SCHEDULE 14A
(RULE 14Aa-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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L-3 COMMUNICATIONS HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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L-3 COMMUNICATIONS HOLDINGS, INC.
[L3 COMMUNICATIONS LOGO]
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Stockholders of L-3 Communications Holdings, Inc., to be held
at 2:30 p.m., eastern daylight time, on Tuesday, April 27, 2004, at the Rihga
Royal Hotel located at 151 West 54th Street, New York, NY. The formal notice and
proxy statement for the Annual Meeting are attached to this letter.
To have your vote recorded, you should vote by telephone or over the
Internet or sign, date and return your proxy card in the enclosed envelope as
soon as possible, even if you currently plan to attend the Annual Meeting. By
doing so, you will ensure that your shares are represented and voted at the
meeting. If you decide to attend, you can still vote your shares in person, if
you wish. Please let us know whether you plan to attend the meeting by marking
the appropriate box on the proxy card or indicating your plans when prompted
over the telephone or Internet voting systems.
On behalf of the Board of Directors, I thank you for your cooperation and
look forward to seeing you on April 27th.
Very truly yours,
/s/ Frank C. Lanza
Frank C. Lanza
Chairman and Chief Executive Officer
L-3 COMMUNICATIONS HOLDINGS, INC.
[L3 COMMUNICATIONS LOGO]
NOTICE OF 2004 ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Stockholders (the
"Annual Meeting") of L-3 Communications Holdings, Inc. will be held at the Rihga
Royal Hotel, 151 West 54th Street, New York, New York on Tuesday, the 27th day
of April, 2004, at 2:30 p.m., eastern daylight time, for the following purposes:
1. Election of three Class II Directors whose terms expire in 2007;
2. Ratification of the appointment of our independent auditors for 2004;
3. Approval of an amendment to our 1999 Long Term Performance Plan;
4. Ratification of the terms of performance-based compensation under our
1999 Long Term Performance Plan; and
5. Transaction of such other business as may properly come before the
Annual Meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ Christopher C. Cambria
Christopher C. Cambria
Senior Vice President, Secretary
and General Counsel
March 30, 2004
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IMPORTANT
WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
VOTE OVER THE TELEPHONE OR THE INTERNET OR COMPLETE, DATE, SIGN AND RETURN
PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. YOU MAY
REVOKE YOUR PROXY IF YOU ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES
IN PERSON.
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L-3 COMMUNICATIONS HOLDINGS, INC.
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
----------------
PROXY STATEMENT
This proxy statement is furnished to the holders of the common stock, par
value $0.01 per share, of L-3 Communications Holdings, Inc. in connection with
the solicitation of proxies for use at the 2004 Annual Meeting of Stockholders
to be held at the Rihga Royal Hotel, 151 West 54th Street, New York, New York at
2:30 p.m., eastern daylight time, on Tuesday, April 27, 2004 (the "Annual
Meeting").
RECORD DATE
The board of directors has fixed the close of business on March 19, 2004 as
the record date for the Annual Meeting (the "Record Date"). Only stockholders of
record at the Record Date (the "Stockholders") are entitled to notice of and to
vote at the Annual Meeting or at any adjournments thereof, in person or by
proxy. At the Record Date, there were 105,659,493 shares of our common stock
outstanding. This proxy statement, the accompanying proxy card, our Summary
Annual Report and our Annual Report on Form 10-K are intended to be mailed on or
about March 30, 2004 to each Stockholder entitled to vote at the Annual Meeting.
PROXIES
The proxy accompanying this proxy statement is solicited on behalf of our
board of directors for use at the Annual Meeting and any adjournments of the
Annual Meeting, and the expenses of solicitation of proxies will be borne by us.
The solicitation will be made primarily by mail, but our officers and regular
employees may also solicit proxies by telephone, telegraph, facsimile, via the
Internet or in person. We also have retained Georgeson Shareholder Services to
assist in soliciting proxies. Each holder of common stock is entitled to one
vote for each share of our common stock held. The holders in person or by proxy
of a majority of the common stock entitled to be voted at the Annual Meeting
shall constitute a quorum.
Each Stockholder may appoint a person (who need not be a stockholder) other
than the persons named in the enclosed proxy to represent him or her at the
meeting by completing another proper proxy. In either case, such completed proxy
should be returned in the enclosed envelope provided for that purpose for
delivery before the meeting or should be delivered to our Secretary at 600 Third
Avenue, New York, New York 10016, not later than 5:00 p.m., eastern daylight
time, on Monday, April 26, 2004.
Any proxy delivered pursuant to this solicitation is revocable at the
option of the person(s) executing the proxy upon our receipt, prior to the time
the proxy is voted, of a duly executed instrument revoking it, or of a duly
executed proxy bearing a later date, or in the case of death or incapacity of
the person(s) executing the proxy, of written notice of such death or
incapacity, or by such person(s) voting in person at the Annual Meeting. Unless
revoked, all proxies representing shares entitled to vote that are delivered
pursuant to this solicitation will be voted at the Annual Meeting and, where a
choice has been specified on the proxy card, will be voted in accordance with
such specification. WHERE A CHOICE HAS NOT BEEN SPECIFIED ON THE PROXY CARD, THE
PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF OUR BOARD OF
DIRECTORS.
Assuming a quorum is present, a majority of the shares of common stock
present in person or represented by proxy at the Annual Meeting is required for
the election of directors and for approval of all other items submitted to
Stockholders for their consideration. Abstentions and instances where brokers
are prohibited from exercising discretionary authority for beneficial owners who
have not returned a proxy (so-called "broker non-votes") will be counted for
purposes of determining a quorum, but will not be counted as either voting for
or against any proposal.
1
VOTING BY TELEPHONE OR INTERNET
Instead of submitting your vote by mail on the enclosed proxy card, you can
vote by telephone or over the Internet. The telephone and Internet voting
procedures, which comply with Delaware law, are designed to authenticate
Stockholders' identities, to allow Stockholders to vote their shares and to
confirm that their instructions have been properly recorded.
Voting your proxy by mail, telephone or the Internet will not limit your
right to vote at the Annual Meeting if you later decide to attend in person. If
your shares are held in the name of a broker, bank or other record holder, you
must obtain a proxy from the record holder as to how to vote your shares or
obtain a proxy from the record holder to vote at the Annual Meeting.
Stockholders with shares registered directly in their name in our stock
records maintained by our transfer agent, EquiServe Trust Company, N.A., may
vote their shares (1) by making a toll-free telephone call from the U.S. and
Canada to EquiServe at 1-877-PRX-VOTE (1-877-779-8683), (2) by submitting their
proxy over the Internet at the following address on the World Wide Web:
http://www.eproxyvote.com/lll, or (3) by mailing their signed proxy card.
Specific instructions to be followed by registered Stockholders are set forth on
the enclosed proxy card. Proxies submitted by telephone or over the Internet as
described above must be received by 5:00 p.m., eastern daylight time, on April
26, 2004.
REVOCATION OF PROXIES SUBMITTED BY TELEPHONE OR INTERNET
To revoke a proxy previously submitted by telephone or over the Internet,
you may simply vote again at a later date, using the same procedures, in which
case your later submitted vote will be recorded and your earlier vote revoked,
or by attending the meeting and voting in person.
PROPOSAL 1. ELECTION OF DIRECTORS
Our Amended and Restated Certificate of Incorporation and the Bylaws
provide for a board of directors whose number shall be fixed from time to time
exclusively pursuant to a resolution adopted by the board of directors. We
currently have eight directors. Our Amended and Restated Certificate of
Incorporation provides for a classified board of directors divided into three
classes. Frank C. Lanza, Robert V. LaPenta and John M. Shalikashvili constitute
a class with a term that expires at the annual meeting in 2005 (the "Class I
Directors"); Thomas A. Corcoran, Claude R. Canizares and Alan H. Washkowitz
constitute a class with a term that expires at the upcoming annual meeting (the
"Class II Directors"); and Robert B. Millard and Arthur L. Simon constitute a
class with a term that expires at the annual meeting in 2006 (the "Class III
Directors"). The full board of directors has considered and nominated, the
following slate of Class II nominees for a three year term expiring in 2007:
Thomas A. Corcoran, Claude R. Canizares and Alan H. Washkowitz. Action will be
taken at the Annual Meeting for the election of these Class II nominees.
It is intended that the proxies delivered pursuant to this solicitation
will be voted in favor of the election of Thomas A. Corcoran, Claude R.
Canizares and Alan H. Washkowitz, except in cases of proxies bearing contrary
instructions. In the event that these nominees should become unavailable for
election for any presently unforeseen reason, the person named in the proxy will
have the right to use his discretion to vote for a substitute.
The following information describes the offices held, other business
directorships and the class and term of each nominee and of each director whose
term of office will continue after the 2004 Annual Meeting. Beneficial ownership
of equity securities of the nominees is shown under the caption "Security
Ownership of Management" on page 17.
2
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS IN 2004
CLASS II -- NOMINEES FOR TERMS EXPIRING IN 2007
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
--------------------- ----- --------------------------------------------------------------------
Thomas A. Corcoran 59 Director since July 1997. Chairman 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, LLC, a private management
consulting firm, and in this capacity, he works closely with The
Carlyle Group, a Washington D.C. based private equity 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 Stevens Institute of Technology and the
Boards of Directors of American Ireland Fund, REMEC
Corporation and United Industrial Corporation.
Claude R. Canizares 58 Director since May 2003. Member of the audit committee. Since
1974, Professor Canizares has been a faculty member of the
Massachusetts Institute of Technology (MIT). He currently serves
as the Associate Provost and Bruno Rossi Professor of
Experimental Physics, overseeing the MIT Lincoln Laboratory. In
addition, he is a principal investigator on NASA's Chandra X-ray
observatory and Associate Director of its science center. Professor
Canizares is a member of the National Academy of Sciences, the
International Academy of Astronautics and a fellow of the
American Physical Society and the American Association for the
Advancement of Science. He is also a member of the Board of
Trustees of the Associated Universities, Inc.
Alan H. Washkowitz 63 Director since April 1997. Chairman of the nominating/corporate
governance committee and member of the compensation
committee. Mr. Washkowitz is a Managing Director of Lehman
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.
The nominees for election to the board of directors are hereby proposed for
approval by the Stockholders. The affirmative vote of the holders of a majority
of the shares present or represented and entitled to vote at the Annual Meeting
will be necessary to approve each nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSED NOMINEES
FOR ELECTION TO THE BOARD OF DIRECTORS.
3
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE 2004 ANNUAL MEETING AND WHO ARE
NOT SUBJECT TO ELECTION THIS YEAR.
CLASS I -- DIRECTORS WHOSE TERMS EXPIRE IN 2005
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
----------------------- ----- ----------------------------------------------------------------------
Frank C. Lanza 72 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 DalmoVictor and Philco
Western Development Laboratory.
Robert V. LaPenta 58 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.
John M. Shalikashvili 67 Director since August 1998. Member of the compensation and
nominating/corporate governance committees. 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., Frank
Russell Trust Company and Plug Power, Inc.
4
CLASS III -- DIRECTORS WHOSE TERMS EXPIRE IN 2006
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
------------------- ----- -------------------------------------------------------------------
Robert B. Millard 53 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 Lehman Brothers Inc. in 1978 when Kuhn Loeb
& Co. was acquired by Lehman Brothers and became a Managing
Director of Lehman Brothers Inc. in 1983. Mr. Millard joined
Kuhn Loeb & Co. in 1976. Mr. Millard is a director of GulfMark
Offshore, Inc. and Weatherford International, Inc.
Arthur L. Simon 72 Director since April 2000. Member of the audit and
nominating/corporate governance committees. 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 Ltd.
PROPOSAL 2. SELECTION OF INDEPENDENT AUDITORS
The audit committee of the board of directors has selected
PricewaterhouseCoopers LLP to act as our independent auditors for the 2004
fiscal year, and a proposal to ratify this selection will be submitted to the
Annual Meeting. PricewaterhouseCoopers LLP has acted as our independent auditors
since our formation in 1997 and the audit committee and the board of directors
believe it is desirable and in our best interests to continue to retain that
firm. Representatives of PricewaterhouseCoopers LLP will be present at the
Annual Meeting. Such representatives will have the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
If the foregoing proposal is not approved by the holders of a majority of
the shares represented at the Annual Meeting, the selection of independent
auditors will be reconsidered by the audit committee and the board of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS.
PROPOSAL 3. AMENDMENT OF THE 1999 PLAN
Currently, under our 1999 Long Term Performance Plan (the "1999 Plan"), the
maximum number of shares of our common stock that may be issued pursuant to all
awards granted under the 1999 Plan is limited to eight million shares (as
adjusted for the two-for-one stock split declared by our board of directors on
April 23, 2002 ("2002 Stock Split")). As we have granted awards in the aggregate
equaling nearly the full eight million shares previously authorized, the
compensation committee has recommended to the board of directors that the 1999
Plan be amended to increase the maximum number of shares of common stock that
may be issued pursuant to all awards granted under the 1999 Plan to 14.5 million
shares, out of which up to three million may be issued as "incentive stock
options" (as defined under Section 422 of the Internal Revenue Code of 1986, as
it may be amended from time to time, the "Code"). The 1999 Plan permits the
board of directors to amend the 1999 Plan at any time, subject to stockholder
approval of any amendment where required by applicable law, as discussed below.
Accordingly, pursuant to authority delegated to it by the board of directors at
its February 10, 2004 meeting, the compensation committee has amended the 1999
Plan, subject to receipt of the approval of stockholders representing a majority
of the shares represented at the Annual Meeting, to reflect such increase in the
number of shares.
5
We are submitting the amendments to the 1999 Plan for stockholder approval
for the following reasons:
o If we want to continue to have the ability to grant "incentive stock
options," as currently contemplated under the 1999 Plan, Section 422 of
the Code requires that any increase in the number of shares available for
awards that may be "incentive stock options" be approved by our
stockholders.
o Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to the named executive officers to $1 million, unless
certain requirements are met. One of those requirements is to receive
stockholder approval of the material terms under which performance-based
compensation (which may include the grant of stock options) is to be
paid.
o The New York Stock Exchange (the "NYSE") requires that all material
revisions to the terms of an equity compensation plan, which includes
changes in the number of shares available for issuance, be approved by
stockholders.
UPON APPROVAL BY THE STOCKHOLDERS OF THE AMENDMENT TO THE 1999 PLAN
INCREASING THE NUMBER OF AVAILABLE SHARES, WE INTEND TO REGISTER UNDER THE
SECURITIES ACT OF 1933 THE ADDITIONAL SHARES OF OUR COMMON STOCK AUTHORIZED FOR
ISSUANCE UNDER THE 1999 PLAN.
The compensation committee also amended the 1999 Plan to delete provisions
permitting repricing and/or reloading of options under such plan, to make such
conforming changes to the 1999 Plan as may be necessary to reflect the 2002
Stock Split, and to make certain other administrative changes to the 1999 Plan.
DESCRIPTION OF THE 1999 PLAN
ELIGIBILITY
Awards under the 1999 Plan may be granted to any of our, or any of our
subsidiaries', employees, including any officer, and to any other individual who
provides services to us or any of our subsidiaries or on our behalf or on behalf
of any of our subsidiaries, subject to the discretion of a committee of our
board of directors to determine the particular employees and other individuals
who, from time to time, will be selected to receive awards.
TYPES OF AWARDS
Awards under the 1999 Plan may be in the form of non-qualified stock
options, incentive stock options, stock appreciation rights, restricted stock
and other incentive awards, such as performance units. Awards may be granted
singly or in combination with other awards, consistent with the terms of the
1999 Plan. Each award will be evidenced by an award agreement entered into
between us and the recipient setting forth the specific terms and conditions
applicable to that award. Awards under the 1999 Plan generally will be
nontransferable by a holder (other than by will or the laws of descent and
distribution) and rights thereunder generally will be exercisable during the
holder's lifetime only by the holder, except that awards, other than awards of
incentive stock options, may be transferred to and exercised by a family member
or family members of a participant or transferred to an irrevocable trust
established for the benefit a participant's family members during the
participant's lifetime. The maximum term of unvested or unexercised awards under
the 1999 Plan is ten years from the initial date of grant.
Stock options authorized under the 1999 Plan are rights to purchase a
specified number of shares of our common stock at an exercise price of not less
than 100% of the fair market value of the stock on the date of grant during the
period set forth in the award agreement. Stock options that are granted as
incentive stock options will be granted with such additional terms as are
necessary to satisfy the applicable requirements of Section 422 of the Code. The
fair market value of our common stock for which incentive stock options are
exercisable for the first time by an optionee during any calendar year can not
exceed $100,000 (measured as of the date of grant) under current tax laws. Other
awards are not limited in this manner.
6
Stock appreciation rights entitle the recipient to receive, upon exercise
of the stock appreciation right, an amount (payable in cash and/or stock or
other property) equal to the amount of the excess, if any, of the fair market
value of a share of our common stock on the date the stock appreciation right is
exercised (or some lesser ceiling amount) over the base price of the stock
appreciation right, which cannot be less than the fair market value of a share
of our common stock on the date the stock appreciation right was awarded or the
exercise price of a related stock option. Stock appreciation rights may be
granted on a freestanding basis, in relation to a stock option or in "tandem"
with a stock option, such that the exercise of either the option or the stock
appreciation right cancels the recipient's rights under the tandem award with
respect to the number of shares so exercised.
Restricted stock is common stock issued to the recipient, typically for
minimal lawful consideration and subject to certain risks of forfeiture and
restrictions and limitations on transfer, the vesting of which may depend on
individual or corporate performance, continued service or other criteria.
Other incentive awards might include phantom stock or units, performance
stock or units, bonus stock or units, dividend equivalent units, similar
securities or rights and other awards payable in or with a value derived from or
a price related to the fair market value of our common stock, payable in our
common stock and/or cash, all on such terms as the committee may approve. Such
awards may be granted, become vested or be payable based upon the continued
employment of a participant, or upon the attainment of specified corporate or
individual performance goals (as in the case of performance stock or units).
Under Section 162(m) of the Code, we may not deduct certain compensation
over $1,000,000 in any year to our Chief Executive Officer or any of the four
other of our most highly compensated executive officers unless, among other
things, this compensation qualifies as "performance-based compensation" under
Section 162(m), and the material terms of the plan for such compensation are
approved by stockholders. With reference to awards intended to qualify as
performance-based compensation under Section 162(m), the material terms of the
1999 Plan include the eligible class of participants, the performance goal or
goals and the maximum annual amount payable thereunder to any individual
participant. Stock options and stock appreciation rights that are granted under
the 1999 Plan at a fair market value exercise price are intended to qualify as
performance-based compensation ("qualifying options and stock appreciation
rights"). In addition, other awards (such as restricted stock and performance
units) may be granted under the 1999 Plan to qualify as performance-based
compensation under Section 162(m).
The eligible class of persons for performance-based awards under the 1999
Plan is all of our employees and employees of our subsidiaries. Awards that are
intended to qualify as performance-based awards under the 1999 Plan (other than
qualifying options and stock appreciation rights) may be granted only in
accordance with the performance-based requirements of Section 162(m), as set
forth below.
The performance goals for performance-based awards under the 1999 Plan are
any one or a combination of earnings per share, return on equity, total
stockholder return and cash flow (each as defined in the 1999 Plan) or such
other performance goal or goals that the committee, in its discretion,
establishes in accordance with the requirements of Section 162(m). These goals
will be applied over either consecutive or rolling cycles of more than one but
not more than five fiscal years. Specific cycles, weightings of more than one
performance goal and target levels of performance upon which actual payments
will be based, as well as the award levels payable upon achievement of specified
levels of performance, will be determined by the committee not later than the
applicable deadline under Section 162(m) and in any event at a time when
achievement of such targets is substantially uncertain. These variables may
change from cycle to cycle. Appropriate adjustments to the performance goals and
targets in respect of performance-based awards may be made by the committee
based upon objective criteria in the case of significant acquisitions or
dispositions by us, extraordinary gains or losses, material changes in
accounting principles or practices, or certain other events that in any case
were not anticipated (or the effects of which were not anticipated) at the time
goals were established, in order to neutralize the effect of such events on the
performance-based awards. We
7
believe that specific performance targets (when established) are likely to
constitute confidential business information, the disclosure of which may
adversely affect us or mislead the public.
The committee must certify the achievement of the applicable performance
goals and the actual amount payable to each participant under the
performance-based awards prior to payment. The committee may retain discretion
to reduce, but not increase, the amount payable under a performance-based award
to any participant, notwithstanding the achievement of targeted performance
goals. Awards may be accelerated in the event of a change in control, as
described below.
Subject to adjustment as described below, (i) the maximum number of shares
of our common stock with respect to which options and stock appreciation rights
may be granted to any of our employees or an employee of any of our subsidiaries
in any fiscal year shall not exceed 500,000 and (ii) the maximum number of
shares of our common stock with respect to which performance-based awards (other
than qualifying options and SARs) may be granted to any of our employees or an
employee of any of our subsidiaries in any fiscal year shall be 500,000 or, in
the event such performance-based award is paid in cash, the equivalent cash
value thereof as of the date of payment of such performance-based award.
The committee also has the authority to grant awards under the 1999 Plan in
substitution for or as the result of the assumption of stock incentive awards
held by employees of other entities who become our employees or employees of a
subsidiary of us as a result of a merger or acquisition of the entity.
ADMINISTRATION; CHANGE IN CONTROL
The 1999 Plan provides that it shall be administered by the compensation
committee or another committee of the board of directors, constituted so as to
permit the plan to comply with the "non-employee director" provisions of Rule
16b-3 under the Exchange Act and the "outside director" requirements of Section
162(m). The committee has the authority within the terms and limitations of the
1999 Plan to designate recipients of awards, determine or modify the form,
amount, terms, conditions, restrictions, and limitations of awards, including
vesting provisions, terms of exercise of an award, expiration dates and the
treatment of an award in the event of the retirement, disability, death or other
termination of a participant's employment with us, and to construe and interpret
the 1999 Plan. Such authority includes the discretion to accelerate or extend
outstanding awards.
The committee is authorized to include specific provisions in award
agreements relating to the treatment of awards in the event of a "change in
control" and is authorized to take certain other actions in such an event.
Change in control under the 1999 Plan is defined generally to include a change
in ownership involving 51 percent or more of our outstanding voting securities
(or a combined entity), a transfer of substantially all of our assets, or of L-3
Communications Corporation or any successor thereto, or a change, during any
period of 24 months or less, of 50 percent or more of the members of our board
of directors.
The committee may delegate to our officers or employees or those of our
subsidiaries the authority to execute and deliver such instruments and documents
and to take actions necessary, advisable or convenient for the effective
administration of the 1999 Plan. It is intended generally that the awards under
the 1999 Plan and the 1999 Plan itself comply with and be interpreted in a
manner that, in the case of participants who are subject to Section 16 of the
Exchange Act and for whom (or whose awards) the benefits of Rule 16b-3 are
intended, satisfy the applicable requirements of Rule 16b-3, so that such
persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules
under that Section. The 1999 Plan provides that neither we nor any member of our
board of directors or of the committee shall have any liability to any person
for any action taken or not taken in good faith under the 1999 Plan.
AMENDMENT AND TERMINATION
Subject to any stockholder approval that may be required under applicable
law or stock exchange listing requirements, the board of directors has the
authority to amend, suspend or discontinue the
8
1999 Plan at any time, provided that no such action will affect any outstanding
award in any manner adverse to the participant without the consent of the
participant. In the case of amendments that materially increase the available
number of shares under the 1999 Plan, such stockholder approval is required to
satisfy tax laws and regulations applicable to performance-based compensation
under Section 162(m) of the Internal Revenue Code or to subsequent grants of
incentive stock options in accordance with Section 422 of the Internal Revenue
Code, or to satisfy other legal requirements. In addition, rules established by
the NYSE require stockholder approval of all equity compensation plans as well
as all material revisions of such plans, which would include amendments that
materially increase the available number of shares under the 1999 Plan. Further,
because the compensation committee retains the discretion to set and change the
specific targets for each performance period under a performance-based award
intended to be exempt from Section 162(m), stockholder ratification of the
performance goals is required, in any event, at five-year intervals to exempt
awards granted under the 1999 Plan from the limitations on deductibility. The
remaining amendments made by the compensation committee and discussed above do
not require shareholder approval.
AUTHORIZED SHARES; OTHER PROVISIONS; NON-EXCLUSIVITY
The number of shares of our common stock that may be issued in respect of
awards under the 1999 Plan currently may not exceed eight million shares (as
adjusted for the 2002 Stock Split), including awards of incentive stock options.
The number of shares that may be issued in respect of restricted stock awards
under the 1999 Plan may not exceed 2% of the outstanding shares of our common
stock at the time of a grant. Shares of common stock subject to awards (whether
at our discretion or of the participant) will initially be counted against each
of the share limit and the share unit limit. When payment is ultimately made in
respect to the award in either shares or cash, a number of shares or share units
relating to the alternative form of consideration not so paid will be recredited
to the applicable limit.
The number and kind of shares available for grant and the shares subject to
outstanding awards (as well as individual share and share unit limits on awards,
performance targets and exercise prices of awards) may be adjusted to reflect
the effect of a stock dividend, split, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, extraordinary dividend or
other distribution or other similar transaction. Any unexercised or
undistributed portion of any expired, cancelled, terminated or forfeited award,
or alternative form of consideration under an award that is not paid in
connection with the settlement of any portion of an award, will again be
available for award under the 1999 Plan, whether or not the participant has
received benefits of ownership (such as dividends or dividend equivalents or
voting rights) during the period in which the participant's ownership was
restricted or otherwise not vested. Although shares subject to repriced or
cancelled options or stock appreciation rights will be counted against the
individual award limits to the extent required by Section 162(m), only shares
actually issued or share units actually paid will be charged against the
aggregate share or share unit limits, respectively, under the 1999 Plan.
Full payment for shares purchased on exercise of any option, along with
payment of any required tax withholding, must be made at the time of such
exercise in cash or, if permitted by the committee, in exchange for a promissory
note in favor of us, in shares of our common stock having a fair market value
equivalent to the exercise price and withholding obligation, or any combination
thereof, or pursuant to such "cashless exercise" procedures as may be permitted
by the committee. Any payment required in respect of other awards may be in such
amount and in any lawful form of consideration as may be authorized by the
committee.
The 1999 Plan does not impose any minimum vesting periods on options or
other awards. However, shares of stock acquired after exercise of an option may
not, in the ordinary course, be sold before the expiration of six months from
the date of grant. The maximum term of an option or any other award is ten
years.
The 1999 Plan is not exclusive and does not limit the authority of our
board or directors or its committees to grant awards or authorize any other
compensation, with or without reference to our common stock, under any other
plan or authority.
9
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE 1999 PLAN INCREASING THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER
THE 1999 PLAN.
PROPOSAL 4. RATIFICATION OF THE TERMS OF PERFORMANCE-BASED
COMPENSATION UNDER THE 1999 PLAN.
Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to the named executive officers to $1 million, unless certain
requirements are met. One of those requirements is to receive stockholder
approval of the material terms under which performance-based compensation (which
may include the grant of stock options) is to be paid. Incentive awards under
the 1999 Plan (a complete description of which is included in Proposal 3 above)
may be granted or be payable based upon the attainment of specified corporate or
individual performance goals (as in the case of performance stock or units),
which performance goals are set forth in the 1999 Plan.
The material terms of the 1999 Plan and, specifically, of the performance
goals set forth in the 1999 Plan were disclosed to and approved by the
stockholders at the time of the adoption of the 1999 Plan. No proposal is being
made to change or amend any of the terms of such performance goals. The
compensation committee is authorized, in its discretion, to set and change the
specific targets under those performance goals for each performance period under
a performance-based award under the 1999 Plan. Therefore, in order for any such
performance-based award to be exempt from the limitations on deductibility
contained in Section 162(m) of the Code, the material terms of the performance
goals must be ratified by the stockholders no later than the fifth year
following the year in which those performance goals were previously approved.
Five years has expired since the 1999 Plan was adopted, and a proposal to ratify
such goals is hereby submitted for approval at the Annual Meeting. Please see
the section entitled "Description of the 1999 Plan" included under Proposal 3
for a complete discussion of the material terms of the 1999 Plan.
If such ratification is not approved by the holders of a majority of the
shares represented at the Annual Meeting and voting on the ratification
proposal, performance-based awards made to the named executive officers under
the 1999 Plan will not be exempt from the limitations on deductibility contained
in Section 162(m) of the Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
PERFORMANCE GOALS AND OTHER TERMS OF PERFORMANCE-BASED AWARDS UNDER THE 1999
PLAN.
THE BOARD OF DIRECTORS AND CERTAIN GOVERNANCE MATTERS
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 three standing committees: the audit,
nominating/corporate governance 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. Each executive
officer serves at the discretion of the board of directors.
The board of directors has affirmatively determined that all of the
directors other than Messrs. Lanza and LaPenta, including those who serve on the
three standing committees of the board of directors, have no material
relationship with us (either directly or as a partner, shareholder, or officer
of an organization that has a relationship with us) and are, therefore,
"independent" for purposes of the NYSE listing standards. In addition, the board
of directors has determined that Professor Canizares and Messrs. Corcoran and
Simon, members of the audit committee, are also "independent" for purposes of
Section 10A(m)(3) of the Securities and Exchange Act of 1934. In May 2003, John
Montague resigned as a member of the board of directors and was replaced by
Claude Canizares. Professor Canizares had been recommended to the board of
directors as a potential member by one of our independent directors. Following
such recommendation, Professor Canizares met several times
10
with our Chairman and Chief Executive Officer and with other members of our
board of directors. Following such meetings, in May 2003 the board of directors
elected Professor Canizares as a member of the board by unanimous written
consent.
Directors are expected to attend board meetings, meetings of the committees
on which they serve, and to spend the time needed, and meet as frequently as
necessary, to properly discharge their responsibilities. In addition, to the
extent reasonably practicable, directors are expected to attend shareholder
meetings. During the fiscal year ended December 31, 2003, the board of directors
held four regularly scheduled meetings in person and three special meetings by
telephone. Each director attended at least 75% of the combined number of
meetings of the board of directors and meetings of committees on which he served
during the past fiscal year. All of our directors attended our annual
shareholder meeting in April 2003.
In accordance with applicable NYSE listing requirements, our independent
directors will hold regular executive sessions at which management, including
the Chief Executive Officer, is not present.
AUDIT COMMITTEE
The audit committee currently consists of Professor Canizares and Messrs.
Corcoran (Chairman) and Simon. In April 2003, General Shalikashvili resigned as
chairman and member of the audit committee because he served on the audit
committee of three other public companies. General Shalikashvili continues to
serve as a member of the board of directors and on the compensation and
nominating/corporate governance committees. Upon such resignation, Mr. Corcoran
was appointed chairman of the audit committee. In July 2003, Professor Canizares
was appointed a member of the audit committee. This committee met eleven times
during 2003, including six meetings by telephone. The audit committee is
generally responsible for, among other things:
o selecting, appointing, compensating, retaining, and terminating our
independent auditors;
o overseeing the auditing work of any independent auditor employed by us
(including the resolution of any disagreement between management and the
auditor regarding financial reporting) for the purpose of preparing or
issuing an audit report or performing other audit, review or attest
services;
o pre-approving both audit and permitted non-audit services to be
performed by the independent auditors and related fees;
o meeting with our independent auditors to review the proposed scope of
the annual audit of our financial statements;
o reviewing the findings of the independent auditors with respect to the
annual audit; and
o reviewing and discussing with management and the independent auditors
our periodic financial reports prior to our filing them with the SEC and
reporting annually to the board of directors with respect thereto.
The board of directors has determined that all of the members of the audit
committee are financially literate and meet the independence requirements
mandated by the NYSE listing standards. In addition, the board of directors has
determined that Mr. Simon is an "audit committee financial expert," as defined
by Item 401(h)(2) of Regulation S-K.
COMPENSATION COMMITTEE
During 2003, Messrs. Robert Millard (Chairman), John Montague and Alan
Washkowitz served as members of the compensation committee of the board of
directors. In May 2003, Mr. Montague resigned as a director and member of the
compensation committee and in July 2003 General Shalikashvili was appointed a
member of the committee. The compensation committee currently consists of Mr.
Millard, General Shalikashvili and Mr. Washkowitz. This committee, which had one
meeting and acted by written consent four times during 2003, is responsible for
administering our 1997 Stock Option Plan for Key Employees (the "1997 Plan"),
our 1998 Directors Plan and our 1999 Plan and has limited authority to adopt
amendments to those plans. In accordance with applicable NYSE listing
requirements, the board of directors will adopt a written charter on or prior to
the date of the Annual Meeting, which charter will set forth the committee's
purpose and responsibilities.
11
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The nominating/corporate governance committee currently consists of General
Shalikashvili and Messrs. Simon and Washkowitz (Chairman). The committee was
formed in February 2004. During 2003, we had no nominating/corporate governance
committee; however, the audit committee effectively performed certain of the
functions of this committee. The nominating/corporate governance committee
monitors corporate governance policies and procedures and serves as the
nominating committee for the board of directors. Following the formation of the
nominating/corporate governance committee, a draft charter for the committee was
prepared. In accordance with applicable NYSE listing requirements, the board of
directors will adopt a written charter on or prior to the date of the Annual
Meeting, which charter will set forth the committee's purpose and
responsibilities.
The nominating/corporate governance committee will consider candidates for
nomination as a director recommended by stockholders, directors, officers, third
party search firms and other sources. In identifying candidates for membership
on the board of directors, the nominating/corporate governance committee takes
into account (a) minimum individual qualifications, including strength of
character, mature judgment, industry knowledge or experience and an ability to
work collegially with the other members of the board of directors, and (b) all
other factors it considers appropriate. After conducting an initial evaluation
of a candidate, the committee will interview that candidate if it believes the
candidate might be suitable to be a director and may also ask the candidate to
meet with other directors and management. If the nominating/corporate governance
committee believes a candidate would be a valuable addition to the board of
directors, it will recommend to the full board that candidate's election.
The nominating/corporate governance committee will review all candidates in
the same manner, regardless of the source of the recommendation. Individuals
recommended by stockholders for nomination as a director will be considered in
accordance with the procedures described under "Stockholder Proposals and
Nominations."
COMMITTEE CHARTERS AND CORPORATE GOVERNANCE GUIDELINES
The board of directors has adopted a charter for its audit committee. In
accordance with applicable NYSE listing requirements, on or prior to the date of
the Annual Meeting, the board of directors will adopt a written charter for each
of the compensation committee and the nominating/corporate governance committee
and approve corporate governance guidelines that address the make-up and
functioning of the board of directors. On or prior to the date of the Annual
Meeting, you will be able to find links to these materials on our website at:
http://www.L-3com.com. A copy of such materials may also be obtained without
charge upon request from our Secretary.
CODE OF ETHICS AND BUSINESS CONDUCT
The board of directors has adopted a code of ethics and business conduct
that applies to all of our employees, officers and directors. You can obtain a
copy of such code without charge upon request from our Secretary. On or prior to
the date of the Annual Meeting, you will also be able to find a link to such
code on our website at http://www.L-3com.com. We intend to post on our website
all waivers or implied waivers (as such terms are defined in Item 10 of Form 8-K
of the Securities and Exchange Act of 1934) and amendments of the code of ethics
and business conduct that apply to any of our directors, executive officers
(including our principal executive officer and principal financial officer),
principal accounting officer, controller or other persons performing similar
functions.
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-employee directors receive annual compensation of $50,000 for service on the
board of directors, of which $40,000 is paid in cash on a quarterly basis, and
$10,000 is paid in shares of our common stock. The chairman of the audit
committee receives additional cash annual compensation of $7,500. The chairman
of the compensation committee receives additional cash annual compensation of
$5,000. In addition, non-employee directors each receive annual stock options to
purchase 2,500 shares of our common stock, which vest in three equal annual
installments. The non-employee directors are entitled to reimbursement for their
12
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-employee directors will be compensated $1,500 per board
meeting attended, $2,000 per audit committee meeting attended, $1,500 per
compensation committee meeting attended and $1,000 per telephonic audit or
compensation committee meeting in which they participate.
Non-employee 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 distributed 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 of 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 our common
stock.
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
Anyone who would like to communicate with, or otherwise make his or her
concerns known directly to, the chair of any of the audit, nominating/corporate
governance and compensation committees, or to the non-management directors as a
group, may do so by addressing such communications or concerns to the Secretary
of L-3 Communications Holdings, Inc., 600 Third Avenue, New York, New York
10016, who will forward such communications to the appropriate party. Such
communications may be done confidentially or anonymously.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Any stockholder desiring to submit a proposal to be presented for
consideration in our 2005 proxy statement must submit such proposal, including
proposals with respect to recommending director candidates, to us no later than
the close of business on December 28, 2004. Such proposals should be sent by
Certified Mail -- Return Receipt Requested to the attention of the Secretary,
L-3 Communications Holdings, Inc., 600 Third Avenue, New York, New York 10016.
Under the current rules of the SEC, a stockholder submitting a proposal is
required to be a record or beneficial owner of at least 1% or $2,000 in market
value of the common stock and to have held such stock for at least one year
prior to the date of submission of the proposal, and he or she must continue to
own such securities through the date on which the meeting is held.
Shareholders may recommend director candidates for consideration by the
nominating/corporate governance committee. Such notice must include the name,
address, and class and number of shares owned by the shareholder making such
recommendation; the name, age, business address, residence address and principal
occupation of the nominee; and the number of shares beneficially owned by the
nominee. It must also include the information that would be required to be
disclosed in the solicitation of proxies for election of directors under the
federal securities laws. You must submit the nominee's consent to be elected and
to serve. L-3 may require any nominee to furnish any other information, within
reason, that may be needed to determine the eligibility of the nominee.
The notice must be delivered to the Secretary, who will forward the notice
to the nominating/corporate governance committee for consideration.
13
EXECUTIVE AND CERTAIN OTHER OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of our current
executive officers, other than Messrs. Lanza and LaPenta who are presented under
"Class I -- Directors Whose Terms Expire in 2005" and other officers of the
Company.
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
------------------------ ----- --------------------------------------------------------------------
Christopher C. Cambria 45 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. Mr.
Cambria is a director of Core Software Technologies.
Michael T. Strianese 48 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.
Charles J. Schafer 56 Senior Vice President -- Business Operations and President of the
Products Group. Mr. Schafer became a Senior Vice President in
April 2002. 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.
Jimmie V. Adams 67 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.
14
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
---------------------- ----- ---------------------------------------------------------------------
David T. Butler III 47 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 36 Vice President and Controller. Mr. D'Ambrosio became a Vice
President in July 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.
Kenneth R. Goldstein 57 Vice President -- Taxes. Mr. Goldstein became a Vice President in
October 2003. He joined us in 1997 as our corporate director of
taxes. From April 1996, when Loral was acquired by Lockheed
Martin, until April 1997, Mr. Goldstein was a director of taxes at
Lockheed Martin Corporation. From 1981 to 1996, Mr. Goldstein
was the director of taxes at Loral Corporation. Mr. Goldstein
joined Loral Corporation in 1978 as a tax manager.
Joseph S. Paresi 48 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 Systems 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. Mr. Paresi is currently a director of
AnnisTech, Inc.
Robert W. RisCassi 68 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 C3I and Systems Integration Sector. Prior to the
April 1996 acquisition of Loral, he had held the same position for
Loral since 1993. He joined Loral in 1993 after retiring as U.S.
Army Commander in Chief, United Nations Command/Korea. His
35-year military career included posts as Army Vice Chief of Staff;
Director, Joint Staff, Joint Chiefs of Staff; Deputy Chief of Staff
for Operations and Plans; and Commander of the Combined Arms
Center. General RisCassi is currently a director of Alliant
Techsystems Inc.
Stephen M. Souza 51 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.
15
NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
----------------- ----- --------------------------------------------------------------------
Jill J. Wittels 54 Vice President -- Business Development. Dr. 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,
Dr. Wittels was Vice President -- Business Development and
Operations for IR Focalplane Products at Lockheed Martin.
Dr. Wittels is on the Board of Overseers for the Department of
Energy's Fermi National Accelerator Lab. Dr. Wittels is also a
director of Innovative Micro Technology, Inc. and Millivision, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 19, 2004, there were 105,659,493 shares of our common stock
outstanding. We know of no person who, as of March 19, 2004, beneficially owned
more than five percent of the common stock, except as set forth below.
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS(1)
-------------------------------------- ------------------------- ------------
Citigroup Inc.(2)
153 East 53rd Street
New York, New York 10043 ............ 12,646,127 12.0%
Robert V. LaPenta(3)
c/o L-3 Communications Holdings, Inc.
600 Third Avenue, 34th Floor
New York, New York 10016 ............ 5,402,317 5.0%
----------
(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
March 19, 2004.
(2) Based on a Schedule 13G/A filed with the S.E.C., dated February 13, 2004, in
which Citigroup Inc. reported that it had shared voting and dispositive
power over 12,646,127 shares of common stock.
(3) The shares of common stock beneficially owned includes 1,795,239 shares
issuable under employee stock options and exercisable within 60 days of
March 19, 2004 and 1,136 shares allocated to the account of Mr. LaPenta
under our savings plans.
16
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the amount of common stock beneficially owned
(unless otherwise indicated) by our executive officers, our directors, and by
all of our current executive officers and directors as a group. Except as
otherwise indicated, all information listed below is as of March 19, 2004.
SHARES OF COMMON PERCENTAGE OF SHARES
STOCK BENEFICIALLY OF COMMON
NAME OF BENEFICIAL OWNER OWNED (1)(2) STOCK OUTSTANDING (3)
--------------------------------------------------------------------- -------------------- ----------------------
Directors and Executive Officers
Frank C. Lanza ..................................................... 5,046,581 4.7%
Robert V. LaPenta .................................................. 5,402,317 5.0%
Michael T. Strianese ............................................... 89,010 --
Christopher C. Cambria ............................................. 133,798 --
Charles J. Schafer ................................................. 57,631 --
Claude R. Canizares ................................................ 300 --
Thomas A. Corcoran(4) .............................................. 13,500 --
Robert B. Millard(4)(5)(6) ......................................... 144,623 --
John M. Shalikashvili(4) ........................................... 11,300 --
Arthur L. Simon(4) ................................................. 16,866 --
Alan H. Washkowitz(4)(5)(7) ........................................ 276,234 --
Directors and Executive Officers as a Group (11 persons)(8) ......... 11,192,160 10.2%
----------
(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 March 19, 2004 and (ii) allocated to the accounts of executive
officers under our 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, 1,795,239 shares; Mr.
LaPenta, 1,795,239 shares; Mr. Strianese, 88,000 shares; Mr. Cambria,
132,800 shares and Mr. Schafer, 55,667 shares; and (ii) the following
represent shares allocated under our saving plans to the accounts of: Mr.
LaPenta, 1,136 shares; Mr. Strianese, 1,010 shares; Mr. Cambria, 998 shares;
and Mr. Schafer, 1,017 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
March 19, 2004.
(4) Includes 13,500 shares issuable and exercisable under director stock options
within 60 days of March 19, 2004 in the case of Mr. Corcoran, 10,500 shares
in the case of General Shalikashvili and Mr. Simon and 7,500 shares in the
case of Messrs. Millard and Washkowitz.
(5) 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. and
limited partners of Lehman Brothers Capital Partners III, L.P. 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 our
common stock held by Lehman Brothers Capital Partners III, L.P. Such
individuals disclaim any such beneficial ownership and those shares of
common stock are not reflected in the numbers shown in this table.
(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.
(7) Includes 111,324 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 3,916,445 shares issuable under employee stock options and
exercisable under employee stock options within 60 days of March 19, 2004,
and 4,161 shares allocated to the accounts of executive officers under our
savings plans.
17
EXECUTIVE COMPENSATION AND OTHER MATTERS
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 at December 31, 2003, collectively referred to herein as the named
executive officers, for services rendered to us during each of the last three
years.
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
----------------------------------------- ------ ------------ ----------- ------------- --------------------
Frank C. Lanza 2003 875,000 975,000 75,000 6,180
(Chairman and Chief Executive 2002 825,000 850,000 400,000 11,125
Officer) ............................... 2001 750,000 750,000 -- 11,125
Robert V. LaPenta 2003 675,000 865,000 75,000 43,509
(President and Chief Financial 2002 625,000 750,000 400,000 39,287
Officer) ............................... 2001 545,577 650,000 -- 34,306
Michael T. Strianese 2003 365,000 435,000 75,000 19,726
(Senior Vice President, 2002 331,250 375,000 -- 19,690
Finance) ............................... 2001 255,000 300,000 54,000 13,790
Christopher C. Cambria 2003 235,000 435,000 75,000 12,383
(Senior Vice President, 2002 235,000 375,000 -- 12,038
Secretary and General Counsel) ......... 2001 235,000 300,000 54,000 10,838
Charles J. Schafer
(Senior Vice President, Business 2003 308,750 400,000 50,000 24,018
Operations and President of 2002 268,750 350,000 -- 24,449
the Products Group) .................... 2001 248,230 250,000 36,000 118,438
----------
(1) Amounts for the year ended December 31, 2003 include: (a) our matching
contributions of $9,600 under our savings plan for Mr. LaPenta, $8,000 for
Messrs. Strianese and Cambria and $8,085 for Mr. Schafer; and (b) the value
of supplemental life insurance programs in the amounts of $6,180 for Mr.
Lanza, $33,909 for Mr. LaPenta, $11,726 for Mr. Strianese, $4,383 for Mr.
Cambria and $15,933 for Mr. Schafer.
OPTION GRANTS IN FISCAL YEAR 2003
The following table shows the options to purchase common stock granted in
fiscal year 2003 to the named executive officers.
% TOTAL PER SHARE
OPTIONS OPTIONS EXERCISE EXPIRATION GRANT DATE
NAME GRANTED (#) GRANTED PRICE ($) DATE VALUE ($)
-------------------------------- ------------- --------- ----------- ------------ -----------
Frank C. Lanza ................. 75,000 3.26% 45.80 11/14/13 1,051,250
Robert V. LaPenta .............. 75,000 3.26% 45.80 11/14/13 1,051,250
Michael T. Strianese ........... 75,000 3.26% 35.60 3/4/13 892,250
Christopher C. Cambria ......... 75,000 3.26% 35.60 3/4/13 892,250
Charles J. Schafer ............. 50,000 2.17% 35.60 3/4/13 594,833
------ ---------
350,000 4,481,833
======= =========
18
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information on options to purchase our common
stock that were exercised during fiscal year 2003 by our named executive
officers; the total numbers of exercisable and non-exercisable options to
purchase our common stock owned by our named executive officers at December 31,
2003, and the aggregate dollar value of such options that were in-the-money at
December 31, 2003.
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED VALUE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
ON REALIZED -------------------------------- -------------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
-------------------------------- ------------- ------------ ------------- ------------------ ------------- -----------------
Frank C. Lanza ................. 300,000 10,483,500 1,661,906 341,666 73,562,528 417,000
Robert V. LaPenta .............. -- -- 1,661,906 341,666 73,562,528 417,000
Michael T. Strianese ........... -- -- 93,000 93,000 2,241,210 1,391,970
Christopher C. Cambria ......... -- -- 107,800 93,000 2,723,838 1,391,970
Charles J. Schafer ............. -- -- 39,000 62,000 769,110 927,980
----------
(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, 2003 closing stock price of our common stock of $51.36.
(2) These options are unexercisable because they have not yet vested under their
terms.
19
REPORT OF THE AUDIT COMMITTEE
The directors who serve on the audit committee are all "independent" in
accordance with the NYSE listing standards and the applicable SEC rules and
regulations. We have reviewed and discussed with management the Company's
audited financial statements as of and for the year ended December 31, 2003.
During 2003, the audit committee fulfilled all of its responsibilities
under its charter existing during 2003. As part of our governance practices, the
audit committee reviews its charter on an annual basis and, when appropriate,
recommends to the board of directors changes to its charter. The board of
directors adopted changes to the audit committee charter in February 2004, in
part to comply with new SEC rules and new listing standards of the NYSE. The
revised audit committee charter is included in this proxy statement as Exhibit
A.
We have discussed with the independent auditors, PricewaterhouseCoopers
LLP, the matters required to be discussed by the Sarbanes-Oxley Act of 2002 and
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
amended, by the Auditing Standards Board of the American Institute of Certified
Public Accountants.
We have received and reviewed the written disclosures and the letter from
PricewaterhouseCoopers LLP, required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and have discussed with the auditors their independence. Based
on the activities referred to above, we recommended to the board of directors
that the financial statements referred to above be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
During 2003, Thomas A. Corcoran (Chairman), John M. Shalikashvili and
Arthur L. Simon served as members of the audit committee. In April 2003, General
Shalikashvili resigned as chairman and member of the audit committee because he
served on the audit committee of three other public companies. General
Shalikashvili continues to serve as a member of the board of directors and on
the compensation and nominating/corporate governance committees. Upon such
resignation, Mr. Corcoran was appointed chairman. In July 2003, Professor
Canizares was appointed a member of the audit committee.
Thomas A. Corcoran (Chairman)
Claude R. Canizares
Arthur L. Simon
20
INDEPENDENT AUDITOR FEES
For services rendered in 2003 and 2002 by PricewaterhouseCoopers LLP, our
independent auditors, we incurred the following fees:
YEAR
---------------------------
2003 2002
------------- -------------
AUDIT FEES ......................................... $2,844,000 $2,794,000
AUDIT-RELATED FEES(1) .............................. 501,000 491,000
TAX FEES(2) ........................................ 2,048,000 1,851,000
ALL OTHER FEES(3) .................................. 145,000 1,229,000
----------
(1) Represents fees incurred for acquisition-related audits, benefit plan audits
and services received in connection with our implementation of Section 404
of the Sarbanes-Oxley Act of 2002.
(2) Represents fees incurred for local and foreign income tax compliance,
acquisition related tax services and state tax planning services.
(3) The amount for 2003 represents fees incurred for services provided in
connection with the final purchase price determination for an acquired
business. The amount for 2002, represents fees incurred for a business
process review, business continuity planning and litigation support.
The audit committee has considered and determined that the provision of the
services covered under the captions "Audit-Related Fees", "Tax Fees" and "All
Other Fees" is compatible with maintaining the auditor's independence.
It is the audit committee's responsibility to review and consider and
ultimately pre-approve all audit and permitted non-audit services to be
performed by our independent auditors. In accordance with its charter, the audit
committee has established pre-approval policies with respect to audit and
permitted non-audit services to be provided by our independent auditors. The
following sets forth the primary principles of the audit committee's
pre-approval policies:
o The independent auditors are not permitted to perform consulting, legal,
book-keeping, valuation, internal audit, management functions, or other
prohibited services, under any circumstances.
o The engagement of our independent auditors, including related fees, with
respect to the annual audits and quarterly reviews of our consolidated
financial statements is specifically approved by the audit committee on
an annual basis.
o The audit committee reviews and pre-approves a detailed list of other
audit and audit-related services annually or more frequently, if
required. Such services generally include services performed under the
audit and attestation standards established by the AICPA and regulatory
authorities or standard setting bodies and include services related to
SEC filings, acquisition-related audit services, employee benefit plan
audits, foreign statutory audits and subsidiary audits.
o The audit committee reviews and pre-approves a detailed list of
permitted non-audit services annually or more frequently, if required.
The approval is subject to a maximum dollar amount equal in the
aggregate to the approved audit fees for the current year plus the fees
paid in the prior year for audit-related services.
o The audit committee pre-approves each proposed engagement to provide
services not previously included in the approved list of audit and
non-audit services and for fees in excess of amounts previously
pre-approved. The audit committee chairman or another designated
committee member may approve these services and related fees and
expenses on behalf of the audit committee.
Since May 6, 2003, all of the services covered under the captions "Audit
Fees", "Audit-Related Fees", "Tax Fees" and "All Other Fees" were pre-approved
by the Audit Committee.
21
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee is responsible for reviewing the design of, and
pay levels generated by, our compensation and benefit programs for our executive
officers. The committee is also responsible for administering our stock option
program.
The committee is committed to ensuring an executive compensation program
that supports our mission -- to maximize stockholder value. Thus, the executive
compensation is structured around the following tenets:
o Total compensation programs should strengthen the relationship between
pay and performance by emphasizing variable, at-risk compensation that
is dependent on our achievements and individual performance goals.
o Management should be focused on the long-term interests of stockholders.
Thus, a significant portion of the compensation opportunity should be
long-term, at-risk pay in the form of stock options.
o We must maintain our ability to attract, retain, and encourage the
development of qualified, capable executives. Total compensation
opportunities will mirror those offered by comparably sized
organizations within the aerospace and defense industries -- for those
positions where the labor market is not limited to these industries, we
will reference broader general industry information for similarly sized
organizations.
The comparative group used for compensation purposes will generally be
broader than the group that comprises the published industry index in the
performance graph included in this proxy statement. The compensation committee
believes that our competition for executive talent is not limited to the
companies included in the published industry index established for comparing
stockholder returns.
The key elements of our compensation program are base salary, annual
incentives, and long-term compensation. These key elements are addressed
separately below.
BASE SALARIES
The compensation committee will regularly review the base salary for the
Chief Executive Officer and the President. We have established internal
relationships of other senior executive positions to those of the Chief
Executive Officer and the President, and base salaries for these other positions
flow from those relationships. Base salaries will be targeted at the median of
market levels with adjustments above or below market to recognize varying levels
of responsibility, prior experience, breadth of knowledge, as well as external
pay practices.
Increases to base salaries will be driven primarily by individual
performance. Individual performance will be evaluated based on sustained levels
of individual contribution.
As reflected in the Summary Compensation Table, Mr. Lanza's base salary was
$875,000 in 2003 and $825,000 in 2002, as provided for in his employment
agreement. In determining future increases to Mr. Lanza's base salary, the
compensation committee will consider his individual performance as measured by
short-term achievements as well as his contributions to long-term organizational
success. The compensation committee will also compare Mr. Lanza's base salary to
base salaries of chief executive officers among comparable companies.
ANNUAL INCENTIVES
The annual incentive plan is structured to provide a variable pay
opportunity based on performance. Actual bonuses are based on an assessment of
the participant's contributions toward organizational success.
Mr. Lanza received a bonus of $975,000 in 2003 and $850,000 in 2002. Mr.
LaPenta received a bonus of $865,000 in 2003 and $750,000 in 2002.
22
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the 1997 Plan and the 1999
Plan.
Stock options will be granted at a price not less than the fair market
value of our common stock on the date of grant. The ultimate value of an option
grant to the recipient depends on the stockholder value created between the date
of grant and the date of exercise. Option award size is based primarily on
competitive practice but may also be adjusted to reflect factors such as
individual and our company's performance.
Mr. Lanza and Mr. LaPenta were each granted options to purchase 75,000
shares of our common stock in 2003.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to the named executive officers to $1 million,
unless certain requirements are met. The compensation committee will consider
the impact of this provision when making compensation decisions. However, the
compensation committee will weigh all pertinent factors to determine appropriate
plan design and incentive awards.
Robert B. Millard (Chairman)
John M. Shalikashvili
Alan H. Washkowitz
23
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of our common stock,
as adjusted for the two-for-one stock split declared by our board of directors
on April 23, 2002, with the cumulative total return of the Standard & Poor's
500 Composite Stock Index and the Standard & Poor's 1500 Aerospace & Defense
Index, for the period from December 31, 1998 to December 31, 2003. We are one
of the companies included in the Standard & Poor's 1500 Aerospace & Defense
Index. These figures assume that all dividends paid over the performance period
were reinvested, and that the starting value of each index and the investment
in our common stock was $100 on December 31, 1998. The starting point for the
measurement of our common stock cumulative total return was our stock price of
$23.28 per share, on December 31, 1998, as adjusted for our stock split. The
graph is not, and is not intended to be, indicative of future performance of
our common stock.
L-3 COMMUNICATIONS HOLDINGS, INC.
CUMULATIVE TOTAL STOCKHOLDER RETURNS FOR
PERIOD OF DECEMBER 31, 1998 TO DECEMBER 31, 2003
TOTAL SHAREHOLDER RETURNS
[GRAPH OMITTED]
Year Ending
-----------
Base
Period
December December December December December December
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
L-3 Communications Holdings, Inc. 100 89.40 165.37 193.29 192.90 220.61
S&P 500 Index 100 121.04 110.02 96.95 75.52 97.18
S&P 1500 Aerospace & Defense Index 100 99.13 125.98 105.45 99.41 122.59
(as prepared by Standard & Poor's Compustat)
24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the individuals who served on our compensation committee during the
2003 fiscal year has served us or any of our subsidiaries as an officer or
employee. In addition, 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
We entered into an employment agreement (the "Employment Agreements")
effective on April 30, 1997 with each of Mr. Lanza, our Chairman and Chief
Executive Officer, and Mr. LaPenta, our President and Chief Financial Officer.
The Employment Agreements provided for an initial term of five years, which
would automatically renew for one-year periods thereafter, unless a party
thereto gave notice of its intent to terminate at least 90 days prior to the
expiration of the term. Mr. Lanza's employment agreement was renewed in April
2003. Mr. LaPenta's employment agreement expired in April 2002.
Upon a termination without cause or resignation for good reason, we 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 provided for confidentiality during employment and at all
times thereafter. There was also a noncompetition and non-solicitation covenant
which was effective during the employment term and for one year thereafter;
provided, however, that if the employment terminated following the expiration of
the initial term, the noncompetition covenant would only be effective during the
period, if any, that we paid the severance described above.
25
PENSION PLAN TABLE
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.
YEARS OF CREDITED SERVICE
--------------------------------------------------------------------------------
AVERAGE
COMPENSATION
AT RETIREMENT 5 10 15 20 25 30 35
-------------------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
$ 500,000 ......... $ 39,100 $ 70,485 $ 95,638 $115,833 $132,074 $145,214 $155,811
600,000 .......... 47,127 84,955 115,277 139,621 159,190 175,000 187,740
700,000 .......... 55,156 99,426 134,917 163,410 186,308 204,790 219,674
800,000 .......... 63,184 113,897 154,557 187,197 213,424 234,577 251,603
900,000 .......... 71,212 128,365 174,194 210,982 240,537 264,362 283,532
1,000,000 .......... 79,240 142,836 193,835 234,773 267,658 294,155 315,469
1,100,000 .......... 87,270 157,309 213,478 258,563 294,776 323,943 347,399
1,200,000 .......... 95,296 171,777 233,115 282,348 321,890 353,728 379,329
1,300,000 .......... 103,326 186,250 252,759 306,141 349,012 383,520 411,264
1,400,000 .......... 111,352 200,717 272,395 329,926 376,126 413,308 443,197
1,500,000 .......... 119,382 215,190 292,038 353,716 403,244 443,097 475,129
1,600,000 .......... 127,409 229,658 311,675 377,501 430,359 472,882 507,057
1,700,000 .......... 135,438 244,130 331,317 401,293 457,478 502,672 538,989
1,800,000 .......... 143,465 258,600 350,956 425,080 484,596 532,462 570,924
1,900,000 .......... 151,495 273,072 370,599 448,872 511,715 562,253 602,858
2,000,000 .......... 159,521 287,539 390,234 472,655 538,828 592,036 634,786
As of December 31, 2003, 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, $1,725,000 and seven years; Mr. LaPenta,
$1,425,000 and 32 years; Mr. Strianese, $740,000 and 14 years; Mr. Cambria,
$610,000 and seven years; and Mr. Schafer, $658,750 and five years.
26
EQUITY COMPENSATION PLAN INFORMATION
The following table shows the total number of outstanding options and
shares available for future issuances under our equity compensation plans as of
December 31, 2003.
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO BE WEIGHTED- REMAINING AVAILABLE FOR
ISSUED UPON AVERAGE EXERCISE FUTURE ISSUANCE UNDER
EXERCISE OF PRICE OF EQUITY COMPENSATION
OUTSTANDING OUTSTANDING PLANS (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED IN
PLAN CATEGORY AND RIGHTS AND RIGHTS COLUMN (A))
--------------------------------------- ------------------- ------------------- ------------------------
(a) (b) (c)
Equity compensation plans approved
by security holders .................. 10,399,327(1) $ 28.41(2) 954,914
Equity compensation plans not
approved by security holders ......... -- -- --
------------ ----------- -------
Total ................................ 10,339,327 $ 28.41 954,914
============ =========== =======
----------
(1) Includes our 1999 Long-term Performance Plan and the 1997 Stock Option Plan.
Included in column (a) are restricted stock awards of 315,544 shares.
(2) The calculation of the weighted average exercise price excludes the effect
of the restricted stock awards of 315,544 shares, which have been granted to
employees at no cost.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
In connection with our incorporation we, Messrs. Lanza and LaPenta and
certain other parties entered into a Stockholders Agreement, which has
terminated except for the terms relating to registration rights.
Pursuant to the Stockholders Agreement, at this time Messrs. Lanza and
LaPenta have the right, subject to certain conditions, to require us to register
their shares of our common stock under the Securities Act of 1933. Each of
Messrs. Lanza and LaPenta have one demand registration right.
In addition, the Stockholders Agreement provides Messrs. Lanza and LaPenta
with piggyback registration rights. The Stockholders Agreement provides, among
other things, that we will pay expenses incurred in connection with:
o the two demand registrations 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership with
the SEC and the NYSE. Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file. All Section 16(a) forms required to be filed were filed on a timely
basis, except for an initial statement of beneficial ownership of securities on
Form 3 filed by Professor Canizares on March 15, 2004, reporting that he did not
own any of our securities.
27
GENERAL AND OTHER MATTERS
At the date of this proxy statement, we know of no business that will be
brought before the Annual Meeting other than the matters set forth above.
However, if any further business properly comes before the Annual Meeting or any
adjournments of the Annual Meeting, the persons named as proxies in the
accompanying proxy will vote them in accordance with their discretion and
judgment on such matters.
We have provided each Stockholder whose proxy is being solicited hereby, a
copy of our Summary Annual Report and our Annual Report on Form 10-K filed with
the SEC for the year ended December 31, 2003. Written requests for additional
copies should be directed to: Corporate Communications, L-3 Communications
Holdings, Inc., 600 Third Avenue, New York, New York 10016.
PLEASE COMPLETE, DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED REPLY ENVELOPE. NO POSTAGE IS REQUIRED IF RETURNED IN THE ACCOMPANYING
ENVELOPE AND MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ Christopher C. Cambria
Christopher C. Cambria
Senior Vice President, Secretary and
General Counsel
New York, New York
March 30, 2004
28
EXHIBIT A
L-3 COMMUNICATIONS HOLDINGS, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is established for the primary purpose of assisting the
Board of Directors in oversight of the:
1. Quality and integrity of the Company's financial statements and reports,
2. Company's compliance with legal and regulatory requirements,
3. Qualifications and independence of the independent auditors, and
4. Performance of the Company's internal audit function and independent
auditors.
In addition, the Audit Committee shall prepare the report that SEC rules
require to be included in the Company's annual proxy statement.
In fulfilling its duties and responsibilities, the Audit Committee shall be
given full access to the Company's internal audit group, Board of Directors,
corporate executives and independent auditors and shall have the authority to
obtain advice and assistance from outside legal, accounting, financial, or other
advisors.
The Company shall provide appropriate funding, as determined by the Audit
Committee, for compensation to the independent auditor and to any advisors that
the Audit Committee chooses to engage. In addition to any funding necessary to
compensate the independent auditors and outside advisors, the Company shall
provide the Audit Committee with such funding as the Committee determines is
appropriate to fund any ordinary administrative expenses incurred by the
Committee in carrying out its duties.
ORGANIZATION
MEMBERS:
The Audit Committee shall consist of at least three directors, all of whom
are determined by the Board of Directors to meet the independence and expertise
requirements required by the New York Stock Exchange (NYSE) Listed Company
Manual and the Securities and Exchange Commission (SEC) rules.
The chairperson and members of the Committee shall be appointed by the
Board of Directors.
All members of the Committee shall be financially literate (as such
qualification is interpreted by the Board in its business judgment) and at least
one member of the Committee shall be an "audit committee financial expert" as
determined by the Board, in compliance with the criteria established by the SEC
and the NYSE.
If an Audit Committee member simultaneously serves on the audit committee
of more than three public companies (including the Company), the Board must
determine that such service will not impair such member's ability to effectively
serve on the Audit Committee and disclose such determination in the Company's
annual proxy statement.
No member of the Committee shall receive compensation other than (i)
director's fees for service as a director of the Company, including reasonable
compensation for serving on the Committee and regular benefits that other
directors receive and (ii) fixed amounts of compensation under a retirement plan
(including deferred compensation) for past performance, provided that such
compensation is not contingent in any way on continued or future service to the
Company.
A-1
MEETINGS:
The Audit Committee shall meet at least five times a year, or more often if
circumstances so require.
The Committee shall act only on the affirmative vote of at least a simple
majority of its members.
RESPONSIBILITIES:
The Audit Committee's policies and procedures should remain flexible, in
order to best react to changing conditions and help ensure that the Company's
accounting and reporting practices accord with all requirements and are of the
highest quality. The Audit Committee shall:
1. Be directly responsible for the selection, appointment, compensation,
retention, and termination of the Company's independent auditors.
2. Inform each independent auditor hired by the Company for the purpose of
preparing or issuing an audit report or performing other audit, review
or attest services that such firm shall report directly to the
Committee.
3. Be directly responsible for the oversight of the auditing work of any
independent auditor employed by the Company (including the resolution
of any disagreement between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services.
4. Pre-approve both audit and permitted non-audit services to be performed
by the independent auditors and related fees. The Audit Committee may
(i) delegate to one or more of its members the ability to pre-approve
such services and fees, provided that any such pre-approval is
presented to the full Committee at its next scheduled meeting and/or
(ii) pre-approve audit and non-audit services based on policies and
procedures adopted by the Committee, provided (a) the policies and
procedures are detailed as to the particular service, (b) the Committee
is informed of each service on a timely basis, (c) such policies and
procedures do not include delegation of the Committee's
responsibilities to management and (d) such policies and procedures are
disclosed in the Company's annual reports.
5. Meet with the independent auditors and the financial management to
review the scope of the audit proposed for the current year and the
audit procedures to be utilized and any subsequent changes to such
scope and/or procedures.
6. Discuss with the independent auditors and with management, as
appropriate, the following:
(a) The matters required to be discussed by Statement on Auditing
Standards No. 61 and the Sarbanes-Oxley Act of 2002 relating to
the conduct of the audit or quarterly reviews;
(b) Independent auditors' responsibilities under auditing standards
generally accepted in the United States of America, and under
applicable rules and regulations, and any exchange, which lists
the Company's securities;
(c) Management judgments and accounting estimates;
(d) Audit adjustments, both those reflected in the Company's financial
statements and those waived by the independent auditor;
(e) Disagreements with management, if any, and management's response
to such disagreements;
(f) Consultations with other accountants, if any;
(g) Major issues, if any, regarding accounting principles and
financial statement presentation, including any analysis prepared
by management and/or the independent auditor setting forth
significant financial reporting issues and judgments made in
connection with the preparation of the financial statements; and
A-2
(h) Problems or difficulties encountered in performing the audit, if
any, and management's response.
7. Discuss with the independent auditors prior to the filing by the
Company of its annual report and at such other times as the Committee
deems appropriate:
(a) All critical accounting policies and practices of the Company;
(b) All alternative treatments of financial information under
generally accepted accounting principles (GAAP) related to
material items that have been discussed with management,
ramifications of such alternative disclosures and treatments, and
the treatment preferred by the independent auditors; and
(c) Other material written communications between the independent
auditors and management of the Company.
8. At least annually, discuss with the independent auditors the following:
the auditing firm's internal quality-control procedures; any material
issues raised by the most recent internal quality control review, or
peer review, of the auditing firm, or by any inquiry or investigation
by governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
auditing firm, and any steps taken to deal with any such issues; and
all relationships between the independent auditor and the Company in
order to assess the auditor's independence.
9. Ensure that all auditing personnel are rotated in accordance with, and
to the extent required by, applicable laws and regulations.
10. Confirm with the independent auditors that none of their auditing
personnel assigned to the audit of the Company's financial statements
earns or receives any compensation based on selling engagements to the
Company to provide any services, other than audit, review or attest
services, to the extent such compensation would compromise the
independence of such auditing personnel or the auditor under the rules
promulgated by the SEC.
11. Review with the independent auditors, the internal auditor, and the
financial and accounting management, the adequacy and effectiveness of
the Company's accounting and disclosure controls and financial
reporting processes, and elicit any recommendations for improvement or
particular areas where augmented controls are desirable. Particular
emphasis should be given to the adequacy of such controls to provide
that information required to be disclosed by the Company in its
periodic reports is recorded, processed, summarized, and reported in an
appropriate and timely manner.
12. Review the internal audit function, including the independence and
authority of its reporting obligations, the audit plans proposed for
the coming year, and the coordination of such plans with the work of
the independent auditors.
13. Review periodically a summary of findings from completed internal
audits and a progress report on the proposed internal audit plan, with
explanations for any deviations from the original plan and review such
summary and plan with the internal audit department.
14. Review the adequacy of the internal audit staff and review and concur
in the appointment, replacement or dismissal of the Internal Audit
Director.
15. Provide input into the annual evaluation of the performance of the
Internal Audit Director. Obtain the Internal Audit Director's annual
goals and self-assessment along with management's assessment of the
Internal Audit Director's performance.
16. Review annually with management and the independent auditors the effect
of regulatory and accounting initiatives, as well as review and approve
any off-balance sheet structures on the Company's financial statements.
17. Review and discuss the annual audited financial statements and
quarterly financial statements with management and the independent
auditors, and related disclosure under
A-3
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Determine that the independent auditors are
satisfied with the disclosure and content of the financial statements.
Any year-to-year changes in accounting principles or practices should
be reviewed.
18. Recommend to the Board of Directors as to whether the annual financial
statements of the Company should be included in the Annual Report on
Form 10-K to be filed with the SEC.
19. Discuss with management, in general terms, earnings press releases, as
well as financial information and earnings guidance provided to
analysts and rating agencies.
20. Discuss with management policies with respect to risk assessment and
risk management.
21. Set clear hiring policies for employees or former employees of the
independent auditors in accordance with applicable laws and
regulations.
22. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, auditing matters, or violations of the Company's
Code of Conduct, and (ii) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting
or auditing matters.
23. Periodically meet separately in executive session with each of
management, the internal audit director, and the independent auditors
to discuss any appropriate matters.
24. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, including in the Company's
periodic reports to the SEC.
25. Periodically inquire of the Company's General Counsel, as to the
Company's compliance with relevant legal and regulatory requirements,
and as to the adequacy of control systems in place to assure such
compliance.
26. Act as the Steering Committee for the Company's ethics program. Meet
periodically with the corporate Ethics Officer, review the status of
any ethics matters brought to the attention of the corporate ethics
officers and/or to the attention of the Audit Committee and their
resolution. Review annually the status of the Company's ethics and
compliance training program.
27. Annually review and evaluate the performance of the Committee relative
to the Audit Committee's purpose, duties and responsibilities outlined
herein.
28. Annually review and assess the adequacy of this charter and recommend
any changes to the Board of Directors for approval.
29. Annually report to the Board of Directors regarding the execution of
the Committee's duties and responsibilities.
30. Report to the Board of Directors the matters discussed at each Audit
Committee meeting. A copy of the minutes shall be placed with the
Company's minute books.
31. Investigate any matter brought to the attention of the Audit Committee
that is considered appropriate and is within the scope of its
responsibilities, including any matters required by the rules of the
SEC to be reported to the Committee by management.
32. Prepare an Audit Committee report required to be included in the
Company's annual proxy statement. The report will include at least the
following:
(a) A statement that the Committee has reviewed and discussed the
audited financial statements with management;
(b) A statement that the Committee has discussed with the independent
auditors the matters required by Statement on Auditing Standards
No. 61, Required Communications with Audit Committees;
A-4
(c) A statement that the Committee has received written disclosures
from, and held discussions with, the independent auditors on
matters required by Independence Standards Board Statement No. 1,
Independence Discussions with Audit Committees; and
(d) A conclusion as to the Committee's recommendation to the Board of
Directors that the Company's audited financial statements as of
and for the previous year end be included in the Annual Report on
Form 10-K to be filed with the SEC.
A-5
L-3 COMMUNCIATIONS
HOLDINGS, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8599
EDISON, NJ 08818-8599
ADMISSION TICKET
L-3 COMMUNICATIONS HOLDINGS, INC.
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 27, 2004, 2:30 P.M. EASTERN DAYLIGHT TIME
RIHGA ROYAL HOTEL
151 WEST 54TH STREET
NEW YORK, NY
PLEASE INDICATE WHETHER YOU PLAN TO ATTEND THE 2004 ANNUAL MEETING OF STOCKHOLDERS BY MARKING THE APPROPRIATE BOX ON THE PROXY CARD,
OR IF YOU USE THE TELEPHONE SYSTEM, WHEN PROMPTED. ONLY THE STOCKHOLDER(S) WHOSE NAME(S) APPEARS ON THIS TICKET, OR THE PROXY OF
THAT STOCKHOLDER, WILL BE ADMITTED. DUE TO SPACE LIMITATIONS, ADMISSION TO THE MEETING WILL BE ON A FIRST-COME, FIRST-SERVED BASIS.
REGISTRATION WILL BEGIN AT 2:30 P.M.
-----------------------------------
[L3 COMMUNICATIONS LOGO]
-----------------------------------
YOUR VOTE IS IMPORTANT. PLEASE VOTE IMMEDIATELY.
----------------------------------------------------- --------------------------------------------------------
VOTE-BY-INTERNET VOTE-BY-TELEPHONE
[GRAPHIC [GRAPHIC
1. LOG ON TO THE INTERNET AND GO TO OMITTED] 1. CALL TOLL-FREE OMITTED]
HTTP://WWW.EPROXYVOTE.COM/III OR 1-877-PRX-VOTE (1-877-779-8683)
2. ENTER YOUR VOTER CONTROL NUMBER LISTED ABOVE 2. ENTER YOUR VOTER CONTROL NUMBER LISTED ABOVE
AND FOLLOW THE EASY STEPS OUTLINED ON THE SECURED AND FOLLOW THE EASY RECORDED INSTRUCTIONS.
WEBSITE.
----------------------------------------------------- --------------------------------------------------------
IF YOU VOTE OVER THE INTERNET OR BY TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL.
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PLEASE MARK |
[X] VOTES AS IN |
THIS EXAMPLE ------
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4 FOR AGAINST ABSTAIN
1. Election of Directors. 2. Appointment of [ ] [ ] [ ]
Nominees: (01) Claude R. Canizares, (02) Thomas A. Corcoran and PricewaterhouseCoopers LLP as
(03) Alan H. Washkowitz independent auditors.
FOR WITHHELD 3. Approval of amendment to the 1999 [ ] [ ] [ ]
[ ] [ ] 1999 Long Term Performance
Plan.
[ ] 4. Ratification of the terms of [ ] [ ] [ ]
------------------------------------------ performance-based compensation
For all nominee(s) except as written above under the 1999 Long Term
Performance Plan.
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Mark box at right if you plan to atend the [ ]
Annual Meeting.
Mark box at right if an address change or [ ]
comment has been noted on the reverse side
of this card.
NOTE: Please sign exactly as names appears hereon.
When signing as attorney, administrator, trustee,
authorized officer of a corporation or in any
representative capacity, please insert your name and
title as such. Joint ovwners should each sign
individually.
Signature:________________________________ Date:________________ Signature:________________________________ Date:________________
DETACH HERE
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L-3 COMMUNICATIONS HOLDINGS, INC.
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF L-3
COMMUNICATIONS HOLDINGS, INC. (THE "COMPANY") FOR THE ANNUAL MEETING OF
R STOCKHOLDERS OF THE COMPANY TO BE HELD APRIL 27, 2004, AND SHOULD BE READ IN
CONJUNCTION WITH THE NOTICE OF MEETING AND PROXY STATEMENT PERTAINING
O THERETO.
X The undersigned shareholder hereby appoints Frank C. Lanza, Robert V.
LaPenta, Christopher C. Cambria or Michael T. Strianese, or any one of them,
Y attorneys and agents, or proxy or proxies, with full power of substitution,
in the name and on behalf of the undersigned, to attend, vote and act at the
Annual Meeting of Stockholders to be held on April 27, 2004, at 2:30 p.m.,
eastern daylight time, at the Rihga Royal Hotel, 151 West 54th Street, New
York, NY, and at any and all adjournments thereof, upon the matters set
forth below and in accordance with their discretion on any other matters
that may properly come before the meeting or adjournment thereof.
A stockholder desiring to appoint some other person, who need not be a
Stockholder, to represent him at the meeting may do so by inserting such
person's name in the space provided above.
This proxy, when properly executed, will be voted in accordance with the
directions of the undersigned stockholder. In the absence of such
directions, this proxy will be voted for all nominees listed on the reverse
hereof and for the ratification of the appointment of PricewaterhouseCoopers
LLP as independent auditors.
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PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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