L-3 Communications
Corporation ("L-3 Communications") and subsidiaries (collectively, the
"Company") as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years ended December 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of L-3
Holdings and L-3 Communications and subsidiaries as of December 31, 2001 and
2000 and their respective consolidated results of operations and cash flows for
each of the three years ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers LLP

1177 Avenue of the Americas
New York, New York
February 4, 2002, except as to Note 1, Note 2 (Basis of
Presentation and Recently Issued Accounting
Standards) and Note 16 to the consolidated financial
statements, for which the date is May 20, 2002

F-26

L-3 COMMUNICATIONS HOLDINGS , INC.
AND L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
------------------------------
2001 2000
------------- --------------

ASSETS
Current assets:
Cash and cash equivalents ................................. $ 361,022 $ 32,680
Contracts in process ...................................... 801,824 700,133
Deferred income taxes ..................................... 62,965 89,732
Other current assets ...................................... 16,590 7,025
---------- ----------
Total current assets .................................... 1,242,401 829,570
---------- ----------
Property, plant and equipment, net ......................... 203,374 156,128
Intangibles, primarily goodwill ............................ 1,707,718 1,371,368
Deferred income taxes ...................................... 97,883 57,111
Deferred debt issue costs .................................. 40,190 29,907
Other assets ............................................... 47,683 19,460
---------- ----------
Total assets ............................................ $3,339,249 $2,463,544
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................................... $ 129,538 $ 159,901
Accrued employment costs .................................. 126,981 102,606
Accrued expenses .......................................... 38,823 55,576
Customer advances ......................................... 74,060 55,203
Accrued interest .......................................... 13,288 16,335
Income taxes .............................................. 16,768 7,251
Other current liabilities ................................. 125,113 71,797
---------- ----------
Total current liabilities ............................... 524,571 468,669
---------- ----------
Pension and postretirement benefits ........................ 155,052 105,523
Other liabilities .......................................... 60,585 101,783
Long-term debt ............................................. 1,315,252 1,095,000
---------- ----------
Total liabilities ....................................... 2,055,460 1,770,975
Minority interest .......................................... 69,897 --
Commitments and contingencies

Shareholders' equity:
L-3 Holdings' common stock; $.01 par value; authorized
300,000,000 shares, issued and outstanding 78,496,626 and
67,213,290 shares (L-3 Communications' common stock;
$.01 par value, 100 shares authorized, issued and
outstanding) ............................................ 939,037 515,926
Retained earnings ......................................... 301,730 186,272
Unearned compensation ..................................... (3,205) (2,457)
Accumulated other comprehensive loss ...................... (23,670) (7,172)
---------- ----------
Total shareholders' equity ................................. 1,213,892 692,569
---------- ----------
Total liabilities and shareholders' equity .............. $3,339,249 $2,463,544
========== ==========

See notes to consolidated financial statements.

F-27

L-3 COMMUNICATIONS HOLDINGS , INC.
AND L-3 COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------

Sales:
Contracts, primarily long-term U.S. Government $ 1,903,728 $ 1,536,486 $ 1,132,699
Commercial, primarily products ................ 443,694 373,575 272,763
----------- ----------- -----------
Total sales ................................ 2,347,422 1,910,061 1,405,462
----------- ----------- -----------
Costs and expenses:
Contracts, primarily long-term U.S. Government 1,674,438 1,343,376 994,262
Commercial, primarily products:
Cost of sales ............................... 271,250 238,034 175,278
Selling, general and administrative ......... 126,404 105,933 85,436
----------- ----------- -----------
Total costs and expenses ................... 2,072,092 1,687,343 1,254,976
----------- ----------- -----------
Operating income ............................... 275,330 222,718 150,486
Interest and other income ...................... 1,739 4,393 5,534
Interest expense ............................... 86,390 93,032 60,590
Minority interest .............................. 4,457 -- --
----------- ----------- -----------
Income before income taxes ..................... 186,222 134,079 95,430
Provision for income taxes ..................... 70,764 51,352 36,741
----------- ----------- -----------
Net income ..................................... $ 115,458 $ 82,727 $ 58,689
=========== =========== ===========
L-3 Holdings' earnings per common share:
Basic ......................................... $ 1.54 $ 1.24 $ 0.91
=========== =========== ===========
Diluted ....................................... $ 1.47 $ 1.18 $ 0.88
=========== =========== ===========
L-3 Holdings' weighted average common shares
outstanding:
Basic ......................................... 74,880 66,710 64,214
=========== =========== ===========
Diluted ....................................... 85,438 69,906 67,032
=========== =========== ===========

See notes to consolidated financial statements.

F-28

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

(IN THOUSANDS)

L-3 HOLDINGS'
COMMON STOCK
---------------- ADDITIONAL
SHARES PAR PAID-IN RETAINED
ISSUED VALUE CAPITAL EARNINGS
-------- ------- ----------- ----------

Balance December 31, 1998 .................... 54,804 $548 $264,221 $ 44,856
Comprehensive income:
Net income .................................. 58,689
Minimum pension liability adjustment ........
Unrealized loss on securities ...............
Foreign currency translation adjustment .....

Shares issued:
Sale of common stock ........................ 10,000 100 201,713
Employee benefit plans ...................... 326 3 6,990
Acquisition consideration ................... 302 3 6,431
Exercise of stock options ................... 158 1 1,763
Grant of restricted stock .................... 1,921
Amortization of unearned compensation ........
-------- ------- ----------- ----------
Balance December 31, 1999 .................... 65,590 655 483,039 103,545
Comprehensive income:
Net income .................................. 82,727
Minimum pension liability adjustment,
net of ($553) tax benefit...................
Foreign currency translation adjustment
Unrealized loss on securities, net of
($2,316) tax benefit........................

Shares issued:
Employee benefit plans ...................... 469 5 12,637
Exercise of stock options ................... 1,154 12 18,050
Grant of restricted stock .................... 1,512
Amortization of unearned compensation ........
Other ........................................ 16
-------- ------- ----------- ----------
Balance December 31, 2000 .................... 67,213 672 515,254 186,272
Comprehensive income:
Net income .................................. 115,458
Minimum pension liability adjustment,
net of ($11,955) tax benefit................
Foreign currency translation
adjustment, net of ($164) tax benefit ......
Unrealized loss on securities, net of
($111) tax benefit .........................
Unrealized loss on securities reclassified
into net income, net of $2,274 tax
expense ....................................
Unrealized losses on hedging
instruments, net of ($100) tax benefit......

Shares issued:
Sale of common stock ........................ 9,150 92 353,530
Employee benefit plans ...................... 418 4 16,864
Acquisition consideration ................... 588 6 17,351
Exercise of stock options ................... 1,128 11 28,253
Employee stock purchase plan
contributions ............................... 4,861
Grant of restricted stock .................... 2,118
Amortization of unearned compensation.........
Other ........................................ 21
-------- ------- ----------- ----------
Balance December 31, 2001 .................... 78,497 $785 $938,252 $301,730
====== ==== ======== ========

ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE
COMPENSATION INCOME (LOSS) TOTAL
-------------- -------------- --------------

Balance December 31, 1998 .................... $ -- $ (9,651) $ 299,974
Comprehensive income:
Net income .................................. 58,689
Minimum pension liability adjustment ........ 9,443 9,443
Unrealized loss on securities ............... (970) (970)
Foreign currency translation adjustment (1,225) (1,225)
----------
65,937
Shares issued:
Sale of common stock ........................ 201,813
Employee benefit plans ...................... 6,993
Acquisition consideration ................... 6,434
Exercise of stock options ................... 1,764
Grant of restricted stock .................... (1,921) --
Amortization of unearned compensation ........ 260 260
-------------- -------------- --------------
Balance December 31, 1999 .................... (1,661) (2,403) 583,175
Comprehensive income:
Net income .................................. 82,727
Minimum pension liability adjustment,
net of ($553) tax benefit................... (819) (819)
Foreign currency translation adjustment (1,222) (1,222)
Unrealized loss on securities, net of
($2,316) tax benefit........................ (2,728) (2,728)
--------------
77,958
Shares issued:
Employee benefit plans ...................... 12,642
Exercise of stock options ................... 18,062
Grant of restricted stock .................... (1,512) --
Amortization of unearned compensation ........ 716 716
Other ........................................ 16
-------------- -------------- --------------
Balance December 31, 2000 .................... (2,457) (7,172) 692,569
Comprehensive income:
Net income .................................. 115,458
Minimum pension liability adjustment,
net of ($11,955) tax benefit................ (19,519) (19,519)
Foreign currency translation
adjustment, net of ($164) tax benefit ...... (268) (268)
Unrealized loss on securities, net of
($111) tax benefit ......................... (180) (180)
Unrealized loss on securities reclassified
into net income, net of $2,274 tax
expense .................................... 3,632 3,632
Unrealized losses on hedging
instruments, net of ($100) tax benefit...... (163) (163)
-------------
98,960
Shares issued:
Sale of common stock ........................ 353,622
Employee benefit plans ...................... 16,868
Acquisition consideration ................... 17,357
Exercise of stock options ................... 28,264
Employee stock purchase plan
contributions ............................... 4,861
Grant of restricted stock .................... (2,118) --
Amortization of unearned compensation......... 1,370 1,370
Other ........................................ 21
-------------- -------------- --------------
Balance December 31, 2001 .................... $ (3,205) $ (23,670) $1,213,892
============= ============== ==============

See notes to consolidated financial statements.

F-29

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------- ------------ -------------

OPERATING ACTIVITIES:
Net income ...................................................... $ 115,458 $ 82,727 $ 58,689
Goodwill amortization ........................................... 42,606 35,327 20,970
Depreciation and other amortization ............................. 44,345 38,927 32,748
Amortization of deferred debt issue costs ....................... 6,388 5,724 3,904
Minority interest ............................................... 4,457 -- --
Deferred income tax provision ................................... 52,638 25,103 28,831
Other noncash items ............................................. 17,576 12,517 6,617
Changes in operating assets and liabilities, net of amounts
acquired:
Contracts in process ........................................... (40,652) (66,402) (61,670)
Other current assets ........................................... 1,643 (2,599) (70)
Other assets ................................................... (12,033) (416) 552
Accounts payable ............................................... (43,165) 38,065 2,896
Accrued employment costs ....................................... 11,931 6,239 2,052
Accrued expenses ............................................... (20,300) 2,274 (6,280)
Customer advances .............................................. 12,627 (17,087) 5,766
Accrued interest ............................................... (3,047) 3,637 5,985
Income taxes ................................................... 14,431 13,161 3,917
Other current liabilities ...................................... (37,555) (59,286) (13,554)
Pension and postretirement benefits ............................ 4,550 (7,214) 1,788
Other liabilities .............................................. 1,423 1,959 7,102
All other operating activities ................................. (353) 1,149 (1,225)
---------- ---------- ----------
Net cash from operating activities .............................. 172,968 113,805 99,018
---------- ---------- ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired ................. (446,911) (599,608) (272,195)
Proceeds from sale of interest in subsidiary .................... 75,206 -- --
Capital expenditures ............................................ (48,121) (33,580) (23,456)
Disposition of property, plant and equipment .................... 1,237 18,060 6,713
Other investing activities ...................................... (6,301) 6,905 4,136
---------- ---------- ----------
Net cash (used in) investing activities ......................... (424,890) (608,223) (284,802)
---------- ---------- ----------
FINANCING ACTIVITIES:
Borrowings under revolving credit facility ...................... 316,400 858,500 74,700
Repayment of borrowings under revolving credit facility ......... (506,400) (668,500) (74,700)
Proceeds from sale of convertible senior subordinated notes 420,000 300,000 --
Proceeds from sale of L-3 Holdings' common stock, net ........... 353,622 -- 201,582
Debt issuance costs ............................................. (16,671) (12,916) (323)
Proceeds from exercise of stock options ......................... 16,325 8,954 658
Employee stock purchase plan contributions ...................... 4,861 -- --
Distributions to minority interest .............................. (2,530) -- --
Other financing activities ...................................... (5,343) (1,728) 525
---------- ---------- ----------
Net cash from financing activities .............................. 580,264 484,310 202,442
---------- ---------- ----------
Net increase (decrease) in cash ................................. 328,342 (10,108) 16,658
Cash and cash equivalents, beginning of period .................. 32,680 42,788 26,130
---------- ---------- ----------
Cash and cash equivalents, end of period ........................ $ 361,022 $ 32,680 $ 42,788
========== ========== ==========

See notes to consolidated financial statements.

F-30

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. DESCRIPTION OF BUSINESS

L-3 Communications Holdings, Inc. derives all its operating income and
cash flow from its wholly owned subsidiary L-3 Communications Corporation ("L-3
Communications"). L-3 Communications Holdings, Inc. ("L-3 Holdings" and
together with its subsidiaries, "L-3" or "the Company") is a merchant supplier
of secure communications and intelligence, surveillance and reconnaissance
("ISR") systems, training, simulation and support services, aviation products
and aircraft modernization, as well as specialized products. The Company's
customers include the U.S. Department of Defense ("DoD") and prime contractors
thereof, certain U.S. Government intelligence agencies, major aerospace and
defense contractors, foreign governments, commercial customers and certain
other U.S. federal, state and local government agencies.

As a result of recently completed acquisitions, including Aircraft
Integration Systems, a division of Raytheon Company, on March 8, 2002, and
Spar, Analytics, BT Fuze and SY Technologies in November and December of 2001
and their effect on the Company's operations, effective January 1, 2002, the
Company began to present its businesses with the following four reportable
segments: (1) Secure Communications & ISR, (2) Training, Simulation & Support
Services; (3) Aviation Products & Aircraft Modernization; and (4) Specialized
Products. The descriptions of the Company's reportable segments below include
the products and services provided by our Aircraft Integration Systems
business. Prior to December 31, 2001, the Company had two reportable segments:
Secure Communications Systems and Specialized Products. Prior year segment data
have been reclassified to conform to the current year presentation of segments.

o secure data links for airborne, satellite, ground and sea-based remote
platforms for real time information collection and dissemination to
users;

o strategic and tactical signal intelligence systems that detect, collect,
identify, analyze and disseminate information;

o secure telephone and network equipment and encryption management; and

o communication systems for surface and undersea vessels and manned space
flights.

Training, Simulation & Support Services. This segment provides a full
range of services, including:

F-31

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

o communication software support, information services and a wide range of
engineering development services and integration support;

o high-end engineering and information support services used for command,
control, communications and ISR architectures, as well as for air
warfare modeling and simulation tools for applications used by the DoD
and U.S. Government intelligence agencies, including missile and space
systems, Unmanned Aerial Vehicles (UAVs) and military aircraft;

o developing and managing extensive programs in the United States and
internationally, focusing on teaching, training and education,
logistics, strategic planning, organizational design, democracy
transition and leadership development; and

o design, prototype development and production of ballistic missile
targets for present and future threat scenarios.

Aviation Products & Aircraft Modernization. This segment provides aviation
products and aircraft modernization services including:

o airborne traffic and collision avoidance systems (TCAS);

o commercial, solid-state, crash-protected cockpit voice recorders and
flight data recorders (known as "black boxes") and cruise ship hardened
voyage recorders;

o ruggedized displays for military and high-end commercial applications;

o engineering, modification, maintenance, logistics and upgrades for U.S.
Special Operations Command aircraft, vehicles and personal equipment.

Specialized Products. This segment supplies products to military and
commercial customers in several niche markets. The products include:

o telemetry, instrumentation, space and guidance products including
tracking and flight termination;

o premium fuzing products;

o microwave components;

o explosives detection systems for checked baggage at airports;

o high performance antennas and ground based radomes; and

o training devices and motion simulators which produce advanced virtual
reality simulation and high-fidelity representations of cockpits and
mission stations for aircraft and land vehicles.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The accompanying financial statements comprise the
consolidated financial statements of L-3 Holdings and L-3 Communications. L-3
Holdings' only asset is its investment in L-3

F-32

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Communications. The only obligations of L-3 Holdings are the 5 1/4% Convertible
Senior Subordinated Notes and the 4% Senior Subordinated Convertible Contingent
Debt Securities. L-3 Holdings has also guaranteed the borrowings under the
senior credit facilities of L-3 Communications. Because obligations of L-3
Holdings have been jointly, severally, fully and unconditionally guaranteed by
L-3 Communications and certain of its domestic subsidiaries, such debt has been
reflected as debt of L-3 Communications in its consolidated financial
statements in accordance with the Securities and Exchange Commission's ("SEC")
Staff Accounting Bulletin ("SAB") No. 54. In addition, all issuances of equity
securities including grants of stock options and restricted stock by L-3
Holdings to employees of L-3 Communications have been reflected in the
consolidated financial statements of L-3 Communications. As a result, the
consolidated financial positions, results of operations and cash flows of L-3
Holdings and L-3 Communications are substantially the same.

On April 23, 2002, the Company announced that its Board of Directors had
authorized a two-for-one stock split on all shares of L-3 Holdings' common
stock. The stock split entitled all shareholders of record at the close of
business on May 6, 2002 to receive one additional share of L-3 Holdings common
stock for every share held on that date. The additional shares were distributed
to shareholders in the form of a stock dividend on May 20, 2002. The reported
number of shares of L-3 Holdings' common stock issued and outstanding, as well
as the historical EPS, outstanding stock options, and the number of common
shares issuable upon conversion of the Company's convertible securities data,
have been restated in this filing to give effect to the stock split.

On April 23, 2002, the Company's shareholders approved an increase in the
number of authorized shares of L-3 Holdings common stock from 100,000,000 to
300,000,000 and an increase in the number of authorized shares of L-3 Holdings
preferred stock from 25,000,000 to 50,000,000.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the
Company include all wholly-owned and significant majority-owned subsidiaries.
All significant intercompany transactions are eliminated in consolidation.
Investments over which the Company has significant influence but does not have
voting control are accounted for by the equity method.

CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid
investments with a maturity of three months or less at time of purchase.

REVENUE RECOGNITION: The substantial majority of the Company's direct and
indirect sales to the U.S. Government and certain of the Company's sales to
foreign governments and commercial customers are made pursuant to written
contractual arrangements or "contracts" to design, develop, manufacture and or
modify complex products, and to the specifications of the buyers (customers) or
to provide services related to the performance of such contracts. These
contracts are within the scope of the American Institute of Certified Public
Accountants Statement of Position 81-1 Accounting for Performance of
Construction -- Type and Certain Production-Type Contracts ("SOP 81-1"), and
sales and profits on them are recognized using percentage-of-completion methods
of accounting. Sales and profits on fixed-price production contracts whose
units are produced and delivered in a continuous or sequential process are
recorded as units are delivered based on their selling prices (the
"units-of-delivery" method). Sales and profits on other fixed-price contracts
are recorded based on the ratio of total actual incurred costs to date to the
total estimated costs for each contract (the "cost-to-cost method.") Sales and
fees on cost-reimbursable contracts are recognized as costs are incurred.
Amounts representing contract change orders or claims are included in sales
only when they can be reliably estimated and their realization is reasonably
assured. Losses on contracts are recognized in the period in which they are
determined. The impact of revisions of contract estimates, which may result
from contract modifications, performance or other reasons, are recognized on a
cumulative catch-up basis in the period in which the revisions are made.

F-33

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Sales on arrangements that are not within the scope of SOP 81-1 are
recognized in accordance with the SEC's SAB No. 101. Sales are recognized when
there is persuasive evidence of an arrangement, delivery has occurred or
services have been performed, the selling price to the buyer is fixed or
determinable and collectibility is reasonably assured.

CONTRACTS IN PROCESS: For the Company's contracts that are within the
scope of SOP 81-1, accumulated costs incurred that are allowable under the
terms of the contract and profits earned on contract sales are reported in
Contracts in Process. Billed Receivables represent the uncollected portion of
amounts recorded as sales and billed to customers, including those amounts for
sales arrangements that are not within the scope of SOP 81-1. Unbilled Contract
Receivables represent accumulated recoverable costs and earned profits or
losses on contracts in process that have been recorded as sales, but have not
yet been billed to customers. Inventoried Contract Costs represent recoverable
incurred costs on contracts in process. Incurred contract costs include direct
costs and overhead costs, and for U.S. Government contracts and contracts with
prime contractors or subcontractors of the U.S. Government, general and
administrative costs, independent research and development costs and bid and
proposal costs. Contracts in Process also contain amounts relating to contracts
and programs with long performance cycles, a portion of which may not be
realized within one year. Provisions for contracts in a loss position in excess
of the amounts included in Contracts in Process represent the unrecoverable
costs on the loss contracts that will be incurred in future periods and are
reported in Estimated Costs in Excess of Billings to Complete Contracts in
Process, which is a component of Other Current Liabilities and Other
Liabilities. Under the contractual arrangements on certain contracts with the
U.S. Government, the Company receives progress payments as it incurs costs. The
U.S. Government has a security interest in the Unbilled Contract Receivables
and Inventoried Contract Costs to which progress payments have been applied,
and such progress payments are reflected as a reduction of the related Unbilled
Contract Receivables and Inventoried Contract Costs. Customer Advances are
classified as current liabilities.

Inventories other than Inventoried Contract Costs are stated at the lower
of cost or market primarily using the average cost method.

DERIVATIVE FINANCIAL INSTRUMENTS: In connection with its risk management
and financial derivatives, the Company has entered into interest rate swap
agreements, interest rate cap and floor contracts and foreign currency forward
contracts. The interest rate swap agreements are accounted for as fair value
hedges. The foreign currency forward contracts are accounted for as cash flow
hedges. The embedded derivatives related to the issuance of the Company's debt
is recorded at fair value with changes reflected in the statement of
operations. The differential to be paid or received as interest rates change on
the interest rate swap agreements is recorded as an adjustment to interest
expense.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is computed by applying principally the straight-line method
to the estimated useful lives of the related assets. Useful lives range
substantially from 10 to 40 years for buildings and improvements and 3 to 10
years for machinery, equipment, furniture and fixtures. Leasehold improvements
are amortized over the shorter of the lease term or the estimated useful life
of the improvements.

DEBT ISSUANCE COSTS: Costs incurred to issue debt are deferred and
amortized as interest expense over the term of the related debt using a method
that approximates the effective interest method.

INTANGIBLES: Intangibles consist primarily of the excess of the purchase
cost of acquired businesses over the fair value of identifiable net assets
acquired ("goodwill"). Goodwill related to acquisitions consummated after June
30, 2001 is not amortized. Other intangibles are amortized on a straight-line
basis over periods ranging from 5 to 15 years. Accumulated goodwill
amortization was

F-34

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

$117,975 at December 31, 2001 and $76,001 at December 31, 2000. The carrying
amount of goodwill is evaluated on a recurring basis. Current and estimated
future profitability and undiscounted cash flows excluding financing costs of
the acquired businesses are the primary indicators used to assess the
recoverability of goodwill. For the years ended December 31, 2001 and 2000,
there were no material adjustments to the carrying amounts of goodwill
resulting from these evaluations (see Recently Issued Accounting Standards
below for a description of changes in accounting for goodwill).

INCOME TAXES: The Company provides for income taxes using the liability
method. Deferred income tax assets and liabilities reflect tax carryforwards
and the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting and income tax purposes, as
determined under enacted tax laws and rates. The effect of changes in tax laws
or rates is accounted for in the period of enactment.

RESEARCH AND DEVELOPMENT: Research and development costs sponsored by the
Company include bid and proposal costs related to government products and
services. These costs generally are allocated among all contracts in progress
under U.S. Government contractual arrangements. Customer-funded research and
development costs, including software development costs, incurred pursuant to
contracts are accounted for as direct contract costs. Other software
development costs incurred after establishing technological feasibility are
capitalized and are amortized on a product by product basis using the amount
that is the greater of the straight line method over the useful life or the
ratio of current revenues to total estimated revenues.

STOCK OPTIONS: Compensation expense for stock options is recognized in
income based on the excess, if any, of L-3 Holdings' fair value of the stock at
the grant date of the award or other measurement date over the amount an
employee must pay to acquire the stock. When the exercise price for stock
options granted to employees equals or exceeds the fair value of the L-3
Holdings common stock at the date of grant, the Company does not recognize
compensation expense. See Note 12 for the fair value pro forma disclosure of
stock-based compensation.

USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
sales and costs and expenses during the reporting period. The most significant
of these estimates and assumptions relate to contract estimates of sales and
estimated costs to complete contracts in process, estimates of market values
for inventories reported at lower of cost or market, estimates of pension and
postretirement benefit obligations, recoverability of recorded amounts of fixed
assets and goodwill, income taxes, litigation and environmental obligations.
Actual results could differ from these estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS: In July 2001, the FASB issued SFAS
No. 141, Business Combinations, which supersedes Accounting Principles Board
Opinion ("APB") No. 16, Business Combinations. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 and establishes specific criteria for the recognition of
intangible assets separately from goodwill. In July 2001, the FASB also issued
SFAS No. 142, Goodwill and Other Intangible Assets, which supersedes APB No.
17, Intangible Assets. SFAS No. 142 revises the standards for accounting for
goodwill and intangible assets. SFAS No. 142 requires that goodwill and
indefinite lived identifiable intangible assets shall no longer be amortized,
but be tested for impairment at least annually. SFAS No. 142 also requires that
the amortization period of identifiable intangible assets with finite lives be
no longer limited to forty years. The provisions of SFAS No. 142 are effective
beginning January 1, 2002, with full implementation of the impairment

F-35

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

measurement provisions completed by December 31, 2002. Effective January 1,
2002, the Company will not record goodwill amortization expense, but will be
required to amortize identifiable intangibles with finite lives. Goodwill
amortization expense for the year ended December 31, 2001 was $42,606.

The following table presents net income for the years ended December 31,
2001, 2000, and 1999 adjusted to exclude goodwill amortization expense, net of
the related income tax effects, related to goodwill that is no longer being
amortized.

YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------- ------------- ------------

Reported net income ............................................... $ 115,458 $ 82,727 $ 58,689
Add: Goodwill amortization expense, net of tax .................... 33,899 29,617 17,532
--------- --------- --------
Adjusted net income before assumed conversion of notes ............ 149,357 112,344 76,221
After-tax interest expense on assumed conversion of notes ......... 10,502 -- --
--------- --------- --------
Adjusted net income including assumed conversion of notes ......... $ 159,859 $ 112,344 $ 76,221
========= ========= ========
BASIC EPS:
Reported .......................................................... $ 1.54 $ 1.24 $ 0.91
Goodwill amortization expense, net of tax ......................... 0.45 0.44 0.28
--------- --------- --------
Adjusted .......................................................... $ 1.99 $ 1.68 $ 1.19
========= ========= ========
DILUTED EPS:
Reported .......................................................... $ 1.47 $ 1.18 $ 0.88
Goodwill amortization expense, net of tax ......................... 0.40 0.43 0.26
--------- --------- --------
Adjusted .......................................................... $ 1.87 $ 1.61 $ 1.14
========= ========= ========

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

F-36

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

operating segments, reporting units, subsidiaries and certain asset groups. It
requires the gain or loss on disposal to be measured as the difference between
(1) the fair value less the costs to sell and (2) the carrying value of the
component, and such gain or loss cannot include the estimated future operating
losses of the component, which were included in the gain or loss determination
under APB No. 30. SFAS No. 144 also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
SFAS No. 144 are effective for the Company's fiscal years beginning January 1,
2002, and interim periods within those fiscal years. SFAS No. 144 will not have
a material effect on the Company's consolidated results of operations and
financial position.

RECLASSIFICATIONS: Certain reclassifications have been made to conform
prior-year amounts to the current-year presentation.

3. ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS

On October 3, 2001, the Company announced that it had signed a definitive
agreement with Spar Aerospace Limited ("Spar"), a leading provider of high-end
aviation product modernization, pursuant to which L-3 offered to acquire all of
the outstanding common stock of Spar for Cdn$15.50 per share or approximately
Cdn$182,000, net of cash to be acquired of approximately Cdn$47,500. The
acquisition of Spar provides the Company significant opportunity for
pull-through sales of its avionics products. The acquisition also opens up the
Canadian and worldwide high-end aviation product modernization marketplace to
the Company.

On November 23, 2001, the Company acquired 65.8% of the outstanding common
stock of Spar for $97,223 in cash and acquired control of Spar and the ability
to require the remaining stockholders to tender their shares. The Company
acquired an additional 4.5% of the outstanding common stock of Spar for $7,855
in cash, during the remainder of 2001. Additional consideration of $43,641 for
the remaining outstanding common stock of Spar at December 31, 2001, that the
Company acquired and paid for in January 2002, has been recorded in other
current liabilities in the consolidated balance sheet at December 31, 2001.
During January 2002, the Company completed the acquisition and paid for the
remaining outstanding common stock of Spar.

The table below presents a summary of the preliminary estimates of fair
values of the assets acquired and liabilities assumed on the date the Company
obtained a majority ownership interest in Spar.

Cash .................................. $ 29,460
Other current assets .................. 33,108
Property, plant and equipment ......... 12,565
Goodwill .............................. 104,289
Other non-current assets .............. 229
--------
Total assets acquired ................ 179,651
--------
Current liabilities ................... 23,816
Long-term liabilities ................. 7,116
--------
Total liabilities assumed ............ 30,932
--------
Net assets acquired .................. $148,719
========

The goodwill was assigned to the Aviation Products & Aircraft
Modernization segment and is not deductible for tax purposes.

F-37

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

During the fourth quarter of 2001, the Company acquired three other
businesses for an aggregate purchase price of $137,290 in cash plus acquisition
costs, subject to adjustment based on the closing date net assets or net
working capital of the acquired business and, in one case, additional purchase
price contingent upon the post-acquisition performance of the acquired company.
The Company acquired:

(1) the net assets of SY Technology, Inc. ("SY"), a provider of air
warfare simulation services, on December 31, 2001. This acquisition is
subject to additional purchase price not to exceed $4,800 which is
contingent upon the financial performance of SY for the year ended
December 31, 2001, and the years ending December 31, 2002 and 2003;

(2) the net assets of Bulova Technologies, a producer of military fuzes
that prevent the inadvertent firing and detonation of weapons during
handling, on December 19, 2001. Bulova Technology was later renamed BT
Fuze Products ("BT Fuze"); and,

Based on the preliminary purchase price allocations, the goodwill recognized in
the acquisitions of SY, BT Fuze and Emergent was $102,145, of which
approximately $74,000 is expected to be fully deductible for tax purposes.
Goodwill of $60,525 was assigned to the Training, Simulation & Support Services
segment and $41,620 was assigned to the Specialized Products segment.

On May 4, 2001, the Company acquired all of the outstanding common stock
of KDI Precision Products ("KDI") for $79,432 in cash including acquisition
costs. On May 31, 2001, the Company acquired all of the outstanding common
stock of EER Systems ("EER") for $119,533 in cash including acquisition costs,
and additional purchase price not to exceed $10,000 which is contingent upon
the financial performance of EER for the year ended December 31, 2001 and the
year ending December 31, 2002.

On February 10, 2000, the Company acquired the assets of the Training
Devices and Training Services ("TDTS") business of Raytheon Company for
$159,203 in cash including acquisition costs. Following the acquisition, the
Company changed TDTS's name to L-3 Communications Link Simulation and Training
("Link Simulation and Training"). On February 14, 2000, the Company acquired
the assets of Trex Communications Corporation ("TrexCom") for $50,069 in cash
including acquisition costs. On April 28, 2000, the Company acquired the
Traffic Alert and Collision Avoidance System ("TCAS") product line from
Honeywell Inc. for a purchase price of $239,988 in cash including acquisition
costs. On June 30, 2000, the Company acquired all the outstanding common stock
of MPRI Inc. ("MPRI") for $39,725 in cash including acquisition costs and
$4,000 of additional purchase price that was based on the financial performance
of MPRI for the year ended June 30, 2001. On December 29, 2000, the Company
acquired all of the outstanding common stock of Coleman Research Corporation
("Coleman"), a subsidiary of Thermo Electron Corporation, for $60,565 in cash
including acquisition costs, and additional purchase price not to exceed $5,000
which is contingent upon the financial performance of Coleman for the year
ended December 31, 2001.

Additionally, during the years ended December 31, 2001, 2000 and 1999, the
Company purchased other businesses, which individually and in the aggregate
were not material to its consolidated results of operations, financial position
or cash flows in the year acquired.

All of the acquisitions were financed with cash on hand or borrowings on
bank credit facilities.

F-38

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

All of the Company's acquisitions have been accounted for as purchase
business combinations and are included in the Company's results of operations
from their respective effective dates. The assets and liabilities recorded in
connection with the purchase price allocations for the acquisitions of KDI,
EER, Spar, Emergent, BT Fuze and SY are based upon preliminary estimates of
fair values for contracts in process, estimated costs in excess of billings to
complete contracts in process, inventories, identifiable intangibles and
deferred taxes. Actual adjustments will be based on the final purchase prices
and final appraisals and other analyses of fair values which are in process.
The Company has valued acquired contracts in process at contract price, less
the estimated costs to complete and an allowance for the Company's normal
profit on its effort to complete such contracts. The preliminary assets and
liabilities recorded in connection with the acquisitions of KDI, EER, Emergent,
BT Fuze and SY were $367,570 and $31,214. The Company does not expect the
differences between the preliminary and final purchase price allocations for
the acquisitions to be material. Goodwill is amortized on a straight-line basis
over periods of 40 years for KDI and EER. In accordance with SFAS No. 142,
goodwill is not amortized for Spar, Emergent, BT Fuze and SY.

Had the acquisitions of KDI, EER, SY, BT Fuze, Emergent and Spar and the
related financing transactions occurred on January 1, 2001, the unaudited pro
forma sales, net income and diluted earnings per share for the year ended
December 31, 2001 would have been $2,638,700, $121,300 and $1.49. Had the
acquisitions of TDTS, TrexCom, TCAS, MPRI, Coleman, KDI, EER, SY, BT Fuze,
Emergent and Spar and the related financing transactions occurred on January 1,
2000 the unaudited pro forma sales, net income and diluted earnings per share
for the year ended December 31, 2000 would have been $2,554,600, $103,700 and
$1.31. The pro forma results are based on various assumptions and are not
necessarily indicative of the results of operations that would have occurred
had the acquisitions and the related financing transactions occurred on
January 1, 2000 and 2001.

On January 14, 2002, the Company agreed to acquire Aircraft Integration
Systems ("AIS"), a division of Raytheon Company, for $1,130,000 in cash plus
acquisition costs. The acquisition is expected to close in March 2002. The
acquisition is expected to be financed using cash on hand, borrowings under the
Company's senior credit facilities and a $500,000 senior subordinated bridge
loan. The Company expects to offer and sell approximately $1,000,000 of debt
and equity securities during the first half of 2002, depending on capital
market conditions, and use the proceeds from those offerings to repay the
$500,000 senior subordinated bridge loan and the borrowings made under the
senior credit facilities.

On January 2, 2002, the Company agreed to acquire the detection systems
business of PerkinElmer for $100,000 in cash plus acquisition costs. The
acquisition is subject to customary closing conditions, including clearance
under the Hart-Scott-Rodino Antitrust Improvements Act and is expected to close
by the end of the second quarter of 2002.

On May 31, 2001, the Company sold a 30% interest in Aviation
Communications and Surveillance Systems LLC ("ACSS") which comprised the
Company's TCAS business to Thales Avionics, a wholly owned subsidiary of Thales
(formerly Thomson-CSF), for $75,206 of cash. L-3 continues to consolidate the
financial statements of ACSS.

Interest and other income for the year ended December 31, 2001 includes a
gain of $6,966 from the sale of a 30% interest in ACSS which was largely offset
by a $6,341 write-down in the carrying amount of an investment in common stock.
Also included in interest and other income for 2001 is a charge of $515 to
account for the increase, in accordance with SFAS No. 133, in the fair value
assigned to the embedded derivatives in L-3 Holdings' $420,000 4% Senior
Subordinated Contingent Debt Securities due 2011 sold in the fourth quarter of
2001, and a loss of $751 from an equity method investment. Interest and other
income for the year ended December 31, 2000 includes gains of

F-39

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

$14,940 from the sales of the Company's interests in certain businesses. These
gains were largely offset by losses of $12,456 on the write-down in the
carrying value of certain investments and intangible assets. The net proceeds
from the sales were $19,638, and are included in Other Investing Activities on
the Statement of Cash Flows.

In March 2001, the Company settled certain items with a third party
provider related to an existing services agreement. In connection with the
settlement, L-3 received a net cash payment of $14,200. The payment represents
a credit for fees being paid over the term of the services agreement and
incremental costs incurred by the Company over the same period arising from
performance deficiencies under the services agreement. These incremental costs
include additional operating costs for material management, vendor replacement,
rework, warranty, manufacturing and engineering support, and administrative
activities. The $14,200 cash receipt was recorded as a reduction of costs and
expenses in 2001.

4. CONTRACTS IN PROCESS

The components of contracts in process are presented in the table below.
The unbilled contract receivables, inventoried contract costs and unliquidated
progress payments are principally related to contracts with the U.S. Government
and prime contractors or subcontractors of the U.S. Government.

DECEMBER 31,
---------------------------
2001 2000
------------- -----------

Billed receivables, less allowances of $11,649 and $6,430 ......... $ 330,795 $ 310,185
---------- ---------
Unbilled contract receivables ..................................... 353,262 277,026
Less: unliquidated progress payments .............................. (102,739) (69,529)
---------- ---------
Unbilled contract receivables, net ............................... 250,523 207,497
---------- ---------
Inventoried contract costs, gross ................................. 110,244 83,808
Less: unliquidated progress payments .............................. (6,575) (5,685)
---------- ---------
Inventoried contract costs, net .................................. 103,669 78,123
Inventories at lower of cost or market ............................ 116,837 104,328
---------- ---------
Total contracts in process ....................................... $ 801,824 $ 700,133
========== =========

The Company believes that approximately $289,396 of the unbilled contract
receivables at December 31, 2001 will be billed and collected within one year.

The selling, general and administrative ("SG&A") cost data presented in
the table below have been used in the determination of the costs and expenses
presented on the statements of operations.

YEAR ENDED DECEMBER 31
------------------------------------
2001 2000 1999
---------- ---------- ----------

SG&A costs included in inventoried contract
costs ...................................... $ 19,970 $ 24,396 $ 23,637
SG&A incurred costs ......................... 418,002 350,561 265,136
Independent research and development,
including bid and proposal costs included in
SG&A incurred costs ........................ 107,466 101,883 76,134

F-40

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

5. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

At December 31, 2001, other current liabilities include an accrual of
$43,641 for the remaining Spar common shares outstanding at December 31, 2001
which the Company acquired in January 2002, and $19,236 of estimated costs in
excess of billings to complete contracts in process. At December 31, 2001,
other liabilities include $18,814 for the non-current portion of estimated
costs in excess of billings to complete contracts in process.

At December 31, 2000, other current liabilities include $31,737 of
estimated costs in excess of billings to complete contracts in process
principally related to contracts assumed as part of the TDTS business that was
acquired from Raytheon in February 2000, including the U.S. Army Aviation
Combined Arms Tactical Trainer ("AVCATT") contract. At December 31, 2000, other
liabilities include $59,641 for the non-current portion of estimated costs in
excess of billings to complete contracts in process, principally for the AVCATT
contract.

At December 31, 2001, current and non-current estimated costs in excess of
billings to complete contracts in process reflect contract costs incurred
during 2001 that were charged against the estimated costs in excess of billings
and favorable performance on the AVCATT contract related to cost reductions
arising from engineering design changes, material sourcing changes, unit price
reductions on several parts in the contract bill of materials and lower
overhead costs that occurred during 2001.

6. PROPERTY, PLANT AND EQUIPMENT

DECEMBER 31,
-----------------------
2001 2000
---------- ----------

Land .................................................... $ 12,947 $ 11,242
Buildings and improvements .............................. 38,544 25,942
Machinery, equipment, furniture and fixtures ............ 260,338 192,679
Leasehold improvements .................................. 29,232 24,514
-------- --------
Gross property, plant and equipment .................... 341,061 254,377
Less: accumulated depreciation and amortization ......... 137,687 98,249
-------- --------
Property, plant and equipment, net ..................... $203,374 $156,128
======== ========

Depreciation and amortization expense for property, plant and equipment
was $40,362 for 2001, $36,158 for 2000, and $29,554 for 1999.

F-41

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

7. DEBT

The components of long-term debt and a reconciliation to the carrying
amount of long-term debt are presented in the table below.

DECEMBER 31,
----------------------------
2001 2000
------------ -------------

Borrowings under Senior Credit Facilities .................... $ -- $ 190,000
10 3/8% Senior Subordinated Notes due 2007 .................... 225,000 225,000
8 1/2% Senior Subordinated Notes due 2008 ..................... 180,000 180,000
8% Senior Subordinated Notes due 2008 ........................ 200,000 200,000
5 1/4% Convertible Senior Subordinated Notes due 2009 ......... 300,000 300,000
4% Senior Subordinated Convertible Contingent
Debt Securities due 2011 .................................... 420,000 --
---------- ----------
Principal amount of long-term debt ........................... 1,325,000 1,095,000
Less: Unamortized discount ................................... 2,502 --
Fair value of interest rate swap agreements ............... 7,246 --
---------- ----------
Carrying amount of long-term debt ............................ $1,315,252 $1,095,000
========== ==========

The borrowings under the Senior Credit Facilities, 10 3/8% Senior
Subordinated Notes due 2007, 8 1/2% Senior Subordinated Notes due 2008 and 8%
Senior Subordinated Notes due 2008 are the indebtedness of L-3 Communications.
The 5 1/4% Convertible Senior Subordinated Notes due 2009 and the 4% Senior
Subordinated Convertible Contingent Debt Securities due 2011 are the
indebtedness of L-3 Holdings. Details on all of the outstanding debt of both
L-3 Communications and L-3 Holdings are discussed below.

In May 2001, L-3 Communications restructured its Senior Credit Facilities.
At December 31, 2001, the Senior Credit Facilities were comprised of a $400,000
five year revolving credit facility maturing on May 15, 2006 and a $200,000
364-day revolving facility maturing on May 15, 2002 under which at the maturity
date L-3 Communications may, (1) at its request and subject to approval of the
lenders, extend the maturity date, in whole or in part, for an additional
364-day period, or (2) at its election, convert the outstanding principal
amount thereunder into a term loan which would be repayable in a single payment
two years from the conversion date. Additionally, the Senior Credit Facilities
provided L-3 Communications the ability to increase, on an uncommitted basis,
the amount of either the five year revolving credit facility or the 364-day
revolving credit facility up to an additional $150,000 in the aggregate.

At December 31, 2001, available borrowings under the Company's Senior
Credit Facilities were $497,594, after reductions for outstanding letters of
credit of $102,406. There were no outstanding borrowings under the Senior
Credit Facilities at December 31, 2001.

Borrowings under the Senior Credit Facilities bear interest, at L-3
Communications' option, at either: (i) a "base rate" equal to the higher of
0.50% per annum above the latest federal funds rate and the Bank of America
"reference rate" (as defined) plus a spread ranging from 2.00% to 0.50% per
annum depending on L-3 Communications' Debt Ratio at the time of determination
or (ii) a "LIBOR rate" (as defined) plus a spread ranging from 3.00% to 1.50%
per annum depending on L-3 Communications' Debt Ratio at the time of
determination. The Debt Ratio is defined as the ratio of Consolidated Total
Debt to Consolidated EBITDA. Consolidated Total Debt is equal to outstanding
debt plus capitalized lease obligations minus the lesser of actual unrestricted
cash or $50,000. Consolidated EBITDA is equal to consolidated net income
(excluding extraordinary gains and losses, and gains and losses in connection
with asset dispositions and discontinued operations) for the most

F-42

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

recent four quarters, plus consolidated interest expense, income taxes,
depreciation and amortization minus depreciation and amortization related to
minority interest. At December 31, 2001, there were no borrowings outstanding
under the Senior Credit Facilities. L-3 Communications pays commitment fees
calculated on the daily amounts of the available unused commitments under the
Senior Credit Facilities at a rate ranging from 0.50% to 0.35% per annum,
depending on L-3 Communications' Debt Ratio in effect at the time of
determination. L-3 Communications pays letter of credit fees calculated at a
rate ranging from 1.50% to 0.75% per annum for performance letters of credit
and 3.00% to 1.50% for all other letters of credit, in each case depending on
L-3 Communications' Debt Ratio at the time of determination.

Additionally, in February 2002, the Company expects the lenders to approve
a $150,000 increase in the amount of the Senior Credit Facilities. The five
year revolving credit facility will increase by $100,000 to $500,000 and the
364-day revolving credit facility will increase by $50,000 to $250,000.
Additionally, the maturity date of the $200,000 364-day revolving credit
facility is expected to be extended to February 2003.

In March 2002, L-3 Communications expects to borrow $500,000 under a
senior subordinated Bridge Loan Facility to finance a portion of the purchase
price of AIS and related expenses. The Bridge Loan Facility will be
subordinated in right of payment to all of L-3 Communications' existing and
future senior debt. Borrowings under the Bridge Loan Facility will bear
interest through March 2003, at L-3 Communications' option, at either the
one-month or three-month LIBOR rate plus a spread equal to 350 basis points.
The Bridge Loan Facility will mature in May 2009, but if the loans under the
facility are not repaid by March 2003, each lender's loan will be automatically
converted into an exchange note with terms substantially similar to those of
the senior subordinated notes discussed below, and will bear interest at a
fixed rate equal to the yield to maturity on the Company's highest yielding
existing subordinated indebtedness at the time of exchange plus 100 basis
points. Subject to the exceptions that will be set forth in the Bridge Loan
Facility, L-3 Communications will be required to prepay the Bridge Loan
Facility with the net cash proceeds from:

o any debt offerings by L-3 Holdings or its subsidiaries, including L-3
Communications;

o issuance of any equity interests in L-3 Holdings or L-3 Communications;

o incurrence of any other indebtedness of L-3 Holdings or any of its
subsidiaries, including L-3 Communications (other than under the Senior
Credit Facilities and certain permitted indebtedness); and

o any sale of assets or stock of any subsidiaries of L-3 Communications.

In the fourth quarter of 2001, L-3 Holdings sold $420,000 of 4% Senior
Subordinated Convertible Contingent Debt Securities ("CODES") due September 15,
2011. The net proceeds from the offering of the outstanding notes amounted to
approximately $407,450 after underwriting discounts and commissions and other
offering expenses. Interest is payable semi-annually on March 15 and September
15 of each year commencing March 15, 2002. The CODES are convertible into L-3
Holdings' common stock at a conversion price of $53.81 per share (7,804,878
shares) under any of the following circumstances: (1) during any Conversion
Period (defined below) if the closing sales price of the common stock of L-3
Holdings is more than 120% of the conversion price ($64.58) for at least 20
trading days in the 30 consecutive trading-day period ending on the first day
of the respective Conversion Period; (2) during the five business day period
following any 10 consecutive trading-day period in which the average of the
trading prices for the CODES was less than 105% of the conversion value; (3) if
the credit ratings assigned to the CODES by either Moody's or Standard & Poor's
are below certain specified ratings, (4) if they have been called for
redemption by the

F-43

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Company, or (5) upon the occurrence of certain specified corporate
transactions. A Conversion Period is the period from and including the
thirtieth trading day in a fiscal quarter to, but not including, the thirtieth
trading day of the immediately following fiscal quarter. There are four
Conversion Periods in each fiscal year. Additionally, holders of the CODES have
a right to receive contingent interest payments, not to exceed a per annum rate
of 0.5% of the outstanding principal amount of the CODES, which will be paid on
the CODES during any six-month period following a six-month period in which the
average trading price of the CODES is above 120% of the principal amount of the
CODES. The contingent interest payment provision as well as the ability of the
holders of the CODES to exercise the conversion features as a result of changes
in the credit ratings assigned to the CODES have been accounted for as embedded
derivatives. The initial aggregate fair values assigned to the embedded
derivatives was $2,502, which was also recorded as a discount to the CODES. The
carrying values assigned to the embedded derivatives were recorded in other
liabilities and will be adjusted periodically through other income (expense)
for changes in their fair values. The CODES are subject to redemption at any
time at the option of L-3 Holdings, in whole or in part, on or after October
24, 2004 at redemption prices (plus accrued and unpaid interest -- including
contingent interest) starting at 102% of principal (plus accrued and unpaid
interest -- including contingent interest) during the 12 month period beginning
October 24, 2004 and declining annually to 100% of principal (plus accrued and
unpaid interest -- including contingent interest) on September 15, 2006. The
CODES are general unsecured obligations of L-3 Holdings and are subordinated in
right of payment to all existing and future senior debt of L-3.

In the fourth quarter of 2000, L-3 Holdings sold $300,000 of 5 1/4%
Convertible Senior Subordinated Notes (the "Convertible Notes") due June 1,
2009. The net proceeds from the offering of the outstanding notes amounted to
approximately $290,500 after underwriting discounts and other offering
expenses, and were used to repay revolver borrowings outstanding under the
Company's Senior Credit Facilities. Interest is payable semi-annually on June 1
and December 1 of each year commencing June 1, 2001. The Convertible Notes may
be converted at any time into L-3 Holdings common stock at a conversion price
of $40.75 per share. If all the Convertible Notes were converted, an additional
7,361,964 shares of L-3 Holdings common stock would have been outstanding at
December 31, 2001. The Convertible Notes are general unsecured obligations of
L-3 Holdings and are subordinated in right of payment to all existing and
future senior debt of L-3 Holdings and L-3 Communications. The Convertible
Notes are subject to redemption at any time, at the option of L-3 Holdings, in
whole or in part, on or after December 1, 2003 at redemption prices (plus
accrued and unpaid interest) starting at 102.625% of principal (plus accrued
and unpaid interest) during the 12-month period beginning December 1, 2003 and
declining annually to 100% of principal (plus accrued and unpaid interest) on
December 1, 2005 and thereafter.

In December 1998, L-3 Communications sold $200,000 of 8% Senior
Subordinated Notes due August 1, 2008 (the "December 1998 Notes") with interest
payable semi-annually on February 1 and August 1 of each year commencing
February 1, 1999. The December 1998 Notes are general unsecured obligations of
L-3 Communications and are subordinated in right of payment to all existing and
future senior debt of L-3 Communications. The December 1998 Notes are subject
to redemption at any time, at the option of L-3 Communications, in whole or in
part, on or after August 1, 2003 at redemption prices (plus accrued and unpaid
interest) starting at 104% of principal (plus accrued and unpaid interest)
during the 12-month period beginning August 1, 2003 and declining annually to
100% of principal (plus accrued and unpaid interest) on August 1, 2006 and
thereafter.

In May 1998, L-3 Communications sold $180,000 of 8 1/2% Senior Subordinated
Notes due May 15, 2008 (the "May 1998 Notes") with interest payable
semi-annually on May 15 and November 15 of each year commencing November 15,
1998. The May 1998 Notes are general unsecured obligations of

F-44

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

L-3 Communications and are subordinated in right of payment to all existing and
future senior debt of L-3 Communications. The May 1998 Notes are subject to
redemption at any time, at the option of L-3 Communications, in whole or in
part, on or after May 15, 2003 at redemption prices (plus accrued and unpaid
interest) starting at 104.250% of principal (plus accrued and unpaid interest)
during the 12-month period beginning May 15, 2003 and declining annually to
100% of principal (plus accrued and unpaid interest) on May 15, 2006 and
thereafter.

In April 1997, L-3 Communications sold $225,000 of 10 3/8% Senior
Subordinated Notes due May 1, 2007 (the "1997 Notes") with interest payable
semi-annually on May 1 and November 1 of each year commencing November 1, 1997.
The 1997 Notes are general unsecured obligations of L-3 Communications and are
subordinated in right of payment to all existing and future senior debt of L-3
Communications. The 1997 Notes are subject to redemption at any time, at the
option of L-3 Communications, in whole or in part, on or after May 1, 2002 at
redemption prices (plus accrued and unpaid interest) starting at 105.188% of
principal (plus accrued and unpaid interest) during the 12-month period
beginning May 1, 2002 and declining annually to 100% of principal (plus accrued
and unpaid interest) on May 1, 2005 and thereafter.

Collectively the 1997 Notes, May 1998 Notes and December 1998 Notes
comprise the "Senior Subordinated Notes". The maturities on the Senior
Subordinated Notes, Convertible Notes and CODES are $225,000 in 2007, $380,000
in 2008, $300,000 in 2009 and $420,000 in 2011.

In November 2001, L-3 Communications entered into interest rate swap
agreements on its $180,000 of 8 1/2% Senior Subordinated Notes due 2008. These
swap agreements exchange the fixed interest rate for a variable interest rate
on the entire principal amount. Under these swap agreements, L-3 Communications
will pay or receive the difference between the fixed interest rate of 8 1/2% on
the senior subordinated notes and a variable interest rate determined two
business days prior to the interest payment date of the senior subordinated
notes equal to (1) the six month LIBOR rate, set in arrears, plus (2) an
average of 350.8 basis points. In July 2001, L-3 Communications entered into
interest rate swap agreements on its $200,000 of 8% Senior Subordinated Notes
due 2008. These swap agreements exchange the fixed interest rate for a variable
interest rate on the entire principal amount. Under these swap agreements, L-3
Communications will pay or receive the difference between the fixed interest
rate of 8% on the senior subordinated notes and a variable interest rate
determined two business days prior to the interest payment date of the senior
subordinated notes equal to (1) the six month LIBOR rate, set in arrears, plus
(2) an average of 192 basis points. The difference to be paid or received on
these swap agreements as interest rates change is recorded as an adjustment to
interest expense. The swap agreements are accounted for as fair value hedges.

The Senior Credit Facilities, Senior Subordinated Notes, Convertible Notes
and CODES agreements contain (and the Bridge Loan Facility will contain)
financial and other restrictive covenants that limit, among other things, the
ability of the Company to borrow additional funds, dispose of assets, or pay
cash dividends. The Company's most restrictive covenants are contained in the
Senior Credit Facilities, as amended. The covenants require that (1) the
Company's Debt Ratio be less than or equal to 4.50 for the quarter ended
December 31, 2001, and that the maximum allowable Debt Ratio be 4.85 for the
quarters ending March 31, 2002 and June 30, 2002, thereafter declining over
time to less than or equal to 3.50 for the quarters ending December 31, 2004
and thereafter, and (2) the Company's Interest Coverage Ratio be greater than
or equal to 2.50 for the quarter ended December 31, 2001, and that the minimum
allowable Interest Coverage Ratio, thereafter increase over time to greater
than or equal to at least 3.00 for the quarters ending December 31, 2003 and
thereafter. The Interest Coverage Ratio is equal to the ratio of Consolidated
EBITDA to Consolidated Cash Interest Expense. Consolidated Cash Interest
Expense is equal to interest expense

F-45

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

less the amortization of deferred debt issue costs included in interest
expense. For purposes of calculating the financial covenants under the Senior
Credit Facilities, the Convertible Notes and CODES are considered debt of L-3
Communications. The Senior Credit Facilities also limit the payment of
dividends by L-3 Communications to L-3 Holdings except for payment of franchise
taxes, fees to maintain L-3 Holdings' legal existence, income taxes up to
certain amounts, interest accrued on the Convertible Notes and CODES or to
provide for operating costs of up to $1,000 annually. Under the covenant, L-3
Communications may also pay permitted dividends to L-3 Holdings from its excess
cash flow, as defined, a cumulative amount of $5,000, provided that the Debt
Ratio is no greater than 3.5 to 1 as of the most recent fiscal quarter. As a
result, at December 31, 2001, $5,000 of L-3 Communications net assets were
available for payment of dividends to L-3 Holdings. Through December 31, 2001,
the Company was in compliance with these covenants at all times.

In connection with the Senior Credit Facilities, the Company has granted
the lenders a first priority lien on the stock of L-3 Communications and
substantially all of its domestic subsidiaries. The borrowings under the Senior
Credit Facilities are guaranteed by L-3 Holdings and by substantially all of
the domestic subsidiaries of L-3 Communications on a senior basis. The payment
of principal and premium, if any, and interest on the Senior Subordinated Notes
are (and the Bridge Loan Facility will be) unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally, by all of L-3
Communications' restricted subsidiaries other than its foreign subsidiaries.
The guarantees of the Senior Subordinated Notes are (and the Bridge Loan
Facility will be) junior to the guarantees of the Senior Credit Facilities and
rank pari passu with each other and the guarantees of the Convertible Notes and
the CODES. Additionally, the Convertible Notes and CODES are unconditionally
guaranteed, on an unsecured senior subordinated basis, jointly and severally,
by L-3 Communications and substantially all of its direct and indirect domestic
subsidiaries. These guarantees rank junior to the guarantees of the Senior
Credit Facilities and rank pari passu with each other and the guarantees of the
Senior Subordinated Notes and will rank pari passu with the guarantees of the
Bridge Loan Facility.

8. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments. The Company's financial instruments
consist primarily of cash and cash equivalents, billed receivables,
investments, trade accounts payable, customer advances, Senior Credit
Facilities, Senior Subordinated Notes, Convertible Notes, CODES, foreign
currency forward contracts, interest rate cap and floor contracts, interest
rate swap agreements and embedded derivatives related to the issuance of the
CODES. The carrying amounts of cash and cash equivalents, billed receivables,
trade accounts payable, Senior Credit Facilities, and customer advances are
representative of their respective fair values because of the short-term
maturities or expected settlement dates of these instruments. The fair values
of the Company's investments are based on quoted market prices, as available,
and on historical cost for investments which it is not practicable to estimate
fair value. The Senior Subordinated Notes are registered, unlisted public debt
which are traded in the over-the-counter market and their fair values are based
on quoted trading activity. The fair values of the Convertible Notes and CODES
are based on quoted prices for the same or similar issues. The fair value of
foreign currency forward contracts were estimated based on exchange rates at
December 31, 2001 and 2000. The fair values of the interest rate cap and floor
contracts, interest rate swap agreements and the embedded derivatives were
estimated by discounting expected cash flows using quoted market interest
rates. The carrying amounts and estimated fair values of the Company's
financial instruments are presented in the table below.

F-46

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

DECEMBER 31,
----------------------------------------------
2001 2000
----------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- -----------

Investments ................................. $ 16,532 $ 16,532 $ 8,985 $ 8,985
Senior Subordinated Notes ................... 597,754 630,925 605,000 586,300
Convertible Notes ........................... 300,000 387,000 300,000 331,350
CODES ....................................... 417,498 432,600 -- --
Borrowings under Senior Credit Facilities ... -- -- 190,000 190,000
Interest rate caps .......................... -- -- 431 2
Interest rate floor ......................... (432) (432) (74) (104)
Foreign currency forward contracts .......... 258 258 -- 392
Interest rate swaps ......................... (7,246) (7,246) -- --
Embedded derivatives ........................ (3,060) (3,060) -- --

Interest Rate Risk Management. To mitigate risks associated with changing
interest rates on borrowings under the Senior Credit Facilities, the Company
entered into interest rate cap and interest rate floor contracts. The interest
rate caps and floors are denominated in U.S. dollars and have designated
maturities which occur every three months until the interest rate cap and floor
contracts expire in March 2002. In 2001, the Company entered into interest rate
swap agreements on $380,000 of its Senior Subordinated Notes to take advantage
of the current low interest rate environment. These swap agreements exchanged
the fixed interest rate for a variable interest rate on the entire notional
amount, are denominated in U.S. dollars and have designated maturities which
occur on the interest payment dates of the related Senior Subordinated Notes.
Collectively the interest rate cap and floor contracts and interest rate swap
agreements are herein referred to as the ("interest rate agreements"). Cash
payments received from or paid to the counterparties on the interest rate
agreements are the difference between the amount that the reference interest
rates are greater than or less than the contract rates on the designated
maturity dates, multiplied by the notional amounts underlying the respective
interest rate agreements. Cash payments or receipts between the Company and
counterparties are recorded as a component of interest expense. The initial
cost or receipt of these arrangements, if any, are deferred and amortized as a
component of interest expense over the term of the interest rate agreement. The
Company manages exposure to counterparty credit risk by entering into the
interest rate agreements only with major financial institutions that are
expected to fully perform under the terms of such agreements. The notional
amounts are used to measure the volume of these agreements and do not represent
exposure to credit loss.

Foreign Currency Exchange Risk Management. Some of the Company's U.S.
operations have contracts with foreign customers which are denominated in
foreign currencies. To mitigate the risk associated with certain of these
contracts denominated in foreign currency, the Company has entered into foreign
currency forward contracts. The Company's activities involving foreign currency
forward contracts are designed to hedge the foreign denominated cash paid or
received, primarily Euro, British Pound and Italian Lira. The Company manages
exposure to counterparty credit risk by entering into foreign currency forward
contracts only with major financial institutions that are expected to fully
perform under the terms of such contracts. The notional amounts are used to
measure the volume of these contracts and do not represent exposure to foreign
currency losses.

F-47

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Information with respect to the interest rate agreements and foreign
currency forward contracts is presented in the table below.

DECEMBER 31,
------------------------------------------------------------
2001 2000
----------------------------- ----------------------------
NOTIONAL UNREALIZED NOTIONAL UNREALIZED
AMOUNT GAINS (LOSSES) AMOUNT GAINS (LOSSES)
---------- ---------------- ---------- ---------------

Interest rate swaps ........................ $380,000 -- -- --
Interest rate caps ......................... 100,000 $ (107) $100,000 $ (429)
Interest rate floor ........................ 50,000 (414) 50,000 (30)
Foreign currency forward contracts ......... 7,138 258 6,863 392

9. L-3 HOLDINGS COMMON STOCK

On June 29, 2001, the Company established the L-3 Communications
Corporation Employee Stock Purchase Plan ("ESPP") and registered 3,000,000
shares of L-3 Holdings common stock, which may be purchased by employees of L-3
Communications Corporation and its U.S. subsidiaries through payroll
deductions. In general, an eligible employee who participates in the ESPP may
purchase L-3 Holdings' common stock at a fifteen percent discount. The ESPP is
not subject to the Employment Retirement Income Security Act of 1974, as
amended. As of December 31, 2001, $4,861 of employee contributions to the
employee stock purchase plan were received by the Company and recorded as a
component of shareholders' equity in the consolidated balance sheet. On January
7, 2002, the Company transferred 148,570 shares of L-3 Holdings' common stock
to the trustee of the ESPP on behalf of those employees who made contributions
to the ESPP in 2001.

On May 2, 2001, L-3 Holdings sold 13,800,000 shares of common stock in a
public offering for $40.00 per share. L-3 Holdings sold 9,150,000 shares and
other selling stockholders, including affiliates of Lehman Brothers Inc., sold
4,650,000 secondary shares. Upon closing, L-3 Holdings received net proceeds
after underwriting discounts and commissions and other offering expenses of
$353,622. The net proceeds were contributed to L-3 Communications and were used
to repay borrowings under the Senior Credit Facilities, pay for the KDI and EER
acquisitions and to increase cash and cash equivalents.

As additional consideration for the ILEX acquisition, L-3 Holdings issued
588,248 shares of its common stock valued at $17,357 in April 2001 based on the
financial performance of ILEX in 1999 and 2000, and in August 1999, L-3
Holdings issued 301,910 shares of its common stock valued at $6,434 based on
the financial performance of ILEX in 1998. There is no remaining contingent
consideration for the ILEX acquisition.

On February 4, 1999, L-3 Holdings sold 10,000,000 shares of common stock
in a public offering for $21.00 per share (the "February 1999 Common Stock
Offering"); the net proceeds amounted to $201,582 and were contributed by L-3
Holdings to L-3 Communications. In addition, 13,000,000 shares were also sold
in the February 1999 Common Stock Offering by the Lehman Partnership and
Lockheed Martin. In October 1999, Lockheed Martin sold its remaining interest
in L-3 Holdings' common stock. In December 1999, the Lehman Partnership
distributed to its partners approximately 7,600,000 shares of L-3 Holdings'
common stock. As of December 31, 2001, the Lehman Partnership owned
approximately 4.4% of the outstanding common stock of L-3 Holdings.

On May 19, 1998, L-3 Holdings sold 13,800,000 shares of its common stock
in an initial public offering ("IPO"). The net proceeds of the IPO amounted to
$139,500 and were contributed by L-3 Holdings to L-3 Communications. Prior to
the IPO, the common stock of L-3 Holdings consisted of

F-48

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

three classes Class A, Class B, and Class C common stock. Immediately prior to
the IPO, each authorized share of L-3 Holdings Class A common stock, Class B
common stock and Class C common stock was converted into one class of common
stock and the authorized L-3 Holdings common stock was increased to 100,000,000
shares.

10. L-3 HOLDINGS EARNINGS PER SHARE

A reconciliation of basic and diluted earnings per share ("EPS") is
presented in the table below.

YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- ------------ ------------

Basic:
Net income ......................................... $ 115,458 $ 82,727 $ 58,689
--------- --------- ---------
Weighted average common shares outstanding ......... 74,880 66,710 64,214
--------- --------- ---------
Basic earnings per share ........................... $ 1.54 $ 1.24 $ 0.91
========= ========= =========
Diluted:
Net income ......................................... $ 115,458 $ 82,727 $ 58,689
After-tax interest expense savings on the assumed
conversion of Convertible Notes .................. 10,502 -- --
--------- --------- ---------
Net income including assumed conversion ............ $ 125,960 $ 82,727 $ 58,689
========= ========= =========
Common and potential common shares:
Weighted average common shares outstanding ......... 74,880 66,710 64,214
Assumed exercise of stock options .................. 7,692 7,880 6,752
Assumed purchase of common shares for treasury ..... (4,496) (4,684) (3,934)
Assumed conversion of Convertible Notes ............ 7,362 -- --
--------- --------- ---------
Common and potential common shares .................. 85,438 69,906 67,032
========= ========= =========
Diluted earnings per share .......................... $ 1.47 $ 1.18 $ 0.88
========= ========= =========

The 7,804,878 shares of L-3 Holdings' common stock that are issuable upon
conversion of the CODES were not included in the computation of diluted EPS for
the year ended December 31, 2001 because the conditions required for the CODES
to become convertible have not been met.

F-49

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

11. INCOME TAXES

Pretax income of the Company was $186,222 for 2001, $134,079 for 2000, and
$95,430 for 1999 substantially all of which was derived from domestic
operations. The components of the Company's provision for income taxes are
presented in the table below.

YEAR ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
---------- ---------- ---------

Current income tax provision, primarily federal . ......... $18,126 $26,249 $ 7,910
Deferred income tax provision:
Federal .................................................. 43,965 23,130 27,881
State and local .......................................... 8,673 1,973 950
------- ------- -------
Subtotal ............................................... 52,638 25,103 28,831
------- ------- -------
Total provision for income taxes .......................... $70,764 $51,352 $36,741
======= ======= =======

A reconciliation of the statutory federal income tax rate to the effective
income tax rate of the Company is presented in the table below.

YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------

Statutory federal income tax rate . ..................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income
tax benefit ............................................ 5.3 4.4 4.6
Foreign sales corporation and extra territorial income
benefits ............................................... (3.6) (2.6) --
Nondeductible goodwill amortization and other
expenses ............................................... 4.8 6.8 5.2
Research and experimentation and other tax credits ...... (5.0) (6.1) (7.1)
Other, net .............................................. 1.5 0.8 0.8
---- ---- ----
Effective income tax rate ............................... 38.0% 38.3% 38.5%
==== ==== ====

The provision for income taxes excludes current tax benefits related to
compensation expense deductions for the exercise of stock options that were
credited directly to shareholders' equity of $11,939 for 2001, $9,108 for 2000
and $1,011 for 1999.

F-50

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The significant components of the Company's net deferred tax assets and
liabilities are presented in the table below.

DECEMBER 31,
---------------------------
2001 2000
------------ ------------

Deferred tax assets:
Inventoried costs .................................. $ 8,520 $ 14,868
Compensation and benefits .......................... 11,460 10,461
Pension and postretirement benefits ................ 59,397 39,486
Property, plant and equipment ...................... 16,579 9,081
Income recognition on contracts in process ......... 16,670 55,942
Net operating loss carryforwards ................... 32,480 9,660
Tax credit carryforwards ........................... 31,943 18,444
Other, net ......................................... 21,555 14,430
--------- ---------
Total deferred tax assets ........................ 198,604 172,372
--------- ---------
Deferred tax liabilities:
Goodwill ........................................... (26,493) (18,903)
Other, net ......................................... (11,263) (6,626)
--------- ---------
Total deferred tax liabilities ................... (37,756) (25,529)
--------- ---------
Net deferred tax assets ......................... $ 160,848 $ 146,843
========= =========
The following table presents the classification of the Company's net deferred tax
assets.

Current deferred tax assets . ....................... $ 62,965 $ 89,732
Long-term deferred tax assets ....................... 97,883 57,111
--------- ---------
Total net deferred tax assets .................... $ 160,848 $ 146,843
========= =========

At December 31, 2001, the Company had $82,340 of U.S. net operating losses
and $31,943 of tax credit carryforwards primarily related to U.S. and state
research and experimentation credits and state investment tax credits. The net
operating losses, some of which are subject to limitation, expire, if unused,
between 2011 and 2021. The tax credits primarily expire, if unused, beginning
in 2012. The Company believes that it will generate sufficient taxable income
to utilize these net operating losses and tax credit carryforwards before they
expire.

12. STOCK OPTIONS

The Company adopted the 1999 Long Term Performance Plan in April 1999, and
adopted the 1997 Option Plan in April 1997. As of December 31, 2001, the number
of shares of L-3 Holdings' common stock authorized for grant of options or
awards under these plans was 16,611,630. On April 26, 2001, an additional
6,000,000 shares of L-3 Holdings' common stock were authorized for grant of
options or awards under the 1999 Long Term Performance Plan. The grants may be
awarded to employees of the Company in the form of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock or other
incentive awards. The price at which options may be granted shall not be less
than 100% of the fair market value of L-3 Holdings' common stock on the date of
grant. In general, options expire after 10 years and are exercisable ratably
over a 3 year period. As of December 31, 2001, the Company had 5,005,838 shares
of L-3 Holdings' common stock available for awards under these plans.

On January 1, 2001, January 1, 2000 and May 19, 1999, the Company awarded
60,928, 85,792 and 80,678 shares of restricted stock of L-3 Holdings to
employees. The 2001 and 1999 awards vest January 1, 2004 and the 2000 award
vests January 1, 2005.

F-51

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

On April 5, 1999, the Company amended the terms of the stock options
granted to Frank C. Lanza, Chairman and Chief Executive Officer and Robert V.
LaPenta, President and Chief Financial Officer on April 30, 1997 for the
purchase of 2,285,714 shares each of L-3 Holdings' common stock at an option
price of $3.24. Such amendment eliminated the performance target acceleration
provisions on the unvested performance options, so that 914,286 options for
each of Mr. Lanza and Mr. LaPenta, vested on April 5, 1999. These performance
options would have originally vested nine years after the grant date, but would
have become exercisable with respect to 25% of the shares subject to such
performance options on each of April 30, 1999, 2000, 2001 and 2002, to the
extent certain targets for the Company's EBITDA were achieved.

The table below presents the Company's stock option activity.

WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------------- ---------
(IN THOUSANDS)

Balance at December 31, 1998 ......... 5,756 $ 4.64
Options granted ...................... 2,018 19.55
Options exercised .................... (158) 4.19
Options cancelled .................... (86) 15.00
-----
Balance at December 31, 1999 ......... 7,530 8.51
Options granted ...................... 1,322 23.87
Options exercised .................... (1,154) 7.76
Options cancelled .................... (442) 19.91
------
Balance at December 31, 2000 ......... 7,256 10.71
Options granted ...................... 2,214 35.81
Options exercised .................... (1,128) 14.57
Options cancelled .................... (362) 21.23
------
Balance at December 31, 2001 ......... 7,980 $ 16.68
======

The following table summarizes information about stock options outstanding
at December 31, 2001.

OUTSTANDING EXERCISABLE
------------------------------------------ -----------------------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICES OF OPTIONS LIFE (YEARS) PRICE OF OPTIONS LIFE (YEARS) PRICE
- -------------------------- ------------ -------------- ---------- ------------ -------------- ---------

$3.24 .................... 3,718 5.5 $ 3.24 3,260 5.5 $ 3.24
$11.00 ................... 170 6.3 $ 11.00 170 6.3 $ 11.00
$16.38 - $19.99 ......... 740 7.7 $ 18.77 430 7.7 $ 18.62
$20.00 - $23.50 .......... 820 7.6 $ 20.80 256 7.3 $ 20.55
$29.00 ................... 368 8.6 $ 29.00 100 8.6 $ 29.00
$32.50 - $35.00........... 1,284 9.3 $ 33.25 -- -- --
$39.70.................... 880 9.9 $ 39.70 -- -- --
----- -----
Total ................... 7,980 7.2 $ 16.68 4,216 5.9 $ 6.78
===== =====

F-52

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The weighted average fair values of stock options at their grant date
during 2001, 2000 and 1999, where the exercise price equaled the market price
(estimated fair value) on the grant date were $14.87, $10.10 and $7.30,
respectively. In accordance with APB 25, no compensation expense was
recognized. The following table reflects pro forma net income and L-3 Holdings
EPS had the Company elected to adopt the fair value approach of SFAS 123.

YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- ------------ ------------

Net income:
As reported ............ $ 115,458 $ 82,727 $ 58,689
Pro forma .............. 107,573 75,064 54,625
L-3 Holdings Basic EPS:
As reported ............ $ 1.54 $ 1.24 $ 0.91
Pro forma .............. 1.44 1.13 0.85
L-3 Holdings Diluted EPS:
As reported ............ $ 1.47 $ 1.18 $ 0.88
Pro forma .............. 1.38 1.07 0.81

The estimated fair value of options granted was calculated using the
Black-Scholes option-pricing valuation model. The weighted average assumptions
used in the valuation models are presented in the table below.

YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------

Expected option term ............ 5.0 5.0 4.8
Expected volatility ............. 39.5% 35.8% 31.0%
Expected dividend yield ......... -- -- --
Risk-free interest rate ......... 4.5% 6.4% 4.7%

13. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under agreements
expiring at various dates through 2028. The following table presents future
minimum payments under noncancellable operating leases with initial or
remaining terms in excess of one year as of December 31, 2001.

OPERATING LEASES
----------------------------------------
REAL ESTATE EQUIPMENT TOTAL
------------- ----------- ----------

2002 ............... $ 60,163 $1,735 $ 61,898
2003 ............... 48,302 996 49,298
2004 ............... 32,693 379 33,072
2005 ............... 28,788 104 28,892
2006 ............... 25,722 12 25,734
Thereafter ......... 151,561 -- 151,561
-------- ------ --------
Total ............. $347,229 $3,226 $350,455
======== ====== ========

F-53

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Real estate lease commitments have been reduced by minimum sublease rental
income of $5,127 due in the future under noncancellable subleases. Leases
covering major items of real estate and equipment contain renewal and or
purchase options. Rent expense, net of sublease income was $41,370 for 2001,
$34,123 for 2000 and $22,452 for 1999.

On March 30, 1998, the Company entered into a real estate lease agreement,
as lessee, with an unrelated lessor which expired on March 30, 2001, which is
accounted for as an operating lease. On March 29, 2001, the Company exercised
its option to renew the lease through March 30, 2003. On or before the lease
expiration date, the Company can exercise options under the lease agreement to
either renew the lease, purchase the property for $12,500, or sell the property
on behalf of the lessor (the "Sale Option"). If the Company elects the Sale
Option, the Company must pay the lessor a residual guarantee amount of $10,894,
on or before the lease expiration date, and at the time the property is sold,
the Company must pay the lessor a supplemental rent equal to the gross sales
proceeds in excess of the residual guarantee amount not to exceed $1,606.

On June 30, 1999, the Company entered into a real estate lease agreement,
as lessee, with an unrelated lessor which expires on June 30, 2002, which is
accounted for as an operating lease. On or before the lease expiration date,
the Company can exercise options under the lease agreement to either renew the
lease, purchase the property for $15,500, or sell the property on behalf of the
lessor. If the Company elects the Sale Option, the Company must pay the lessor
a residual guarantee amount of $13,524, on or before the lease expiration date,
and at the time the property is sold, the Company must pay the lessor a
supplemental rent equal to the gross sales proceeds in excess of the residual
guarantee amount not to exceed $1,976.

For both real estate lease agreements discussed above, if the gross sales
proceeds are less than the sum of the residual guarantee amount and the
supplemental rent, the Company is required to pay a supplemental rent to the
extent the reduction in the fair value of the property is demonstrated by an
independent appraisal to have been caused by the Company's failure to properly
maintain the property. Accordingly, the aggregate residual guarantee amounts of
$24,418 have been included in the noncancellable real estate operating lease
payments relating to the expiration of such leases.

On December 28, 2000, the Company entered into a sale-leaseback
transaction on its facility located in Hauppauge, NY. The facility was sold for
$13,650. The lease agreement which is accounted for as an operating lease, has
an initial term of 14 years with a fixed annual rent that increases 2.5%
annually. The Company has the option to extend the lease term for an additional
3 terms of 5 years each. The gain of $4,110 on the sale of the facility has
been deferred and will be recognized ratably over the term of the lease.

The Company has a contract to provide and operate for the U.S. Air Force
("USAF") a full-service training facility including simulator systems near a
USAF base. The Company expects to lease the simulator systems from unrelated
third parties, and has entered into agreements with the owner-lessors of the
simulator systems, under which the Company is acting as the construction agent
on behalf of the owner-lessors for procurement and construction for the
simulator systems. The estimated project costs to construct the simulator
systems is approximately $48,360. During the construction period, if certain
events occur that are caused by the Company's actions or failures to act, these
agreements may obligate the Company to make payments to the owner-lessors which
may be equal to 89.9% of the incurred project costs for the simulator systems
at the time of such defaults. At December 30, 2002, the estimated completion
date of the construction, pursuant to these agreements, the Company, as lessee,
will enter into leases each with a term of 15 years with the owner-lessors for
the use of the simulator systems. These leases are expected to be accounted for
as operating leases and the aggregate noncancellable rental payments under such
leases are estimated to be $89,241.

F-54

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company has been periodically subject to litigation, claims or
assessments and various contingent liabilities incidental to its business.
Management continually assesses the Company's obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Company in order to comply
with these laws, based upon available internal and external assessments, with
respect to those environmental loss contingencies of which management is aware,
the Company believes that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to the Company's
consolidated results of operations. The Company accrues for these contingencies
when it is probable that a liability has been incurred and the amount of the
loss can be reasonably estimated.

With respect to those investigative actions, items of litigation, claims
or assessments of which it is aware, management of the Company is of the
opinion that the probability is remote that, after taking into account certain
provisions that have been made with respect to these matters, the ultimate
resolution of any such investigative actions, items of litigation, claims or
assessments will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.

14. PENSIONS AND OTHER EMPLOYEE BENEFITS

The Company maintains a number of pension plans, both contributory and
noncontributory, covering employees at certain locations. Eligibility for
participation in these plans varies and benefits are generally based on the
participant's compensation and/or years of service. The Company's funding
policy is generally to contribute in accordance with cost accounting standards
that affect government contractors, subject to the Internal Revenue Code and
regulations thereon. Plan assets are invested primarily in U.S. government and
agency obligations and listed stocks and bonds.

The Company also provides postretirement medical and life insurance
benefits for retired employees and dependents at certain locations.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plans.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.

F-55

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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

POSTRETIREMENT
PENSION PLANS BENEFIT PLANS
----------------------------- -----------------------------
2001 2000 2001 2000
-------------- ------------ ------------- -------------

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ...... $ 415,483 $ 328,541 $ 68,538 $ 65,554
Service cost ................................. 18,516 16,343 1,709 1,670
Interest cost ................................ 31,428 28,029 4,746 4,754
Participants' contributions .................. 62 36 607 --
Amendments ................................... -- 853 -- --
Actuarial loss (gain) ........................ 22,277 8,867 4,043 (1,271)
Acquisitions ................................. 63,793 48,187 12,369 1,879
Benefits paid ................................ (18,108) (15,373) (4,869) (4,048)
---------- --------- --------- ---------
Benefit obligation at end of year ............ $ 533,451 $ 415,483 $ 87,143 $ 68,538
---------- --------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year ........................................ $ 391,263 $ 367,451 $ -- $ --
Actual return on plan assets ................. (13,754) (21,905) -- --
Acquisitions ................................. 63,344 49,709 -- --
Employer contributions ....................... 8,108 11,345 4,262 4,048
Participants' contributions .................. 62 36 607 --
Benefits paid ................................ (18,108) (15,373) (4,869) (4,048)
---------- --------- --------- ---------
Fair value of plan assets at end of year ..... $ 430,915 $ 391,263 $ -- $ --
---------- --------- --------- ---------
FUNDED STATUS OF THE PLANS ................... $ (102,536) $ (24,220) $ (87,143) $ (68,538)
Unrecognized actuarial loss (gain) ........... 69,697 (5,044) (5,032) (9,401)
Unrecognized prior service cost .............. 3,426 3,777 (547) (1,207)
---------- --------- --------- ---------
Net amount recognized ........................ $ (29,413) $ (25,487) $ (92,722) $ (79,146)
========== ========= ========= =========
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS
CONSIST OF:
Accrued benefit liability .................... $ (62,330) $ (26,377) $ (92,722) $ (79,146)
Accumulated other comprehensive income........ 32,917 890 -- --
---------- --------- --------- ---------
Net amount recognized ........................ $ (29,413) $ (25,487) $ (92,722) $ (79,146)
========== ========= ========= =========
RATE ASSUMPTIONS:
Discount rate ................................ 7.25% 7.50% 7.25% 7.50%
Rate of return on plan assets ................ 9.50% 9.50% n.a. n.a.
Salary increases ............................. 4.50% 4.50% 4.50% 4.50%

The annual increase in cost of benefits ("health care cost trend rate") is
assumed to be an average of 10.00% in 2001 and is assumed to gradually decrease
to a rate of 4.5% thereafter. Assumed health care cost trend rates have a
significant effect on amounts reported for postretirement medical benefit
plans. A one percentage point decrease in the assumed health care cost trend
rates would have the effect of decreasing the aggregate service and interest
cost by $540 and the postretirement medical obligations by $6,139. A one
percentage point increase in the assumed health care cost trend rate would have
the effect of increasing the aggregate service and interest cost by $658 and
the postretirement medical obligations by $6,651.

F-56

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table summarizes the components of net periodic pension and
postretirement medical costs.

POSTRETIREMENT
PENSION PLANS PENSION PLANS
--------------------------- ---------------------
2001 2000 2001 2000
------------ ------------ --------- ---------

COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost ............................... $ 18,516 $ 16,343 $1,709 $1,670
Interest cost .............................. 31,428 28,029 4,746 4,754
Amortization of prior service cost ......... 351 351 (99) (99)
Expected return on plan assets ............. (37,716) (39,109) -- --
Recognized actuarial (gain) loss ........... (424) (3,981) (887) (865)
Recognition due to settlement .............. -- 307 -- --
--------- --------- ------ ------
Net periodic benefit cost ................. $ 12,155 $ 1,940 $5,469 $5,460
========= ========= ====== ======

The accumulated benefit obligation, projected benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $300,072, $324,840, and $247,383, respectively, as
of December 31, 2001 and $86,426, $92,180 and $78,773, respectively, as of
December 31, 2000.

In connection with the Company's assumption of certain plan obligations
pursuant to the Company's acquisition of the predecessor company, Lockheed
Martin has provided the Pension Benefit Guaranty Corporation ("PBGC") with
commitments to assume sponsorship or other forms of financial support under
certain circumstances with respect to the Company's pension plans for
Communication Systems -- West and Aviation Recorders (the "Subject Plans").
Upon the occurrence of certain events, Lockheed Martin, at its option, has the
right to decide whether to cause the Company to transfer sponsorship of any or
all of the Subject Plans to Lockheed Martin, even if the PBGC has not sought to
terminate the Subject Plans. Such a triggering event occurred in 1998, but
reversed in 1999, relating to a decrease in the PBGC-mandated discount rate in
1998 that had resulted in an increase in the underlying liability. The Company
notified Lockheed Martin of the 1998 triggering event, and in February 1999,
Lockheed Martin informed the Company that it had no present intention to
exercise its right to cause the Company to transfer sponsorship of the Subject
Plans. If Lockheed Martin did assume sponsorship of these plans, it would be
primarily liable for the costs associated with funding the Subject Plans or any
costs associated with the termination of the Subject Plans but L-3
Communications would be required to reimburse Lockheed Martin for these costs.
To date, the impact on pension expense and funding requirements resulting from
this arrangement has not been significant. However, should Lockheed Martin
assume sponsorship of the Subject Plans or if these plans were terminated, the
impact of any increased pension expenses or funding requirements could be
material to the Company. The Company has performed its obligations under the
letter agreement with Lockheed Martin and the Lockheed Martin Commitment and
has not received any communications from the PBGC concerning actions which the
PBGC contemplates taking in respect of the Subject Plans.

Employee Savings Plans. Under its various employee savings plans, the
Company matches the contributions of participating employees up to a designated
level. The extent of the match, vesting terms and the form of the matching
contributions vary among the plans. Under these plans, the Company's matching
contributions in L-3 Holdings common stock and cash were $21,462 for 2001,
$15,201 for 2000 and $8,798 for 1999.

F-57

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

15. SUPPLEMENTAL CASH FLOW INFORMATION

YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------

Interest paid .......................................... $81,552 $81,390 $50,532
Income taxes paid ...................................... 4,904 10,052 6,317
Noncash transactions:
Common stock issued related to acquisition ............ 17,357 -- 6,432
Contribution in common stock to savings plans ......... 16,868 12,642 6,993

16. SEGMENT INFORMATION

The Company has four reportable segments: (1) Secure Communications & ISR,
(2) Training, Simulation & Support Services, (3) Aviation Products & Aircraft
Modernization and (4) Specialized Products, which are described in Note 1. The
Company evaluates the performance of its operating segments and reportable
segments based on their sales and operating income. All corporate expenses are
allocated to the Company's divisions using an allocation methodology prescribed
by U.S. Government regulations for government contractors. Accordingly, all
costs and expenses are included in the Company's measure of segment
profitability.

TRAINING AVIATION
SECURE SIMULATION & PRODUCTS &
COMMUNICATIONS SUPPORT AIRCRAFT
& ISR SERVICES MORDERNIZATION
---------------- -------------- ----------------

2001
- ----
Sales ..................... $452,152 $597,029 $263,450
Operating income .......... 31,975 65,715 85,602
Total assets .............. 366,482 497,368 545,517
Capital expenditures . .... 11,561 2,999 9,625
Depreciation and
amortization ............. 13,839 13,207 12,064
2000
- ----
Sales ..................... $405,379 $283,407 $209,207
Operating income .......... 54,174 23,491 66,854
Total assets .............. 293,023 295,139 360,469
Capital expenditures ...... 6,405 2,762 2,145
Depreciation and
amortization ............. 13,093 9,340 10,085
1999
- ----
Sales ..................... $437,050 $ 91,857 $119,369
Operating income .......... 37,759 6,745 27,826
Total assets .............. 265,380 74,187 96,734
Capital expenditures . .... 5,864 644 1,330
Depreciation and
amortization ............. 14,672 2,527 3,815

ELIMINATION OF
SPECIALIZED INTERSEGMENT CONSOLIDATED
PRODUCTS CORPORATE SALES TOTAL
------------- ----------- --------------- -------------

2001
- ----
Sales ..................... $1,040,753 $ (5,962) $2,347,422
Operating income .......... 92,038 275,330
Total assets .............. 1,382,010 $547,872 3,339,249
Capital expenditures . .... 23,657 279 48,121
Depreciation and
amortization ............. 47,481 86,951
2000
- ----
Sales ..................... $1,028,802 $ (16,734) $1,910,061
Operating income .......... 78,199 222,718
Total assets .............. 1,325,108 $189,805 2,463,544
Capital expenditures ...... 21,667 601 33,580
Depreciation and
amortization ............. 41,736 74,254
1999
- ----
Sales ..................... $ 765,706 $ (8,520) $1,405,462
Operating income .......... 78,156 150,486
Total assets .............. 1,017,152 $175,288 1,628,741
Capital expenditures . .... 15,385 233 23,456
Depreciation and
amortization ............. 32,704 53,718

Corporate assets not allocated to the reportable segments primarily
include cash and cash equivalents, corporate office fixed assets, deferred
income tax assets and deferred debt issuance costs.

F-58

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations,
cash flows or financial position. Sales to principal customers are summarized
in the table below.

YEAR ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------

U.S. Government agencies . .................. $1,614,858 $1,284,379 $ 924,006
Foreign governments ......................... 200,913 144,274 127,637
Commercial export . ......................... 218,971 172,101 144,274
Other (principally U.S. commercial) ......... 312,680 309,307 209,545
---------- ---------- ----------
Consolidated sales ......................... $2,347,422 $1,910,061 $1,405,462
========== ========== ==========

The Company's sales by product and services are summarized in the table
below:

YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(DOLLARS IN MILLIONS)

Avionics, ocean systems and premium
fuzing products .................................. $ 672.3 $ 595.6 $ 492.7
Telemetry and instrumentation ..................... 327.8 385.6 301.4
Military communications and high data
rate communications .............................. 234.2 234.5 249.3
Training devices and motion simulators ............ 160.7 148.5 --
Information security systems ...................... 151.2 105.4 102.9
Microwave components .............................. 112.9 92.8 78.7
Space and commercial communications,
satellite control and tactical sensor
systems .......................................... 109.0 95.0 106.6
--------- --------- ---------
Sub-total products ............................... 1,768.1 1,657.4 1,331.6
Training, simulation and support services ......... 597.0 283.4 91.8
--------- --------- ---------
Subtotal ......................................... 2,365.1 1,940.8 1,423.4
Intercompany eliminations ......................... (17.7) (30.7) (17.9)
--------- --------- ---------
Total .......................................... $ 2,347.4 $ 1,910.1 $ 1,405.5
========= ========= =========

F-59

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

17. UNAUDITED QUARTERLY FINANCIAL DATA

Unaudited summarized financial data by quarter for the years ended
December 31, 2001 and 2000 is presented in the table below.

MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ------------- -------------- ------------

2001
Sales .................... $ 461,901 $ 561,560 $ 618,164 $ 705,797
Operating income ......... 46,869 60,467 75,208 92,786
Net income ............... 14,158 23,336 33,435 44,529
Basic EPS . .............. $ 0.21 $ 0.31 $ 0.43 $ 0.57
Diluted EPS .............. $ 0.20 $ 0.30 $ 0.41 $ 0.53

2000
Sales .................... $ 377,052 $ 460,976 $ 514,415 $ 557,618
Operating income ......... 34,669 49,653 62,815 75,581
Net income ............... 10,929 16,459 24,116 31,223
Basic EPS ................ $ 0.17 $ 0.25 $ 0.36 $ 0.46
Diluted EPS .............. $ 0.16 $ 0.24 $ 0.34 $ 0.44

18. FINANCIAL INFORMATION OF L-3 COMMUNICATIONS AND ITS SUBSIDIARIES

The shareholders' equity of L-3 Communications equals that of L-3 Holdings
but its components of the common stock and additional paid-in capital accounts
are different. The table below presents information regarding changes in common
stock and additional paid-in capital of L-3 Communications for each of the
three years ended December 31, 2001.

L-3 COMMUNICATIONS
COMMON STOCK
------------------
ADDITIONAL
SHARES PAR PAID-IN
ISSUED VALUE CAPITAL TOTAL
-------- ------- ------------- -------------

Balance at December 31, 1998 ............. 100 $-- $ 264,769 $ 264,769
Contributions from L-3 Holdings ......... 218,925 218,925
--------- -------- ---------- ----------
Balance at December 31, 1999 ............. 100 -- 483,694 483,694
Contributions from L-3 Holdings ......... 322,732 322,732
Push down of Convertible Notes .......... (290,500) (290,500)
--------- -------- ---------- ----------
Balance at December 31, 2000 ............. 100 -- 515,926 515,926
Contributions from L-3 Holdings ......... 830,561 830,561
Push down of CODES ...................... (407,450) (407,450)
--------- -------- ---------- ----------
Balance at December 31, 2001 ............. 100 $-- $ 939,037 $ 939,037
========= ======== ========== ==========

The net proceeds received by L-3 Holdings from the sale of its common
stock, exercise of L-3 Holdings employee stock options and L-3 Holdings common
stock contributed to the Company's savings plans are contributed to L-3
Communications. The net proceeds from the sale of the Convertible Notes and
CODES by L-3 Holdings were also contributed to L-3 Communications and are
reflected as indebtedness of L-3 Communications. See Notes 2 and 7.

The debt of L-3 Communications, including the Senior Subordinated Notes
and borrowings under amounts drawn against the Senior Credit Facilities are
guaranteed, on a joint and several, full and

F-60

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

unconditional basis, by certain of its wholly-owned domestic subsidiaries (the
"Guarantor Subsidiaries"). See Note 7. The foreign subsidiaries and certain
domestic subsidiaries of L-3 Communications (the "Non-Guarantor Subsidiaries")
do not guarantee the debt of L-3 Communications. None of the debt of L-3
Communications has been issued by its subsidiaries. There are no restrictions
on the payment of dividends from the Guarantor Subsidiaries to L-3
Communications.

In lieu of providing separate audited financial statements for the
Guarantor Subsidiaries, the Company has included the accompanying condensed
combining financial statement based on Rule 3-10 of SEC Regulation S-X . The
Company does not believe that separate financial statements of the Guarantor
Subsidiaries are material to users of the financial statements.

The following condensed combining financial information present the
results of operations, financial position and cash flows of (i) L-3
Communications excluding its consolidated subsidiaries (the "Parent") (ii) the
Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries and (iv) the
eliminations to arrive at the information for L-3 Communications on a
consolidated basis.

F-61

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

GUARANTOR NON-GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS
------------- -------------- --------------- ---------------- -------------------

CONDENSED COMBINING BALANCE
- ---------------------------
SHEETS:
- -------
AS OF DECEMBER 31, 2001:
- ------------------------
Total current assets .................... $ 786,498 $ 300,585 $ 155,318 $ -- $1,242,401
Other long-term assets .................. 965,566 701,887 429,395 -- 2,096,848
Investment in and amounts due
from consolidated subsidiaries ......... 1,229,572 150,580 43,236 (1,423,388) --
---------- ---------- --------- ------------ ----------
Total assets ........................... $2,981,636 $1,153,052 $ 627,949 $ (1,423,388) $3,339,249
========== ========== ========= ============ ==========
Total current liabilities ............... $ 278,598 $ 136,579 $ 109,394 $ -- $ 524,571
Other long-term liabilities ............. 173,894 31,080 10,663 -- 215,637
Long-term debt .......................... 1,315,252 -- -- -- 1,315,252
Minority interest ....................... -- -- 69,897 -- 69,897
Shareholders' equity .................... 1,213,892 985,393 437,995 (1,423,388) 1,213,892
---------- ---------- --------- ------------ ----------
Total liabilities and
shareholders' equity ................. $2,981,636 $1,153,052 $ 627,949 $ (1,423,388) $3,339,249
========== ========== ========= ============ ==========
AS OF DECEMBER 31, 2000
- -----------------------
Total current assets .................... $ 530,672 $ 229,531 $ 69,367 $ -- $ 829,570
Other long-term assets .................. 1,110,082 433,763 90,129 -- 1,633,974
Investment in and amounts due
from (to) consolidated
subsidiaries ........................... 613,153 55,805 (27,022) (641,936) --
---------- ---------- --------- ------------ ----------
Total assets ........................... $2,253,907 $ 719,099 $ 132,474 $ (641,936) $2,463,544
========== ========== ========= ============ ==========
Total current liabilities ............... $ 365,123 $ 71,948 $ 31,598 $ -- $ 468,669
Other long-term liabilities ............. 101,215 103,173 2,918 -- 207,306
Long-term debt .......................... 1,095,000 -- -- -- 1,095,000
Shareholders' equity .................... 692,569 543,978 97,958 (641,936) 692,569
---------- ---------- --------- ------------ ----------
Total liabilities and
shareholders' equity ................. $2,253,907 $ 719,099 $ 132,474 $ (641,936) $2,463,544
========== ========== ========= ============ ==========

F-62

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

GUARANTOR NON-GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS
------------- -------------- --------------- -------------- -------------------

CONDENSED COMBINING STATEMENTS OF
- ---------------------------------
OPERATIONS:
- -----------
FOR THE YEAR ENDED DECEMBER 31, 2001:
- -------------------------------------
Sales ........................................ $1,328,702 $854,094 $168,558 $ (3,932) $2,347,422
---------- -------- -------- --------- ----------
Operating income ............................. 219,373 30,237 25,720 -- 275,330
Interest and other income (expense) .......... 8,335 (515) (6,081) -- 1,739
Interest expense ............................. 86,024 51 315 -- 86,390
Minority interest ............................ -- -- 4,457 -- 4,457
Provision for income taxes ................... 53,840 11,275 5,649 -- 70,764
Equity in net income of consolidated
subsidiaries ................................ 27,614 -- -- (27,614) --
---------- -------- -------- --------- ----------
Net income ................................... $ 115,458 $ 18,396 $ 9,218 $ (27,614) $ 115,458
========== ======== ======== ========= ==========
FOR THE YEAR ENDED DECEMBER 31, 2000:
- -------------------------------------
Sales ........................................ $1,313,998 $441,677 $159,735 $ (5,349) $1,910,061
---------- -------- -------- --------- ----------
Operating income ............................. 206,680 5,755 10,283 -- 222,718
Interest and other income .................... 3,061 264 1,068 -- 4,393
Interest expense ............................. 92,633 149 250 -- 93,032
Provision for income taxes ................... 44,852 2,248 4,252 -- 51,352
Equity in net income of consolidated
subsidiaries ................................ 10,471 -- -- (10,471) --
---------- -------- -------- --------- ----------
Net income ................................... $ 82,727 $ 3,622 $ 6,849 $ (10,471) $ 82,727
========== ======== ======== ========= ==========
FOR THE YEAR ENDED DECEMBER 31, 1999:
- -------------------------------------
Sales ........................................ $ 837,924 $440,160 $130,122 $ (2,744) $1,405,462
---------- -------- -------- --------- ----------
Operating income (loss) ...................... 103,753 52,016 (5,283) -- 150,486
Interest and other income .................... 4,738 469 327 -- 5,534
Interest expense ............................. 60,307 -- 283 -- 60,590
Provision (benefit) for income taxes ......... 18,238 20,091 (1,588) -- 36,741
Equity in net income of consolidated
subsidiaries ................................ 28,743 -- -- (28,743) --
---------- -------- -------- --------- ----------
Net income (loss) ............................ $ 58,689 $ 32,394 $ (3,651) $ (28,743) $ 58,689
========== ======== ======== ========= ==========

F-63

L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

GUARANTOR NON-GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS
------------- -------------- --------------- -------------- -------------------

CONDENSED COMBINING STATEMENTS OF
- ---------------------------------
CASH FLOWS:
- -----------
FOR THE YEAR ENDED DECEMBER 31, 2001:
- -------------------------------------
Net cash from operating activities .............. $ 104,169 $ 30,014 $ 38,785 $ -- $ 172,968
---------- ---------- --------- ---------- ----------
Net cash (used in) investing activities ......... (470,091) (227,199) (61,820) 334,220 (424,890)
---------- ---------- --------- ---------- ----------
Net cash from financing activities .............. 667,424 187,862 59,198 (334,220) 580,264
---------- ---------- --------- ---------- ----------
Net increase (decrease) in cash ................. 301,502 (9,323) 36,163 -- 328,342
Cash and cash equivalents, beginning of
period ......................................... 18,708 4,911 9,061 -- 32,680
---------- ---------- --------- ---------- ----------
Cash and cash equivalents, end of
period ......................................... $ 320,210 $ (4,412) $ 45,224 $ -- $ 361,022
========== ========== ========= ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2000:
- -------------------------------------
Net cash from (used in) operating
activities ..................................... $ 108,726 $ (10,504) $ 15,583 $ -- $ 113,805
---------- ---------- --------- ---------- ----------
Net cash (used in) investing activities ......... (607,579) (21,819) (8,163) 29,338 (608,223)
---------- ---------- --------- ---------- ----------
Net cash from (used in) financing
activities ..................................... 483,524 32,070 (1,946) (29,338) 484,310
---------- ---------- --------- ---------- ----------
Net increase (decrease) in cash ................. (15,329) (253) 5,474 -- (10,108)
Cash and cash equivalents, beginning of
period ......................................... 34,037 5,164 3,587 -- 42,788
---------- ---------- --------- ---------- ----------
Cash and cash equivalents, end of
period ......................................... $ 18,708 $ 4,911 $ 9,061 $ -- $ 32,680
========== ========== ========= ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 1999:
- -------------------------------------
Net cash from (used in) operating
activities ..................................... $ 75,737 $ 31,315 $ (8,034) $ -- $ 99,018
---------- ---------- --------- ---------- ----------
Net cash (used in) investing activities ......... (280,118) (155,607) (62,408) 213,331 (284,802)
---------- ---------- --------- ---------- ----------
Net cash from financing activities .............. 214,681 128,997 72,095 (213,331) 202,442
---------- ---------- --------- ---------- ----------
Net increase in cash ............................ 10,300 4,705 1,653 -- 16,658
Cash and cash equivalents, beginning of
period ......................................... 23,737 459 1,934 -- 26,130
---------- ---------- --------- ---------- ----------
Cash and cash equivalents, end of
period ......................................... $ 34,037 $ 5,164 $ 3,587 $ -- $ 42,788
========== ========== ========= ========== ==========

F-64

AIRCRAFT INTEGRATION SYSTEMS BUSINESS

COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000 AND
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

F-65

REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------

To the Board of Directors of Raytheon Company:

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and comprehensive income, parent company
investment and cash flows present fairly, in all material respects, the
financial position of the Aircraft Integration Systems Business (the "Company")
of Raytheon Company at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

The Company is a member of a group of affiliated companies and, as disclosed in
the financial statements, has extensive transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of these transactions are not the same as those that would result from
transactions among wholly unrelated parties.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas
February 19, 2002

F-66

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
COMBINED BALANCE SHEETS

DECEMBER 31,
---------------------------
2001 2000
------------ ------------
(IN MILLIONS)

ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 4.0 $ 4.3
Contracts in process ............................................ 310.8 394.6
Inventories ..................................................... 13.1 16.1
Deferred federal income taxes ................................... 13.3 27.1
Prepaid expenses and other current assets ....................... 1.2 7.8
--------- ---------
Total current assets .......................................... 342.4 449.9
Property, plant, and equipment, net .............................. 156.8 150.7
Goodwill, net of accumulated amortization of $173.8 in 2001 and
$146.0 in 2000 .................................................. 940.1 967.9
Other assets, net ................................................ 52.2 47.1
--------- ---------
Total assets .................................................. $ 1,491.5 $ 1,615.6
========= =========
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Current portion of long-term debt ............................... $ 1.4 $ 1.4
Advance payments ................................................ -- 4.7
Accounts payable ................................................ 36.0 62.3
Accrued salaries and wages ...................................... 22.6 22.2
Other accrued expenses .......................................... 1.1 11.8
--------- ---------
Total current liabilities ..................................... 61.1 102.4
Accrued retiree benefits and other long-term liabilities ......... 36.4 24.0
Deferred federal income taxes .................................... 12.5 14.8
Long-term debt ................................................... 0.3 1.7
Commitments and contingencies (Note 13)
Accumulated other comprehensive loss ............................. (5.8) --
Parent company investment ........................................ 1,387.0 1,472.7
--------- ---------
Total liabilities and parent company investment ............... $ 1,491.5 $ 1,615.6
========= =========

See notes to combined financial statements.

F-67

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(IN MILLIONS)

Net sales ............................................ $ 856.4 $ 964.4 $ 886.5
Net sales to the Parent .............................. 62.2 58.7 21.9
-------- -------- -------
918.6 1,023.1 908.4

Cost of sales ........................................ 677.5 723.0 764.6
Cost of sales to the Parent .......................... 59.9 54.6 20.4
Cost of sales -- Parent subcontract services ......... 20.6 16.9 27.2
Administrative and selling expenses .................. 100.1 97.3 107.6
Research and development expenses .................... 18.6 18.9 21.2
-------- -------- -------
Total operating expenses ............................. 876.7 910.7 941.0

Operating income (loss) .............................. 41.9 112.4 (32.6)

Non-operating expense, net ........................... 1.4 0.9 1.6
-------- -------- -------
Income (loss) before taxes ........................... 40.5 111.5 (34.2)

Federal income taxes ................................. 22.1 47.1 (4.0)
-------- -------- -------
Net income (loss) .................................... 18.4 64.4 (30.2)
-------- -------- -------
Other comprehensive loss, net of tax:

Minimum pension liability adjustment ................. (5.8) -- --
-------- -------- -------
Comprehensive income (loss) .......................... $ 12.6 $ 64.4 $ (30.2)
======== ======== ========

See notes to combined financial statements.

F-68

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
COMBINED STATEMENTS OF PARENT COMPANY INVESTMENT

YEARS ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
(IN MILLIONS)

Parent company investment, beginning of year ......... $ 1,472.7 $ 1,524.5 $ 1,496.3

Net income (loss) .................................... 18.4 64.4 (30.2)

Net transfers (to) from Parent ....................... (104.1) (116.2) 58.4

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

Parent company investment, end of year ............... $ 1,387.0 $ 1,472.7 $ 1,524.5
========== ========== ==========

See notes to combined financial statements.

F-69

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
---------- ---------- -----------
(IN MILLIONS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ 18.4 $ 64.4 $ (30.2)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization ............................... 51.2 50.3 51.4
Deferred federal income taxes ............................... 14.5 15.8 (23.5)
Changes in assets and liabilities:
Contracts in process ...................................... 83.8 6.5 38.5
Inventories ............................................... 3.0 1.1 (9.0)
Prepaid expenses and other current assets ................. 6.6 17.9 (18.9)
Advance payments .......................................... (4.7) (20.2) (2.2)
Accounts payable .......................................... (26.3) (10.5) (1.7)
Accrued salaries and wages ................................ 0.4 13.6 (5.1)
Other accrued expenses .................................... (10.7) (3.5) (28.5)
Other adjustments, net .................................... (3.3) (3.3) (2.5)
-------- -------- -------
Net cash provided by (used in) operating activities .......... 132.9 132.1 (31.7)
-------- -------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant, and equipment ............. (21.7) (10.2) (15.4)
Expenditures for internal use software ...................... (6.0) (0.3) (11.3)
-------- -------- -------
Net cash used in investing activities ........................ (27.7) (10.5) (26.7)
-------- -------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers (to) from Parent .................................. (104.1) (116.2) 58.4
Decrease in long-term debt .................................. (1.4) (1.3) (1.1)
-------- -------- -------
Net cash (used in) provided by financing activities .......... (105.5) (117.5) 57.3
-------- -------- -------

Net (decrease) increase in cash and cash equivalents ......... (0.3) 4.1 (1.1)
Cash and cash equivalents, beginning of year ................. 4.3 0.2 1.3
-------- -------- -------
Cash and cash equivalents, end of year ....................... $ 4.0 $ 4.3 $ 0.2
======== ======== =======

See notes to combined financial statements.

F-70

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS

1. BACKGROUND AND BASIS OF PRESENTATION

The Aircraft Integration Systems Business (the "Company") of Raytheon Company
and its subsidiaries (the "Parent") is engaged in the development and
integration of complex electronic systems for airborne intelligence,
surveillance, and reconnaissance missions. The combined financial statements
presented may not be indicative of the financial position or results of
operations that would have been achieved had the Company operated as a
nonaffiliated entity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF COMBINATION

The combined financial statements include the accounts of certain similar
business operations that have historically been presented as a portion of
Aircraft Integration Systems (AIS), a reportable segment of the Parent. The
portion of AIS that has not been included consists primarily of a majority of
the ASTOR program and the Boeing Business Jet programs. All material
intercompany transactions have been eliminated.

REVENUE RECOGNITION

Sales under long-term contracts are recorded under the percentage of completion
method. Costs and estimated gross margins are recorded as sales as work is
performed based on the percentage that incurred costs bear to estimated total
costs utilizing the most recent estimates of costs and funding. Amounts
representing contract change orders, claims or other items are included in
sales only when they can be reasonably estimated and realization is probable.
Some contracts contain incentive provisions based upon performance in relation
to established targets which are recognized in the contract estimates when
deemed realizable. Since many contracts extend over a long period of time,
revisions in cost and funding estimates during the progress of work have the
effect of adjusting earnings applicable to performance in prior periods in the
current period. When the current contract estimate indicates a loss, provision
is made for the total anticipated loss in the current period.

RESEARCH AND DEVELOPMENT EXPENSES

Expenditures for company-sponsored research and development projects are
expensed as incurred. Customer-sponsored research and development projects
performed under contracts are accounted for as contract costs as the work is
performed.

FEDERAL INCOME TAXES

Historically, the Company's operations have been included in the consolidated
income tax returns filed by the Parent. Federal income tax expense in the
statement of operations is calculated on a separate tax return basis as if the
Company had operated as a stand-alone entity. The provision for income taxes is
calculated in accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, which requires the recognition of deferred
income taxes using the liability method.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and short-term, highly liquid
investments with original maturities of 90 days or less.

CONTRACTS IN PROCESS

Contracts in process are stated at cost plus estimated profit but not in excess
of realizable value.

F-71

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories consist of consumables and parts used in the performance of
contracts and are valued at the lower of cost or market, cost being determined
on a weighted-average basis. A reserve is established for inventory items
considered excess or obsolete.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost. Major improvements are
capitalized while expenditures for maintenance, repairs, and minor improvements
are charged to expense. When assets are retired or otherwise disposed of, the
assets and related accumulated depreciation and amortization are eliminated
from the accounts and any resulting gain or loss is reflected in income.

Provisions for depreciation are computed on a combination of accelerated and
straight-line methods. Depreciation provisions are based on estimated useful
lives as follows: buildings -- 20 to 45 years and machinery and equipment --
3 to 10 years. Leasehold improvements are amortized over the lesser of the
remaining life of the lease or the estimated useful life of the improvement.

GOODWILL

Goodwill, which represents the excess of the acquisition cost over the fair
value of the net assets recorded, relates to the allocation of a portion of the
goodwill associated with the Parent's acquisition of E-Systems, Inc. in 1995
and Chrysler Technologies, Inc. in 1996. Goodwill is amortized using the
straight-line method over its estimated useful life of 40 years.

COMPUTER SOFTWARE

Internal use computer software is stated at cost less accumulated amortization
and is amortized using the straight-line method over its estimated useful life
ranging from 4 to 10 years.

IMPAIRMENT OF LONG-LIVED ASSETS

Upon indication of possible impairment, the Company evaluates the
recoverability of long-lived assets by measuring the carrying amount of the
assets against the related undiscounted future cash flows. When an evaluation
indicates that the future undiscounted cash flows are not sufficient to recover
the carrying value of the asset, the asset is adjusted to its estimated fair
value.

ADVANCE PAYMENTS

Advance payments represent funds received in excess of work performed on
contracts in process.

ACCOUNTS PAYABLE

Accounts payable includes a book overdraft of $3.1 million at December 31, 2001
and $5.9 million at December 31, 2000.

FOREIGN CURRENCY

Foreign exchange transaction gains and losses in 2001, 2000, and 1999 were not
material.

COMPREHENSIVE INCOME

Comprehensive income and its components are presented in the statement of
operations and other comprehensive income. The minimum pension liability
adjustment is shown net of tax benefits of $3.1 million in 2001.

F-72

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

PENSION AND POSTRETIREMENT COSTS

The Parent has several pension and retirement plans covering the majority of
the Company's employees. In addition, the Company maintains a separate plan for
certain employees (see Note 12). Annual charges to income are made for the cost
of the plans, including current service costs, interest on projected benefit
obligations, and net amortization and deferrals, increased or reduced by the
return on assets. Unfunded accumulated benefit obligations for the Company's
separate plan are included in accrued retiree benefits and other long-term
liabilities on the balance sheet. The Parent funds annually those pension costs
which are calculated in accordance with Internal Revenue Service regulations
and standards issued by the Cost Accounting Standards Board.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of certain financial instruments including cash and cash
equivalents and the current portion of long-term debt approximates fair value
due to their short maturities and varying interest rates. The carrying value of
long-term debt, which approximates fair value, is based on current rates
offered to the Company for similar debt with the same remaining maturities.

ACCOUNTING STANDARDS

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). This accounting
standard, which is effective for fiscal years beginning after December 31,
2001, requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell.
Additionally, SFAS No. 144 expands the scope of discontinued operations to
include all components of an entity with operations that can be distinguished
from the rest of the entity and will be eliminated from the ongoing operations
of the entity in a disposal transaction. The effect of adopting SFAS No. 144 on
the Company's financial position and results of operations has not yet been
determined.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS No. 142). This accounting
standard addresses financial accounting and reporting for goodwill and other
intangible assets and requires that goodwill amortization be discontinued and
replaced with periodic tests of impairment. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, and is required to be applied
at the beginning of the fiscal year. Impairment losses that arise due to the
initial application of this standard will be reported as a change in accounting
principle. The Company has not completed its analysis of the effect of adopting
SFAS No. 142, however the Company expects that this analysis will result in a
goodwill impairment loss in the first quarter of 2002.

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). This accounting standard requires that all
derivatives be recognized as either assets or liabilities at estimated fair
value. The Company also adopted Statement of Financial Accounting Standards No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133. This accounting standard amended the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. The January 1, 2001 adoption of SFAS No.
133, as amended, had no effect on the Company's financial position or results
of operations.

RISKS AND UNCERTAINTIES

The Company is engaged in supplying primarily defense-related equipment to U.S.
and foreign governments and is subject to certain business risks peculiar to
the defense industry. Sales to governments may be affected by changes in
procurement policies, budget considerations, changing concepts of national
defense, political developments abroad, and other factors.

F-73

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates are used when accounting for long-term contracts
including estimates of the extent of progress towards completion, contract
revenue, contract completion costs, contingencies, and customer and vendor
claims, as well as estimates for litigation and environmental liabilities.
Actual results could differ from those estimates.

3. RESTRUCTURING

Restructuring costs include the cost of involuntary employee termination
benefits and related employee severance costs, facility closures, and other
costs associated with the Company's approved plans. Employee termination
benefits include severance, wage continuation, medical, and other benefits.
Facility closure and related costs include disposal costs of property, plant,
and equipment, lease payments, and lease terminations costs.

The Parent created Raytheon Systems Company (RSC) in December 1997, which
included the Company. In conjunction with the formation of RSC, the Parent
established certain restructuring reserves. A portion of these reserves was for
actions related to the Company.

In 1999, the Company determined that the cost of the restructuring initiatives
would be higher than originally planned and recorded a $7.8 million
restructuring charge which was included in cost of sales. The increase in the
estimated costs related to higher than anticipated costs for severance. The
Company also recorded an additional $0.7 million restructuring charge in 1999,
which was included in cost of sales, to further reduce the manufacturing and
administrative workforce by 39 employees.

The restructuring and exit costs discussed above provided for severance and
related benefits for approximately 400 employees. There were no major
activities that were continued as a result of these actions. Employee-related
exit costs included severance and other termination benefit costs for employees
in various functional areas including manufacturing, engineering, and
administration. The Company completed all restructuring actions during 2000.
While these actions were intended to improve the Company's competitive
position, there can be no assurances as to their ultimate success or that
additional restructuring actions will not be required.

Restructuring activity is as follows (in millions):

2000 1999
--------- ---------

Accrued liability at beginning of year ................................ $ 2.2 $ 0.4
Charges and liabilities accrued
Severance and other employee-related costs ........................... -- 8.5
Costs incurred
Severance and other employee related costs ........................... 2.2 6.7
------ ------
Accrued liability at end of year ...................................... $ 0.0 $ 2.2
====== ======
Cash expenditures ..................................................... $ 2.2 $ 6.7
Number of employee terminations due to restructuring actions .......... 39 80

4. PARENT COMPANY INVESTMENT AND INTERCOMPANY COST ALLOCATIONS

PARENT COMPANY INVESTMENT

The Company has obtained financing for its day-to-day operations from the
Parent. Parent company investment includes the Parent's equity investment in
the Company and net amounts due to the

F-74

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Parent. Neither intercompany interest expense nor interest expense associated
with the Parent's general corporate debt has been included in the combined
financial statements. All transfers to and from the Parent have been reported
in the parent company investment account.

INTERCOMPANY COST ALLOCATIONS

Certain costs are allocated to the Company by the Parent, primarily related to
certain services, legal expenses, information systems, risk management and
employee benefits (see Note 12 for further disclosure regarding employee
benefits). The estimated costs of such services and benefits have been included
in the combined financial statements based primarily on the proportion of the
Parent's expenses allocated to the Company based on factors including employee
headcount and costs incurred. Management believes these allocations are
reasonable.

The amounts allocated to the Company in 2001, 2000, and 1999 in the combined
statement of operations are as follows (in millions):

2001 2000 1999
----------- ----------- -----------

Cost of sales ................................ $ 103.4 $ 101.2 $ 121.9
Administrative and selling expenses .......... 11.2 9.9 10.6

5. CONTRACTS IN PROCESS

Contracts in process consisted of the following at December 31, 2001 (in
millions):

COST TYPE FIXED PRICE TOTAL
----------- ------------- ----------

U.S. government end-use contracts:
Billed .......................... $ 4.1 $ 22.2 $ 26.3
Unbilled ........................ 65.0 190.7 255.7
Less: progress payments ......... -- (60.0) (60.0)
------ ------- -------
69.1 152.9 222.0
------ ------- -------
Other customers
Billed .......................... -- 4.9 4.9
Unbilled ........................ -- 83.9 83.9
Less: progress payments ......... -- -- --
------ ------- -------
-- 88.8 88.8
------ ------- -------
$ 69.1 $ 241.7 $ 310.8
====== ======= =======

F-75

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Contracts in process consisted of the following at December 31, 2000 (in
millions):

COST TYPE FIXED PRICE TOTAL
----------- ------------- ----------

U.S. government end-use contracts:
Billed .......................... $ 4.2 $ 15.6 $ 19.8
Unbilled ........................ 49.6 387.4 437.0
Less: progress payments ......... -- (197.2) (197.2)
------ -------- --------
53.8 205.8 259.6
------ -------- --------
Other customers
Billed .......................... -- 14.1 14.1
Unbilled ........................ 12.6 108.3 120.9
Less: progress payments ......... -- -- --
------ -------- --------
12.6 122.4 135.0
------ -------- --------
$ 66.4 $ 328.2 $ 394.6
====== ======== ========

The U.S. government has title to the costs incurred underlying unbilled amounts
on contracts that provide for progress payments. Unbilled amounts are primarily
recorded on the percentage of completion method and are recoverable from the
customer upon shipment of the product, presentation of billings, or completion
of the contract.

Included in contracts in process at December 31, 2001 was approximately $11
million related to claims on contracts, which are included at their estimated
realizable value. The Company believes that it has a contractual or legal basis
for pursuing recovery of these claims, and that collection is probable. The
settlement of these amounts depends on individual circumstances and
negotiations with the counterparty, therefore, the timing of the collection
will vary. There were no such claim amounts included in contracts in process at
December 31, 2000.

Billed and unbilled contracts in process include retentions arising from
contractual provisions. At December 31, 2001, retentions amounted to $1.6
million and are anticipated to be collected as follows: 2002 -- $0.8 million,
2003 -- $0.5 million, and the balance thereafter.

The Parent sold short-term government receivables through Raytheon Receivables,
Inc. (RRI), a special purpose entity, which sold a portion of these short-term
government receivables to a financial institution. The Company's pro-rata
amount of these receivables sold through RRI, which totaled $1.7 million at
December 31, 2000, has been removed from these combined financial statements.
During the first quarter of 2001, the Parent terminated its short-term
government receivables facility.

6. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following at December 31 (in
millions):

2001 2000
----------- -----------

Land .......................................... $ 0.4 $ 0.4
Buildings and leasehold improvements .......... 223.1 215.4
Machinery and equipment ....................... 166.2 134.1
-------- --------
389.7 349.9
Less: accumulated depreciation ................ (232.9) (199.2)
-------- --------
$ 156.8 $ 150.7
======== ========

F-76

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation expense was $18.2 million, $18.5 million, and $18.7 million in
2001, 2000, and 1999, respectively.

In 1998, the Parent entered into a property sale and five-year operating lease
facility whereby property, plant, and equipment with a net book value of $16.6
million was removed from the Company's balance sheet. Operating lease expense
of $3.2 million, $2.9 million, and $3.4 million was included in cost of sales
in 2001, 2000, and 1999, respectively. During November 2001, the Parent
repurchased the remaining property, plant, and equipment with a net book value
of $6.0 million from this facility.

7. OTHER ASSETS

Other assets consisted of the following at December 31 (in millions):

2001 2000
---------- ----------

Computer software ................. $ 27.9 $ 26.3
Licenses .......................... 17.1 18.1
Pension intangible asset .......... 6.7 --
Other noncurrent assets ........... 0.5 2.7
------- -------
$ 52.2 $ 47.1
======= =======

The Company capitalizes certain costs incurred in connection with the purchase
and development of internal use computer software. The Company capitalized $6.0
million, $0.3 million, and $11.3 million of computer software during 2001,
2000, and 1999, respectively.

Licenses represent P-3 data rights acquired to allow the Company to compete on
a worldwide basis for P-3 airframe maintenance and modification contracts.

8. LONG-TERM DEBT

The Parent has not allocated intercompany indebtedness or associated interest
expense to the Company at December 31, 2001 and during 2001, 2000, and 1999.

Long-term debt consists solely of revenue bonds. The Airport Revenue Bond,
issued in 1996, has a floating interest rate as follows: 5.0% for 1999, 5.15%
for 2000, 5.3% for 2001, and 5.4% for 2002. The bond requires annual principal
and interest payments with the final principal installment of $1.1 million due
August 1, 2002. The Industrial Development Revenue Bond, issued in 1983 has a
stated interest rate of 83.11% of the prime rate (3.9% at December 31, 2001)
and is collateralized by certain buildings. The bond requires monthly principal
payments of $27,000 with the final payment due December 31, 2003. Total
interest payments on these revenue bonds approximated $0.2 million in 2001, and
$0.3 million in 2000, and 1999.

Debt consisted of the following at December 31 (in millions):

2001 2000
---------- ---------

Airport Revenue Bond ............................ $ 1.1 $ 2.1
Industrial Development Revenue Bond ............. 0.6 1.0
Less: installments due within one year .......... (1.4) (1.4)
------- ------
Long-term debt .................................. 0.3 1.7
------- ------
$ 1.7 $ 3.1
======= ======

F-77

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The aggregate amounts of installments due on long-term debt for the next five
years are (in millions):

2002 ...................................$ 1.4
2003 ................................... 0.3
2004 ................................... --
2005 ................................... --
2006 ................................... --

9. INCOME TAXES

Federal income taxes consisted of the following (in millions):

2001 2000 1999
--------- ---------- ----------

Current income tax expense ..................... $ 7.6 $ 31.3 $ 19.5
Deferred income tax expense (benefit) .......... 14.5 15.8 (23.5)
------ ------- -------
$ 22.1 $ 47.1 $ (4.0)
====== ======= =======

The provision for income taxes differs from the U.S. statutory rate due to the
following (in millions):

2001 2000 1999
---------- ---------- -----------

Tax expense (benefit) at statutory rate .......... $ 14.1 $ 39.0 $ (12.0)
Foreign sales corporation benefit ................ (2.0) (2.0) (1.9)
Nondeductible goodwill amortization .............. 9.8 9.8 9.8
Nondeductible meals .............................. 0.2 0.3 0.1
------- ------- -------
Total ............................................ $ 22.1 $ 47.1 $ (4.0)
======= ======= =======

Current income tax expense amounts are included as a transfer to the Parent in
the parent company investment account. The effect of temporary differences
which give rise to deferred income tax balances was as follows at December 31
(in millions):

2001 2000
---------- ----------

Current deferred tax assets:
Contracts in process and other reserves ......... $ 13.0 $ 26.4
Inventory ....................................... 0.3 0.7
------- -------
Net current deferred tax assets .................. $ 13.3 $ 27.1
======= =======
Noncurrent deferred tax liability:
Depreciation and amortization ................... $ 15.6 $ 14.8
Additional pension minimum liability ............ (3.1) --
------- -------
Net noncurrent deferred tax liability ............ $ 12.5 $ 14.8
======= =======

10. EMPLOYEE STOCK OPTION PLAN

The Company has no separate employee stock option plan, however, certain
employees of the Company participate in the Parent's 1995 Stock Option Plan
(the "Stock Option Plan") which provides for the grant of both incentive and
nonqualified options at an exercise price which is 100% of the fair market
value of the option on the date of grant. The plan provides that all stock
options may be exercised in their entirety 12 to 36 months after the date of
grant. Incentive stock options

F-78

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

terminate 10 years from the date of grant and become exercisable to a maximum
of $100,000 per year. Nonqualified stock options expire 10 years and a day from
the date of grant.

The following stock option information relates to options granted to the
employees of the Company under the Stock Option Plan:

WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
----------- -----------------

Outstanding at December 31, 1998 ......... 282,442 $ 56.27
Granted .................................. 158,600 68.42
Exercised ................................ (62,248) 68.61
Canceled ................................. (500) 60.52
------- --------

Outstanding at December 31, 1999 ......... 378,294 $ 59.33

Granted .................................. 304,500 19.69
Exercised ................................ -- --
Canceled ................................. (4,775) 55.75
------- --------

Outstanding at December 31, 2000 ......... 678,019 $ 41.55

Granted .................................. 293,832 29.82
Exercised ................................ (12,781) 19.33
Canceled ................................. (485) 39.68
------- --------
Outstanding at December 31, 2001 ......... 958,585 $ 38.25
======= ========

The Parent adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS No.
123) and accordingly, no compensation expense has been recognized for the Stock
Option Plan. Had compensation cost for the stock options awarded to the
employees of the Company been determined based on the fair value at the grant
date for awards under the Stock Option Plan, consistent with the methodology
prescribed under SFAS No. 123, the Company's net income in 2001, 2000, and 1999
would include an additional $1.8 million, $2.4 million, and $1.5 million of
compensation expense, respectively.

The weighted-average fair value of each option granted in 2001, 2000, and 1999,
respectively, was estimated at $9.24, $5.86, and $22.60 on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

2001 2000 1999
----------- ----------- -----------

Expected life ................................ 4 years 4 years 4 years
Assumed annual dividend growth rate .......... 1% 1% 5%
Expected volatility .......................... 40% 40% 35%
Assumed annual forfeiture rate ............... 12% 12% 5%

The risk free interest rate (month-end yields on 4-year treasury strips
equivalent zero coupon) ranged from 4.38% to 5.04% in 2001, 5.28% to 6.72% in
2000, and 4.63% to 6.16% in 1999.

F-79

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding and
exercisable at December 31, 2001:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED
SHARES AVERAGE SHARES WEIGHTED
EXERCISE OUTSTANDING CONTRACTUAL WEIGHTED EXERCISABLE AT AVERAGE
PRICE AT DECEMBER REMAINING AVERAGE DECEMBER 31, EXERCISE
RANGE 31, 2001 LIFE (YEARS) EXERCISE PRICE 2001 PRICE
- --------------------- ------------- -------------- ---------------- ---------------- -----------

$19.19-29.69......... 565,460 8.72 $ 24.49 98,333 $ 19.55
$31.24-48.97......... 39,457 6.97 $ 35.50 17,457 $ 40.03
$51.69-68.47......... 353,668 6.59 $ 60.56 353,668 $ 60.56
------- -------
958,585 7.86 $ 38.25 469,458 $ 51.21
======= =======

11. BUSINESS SEGMENT REPORTING

The Company operates in the following geographic areas (in millions):

OUTSIDE
UNITED STATES UNITED STATES COMBINED
--------------- --------------- ------------

Sales:
2001 ...................... $ 864.4 $ 54.2 $ 918.6
2000 ...................... 941.8 81.3 1,023.1
1999 ...................... 856.1 52.3 908.4

Long-lived assets at:
December 31, 2001 ......... $ 208.9 $ 0.1 $ 209.0
December 31, 2000 ......... 197.7 0.1 197.8

The country of destination was used to attribute sales to either United States
or Outside United States. Sales to major customers in 2001, 2000, and 1999
were: U.S. government, including foreign military sales $808.4 million, $898.9
million, and $819.1 million, respectively, and U.S. Department of Defense
$779.2 million, $857.5 million, and $781.8 million, respectively.

12. PENSION AND OTHER EMPLOYEE BENEFITS

The Parent sponsors defined benefit pension and postretirement plans which
cover certain of the Company's employees and provide income and life insurance
benefits. In addition, the Company maintains a separate plan for certain other
employees.

The following table summarizes information regarding the Company's separate
pension and other postretirement benefits' prepaid (accrued) benefit cost at
December 31 (in millions):

OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------

Changes in benefit obligation:
Benefit obligation, beginning of year ......... $ 53.7 $ 57.0 $ 41.1 $ 38.8
Service cost .................................. 1.5 1.7 0.8 1.0
Interest cost ................................. 4.0 4.2 3.1 2.7
Plan amendments ............................... 3.9 -- -- --
Benefits paid ................................. (3.5) (2.0) (2.0) (1.6)
Actuarial (gain) loss ......................... 3.5 (7.2) (6.1) 0.2
------- ------- ------- -------
Benefits obligation, end of year ............... $ 63.1 $ 53.7 $ 36.9 $ 41.1
======= ======= ======= =======

F-80

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------

Changes in plan assets:
Fair value of plan assets, beginning of year ......... $ 69.6 $ 68.3 $ 32.4 $ 29.2
Actual return on plan assets ......................... (14.9) 0.4 0.8 1.6
Employer contributions ............................... 0.7 2.8 1.7 3.2
Benefits paid ........................................ (3.5) (1.9) (2.0) (1.6)
------- ------- ------- -------
Fair value of plan assets, end of year ............... $ 51.9 $ 69.6 $ 32.9 $ 32.4
======= ======= ======= =======

Funded status -- unrecognized components ............. $ (11.3) $ 15.9 $ (3.9) $ (8.6)
Additional contributions ............................. -- -- 1.0 --
Unrecognized net actuarial gain ...................... 8.9 (14.6) (14.9) (11.2)
Unrecognized prior service cost ...................... 6.7 3.0 (6.4) (7.6)
------- ------- ------- -------
Prepaid (accrued) benefit cost ....................... $ 4.3 $ 4.3 $ (24.2) $ (27.4)
======= ======= ======= =======

Funded status -- recognized in balance sheets
Prepaid benefit cost .................................. 4.3 4.3 - -
Accrued benefit liability ............................. (15.6) -- (24.2) (27.4)
Intangible asset ...................................... 6.7 -- -- --
Accumulated other comprehensive income ................ 8.9 -- -- --
------- ------- ------- -------
Prepaid (accrued) benefit cost ........................ $ 4.3 $ 4.3 $ (24.2) $ (27.4)
======= ======= ======= =======

2001 2000 2001 2000
---------- ---------- ---------- ----------

Weighted-average assumptions:
Discount rate ................................... 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets .................. 9.50% 9.50% 8.50% 8.50%
Rate of compensation increase ................... 4.50% 4.50% 4.50% 4.50%
Health care trend rate in the next year ......... 9.00% 8.25%
Gradually declining to a trend rate of .......... 5.00% 5.00%
In the years beyond ............................. 2010 2006

The effect of a one percent increase and decrease in the assumed health care
trend rate for each future year for the aggregate of service and interest cost
is $0.2 million and $(0.2) million, respectively, and for the accumulated
postretirement benefit obligation is $2.4 million and $(2.2) million,
respectively.

F-81

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the net periodic cost (benefit) for the
Company's pension and other postretirement benefits (in millions):

OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
--------------------------------- ---------------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- --------- --------- ---------

Components of net periodic
benefit cost:
Service cost .............................. $ 1.5 $ 1.7 $ 1.6 $ 0.8 $ 1.0 $ 0.9
Interest cost ............................. 4.0 4.2 4.2 3.1 2.7 3.5
Expected return on plan assets ............ (5.1) (5.0) (3.9) (2.7) (2.8) (2.4)
Amortization of prio service cost ......... 0.3 0.3 0.3 (1.1) (1.1) (1.1)
Recognized actuarial loss (gain) .......... -- -- 0.5 (0.5) (0.7) --
------ ------ ------ ------ ------ ------
Net periodic benefit cost (benefit) .......... $ 0.7 $ 1.2 $ 2.7 $ (0.4) $ (0.9) $ 0.9
====== ====== ====== ====== ====== ======

As noted above, the Company also contributes to multiemployer pension and other
employee benefit plans administered by Raytheon Company, and contributed and
charged to expense $13.3 million, $12.9 million, and $26.0 million in 2001,
2000, and 1999, respectively.

Under the terms of various savings and investment plans (defined contribution
plans), covered employees are allowed to contribute up to a specific percentage
of their pay, generally limited to $30,000 per year. The Company matches the
employee's contribution, up to a certain percent of the employee's pay. Total
expense for defined contribution plans was $9.2 million, $10.1 million, and
$10.4 million in 2001, 2000, and 1999, respectively.

The Company makes annual contributions to the Raytheon Company stock fund of
the various savings and investment plans of approximately one-half of one
percent of salaries and wages, limited to $170,000 in 2001, 2000, and 1999, of
most U.S. salaried and hourly employees. The expense was $1.4 million, $1.5
million, and $1.6 million in 2001, 2000, and 1999, respectively.

13. COMMITMENTS AND CONTINGENCIES

At December 31, 2001, the Company had commitments under long-term operating
leases requiring approximate annual rentals as follows (in millions):

2002 ..................................$ 6.4
2003 .................................. 4.1
2004 .................................. 1.1
2005 .................................. 0.5
2006 .................................. 0.3
Thereafter ............................ 1.0

Rent expense in 2001, 2000, and 1999 was $10.5 million, $7.0 million, and $6.6
million, respectively.

The Company has banks and insurance companies issue, on its behalf, letters of
credit to meet various bid, warranty, retention, and advance payment
obligations, $133.7 million of which were outstanding at December 31, 2001.
Approximately $32.8 million of this total relates to letters of credit issued
to meet performance clauses in certain contracts. These instruments expire on
various dates in 2002.

Government contractors are subject to various levels of audit and
investigation. Agencies that oversee contract performance include: the Defense
Contract Audit Agency, the Department of Defense Inspector General, the General
Accounting Office, the Department of Justice, and Congressional Committees.

F-82

AIRCRAFT INTEGRATION SYSTEMS BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

In addition, various claims and legal proceedings generally incidental to the
normal course of business are pending or threatened against the Company. While
the ultimate liability from these proceedings is presently indeterminable, any
additional liability is not expected to have a material adverse effect on the
Company's financial position or results of operations after giving effect to
provisions already recorded.

14. RELATED PARTY TRANSACTIONS

Included in the accompanying combined statements of operations are net sales to
the Parent of $62.2 million, $58.7 million, and $21.9 million in 2001, 2000,
and 1999, respectively. The Company's costs of sales related to these sales
were $59.9 million, $54.6 million, and $20.4 million in 2001, 2000, and 1999,
respectively. Services performed by the Parent were $20.6 million, $16.9
million, and $27.2 million in 2001, 2000, and 1999, respectively. The Company's
combined statements of operations also include certain allocated costs in 2001,
2000, and 1999 (see Note 4).

Amounts included in contracts in process for services provided to the Parent
were $7.4 million and $3.5 million at December 31, 2001 and 2000, respectively.
Amounts included in parent company investment for services obtained from the
Parent were $529.8 million and $498.3 million at December 31, 2001 and 2000,
respectively.

15. SUBSEQUENT EVENT

In January 2002, the Parent announced that it had entered into an agreement to
sell the Aircraft Integration Systems Business for approximately $1.13 billion.
In connection with this agreement the Parent will retain certain assets and
liabilities of the business, including all amounts related to taxes and
employee benefits. There can be no assurance that the sale will be consummated.

F-83

[GRAPHIC OMITTED] L3 COMMUNICATIONS

OFFER TO EXCHANGE ALL OUTSTANDING 7 5/8% SENIOR SUBORDINATED NOTES DUE 2012 FOR
7 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2012, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933

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

PROSPECTUS

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

UNTIL , 2002, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THE UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

, 2002

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:

a. permissive indemnification for expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by designated persons, including directors and officers
of a corporation, in the event such persons are parties to litigation other
than stockholder derivative actions if certain conditions are met;

b. permissive indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are parties to
stockholder derivative actions if certain conditions are met;

c. mandatory indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are successful on
the merits or otherwise in defense of litigation covered by a. and b.
above; and

d. that the indemnification provided for by Section 145 is not deemed
exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.

In addition to the indemnification provisions of the DGCL described above,
the Registrant's certificate of incorporation (the "Certificate of
Incorporation") authorizes indemnification of the Registrant's officers and
directors, subject to a case-by-case determination that they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company, and in the case of any criminal proceeding, they
had no reasonable cause to believe their conduct was unlawful. In the event
that a Change in Control (as defined in the Certificate of Incorporation) shall
have occurred, the proposed indemnitee director or officer may require that the
determination of whether he met the standard of conduct be made by special
legal counsel selected by him. In addition, whereas the DGCL would require
court-ordered indemnification, if any, in cases in which a person has been
adjudged to be liable to the Registrant, the Certificate of Incorporation also
permits indemnification in such cases if and to the extent that the reviewing
party determines that such indemnity is fair and reasonable under the
circumstances.

The Certificate of Incorporation requires the advancement of expenses to
an officer or director (without a determination as to his conduct) in advance
of the final disposition of a proceeding if such person furnishes a written
affirmation of his good faith belief that he has met the applicable standard of
conduct and furnishes a written undertaking to repay any advances if it is
ultimately determined that he is not entitled to indemnification. In connection
with proceedings by or in the right of the Registrant, the Certificate of
Incorporation provides that indemnification shall include not only reasonable
expenses, but also penalties, fines and amounts paid in settlement. Unless
ordered by a court, such indemnification shall not include judgments. Under the
Certificate of Incorporation, no officer or director is entitled to
indemnification or advancement of expenses with respect to a proceeding brought
by him against the Registrant other than a proceeding seeking or defending such
officer's or director's right to indemnification or advancement of expenses.
Finally, the Certificate of Incorporation provides that the Company may,
subject to authorization on a case by case basis, indemnify and advance
expenses to employees or agents to the same extent as a director or to a lesser
extent (or greater, as permitted by law) as determined by the Board of
Directors.

The Certificate of Incorporation purports to confer upon officers and
directors contractual rights to indemnification and advancement of expenses as
provided therein. In addition, as permitted by the

II-1

DGCL, the Registrant has entered into indemnity agreements with its directors
and selected officers that provide contract rights substantially identical to
the rights to indemnification and advancement of expenses set forth in the
Certificate of Incorporation, as described above.

The Certificate of Incorporation limits the personal liability of
directors to the Registrant or its stockholders for monetary damages for breach
of the duty as a director, other than liability as a director (i) for breach of
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (certain illegal
distributions), or (iv) for any transaction for which the director derived an
improper personal benefit.

The Registrant maintains officers' and directors' insurance covering
certain liabilities that may be incurred by officers and directors in the
performance of their duties.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed pursuant to Item 601 of Regulation S-K.

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- -----------------------------------------------------------------------------------------------

**1.1 Purchase Agreement, dated as of June 25, 2002, among L-3 Communications Corporation, the
Guarantors, Lehman Brothers Inc., Banc of America Securities LLC and Credit Suisse First
Boston Corporation.

3.1 Certificate of Incorporation of L-3 Communications Corporation (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-4 No. 333-31649).

3.2 By-Laws of L-3 Communications Corporation (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4 No. 333- 31649).

3.3 Certificate of Incorporation of Hygienetics Environmental Services, Inc. (incorporated by
reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 No.
333-46983).

3.4 By-laws of Hygienetics Environmental Services, Inc. (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-1 No. 333- 46983).

3.5 Certificate of Incorporation of L-3 Communications ILEX Systems, Inc. (incorporated by
reference to Exhibit 3.5 to the Company's Registration Statement on Form S-1 (No.
333-46983).

3.6 By-laws of L-3 Communications ILEX Systems, Inc. (incorporated by reference to Exhibit 3.6
to the Company's Registration Statement on Form S-1 No. 333- 46983).

3.7 Certificate of Incorporation of Southern California Microwave, Inc. (incorporated by reference
to Exhibit 3.7 to the Company's Registration Statement on Form S-1 No. 333-46983).

3.8 By-laws of Southern California Microwave, Inc. (incorporated by reference to Exhibit 3.8 to
the Company's Registration Statement on Form S-1 No. 333- 46983).

3.9 Certificate of Incorporation of L-3 Communications SPD Technologies, Inc. (incorporated by
reference to Exhibit 3.9 to the Company's Registration Statement on Form S-4 No.
333-70199).

3.10 By-laws of L-3 Communications SPD Technologies, Inc. (incorporated by reference to Exhibit
3.10 to the Company's Registration Statement on Form S-4 No. 333-70199).

3.11 Certificate of Incorporation of L-3 Communications ESSCO, Inc. (incorporated by reference
to Exhibit 3.11 to the Company's Registration Statement on Form S-4 No. 333-70199).

II-2

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------------------------------------

3.12 By-laws of L-3 Communications ESSCO, Inc. (incorporated by reference to Exhibit 3.12 to
the Company's Registration Statement on Form S-4 No. 333-70199).

3.13 Certificate of Incorporation of L-3 Communications Storm Control Systems, Inc.
(incorporated by reference to Exhibit 3.13 to the Company's Registration Statement on Form
S-4 No. 333-70199).

3.14 By-laws of L-3 Communications Storm Control Systems, Inc. (incorporated by reference to
Exhibit 3.14 to the Company's Registration Statement on Form S-4 No. 333-70199).

3.15 Certificate of Incorporation of L-3 Communications DBS Microwave, Inc. (incorporated by
reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 No.
333-70199).

3.16 By-laws of L-3 Communications DBS Microwave, Inc. (incorporated by reference to Exhibit
3.16 to the Company's Registration Statement on Form S-4 No. 333-70199).

3.17 Certificate of Incorporation of SPD Electrical Systems, Inc. (incorporated by reference to
Exhibit 3.17 to the Company's Registration Statement on Form S-4 No. 333-70199).

3.18 By-laws of SPD Electrical Systems, Inc. (incorporated by reference to Exhibit 3.18 to the
Company's Registration Statement on Form S-4 No. 333-70199).

3.19 Certificate of Incorporation of SPD Switchgear Inc. (incorporated by reference to Exhibit 3.19
to the Company's Registration Statement on Form S-4 No. 333-70199).

3.20 By-laws of SPD Switchgear Inc. (incorporated by reference to Exhibit 3.20 to the Company's
Registration Statement on Form S-4 No. 333-70199).

3.21 Certificate of Incorporation of Pac Ord Inc. (incorporated by reference to Exhibit 3.21 to the
Company's Registration Statement on Form S-4 No. 333-70199).

3.22 By-laws of Pac Ord Inc. (incorporated by reference to Exhibit 3.22 to the Company's
Registration Statement on Form S-4 No. 333-70199).

3.23 Certificate of Incorporation of Henschel Inc. (incorporated by reference to Exhibit 3.23 to the
Company's Registration Statement on Form S-4 No. 333-70199).

3.24 By-laws of Henschel Inc. (incorporated by reference to Exhibit 3.24 to the Company's
Registration Statement on Form S-4 No. 333-70199).

3.25 Certificate of Incorporation of Power Paragon, Inc. (incorporated by reference to Exhibit 3.25
to the Company's Registration Statement on Form S-4 No. 333-70199).

3.26 By-laws of Power Paragon, Inc. (incorporated by reference to Exhibit 3.26 to the Company's
Registration Statement on Form S-4 No. 333-70199).

3.27 Certificate of Incorporation of SPD Holdings, Inc. (incorporated by reference to Exhibit 3.27
to the Company's Registration Statement on Form S-4 No. 333-70199).

3.28 By-laws of SPD Holdings, Inc. (incorporated by reference to Exhibit 3.28 to the Company's
Registration Statement on Form S-4 No. 333-70199).

**3.29 Certificate of Incorporation of AMI Instruments, Inc.

**3.30 By-laws of AMI Instruments, Inc.

**3.31 Certificate of Incorporation of Apcom, Inc.

**3.32 By-laws of Apcom, Inc.

II-3

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------------------------

**3.33 Certificate of Incorporation of Celerity Systems Incorporated.

**3.34 By-laws of Celerity Systems Incorporated.

**3.35 Certificate of Incorporation of Coleman Research Corporation.

**3.36 By-laws of Coleman Research Corporation.

**3.37 Certificate of Incorporation of EER Systems, Inc.

**3.38 By-laws of EER Systems, Inc.

**3.39 Certificate of Incorporation of Electrodynamics, Inc.

**3.40 By-laws of Electrodynamics, Inc.

**3.41 Certificate of Incorporation of Interstate Electronics Corporation.

**3.42 By-laws of Interstate Electronics Corporation.

**3.43 Certificate of Incorporation of KDI Precision Products, Inc.

**3.44 By-laws of KDI Precision Products, Inc.

**3.45 Certificate of Incorporation of L-3 Communications AIS GP Corporation.

**3.46 By-laws of L-3 Communications AIS GP Corporation.

**3.47 Certificate of Incorporation of L-3 Communications Analytics Corporation.

**3.48 By-laws of L-3 Communications Analytics Corporation.

**3.49 Certificate of Incorporation of L-3 Communications Atlantic Science and Technology
Corporation.

**3.50 By-laws of L-3 Communications Atlantic Science and Technology Corporation.

**3.51 Certificate of Incorporation of L-3 Communications Aydin Corporation.

**3.52 By-laws of L-3 Communications Aydin Corporation.

**3.53 Certificate of Limited Partnership of L-3 Communications Integrated Systems L.P.

**3.54 Limited Partnership Agreement of L-3 Communications Integrated Systems L.P.

**3.55 Certificate of Incorporation of L-3 Communications Investments, Inc.

**3.56 By-laws of L-3 Communications Investments, Inc.

**3.57 Certificate of Incorporation of Microdyne Communications Technologies Incorporated.

**3.58 By-laws of Microdyne Communications Technologies Incorporated.

**3.59 Certificate of Incorporation of Microdyne Corporation.

**3.60 By-laws of Microdyne Corporation.

**3.61 Certificate of Incorporation of Microdyne Outsourcing Incorporated.

**3.62 By-laws of Microdyne Outsourcing Incorporated.

**3.63 Certificate of Incorporation of MPRI, Inc.

**3.64 By-laws of MPRI, Inc.

**3.65 Certificate of Incorporation of MCTI Acquisition Corporation.

II-4

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ---------------------------------------------------------------------------------------------

**3.66 Bylaws of MCTI Acquisition Corporation.

**3.67 Certificate of Incorporation of L-3 Communications Security and Detection Systems
Corporation Delaware.

**3.68 Bylaws of L-3 Communications Security and Detection Systems Corporation Delaware.

**4.1 Indenture dated as of June 28, 2002 among L-3 Communications Corporation, the Guarantors
and The Bank of New York, as Trustee.

4.2 Form of 7 5/8% Senior Subordinated Note due 2012 (included in Exhibit 4.1).

4.3 Form of 7 5/8% Series B Senior Subordinated Note due 2012 (included in Exhibit 4.1).

**4.4 Registration Rights Agreement, dated as of June 28, 2002, among L-3 Communications
Corporation, the Guarantors, Lehman Brothers Inc., Banc of America Securities LLC and
Credit Suisse First Boston Corporation.

**5 Opinion of Simpson Thacher and Bartlett.

10.6 Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3
Communications Holdings, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 No. 333-46975).

10.7 Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3
Communications Holdings, Inc. (incorporated by reference to Exhibit 10.51 to the Registrant
Statement on Form S-1 No. 333-46975).

10.10 Form of Stock Option Agreement of Employee Options (incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on Form S-1 No. 333-46975).

10.11 1997 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10.11 to
Registrant's Registration Statement on Form S-1, No. 333-70125).

10.12 Non-Qualified Stock Option Agreement dated as of April 30, 1997 by and between L-3
Communications Holdings, Inc. and Frank C. Lanza (incorporated by reference to Exhibit
10.12 to Registrant's Registration Statement on Form S-1, No. 333-70125).

10.13 Non-Qualified Stock Option Agreement dated as of April 30, 1997 by and between L-3
Communications Holdings, Inc. and Robert V. LaPenta (incorporated by reference to Exhibit
10.13 to Registrant's Registration Statement on Form S-1, No. 333-70125).

10.15 Option Plan for Non-Employee Directors of L-3 Communication's Holdings, Inc.
(incorporated by reference to Exhibit 10.15 to Registrant's annual report on Form 10-K filed
on March 31, 1999).

10.16 1999 Long Term Performance Plan dated as of April 27, 1999 (incorporated by reference to
Exhibit 10.16 to the Registrant's annual report on Form 10-K filed on March 30, 2000).

10.20 L-3 Communications Corporation Pension Plan (incorporated by reference to Exhibit 10.10 to
the Registrant's Registration Statement on Form S-1 No. 333-46975).

10.31 Indenture dated as of May 22, 1998 between L-3 Communications and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 10.6 to L-3 Communications
Corporation's Registration Statement on Form S-4 No. 333-70199).

10.32 Indenture dated as of December 11, 1998 among L-3 Communications Corporation, the
Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference
to Exhibit 10.32 to Registrant's Registration Statement on Form S-1, No. 333-70125).

II-5

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- --------------------------------------------------------------------------------------------

10.33 Indenture dated as of November 21, 2000 among L-3 Communications Holdings, Inc., the
Guarantors named therein and the Bank of New York, as Trustee (incorporated by reference
to Exhibit 10.33 to Registrant's annual report on Form 10-K filed on March 19, 2002).

10.34 Purchase Agreement dated as of November 21, 2000 between L-3 Communications Holdings,
Inc. and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.34 to Registrant's
annual report on Form 10-K filed on March 19, 2002).

10.35 Registration Rights Agreement dated as of November 21, 2000 between L-3 Communications
Holdings, Inc. and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.35 to
Registrant's annual report on Form 10-K filed on March 19, 2002).

10.40 Consent, Waiver and First Amendment to Amended and Restated 364 Day Credit Agreement
dated as of April 28, 2000 among L-3 Communications Corporation and lenders named
therein (incorporated by reference to Exhibit 10.40 to Registrant's annual report on Form
10-K filed on March 19, 2002).

10.41 Consent, Waiver and First Amendment to Second Amended and Restated Credit Agreement
dated as of April 28, 2000 among L-3 Communications Corporation and lenders named
therein (incorporated by reference to Exhibit 10.41 to Registrant's annual report on Form
10-K filed on March 19, 2002).

10.42 Consent, Waiver and First Amendment to New 364 Day Credit Agreement dated as of April
28, 2000 among L-3 Communications Corporation and lenders named therein (incorporated
by reference to Exhibit 10.42 to Registrant's annual report on Form 10-K filed on March 19,
2002).

10.43 New 364 Day Credit Agreement dated as of April 24, 2000 among L-3 Communications
Corporation and lenders named therein (incorporated by reference to Exhibit 10.43 to
Registrant's annual report on Form 10-K filed on March 19, 2002).

10.44 Amended and Restated 364 Day Credit Agreement dated as of April 24, 2000 among L-3
Communications Corporation and lenders named therein (incorporated by reference to
Exhibit 10.44 to Registrant's annual report on Form 10-K filed on March 19, 2002).

10.45 Second Amended and Restated Credit Agreement dated as of April 24, 2000 among L-3
Communications Corporation and lenders named therein (incorporated by reference to
Exhibit 10.45 to Registrant's annual report on Form 10-K filed on March 19, 2002).

10.91 Asset Purchase Agreement relating to the Honeywell TCAS Business by and among
Honeywell Inc., L-3 Communications Corporation and, solely in respect of the Guaranty in
Article XIV, Honeywell International Inc. dated as of February 10, 2000 (incorporated by
reference to Exhibit 10.91 to Registrant's annual report on Form 10-K filed on March 19,
2002).

10.92 Asset Purchase and Sale Agreement, dated January 7, 2000 by and between L-3
Communications Corporation and Raytheon Company (incorporated by reference to Exhibit
10.92 to Registrant's annual report on Form 10-K filed on March 19, 2002).

*11 L-3 Communications Holdings, Inc. Computation of Basic Earnings Per Share and Diluted
Earnings Per Share.

**12 Ratio of Earnings to Fixed Charges.

**21 Subsidiaries of the Registrant.

**23.1 Consent of PricewaterhouseCoopers LLP with respect to the consolidated financial statements
of L-3 Communications Holdings, Inc. and L-3 Communications Corporation.

II-6

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- --------------------------------------------------------------------------------------------

**23.2 Consent of PricewaterhouseCoopers LLP with respect to the combined financial statements
of Aircraft Integration Systems Business.

24 Powers of Attorney L-3 Communications Corporation and the Additional Registrants
(included on the signature pages hereto).

**25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New
York, as Trustee.

**99.1 Letter of Transmittal.

**99.2 Notice of Guaranteed Delivery.

- ----------
* The information required in this exhibit is presented on Note 10 to the
Consolidated Financial Statements as of December 31, 2001 in accordance
with the provisions of SFAS No. 128, Earnings Per Share.

** Filed herewith

ITEM 22. UNDERTAKINGS.

The undersigned registrants hereby undertake:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Selection 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

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

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by the director, officer or
controlling person of the registrants in the successful defense of any action,
suit or proceeding) is asserted by such

II-7

director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-8

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on September 18, 2002.

L-3 COMMUNICATIONS CORPORATION

By: /s/ Christopher C. Cambria
------------------------------------
Christopher C. Cambria,
Senior Vice President --
General Counsel and Secretary

SIGNATURES AND POWERS OF ATTORNEY

Each person whose signature appears below authorizes Christopher C.
Cambria, Michael T. Strianese, Frank C. Lanza, Robert V. LaPenta, or any of
them, as his attorney in fact and agent, with full power of substitution and
resubstitution, to execute, in his name and on his behalf, in any and all
capacities, this Registration Statement on Form S-4 and any amendments thereto
(and any additional registration statement related thereto permitted by Rule
462 (b) promulgated under the Securities Act of 1933 (and all further
amendments including post-effective amendments thereto)) necessary or advisable
to enable the registrant to comply with the Securities Act of 1933, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in respect thereof, in connection with the registration of the securities which
are the subject of such registration statement, which amendments may make such
changes in such registration statement as such attorney may deem appropriate,
and with full power and authority to perform and do any and all acts and things
whatsoever which any such attorney or substitute may deem necessary or
advisable to be performed or done in connection with any or all of the
above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Frank C. Lanza Chairman, Chief Executive Officer and September 18, 2002
- ----------------------------- Director
Frank C. Lanza

/s/ Robert V. LaPenta President, Chief Financial Officer and September 18, 2002
- ----------------------------- Director
Robert V. LaPenta

/s/ Michael T. Strianese Senior Vice President -- Finance September 18, 2002
- -----------------------------
Michael T. Strianese

/s/ Thomas A. Corcoran Director September 18, 2002
- -----------------------------
Thomas A. Corcoran

/s/ Robert B. Millard Director September 18, 2002
- -----------------------------
Robert B. Millard

/s/ John E. Montague Director September 18, 2002
- -----------------------------
John E. Montague

/s/ John M. Shalikashvili Director September 18, 2002
- -----------------------------
John M. Shalikashvili

Director
- -----------------------------
Arthur L. Simon

/s/ Alan H. Washkowitz Director September 18, 2002
- -----------------------------
Alan H. Washkowitz

II-9

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of New York,
state of New York, on September 18, 2002.

ELECTRODYNAMICS, INC.
L-3 COMMUNICATIONS STORM CONTROL
SYSTEMS, INC.
MICRODYNE CORPORATION

By: /s/ Christopher C. Cambria
------------------------------------
Christopher C. Cambria, Vice President
and Secretary

SIGNATURES AND POWERS OF ATTORNEY

Each person whose signature appears below authorizes Christopher C.
Cambria, Frank C. Lanza, Robert V. LaPenta, or any of them, as his attorney in
fact and agent, with full power of substitution and resubstitution, to execute,
in his name and on his behalf, in any and all capacities, this Registration
Statement on Form S-4 and any amendments thereto (and any additional
registration statement related thereto permitted by Rule 462 (b) promulgated
under the Securities Act of 1933 (and all further amendments including
post-effective amendments thereto)) necessary or advisable to enable the
registrants to comply with the Securities Act of 1933, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
respect thereof, in connection with the registration of the securities which
are the subject of such registration statement, which amendments may make such
changes in such registration statement as such attorney may deem appropriate,
and with full power and authority to perform and do any and all acts and things
whatsoever which any such attorney or substitute may deem necessary or
advisable to be performed or done in connection with any or all of the
above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Frank C. Lanza Chief Executive Officer and Director September 18, 2002
----------------------------
Frank C. Lanza

/s/ Robert V. LaPenta Chief Financial Officer and Director September 18, 2002
----------------------------
Robert V. LaPenta

/s/ Christopher C. Cambria Vice President, Secretary and Director September 18, 2002
----------------------------
Christopher C. Cambria

II-10

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, each of the
registrants certifies has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New
York, state of New York, on September 18, 2002.

AMI INSTRUMENTS, INC.
APCOM, INC.
CELERITY SYSTEMS INCORPORATED
COLEMAN RESEARCH CORPORATION
EER SYSTEMS, INC.
HENSCHEL INC.
HYGIENETICS ENVIRONMENTAL
SERVICES, INC.
INTERSTATE ELECTRONICS CORPORATION
KDI PRECISION PRODUCTS, INC.
L-3 COMMUNICATIONS AIS GP CORPORATION
L-3 COMMUNICATIONS ANALYTICS CORPORATION
L-3 COMMUNICATIONS ATLANTIC SCIENCE AND
TECHNOLOGY CORPORATION
L-3 COMMUNICATIONS AYDIN CORPORATION
L-3 COMMUNICATIONS ESSCO, INC.
L-3 COMMUNICATIONS ILEX SYSTEMS, INC.
L-3 COMMUNICATIONS INVESTMENTS, INC.
L-3 COMMUNICATIONS SECURITY AND DETECTION
SYSTEMS CORPORATION DELAWARE
L-3 COMMUNICATIONS SPD
TECHNOLOGIES, INC.
MCTI ACQUISITION CORPORATION
MICRODYNE COMMUNICATIONS TECHNOLOGIES
INCORPORATED
MICRODYNE OUTSOURCING INCORPORATED
MPRI, INC.
PAC ORD INC.
POWER PARAGON, INC.
SPD ELECTRICAL SYSTEMS, INC.
SPD HOLDINGS, INC.
SPD SWITCHGEAR INC.
SOUTHERN CALIFORNIA MICROWAVE, INC.

By: /s/ Christopher C. Cambria
--------------------------------------
Christopher C. Cambria, Vice President
and Secretary

SIGNATURES AND POWERS OF ATTORNEY

II-11

such attorney or substitute may deem necessary or advisable to be performed or
done in connection with any or all of the above-described matters, as fully as
each of the undersigned could do if personally present and acting, hereby
ratifying and approving all acts of any such attorney or substitute.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Frank C. Lanza Chief Executive Officer September 18, 2002
------------------------------
Frank C. Lanza

/s/ Robert V. LaPenta Chief Financial Officer September 18, 2002
------------------------------
Robert V. LaPenta

/s/ Christopher C. Cambria Vice President and Director September 18, 2002
------------------------------
Christopher C. Cambria

II-12

SIGNATURES

L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P.

By: L-3 COMMUNICATIONS AIS GP CORPORATION,
as General Partner

By: /s/ Christopher C. Cambria
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Name: Christopher C. Cambria
Title: Vice President and Secretary

SIGNATURES AND POWERS OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Frank C. Lanza Chief Executive Officer September 18, 2002
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Frank C. Lanza

/s/ Robert V. LaPenta Chief Financial Officer September 18, 2002
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Robert V. LaPenta

/s/ Christopher C. Cambria Vice President and Director September 18, 2002
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Christopher C. Cambria

II-13

EXHIBIT INDEX

Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings.

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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