SEC Filing | L3 Technologies, Inc.

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As filed with the Securities and Exchange Commission on September 23, 1997
Registration No. 333-31649

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________

Amendment No. 2 to

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________

L-3 COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 3812, 3663, 3679 13-3937436
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification Number)
organization) Classification Code
Number)
_________________________

600 Third Avenue
New York, New York 10016
(212) 697-1111
(Address, including zip Code, and telephone number, including area code,
of registrant's principal executive offices)
_________________________

Christopher C. Cambria, Esq.
L-3 Communications Corporation
600 Third Avenue
New York, New York 10016
(212) 697-1111
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
_________________________

With a copy to:
David B. Chapnick, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
_________________________

2
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: / /

_________________________

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.

3
EXPLANATORY NOTE

THIS REGISTRATION STATEMENT COVERS THE REGISTRATION OF AN AGGREGATE
PRINCIPAL AMOUNT OF $225,000,000 OF 10 3/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2007 (THE "EXCHANGE NOTES") OF L-3 COMMUNICATIONS CORPORATION
THAT MAY BE EXCHANGED FOR EQUAL PRINCIPAL AMOUNTS OF THE COMPANY'S
OUTSTANDING 10 3/8% SENIOR SUBORDINATED NOTES DUE 2007 (THE "OLD NOTES")
(THE "EXCHANGE OFFER"). THIS REGISTRATION STATEMENT ALSO COVERS THE
REGISTRATION OF THE EXCHANGE NOTES FOR RESALE BY LEHMAN BROTHERS INC. IN
MARKET-MAKING TRANSACTIONS. THE COMPLETE PROSPECTUS RELATING TO THE
EXCHANGE OFFER (THE "EXCHANGE OFFER PROSPECTUS") FOLLOWS IMMEDIATELY AFTER
THIS EXPLANATORY NOTE. FOLLOWING THE EXCHANGE OFFER PROSPECTUS ARE CERTAIN
PAGES OF THE PROSPECTUS RELATING SOLELY TO SUCH MARKET-MAKING TRANSACTIONS
(THE "MARKET-MAKING PROSPECTUS"), INCLUDING ALTERNATE FRONT AND BACK COVER
PAGES, A SECTION ENTITLED "RISK FACTORS--TRADING MARKET FOR THE EXCHANGE
NOTES" TO BE USED IN LIEU OF THE SECTION ENTITLED "RISK FACTORS--LACK OF
PUBLIC MARKET FOR THE EXCHANGE NOTES," ALTERNATE SECTIONS ENTITLED "USE OF
PROCEEDS" AND "PLAN OF DISTRIBUTION". IN ADDITION, THE MARKET-MAKING
PROSPECTUS WILL NOT INCLUDE THE FOLLOWING CAPTIONS (OR THE INFORMATION SET
FORTH UNDER SUCH CAPTIONS) IN THE EXCHANGE OFFER PROSPECTUS: "PROSPECTUS
SUMMARY--THE NOTE OFFERING" AND "--THE EXCHANGE OFFER", "RISK FACTORS--
CONSEQUENCES OF FAILURE TO EXCHANGE", "THE EXCHANGE OFFER" AND "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES". ALL OTHER SECTIONS OF THE EXCHANGE OFFER
PROSPECTUS WILL BE INCLUDED IN THE MARKET-MAKING PROSPECTUS.

4
__________________________________________________________________________

Information contained herein is subject to completion or amendment without
notice. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
___________________________________________________________________________

SUBJECT TO COMPLETION DATED _________, 1997

PRELIMINARY PROSPECTUS
[LOGO OMITTED]

L-3 Communications Corporation
Offer to Exchange $225,000,000 of its 10 3/8% Series B
Senior Subordinated Notes due 2007,
which have been registered under the Securities Act,
for $225,000,000 of its outstanding 10 3/8% Senior
Subordinated Notes due 2007
_________________________

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______,
1997, UNLESS EXTENDED.
_________________________

L-3 Communications Corporation (the "Company" or "L-3"), a wholly owned
subsidiary of L-3 Communications Holdings, Inc. ("Holdings"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate of up to
$225,000,000 principal amount of 10 3/8% Series B Senior Subordinated Notes
due 2007 (the "Exchange Notes") of the Company for an identical face amount
of the issued and outstanding 10 3/8% Senior Subordinated Notes due 2007
(the "Old Notes" and together with the Exchange Notes, the "Notes") of the
Company from the Holders (as defined) thereof. As of the date of this
Prospectus, there is $225,000,000 aggregate principal amount of the Old
Notes outstanding. The terms of the Exchange Notes are identical in all
material respects to the Old Notes, except that the Exchange Notes have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and therefore will not bear legends restricting their transfer and will
not contain certain provisions providing for an increase in the interest rate
on the Old Notes under certain circumstances described in the Registration
Rights Agreement (as defined), which provisions will terminate as to all
of the Notes upon the consummation of the Exchange Offer.

accrued and unpaid interest to the date of redemption. In addition, prior to
May 1, 2000, the Company may redeem up to 35% of the aggregate principal
amount of Exchange Notes at the redemption price set forth herein plus accrued
and unpaid interest through the redemption date with the net cash proceeds of
one or more Equity Offerings (as defined). The Exchange Notes will not be
subject to any mandatory sinking fund. In the event of a Change of Control (as
defined), each holder of Exchange Notes will have the right, at the holder's
option, to require the Company to purchase such holder's Exchange Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase. The Company's ability to pay cash to
the holders of Notes upon a purchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required purchases. See
"Description of the Exchange Notes".

The Exchange Notes will be general unsecured obligations of the Company,
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company. As of June 30, 1997, after giving pro forma effect
to the Offering of the Old Notes, application of the net proceeds therefrom
and borrowings under the Senior Credit Facilities (as defined), the Company
would have had approximately $400.0 million of indebtedness outstanding, of
which $175.0 million would have been Senior Debt (excluding letters of credit).
See "Capitalization". On the date of issuance of the Exchange Notes, the
Company will not have any subsidiaries; however, the Indenture (as defined)
will permit the Company to create subsidiaries in the future.

The Old Notes were issued and sold on April 30, 1997 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Company contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business, such holder has
no arrangement with any person to participate in the distribution of such
Exchange Notes and neither such holder nor any such other person is engaging
in or intends to engage in a distribution of such Exchange Notes. However, the
Company has not sought, and does not intend to seek, its own no-action letter,
and there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. This Prospectus, as
it may be amended or supplemented, may be used by a participating non-
affiliated broker-dealer in connection with resales of the Exchange Notes
where such Exchange Notes were acquired by such participating broker-dealer
as a result of market-making activities or other trading activities.
Notwithstanding the foregoing, each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge

that it will deliver a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. See
"Plan of Distribution". Any person participating in the Exchange Offer who
does not acquire the Exchange notes in the ordinary course of business: (i)
may not tender its Private Notes in the Exchange Offer; and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act.

The Old Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. There is no established
trading market for the Exchange Notes. The Company does not currently intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes.

The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the fourth business
day following the Expiration Date (as defined). Old Notes tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration
Date. The Company will not receive any proceeds from the Exchange Offer.
The Company will pay all of the expenses incident to the Exchange Offer.

For a discussion of certain factors that should be considered in connection
with an investment in the Exchange Notes, see "Risk Factors" beginning on
page 26.

THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is __________, 1997
7

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement
on Form S-4 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the Securities
Act with respect to the Exchange Notes being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
For further information with respect to the Company and the Exchange
Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement
is qualified by the provisions in such exhibit, to which reference is
hereby made. The Company is not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As a result of the offering of the Exchange Notes, the
Company will become subject to the informational requirements of the
Exchange Act, and, in accordance therewith, will file reports and
other information with the Commission. The Registration Statement, such
reports and other information can be inspected and copied at the Public
Reference Section of the Commission located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549 and at regional public
reference facilities maintained by the Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the
Commission at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).

So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the
information required to be filed with the Commission to the Trustee and
the holders of the Old Notes and the Exchange Notes. The Company has
agreed that, even if it is not required under the Exchange Act to furnish
such information to the Commission, it will nonetheless continue to
furnish information that would be required to be furnished by the Company
by Section 13 of the Exchange Act to the Trustee and the holders of the
Old Notes or Exchange Notes as if it were subject to such periodic
reporting requirements.

In addition, the Company has agreed that, for so long as any Old
Notes remain outstanding and are required to bear the transfer restriction
legend, it will make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities
Act, until such time as the Company has either exchanged the Old Notes for
the Exchange Notes or until such time as the holders thereof have disposed
of such Old Notes pursuant to an effective registration statement filed by
the Company.

8
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. As used in this Prospectus, unless the context requires
otherwise: (i) "Businesses" or the "Predecessor" means the operations of
Lockheed Martin Corporation and its subsidiaries that were acquired by the
Company upon consummation of the Acquisition (as defined), (ii) "L-3" or
the "Company" means L-3 Communications Corporation and the Businesses
after giving effect to the Acquisition, (iii) "Holdings" means L-3
Communications Holdings, Inc., the Company's sole shareholder and
(iv) "Lockheed Martin" means Lockheed Martin Corporation.

The Company

L-3 is a leading provider of sophisticated secure communication
systems and specialized communication products including secure, high data
rate communication systems, microwave components, avionics, and telemetry
and instrumentation products. These systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems. The Company's systems and
specialized products are used to connect a variety of airborne, space,
ground and sea-based communication systems and are incorporated into the
transmission, processing, recording, monitoring and dissemination
functions of these communication systems. The Company's customers include
the U.S. Department of Defense (the "DoD"), selected U.S. government (the
"Government") intelligence agencies, major aerospace/defense prime
contractors, foreign governments and commercial customers. In 1996, L-3
had pro forma sales of $675.3 million and pro forma operating income of
$56.0 million. The Company's funded backlog as of December 31, 1996 was
approximately $542.5 million.

All of the Company's business units enjoy proprietary technologies
and capabilities and are well positioned in their respective markets.
Management has organized the Company's operations into two business areas:
Secure Communication Systems and Specialized Communication Products. In
1996, these areas generated approximately $371.5 million and $303.8
million of pro forma sales, respectively, and $23.0 million and $33.0
million of pro forma operating income, respectively.

9
as well as secure telephone and network equipment. The Company believes
that it has developed virtually every high bandwidth data link used by the
military for surveillance and reconnaissance in operation today. In
addition to these core Government programs, L-3 is expanding its business
base into related commercial communication equipment markets, including
applying its wireless communication expertise to develop local wireless
loop equipment primarily for emerging market countries and rural areas
where existing telecommunications infrastructure is inadequate or
non-existent.

Specialized Communication Products. This business area comprises the
Microwave Components, Avionics, and Telemetry and Instrumentation Products
operations of the Company.

Microwave Components. L-3 is the preeminent worldwide supplier of
commercial off-the-shelf, high performance microwave components and
frequency monitoring equipment. L-3's microwave products are sold under
the industry-recognized Narda brand name through a standard catalog to
wireless, industrial and military communication markets. L-3 also provides
state-of-the-art communication components including channel amplifiers and
frequency filters for the commercial communications satellite market.

Avionics. Avionics includes the Company's Aviation Recorders,
Display Systems and Antenna Systems operations. L-3 is the world's leading
manufacturer of commercial cockpit voice and flight data recorders ("black
boxes"). These recorders are sold under the Fairchild brand name both on
an original equipment manufacturer ("OEM") basis to aircraft manufacturers
as well as directly to the world's major airlines for their existing
fleets of aircraft. L-3 also provides military and high-end commercial
displays for use on a number of DoD programs including the F-14, V-22,
F-117 and E-2C. Further, L-3 manufactures high performance surveillance
antennas and related equipment for U.S. Air Force and U.S. Navy aircraft
including the F-16, AWACS, E-2C and B-2, as well as the U.K.'s Nimrod
aircraft.

Telemetry and Instrumentation Products. The Company's Telemetry and
Instrumentation Products operations develop and manufacture commercial
off-the-shelf, real-time data collection and transmission products and
components for missile, aircraft and space-based electronic systems. These
products are used to gather flight parameter data and other critical
information and transmit it from air or space to the ground. Telemetry
products are also used for range safety and training applications to
simulate battlefield situations. Further, the Company is applying its
technical capabilities in high data rate transmission to the medical image
archiving market in partnership with the General Electric Company ("GE")
through GE's medical systems business area ("GE Medical Systems").

Industry Overview

The defense industry has recently undergone significant changes
precipitated by ongoing federal budget pressures and new roles and
missions to reflect changing strategic and tactical threats. Since the
mid-1980's, the overall U.S. defense budget has declined in real dollars.

10
In response, the DoD has focused its resources on enhancing its military
readiness, joint operations and multiple mission capabilities, and
incorporating advanced electronics to improve the performance, reduce
operating cost and extend the life expectancy of its existing and future
platforms. The emphasis on system interoperability, force multipliers and
providing battlefield commanders with real-time data is increasing the
electronics content of nearly all of the major military procurement and
research programs. As a result, the DoD's budget for communications and
defense electronics is expected to grow. According to Federal Sources, an
independent private consulting group, the defense budget for command,
control, communications and intelligence ("C3I") is expected to increase
from $30.0 billion in the fiscal year ended September 30, 1996 to $42.0
billion in the fiscal year ended September 30, 2002, a compound annual
growth rate of 5.8%.

The industry has also undergone dramatic consolidation resulting in
the emergence of four dominant prime system contractors. One outgrowth of
this consolidation among the remaining major prime contractors is their
desire to limit purchases of products and sub-systems from one another.
Despite this desire, there are numerous essential but non-strategic
products, components and systems that are not economical for the major
prime contractors to design, develop or manufacture for their own internal
use. As the prime contractors continue to evaluate their core competencies
and competitive position, focusing their resources on larger programs and
platforms, the Company expects the prime contractors will seek to exit
non-strategic business areas and procure these needed elements on more
favorable terms from independent, commercially oriented merchant
suppliers.

The focus on cost control is also driving increased use of
commercial off-the-shelf products for both upgrades of existing systems
and in new systems. The Company believes the prime contractors will
continue to be under pressure to reduce their costs and will increasingly
seek to focus their resources and capabilities on major systems, turning
to commercially oriented merchant suppliers to produce non-core
sub-systems, components and products. Going forward, the successful
merchant suppliers will use their resources to complement and support,
rather than compete with the prime contractors. L-3 anticipates the
relationship between the major prime contractors and their primary
suppliers will, as in the automotive industry, develop into critical
partnerships encompassing increasingly greater outsourcing of non-core
products and systems by the prime contractors to their key merchant
suppliers and increasing supplier participation in the development of
future programs. Early involvement in the upgrading of existing systems
and the design and engineering of new systems incorporating these
outsourced products will provide top-tier suppliers, including the
Company, with a competitive advantage in securing new business and provide
the prime contractors with significant cost reduction opportunities
through coordination of the design, development and manufacturing
processes.

11
Business Strategy

L-3 intends to leverage its market position, diverse program base
and favorable mix of cost plus to fixed price contracts to enhance its
profitability, reduce its indebtedness and to establish itself as the
premier merchant supplier of communication systems and products to the
major prime contractors in the aerospace/defense industry as well as the
Government. The Company's strategy to achieve these objectives includes:

-- Expand Merchant Supplier Relationships. Senior Management (as
defined) has developed strong relationships with virtually all of the
prime contractors, the DoD and other major government agencies, enabling
L-3 to identify business opportunities and anticipate customer needs. As
an independent merchant supplier, the Company anticipates its future
growth will be driven by expanding its share of existing programs and by
participating in new programs. Management has already identified several
opportunities where the Company believes it will be able to use its strong
relationships to increase its business presence and allow its customers to
reduce their costs. The Company also expects to benefit from increased
outsourcing by prime contractors who in the past may have limited their
purchases to captive suppliers and who are now expected to view L-3's
capabilities on a more favorable basis given its status as an independent
company.

-- Support Customer Requirements. A significant portion of L-3's
sales are derived from high-priority, long-term programs and from programs
for which the Company has been the incumbent supplier, and in many cases
acted as the sole provider, over many years. Approximately 67% of the
Company's total pro forma 1996 sales were generated from sole source
contracts. L-3's customer satisfaction and excellent performance record
are evidenced by its performance-based award fees exceeding 90% on average
over the past two years. Going forward, management believes prime
contractors will award long-term, sole source, outsourcing contracts to
the merchant supplier they believe is most capable on the basis of
quality, responsiveness, design, engineering and program management
support as well as cost. Reflecting L-3's strong competitive position, the
Company has experienced a contract award win rate over the past two years
of approximately 50% on new competitive contracts for which it competes
and approximately 90% on contracts for which it is the incumbent. The
Company intends to continue to align its research and development,
manufacturing and new business efforts to complement its customers'
requirements.

-- Leverage Technical and Market Leadership Positions. L-3 has
developed strong, proprietary technical capabilities that have enabled it
to capture a number one or two market position in most of its key business
areas, including secure, high data rate communication systems, solid state
aviation recorders, advanced antenna systems and high performance
microwave components. Over the past three years, the Company has invested
over $100 million in Company-sponsored independent research and
development, including bid and proposal costs, in addition to making
substantial investments in its technical and manufacturing resources.
Further, the Company has a highly skilled workforce including over 1,500

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engineers. As an independent company, management intends to leverage its
technical expertise and capabilities into several closely aligned
commercial business areas and applications, including opportunities in
wireless telephony and medical imaging archive management.

-- Maintain Diversified Business Mix. The Company enjoys a diverse
business mix with a limited program exposure, a favorable balance of cost
plus to fixed price contracts, a significant sole source business and an
attractive customer profile. The Company's largest program, representing
14% of 1996 pro forma sales, is a long-term, sole source, cost plus
support program for the U-2 program Directorate for the DoD. No other
program represented more than 7% of pro forma 1996 sales. Further, the
Company's pro forma sales mix of contracts in 1996 was 42% cost plus and
58% fixed price, providing the Company with a balanced mix of predictable
profitability (cost plus) and higher margin (fixed price) business. L-3
also enjoys an attractive customer mix of defense and commercial business,
with DoD related sales accounting for 65% and commercial and federal
(non-DoD) sales accounting for 35% of 1996 pro forma sales. The Company
intends to leverage this favorable business profile to expand its merchant
supplier business base.

-- Enhance Operating Margins. As part of larger corporations (i.e.,
Lockheed Martin, Loral, GE, Unisys), the Businesses were historically
required to absorb significant corporate expense allocations. As an
independent company, L-3 believes that it will be able to leverage its
discretionary expenditures in a more focused and efficient manner, enhance
its operating performance and reduce overhead expenses reflecting Senior
Management's more flexible, entrepreneurial approach. The Company believes
that significant costs incurred by the Businesses under Lockheed Martin's
ownership will not be incurred going forward. These cost savings include
reduced corporate administrative and facilities expenses and certain
operating performance improvements.

-- Capitalize on Strategic Acquisition Opportunities. Recent
industry consolidation has virtually eliminated traditional middle-tier
aerospace/defense companies. This level of consolidation is now beginning
to draw the concern of the DoD and federal anti-trust regulators. As a
result, the Company anticipates the pending major mergers as well as
continued consolidation of the smaller participants in the defense
industry will create attractive complementary acquisition candidates for
L-3 in the future as these companies continue to evaluate their core
competencies and competitive position.

The Transaction

The Acquisition

Holdings and L-3 were formed by Mr. Frank C. Lanza, the former
President and Chief Operating Officer of Loral Corporation ("Loral"), Mr.
Robert V. LaPenta, the former Senior Vice President and Controller of
Loral (collectively, "Senior Management"), Lehman Brothers Capital
Partners III, L.P. and its affiliates (the "Lehman Partnership") and
Lockheed Martin to acquire (the "Acquisition") substantially all of the
assets and certain liabilities of (i) nine business units previously
purchased by Lockheed Martin as part of its acquisition of Loral in April

1996 (the "Loral Acquired Businesses") and (ii) one business unit,
Communication Systems -- Camden, purchased by Lockheed Martin as part of
its acquisition of the aerospace business of GE ("GE Aerospace") in April
1993 (collectively, the "Businesses"). Pursuant to a Transaction Agreement
dated March 28, 1997, among the parties named therein (the "Transaction
Agreement"), the total consideration paid to Lockheed Martin was $525
million, comprising $480 million of cash before an estimated $20 million
reduction related to a purchase price adjustment, and $45 million of
common equity being retained by Lockheed Martin. L-3 is a wholly-owned
subsidiary of Holdings. Holdings was capitalized with $125 million of
common equity, with Messrs. Lanza and LaPenta collectively owning 15.0%,
the Lehman Partnership owning 50.1% and Lockheed Martin owning 34.9%. L-3
was capitalized with $125 million of common equity provided by Holdings.

Sources and Uses of Funds

The Acquisition was structured as an asset purchase with customary
terms and conditions. Financing for the Acquisition was comprised of:
(i) $275 million of Senior Secured Credit Facilities, consisting of $175
million of term loan facilities (the "Term Loan Facilities") and a $100
million revolving credit facility (the "Revolving Credit Facility" and,
together with the Term Loan Facilities, the "Senior Credit Facilities");
(ii) $225 million of Senior Subordinated Exchange Notes; and (iii) $125
million of equity including the equity to be retained by Lockheed Martin
(collectively, the "Financing"). Approximately $480 million of the
proceeds from the Financing was used by the Company to (i) pay the
estimated $460 million cash portion of the purchase price after an
estimated purchase price adjustment and (ii) pay related fees and
expenses. The Revolving Credit Facility was not drawn (other than for
letters of credit) at the closing of the Transaction (the "Closing") and
is available for ongoing working capital financing needs. The following
table summarizes the sources and uses of funds in connection with the
Transaction.

($ in millions)
Sources of Funds Amount Uses of Funds Amount
----------------------------------------- ------------------ ----------------------------------------- ------------------

Revolving Credit Facility . . . . . . $ 0.0 Purchase of Assets
Term Loan Facilities . . . . . . . . . . 175.0 Cash Portion . . . . . . . . . . . . . $479.8
Senior Subordinated Notes . . . . . . . . 225.0 Lockheed Martin Equity in L-3 . . . . 45.2
Common Equity . . . . . . . . . . . . 125.0 525.0
----- -----
Estimated Purchase Price Adjustment . . . (20.0)
Estimated Fees and Expenses . . . . . . . 20.0
-----
Total Sources . . . . . . . . . . . . $525.0 Total Uses . . . . . . . . . . . . . . $525.0
====== ======

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____________________

Availability of up to $100 million, none of which was drawn at
Closing other than letters of credit which were less than $10
million.
Includes $45 million of equity of Holdings retained by Lockheed
Martin.

The purchase price of $525 million is subject to an adjustment based
upon the difference between the audited combined net tangible assets (as
defined in the Transaction Agreement) of the Businesses and a
contractually agreed-upon amount. It is anticipated that this adjustment,
currently estimated to be $20 million, will have the effect of reducing
the purchase price. Prior to Closing, Lockheed Martin estimated the
purchase price adjustment and reduced the cash portion of the purchase
price by $15.9 million. Any difference between the actual purchase price
adjustment calculated post-closing and the amount withheld at Closing will
be paid, with interest, to the appropriate party.

The Acquisition and the Financing are referred to herein as the
"Transaction".

15
The Exchange Offer

The Exchange Offer . . . . . . . The Company is offering to exchange
pursuant to the Exchange Offer up to
$225,000,000 aggregate principal
amount of its new 10 3/8% Series B
Senior Subordinated Notes due 2007
(the "Exchange Notes") for a like
aggregate principal amount of its
outstanding 10 3/8% Senior
Subordinated Notes due 2007 (the "Old
Notes" and together with the Exchange
Notes, the "Notes"). The terms of the
Exchange Notes are identical in all
material respects (including principal
amount, interest rate and maturity) to
the terms of the Old Notes for which
they may be exchanged pursuant to the
Exchange Offer, except that the
Exchange Notes are freely
transferrable by Holders (as defined)
thereof (other than as provided
herein), and are not subject to any
covenant regarding registration under
the Securities Act. See "The Exchange
Offer".

Interest Payments . . . . . . . . Interest on the Exchange Notes shall
accrue from the last interest payment
date (May 1 or November 1) on which
interest was paid on the Notes so
surrendered or, if no interest has
been paid on such Notes, from April
30, 1997 (the "Interest Payment
Date").

Minimum Condition . . . . . . . . The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Old Notes being tendered for
exchange.

Expiration Date; Withdrawal
of Tender . . . . . . . . . . The Exchange Offer will expire at 5:00
p.m., New York City time, on
, 1997, unless the Exchange Offer is
extended, in which case the term
"Expiration Date" means the latest
date and time to which the Exchange
Offer is extended. Tenders may be
withdrawn at any time prior to 5:00
p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer--Withdrawal Rights".

16
Exchange Date . . . . . . . . . . The date of acceptance for exchange of
the Old Notes will be the fourth
business day following the Expiration
Date.
Conditions to the
Exchange Offer . . . . . . . . The Exchange Offer is subject to
certain customary conditions, which
may be waived by the Company. The
Company currently expects that each of
the conditions will be satisfied and
that no waivers will be necessary. See
"The Exchange Offer--Certain
Conditions to the Exchange Offer". The
Company reserves the right to
terminate or amend the Exchange Offer
at any time prior to the Expiration
Date upon the occurrence of any such
condition.

Procedures for Tendering
Old Notes . . . . . . . . . . Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof,
in accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Old Notes and any
other required documentation to the
Exchange Agent (as defined) at the
address set forth therein. See "The
Exchange Offer--Procedures for
Tendering Old Notes" and "Plan of
Distribution".

Use of Proceeds . . . . . . . . . There will be no proceeds to the
Company from the exchange of Notes
pursuant to the Exchange Offer.

Federal Income Tax
Consequences . . . . . . . . . The exchange of Notes pursuant to the
Exchange Offer will not be a taxable
event for federal income tax purposes.
See "Certain U.S. Federal Income Tax
Consequences".

Special Procedures for
Beneficial Owners . . . . . . Any beneficial owner whose Old Notes
are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who
wishes to tender should contact such
registered holder promptly and

17
instruct such registered holder to
tender on such beneficial owner's
behalf. If such beneficial owner
wishes to tender on such beneficial
owner's own behalf, such beneficial
owner must, prior to completing and
executing the Letter of Transmittal
and delivering the Old Notes, either
make appropriate arrangements to
register ownership of the Old Notes in
such beneficial owner's name or obtain
a properly completed bond power from
the registered holder. The transfer of
registered ownership may take
considerable time. See "The Exchange
Offer--Procedures for Tendering Old
Notes".

Guaranteed Delivery
Procedures . . . . . . . . . . Holders of Old Notes who wish to
tender their Old Notes and whose Old
Notes are not immediately available or
who cannot deliver their Old Notes,
the Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent
prior to the Expiration Date must
tender their Old Notes according to
the guaranteed delivery procedures set
forth in "The Exchange Offer--
Procedures for Tendering Old Notes".
Acceptance of Old Notes and
Delivery of Exchange Notes . . The Company will accept for exchange
any and all Old Notes which are
properly tendered in the Exchange
Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The
Exchange Notes issued pursuant to the
Exchange Offer will be delivered
promptly following the Expiration
Date. See "The Exchange Offer--
Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes".

Effect on Holders of Old Notes . As a result of the making of, and upon
acceptance for exchange of all validly
tendered Old Notes pursuant to the
terms of this Exchange Offer, the
Company will have fulfilled a covenant
contained in the Registration Rights
Agreement (the "Registration Rights
Agreement") dated April 30, 1997 among
the Company and Lehman Brothers Inc.
and BancAmerica Securities, Inc. (the
"Initial Purchasers") and,

18
accordingly, there will be no increase
in the interest rate on the Old Notes
pursuant to the terms of the
Registration Rights Agreement, and the
holders of the Old Notes will have no
further registration or other rights
under the Registration Rights
Agreement. Holders of the Old Notes
who do not tender their Old Notes in
the Exchange Offer will continue to
hold such Old Notes and will be
entitled to all the rights and
limitations applicable thereto under
the Indenture between the Company and
The Bank of New York relating to the
Old Notes and the Exchange Notes (the
"Indenture"), except for any such
rights under the Registration Rights
Agreement that by their terms
terminate or cease to have further
effectiveness as a result of the
making of, and the acceptance for
exchange of all validly tendered Old
Notes pursuant to, the Exchange Offer.
All untendered Old Notes will continue
to be subject to the restrictions on
transfer provided for in the Old Notes
and in the Indenture. To the extent
that Old Notes are tendered and
accepted in the Exchange Offer, the
trading market for untendered Old
Notes could be adversely affected.

Consequence of Failure
to Exchange . . . . . . . . . Holders of Old Notes who do not
exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer
will continue to be subject to the
restrictions on transfer of such Old
Notes as set forth in the legend
thereon as a consequence of the offer
or sale of the Old Notes pursuant to
an exemption from, or in a transaction
not subject to, the registration
requirements of the Securities Act and
applicable state securities laws. In
general, the Old Notes may not be
offered or sold, unless registered
under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the
Securities Act and applicable state
securities laws. The Company does not
currently anticipate that it will
register the Old Notes under the
Securities Act.

19
Exchange Agent . . . . . . . . . The Bank of New York is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
See "The Exchange Offer--Exchange
Agent".

20
Terms of the Exchange Notes

Securities Offered . . . . . . . $225,000,000 aggregate principal
amount of 10 3/8% Senior Subordinated
Exchange Notes due 2007 (the "Exchange
Notes").

Maturity . . . . . . . . . . . . May 1, 2007.

Interest Payment Dates . . . . . May 1 and November 1, commencing
November 1, 1997.

Optional Redemption . . . . . . . The Exchange Notes may be redeemed at
the option of the Company, in whole or
in part, on or after May 1, 2002, at
the redemption prices set forth
herein, plus accrued and unpaid
interest to the date of redemption.

In addition, prior to May 1, 2000, the
Company may redeem up to an aggregate
of 35% of the Exchange Notes
originally issued at a redemption
price of 109.375% of the principal
amount thereof, plus accrued and
unpaid interest to the date of
redemption, with the net cash proceeds
of one or more Equity Offerings;
provided, however, that at least 65%
in aggregate principal amount of the
Exchange Notes originally issued
remain outstanding following such
redemption.

Change of Control . . . . . . . . In the event of a Change of Control
(as defined), the holders of the
Exchange Notes will have the right to
require the Company to purchase their
Exchange Notes at a price equal to
101% of the aggregate principal amount
thereof, plus accrued and unpaid
interest to the date of purchase.

Ranking . . . . . . . . . . . . . The Exchange Notes will be general
unsecured obligations of the Company,
subordinate in right of payment to all
current and future Senior Debt
including all obligations of the
Company and its Subsidiaries under the
Senior Credit Facilities. The Company
currently has no subsidiaries. At
June 30, 1997, on a pro forma basis
after giving effect to the
Transaction, the Company would have

21
had $400.0 million of indebtedness
outstanding, of which $175.0 million
would have been Senior Debt (excluding
letters of credit). Borrowings under
the Senior Credit Facilities are
secured by substantially all of the
assets of the Company as well as the
capital stock of the Company and its
Subsidiaries. See "Risk Factors--
Substantial Leverage" and "--
Subordination".

Covenants . . . . . . . . . . . . The Indenture pursuant to which the
Exchange Notes will be issued (the
"Indenture") contains certain
covenants that, among other things,
limit the ability of the Company and
its Restricted Subsidiaries to incur
additional Indebtedness and issue
preferred stock, pay dividends or make
other distributions, repurchase Equity
Interests (as defined) or subordinated
Indebtedness, create certain liens,
enter into certain transactions with
affiliates, sell assets of the Company
or its Restricted Subsidiaries, issue
or sell Equity Interests of the
Company's Restricted Subsidiaries or
enter into certain mergers and
consolidations. In addition, under
certain circumstances, the Company is
required to offer to purchase Exchange
Notes at a price equal to 100% of the
principal amount thereof, plus accrued
and unpaid interest to the date of
purchase, with the proceeds of certain
Asset Sales (as defined). See
"Description of the Exchange Notes".

For a discussion of certain risk factors that should be considered
in connection with an investment in the Exchange Notes, see "Risk
Factors".

Summary Unaudited Pro Forma Financial Data

The summary unaudited pro forma data as of June 30, 1997 and for
the six months then ended and as of December 31, 1996 and for the year
then ended have been derived from, and should be read in conjunction with,
the unaudited pro forma combined financial statements included elsewhere
herein. The unaudited pro forma data reflect the Acquisition and the
Financing as if these transactions had occurred on January 1, 1996 for
the statement of operations and other data.

Six Months
Ended Year Ended
June 30, 1997 December 31, 1996
-------------- -----------------
($ in millions)

Statement of Operations Data:
Sales:
Secure Communication Systems . . . . . . . . . . . $176.1 $371.5
Specialized Communication Products . . . . . . . . 150.8 303.8
----- -----
Total sales . . . . . . . . . . . . . . . . . . . $326.9 $675.3
====== ======

Other Data:
EBITDA:
Secure Communication Systems . . . . . . . . . . . $ 14.6 $ 41.6
Specialized Communication Products . . . . . . . . 23.2 42.4
----- -----
Total EBITDA . . . . . . . . . . . . . . . . . . $ 37.8 $ 84.0
====== ======

EBITDA as a percentage of sales:
Secure Communication Systems . . . . . . . . . . . 8.3% 11.2%
Specialized Communication Products . . . . . . . . 15.4 14.0
----- -----
Total EBITDA as a percentage of sales . . . . . . 11.6% 12.4%
====== ======

Depreciation expense . . . . . . . . . . . . . . . . . $ 9.0 $ 18.0
Amortization expense . . . . . . . . . . . . . . . . . 4.7 10.0
Capital expenditures . . . . . . . . . . . . . . . . . 7.4 17.2
Ratio of earnings to fixed charges . . . . . . . . 1.23x 1.35x
Ratio of total EBITDA to cash interest expense . . 3.95x 2.18x
Ratio of total debt to total EBITDA . . . . . . . . . . N/A 4.76x

____________________
[FN]
EBITDA is defined as pro forma income before deducting interest expense,
income taxes, depreciation and amortization. EBITDA is not a
substitute for operating income, net income and cash flow from
operating activities as determined in accordance with generally
accepted accounting principles as a measure of profitability or
liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's
ability to meet debt service and capital expenditure requirements
and because certain debt covenants of L-3 utilize EBITDA to measure
compliance with such covenants.
For purposes of this computation, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
on indebtedness plus that portion of lease rental expense
representative of the interest factor.
For purposes of this computation, cash interest expense consists of
pro forma interest expense before amortization of deferred
financing costs.

Summary Historical Financial Data

The following unaudited summary combined financial data as of June
30, 1997 and 1996 and for the six month periods then ended, has been
derived from, and should be read in conjunction with, the unaudited
interim condensed consolidated (combined) financial statements of the
Company and footnotes thereto included elsewhere herein. In the opinion
of the management, the unaudited condensed consolidated (combined)
financial statements include all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentation of the
information contained therein. Results for the interim periods are
not necessarily indicative of the results to be expected for the
entire year.

The summary combined financial data as of March 31, 1997 and for
the three month period ended March 31, 1997 and as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and 1994 have
been derived from, and should be read in conjunction with, the audited
Combined Financial Statements of the Businesses and footnotes thereto
included elsewhere herein.

The unaudited summary combined financial data for the three month
period ended March 31, 1996 and as of December 31, 1994 and 1993, March
31, 1993 and December 31, 1992 for balance sheet data and the nine months
ended December 31, 1993, the three months ended March 31, 1993 and the
year ended December 31, 1992 for statement of operations data have been
derived from the unaudited financial statements of Communication Systems
-- Camden. In the opinion of the Businesses' management, such unaudited
financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position
and results of operations of Communication Systems -- Camden, also referred
to as Lockheed Martin Communication Systems Division in the Lockheed Martin
Predecessor Financial Statements, as of the dates and periods indicated.
These selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the condensed consolidated (combined) financial
statements of the Company and the Combined Financial Statements of the
Lockheed Martin Predecessor Businesses and the Loral Acquired Businesses
included elsewhere herein.

Six Months Ended June 30, 1997
------------------------------

For the Three
Three Months Months
Ended Six Months Ended March 31,
-------------------------------- Ended --------------------
June 30, 1997 March 31, 1997 June 30, 1996 1997 1996
--------------- -------------- ------------- -------- ----------

Statement of Operations Data:
Sales . . . . . . . . . . . . . . . $168.0 | $158.9 $206.4 $158.9 $41.2
Operating income . . . . . . . . . 15.1 | 7.9 10.9 7.9 1.7
Interest expense. . . . . . . . 10.0 | 8.4 9.4 8.4 2.0
Provision (benefit) for income |
taxes . . . . . . . . . . . . 2.0 | (.2) 1.3 (.2) .2
Net earnings (loss) . . . . . . . . 3.1 | (.3) .2 (.3) (.5)
|
Other Data: |
EBITDA . . . . . . . . . . . . $ 22.3 | $ 15.1 $ 21.2 $ 15.1 $4.8
Depreciation expense . . . . . . . 4.5 | 4.5 5.8 4.5 1.2
Amortization expense . . . . . . . 2.7 | 2.7 4.5 2.7 1.9
Capital expenditures . . . . . . . 3.1 | 4.3 4.7 4.3 .4
Ratio of earnings to fixed charges. 1.47x | 1.02x
Cash from (used in) operating |
activities . . . . . . . . . . . . 32.9 | (16.3) (29.4) (16.3) 10.2
Cash from (used in) investing |
activities . . . . . . . . . . . . (473.6) | (4.3) (292.0) (4.3) (.4)
Cash from (used in) financing |
activities . . . . . . . . . . . . 463.3 | 20.6 321.4 20.6 (9.8)
|
Balance Sheet Data: |
Working capital . . . . . . . . . . $117.6 | $121.4 N/A $ 121.4 N/A
Total assets . . . . . . . . . . . 680.9 | 608.5 N/A 608.5 N/A
Invested equity . . . . . . . . . . -- | 493.9 N/A 493.9 N/A
Shareholders' Equity. . . . . . . . 120.6 | -- N/A -- N/A

Years Ended December 31,
-----------------------------------------------------------------------------
1993
--------------------------
Nine Months Three Months
Ended Ended
1996 1995 1994 Dec. 31 March 31 1992
----------- ---------- ---------- ----------- ------------- ------------
($ in millions)

Statement of Operations Data:
Sales . . . . . . . . . . . . . . . . $543.1 $166.8 $218.9 $200.0 | $67.8 $368.5
Operating income . . . . . . . . . . 43.7 4.7 8.4 12.4 | 5.1 49.3
Interest expense. . . . . . . . . 24.2 4.5 5.5 4.1 | -- --
Provision (benefit) for income |
taxes . . . . . . . . . . . . . . 7.8 1.2 2.3 3.8 | 2.0 19.8
Net earnings (loss) . . . . . . . . . 11.7 (1.0) 0.6 4.5 | 3.1 29.5
|
Other Data: |
EBITDA . . . . . . . . . . . . . . $ 68.7 $ 16.2 $ 19.9 $ 23.4 | $ 7.0 $ 58.5
Depreciation expense . . . . . . . . 14.9 5.5 5.4 6.1 | 1.8 8.9
Amortization expense . . . . . . . . 10.1 6.1 6.1 4.9 | 0.1 0.3
Capital expenditures . . . . . . . . 13.5 5.5 3.7 2.6 | 0.8 3.9
Ratio of earnings to fixed charges . 1.72x 1.03x 1.40x N/A | N/A N/A
Cash from (used in) operating 31.0 9.4 21.8 N/A | N/A N/A
activities . . . . . . . . . . . . . |
Cash from (used in) investing (298.3) (5.5) (3.7) N/A | N/A N/A
activities . . . . . . . . . . . . . |
Cash from (used in) financing 267.3 (3.9) (18.1) N/A | N/A N/A
activities . . . . . . . . . . . . . |
|
Balance Sheet Data: |
Working capital . . . . . . . . . . . $ 98.8 $ 21.1 $ 19.3 $ 24.7 | $22.8 $ 35.8
Total assets . . . . . . . . . . . . 593.3 228.5 233.3 241.7 | 93.5 105.1
Invested equity . . . . . . . . . . . 473.6 194.7 199.5 202.0 | 59.9 72.8
Shareholders' Equity. . . . . . . . -- -- -- -- | -- --

____________________
[FN]
Reflects ownership of Loral's Communication Systems -- Salt Lake
and Specialized Communication Products businesses commencing
April 1, 1996.
Reflects ownership of Communication Systems -- Camden by Lockheed
Martin commencing April 1, 1993.
Reflects ownership of Communication Systems -- Camden by GE
Aerospace for the periods indicated. The amounts shown herein
include only those amounts as reflected in the financial records of
Communication Systems -- Camden.
For periods prior to April 1, 1997, interest expense and income tax
(benefit) provision were allocated from Lockheed Martin.
EBITDA is defined as income before deducting interest expense,
income taxes, depreciation and amortization. EBITDA is not a
substitute for operating income, net earnings and cash flow from
operating activities as determined in accordance with generally
accepted accounting principles as a measure of profitability or
liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's
ability to meet debt service and capital expenditure requirements
and because certain debt covenants of L-3 utilize EBITDA to measure
compliance with such covenants.
For the three months ended March 31, 1997 and 1996, earnings were
insufficient to cover fixed charges by $.5 million and $.4 million,
respectively.

28
RISK FACTORS

Holders of Old Notes should consider carefully, in addition to the
other information contained in this Prospectus, the following factors
before deciding to tender Old Notes in the Exchange Offer. The risk
factors set forth below are generally applicable to the Old Notes as well
as the Exchange Notes.

Consequences of Failure to Exchange

Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Notes as set forth in the
legend thereon. In general, Old Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The Company does not
currently intend to register the Old Notes under the Securities Act. Based
on interpretations by the staff of the Commission, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold or otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Old Notes were acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with
any person to participate in the distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution." To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes will
be adversely affected.

Lack of Market for the Exchange Notes

The Exchange Notes are being offered to the holders of the Old
Notes. The Old Notes were offered and sold in April 1997 to a small number
of institutional investors and are eligible for trading in the Private
Offerings, Resale and Trading through Automatic Linkages (PORTAL) Market.

The Company does not intend to apply for a listing of the Exchange
Notes on a securities exchange or on any automated dealer quotation
system. There is currently no established market for the Exchange Notes
and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders
would be able to sell their Exchange Notes. If such markets were to exist,
the Exchange Notes could trade at prices that may be lower than the
initial market value thereof depending on many factors, including
prevailing interest rates and the markets for similar securities. The
Exchange Notes are expected to be designated for trading in the PORTAL

market. The Initial Purchasers have advised the Company that they
currently intend to make a market with respect to the Exchange Notes.
However, the Initial Purchasers are not obligated to do so, and any market
making with respect to the Exchange Notes may be discontinued at any time
without notice. In addition, such market making activity may be limited
during the pendency of the Exchange Offer or the effectiveness of a shelf
registration statement in lieu thereof. Because Lehman Brothers Inc. is an
affiliate of the Company, following consummation of the Exchange Offer
Lehman Brothers Inc. will be required to deliver a current "market-maker"
prospectus and otherwise comply with the registration requirements of the
Securities Act in connection with any secondary market sale of the New
Exchange Notes, which may affect its ability to continue market-making
activities. See "Notice to Investors" and "Plan of Distribution".

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

The liquidity of, and trading market for, the Exchange Notes also
may be adversely affected by general declines in the market for similar
securities.

Substantial Leverage

The Company incurred substantial indebtedness in connection with the
Transaction and the Company is highly leveraged. To effect the Transaction,
the Company incurred $400 million of indebtedness (excluding letters of
credit) in addition to equity contributions of approximately $116 million
(after giving effect to EITF 88-16 (as defined) accounting treatment
relating to basis in leveraged buyout transactions by Holdings). Of the
total $525 million used to consummate the Acquisition, $175 million (33.3%)
was supplied by the Senior Credit Facilities, $225 million (42.9%) was
supplied by the Old Exchange Notes, and, through Holdings, $80 million
(15.2%) was supplied by equity purchases by the Lehman Partnership and
Senior Management and $45 million (8.6%) contributed through equity
retention in L-3 by Lockheed Martin. After giving pro forma effect to the
Transaction, the Company's ratio of earnings to fixed charges would have
been 1.35:1 for the year ended December 31, 1996, and for the three months
ended March 31, 1997, pro forma earnings would have been insufficient to
cover fixed charges by $.9 million. The Company's actual ratio of earnings
to fixed charges for the three months ended June 30, 1997 was 1.47:1. The
Company may incur additional indebtedness in the future, subject to
limitations imposed by the Senior Credit Facilities and the Indenture.

Based upon the current level of operations and anticipated
improvements, management believes that the Company's cash flow from
operations, together with available borrowings under the Revolving Credit
Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures, research and development
expenditures, program and other discretionary investments, interest
payments and scheduled principal payments for the foreseeable future.

30
There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that
currently anticipated improvements will be achieved. If the Company is
unable to generate sufficient cash flow from operations in the future
to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing debt (including
the Notes) or obtain additional financing. The Company's ability to make
scheduled principal payments of, to pay interest on or to refinance its
indebtedness (including the Notes) depends on its future performance
and financial results, which, to a certain extent, are subject to general
economic, financial, competitive, legislative, regulatory and other
factors beyond its control. There can be no assurance that sufficient
funds will be available to enable the Company to service its indebtedness,
including the Notes, or make necessary capital expenditures and program
and other discretionary investments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to debt service and will not
be available for other purposes including capital expenditures, research
and development expenditures, and program and other discretionary
investments; (ii) the Company's ability to obtain additional financing in
the future could be limited; (iii) certain of the Company's borrowings are
at variable rates of interest, which could result in higher interest
expense in the event of increases in interest rates; (iv) the Company may
be more vulnerable to downturns in its business or in the general economy
and may be restricted from making acquisitions, introducing new
technologies and products or exploiting business opportunities; and
(v) the Senior Credit Facilities and the Indenture contain financial and
restrictive covenants that limit, among other things, the ability of the
Company to borrow additional funds, dispose of assets or pay cash
dividends. Failure by the Company to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. In addition, the degree to which
the Company is leveraged could prevent it from repurchasing all Notes
tendered to it upon the occurrence of a Change in Control, which would
constitute an Event of Default under the Indenture. See "Description of
the Exchange Notes" and "Description of Senior Credit Facilities".

Lack of Independent Operating History

Prior to the consummation of the Transaction, the Company's
operations were conducted as divisions of Lockheed Martin, Loral, Unisys
and GE Aerospace. Following consummation of the Transaction the Company
operates independently of Lockheed Martin and is required to provide many
corporate services on a stand-alone basis that were previously provided by
Lockheed Martin, including corporate research and development, marketing,
and general and administrative services including tax, treasury,
management information systems, human resources and legal services. The
result of operations of the Predecessor Company reflects the allocation of
overhead costs, financing costs, income taxes, pension and post employment
benefit costs, among other costs, that differ from the manner the

Registrant will conduct its business as a separate entity. Lockheed Martin
and the Company have entered into a Transition Services Agreement pursuant
to which Lockheed Martin provides certain of these services at costs
consistent with past practices to the Company until December 31, 1997 (or
in the case of Communication Systems -- Camden for a period of up to 18
months after the Closing). There can be no assurance that the actual
corporate services costs incurred in operating the Company will not exceed
historical charges or that upon termination of the Transition Services
Agreement the Company will be able to obtain similar services on
comparable terms.

Future Acquisition Strategy

The Company's strategy includes pursuing additional acquisitions
that will complement its business. There can be no assurance, however,
that the Company will be able to identify additional acquisition
candidates on commercially reasonable terms or at all or that, if
consummated, any anticipated benefits will be realized from such future
acquisitions. In addition, the availability of additional acquisition
financing cannot be assured and, depending on the terms of such additional
acquisitions, could be restricted by the terms of the Senior Credit
Facilities and/or the Indenture. The process of integrating acquired
operations into the Company's existing operations may result in unforeseen
operating difficulties and may require significant financial and
managerial resources that would otherwise be available for the ongoing
development or expansion of the Company's existing operations. Possible
future acquisitions by the Company could result in the incurrence of
additional debt, contingent liabilities and amortization expenses related
to goodwill and other intangible assets, all of which could materially
adversely affect the Company's financial condition and operating results.

Technological Change; New Product Development

The communication equipment industry for defense applications and in
general is characterized by rapidly changing technology. The Company's
ability to compete successfully in this market will depend on its ability
to design, develop, manufacture, assemble, test, market and support new
products and enhancements on a timely and cost-effective basis. The
Company has historically obtained technology from substantial
customer-sponsored research and development as well as from internally
funded research and development; however, there can be no assurance that
the Company will continue to maintain comparable levels of
customer-sponsored research and development in the future. See "Business--
Research and Development". Substantial funds have been allocated to
capital expenditures and program and other discretionary investments in
the past and will continue to be required in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
There can be no assurance that the Company will successfully identify new
opportunities and continue to have financial resources to develop new
products in a timely or cost-effective manner, or that products and
technologies developed by others will not render the Company's products
and systems obsolete or non-competitive.

32
Entry into Commercial Business

The Company's revenues historically have been derived principally
from business with the DoD and other government agencies. In addition to
continuing to pursue this major market area, the Company intends to pursue
a strategy that leverages the technical capabilities and expertise derived
from its defense business to expand further into related commercial
markets. Certain of the Company's commercial products, such as fixed
wireless loop communication equipment and medical image archiving
equipment, have only been recently introduced. As such, these new products
are subject to certain risks, including the need to develop and maintain
marketing, sales and customer support capabilities, to secure third-party
manufacturing and distribution arrangements, to respond to rapid
technological advances and, ultimately, to customer acceptance of these
products. The Company's efforts to expand its presence in the commercial
market will require significant resources including capital and management
time. There can be no assurance that the Company will be successful in
addressing these risks or in developing these commercial business
opportunities.

Pension Plan Liabilities

The Transaction Agreement (as defined) provides that Lockheed Martin
transfer certain assets to Holdings and L-3 and that Holdings and L-3
assume certain liabilities relating to defined benefit pension plans for
present and former employees and retirees of certain businesses being
transferred to Holdings and L-3. Lockheed Martin received a letter from
the Pension Benefit Guaranty Corporation (the "PBGC") which requested
information regarding the transfer of such pension plans. The PBGC's
letter indicated that it believed certain of the employee pension plans
are underfunded using the PBGC's actuarial assumptions (which assumptions
result in a larger liability for accrued benefits than the assumptions
used for financial reporting under Statement of Financial Accounting
Standards No. 87, "Accounting for Pension Costs" ("FASB 87")). The Company
has calculated the net funding position of the pension plans to be
transferred and believes the plans to be overfunded by approximately $1
million under ERISA (as defined) assumptions, underfunded by approximately
$9 million under FASB 87 assumptions and, on a termination basis,
underfunded by as much as $51 million under PBGC assumptions.
Substantially all of the PBGC underfunding is related to two pension plans
covering employees at L-3's Communication Systems -- Salt Lake and
Aviation Recorders businesses.

The Company, Lockheed Martin and the PBGC entered into certain
agreements that include Lockheed Martin providing a commitment to the PBGC
with regard to the Subject Plans (as defined) and the Company providing
certain assurances to Lockheed Martin regarding such plans. See
"Business--Pension Plans". The Company expects, based in part upon
discussions with its consulting actuaries, that any increase in pension
expenses or future funding requirements from those previously anticipated
for the Subject Plans would not be material. However, there can be no
assurance that the impact of any increased pension expenses or funding
requirements under this arrangement would not be material to the Company.

33
Significant Customers

The Company's sales are predominantly derived from contracts with
agencies of, and prime contractors to, the Government. Although the
various branches of the Government are subject to the same budgetary
pressures and other factors, the various Government customers exercise
independent purchasing decisions. The U.S. defense budget has declined in
real terms since the mid-1980s, resulting in delays for some new program
starts, program stretch-outs and program cancellations. The U.S. defense
budget has begun to stabilize and increased modestly in fiscal 1996. In
1996, the Company performed under approximately 180 contracts with value
exceeding $1 million for the Government. Pro forma sales in 1996 to the
Government, including pro forma sales to the Government through prime
contractors, were $529 million, representing approximately 78.4% of the
Company's corresponding sales. The Company's largest Government program, a
cost plus, sole source contract for support of the U-2 Directorate of the
DoD, contributed 14% of pro forma sales for 1996. No other program
represented more than 7% of the Company's pro forma sales in 1996. The
loss of all or a substantial portion of sales to the Government would have
a material adverse effect on the Company's income and cash flow. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Government Contracts".

Historical sales by the Company to Lockheed Martin were $70.7
million in 1996 or 13.0% of the Company's total reported historical sales.
As a part of the Acquisition, the Company and Lockheed Martin intend to
enter into certain purchase agreements for the sale of products and
systems to Lockheed Martin by the Company. The loss of all or a
substantial portion of such sales to Lockheed Martin would have a material
adverse effect on the Company's income and cash flow.

Dependence on Lockheed Martin

In addition to the above-mentioned sales to Lockheed Martin, the
Company continues to be dependent on Lockheed Martin for certain services
and continuing agreements. Lockheed Martin has agreed to indemnify the
Company, subject to certain limitations, for its breach of representations
and warranties contained in the Transaction Agreement. Lockheed Martin
also has agreed to provide to the Company certain corporate services of a
type currently provided to the Businesses at costs consistent with past
practices. The Company and Lockheed Martin have entered into (i) supply
agreements which reflect existing intercompany work transfer agreements or
similar support arrangements with prices and other terms consistent with
the present intercompany arrangements, (ii) certain subleases of real
property and (iii) cross-licenses of intellectual property. There can be no
assurance that, after the termination of these arrangements, the Company
will be able to obtain these services or arrangements at comparable costs.
Further, Lockheed Martin and Holdings have entered into a Limited Non-
Competition Agreement (the "Noncompetition Agreement") which, for up to
three years, in certain circumstances, after the Closing, precludes
Lockheed Martin from engaging in the sale of any products that compete
with the products of L-3 that are set forth in the Noncompetition
Agreement for specifically identified applications of the products.
Under the Noncompetition Agreement, Lockheed Martin is prohibited,

with certain exceptions, from acquiring any business engaged in the sale of
the specified products referred to in the preceding sentence, although
Lockheed Martin may acquire such a business provided that it offers to
sell such business to L-3 within 90 days of its acquisition. The
Noncompetition Agreement does not, among other things, (i) apply to
businesses operated and managed by Lockheed Martin on behalf of the
United States government, (ii) prohibit Lockheed Martin from engaging
in any existing businesses and planned businesses or businesses as of the
closing of the Transaction that are reasonably related to existing or
planned businesses or (iii) apply to selling competing products where
such products are part of larger systems sold by Lockheed Martin. The
Company has also entered into agreements with Lockheed Martin relating
to the PBGC matter discussed above.

Dependence on Key Personnel

The Company's success depends to a significant degree upon the
continued contributions of the Company's management, including Messrs.
Lanza and LaPenta, and its ability to attract and retain other highly
qualified management and technical personnel. As part of the Transaction,
Messrs. Lanza and LaPenta invested $15 million to purchase 15% of the
initial capital stock of the Company. The Company has entered into
employment agreements with Messrs. Lanza and LaPenta. The Company
maintains key man life insurance to cover Senior Management. The Company
also faces competition for management and technical personnel from other
companies and organizations. There can be no assurance that the Company
will be successful in hiring and retaining key personnel. See
"Management--Directors and Executive Officers".

Environmental Liabilities

The Company's operations are subject to various federal, state and
local environmental laws and regulations relating to the discharge,
storage, treatment, handling, disposal and remediation of certain
materials, substances and wastes used in or resulting from its operations.
The Company continually assesses its obligations and compliance with
respect to these requirements. Based on a review by an independent
environmental consulting firm and its own internal assessments, management
believes that the Company's current operations are in substantial
compliance with all existing applicable environmental laws and
regulations. New environmental protection laws that will be effective in
1997 and thereafter may require the installation of environmental
protection equipment at the Company's manufacturing facilities. However,
the Company does not believe that its environmental expenditures, if any,
will have a material adverse effect on its financial condition or results
of operations.

35
Lockheed Martin has also agreed, for the first eight years following the
Closing, to pay 50% of all costs incurred by the Company above those
reserved for on the Company's balance sheet at closing relating to certain
Company-assumed environmental liabilities and, for the seven years
thereafter, to pay 40% of certain reasonable operation and maintenance
costs relating to any environmental remediation projects undertaken in the
first eight years. The Company is aware of environmental contamination at
two of its facilities that will require ongoing remediation. Management
believes that the Company has established adequate reserves for the
potential costs associated with the assumed environmental liabilities.
However, there can be no assurance that any costs incurred will be
reimbursable from the Government or covered by Lockheed Martin under the
terms of the Transaction Agreement or that the Company's environmental
reserves will be sufficient.

Litigation

From time to time the Company is involved in legal proceedings
arising in the ordinary course of its business. As part of the
Acquisition, the Company has agreed to assume certain litigation relating
to the Businesses and Lockheed Martin has agreed to indemnify the Company,
up to certain limits, for a breach of its representations and warranties.
Management believes it is adequately reserved for these liabilities and
that there is no litigation pending that could have a material adverse
effect on the Company or its operations, except as discussed below.

As of June 30, 1997, the Company and Universal Avionics Systems
Corporation ("Universal") has reached a settlement with respect to a
lawsuit brought by Universal against the Company's Aviation Recorders
operation ("Aviation Recorders"). The terms of this settlement will not
have a material adverse effect on the Company's financial condition or
results of operations.

Risks Inherent in Government Contracts

The reduction in the U.S. defense budget has caused most
defense-related government contractors to experience declining revenues,
increased pressure on operating margins and, in few cases, net losses. The
Company has experienced declining sales in each of its last five fiscal
years. Specifically, adjusted sales of the Company and its predecessors
have decreased from $925.5 million for the fiscal year ended December 31,
1992 to $664.7 million for the fiscal year ended December 31, 1996. A
significant further decline in U.S. military expenditures could materially
adversely affect the Company's sales and earnings. The loss or significant
curtailment of a material program in which the Company participates could
also materially adversely affect the Company's future sales and earnings
and thus the Company's ability to meet its financial obligations.

Companies engaged primarily in supplying defense-related equipment
and services to government agencies are subject to certain business risks
peculiar to the defense industry. These risks include, among other things,
the ability of the Government to: (i) suspend unilaterally the Company
from receiving new contracts pending resolution of alleged violations of
procurement laws or regulations, (ii) terminate existing contracts,
(iii) audit the Company's contract related costs and fees, including

36
allocated indirect costs, and (iv) control and potentially prohibit the
export of the Company's products.

All of the Company's Government contracts are, by their terms,
subject to termination by the Government either for its convenience or for
default of the contractor. Termination for convenience provisions provide
only for the recovery by the Company of costs incurred or committed,
settlement expenses and profit on work completed prior to termination.
Termination for default provisions provide for the contractor to be liable
for excess costs incurred by the Government in procuring undelivered items
from another source. In addition to the right of the Government to
terminate, Government contracts are conditioned upon the continuing
availability of Congressional appropriations. Congress usually
appropriates funds for a given program on a fiscal-year basis even though
contract performance may take more than one year. Consequently, at the
outset of a major program, the contract is usually partially funded, and
additional monies are normally committed to the contract by the procuring
agency only if, as and when appropriations are made by Congress for future
fiscal years. Foreign defense contracts generally contain comparable
provisions relating to termination at the convenience of the government.

The Company is subject to audit and review by the Government of its
costs and performance on, and accounting and general business practices
relating to, Government contracts. The Company's contract related costs
and fees, including allocated indirect costs, are subject to adjustment
based on the results of such audits. In addition, under Government
purchasing regulations, certain of the Company's costs, including certain
financing costs, goodwill, portions of research and development costs, and
certain marketing expenses may not be reimbursable under Government
contracts. Further, as a government contractor, the Company is also
subject to investigation, legal action and/or liability that would not
apply to a commercial company.

The Company, like all defense businesses, is subject to risks
associated with the frequent need to bid on programs in advance of design
completion (which may result in unforeseen technological difficulties
and/or cost overruns), the substantial time and effort required for
relatively unproductive design and development, design complexity and
rapid obsolescence, and the constant necessity for design improvement. The
Company obtains many of its Government contracts through a process of
competitive bidding. There can be no assurance that the Company will
continue to be successful in winning competitively awarded contracts or
that awarded contracts will generate sufficient sales to result in
profitability for the Company. See "Business--Major Customers" and "--
Government Contracts".

In addition to these Government contract risks, many of the
Company's products and systems require licenses from Government agencies
for export from the United States, and certain of the Company's products
currently are not permitted to be exported. There can be no assurance that
the Company will be able to gain any and all licenses required to export
its products, and failure to receive the required licenses could
materially reduce the Company's ability to sell its products outside the
United States.

37
The Company's services are provided primarily through fixed price or
cost plus contracts. Approximately 58% of the Company's pro forma sales in
1996 were attributable to fixed price contracts. The financial results of
long-term fixed price contracts are recognized using the cost-to-cost
percentage-of-completion method. As a result, revisions in revenues and
profit estimates are reflected in the period in which the conditions that
require such revisions become known and are estimable. The risks inherent
in long-term fixed price contracts include the difficulty of forecasting
costs and schedules, contract revenues that are related to performance in
accordance with contract specifications and potential for component
obsolescence in connection with long-term procurements. Failure to
anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed price contract may reduce the Company's
profitability or cause a loss. Although the Company believes that adequate
provision for its fixed price contracts is reflected in its financial
statements, no assurance can be given that this provision is adequate or
that losses on fixed price and time-and-material contracts will not occur
in the future.

Backlog

The Company's backlog represents orders under contracts which are
primarily with the Government. The Government enjoys broad rights to
unilaterally modify or terminate such contracts. Accordingly, most of the
Company's backlog is subject to modification and termination at the
Government's will. There can be no assurance that the Company's backlog
will become revenues in any particular period or at all. Further, there
can be no assurance that the margins on any contract included in backlog
that does become revenue will be profitable.

Competition

The communications equipment industry for defense applications and
as a whole is highly competitive. Declining defense budgets and increasing
pressures for cost reductions have precipitated a major consolidation in
the defense industry. The DoD's increased use of commercial off-the-shelf
products and components in military equipment is expected to increase the
entrance of new competitors. In addition, consolidation has resulted in
delays in contract funding or awards and significant predatory pricing
pressures associated with increased competition and reduced funding. The
Company expects that the emergence of merchant suppliers will increase
competition for OEM business. The Company's ability to compete for defense
contracts depends to a large extent on the effectiveness and
innovativeness of its research and development programs, its ability to
offer better program performance than its competitors at a lower cost to
the Government customer and its readiness in facilities, equipment and
personnel to undertake the programs for which it competes. In some
instances, programs are sole source or work directed by the Government to
a single supplier. In such cases, there may be other suppliers who have
the capability to compete for the programs involved, but they can only
enter or reenter the market if the Government should choose to reopen the
particular program to competition. Many of the Company's competitors are
larger and have substantially greater financial and other resources than
the Company. See "Business--Competition".

38
Ownership of Holdings and the Company

The Lehman Partnership owns a majority of the outstanding voting
stock of Holdings, which owns all of the outstanding common stock of the
Company. By virtue of such ownership, the Lehman Partnership has the power
to direct the affairs of the Company and is able to determine the outcome
of substantially all matters required to be submitted to stockholders for
approval, including the election of a majority of the Company's directors
and, except to the extent otherwise required by law, amendment of the
Company's Certificate of Incorporation. See "The Transaction" and
"Ownership of Capital Stock".

Subordination

The Company's obligations under the Notes are subordinate and junior
in right of payment to all existing and future Senior Debt of the Company.
As of June 30, 1997, on a pro forma basis after giving effect to the
Transaction, the Company would have had approximately $400 million of
indebtedness outstanding, of which $175 million would have been Senior
Debt (excluding letters of credit). Additional Senior Debt may be incurred
by the Company from time to time, subject to certain restrictions. By
reason of such subordination, in the event of an insolvency, liquidation,
or other reorganization of the Company, the lenders under the Senior
Credit Facilities and other creditors who are holders of Senior Debt must
be paid in full before the holders of the Notes may be paid; accordingly,
there may be insufficient assets remaining after payment of prior claims
to pay amounts due on the Notes. In addition, under certain circumstances,
no payments may be made with respect to the Notes if a default exists with
respect to certain Senior Debt. See "Description of the Exchange Notes--
Subordination".

Restrictions Imposed by the Senior Credit Facilities and the Indenture

The Senior Credit Facilities and the Indenture contain a number of
significant covenants that, among other things, restrict the ability of
the Company to dispose of assets, incur additional indebtedness, repay
other indebtedness, pay dividends, make certain investments or
acquisitions, repurchase or redeem capital stock, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the Company's
ability to finance its future operations or capital needs or engage in
other business activities that may be in the interest of the Company. In
addition, the Senior Credit Facilities also require the Company to
maintain compliance with certain financial ratios, including total EBITDA
to total interest expense and total debt to total EBITDA, and limit
capital expenditures by the Company. The ability of the Company to comply
with such ratios and limits may be affected by events beyond the Company's
control. A breach of any of these covenants or the inability of the
Company to comply with the required financial ratios or limits could
result in a default under the Senior Credit Facilities. In the event of
any such default, the lenders under the Senior Credit Facilities could
elect to declare all borrowings outstanding under the Senior Credit
Facilities, together with accrued interest and other fees, to be due and
payable, to require the Company to apply all of its available cash to

39
repay such borrowings or to prevent the Company from making debt service
payments on the Notes, any of which would be an Event of Default under the
Notes. If the Company were unable to repay any such borrowings when due,
the lenders could proceed against their collateral. In connection with the
Senior Credit Facilities, the Company has granted the lenders thereunder a
first priority lien on substantially all of its assets. The lenders under
the Senior Credit Facilities will also have a first priority security
interest in all of the capital stock of the Company and its subsidiaries.
If the indebtedness under the Senior Credit Facilities or the Notes were
to be accelerated, there can be no assurance that the assets of the
Company would be sufficient to repay such indebtedness in full. See
"Description of the Exchange Notes" and "Description of Senior Credit
Facilities".

Fraudulent Conveyance

The Old Notes were incurred to finance the acquisition of the
Businesses from Lockheed Martin. Management believes that the indebtedness
of the Company represented by the Senior Credit Facilities and the Notes
were incurred for proper purposes and in good faith, and that, based on
present forecasts and other financial information, after the consummation
of the Transaction and the issuance of the Notes, the Company will be
solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. Notwithstanding management's
belief, however, under federal and state fraudulent transfer laws, if a
court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of
such indebtedness, the Company was insolvent, was rendered insolvent by
reason of such incurrence, was engaged in a business or transaction for
which its remaining assets constituted unreasonable small capital,
intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less
than reasonably equivalent value, then such court could, among other
things, (i) void all or a portion of the Company's obligations to the
Holders of the Exchange Notes, the effect of which would be that the
Holders of the Exchange Notes might not be repaid in full and/or (ii)
subordinate the Company's obligations to the Holders of the Exchange Notes
to other existing and future indebtedness of the Company to a greater
extent than would otherwise be the case, the effect of which would be to
entitle such other creditors to which the Exchange Notes were not
previously subordinated to be paid in full before any payment could be
made on the Exchange Notes. See "--Substantial Leverage" above.

Limitation on Change of Control

The Indenture provides that, upon the occurrence of a Change of
Control of the Company or Holdings, the Company will make an offer to
purchase all of the Exchange Notes at a price in cash equal to 101% of the
aggregate principal amount thereof together with accrued and unpaid
interest to the date of purchase. The Senior Credit Facilities currently
prohibit the Company from repurchasing any Exchange Notes except with the
proceeds of one or more Equity Offerings. The Senior Credit Facilities

also provide that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions.
In the event a Change of Control event occurs at a time when the Company
is prohibited from purchasing the Exchange Notes, or if the Company is
required to make a Net Proceeds Offer (as defined) pursuant to the terms
of the Exchange Notes, the Company could seek the consent of its lenders
to the purchase of the Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain
such a consent or repay such borrowings, the Company will remain
prohibited from purchasing the Exchange Notes. In such case, the Company's
failure to make such an offer or to purchase tendered Exchange Notes would
constitute an Event of Default under the Indenture. If, as a result
thereof, a default occurs with respect to any Senior Debt, the
subordination provisions in the Indenture would likely restrict payments
to the holders of the Exchange Notes. Finally, the Company's ability to
pay cash to the holders of Notes upon a purchase may be limited by the
Company's then-existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any
required purchases. Furthermore, the Change of Control provisions may in
certain circumstances make more difficult or discourage a takeover of the
Company. See "Description of the Exchange Notes--Repurchase at the Option
of Holders -- Change of Control".

Forward Looking Statements

This Prospectus contains forward looking statements concerning the
Company's operations, economic performance and financial condition,
including in particular, the likelihood of the Company's success in
operating as an independent company and developing and expanding its
business and the realization of sales from backlog. These statements are
based upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of which are
beyond the control of the Company, and reflect future business decisions
which are subject to change. Some of these assumptions inevitably will not
materialize, and unanticipated events will occur which will affect the
Company's future results. All such forward looking statements are
qualified by reference to matters discussed under this section entitled
"Risk Factors".

41
USE OF PROCEEDS

There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.

The net proceeds received by the Company from the Offering of the
Old Notes, approximately $217.3 million after deducting discounts and
estimated fees and expenses, together with the borrowings under the Senior
Credit Facilities, were used to pay, in part, the cash portion of the
purchase price of the Acquisition and pay related fees and expenses.

CAPITALIZATION

The following table sets forth the capitalization of L-3 at June
30, 1997.

June 30, 1997
-----------------
($ in millions)

Revolving Credit Facility . . . . . . --
Term Loan Facilities . . . . . . . . . . $174.0
10 3/8% Senior Subordinated Notes
due 2007 . . . . . . . . . . . . . . . 225.0
------
Total Debt . . . . . . . . . . . . . 399.0
Shareholders' Equity Capital
Common Stock . . . . . . . . . . . . . 125.0
Retained Earnings . . . . . . . . . . 3.1
Deemed Distribution. . . . . . . . (7.5)
------
Total Capitalization . . . . . . . $519.6
======
__________________________

Availability of up to $100 million, none of which was drawn at
Closing other than letters of credit, which were less than $10
million.
Reflects the "Push Down" of Holdings' basis of its investment in the
Company. The Acquisition was accounted for by Holdings as a purchase
transaction in accordance with Accounting Principles Board Opinion
No. 16. However, as a result of the 34.9% ownership retained by
Lockheed Martin, the provisions of the Financial Accounting
Standards Board's Emerging Issues Task Force Issue No. 88-16, "Basis
in Leveraged Buyout Transactions" ("EITF 88-16"), is applied in
connection with the allocation of purchase price to the acquired net
assets. The application of the provisions of EITF 88-16 results in
recording net assets acquired at approximately 34.9% of Lockheed
Martin's carrying values plus 65.1% of fair value and the recording
of a deemed distribution, estimated to be approximately $7.5
million.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS

The following unaudited pro forma financial information gives effect
to (i) the purchase of the Businesses by Holdings and the Company, (ii)
the transfer of certain other assets and liabilities to the Company by
Lockheed Martin, (iii) the Financing, (iv) the initial capitalization of
the Company and (v) the "push down" of Holdings' basis of its investment
in the Company. The unaudited pro forma condensed consolidated statement
of operations assumes the transactions occurred as of January 1, 1996.
The pro forma financial information is based on the historical
consolidated (combined) financial statements of the Company for the six
months ended June 30, 1997 (which include the historical combined financial
statements of the Lockheed Martin Predecessor Businesses for the three
months ended March 31, 1997), and the year ended December 31, 1996 (which
include the results of the Loral Acquired Businesses for the nine months
ended December 31, 1996), and the Loral Acquired Businesses for the
three months ended March 31, 1996 using the purchase method of accounting
and the assumptions and adjustments in the accompanying notes to the
unaudited pro forma condensed consolidated (combined) financial statements.

The pro forma adjustments are based upon preliminary estimates.
Actual adjustments will be based on final appraisals and other analyses
of fair values and adjustment of the final purchase price. Changes between
preliminary and financial allocations for the valuation of contracts in
process inventories, pension liabilities, fixed assets and deferred taxes
could be material. The pro forma statement of operations does not reflect
any costs savings that management believes would have resulted had the
transactions occurred on January 1, 1996. The pro forma financial
information should be read in conjunction with the unaudited interim
condensed consolidated (combined) financial statements of the Company as
of June 30, 1997 and for the six month period ended June 30, 1997
and the audited combined financial statements as of December 31,
1996, and for the year ended December 31, 1996 of the Businesses. The pro
forma data may not be indicative of the results that actually would have
occurred had the transactions been in effect on the dates indicated or
results that may be obtained in the future.

Unaudited Pro Forma Condensed Consolidated Statement of Operations Data

Six Months Ended June 30, 1997 Year Ended December 31, 1996
------------------------------------------------------ -----------------------------------------------------
The Company Lockheed Lockheed
Three Months Martin Martin Loral
Ended Predecessor Predecessor Acquired
June 30, Businesses Pro forma Pro forma Businesses Businesses Pro forma Pro forma
1997 Adjustments Consolidated Adjustments Consolidated
----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
($ in millions)

Statement of
Operations Data:
Sales . . . . . . . $168.0 $158.9 $ -- $326.9 $543.1 $132.2 $ -- $675.3
Cost of sales . . . 152.9 151.0 (1.0) 302.9 499.4 124.4 (4.5) 619.3
------ ------ ----- ------ ------ ------ ----- ------
Operating income 15.1 7.9 1.0 24.0 43.7 7.8 4.5 56.0
Interest expense . 10.0 8.4 1.3 19.7 24.2 4.4 (12.0) 40.6
------ ------ ----- ------ ------ ------ ----- ------
Earnings
(loss) before
income taxes . 5.1 (.5) (.3) 4.3 19.5 3.4 (7.5) 15.4
Income tax expense
(benefit) . . . . 2.0 (.2) (.1) 1.7 7.8 1.3 (3.0) 6.1
------ ------ ----- ------ ------ ------ ----- ------
Net earnings
(loss) . . . . $ 3.1 $ (.3) (.2) 2.6 $ 11.7 $ 2.1 $(4.5) $ 9.3
====== ====== ===== ====== ====== ====== ===== ======

See notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

The following facts and assumptions were used in determining the pro
forma effect of the Transaction.

Holdings and Lockheed Martin entered into a Transaction Agreement
dated as of March 28, 1997 ("Transaction Agreement") whereby
Holdings acquired effective April 1, 1997 substantially all of the
assets and certain liabilities of ten business units of Lockheed
Martin that comprise the Company's Secured Communication Systems and
Specialized Communication Products businesses. As a result of the
Acquisition, Lockheed Martin, the Lehman Partnership and Senior
Management own 34.9%, 50.1% and 15.0% of common equity,
respectively, of Holdings, the sole stockholder of the Company. The
purchase price of $525.0 million comprised $479.8 million of cash
and $45.2 million of Holdings' common equity retained by Lockheed
Martin. The cash portion of the purchase price is subject to certain
agreed upon adjustments and other adjustments based upon the closing
tangible net asset value as defined in the Transaction Agreement.
For purposes of the pro forma financial information, a reduction
in the purchase price of $20.0 million has been assumed pursuant to
the Transaction Agreement. Costs related to the Transaction are
estimated to approximate $20.0 million of which $14.0 million is
related to the Financing and is included in other assets. Holdings
and the Company had no operations until the consummation of the
acquisition; accordingly, the pro forma financial statements
reflect the combined statement of operations of the Lockheed Martin
Predecessor Businesses for the three month period ended March 31, 1997
and for the year ended December 31, 1996 and the combined statement of
operations of the Loral Acquired Businesses for the three months ended
March 31, 1996.

The Acquisition was financed with the proceeds of $175 million of
Term Loan Facilities, $225 million of Exchange Notes and capital
contributions of $125 million, including the $45.2 million retained
by Lockheed Martin. Prior to April 1, 1997, interest expense was
allocated to the Lockheed Martin Predecessor Businesses from Lockheed
Martin. The pro forma statement of operations reflects the elimination
of allocated interest expense of $8.4 million for the three months
ended March 31, 1997 and $28.6 million for the year ended December 31,
1996 and the following additional adjustments to interest expense.

Three Months
Ended Year Ended
March 31, December 31,
1977 1996
-------------- --------------
($ in millions)

Interest on Notes (10.375% on $225
million). . . . . . . . . . . . . . $ 5.8 $23.3
Interest on borrowings under the
Senior Credit Facilities (8.40% on
$175 million) . . . . . . . . . . . 3.7 14.7
Commitment fee of 0.50% on unused
Revolving Credit Facility . . . . . .1 .5
Amortization of deferred financing
costs . . . . . . . . . . . . . . . .6 2.1
---- ----
$10.2 $40.6
===== =====

The estimated excess of purchase price over net assets acquired of
$297.9 million is being amortized over 40 years resulting in a
pro forma charge of $7.7 million for 1996 and $1.9 million for the
three months ended March 31, 1997. Further, the pro forma balance
sheet includes the elimination of $280.1 million of intangibles,
primarily cost in excess of net assets acquired, included in the
Lockheed Martin Predecessor historical balance sheet, and the pro
forma statement of operations includes the elimination of $10.1
million and $2.7 million for 1996 and the three months ended March
31, 1997, respectively, of related amortization expense. The
preliminary purchase price allocation includes an estimated $4.4
million adjustment relating to a reduction of contracts in process
resulting from valuing acquired contracts in process at contract
price, less the estimated cost to complete and an allowance for
normal profit margin on the Company's effort to complete such
contracts. In addition, contracts in process include an estimated
increase of $3.0 million related to valuing certain commercial
finished goods inventory at their fair values. The non-recurring
changes to income in 1996 resulting from the above-mentioned
adjustments are not material to the pro forma statement of operations.

A combined statutory (federal and state) tax rate of 41% was
assumed on the pro forma adjustments.

In connection with the Acquisition, Lockheed Martin also
transferred the assets and liabilities of a microwave semiconductor
product line, a building to be used by one of the acquired
divisions, and certain leasehold improvements. No adjustment has
been made to the pro forma statement of operations for the effect
of these transfers because they are not material. In addition, L-3
has agreed to assume the assets and liabilities of certain defined
benefit pension plans and a liability for retiree medical and life
insurance for certain employees. The pro forma statement of
operations for the six months ended June 30, 1997 (for the three
months ended March 31, 1997) and the year ended December 31, 1996
includes a net reduction to costs and expenses of $.6 million and $2.5
million, respectively, to record estimated pension cost on a separate
company basis net of the reversal of the allocated pension cost
included in the historical financial statements. No such adjustment
has been made to the pro forma statement of operations for retiree
medical and life insurance benefits because the estimated expense of
those benefits on a separate company basis approximates the cost
included in the historical financial statements.

SELECTED FINANCIAL INFORMATION

The following unaudited selected consolidated (combined) financial
data as of June 30, 1997 and for the six month periods then ended June
30, 1997 and 1996 have been derived from, and should be read in conjunction
with, the unaudited interim condensed consolidated (combined) financial
statements of the Company and footnotes thereto as of June 30, 1997
included elsewhere herein.

The following selected combined financial data as of March 31, 1997
and for the three months ended March 31, 1997 and as of December
31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994
have been derived from, and should be read in conjunction with, the audited
Combined Financial Statements of the Businesses and footnotes thereto
included elsewhere herein. The combined selected financial data for the
three month periods ended March 31, 1996 have been derived from, and should
be read in conjunction with, the unaudited Combined Financial Statements
of the Businesses and footnotes thereto included elsewhere herein. In
the opinion of the management, the unaudited combined financial
statements include all adjustments (consisting of normal recurring
accruals) considered necessary for the fair presentation of the
information contained therein. Results for the interim periods are not
necessarily indicative of the results to be expected for the entire year.

The unaudited selected combined financial data for the three month
period ended March 31, 1996 and as of December 31, 1994 and 1993, March 31,
1993 and December 31, 1992 for balance sheet data and the nine months ended
December 31, 1993, the three months ended March 31, 1993 and the year ended
December 31, 1992 for statement of operations data have been derived from
the unaudited financial statements of Communication Systems -- Camden. In
the opinion of the Businesses' management, such unaudited financial
statements reflect all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position and results
of operations of Communication Systems -- Camden, also referred to as
Lockheed Martin Communication Systems Division in the Lockheed Martin
Predecessor Financial Statements, as of the dates and periods indicated.
These selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the condensed consolidated (combined) financial
statements of the Company and the Combined Financial Statements of the
Lockheed Martin Predecessor Businesses and the Loral Acquired Businesses
included elsewhere herein.

Six Months Ended June 30, 1997
--------------------------------
For the Three
Three Months Months
Ended Six Months Ended March 31,
-------------------------------- Ended --------------------
June 30, 1997 March 31, 1997 June 30, 1996 1997 1996
--------------- -------------- ------------- -------- ----------
($ in millions)

Statement of Operations Data: |
Sales . . . . . . . . . . . . . . . . . . $168.0 | $158.9 $206.4 $158.9 $ 41.2
Operating income . . . . . . . . . . . . 15.1 | 7.9 10.9 7.9 1.7
Interest expense . . . . . . . . . . . 10.0 | 8.4 9.4 8.4 2.0
Provision (benefit) for income taxes. 2.0 | (.2) 1.3 (.2) .2
Net earnings (loss) . . . . . . . . . . . 3.1 | (.3) .2 (.3) (.5)
|
Other Data: |
EBITDA . . . . . . . . . . . . . . . $ 22.3 | $ 15.1 $ 21.2 $ 15.1 $ 4.8
Depreciation expense . . . . . . . . . . 4.5 | 4.5 5.8 4.5 1.2
Amortization expense . . . . . . . . . . 2.7 | 2.7 4.5 2.7 1.9
Capital expenditures . . . . . . . . . . 3.1 | 4.3 4.7 4.3 .4
Ratio of earnings to fixed charges . . . 1.47x | 1.02x
Cash from (used in) operating activities. 32.9 | (16.3) (29.4) (16.3) 10.2
Cash from (used in) investing activities. (473.6) | (4.3) (292.0) (4.3) (.4)
Cash from (used in) financing activities. 463.3 | 20.6 321.4 20.6 (9.8)
|
Balance Sheet Data: |
Working capital . . . . . . . . . . . . . $117.6 | $121.4 N/A $121.4 N/A
Total assets . . . . . . . . . . . . . . 680.9 | 608.5 N/A 608.5 N/A
Invested equity . . . . . . . . . . . . . -- | 493.9 N/A 493.9 N/A
Shareholders' equity. . . . . . . . . . . 120.6 | -- N/A -- N/A

Years Ended December 31,
----------------------------------------------------------------------------------
1993
------------------------------
Nine Months Three Months
Ended Ended
1996 1995 1994 Dec. 31 March 31 1992
---------- ---------- ---------- ------------- --------------- ----------
($ in millions)

Statement of Operations Data: |
Sales . . . . . . . . . . . . . . . . . . . . $543.1 $166.8 $218.9 $200.0 | $67.8 $368.5
Operating income . . . . . . . . . . . . . . 43.7 4.7 8.4 12.4 | 5.1 49.3
Interest expense . . . . . . . . . . . . 24.2 4.5 5.5 4.1 | -- --
Provision (benefit) for income taxes. . . 7.8 1.2 2.3 3.8 | 2.0 19.8
Net earnings (loss) . . . . . . . . . . . . . 11.7 (1.0) 0.6 4.5 | 3.1 29.5
|
Other Data: |
EBITDA . . . . . . . . . . . . . . . . . $ 68.7 $ 16.2 $ 19.9 $ 23.4 | $ 7.0 $ 58.5
Depreciation expense . . . . . . . . . . . . 14.9 5.5 5.4 6.1 | 1.8 8.9
Amortization expense . . . . . . . . . . . . 10.1 6.1 6.1 4.9 | 0.1 0.3
Capital expenditures . . . . . . . . . . . . 13.5 5.5 3.7 2.6 | 0.8 3.9
Ratio of earnings to fixed charges . . . . . 1.72x 1.03x 1.40x N/A | N/A N/A
Cash from (used in) operating activities . . 31.0 9.4 21.8 N/A | N/A N/A
Cash from (used in) investing activities . . (298.3) (5.5) (3.7) N/A | N/A N/A
Cash from (used in) financing activities . . 267.3 (3.9) (18.1) N/A | N/A N/A
|
Balance Sheet Data: |
Working capital . . . . . . . . . . . . . . . $ 98.8 $ 21.1 $ 19.3 $ 24.7 | $22.8 $ 35.8
Total assets . . . . . . . . . . . . . . . . 593.3 228.5 233.3 241.7 | 93.5 105.1
Invested equity . . . . . . . . . . . . . . . 473.6 194.7 199.5 202.0 | 59.9 72.8
Shareholders' equity. . . . . . . . . . . . . -- -- -- -- | --
|

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

General

The Company is a supplier of sophisticated secure communication
systems and specialized communication products including secure, high
data rate communication systems commercial fixed wireless communication
products, microwave components, avionic displays and recorders and
instruments products. The Company's customers include the Department of
Defense, selected U.S. government intelligence agencies, major aerospace/
defense prime contractors and commercial customers. The Company operates
primarily in one industry segment, electronic components and systems.

Substantially all the Company's products are sold to agencies of
the U.S. Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof.
All domestic government contracts and subcontracts of the Businesses are
subject to audit and various cost controls, and include standard provisions
for termination for the convenience of the U.S. Government. Multi-year
U.S. Government contracts and related orders are subject to cancellation
if funds for contract performance for any subsequent year become
unavailable. Foreign government contracts generally include comparable
provisions relating to termination for the convenience of the government.

The decline in the U.S. defense budget since the mid 1980s has
resulted in program delays, cancellations and scope reduction for defense
contracts in general. These events may or may not have an effect on the
Company's programs; however, in the event that U.S. Government
expenditures for products of the type manufactured by the Company are
reduced, and not offset by greater commercial sales or other new programs
or products, or acquisitions, there may be a reduction in the volume of
contracts or subcontracts awarded to the Company.

In response to the decline in the defense budget, the DoD has focused
its resources on enhancing its military readiness, joint operations and
multiple mission capabilities and on incorporating advanced electronics to
improve performance, reduce operating costs and extend life expectancy of
its existing and future platforms. The emphasis on system interoperability,
force multipliers and providing battlefield commanders with real-time data
is increasing the electronics content of nearly all of the major military
procurement and research programs. As a result, the DoD's budget for
communications and defense electronics is expected to grow. According to
Federal Sources, an independent private consulting group, the U.S. defense
budget for command, control, communications and intelligence ("C3I") is
projected to increase at a compound annual growth rate of 5.8% through
2002. Management believes that L-3 will benefit from this growth due to
its substantial position in the markets for secure communication systems,
antenna systems, display systems, microwave components and other related
areas.

Six Months Ended June 30, 1997
-----------------------------------------------
Three Months Three Months Six Months
Ended Ended Ended
June 30, March 31, Combined June 30,
1997 1997 Six Months 1996
------------- ------------- ------------- ------------

Statement of Operations Data:
Sales . . . . . . . . . . . . . . . . . . . $168.0 | $158.9 $326.9 $206.4
Cost of sales . . . . . . . . . . . . . . . 152.9 | 151.0 303.9 195.5
----- | ----- ----- -----
Operating income . . . . . . . . . . . . 15.1 | 7.9 23.0 10.9
Allocated interest expense . . . . . . . . 10.0 | 8.4 18.4 9.4
----- | ----- ----- -----
Income (loss) before income taxes . . . . 5.1 | <.5> 4.6 1.5
Income taxes (benefit) . . . . . . . . . . 2.0 | <.2> 1.8 1.3
----- | ----- ----- -----
Net earnings (loss) . . . . . . . . . . . $ 3.1 | $ <.3> $ 2.8 $ .2
===== | ===== ===== =====

Three Months Ended
March 31, Years Ended December 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
($ in millions)

Statement of Operations Data:
Sales . . . . . . . . . . . . . . . . . . . $158.9 $ 41.2 $543.1 $166.8 $218.9
Cost of sales . . . . . . . . . . . . . . . 151.0 39.5 499.4 162.1 210.5
----- ----- ----- ----- -----
Operating income . . . . . . . . . . . . 7.9 1.7 43.7 4.7 8.4
Allocated interest expense . . . . . . . . 8.4 2.0 24.2 4.5 5.5
----- ----- ----- ----- -----
Income (loss) before income taxes . . . . (.5) (.3) 19.5 0.2 2.9
Income taxes (benefit) . . . . . . . . . . (.2) .2 7.8 1.2 2.3
----- ----- ----- ----- -----
Net earnings (loss) . . . . . . . . . . . $ (.3) $ (.5) $ 11.7 $ (1.0) $ 0.6
===== ===== ===== ===== =====

Results of Operations

The Company's financial statements reflect operations since the
effective date of the acquisition (April 1, 1997); accordingly
comparisons for the six months ended June 30, 1997 to the prior period
of the Predecessor Company are not meaningful. To facilitate meaningful
comparisons of the operating results of the periods set forth below, the
results of operations for the six months June 30, 1997 were obtained by
combining, without adjustment, the results of operations of the Predecessor
Company for the period January 1, 1997 through March 31, 1997 and the
Company for the period April 1, 1997 through June 30, 1997. The results of
operations for the six months ended June 30, 1996 represent the results of
operations of the Predecessor Company. Interest expense and income taxes
expense for the periods are not comparable and the impact of interest
expense and income taxes expense on the Company is discussed below. See
the columns denoted "Predecessor Company" and "The Company," representing
the predecessor periods and successor periods, respectively, in the
statements of operations and cash flows for the periods included in this
report.

The results of operations of the Predecessor Company for the three
months ended March 31, 1997 and the six months ended June 30, 1996, include
certain costs and expenses allocated by Lockheed Martin for corporate
office expenses based primarily on the allocation methodology prescribed
by government regulations pertaining to government contractors. Interest
expense was allocated based on Lockheed Martin's actual weighted average
consolidated interest rate applied to the portion of the beginning of the
year invested equity deemed to be financed by consolidated debt based on
Lockheed Martin's debt to equity ratio on such date. The provision/benefit
for income taxes was allocated to the Predecessor Company as if they were
separate taxpayers, calculated by applying statutory rates to reported
pre-tax income after considering items that do not enter into the
determination of taxable income and tax credits related to the Predecessor
Company. Also pension and post employment benefit costs were allocated
based on employee headcount. Accordingly, the results of operations and
financial position hereinafter of the Predecessor Company discussed may
not be the same as would have occurred had the Predecessor Company
been an independent entity.

As an independent entity, actual corporate office expense are expected to
be about 10% to 20% or approximately $1 million to $2 million less than
corporate office expense allocated to the Businesses by Lockheed Martin
and Loral. Actuarial studies are being prepared regarding stand alone
employee benefit costs; however, the Company believes that such costs
will not vary materially from historical predecessor amounts. The
ultimate impact of the aforementioned items on the Company's future
results of operations will be mitigated due to the cost-plus nature
of certain of the Company's government contracts which comprised
approximately 42% of the 1996 pro forma sales. For the anticipated
impact of interest and income taxes on a stand-alone basis, refer to
pro forma financial information included elsewhere herein.

Three Months Ended June 30, 1997 and June 30, 1996

The following table sets forth selected income statement data for
the Company and the Predecessor Company for the periods indicated:

Predecessor
The Company Company
------------- -------------
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
($ in millions)

Sales . . . . . . . . . . . . . . . . . . $168.0 $165.3
Cost and expenses . . . . . . . . . . . . 152.9 156.0
------- ------

Operating income . . . . . . . . . . . . 15.1 9.3
Interest expense . . . . . . . . . . . . 10.0 7.4
------- ------

Income before income taxes . . . . . . . 5.1 1.9
Income taxes . . . . . . . . . . . . . . 2.0 1.2
------- -------

Net income . . . . . . . . . . . . . . . $ 3.1 $ .7
======= ========

Sales for the quarter ended June 30, 1997 increased to $168.0 million
from $165.3 million for the quarter ended June 30, 1996 (the "prior year
period"). Operating income increased to $15.1 million compared with $9.3
million in the prior year period. Net income increased to $3.1 million
compared to $0.7 million in the prior year period.

The sales increase was attributable to increased volume on sales of
the E2-C Trac-A antenna program, microwave components and Common
High-bandwidth Data Link (CHBDL) systems; partially offset by lower volume
on expendable countermeasures and U-2 Support program.

Operating income as a percentage of sales increased to 9.0% in the
quarter ended June 30, 1997 compared to 5.6% in the prior year period. The
increase is largely attributable to the improved operating margins in the
Telemetry product lines, increased sales volume on higher-margin microwave
components and the favorable impact of the Avionics product lines
discontinued in the prior year.

Interest expense is not comparable to prior year period as a result
of the financing related to the Acquisition. Interest expense for the
Company for the quarter ended June 30, 1997 was $10.0 million. Interest
expense for the three months ended June 30, 1996, represents an
allocation of Lockheed Martin's interest expense to the Predecessor
Company.

The effective income tax rate for the Company for the quarter ended
June 30, 1997 was 40% reflecting the estimated effective income tax rate
for the full year ended December 31, 1997. In the prior year period, the
effective income tax rate of the Predecessor Company was significantly
impacted by amortization of costs in excess of net assets acquired, which
were not deductible for income tax purposes.

Six Months Ended June 30, 1997 and June 30, 1996

The following table sets forth selected income statement data for
the Company and the Predecessor Company for the periods indicated.

Predecessor Predecessor
The Company Company Company
------------- ------------- -------------
Combined
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1997 March 31, 1997 June 30, 1997 June 30, 1996
------------- -------------- ------------- -------------
($ in millions)

Sales . . . . . . . . . . . . . . . . . $168.0 $158.9 $326.9 $206.4
Cost and expenses . . . . . . . . . . . 152.9 151.0 303.9 195.5
------- ------- ------- -------

Operating income . . . . . . . . . . . 15.1 7.9 23.0 10.9
Interest expense . . . . . . . . . . . 10.0 8.4 18.4 9.4
------- -------- ------- --------

Income (loss) before income taxes . . . 5.1 <.5> 4.6 1.5
Income taxes . . . . . . . . . . . . . 2.0 <.2> 1.8 1.3
-------- -------- ------- --------

Net income (loss) . . . . . . . . . . . $ 3.1 $ <.3> $2.8 $ .2
======== ======== ======== ========

Sales for the six months ended June 30, 1997 increased to $326.9
million from $206.4 million for the six months ended June 30, 1996 (the
"prior year period"). Operating income increased to $23.1 million from
$10.9 million in the prior year period. Net income increased to $2.8
million from $0.2 million in the prior year period.

The sales increase was attributable primarily to the sales of the
Loral Acquired Businesses which contributed $248.0 million for the six
months ended June 30, 1997 compared to $126.2 in the prior year period.
The acquisition of the Loral Acquired Businesses was effective April 1,
1996. Sales of Communication Systems - Camden decreased by $1.3 million
to $78.9 million compared to prior year period.

Operating income as a percentage of sales increased to 7.1% in the
six months ended June 30, 1997 compared to 5.3% in the prior year period.
The increase in operating income also was largely attributable to the
Loral Acquired Businesses, which contributed operating income of $23.8
million for the six months ended June 30, 1997 compared to $7.8 million
in the prior year period. Communication Systems - Camden's operating
income for the period compared to prior year decreased by $4.0 million
to a $0.8 million operating loss, primarily due to increased costs on
the Space Station, Baseband and ADODSM programs.

Interest expense is not comparable to prior year period as a result
of the financing related to the Acquisition. Interest expense for the
Company for the three months ended June 30, 1997 was $10.0 million.
Interest expense for the six months ended June 30, 1996, represents an
allocation of Lockheed Martin's interest expense to the Predecessor
Company.

The effective income tax rate of the Company for the quarter ended
June 30, 1997 was 40%, reflecting the estimated effective income tax rate
for the full year ended December 31, 1997. In the prior year period, the
effective income tax rate of the Predecessor Company was significantly
impacted by amortization of costs in excess of net assets acquired, which
were not deductible for income tax purposes.

Three Months Ended March 31, 1997 Compared With Three Months Ended
March 31, 1996

The following table sets forth selected income statement data
for the Predecessor Company for the periods indicated.

Predecessor Company
---------------------
Three Months Ended
---------------------
March 31, March 31,
1997 1996
--------- ---------
($ in millions)

Sales . . . . . . . . . . . . . . . . . $158.9 $ 41.2
Cost of expenses. . . . . . . . . . . . 151.0 39.5
----- ------
Operating income . . . . . . . . . . . 7.9 1.7
Allocated interest expense . . . . . . 8.4 2.0
----- -----
Income before income taxes . . . . . . (.5) (.3)
Allocated income taxes. . . . . . . . . (.2) .2
----- -----
Net income . . . . . . . . . . . . . . $ (.3) $ (.5)
====== ======

Sales for the three months ended March 31, 1997 (the "1997 period")
increased to $158.9 million from $41.2 million for the three months ended
March 31, 1996 (the "1996 period"). Operating income in the 1997 period
increased to $7.9 million compared with $1.7 million in the 1996 period.
Net loss decreased to $.3 million from $.5 million. The Loral Acquired
Business contributed $3.3 million in net earnings for the 1997 period,
offset by net loss of $3.6 million in Communications Systems -- Camden.

The sales increases was attributable to the Loral Acquired
Businesses which contributed $119.8 million of the increase. Sales of
Communications Systems -- Camden decreased by $2.1 million compared to the
1996 period primarily due to lower volume on the SIGINT production and
Secure Terminal Equipment (STE) development programs.

The increase in operating income also was largely attributable to
the Loral Acquired Business, which contributed $10.7 million of the
increase. Communication Systems - Camden's 1996 operating income for the
1997 period decreased by $4.4 million to a $2.8 million operating loss
for the 1997 period, primarily due to increased costs on the Space Station,
Baseband and AMODSM programs.

Operating income as a percentage of sales increased to 5.0% in the
1997 period compared to 4.1% in the 1996 period. The increase is
attributable to higher margins and operating improvements in the Loral
Acquired Businesses with operating income as a percentage of sales of
8.9%, offset by negative margins in Communications Systems -- Camden.

Allocated interest expense increased to $8.4 million from $2.0
million due primarily to the acquisition of the Loral Acquired Businesses,
which was assumed to be fully financed by debt, coupled with a higher
debt-to-equity ratio used in the allocation for Communications Systems --
Camden.

Year Ended December 31, 1996 Compared with Year Ended December 31,
1995

The following table sets forth selected income statement data for
the Predecessor Company for the periods indicated.

Predecessor Company
---------------------------
Year Ended
---------------------------
December 31, December 31,
1996 1995
------------ ------------
($ in millions)

Sales . . . . . . . . . . . . . . . . . $543.1 $166.8
Cost and expenses . . . . . . . . . . . 499.4 162.1
----- ------
Operating income . . . . . . . . . . . 43.7 4.7
Allocated interest expense . . . . . . 24.2 4.5
----- -----
Income before taxes . . . . . . . . . . 19.5 .2
Allocated income taxes . . . . . . . . 7.8 1.2
----- -----
Net income . . . . . . . . . . . . . . $ 11.7 $ (1.0)
====== ======

During 1996, sales increased to $543.1 million from $166.8 million
in the prior year. Operating income increased to $43.7 million compared
with $4.7 million in the prior year. Net earnings increased to $11.7
million compared to a loss of $1.0 million in the prior year. The Loral
Acquired Businesses contributed $13.6 million to 1996 net earnings.

The sales increase was attributed to the sales of the Loral
Acquired Businesses which contributed $381.1 million of the increase.
Sales of Communication Systems -- Camden decreased by $4.8 million
compared to 1995 primarily due to lower volume on Aegis power supplies and
SIGINT system production, partially offset by Local Management Device/Key
Processor ("LMD/KP") production startup.

The increase in operating income also was largely attributable to
the Loral Acquired Businesses, which contributed $36.9 million of the
increase. Communication Systems -- Camden operating income increased $2.2
million primarily due to improved operating performance on the Shipboard
Telephone Communications ("STC-2") program partially offset by increased
costs on the Space Station contract. As a percentage of sales, operating
income increased to 8.0% from 2.8%. This increase is attributable to the
improvement in Communication Systems -- Camden noted above, higher margins
and operating improvements in the Loral Acquired Businesses.

Allocated interest expense increased to $24.2 million from $4.5
million in the prior year due primarily to the acquisition of the Loral
Acquired Businesses, which was assumed to be fully financed by debt,
coupled with a higher debt-to-equity ratio used in the allocation for
Communication Systems -- Camden.

The effective income tax rate declined to 40% as compared to 681%
in the prior year. The 1995 effective rate was significantly impacted by
amortization of costs in excess of net assets acquired, which is not
deductible for income tax purposes. As a percentage of income subject to
tax, such amortization declined significantly in 1996.

Year Ended December 31, 1995 Compared with Year Ended December 31,
1994

The following table sets forth selected income statement data for
the Predecessor Company for the periods indicated.

Predecessor Company
---------------------------
Year Ended
---------------------------
December 31, December 31,
1995 1994
------------ ------------
($ in millions)

Sales . . . . . . . . . . . . . . . . . $166.8 $218.9
Cost and expenses . . . . . . . . . . . 162.1 210.5
----- ------
Operating income . . . . . . . . . . . 4.7 8.4
Allocated interest expense . . . . . . 4.5 5.5
----- -----
Income before taxes . . . . . . . . . . .2 2.9
Allocated income taxes . . . . . . . . 1.2 2.3
----- -----
Net income . . . . . . . . . . . . . . $(1.0) $ .6
====== ======

Results for 1995 and 1994 reflect only the results of Communication
Systems -- Camden. During 1995, sales decreased to $166.8 million from
$218.9 million in the prior year. Operating income decreased to $4.7
million from $8.4 million and the net loss for 1995 was $1.0 million
compared to net earnings of $0.6 million in 1994.

The decrease in sales was primarily due to the completion of the
IREMBASS and termination of the SCAMP program and lower volume on the
STC-2 program.

The decline in operating income was partially due to the sales
decrease described above. In addition, as a percentage of sales, operating
income decreased to 2.8% in 1995 from 3.8% in 1994. The decrease in 1995
margins is primarily due to a cost overrun on the STE program.

Allocated interest expense decreased to $4.5 million in 1995 from
$5.5 million in 1994 due to the lower invested equity balance at January
1, 1995 compared to January 1, 1994, offset by a slightly higher weighted
average consolidated interest rate.

61
The effective income tax rates in 1995 and 1994 were significantly
impacted by amortization of costs in excess of net assets acquired, which
is not deductible for income tax purposes. The effective income tax rate
in 1995 increased to 681% compared to 78% in 1994. The increase is
primarily the result of the above described amortization increasing as a
percent of pre-tax income in 1995 compared to the respective percent
relationship in 1994.

Liquidity and Capital Resources

On April 30, 1997, effective April 1, 1997, the Company was purchased
from Lockheed Martin Corporation for approximately $525 million, before an
estimated purchase price adjustment of $20 million. The acquisition was
funded by a combination of debt and equity. The equity was provided by
Holdings who contributed $125 million, including $45 million retained by
Lockheed Martin, in exchange for all of the capital stock of the Company.
The funded debt consisted of $175 million of Term Loans under the Senior
Secured Credit Facility and $225 million of 10 3/8% Senior Subordinated
Notes. The required principal payments under the Term Loans are: $2 million
in the remainder of 1997, $5 million in 1998, $11 million in 1999, $19
million in 2000, $25 million in 2001, $33.2 million in 2002, $20 million in
2003, and $25.2 million in 2004, $24.9 million 2005, and $8.7 million in
2006. With respect to the Term Loans, interest payments vary in accordance
with the type of borrowings and are made at a minimum every three months.
Other than upon a change in control, the Company will not be required to
make principal payments in respect of the 10 3/8% Senior Subordinated Notes
until maturity on May 1, 2007. The Company is required to make semi-annual
interest payments with respect to the 10 3/8% Senior Subordinated Notes.
The Company typically makes capital expenditures related primarily to
improvement of manufacturing facilities and equipment.

The Senior Credit Facility Agreement contains financial covenants,
which remain in effect so long as any amount is owed by the Company under
the Senior Credit Facility. These financial covenants require that (i) the
Company's debt ratio be less than or equal to 5.75 for the quarter ending
September 30, 1997, and that the maximum allowable debt ratio thereafter
be further reduced to less than or equal to 3.1 for quarters ending after
June 30, 2002; and (ii) the Company's interest coverage ratio be at least
1.5 for the quarter ending September 30, 1997, and thereafter increase the
interest coverage ratio to at least 3.10 for any fiscal quarters ending
after June 30, 2002.

The Company has a substantial amount of indebtedness. Based upon the
current level of operation and anticipated improvements, management
believes that the Company's cash flow from operations, together with
available borrowings under the Revolving Credit Facility, will be adequate
to meet its anticipated requirements for working capital, capital
expenditures, research and development expenditures, program and other
discretionary investments, interest payments and scheduled principal
payments for the forseeable future including at least the next 3 years.
There can be no assurance, however, that the Company's that the Company's
business will continue to generate cash flow at or above current levels
or that currently anticipated improvements will be achieved. If the
Company is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required to sell assets, reduce

capital expenditures, refinance all or a portion of its existing debt or
existing debt or obtain additional financing. The Company's ability to make
scheduled principal payments of, to pay interest on or to refinance its
indebtedness depends on its future performance and financial results,
which, to a certain extent, are subject to general economic financial,
competitive, legislative, regulatory and other factors beyond its control.
There can be no assurance that sufficient funds will be available to
enable the Company to service its indebtedness, including the Notes, or
make necessary capital expenditures and program and other disciplinary
investments. The Senior Credit Facilities and the 10 3/8% Senior
Subordinated Notes credit agreements contain financial and restrictive
covenants that limit, among other things, the ability of the Company to
borrow additional funds, dispose of assets, or pay cash dividends.

The following table sets forth selected cash flow statement data for
the Company and the Predecessor Company the periods indicated:

Net cash from operating activities . . $ 32.9 $<16.3> $ 16.6 $ <29.4>
Net cash from investing activities . . <473.6> <4.3> <477.9> <292.0>
Net cash from financing activities . . 463.3 20.6 483.9 321.4
--------- -------- --------- --------

Net change in cash . . . . . . . . . . $ 22.6 -- $ 22.6 $ --
========= ======== ========= ========

Cash provided by operating activities of the Company for the quarter
ended June 30, 1997 was $32.9 million. Cash provided by operations
benefited from improved operating results and effective management of
contracts in process resulting in reduced levels of receivables.

Cash used for operating activities of the Predecessor Company was
$16.3 million for the quarter ended March 31, 1997, resulting primarily
from the increase in contracts in process and decrease in current
liabilities; offset by cash flows provided by the Loral Acquired
Businesses. Without the Loral Acquired Businesses, cash used for
operating activities for Communication Systems - Camden amounted to
$6.1 million.

The Company's current ratio at March 31, 1997 improved slightly to
2.2:1 from 2.0:1 at December 31, 1996. Compared to December 31, 1996, the
Company's current ratio at June 30, 1997 remained unchanged at 2.0:1.

Cash used in investing activities for the quarter ended June 30,
1997 consisted primarily of $470.7 million paid by the Company for the
acquisition of Businesses from Lockheed Martin Corporation (See Note 1 to
condensed consolidated (combined) financial statements.). During the
quarter ended June 30, 1996, $287.8 million was paid by the Predecessor
Company for the acquisition of the Loral Acquired Businesses. In addition,
for the quarter ended June 30, 1997, $3.1 million was used for capital
expenditures as compared to $4.3 million for the same period in 1996. On a
pro forma basis, capital expenditures for 1996 was $17.2 million. The
Company expects its capital expenditures to remain at comparable levels
as in the past.

Prior to the Transaction, the Businesses participated in the Lockheed
Martin cash management system, under which all cash is received and all
payments are made by Lockheed Martin. All transactions between the
Businesses and Lockheed Martin have been accounted as settled in cash at
the time such transactions were recorded by the Businesses. In 1996,
cash flows reflect the purchase of the Loral Acquired Businesses.

The following table sets forth selected cash flow statement data
for the Predecessor Company for the periods indicated:

Predecessor Company
-------------------------------------------------------------------------------
Three Months Three Months Years Ended December 31,
Ended Ended ---------------------------------------
March 31, 1997 March 31, 1996 1996 1995 1994
---------------- ---------------- ---------- ---------- ------------
($ in millions)

Net cash (used in) from operating
activities. . . . . . . . . . . $<16.3> $10.2 $ 31.0 $ 9.4 $ 21.8
Net cash (used in) investing
activities. . . . . . . . . . . <4.3> <.4> <298.3> <5.5> <3.7>
Net cash (used in) from financing
activities . . . . . . . . . . . 20.6 <9.8> 267.3 <3.9> <18.1>
========= ======== ========= ======== =========

Net change in cash -- -- -- -- --
========= ======== ========= ======== =========

Three Months Ended March 31, 1997 Compared with Three Months
Ended March 31, 1996.

Net Cash Provided by Operating Activities: Cash used in operating
activities for the three months ended March 31, 1997 (the "1997 period")
was $16.3 million compared to cash provided by operating activities of
$10.2 million for the three months ended March 31, 1996 (the "1996
period"). The decrease for the 1997 period is due primarily to the
reduction in contracts in process and increase in current liabilities,
offset by increased profit and non-cash items provided by the Loral
Acquired Businesses. Without the Loral Acquired Businesses, cash used
in operating activities for Communication Systems -- Camden amounted
to $6.1 million.

Contracts in process, before reduction for unliquidated progress
payments, increased $8.9 million to $242.8 million at March 31, 1997
compared to December 31, 1996. See Notes 2 and 4 to the Combined
Financial Statements. As is customary in the defense industry, unbilled
contract receivables and inventoried costs are partially financed by
progress payments. The unliquidated balance of such progress amounted
to $27.2 million at March 31, 1997, compared with $35.8 million at
December 31, 1996. Net contracts in process amounted to $215.6 million
at March 31, 1997 from $198.1 million at December 31, 1996.

The Company's current ratio improved slightly to 2.2:1 at March 31,
1997 from 2.0:1 at December 31, 1996.

Net Cash Used in Investing Activities: Cash used in investing
activities, primarily for capital expenditures, increased to $4.3 million
for the 1997 period compared to $.4 million in the 1996 period.

Year Ended December 31, 1996 Compared to Year Ended December 31,
1995 and to Year Ended December 31, 1994

Net Cash Provided by Operating Activities: Cash provided by
operating activities was $31.0 million in 1996, $9.4 million in
1995 and $21.8 million in 1994. The increase of $21.6 million or 230% in
1996 is due primarily to the impact of the Loral Acquired Businesses.
Earnings after adjustment for non-cash items provided $37.0 million, offset

by changes in other operating assets and liabilities. The decrease in 1995
of $12.4 million is attributable to an increase in contracts in process
compared to 1994, a net loss in 1995 and gain on sales of assets in 1994.
Without the Loral Acquired Businesses, cash provided by operating
activities for Communication Systems -- Camden increased to $13.7 million
in 1996, or 46% over the prior year.

Contracts in process, before reduction for unliquidated progress
payments, increased by $189.2 million to $233.9 million at December 31,
1996, primarily due to the addition of the Loral Acquired Businesses. See
Notes 2 and 4 to the Combined Financial Statements. As is customary in the
defense industry, unbilled contract receivables and inventoried costs are
partially financed by progress payments. The unliquidated balance of such
progress payments increased by $33.5 million to $35.8 million at December
31, 1996, compared with $2.3 million at December 31, 1995. As a result, net
contracts in process increased to $198.1 million in 1996 from $42.5 million
in the prior year.

The Businesses, current ratio improved slightly to 2.0:1 at December
31, 1996, from 1.9:1 at December 31, 1995, as a result of the acquisition
of the Loral Acquired Businesses.

Net Cash Used in Investing Activities: Cash used in investing
activities increased to $298.2 million in 1996 from $5.5 million in 1995
and $3.7 million in 1994. The purchase price allocated by Lockheed Martin
to the Loral Acquired Businesses was $287.8 million. Capital expenditures
during the year amounted to $13.5 million.

Backlog

The Company's funded backlog at December 31, 1996, was $542.5
million, compared with $96.3 million at December 31, 1995 and $120.4
million at December 31, 1994. New orders in 1996 totaled $619.5 million,
compared with $142.6 million in 1995 and $194.6 million in 1994. It is
expected that approximately 77% of the December 31, 1996 backlog will be
shipped in 1997. However, there can be no assurance that the Company's
backlog will become revenues in any particular period, if at all. See
"Risk Factors--Backlog". Approximately 81% of the total backlog was
directly or indirectly for defense contracts for end use by the
Government.

66
Research and Development

Company-sponsored research and development, including bid and
proposal costs, increased to $36.5 million in 1996 from $9.8 million in
1995. In addition, customer-funded research and development was $153.5
million in 1996, compared with $74.9 million for 1995. The increase in
research and development in 1996 was due primarily to the Loral Acquired
Businesses.

Contingencies

Management does not believe there are any contingencies that, after
taking into account its existing reserves, would have a material adverse
effect on the Company's operations or financial condition. See Note 8 to
the Combined Financial Statements and "Risk Factors--Pension Plan
Liabilities".

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 establishes accounting standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. In February 1997, the
FASB issued SFAS No. 129, "Disclosures of Information about Capital
Structure." SFAS No. 129 requires disclosure of for all type of securities
issued and applies to all entities that have issued securities. In June
1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of an Enterprise and related
Information." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set general-purpose financial statements. SFAS No. 131
establishes accounting standards for the way that public business
enterprises report information about operating segments and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 128 and SFAS
No. 129 are required to be adjusted for periods ending after December 15,
1997, and SFAS No. 130 and SFAS No. 131 are required to be adopted by 1998.
The Company is currently evaluating the impact, if any of these new FASB
statements.

Effective January 1, 1996, the Businesses adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 establishes the accounting standards for the impairment of
long-lived assets, certain intangible assets and cost in excess of net
assets acquired to be held and used for long-lived assets and certain
intangible assets to be disposed of. The impact of adopting SFAS 121 was
not material.

67
Effective January 1, 1994, the Businesses adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postretirement Benefits" ("SFAS 112"). SFAS 112 requires that the costs of
benefits provided to employees after employment but before retirement be
recognized on an accrual basis. The adoption of SFAS 112 did not have a
material impact on the combined results of operations of the Businesses.
Inflation

The effect of inflation on the Company's sales and earnings is
minimal. Although a majority of the Company's sales are made under
long-term contracts, the selling prices of such contracts, established for
deliveries in the future, generally reflect estimated costs to be incurred
in these future periods. In addition, some contracts provide for price
adjustments through escalation clauses.

68
BUSINESS

Company Overview

L-3 is a leading provider of sophisticated secure communication
systems and specialized communication products including secure, high data
rate communication systems, microwave components, avionics, and telemetry
and instrumentation products. These systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems. The Company's systems and
specialized products are used to connect a variety of airborne, space,
ground and sea-based communication systems and are incorporated into the
transmission, processing, recording, monitoring and dissemination
functions of these communication systems. The Company's customers include
the DoD, selected Government intelligence agencies, major
aerospace/defense prime contractors, foreign governments and commercial
customers. In 1996, L-3 had pro forma sales of $675.3 million and pro
forma operating income of $56.0 million. The Company's funded backlog as
of December 31, 1996 was approximately $542.5 million.

Secure Communication Systems. L-3 is the established leader in
secure, high data rate communications in support of military and other
national agency reconnaissance and surveillance applications. The
Company's Secure Communication Systems operations are located in Salt Lake
City, Utah and Camden, New Jersey. Both operations are predominantly cost
plus, sole source prime system contractors supporting long-term programs
for the U.S. Armed Forces and classified customers. The Company's major
secure communication programs and systems include: strategic and tactical
signal intelligence systems that detect, collect, identify, analyze and
disseminate information and related support contracts for military and
national agency intelligence efforts; secure data links for airborne,
satellite, ground and sea-based information collection and transmission;
as well as secure telephone and network equipment. The Company believes
that it has developed virtually every high bandwidth data link used by the
military for surveillance and reconnaissance in operation today. In
addition to these core Government programs, L-3 is expanding its business
base into related commercial communication equipment markets, including
applying its wireless communication expertise to develop local wireless
loop equipment primarily for emerging market countries and rural areas
where existing telecommunications infrastructure is inadequate or
non-existent.

Specialized Communication Products. This business area comprises
the Microwave Components, Avionics, and Telemetry and Instrumentation
Products operations of the Company.

69
Microwave Components. L-3 is the preeminent worldwide supplier of
commercial off-the-shelf, high performance microwave components and
frequency monitoring equipment. L-3's microwave products are sold under
the industry-recognized Narda brand name through a standard catalog to
wireless, industrial and military communication markets. L-3 also provides
state-of-the-art communication components including channel amplifiers and
frequency filters for the commercial communications satellite market.

Avionics. Avionics includes the Company's Aviation Recorders,
Display Systems and Antenna Systems operations. L-3 is the world's leading
manufacturer of commercial cockpit voice and flight data recorders. These
recorders are sold under the Fairchild brand name both on an OEM basis to
aircraft manufacturers as well as directly to the world's major airlines
for their existing fleets of aircraft. L-3 also provides military and
high-end commercial displays for use on a number of DoD programs including
the F-14, V-22, F-117 and E-2C. Further, L-3 manufactures high performance
surveillance antennas and related equipment for U.S. Air Force and U.S.
Navy aircraft including the F-16, AWACS, E-2C and B-2, as well as the
U.K.'s Nimrod aircraft.

The Company's systems and products are summarized in the following
tables:

70
Secure Communication Systems (1996 Pro Forma Sales: $372 million)

Selected Platforms/End
Systems Selected Applications Uses
---------------------- ---------------------- ----------------------

Secure High Data Rate
Communications
-- Broad-band data links High performance, Used on aircraft and
secure communication naval ships,
links for unmanned aerial
interoperable tactical vehicles with
communication and military and
reconnaissance commercial
satellites

Satellite Communication
Terminals
-- Ground-based
satellite
communication
terminals Interoperable, Provide remote
transportable communication links
ground terminals to distant forces
for remote data
links to distant
segments via commercial
or military satellites

Satellite Communication
and Satellite Control
-- Satellite communication On-board satellite International Space
and tracking systems external Station; Earth
communications, video Observing Satellite;
systems, solid state Landsat-7; National
recorders and ground Oceanic and
support equipment Atmospheric
Administration
weather satellites

-- Satellite
command and Software integration, Air Force satellite
control test and maintenance network; Titan IV
sustainment support for Air Force launch system
and support satellite control
network; engineering
support for satellite
launch systems

Military
Communications
-- Shipboard
communication Shipboard and Shipboard voice
systems ship-to-ship communications
communications systems for Aegis
cruisers and
destroyers; fully

71
Specialized Communication Products (1996 Pro Forma Sales: $304 million)

Selected Platforms/End
Productions Selected Applications Uses
---------------------- ---------------------- ----------------------

automated Integrated
Radio Room (IRR) for
ship-to-ship
communications on
Trident submarines

Information Security
Systems
-- Secure
Telephone Unit Secure and non-secure Office and
(STU III)/Secure voice, data and video battlefield secure
Terminal Equipment communication and non-secure
(STE) utilizing ISDN and ATM communication for
commercial network armed services,
technologies intelligence and
security agencies

-- Local
management Provides electronic User authorization
device/key key material and recognition and
processor accounting, system message encryption
(LMD/KP) management and audit for secure
support functions for communication
secure data
communication

-- Information
processing Custom designed Classified military
systems strategic and tactical and national agency
signal intelligence intelligence efforts
systems that detect,
collect, identify,
analyze and
disseminate
information and
related support
contracts

Microwave Components
-- Passive
components, Radio transmission, Broad-band and
mechanical switching and narrow-band
switches and conditioning; antennae commercial
wireless and base station applications (PCS,
assemblies testing and monitoring cellular, SMR,
and paging
infrastructure)
sold under the
Narda brand name;
broad-band military
applications

72
Specialized Communication Products (1996 Pro Forma Sales: $304 million)

Selected Platforms/End
Productions Selected Applications Uses
---------------------- ---------------------- ----------------------

-- Safety
products Radio frequency (RF) Monitor cellular
monitoring and base station and
measurement industrial RF
emissions frequency
monitoring

-- Semiconductors
(diodes, Radio frequency Various industrial
capacitors) switches, limiters, and military end
voltage control, uses, including
oscillators, harmonic commercial
generators satellites, avionics
and specialty
communication
products

-- Satellite and
wireless Satellite transponder F-16, E-2C, China
components control, channel and Sat
(channel frequency separation
amplifiers,
transceivers,
converters,
filters and
multiplexers)

Avionics
Aviation Recorders
-- Solid state
cockpit voice Voice recorders Installed on all
and flight continuously record business and
data recorders most recent 30-120 commercial aircraft
minutes of voice and and certain military
sounds from cockpit transport aircraft;
and aircraft sold to both
inter-communications. aircraft OEMs and
Flight data recorders airlines under the
record the last 25 Fairchild brand name
hours of flight
parameters

Display Systems
-- Cockpit and
mission High performance, E-2C, V-22, F-14,
display ruggedized flat panel F-117, E-6B, C-130,
systems and cathode ray tube AWACS and JSTARS
displays

73
Specialized Communication Products (1996 Pro Forma Sales: $304 million)

Selected Platforms/End
Productions Selected Applications Uses
---------------------- ---------------------- ----------------------

Antenna Systems
-- Ultra-wide
frequency Surveillance; radar F-15, F-16, F-18,
antennae detection E-2C, A-7, EF-111,
systems and P-3, C-130, B-2,
rotary joints AWACS, Apache,
Cobra, Mirage
(France), Nimrod
(U.K.) and Tornado
(U.K.)

Telemetry and Instrumentation
Telemetry
-- Aircraft,
missile and Real time data F-15, F-18, F-22,
satellite acquisition, Comanche, Nimrod
telemetry measurement, (U.K.), Tactical
systems processing, Hellfire Titan,
simulation, EELV, and A2100
distribution, display
and storage for flight
testing

-- Training range
telemetry Battlefield simulation Combat simulation
systems

Instrumentation and
Other
-- Medical
imaging and X-Ray cardiology, echo Filmless, high speed
archiving cardiology and image management and
radiology image archiving for
management, review and cardiology and
archiving radiology

Industry Overview

The defense industry has recently undergone significant change
precipitated by ongoing federal budget pressures and new roles and
missions to reflect changing strategic and tactical threats. Since the
mid-1980's, the overall U.S. defense budget has declined in real dollars.
In response, the DoD has focused its resources on enhancing its military
readiness, joint operations and multiple mission capabilities, and
incorporating advanced electronics to improve the performance, reduce
operating cost and extend the life expectancy of its existing and future
platforms. The emphasis on system interoperability, force multipliers and
providing battlefield commanders with real-time data is increasing the

74
electronics content of nearly all of the major military procurement and
research programs. As a result, the DoD's budget for communications and
defense electronics is expected to grow. According to Federal Sources, an
independent private consulting group, the defense budget for C3I is
expected to increase from $30.0 billion in the fiscal year ended September
30, 1996 to $42.0 billion in the fiscal year ended September 30, 2002, a
compound annual growth rate of 5.8%.

Business Strategy

-- Expand Merchant Supplier Relationships. Senior Management has
developed strong relationships with virtually all of the prime
contractors, the DoD and other major government agencies, enabling L-3 to

75
identify business opportunities and anticipate customer needs. As an
independent merchant supplier, the Company anticipates its future growth
will be driven by expanding its share of existing programs and by
participating in new programs. Management has already identified several
opportunities where the Company believes it will be able to use its strong
relationships to increase its business presence and allow its customers to
reduce their costs. The Company also expects to benefit from increased
outsourcing by prime contractors who in the past may have limited their
purchases to captive suppliers and who are now expected to view L-3's
capabilities on a more favorable basis given its status as an independent
company.

-- Leverage Technical and Market Leadership Positions. L-3 has
developed strong, proprietary technical capabilities that have enabled it
to capture a number one or two market position in most of its key business
areas, including secure, high data rate communication systems, solid state
aviation recorders, advanced antenna systems and high performance
microwave components. Over the past three years, the Company and its
Predecessors have invested over $100 million in Company-sponsored
independent research and development, including bid and proposal costs, in
addition to making substantial investments in its technical and
manufacturing resources. Further, the Company has a highly skilled
workforce including over 1,500 engineers. As an independent company,
management intends to leverage its technical expertise and capabilities
into several closely aligned commercial business areas and applications,
including opportunities in wireless telephony and medical imaging archive
management.

76
profitability (cost plus) and higher margin (fixed price) business. L-3
also enjoys an attractive customer mix of defense and commercial business,
with DoD related sales accounting for 65% and commercial and federal
(non-DoD) sales accounting for 35% of 1996 pro forma sales. The Company
intends to leverage this favorable business profile to expand its merchant
supplier business base.

Products and Services

Secure Communication Systems

L-3 is a leader in communication systems for high performance
intelligence collection, imagery processing and ground, air, sea and
satellite communications for the DoD and other government agencies. The
Company's Secure Communication Systems operations are located in Salt Lake
City, Utah and Camden, New Jersey, and together had pro forma sales of
$371.5 million and EBITDA of $41.6 million in 1996. The Salt Lake City
operation provides secure, high data rate, real-time communication systems
for surveillance, reconnaissance and other intelligence collection
systems. The Camden operation designs, develops, produces and integrates
communication systems and support equipment for space, ground and naval
applications. Product lines of the Secure Communication Systems business
include high data rate communication links, satellite communication
("SATCOM") terminals, Navy vessel communication systems, space
communications and satellite control systems, signal intelligence
information processing systems, information security systems, tactical
battlefield sensor systems and commercial communication systems.

-- High Data Rate Communications

The Company is a technology leader in high data rate, covert,
jam-resistant microwave communications in support of military and other
national agency reconnaissance and surveillance applications. L-3's
product line covers a full range of tactical and strategic secure

77
point-to-point and relay data transmission systems, products and support
services that conform to military and intelligence specifications. The
Company's systems and products are capable of providing battlefield
commanders with real time, secure surveillance and targeting information
and were used extensively by U.S. armed forces in the Persian Gulf war.

During the 1980s, largely based on its prior experience with command
and control guidance systems for remotely-piloted vehicles, L-3 developed
its current family of strategic and tactical data links, including its
Modular Interoperable Data Link ("MIDL") systems and Modular Interoperable
Surface Terminals ("MIST"). MIDL and MIST technologies are considered
virtual DoD standards in terms of data link hardware. The Company's
primary focus is spread spectrum communication (based on CDMA technology),
which involves transmitting a signal as noise so as to make it difficult
to detect to others, and then re-capturing the signal and removing the
noise. The Company's data links are capable of providing information at
over 200 Mb/s.

L-3 provides these secure high band width services to the U.S. Air
Force, Navy, Army and various Government agencies, many through long-term
sole source programs. The scope of these programs include air-to-ground,
air-to-air, ground-to-air and satellite communications. Government
programs include: U-2 Support, Common High-Band Width Data Link Surface
Terminal ("CHBDL-ST"), Battle Group Passive Horizon Extension System
("BGPHES"), Light Airborne Multi-Purpose System (LAMPS), TriBand SATCOM
Subsystem ("TSS"), all unmanned aerial vehicle ("UAV") programs and Direct
Air-Satellite Relay ("DASR").

-- Satellite Communication Terminals

L-3 provides ground-to-satellite, high availability, real-time
global communications capability through a family of transportable field
terminals to communicate with commercial, military and international
satellites. These terminals provide remote personnel with anywhere,
anytime effective communication capability and provide communications
links to distant forces. The Company's TriBand SATCOM Subsystem ("TSS")
employs a 6.25 meter tactical dish with a single point feed that provides
C, Ku and X band communication to support the U.S. Army. The Company also
offers an 11.3 meter dish which is transportable on two C-130 aircraft.
The SHF Portable Terminal System ("PTS") is a lightweight (28 lbs.),
manportable terminal, which communicates through DSCS, NATO or SKYNET
satellites and brings unprecedented connectivity to small military
tactical units and mobile command posts. L-3 recently delivered 14 of
these terminals for use by NATO forces in Bosnia.

-- Space Communications and Satellite Control

Continuing L-3's tradition of providing communications for every
manned U.S. space flight since Mercury, the Company is currently designing
and testing three communication subsystems for the International Space
Station ("ISS"). These systems will control all ISS radio frequency ("RF")
communications and external video activities. The Company also provides
solid-state recorders and memory units for data capture, storage, transfer
and retrieval for space applications. The standard NASA tape recorder,
which was developed and produced by the Company, has completed over three
million hours of service without a mission failure. Current programs

78
include recorders for the National Oceanic & Atmospheric Administration
("NOAA") weather satellites, the Earth Observing Satellite ("EOS") AM
spacecraft and Landsat-7 Earth-monitoring spacecraft. The Company also
provides space and satellite system simulation, satellite operations and
computer system training, depot support, network engineering, resource
scheduling, launch system engineering, support, software integration and
test through cost-plus contracts with the U.S. Air Force.

-- Military Communications

The Company provides integrated, computer controlled switching
systems for the interior and exterior voice and data needs of today's Navy
military vessels. The Company's products include Integrated Voice
Communication Systems ("IVCS") for Aegis cruisers and destroyers and the
Integrated Radio Room ("IRR") for Trident class submarines, the first
computer controlled communications center in a submarine. These products
integrate the intercom, tactical and administrative communications network
into one system accessing various types of communication terminals
throughout the ship. The Company's MarCom 2000 secure digital switching
system is in development for the Los Angeles class attack submarine and
provides an integrated approach to the specialized voice and data
communications needs of a shipboard environment for internal and external
communications, command and control and air traffic control. The Company
also offers on-board, high data rate communications systems which provide
a data link for carrier battle groups which are interoperable with the
U.S. Air Force's surveillance/ reconnaissance terminal platforms.

-- Information Security Systems

The Company has produced more than 100,000 secure telephone units
("STU III") which are in use today by the U.S. Armed Forces to provide
secure telephone capabilities for classified confidential communication
over public commercial telephone networks. The Company has begun producing
the next-generation digital, ISDN-compatible STE. STE provides clearer
voice and seven-times faster data/fax transmission capability than the STU
III. STE also supports secure conference calls and secure video
teleconferencing. STE uses a CryptoCard security system which consists of
a small, portable, cryptographic module mounted on a PCMCIA card holding
the algorithms, keys and personalized credentials to identify its user for
secure communications access. The Company also provides LMD/KP which is
the workstation component of the Government's Electronic Key Management
System ("EKMS"), the next generation of information security systems. EKMS
is the Government system to replace current "paper" secret keys used to
secure government communications with "electronic" secret keys. LMD/KP is
the component of the EKMS which produces and distributes the electronic
keys. L-3 also develops specialized strategic and tactical SIGINT to
detect, acquire, collect, and process information derived from electronic
sources. These systems are used by classified customers for intelligence
gathering and require high speed digital signal processing and high
density custom hardware designs.

-- Tactical Security Systems

The Company manufactures the IREMBASS, an unattended ground sensor
system which uses sensors placed along likely avenues of enemy approach or
intrusion in a battlefield environment. The sensors respond to seismic and

79
acoustic disturbances, infrared energy and magnetic field changes and thus
detect enemy activities. IREMBASS is currently in use by U.S. Special
Operations Forces, the U.S. Army's Light Divisions and several foreign
governments. The Company also provides the Intrusion Detection Early
Warning System ("IDEWS"), a sensor system designed for platoon-level
physical security applications. Weighing less than two pounds, this sensor
system is ideal for covert perimeter intrusion detection, border
protection and airfield or military installation security.

-- Commercial Communications

The Company is applying its wireless communication expertise to
introduce local wireless loop equipment using a synchronous Code Division
Multiple Access technology protocol ("CDMA") supporting terrestrial and
space based, fixed and mobile communication services. The system's
principal targeted customer base is emerging market countries and rural
areas where existing telecommunications infrastructure is inadequate or
non-existent. The Company's system will have the potential to interface
with low earth orbit ("LEO") PCS systems such as Globalstar, Iridium and
or any local public telephone network. The Company expects to manufacture
for sale certain of the infrastructure equipment and to license its
technology to third-party providers. The Company expects to partner with
third parties for service and distribution capabilities. The Company has
entered into product distribution agreements with Granger Telecom for
distribution in parts of Africa, the Middle East and the United Kingdom,
and with Unisys for distribution in parts of Mexico and South America.

Specialized Communication Products

Microwave Components

L-3 is the pre-eminent worldwide supplier of commercial
off-the-shelf, high performance radio frequency ("RF") microwave
components, assemblies and instruments supplying the wireless
communication, industrial and military markets. The Company is also a
leading provider of state-of-the-art space-qualified commercial satellite
and strategic military RF products. L-3 sells many of these components
under the well-recognized Narda brand name and through the world's most
comprehensive catalogue of standard, stocked hardware. L-3 also sells its
products through a direct sales force and an extensive network of premier
market representatives. Specific catalog offerings include wireless
products, electro-mechanical switches, power dividers and hybrids,
couplers/detectors, attenuators, terminations and phase shifters,
isolators and circulators, adapters, control products, sources, mixers,
waveguide components, RF safety products, power meters/monitors and custom
passive products. The Company operates from two sites, Hauppauge, New York
("Narda East"), and Sacramento, California ("Narda West").

Narda East represents approximately 62% of L-3's microwave sales
volume, offering high performance microwave components, networks and
instruments to the wireless, industrial and military communications
markets. Narda East's products can be divided into three major categories:
passive components, higher level wireless assemblies/monitoring systems
and safety instruments.

80
Passive components are generally purchased in narrow frequency
configurations by wireless OEM equipment manufacturers and service
providers. Similar components are purchased in wide frequency
configurations by first tier military equipment suppliers. Commercial
applications for Narda components are primarily in cellular or PCS base
stations. Narda also manufactures higher level assemblies for wireless
base stations and the paging industry. These products include
communication antenna test sets, devices that monitor reflected power to
determine if a cellular base station is working. Military applications
include general procurement for test equipment or electronic surveillance
and countermeasure systems. RF safety products are instruments which are
used to measure the level of non-ionizing radiation in a given area, i.e.,
from an antenna, test set or other emitting source.

Narda West designs and manufactures state-of-the-art space-qualified
and wireless components. Space qualified components include channel
amplifiers for satellite transponder control and diplexers/ multiplexers,
which are used to separate various signals and direct them to the
appropriate other sections of the payload. Narda West's primary areas of
focus are communication satellite payload products. Channel amplifiers
constitute Narda West's main satellite product. These components amplify
the weak signals received from earth stations by a factor of 1 million,
and then drive the power amplifier tubes that broadcast the signal back to
earth. These products are sold to satellite manufacturers and offer lower
cost, lower weight and improved performance versus in-house alternatives.
On a typical satellite, for which there are 20 to 50 channel amps, Narda
West's channel amps offer cost savings of up to 60% (up to $1 million per
satellite) and decrease launch weight by up to 25 kilograms.

The operation also offers a wide variety of high-reliability power
splitters, combiners and filters for spacecraft and launch vehicles, such
as LLV, Tiros N, THAAD, Mars Surveyor, Peacekeeper, Galileo, Skynet,
Cassini, Milstar, Space Shuttle, LandSat, FltSatCom, GPS, GPS Block IIR,
IUS, ACE, SMEX and certain classified programs. Narda West also produces
ground transceivers for communication with satellites. These Very Small
Aperture Terminal ("VSAT") transceivers are used in medium and high data
rate applications in the C and Ku frequency bands normally used for
transmit/receiver applications. Other Narda West products include wireless
microwave components for cellular and PCS base station applications. These
products include filters used for transmit and receive channel separation
as well as ferrite components, which isolate certain microwave functions,
thereby preventing undesired signal interaction. The balance of the
operation's business is of a historical nature and involves wideband
filters used for electronic warfare applications and cavity oscillators
used in commercial test equipment and terrestrial radio applications.

Avionics

-- Aviation Recorders

L-3 manufactures commercial solid-state crash-protected aviation
recorders ("black boxes") under the Fairchild brand name, and has
delivered over 40,000 flight recorders to airplane manufacturers and
airlines around the world. Recorders are mandated and regulated by various
worldwide agencies for commercial airlines and a large portion of business
aviation aircraft. Management anticipates growth opportunities in Aviation

81
Recorders as a result of the current high level of orders for new
commercial aircraft. Additional growth opportunities exist in the military
market as a result of recent military aircraft accidents. There are two
types of recorders: (i) the Cockpit Voice Recorder ("CVR") which records
the last 30 to 120 minutes of crew conversation and ambient sounds from
the cockpit and (ii) the Flight Data Recorder ("FDR") which records the
last 25 hours of aircraft flight parameters such as speed, altitude,
acceleration, thrust from each engine and direction of the flight in its
final moments. Recorders are highly ruggedized instruments, designed to
absorb the shock equivalent to that of an object traveling at 268 knots
stopping in 18 inches, fire resistant to 1,100 degrees centigrade and
pressure resistance equal to 20,000 feet undersea for 30 days. Management
believes that the Company has the leading worldwide market position for
CVR's and FDR's.

-- Antenna Systems

Under the Randtron brand name, L-3 produces high performance
antennas designed for surveillance, high-resolution, ultra-wide frequency
bands, detection of low radar cross section ("LRCS") targets, LRCS
installations, severe environmental applications and polarization
diversity. L-3's main antenna product is a sophisticated 24-foot diameter
antenna operational on all E-2C aircraft. This airborne antenna consists
of a 24-foot rotating aerodynamic oblate spheroid radome containing a UHF
surveillance radar antenna, IFF antenna and forward and aft auxiliary
antennas. This antenna began production in the early 1980s, and production
is planned beyond 2000 for the E-2C, P3 and C-130 AEW aircraft. L-3 also
produces broad-band antennas for a variety of tactical aircraft and rotary
joints for the AWAC's and E-2C's antenna. Randtron has delivered
approximately 2,000 aircraft sets of antennas and has a current backlog
through 1999.

-- Display Systems

L-3 specializes in the design, development and manufacture of
ruggedized display system solutions for military and high-end commercial
applications. L-3's current product lines include cathode ray tubes
("CRTs") and the Actiview family of active matrix liquid crystal displays
("AMLCD"). L-3 manufactures flat-panel displays with diagonal screen sizes
of 10.4 and 20.1 inches that are in platforms such as E-2C (enhanced main
display unit and Q-70 advanced display system), F-14, F-117 and V-22.

Telemetry and Instrumentation

The Company is a leader in component products used in telemetry and
instrumentation for satellites, aircraft, UAVs, launch vehicles and
missiles. Telemetry involves the collection of data from these platforms,
its transmission to ground stations for analysis, and its further
dissemination or transportation to another platform. A principal use of
this telemetry data is to measure as many as 1,000 different parameters of
the platform's operation (in much the same way as a flight data recorder
on an airplane measures various flight parameters) and transmits this data
to the ground.

82
Additionally, for satellite platforms, the equipment also provides
the command uplink that controls the satellite. In these applications,
high reliability of components is crucial because of the high cost of
satellite repair and the length of uninterrupted service required.
Telemetry also provides the data to terminate the flight of missiles and
rockets under errant conditions and/or at the end of mission.

-- Airborne, Ground and Space Telemetry

The Company provides airborne equipment and data link systems to
gather critical information and to process, format and transmit it to the
ground through communication data links from a communications satellite,
spacecraft, aircraft and/or missile. These products are available in both
COTS and custom configurations. Major customers are the major defense
contractors who manufacture aircraft, missiles, warheads, launch vehicles,
munitions and bombs. Ground instrumentation activity occurs at the ground
station where the serial stream of combined data is received and decoded
in real-time, as it is received from the airborne platform. Data can be
encrypted and decrypted during this process, an additional expertise that
the Company offers. L-3 offers the System 500 which interfaces with
airborne telemetry and helps determine if it is within certain parameters
of its flight pattern and displays the information graphically on a ground
station terminal. The Company is currently developing the NeTstar ground
station terminal which is capable of handling compressed satellite mission
time frames.

-- Range Instrumentation

A ground-based application for the Company is range instrumentation,
where equipment that is worn by soldiers or mounted in vehicles transmit
and receive data that is used for test and evaluation of training
missions. The Company's Digital Communication Network Subsystem ("DCNS")
product allows for more effective monitoring and control of training and
testing ranges.

-- Transportable Radios

The Company also manufactures transportable, tunable, microwave
radios used for commercial and military voice and data communication
service restoration and features rugged, modularized systems capable of
data rates up to 155 Mb/s. Frequencies are tunable in RF bands from 1.7
GHz to 19.7 GHz with simple plug-in radio frequency heads. The radios are
encased in portable, all-weather outdoor housing for use in restoration
and temporary service and military tactical communications.

-- Expendable Countermeasure Systems

L-3 designs, develops and produces radar, infrared, electro-optical
and acoustic expendable countermeasure systems, computer-controlled
launchers and dispensers for ships, aircraft, ground vehicles and base
defense. L-3 is the world leader in the design, development and production
of passive off-board ship defense countermeasures systems for the U.S.
Navy and international customers. The products include the MK 214 and MK
216 Sea Gnat Decoys, which are the seduction and distraction decoys used
by the U.S. Navy and NATO for ship defense against radar-guided threats.
L-3 also manufactures Automatic Launch of Expendables ("ALEX"), a

83
completely automated ship-defense launch system that takes threat
information from the ship's warning system and speed, direction and wind
conditions from the ship's navigation system and initiates the optimum
countermeasure response and/or maneuver based on the decoy load-out
inventory.

-- Commercial Communication Products

The Company and GE Medical Systems have jointly developed
GEMnet(Trademark), a cardiac image management and archive system.
GEMnet(Trademark) eliminates the use of cinefilm in a cardiac
catheterization laboratory by providing a direct digital connection to the
laboratory. The system provides for acquisition, display, analysis and
short-and long-term archive of cardiac patient studies, providing
significant cost savings and process improvements to the hospital.
EchoNet(Trademark) is a digital archive management and review system
designed by the Company specifically for the echocardiology profession.
Echonet(Trademark) is the result of an exclusive strategic partnership
with Heartlab, Inc. and is distributed by Nova Microsonics. The system
accepts digital echocardiology studies from a variety of currently
available ultrasound systems, manages the studies, making them available
on a network, and allows the physicians and technicians to become more
productive. DICOMView(Trademark) is a multimodal, low-cost viewing station
designed by the Company for use with standard IBM-compatible and Macintosh
personal computer platforms. It makes full motion, full fidelity
diagnostic images accessible for the cardiologist, surgeon and referring
physician. EchoNet(Trademark) and DICOMView(Trademark) are trademarks of
Heartlab, Inc. GEMnet(Trademark) is a trademark of GE.

Major Customers

The Company's sales are predominantly derived from contracts with
agencies of, and prime contractors to, the Government. The various
Government customers exercise independent purchasing decisions. Sales to
the Government generally are not regarded as constituting sales to one
customer. Instead, each contracting entity is considered to be a separate
customer. In 1996, the Company performed under approximately 180 contracts
with value exceeding $1 million for the Government. Government pro forma
sales in 1996, including pro forma sales to the Government through prime
contractors, were $529 million. Historical sales to Lockheed Martin were
$70.7 million in 1996. The Company's largest program, representing 14% of
1996 pro forma sales, is a long-term, sole source cost plus support
program for the U-2 Directorate. No other program represented more than 7%
of pro forma 1996 sales.

Research and Development

The Company employs scientific, engineering and other personnel to
improve its existing product lines and to develop new products and
technologies in the same or related fields. As of December 31, 1996, the
Company employed approximately 1,580 engineers (of whom over 35% hold
advanced degrees). The pro forma amounts of research and development
performed under customer-funded contracts and Company-sponsored research
projects, including bid and proposal costs, for 1996 were $153.5 million
and $36.5 million, respectively.

84
Competition

The Company's ability to compete for defense contracts depends to a
large extent on the effectiveness and innovativeness of its research and
development programs, its ability to offer better program performance than
its competitors at a lower cost to the Government customer, and its
readiness in facilities, equipment and personnel to undertake the programs
for which it competes. In some instances, programs are sole source or work
directed by the Government to a single supplier. In such cases, there may
be other suppliers who have the capability to compete for the programs
involved, but they can only enter or reenter the market if the Government
should choose to reopen the particular program to competition.
Approximately 67% of the Company's 1996 pro forma sales related to sole
source contracts.

The Company experiences competition from industrial firms and U.S.
government agencies, some of which have substantially greater resources.
These competitors include: Allied Signal Inc., AMP, Inc., Aydin
Corporation, Cubic Corporation, GTE Corporation, Harris Corporation, GM
Hughes Electronics, Motorola, Inc., Raytheon Company and Titan
Corporation. A majority of the sales of the Company is derived from
contracts with the Government and its prime contractors, and such
contracts are awarded on the basis of negotiations or competitive bids.
Management does not believe any one competitor or a small number of
competitors is dominant in any of the business areas of the Company.
Management believes the Company will continue to be able to compete
successfully based upon the quality and cost competitiveness of its
products and services.

Patents and Licenses

Although the Company owns some patents and has filed applications
for additional patents, it does not believe that its operations depend
upon its patents. In addition, the Company's Government contracts
generally license it to use patents owned by others. Similar provisions in
the Government contracts awarded to other companies make it impossible for
the Company to prevent the use by other companies of its patents in most
domestic work.

Backlog

As of December 31, 1996, the Company's funded backlog was
approximately $542.5 million. This backlog provides management with a
useful tool to project sales and plan its business on an on-going basis;
however, no assurance can be given that the Company's backlog will become
revenues in any particular period or at all. Funded backlog does not
include the total contract value of multi-year, cost-plus reimbursable
contracts, which are funded as costs are incurred by the Company. Funded
backlog also does not include unexercised contract options which represent
the amount of revenue which would be recognized from the performance of
contract options that may be exercised by customers under existing
contracts and from purchase orders to be issued under indefinite quantity
contracts or basic ordering agreements. Backlog is a more relevant
predictor of future sales in the Secure Communication Systems business
area. Current funded backlog in Secure Communication Systems as of
December 31, 1996 was $331.5 million, of which approximately 81.3% is

85
expected to be shipped in 1997. The Company believes backlog is a less
relevant factor in the Specialized Communication Products business area
given the nature of its catalog and commercial oriented business. Overall,
approximately 77% of the Company's December 31, 1996 funded backlog is
expected to be shipped in 1997.

Funded Backlog as of
December 31, 1996
---------------------------
($ in millions)

Secure Communication Systems . . . . . . . . $331.5
Communication Products . . . . . . . . . . . 211.0
------
$542.5
======

Government Contracts

Approximately 78.4% of the Company's 1996 pro forma sales were made
to agencies of the Government or to prime contractors or subcontractors of
the Government.

Approximately 58% of the Company's pro forma 1996 sales mix of
contracts were firm fixed price contracts under which the Company agrees
to perform for a predetermined price. Although the Company's fixed price
contracts generally permit the Company to keep profits if costs are less
than projected, the Company does bear the risk that increased or
unexpected costs may reduce profit or cause the Company to sustain losses
on the contract. Generally, firm fixed price contracts offer higher margin
than cost plus type contracts. All domestic defense contracts and
subcontracts to which the Company is a party are subject to audit, various
profit and cost controls and standard provisions for termination at the
convenience of the Government. Upon termination, other than for a
contractor's default, the contractor will normally be entitled to
reimbursement for allowable costs and to an allowance for profit. Foreign
defense contracts generally contain comparable provisions relating to
termination at the convenience of the government. To date, no significant
fixed price contract of the Company has been terminated.

Companies supplying defense-related equipment to the Government are
subject to certain additional business risks peculiar to that industry.
Among these risks are the ability of the Government to unilaterally
suspend the Company from new contracts pending resolution of alleged
violations of procurement laws or regulations. Other risks include a
dependence on appropriations by the Government, changes in the
Government's procurement policies (such as greater emphasis on competitive
procurements) and the need to bid on programs in advance of design
completion. A reduction in expenditures by the Government for products of
the type manufactured by the Company, lower margins resulting from

86
increasingly competitive procurement policies, a reduction in the volume
of contracts or subcontracts awarded to the Company or substantial cost
overruns would have an adverse effect on the Company's cash flow.

Properties

The table below sets forth, as of December 31, 1996, certain
information with respect to L-3's manufacturing facilities and properties.

Location Owned Leased
-------------------------------- --------------- --------------
(thousands of square feet)

L-3 Headquarters, NY . . . . . . . . . -- 58.5
Secure Communication Systems:
Camarillo, CA . . . . . . . . . . . . -- 1.8
El Segundo, CA . . . . . . . . . . . -- 1.4
Santa Clara, CA . . . . . . . . . . . -- 5.9
Santa Maria, CA . . . . . . . . . . . -- 9.8
Colorado Springs, CO . . . . . . . . -- 5.8
Camden, NJ . . . . . . . . . . . . . -- 588.6
Tinton Falls, NJ . . . . . . . . . . -- 0.8
Salt Lake City, UT . . . . . . . . . -- 457.6
Specialized Communication Products:
Folsom, CA . . . . . . . . . . . . . -- 57.5
Lancaster, CA . . . . . . . . . . . . -- 5.4
Menlo Park, CA . . . . . . . . . . . -- 93.0
Rancho Cordova, CA . . . . . . . . . -- 40.4
Redwood City, CA . . . . . . . . . . -- 5.2
San Diego, CA . . . . . . . . . . . . 196.0 68.9
San Mateo, CA . . . . . . . . . . . . -- 14.8
Santa Clara, CA . . . . . . . . . . . -- 2.0
Merrill Island, FL . . . . . . . . . -- 1.2
Sarasota, FL . . . . . . . . . . . . 303.6 --
Alpharetta, GA . . . . . . . . . . . 40.0 --
Atlanta, GA . . . . . . . . . . . . . 52.1 --
Norcross, GA . . . . . . . . . . . . -- 4.8
Haverhill, MA . . . . . . . . . . . . 8.0 --
Lowell, MA . . . . . . . . . . . . . -- 47.0
Woburn, MA . . . . . . . . . . . . . 106.0 --
Hauppauge, NY . . . . . . . . . . . . 150.0 --
Warminster, PA . . . . . . . . . . . 44.7 --
Slough, Berkshire (U.K.) . . . . . . -- 1.4
----- -------
Total . . . . . . . . . . . . . . . . . 900.4 1,471.8
===== =======

87
Legal Proceedings

Environmental Matters

Pursuant to the Transaction Agreement, the Company has agreed to
assume certain on-site and off-site environmental liabilities related to
events or activities occurring prior to the consummation of the
Transaction. Lockheed Martin has agreed to retain all environmental
liabilities for all facilities not used by the Businesses as of the
Closing and to indemnify fully the Company for such prior site
environmental liabilities. Lockheed Martin has also agreed, for the first
eight years following the Closing, to pay 50% of all costs incurred by the
Company above those reserved for on the Company's balance sheet at Closing
relating to certain Company-assumed environmental liabilities and, for the
seven years thereafter, to pay 40% of certain reasonable operation and
maintenance costs relating to any environmental remediation projects
undertaken in the first eight years. The Company is aware of environmental
contamination at two of its facilities that will require ongoing
remediation. Management believes that the Company has established adequate
reserves for the potential costs associated with the assumed environmental
liabilities. However, there can be no assurance that any costs incurred
will be reimbursable from the Government or covered by Lockheed Martin
under the terms of the Transaction Agreement or that the Company's
environmental reserves will be sufficient.

88
Pension Plans

The Transaction Agreement provides for transfer by Lockheed Martin
of certain assets to L-3 and assumption by L-3 of certain liabilities
relating to defined benefit pension plans for present and former employees
and retirees of certain businesses transferred to L-3. Lockheed Martin
received a letter from the Pension Benefit Guaranty Corporation (the
"PBGC") which requested information regarding the transfer of such pension
plans. The PBGC's letter indicated that it believed certain of the
employee pension plans were underfunded using the PBGC's actuarial
assumptions (which assumptions result in a larger liability for accrued
benefits than the assumptions used for financial reporting under Statement
of Financial Accounting Standards No. 87, "Accounting for Pension Costs"
("FASB 87")). The Company has calculated the net funding position of the
pension plans to be transferred and believes the plans to be overfunded by
approximately $1 million under ERISA assumptions, underfunded by
approximately $9 million under FASB 87 assumptions and, on a termination
basis, underfunded by as much as $51 million under PBGC assumptions.
Substantially all of the PBGC underfunding is related to two pension plans
covering employees at L-3's Communication Systems -- Salt Lake and
Aviation Recorders businesses (the "Salt Lake and Fairchild Plans").

Pursuant to the PBGC's inquiry, representatives of the Company and
Lockheed Martin met with the PBGC on April 7, 1997. At this meeting, the
PBGC stated that it would seek some form of commitment or undertaking from
Lockheed Martin acceptable to it with regard to the Salt Lake and
Fairchild Plans and the pension plan covering employees at Hycor, another
business being acquired by L-3 in the Acquisition (collectively, the
"Subject Plans"). Lockheed Martin has agreed to provide such a commitment
in an agreement (the "Lockheed Martin Commitment Agreement") among
Lockheed Martin, L-3 and the PBGC dated as of April 30, 1997. The material
terms and conditions of the Lockheed Martin Commitment Agreement include a
commitment by Lockheed Martin to, under certain circumstances, assume
sponsorship of the Subject Plans or provide another form of financial
support for the Subject Plans. The Lockheed Martin Commitment Agreement
will continue until such time as the Subject Plans are no longer
underfunded on a PBGC basis for two consecutive years or, at any time
after May 31, 2002, the Company achieves investment grade credit ratings.
Pursuant to the Lockheed Martin Commitment Agreement, the PBGC has agreed
that it will take no further action in connection with the Transaction.

In return for the Lockheed Martin Commitment, the Company has
entered into an agreement with Lockheed Martin, dated as of April 30,
1997, pursuant to which the Company will provide certain assurances to
Lockheed Martin including, but not necessarily limited to, (i) continuing
to fund the Subject Plans consistent with prior practices and to the
extent deductible for tax purposes and, where appropriate, recoverable
under Government contracts, (ii) agreeing to not increase benefits under
the Subject Plans without the consent of Lockheed Martin,
(iii) restricting the Company from a sale of any businesses employing
individuals covered by the Subject Plans if such sale would not result in
reduction or elimination of the Lockheed Martin Commitment with regard to
the specific plan and (iv) if the Subject Plans were returned to Lockheed
Martin, granting Lockheed Martin the right to seek recovery from the
Company of those amounts actually paid, if any, by Lockheed Martin with
regard to the Subject Plans after their return. In addition, upon the

89
occurrence of certain events, Lockheed Martin, at its option, will have
the right to decide whether to assume sponsorship of any or all of the
Subject Plans, even if the PBGC has not sought to terminate the Subject
Plans.

The Company believes, based in part upon discussions with its
consulting actuaries, that the increase in pension expenses and future
funding requirements, if any, from those currently anticipated for the
Subject Plans would not be material.

Employees

As of March 31, 1997, the Company employed approximately 5,000
full-time and part-time employees. The Company believes that its relations
with its employees are good.

Approximately 580 of the Company's employees at its Communication
Systems -- Camden operation in Camden, New Jersey are represented by four
unions, the Association of Scientists and Professional Engineering
Personnel, the International Federation of Professional and Technical
Engineers, the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers and an affiliate of the International
Brotherhood of Teamsters. Three of the four collective bargaining
agreements expire in mid-1998. While the Company has not yet initiated
discussions with representatives of these unions, management believes it
will be able to negotiate, without material disruption to its business,
satisfactory new collective bargaining agreements with these employees.
However, there can be no assurance that a satisfactory agreement will be
reached with the covered employees or that a material disruption to the
Company's Camden operations will not occur.

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THE TRANSACTION

The Acquisition

Holdings and L-3 were formed by Mr. Frank C. Lanza, the former
President and Chief Operating Officer of Loral, Mr. Robert V. LaPenta, the
former Senior Vice President and Controller of Loral, the Lehman
Partnership and Lockheed Martin to acquire substantially all of the assets
and certain liabilities of (i) nine business units previously purchased by
Lockheed Martin as part of its acquisition of Loral in April 1996 and
(ii) one business unit, Communications Systems -- Camden, purchased by
Lockheed Martin as part of its acquisition of GE Aerospace in April 1993.
The total consideration paid to Lockheed Martin was $525 million,
comprised of $480 million of cash before an estimated $20 million
reduction related to a purchase price adjustment, and $45 million of
common equity being retained by Lockheed Martin. L-3 is a wholly-owned
subsidiary of Holdings. Holdings was capitalized with $125 million of
common equity, with Messrs. Lanza and LaPenta owning 15.0%, the Lehman
Partnership owning 50.1% and Lockheed Martin owning 34.9%.

Transaction Agreement

The Transaction Agreement provides for the transfer by Lockheed
Martin to Holdings of substantially all of the assets and certain of the
liabilities primarily related to the Businesses. The assets transferred
include, among other things, real property and leases for the business
units, all contracts including government contracts, and bids for such
contracts, all machinery and equipment used primarily in connection with
the Businesses and, subject to certain limitations, all intellectual
property used primarily in the Businesses. The Transaction Agreement
provides that L-3 be capitalized with $125 million of common entity
provided by Holdings and assume the liabilities and obligations of
Lockheed Martin relating to the Businesses other than certain income and
franchise tax liabilities arising prior to the closing of the Acquisition,
certain pension liabilities, certain environmental liabilities and certain
other excluded liabilities. As consideration for the transfer of the
assets by Lockheed Martin, Holdings paid Lockheed Martin $479.8 million
(subject to adjustment based on the difference between $269.1 million and
the audited combined net tangible assets (as defined in the Transaction
Agreement) of the Businesses at the end of the month immediately preceding
the Closing) and Holdings issued to Lockheed Martin 6,980,000 shares of
its Class A Common Stock.

The Transaction Agreement contains mutually agreed upon and
customary representations, warranties and covenants. Lockheed Martin has
agreed to indemnify Holdings, subject to certain limitations, for its
breach of (i) non-environmental representations and warranties up to $50
million (subject to a $5 million threshold) and (ii) for the first eight
years following the Closing, to pay 50% of all costs incurred by the
Company above those reserved for on the Company's balance sheet at Closing
relating to certain Company-assumed environmental liabilities and, for the
seven years thereafter, 40% of certain reasonable operation and
maintenance costs relating to any environmental remediation projects
undertaken in the first eight years (subject to a $6 million threshold).

In connection with the Transaction Agreement, Holdings and the
Company anticipate entering into a transition services agreement with
Lockheed Martin pursuant to which Lockheed Martin will provide to Holdings
and its subsidiaries (and Holdings will provide to Lockheed Martin)
certain corporate services of a type currently provided at costs
consistent with past practices until December 31, 1997 (or, in the case of
Communication Systems -- Camden, for a period of up to 18 months after the
Closing). Lockheed Martin is currently providing L-3 the services
contemplated by the proposed transition services agreement in the absence
of an executed agreement. The parties also entered into supply agreements
which reflect existing intercompany work transfer agreements or similar
support arrangements upon prices and other terms consistent with the
present arrangements. Holdings, the Company and Lockheed Martin have
entered into certain subleases of real property and cross-licenses of
intellectual property.

In addition, Holdings and Lockheed Martin have entered into a Limited
Noncompetition Agreement (the "Noncompetition Agreement") which, for up to
three years, in certain circumstances, precludes Lockheed Martin from
engaging in the sale of any products that compete with the products of the
Company that are set forth in the Noncompetition Agreement for specifically
identified application of the products. Under the Noncompetition Agreement,
Lockheed Martin is prohibited, with certain exceptions, from acquiring any
business engaged in the sale of the specified products referred to in the
preceding sentence, although Lockheed Martin may acquire such a business
under circumstances where the exceptions do not apply provided that it
offers to sell such business to L-3 within 90 days of its acquisition. The
Noncompetition Agreement does not, among other exceptions, (i) apply to
businesses operated and managed by Lockheed Martin on behalf of the United
States government, (ii) prohibit Lockheed Martin from engaging in any
existing businesses and planned businesses as of the closing of the
Transaction or businesses that are reasonably related to existing or planned
businesses or (iii) apply to selling competing products where such products
are part of a larger system sold by Lockheed Martin.

Stockholders Agreement

At Closing, Holdings, Lockheed Martin, the Lehman Partnership and
Messrs. Lanza and LaPenta entered into a stockholders agreement (the
"Stockholders Agreement") which, except for certain provisions including
those granting registration rights, terminates upon the consummation of an
initial public offering of equity securities by Holdings.

The Stockholders Agreement provides that the Board of Directors will
initially consist of 11 members including six designees of the Lehman
Partnership, three designees of Lockheed Martin, and Messrs. Lanza and
LaPenta. The number of directors which the Lehman Partnership and Lockheed
Martin have the right to designate will be reduced in proportion to any
reduction in their ownership of Common Stock, but as long as the Lehman
Partnership continues to own at least 35% of the outstanding Common Stock
and represents the largest single stockholder of Holdings, it may
designate a majority of the members of the Board of Directors.

92
Under the Stockholders Agreement Holdings is prohibited from
commencing an initial public offering for one year after the Closing
without the consent of each of the parties to the agreement. If an initial
public offering has not occurred five years after the Closing, the Lehman
Partnership and Lockheed Martin each have the right to require Holdings to
consummate an initial public offering, provided that they and their
permitted transferees own at least 50% of the Common Stock that they owned
on the date of the Closing.

The Stockholders Agreement restricts the transfer of shares of
Common Stock by any party to the agreement for one year and requires that
any shares transferred thereafter first be offered for sale to the other
stockholders and Holdings. As to sales of shares by the Lehman Partnership
that occur one year after the Closing and prior to the consummation of an
initial public offering and that result in the Lehman Partnership no
longer owning at least 35% of the issued and outstanding Common Stock,
(i) Messrs. Lanza and LaPenta are permitted to "tag along" (as well as
Lockheed Martin, if either Lanza or LaPenta elects to "tag along") and
(ii) the Lehman Partnership has the right to "drag along" Messrs. Lanza
and LaPenta (and at the option of Lockheed Martin, Lockheed Martin may
sell shares in such transaction). Under the Stockholders Agreement
Lockheed Martin is subject to a standstill arrangement which generally
prohibits any increase in its share ownership percentage over 34.9%.

The Stockholders Agreement also provides that Lehman Brothers Inc.
has the exclusive right to provide investment banking services to Holdings
for the five-year period after the Closing (except that the exclusivity
period is three years as to cash acquisitions undertaken by L-3). In the
event that Lehman Brothers Inc. agrees to provide any investment banking
services to L-3, it will be paid fees that are mutually agreed upon based
on similar transactions and practices in the investment banking industry.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Holdings and L-3 were formed by Senior Management, the Lehman Partnership and
Lockheed Martin to acquire substantially all of the assets and liabilities of
the Businesses. The total consideration paid to Lockheed Martin was $525
million, comprising $480 million of cash before an estimated $20 million
reduction related to a purchase price adjustment, including $45 million of
common equity retained by Lockheed Martin. The Transaction Agreement provides
for the transfer by Lockheed Martin to Holdings of such assets and liabilities.
Under the Transaction Agreement, Lockheed Martin has agreed to indemnity L-3,
subject to certain limitations, for Lockheed Martin's breach of representations
and warranties and L-3 has assumed certain obligations relating to
environmental matters and benefits plans. These obligations include certain
on-site and off-site environmental liabilities related to events or activities
of the Businesses occurring prior to the consummation of the Transaction. In
addition, pursuant to the terms of the Transaction Agreement, the Company is in
the process of establishing benefit plans for employees of the Businesses,
which will provide substantially similar benefits to those provided by Lockheed
Martin, including pension plans, nonqualified supplemental retirement plans,
defined contribution plans, severance plans and death benefit plans.

In connection with the Transaction Agreement, Holdings and L-3 anticipate
entering into a transition services agreement with Lockheed Martin pursuant to
which Lockheed Martin will provide to L-3 and its subsidiaries (and L-3 will
provide to Lockheed Martin) until December 31, 1997 (or, in the case of
Communications Systems - Camden, for a period of up to 18 months after the
Closing) certain services of a type previously provided at costs
consistent with past practices. These services include, among others,
management information systems, accounting and payroll services which,
pursuant to the terms of the agreement, are provided to the Company at
Lockheed Martin's fully-burdened cost but without profit. In addition,
because of the short length of the period involved, the Company's
management believes that it would be difficult to procure these services
from third parties. The parties also anticipate entering into supply
agreements which reflect existing intercompany work transfer agreements or
similar support arrangements based upon prices and other terms consistent with
previously existing arrangements. Holdings, L-3 and Lockheed Martin have
entered into certain subleases of real property and cross-licenses of
intellectual property.

In addition, at closing, Holdings, Lockheed Martin, Lehman Partnership and
Messrs. Lanza and LaPenta entered into the Stockholders Agreement. See "Risk
Factors-Dependence on Lockheed Martin, "Business - Environmental Matters" and
"-Pension Plans" and "The Transaction - Transaction Agreement" and
"-Stockholders Agreement."

In the ordinary course of business L-3 sells products to Lockheed Martin and
its affiliates. Net sales for which were $18.6 million and $21.2 million for
the three month periods ended June 30, 1997 and March 31, 1997, respectively,
and $70.7 million, $25.9 million and $10.0 million for the years ended
December 31, 1996, 1995 and 1994, respectively. See Note 3 to the Lockheed
Martin Predecessor Businesses combined financial statements as of March 31,
1997 and for the three months ended March 31, 1997 and 1996.

Sales of products to Lockheed Martin after the closing of the Transaction,
excluding those under existing intercompany work transfer agreements, are
expected to be made on terms no less favorable than those which would be
available from non-affiliated party customers. A significant portion of
L-3's sales to Lockheed Martin are either based on competitive bidding or
catalog prices.

95
MANAGEMENT

Directors and Executive Officers

The following table provides information concerning the directors
and executive officers of Holdings after giving effect to the Transaction.
All directors hold office until the next annual meeting of the
stockholders. All officers serve at the discretion of the Board of
Directors.

Name Age Position
---------------------- ---- ----------------------------------------
Frank C. Lanza 65 Chairman, Chief Executive Officer and
Director
Robert V. LaPenta 51 President, Chief Financial Officer and
Director
Michael T. Strianese 41 Vice President--Finance and Controller
Christopher C. Cambria 39 Vice President--General Counsel and
Secretary
Robert F. Mehmel 34 Vice President--Planning and Assistant
Secretary
Jimmie V. Adams 60 Vice President--Washington D.C. Operations
Robert RisCassi 61 Vice President--Washington D.C. Operations
Steven J. Berger 40 Director
David J. Brand 35 Director
Alberto M. Finali 43 Director
Eliot M. Fried 63 Director
Robert B. Millard 46 Director
Alan H. Washkowitz 56 Director
Thomas A. Corcoran 53 Director
Frank H. Menaker, Jr. 56 Director
John E. Montague 42 Director

Frank C. Lanza, Chairman and CEO. Mr. Lanza was Executive Vice
President of Lockheed Martin and a member of Lockheed Martin's Executive
Council and Board of Directors. Mr. Lanza was formerly President and COO
of Lockheed Martin's C3I and Systems Integration Sector, which comprised
many of the businesses acquired by Lockheed Martin from Loral in 1996. At
the time of the Loral acquisition, Mr. Lanza was President and COO of
Loral, a position he held since 1981. He joined Loral in 1972 as President
of its largest division, Electronic Systems. His earlier experience was
with Dalmo Victor and Philco Western Development Laboratory.

Robert V. LaPenta, President and Chief Financial Officer. Mr.
LaPenta was a Vice President of Lockheed Martin and was Vice President and
Chief Financial Officer of Lockheed's C3I and Systems Integration Sector.
Prior to Lockheed Martin's acquisition of Loral, he was Loral's Senior
Vice President and Controller since 1981. He joined Loral in 1972 and was
named Vice President and Controller of its largest division in 1974. He
became Corporate Controller in 1978 and was named Vice President in 1979.

Michael T. Strianese, Vice President--Finance and Controller. Mr.
Strianese was Vice President and Controller of Lockheed Martin's C3I and
Systems Integration Sector. From 1991 to the 1996 acquisition of Loral, he

96
was Director of Special Projects at Loral. Prior to joining Loral,
he spent 11 years with Ernst & Young. Mr. Strianese is a Certified
Public Accountant.

Christopher C. Cambria, Vice President--General Counsel and
Secretary. Mr. Cambria joined Holdings in June 1997. From 1994
until joining Holdings, Mr. Cambria was associated with Fried,
Frank, Harris, Shriver & Jacobson. From 1986 until 1993, he was
associated with Cravath, Swaine & Moore.

Robert F. Mehmel, Vice President -- Planning and Assistant
Secretary. Mr. Mehmel was the Director of Financial Planning and Capital
Review for Lockheed Martin's C3I and Systems Integration Sector. From 1984
to 1996, Mr. Mehmel held several accounting and financial analysis
positions at Loral Electronic Systems and Loral. At the time of Lockheed
Martin's acquisition of Loral, he was Corporate Manager of Business
Analysis.

Jimmie V. Adams, Vice President -- Washington, D.C.
Operations. General Jimmie V. Adams (U.S.A.F.-ret.) was Vice President of
Lockheed Martin's Washington Operations for the C3I and Systems
Integration Sector. He held the same position at Loral and was an officer
of Loral, prior to its acquisition by Lockheed Martin. Before joining
Loral in 1993, he was Commander in Chief, Pacific Air Forces, Hickam Air
Force Base, Hawaii, capping a 35-year career with the U.S. Air Force. He
was also Deputy Chief of Staff for plans and operation for U.S. Air Force
headquarters and Vice Commander of Headquarters Tactical Air Command and
Vice Commander in Chief of the U.S. Air Forces Atlantic at Langley Air
Force Base. He is a command pilot with more than 141 combat missions.

Robert RisCassi, Vice President -- Washington, D.C.
Operations. General Robert W. RisCassi, Vice President, Land Systems (U.S.
Army-ret.) was Vice President of Land Systems for Lockheed Martin's C3I
and Systems Integration Sector. He held the same position for Loral, prior
to its acquisition by Lockheed Martin. 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.

Steven J. Berger, Director. Mr. Berger is a Managing Director of
Lehman Brothers, Co-Head of the Investment Banking Division and Head of
the Merchant Banking Group. Mr. Berger joined Lehman Brothers in 1983 in
the Investment Banking Division and spent the early part of his career
working on principal investment, merger-related advisory and corporate
finance transactions. Mr. Berger became a Managing Director and Head of
European Investment Banking in 1991, Head of the Merchant Banking Group in
1995 and Co-Head of the Investment Banking Division in 1996. Mr. Berger
holds an M.B.A. and an A.B. Economics, with honors, from Harvard
University.

David J. Brand, Director. Mr. Brand is a Managing Director of Lehman
Brothers and a principal in the Global Mergers & Acquisitions Group,
leading Lehman Brothers' Technology Mergers and Acquisitions business. Mr.
Brand joined Lehman Brothers in 1987 and has been responsible for merger
and corporate finance advisory services for many of Lehman Brothers'
technology and defense industry clients. Mr. Brand holds an M.B.A. from

97
Stanford University's Graduate School of Business and a B.S. in Mechanical
Engineering from Boston University.

Alberto M. Finali, Director. Mr. Finali is a Managing Director of
Lehman Brothers and principal of the Merchant Banking Group, based in New
York. Prior to joining the Merchant Banking Group Mr. Finali spent four
years in Lehman Brothers' London office as a senior member of the M&A
Group. Mr. Finali joined Lehman Brothers in 1987 as a member of the M&A
Group in New York and became a Managing Director in 1997. Prior to joining
Lehman Brothers, Mr. Finali worked in the Pipelines and Production
Technology Group of Bechtel, Inc. in San Francisco. Mr. Finali holds an
M.E. and an M.B.A. from the University of California at Berkeley, and a
Laurea Degree in Civil Engineering from the Polytechnic School in Milan,
Italy.

Eliot M. Fried, Director. Mr. Fried is a Managing Director of Lehman
Brothers. Mr. Fried joined Shearson, Hayden Stone, a predecessor firm, in
1976 and became a Managing Director in 1982. Mr. Fried has extensive
experience in portfolio management and equity research. Mr. Fried is
currently a director of Bridgeport Machines, Inc., Energy Ventures, Inc.,
SunSource L.P., Vernitron Corporation and Walter Industries, Inc. Mr.
Fried holds an M.B.A. from Columbia University and a B.A. from Hobart
College.

Robert B. Millard, Director. Mr. Millard is a Managing Director of
Lehman Brothers, Head of Lehman Brothers' Principal Trading & Investments
Group and principal of the Merchant Banking Group. Mr. Millard joined Kuhn
Loeb & Co. in 1976 and became a Managing Director of Lehman Brothers in
1983. Mr. Millard is currently a director of GulfMark International, Inc.
and Energy Ventures, Inc. Mr. Millard holds an M.B.A. from Harvard
University and a B.S. from the Massachusetts Institute of Technology.

Alan H. Washkowitz, Director. Mr. Washkowitz is a Managing Director
of Lehman Brothers and principal of the Merchant Banking Group, and is
responsible for the oversight of Lehman Brothers Merchant Banking
Portfolio Partnership L.P. Mr. Washkowitz joined Lehman Brothers in 1978
when Kuhn Loeb & Co. was acquired by Lehman Brothers. Mr. Washkowitz is
currently a director of Illinois Central Corporation, K&F Industries,
Inc., Lear Corporation and McBride plc. Mr. Washkowitz holds an M.B.A.
from Harvard University, a J.D. from Columbia University and an A.B. from
Brooklyn College.

Thomas A. Corcoran, Director. Mr. Corcoran has been the President and
Chief Operating Officer of the Electronic Systems Sector of Lockheed Martin
Corporation since March 1995. From 1993 to 1995, Mr. Corcoran was President
of the Electronics Group of Martin Marietta Corporation. Prior to that he
worked for General Electric for 26 years and from 1983 to 1993 he held
various management positions with GE Aerospace; he was a company officer
from 1990 to 1993. Mr. Corcoran is a member of the Board of Trustees of
Worcester Polytechnic Institute, the Board of Trustees of Stevens
Institute of Technology, the Board of Governors of the Electronic
Industries Association, a Director of the U.S. Navy Submarine League
and a Director of REMEC Corporation.

Frank H. Menaker, Jr., Director. Mr. Menaker has served as Senior
Vice President and General Counsel of Lockheed Martin since July 1996. He
served as Vice President and General Counsel of Lockheed Martin from March

98
1995 to July 1996, as Vice President of Martin Marietta Corporation from
1982 until 1995 and as General Counsel of Martin Marietta Corporation from
1981 until 1995. He is a director of Martin Marietta Materials, Inc., a
member of the American Bar Association and has been admitted to practice
before the United States Supreme Court. Mr. Menaker is a graduate of
Wilkes University and the Washington College of Law at American
University.

John E. Montague, Director. Mr. Montague has been Vice President,
Financial Strategies at Lockheed Martin responsible for mergers,
acquisitions and divestiture activities and shareholder value strategies
since March, 1995. Previously, he was Vice President, Corporate
Development and Investor Relations at Martin Marietta Corporation from
1991 to 1995. From 1988 to 1991, he was Director of Corporate Development
at Martin Marietta Corporation, which he joined in 1977 as a member of the
engineering staff. Mr. Montague is a director of Rational Software
Corporation. Mr. Montague received his B.S. from the Georgia Institute of
Technology and a M.S. in engineering from the University of Colorado.

Director Compensation and Arrangements

It is not currently contemplated that the directors of Holdings or
the Company will receive compensation for their services as directors.
Members of the Board of Directors will be elected pursuant to certain
voting agreements outlined in the Stockholders Agreement. See "The
Transaction--Stockholders Agreement".

Executive Compensation

Benefit Plans

Holdings and the Company intend to establish benefit plans, which
will provide substantially similar benefits to those provided by Lockheed
Martin, including a pension plan, a nonqualified supplemental retirement
plan, a defined contribution plan, a severance plan and a death benefit
plan.

Management Incentive Compensation Plans

Holdings and the Company will establish an incentive compensation
plan that will provide a bonus to selected employees based on the
participant's base salary, target level, individual performance rating and
organizational performance rating and a plan that will allow key
management employees with base salaries of at least $80,000 to defer
receipt of awards under the incentive compensation plan that exceed
$10,000.

Stock Option Plan

Holdings sponsors an option plan (the "Option Plan") for key
employees of Holdings and its subsidiaries, pursuant to which options to
purchase an aggregate of 14% of Holdings' fully-diluted Common Stock
outstanding at Closing will be granted (inclusive of the grants to Messrs.
Lanza and LaPenta, see below under "--Employment Agreements"). The
compensation committee of the Board of Directors of Holdings, in its sole
discretion, determines the terms of option agreements, including without
limitation the treatment of option grants in the event of a change of
control.

99
Employment Agreements

Holdings entered into an employment agreement (the "Employment
Agreements") with each of Mr. Lanza, who will serve as Chairman and Chief
Executive Officer of the Company and Holdings and will receive a base
salary of $750,000 per annum and appropriate executive level benefits, and
Mr. LaPenta, who will serve as President and Chief Financial Officer of
Holdings and the Company and will receive a base salary of $500,000 per
annum and appropriate executive level benefits. The Employment Agreements
provide for an initial term of five years, which will automatically renew
for one-year periods thereafter, unless a party thereto gives notice of
its intent to terminate at least 90 days prior to the expiration of the
term. Upon a termination without cause (as defined) or resignation for
good reason (as defined), Holdings will be obligated, through the end of
the term, to (i) continue to pay the base salary and (ii) continue to
provide life insurance and medical and hospitalization benefits comparable
to those provided to other senior executives; provided, however, that any
such coverage shall terminate to the extent that Mr. Lanza or Mr. LaPenta,
as the case may be, is offered or obtains comparable benefits coverage
from any other employer. The Employment Agreements provide for
confidentiality during employment and at all times thereafter. There is
also a noncompetition and non-solicitation covenant which is effective
during the employment term and for one year thereafter; provided, however,
that if the employment terminates following the expiration of the initial
term, the noncompetition covenant will only be effective during the
period, if any, that Holdings pays the severance described above.

Holdings has granted each of Messrs. Lanza and LaPenta
(collectively, the "Equity Executives") nonqualified options to purchase,
at $6.47 per share of Class A Common Stock, 5% of Holdings' initial
fully-diluted common stock. In each case, half of the options will be
"Time Options" and half will be "Performance Options" (collectively, the
"Options"). The Time Options will become exercisable with respect to 20%
of the shares subject to the Time Options on each of the first five
anniversaries of the Closing if employment continues through and including
such date. The Performance Options will become exercisable nine years
after the Closing, but will become exercisable earlier with respect to up
to 20% of the shares subject to the Performance Options on each of the
first five anniversaries of the Closing, to the extent certain EBITDA
targets are achieved. The Options will become fully exercisable under
certain circumstances, including a change in control. The Option term is
ten years from the Closing; except that (i) if the Equity Executive is
fired for cause or resigns without good reason, the Options expire upon
termination of employment; (ii) if the Equity Executive is fired without
cause, resigns for good reason, dies, becomes disabled or retires, the
Options expire one year after termination of employment. Unexercisable
Options will terminate upon termination of employment, unless acceleration
is expressly provided for. Upon a change of control, Holdings may
terminate the Options, so long as the Equity Executives are cashed out or
permitted to exercise their Options prior to such change of control.

Puts/Calls. In the event that an Equity Executive (i) is terminated
without cause, (ii) resigns with good reason or (iii) retires
(collectively, a "Good Termination"), the Equity Executive will have the
right to require Holdings to, and Holdings will have the right to,
purchase at the fair market value per share a number of (A) shares
purchased upon exercise of Options ("Option Shares") and (B) Class B

100
Common Stock purchased at Closing ("Purchased Shares", and collectively
with the Option Shares, the "Equity Shares") equal to the product of
(1) the total number of Equity Shares held and (2) the Put/Call
Percentage. The "Put/Call Percentage" will equal 75% at any time prior to
the first anniversary of the Closing and will be reduced by 15% on each
anniversary of the Closing thereafter. In addition, in the event of a Good
Termination, the Equity Executive will have the right to require Holdings
to, and Holdings will have the right to, purchase, at the fair market
value per share less the exercise price per share, the number of shares
subject to exercisable Options in an amount equal to the product of
(i) the total number of shares subject to exercisable Options held and
(ii) the Put/Call Percentage.

Following the termination of an Equity Executive's employment due to
death or disability, the Equity Executive will have the right to require
Holdings to, and Holdings will have the right to, purchase all of (i) the
Equity Shares held by the Equity Executive at a per share price equal to
the fair market value per share and (ii) the shares subject to Options
held by the Equity Executive at the fair market value per share less the
exercise price per share. Notwithstanding the foregoing, in the event of
the Equity Executive's death, the Equity Executive's estate will have the
right to retain 20% of the Purchased Shares.

In the event that an Equity Executive is terminated with cause or
quits without good reason (a "Bad Termination"), Holdings will have the
right to purchase any (i) Option Shares at the lesser of (A) the Equity
Executive's cost and (B) fair market value and (ii) Purchased Shares at
the lesser of (A) the Equity Executive's cost plus interest and (B) fair
market value. In addition, in the event of a Bad Termination all Options
will terminate without payment. The Equity Executive will not have the
right to put the Equity Shares to Holdings in the event of a Bad
Termination.

Notwithstanding the above, Holdings will not be required to purchase
for cash any Equity Shares or shares subject to Options if such purchase
would be or would result in a violation of the terms of its debt
agreements or applicable statutes. In addition, no such purchase for cash
will occur if in the reasonable opinion of the Board of Directors of
Holdings (excluding the Equity Executives) such purchase would be
reasonably likely to materially impact Holdings's available cash, require
unsuitable additional debt to be incurred or otherwise have a material
adverse effect on the financial condition of Holdings. If Holdings is
unable to purchase any Equity Shares or shares subject to Options for cash
due to any of the above reasons, Holdings will issue a subordinated note
in the appropriate principal amount to the Equity Executive or his estate,
as the case may be.

101
OWNERSHIP OF CAPITAL STOCK

All of the outstanding capital stock of the Company is held by
Holdings. Class A Common Stock of Holdings ("Class A Common Stock")
possesses full voting rights and Class B Common Stock of Holdings ("Class
B Common Stock") and Class C Common Stock of Holdings ("Class C Common
Stock and, together with Class A Common Stock and Class B Common Stock,
"Common Stock") possess no voting rights except as otherwise required by
law. Each share of Class B Common Stock will convert into a share of Class
A Common Stock upon consummation of an initial public offering of equity
securities of Holdings and certain other events and will convert into a
share of Class C Common Stock upon certain other events. As of the
Closing, there were 17,000,000 shares of Class A Common Stock and
3,000,000 shares of Class B Common Stock outstanding. The following table
sets forth certain information regarding the beneficial ownership of the
shares of the Common Stock of Holdings, upon consummation of the
Transaction, by each person who beneficially owns more than five percent
the outstanding shares of Common Stock of Holdings and by the directors
and certain executive officers of the Company, individually and as a
group.

Percentage
Class A Class B Ownership of
Name of Beneficial Owner Common Stock Common Stock Common Stock
-------------------------------------------------------------- ------------------- ------------------- -------------------

Lehman Brothers Capital Partners III, L.P. and affiliates
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285 . . . . . . . . . . . . . . . . . 10,020,000 -- 50.1%
Lockheed Martin Corporation . . . . . . . . . . . . . . . . . 6,980,000 -- 34.9
Frank C. Lanza . . . . . . . . . . . . . . . . . . . . . . . -- 1,500,000 7.5
Robert V. LaPenta . . . . . . . . . . . . . . . . . . . . . . -- 1,500,000 7.5
All directors and executive officers as group (15 persons) . -- 3,000,000 15.0

DESCRIPTION OF SENIOR CREDIT FACILITIES

The Senior Credit Facilities have been provided by a syndicate of
banks and other financial institutions led by Lehman Commercial Paper
Inc., as Arranger and Syndication Agent. The Senior Credit Facilities
provide for $175.0 million in term loans (the "Term Loan Facilities") and
for $100.0 million in revolving credit loans (the "Revolving Credit
Facility"). The Revolving Credit Facility includes borrowing capacity
available for letters of credit and for borrowings on same-day notice (the
"Swingline Loans"). The Term Loans are comprised of a Tranche A Term Loan
($100.0 million), which have a maturity of six years, a Tranche B Term
Loan ($45.0 million), which have a maturity of eight years, and a Tranche
C Term Loan ($30.0 million), which have a maturity of nine years. The
Revolving Credit Facility commitment terminates six years after the date
of initial funding of the Senior Credit Facilities.

102
All borrowings under the Senior Credit Facilities bear interest, at
the Company's option, at either: (A) a "base rate" equal to, for any day,
the higher of: (a) 0.50% per annum above the latest Federal Funds Rate;
and (b) the rate of interest in effect for such day as publicly announced
from time to time by Bank of America NT&SA, as Administrative Agent, in
San Francisco, California, as its "reference rate" plus (i) in the case of
the Tranche A Term Loan, the Revolving Credit Facility and the Swingline
Loans, a debt to EBITDA-dependent rate ranging from 0.50% to 1.25% per
annum, (ii) in the case of the Tranche B Term Loan, a rate of 1.50% per
annum or (iii) in the case of the Tranche C Term Loan, a rate of 1.75% per
annum or (B) a "LIBOR rate" equal to, for any Interest Period (as defined
in the Senior Credit Facilities), with respect to LIBOR Loans comprising
part of the same borrowing, the London interbank offered rate of interest
per annum for such Interest Period as determined by the Administrative
Agent, plus (i) in the case of the Tranche A Term Loan and the Revolving
Credit Facility, a debt to EBITDA-dependent rate ranging from 1.50% to
2.25% per annum, (ii) in the case of the Tranche B Term Loan, a rate of
2.50% per annum or (iii) in the case of the Tranche C Term Loan, a rate of
2.75% per annum.

The Company will pay a commitment fee calculated at a debt to
EBITDA-dependent rate ranging from 0.375% to 0.50% per annum of the
available unused commitment under the Revolving Credit Facility, in each
case in effect on each day. Such fee will be payable quarterly in arrears
and upon termination of the Revolving Credit Facility.

The Company will pay a letter of credit fee calculated at a debt to
EBITDA-dependent rate ranging from 1.50% to 2.25% per annum of the face
amount of each letter of credit and a fronting fee calculated at a rate
equal to 0.125% per annum of the face amount of each letter of credit.
Such fees will be payable quarterly in arrears and upon the termination of
the Revolving Credit Facility. In addition, the Company will pay customary
transaction charges in connection with any letters of credit.

The foregoing debt to EBITDA-dependent rates range from the low rate
specified if the ratio of debt to EBITDA is less than 3.75 to 1.0 to the
high rate specified if such ratio is at least equal to 4.75 to 1.0.

The Term Loans are subject to the following amortization schedule:

Tranche A Term Loan Tranche B Term Loan Tranche C Term Loan
------------------------- ------------------------- -------------------------

Year 1 . . . . . . . . . . . . . . . . . . $ 4,000,000 $ 500,000 $ 500,000
Year 2 . . . . . . . . . . . . . . . . . . 5,000,000 500,000 500,000
Year 3 . . . . . . . . . . . . . . . . . . 15,000,000 500,000 500,000
Year 4 . . . . . . . . . . . . . . . . . . 21,000,000 500,000 500,000
Year 5 . . . . . . . . . . . . . . . . . . 27,000,000 500,000 500,000
Year 6 . . . . . . . . . . . . . . . . . . 28,000,000 500,000 500,000
Year 7 . . . . . . . . . . . . . . . . . . -- 20,000,000 500,000
Year 8 . . . . . . . . . . . . . . . . . . -- 22,000,000 500,000
Year 9 . . . . . . . . . . . . . . . . . . -- -- 26,000,000

103
Borrowings under the Senior Credit Facilities is subject to
mandatory prepayment (i) with the net proceeds of any incurrence of
indebtedness with certain exceptions to be agreed, (ii) with the proceeds
of certain asset sales and (iii) on an annual basis with (A) 75% of the
Company's excess cash flow (as defined in the Senior Credit Facilities) if
the ratio of the Company's debt to EBITDA is greater than 3.5 to 1.0 or
(B) 50% of such excess cash flow if the ratio is less than 3.5 to 1.0.

The Company's obligations under the Senior Credit Facilities is
secured by a lien on substantially all of the tangible and intangible
assets of Holdings, the Company, and their direct and indirect
subsidiaries, including: (i) a pledge by Holdings of the stock of the
Company and (ii) a pledge by the Company and its direct and indirect
subsidiaries of all of the stock of their respective domestic subsidiaries
and 65% of the stock of the Company's first-tier foreign subsidiaries. In
addition, indebtedness under the Senior Credit Facilities is guaranteed by
Holdings and by all of the Company's direct and indirect domestic
subsidiaries. See "Description of the Exchange Notes--Subordination",
"Risk Factors--Subordination".

The Senior Credit Facilities contain customary covenants and
restrictions on the Company's ability to engage in certain activities. In
addition, the Senior Credit Facilities provide that the Company must meet
or exceed certain interest coverage ratios and must not exceed a leverage
ratio. The Senior Credit Facilities also include customary events of
default.

104
THE EXCHANGE OFFER

General

The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the Exchange Offer), to exchange up
to $225 million aggregate principal amount of Exchange Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to
the Expiration Date and not withdrawn as permitted pursuant to the
procedures described below. The Exchange Offer is being made with respect
to all of the Old Notes.

As of the date of this Prospectus, $225 million aggregate principal
amount of the Old Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1997, to
all holders of Old Notes known to the Company. The Company's obligation
to accept Old Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions set forth under "Certain Conditions to the Exchange
Offer" below. The Company currently expects that each of the conditions
will be satisfied and that no waivers will be necessary.

Purpose of the Exchange Offer

The Old Notes were issued on April 30, 1997 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the
Old Notes may not be reoffered, resold, or otherwise transferred unless so
registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.

In connection with the issuance and sale of the Old Notes, the
Company entered into the Registration Rights Agreement, which requires the
Company to file with the Commission a registration statement relating to
the Exchange Offer not later than 90 days after the date of issuance of
the Old Notes, and to use its best efforts to cause the registration
statement relating to the Exchange Offer to become effective under the
Securities Act not later than 150 days after the date of issuance of the
Old Notes and the Exchange Offer to be consummated not later than 30 days
after the date of the effectiveness of the Registration Statement (or use
its best efforts to cause to become effective by the 180th calendar day
after the Issuance Date (as defined) a shelf registration statement with
respect to resales of the Old Notes). A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement.

The Exchange Offer is being made by the Company to satisfy its
obligations with respect to the Registration Rights Agreement. The term
"holder," with respect to the Exchange Offer, means any person in whose
name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Notes are held of record by The
Depository Trust Company. Other than pursuant to the Registration Rights
Agreement, the Company is not required to file any registration statement
to register any outstanding Old Notes. Holders of Old Notes who do not
tender their Old Notes or whose Old Notes are tendered but not accepted
would have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Old Notes.

105
The Company is making the Exchange Offer in reliance on the position
of the staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, the
Company has not sought its own interpretive letter and there can be no
assurance that the staff would make a similar determination with respect
to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the Staff, the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred
by a Holder (other than any Holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's
business and that such Holder is not participating, and has no arrangement
or understanding with any person to participate, in a distribution (within
the meaning of the Securities Act) of such Exchange Notes. See "--Resale
of Exchange Notes". Each broker-dealer that receives Exchange Notes for
its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution".

Terms of the Exchange

The Company hereby offers to exchange, subject to the conditions set
forth herein and in the Letter of Transmittal accompanying this
Prospectus, $1,000 in principal amount of Exchange Notes for each $1,000
in principal amount of the Old Notes. The terms of the Exchange Notes are
identical in all material respects to the terms of the Old Notes for which
they may be exchanged pursuant to this Exchange Offer, except that the
Exchange Notes will generally be freely transferable by holders thereof
and will not be subject to any covenant regarding registration. The
Exchange Notes will evidence the same indebtedness as the Old Notes and
will be entitled to the benefits of the Indenture. See "Description of
Exchange Notes".

The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.

The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Old Notes may be offered for sale, resold or otherwise transferred by any
holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Instead, based on an interpretation by
the staff of the Commission set forth in a series of no-action letters
issued to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered
for sale, resold and otherwise transferred by any holder of such Exchange
Notes (other than any such holder that is a broker-dealer or is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such holder's business and

106
such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and neither such
holder nor any other such person is engaging in or intends to engage in a
distribution of such Exchange Notes. Since the Commission has not
considered the Exchange Offer in the context of a no-action letter, there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Any holder who is an
affiliate of the Company or who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes cannot
rely on such interpretation by the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in,
and does not intend to engage in, a distribution of Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution".

Interest on the Exchange Notes will accrue from the last Interest
Payment Date on which interest was paid on the Old Notes so surrendered
or, if no interest has been paid on such Notes, from April 30, 1997.

Tendering holders of the Old Notes shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the
Old Notes pursuant to the Exchange Offer.

Expiration Date; Extension; Termination; Amendment

The Exchange Offer will expire at 5:00 p.m., New York City time, on
__________, 1997, unless the Company, in its sole discretion, has extended
the period of time for which the Exchange Offer is open (such date, as it
may be extended, is referred to herein as the "Expiration Date"). The
Expiration Date will be at least 20 business days after the commencement
of the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange
Act. The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance for exchange of any Old Notes, by
giving oral or written notice to the Exchange Agent and by timely public
announcement no later than 9:00 a.m. New York City time, on the next
business day after the previously scheduled Expiration Date. During any
such extension, all Old Notes previously tendered will remain subject to
the Exchange Offer unless properly withdrawn.

The Company expressly reserves the right to (i) terminate or amend
the Exchange Offer and not to accept for exchange any Old Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "Certain Conditions to the Exchange Offer" which
have not been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is
advantageous to the holders of the Old Notes, whether before or after any
tender of the Notes. If any such termination or amendment occurs, the

107
Company will notify the Exchange Agent and will either issue a press
release or give oral or written notice to the holders of the Old Notes as
promptly as practicable.

For purposes of the Exchange Offer, a "business day" means any day
other than Saturday, Sunday or a date on which banking institutions are
required or authorized by New York State law to be closed, and consists of
the time period from 12:01 a.m. through 12:00 midnight, New York City
time. Unless the Company terminates the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for the Old Notes on the Exchange Date.

Procedures for Tendering Old Notes

The tender to the Company of Old Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the
terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal.

A holder of Old Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Notes being tendered and
any required signature guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its address set forth
below on or prior to the Expiration Date (or complying with the procedure
for book-entry transfer described below) or (ii) complying with the
guaranteed delivery procedures described below.

The method of delivery of Old Notes, Letters of Transmittal and all
other required documents is at the election and risk of the holders. If
such delivery is by mail, it is recommended that registered mail properly
insured, with return receipt requested, be used. In all cases, sufficient
time should be allowed to insure timely delivery. No Old Notes or Letters
of Transmittal should be sent to the Company.

If tendered Old Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Notes to be issued in exchange
therefor are to be issued (and any untendered Old Notes are to be
reissued) in the name of the registered holder (which term, for the
purposes described herein, shall include any participant in The Depository
Trust Company (also referred to as a "book-entry transfer facility") whose
name appears on a security listing as the owner of Old Notes), the
signature of such signer need not be guaranteed. In any other case, the
tendered Old Notes must be endorsed or accompanied by written instruments
of transfer in form satisfactory to the Company and duly executed by the
registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union,
savings association, clearing agency or other institution (each an
"Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Old Notes not exchanged are to
be delivered to an address other than that of the registered holder
appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.

108
The Exchange Agent will make a request within two business days
after the date of receipt of this Prospectus to establish accounts with
respect to the Old Notes at the book-entry transfer facility for the
purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in
the book-entry transfer facility's system may make book-entry delivery of
Old Notes by causing such book-entry transfer facility to transfer such
Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.

If a holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if the Exchange
Agent has received at its address set forth below on or prior to the
Expiration Date, a letter, telegram or facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier) from an Eligible Institution setting forth the name and address
of the tendering holder, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered,
and stating that the tender is being made thereby and guaranteeing that
within three business days after the Expiration Date, the Old Notes in
proper form for transfer (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the
above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of the notice of
guaranteed delivery ("Notice of Guaranteed Delivery") which may be used by
Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.

A tender will be deemed to have been received as of the date when
(i) the tendering holder's properly completed and duly signed Letter of
Transmittal accompanied by the Old Notes (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility) is received by the Exchange Agent, or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible
Institution is received by the Exchange Agent. Issuances of Exchange Notes
in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect
(as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.

109
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to
reject any and all tenders of any particular Old Notes not properly
tendered or not to accept any particular Old Notes which acceptance might,
in the judgment of the Company or its counsel, be unlawful. The Company
also reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto)
by the Company shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor
shall any of them incur any liability for failure to give such
notification.

If the Letter of Transmittal is signed by a person or persons other
than the registered holder or holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders
appear on the Old Notes.

If the Letter of Transmittal or any Old Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory
to the Company of their authority to so act must be submitted.

By tendering, each holder will represent to the Company that, among
other things, the Exchange Notes acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the holder,
that neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the
Company, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.

Each broker-dealer that receives Exchange Notes for its own account
in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of
Distribution."

Terms and Conditions of the Letter of Transmittal

The Letter of Transmittal contains, among other things, the
following terms and conditions, which are part of the Exchange Offer.

110
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power
and authority to tender, exchange, assign and transfer the Old Notes and
to acquire Exchange Notes issuable upon the exchange of such tendered
Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Old Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon
request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by a
book-entry transfer facility. The Transferor further agrees that
acceptance of any tendered Old Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full
by the Company of certain of its obligations under the Registration Rights
Agreement. All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of such Transferor.

The Transferor certifies that it is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act and that
it is acquiring the Exchange Notes offered hereby in the ordinary course
of such Transferor's business and that such Transferor has no arrangement
with any person to participate in the distribution of such Exchange Notes.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of Exchange
Notes. Each Transferor which is a broker-dealer receiving Exchange Notes
for its own account must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. By so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. In
connection with the offering of the Old Notes, the Company agreed to file
and maintain, subject to certain limitations, a registration statement
that would allow Lehman Brothers Inc. to engage in market-making
transactions with respect to the Notes. The Company has agreed to bear
registration expenses incurred under such agreement.

Withdrawal Rights

Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.

For a withdrawal to be effective, a written notice of withdrawal
sent by telegram, facsimile transmission (receipt confirmed by telephone)
or letter must be received by the Exchange Agent at the address set forth
herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Old Notes), (iii) specify the principal amount of Notes to be withdrawn,
(iv) include a statement that such holder is withdrawing his election to

111
have such Old Notes exchanged, (v) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee under the Indenture register the
transfer of such Old Notes into the name of the person withdrawing the
tender and (vi) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. The Exchange Agent
will return the properly withdrawn Old Notes promptly following receipt of
notice of withdrawal. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at the book-entry transfer facility to
be credited with the withdrawn Old Notes or otherwise comply with the
book-entry transfer facility procedure. All questions as to the validity
of notices of withdrawals, including time of receipt, will be determined
by the Company and such determination will be final and binding on all
parties.

Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the book-entry transfer facility pursuant to
the book-entry transfer procedures described above, such Old Notes will be
credited to an account with such book-entry transfer facility specified by
the holder) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "Procedures
for Tendering Old Notes" above at any time on or prior to the Expiration
Date.

Acceptance of Old Notes for Exchange; Delivery of Exchange Notes

Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly on the Exchange Date, all Old
Notes properly tendered and will issue the Exchange Notes promptly after
such acceptance. See "Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have
accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.

For each Old Note accepted for exchange, the holder of such Old Note
will receive an Exchange Note having a principal amount equal to that of
the surrendered Old Note.

In all cases, issuance of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of certificates for such Old
Notes or a timely book-entry confirmation of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Notes
are submitted for a greater principal amount than the holder desires to

112
exchange, such unaccepted or non-exchanged Old Notes will be returned
without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such non-exchanged Old Notes will be credited
to an account maintained with such book-entry transfer facility) as
promptly as practicable after the expiration of the Exchange Offer.

Certain Conditions to the Exchange Offer

Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company shall not be required to
accept for exchange, or to issue Exchange Notes in exchange for, any Old
Notes and may terminate or amend the Exchange Offer (by oral or written
notice to the Exchange Agent or by a timely press release) if at any time
before the acceptance of such Old Notes for exchange or the exchange of
the Exchange Notes for such Old Notes, any of the following conditions
exist:

(a) any action or proceeding is instituted or threatened
in any court or by or before any governmental agency or regulatory
authority or any injunction, order or decree is issued with respect
to the Exchange Offer which, in the sole judgment of the Company,
might materially impair the ability of the Company to proceed with
the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or

(b) any change (or any development involving a
prospective change) shall have occurred or be threatened in the
business, properties, assets, liabilities, financial condition,
operations, results of operations or prospects of the Company that
is or may be adverse to the Company, or the Company shall have
become aware of facts that have or may have adverse significance
with respect to the value of the Old Notes or the Exchange Notes or
that may materially impair the contemplated benefits of the Exchange
Offer to the Company; or

(c) any law, rule or regulation or applicable
interpretations of the staff of the Commission is issued or
promulgated which, in the good faith determination of the Company,
do not permit the Company to effect the Exchange Offer; or

(d) any governmental approval has not been obtained,
which approval the Company, in its sole discretion, deems necessary
for the consummation of the Exchange Offer; or

(e) there shall have been proposed, adopted or enacted
any law, statute, rule or regulation (or an amendment to any
existing law statute, rule or regulation) which, in the sole
judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or have a material
adverse effect on the contemplated benefits of the Exchange Offer to
the Company; or

113
(f) there shall occur a change in the current
interpretation by the staff of the Commission which permits the
Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes to be offered for resale, resold and otherwise transferred
by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that
such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any
person to participate in the distribution of such Exchange Notes; or

(g) there shall have occurred (i) any general suspension
of, shortening of hours for, or limitation on prices for, trading in
securities on any national securities exchange or in the
over-the-counter market (whether or not mandatory), (ii) any
limitation by any governmental agency or authority which may
adversely affect the ability of the Company to complete the
transactions contemplated by the Exchange Offer, (iii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks by Federal or state authorities in the United States (whether
or not mandatory), (iv) a commencement of a war, armed hostilities
or other international or national crisis directly or indirectly
involving the United States, (v) any limitation (whether or not
mandatory) by any governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of credit by banks
or other leading institutions in the United States, or (vi) in the
case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or
worsening thereof.

The Company expressly reserves the right to terminate the Exchange
Offer and not accept for exchange any Old Notes upon the occurrence of any
of the foregoing conditions (which represent all of the material
conditions to the acceptance by the Company of properly tendered Old
Notes). In addition, the Company may amend the Exchange Offer at any time
prior to the Expiration Date if any of the conditions set forth above
occur. Moreover, regardless of whether any of such conditions has
occurred, the Company may amend the Exchange Offer in any manner which, in
its good faith judgment, is advantageous to holders of the Old Notes.

The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise
to any such condition or may be waived by the Company in whole or in part
at any time and from time to time in its sole discretion. The failure by
the Company at any time to exercise any of the foregoing rights shall not
be deemed a waiver of any such right and each such right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
If the Company waives or amends the foregoing conditions, it will, if
required by law, extend the Exchange Offer for a minimum of five business
days from the date that the Company first gives notice, by public
announcement or otherwise, of such waiver or amendment, if the Exchange
Offer would otherwise expire within such five business-day period. Any
determination by the Company concerning the events described above will be
final and binding upon all parties.

114
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Old Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended. In any such event the Company is
required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.

The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange.

Exchange Agent

The Bank of New York has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below:

By Hand/Overnight Courier: By Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Corporate Trust Services Window Corporate Trust Services Window
New York, New York 10286 New York, New York 10286
Attn: Reorganization Section Attn: Reorganization Section

By Facsimile: (212) 815-6339
Attn.: Reorganization Section
Telephone: (212) 815-4444

Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices
of Guaranteed Delivery should be directed to the Exchange Agent at the
address and telephone number set forth in the Letter of Transmittal.

DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX
NUMBER OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL
NOT CONSTITUTE A VALID DELIVERY.

Solicitation of Tenders; Fees and Expenses

The Company has not retained any dealer-manager in connection with
the Exchange Offer and will not make any payments to brokers, dealers or
others soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services
and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and other related documents
to the beneficial owners of the Old Notes and in handling or forwarding
tenders for their customers.

The estimated cash expenses to be incurred in connection with the
Exchange Offer will be paid by the Company and are estimated in the
aggregate to be approximately $500,000, which includes fees and expenses
of the Exchange Agent, Trustee, registration fees, accounting, legal,
printing and related fees and expenses.

115
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the
respective dates as of which information is given herein. The Exchange
Offer is not being made to (nor will tenders be accepted from or on behalf
of) holders of Old Notes in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with
the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of
Old Notes in such jurisdiction. In any jurisdiction in which the
securities laws or blue sky laws of which require the Exchange Offer to be
made by a licensed broker or dealer, the Exchange Offer is being made on
behalf of the Company by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.

Transfer Taxes

The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be issued in the name of, any person other than the registered
holder of the Old Notes tendered, or if tendered Old Notes are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.

Accounting Treatment

The Exchange Notes will be recorded at the carrying value of the Old
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Exchange Notes for Old
Notes. Expenses incurred in connection with the issuance of the Exchange
Notes will be amortized over the term of the Exchange Notes.

Consequences of Failure to Exchange

Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Notes as set forth in the
legend thereon. Old Notes not exchanged pursuant to the Exchange Offer
will continue to remain outstanding in accordance with their terms. In
general, the Old Notes may not be offered or sold unless registered under
the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state

116
securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.

Participation in the Exchange Offer is voluntary, and holders of Old
Notes should carefully consider whether to participate. Holders of Old
Notes are urged to consult their financial and tax advisors in making
their own decision on what action to take.

As a result of the making of, and upon acceptance for exchange of
all validly tendered Old Notes pursuant to the terms of, this Exchange
Offer, the Company will have fulfilled a covenant contained in the
Registration Rights Agreement. Holders of Old Notes who do not tender
their Old Notes in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and limitations applicable thereto
under the Indenture, except for any such rights under the Registration
Rights Agreement that by their terms terminate or cease to have further
effectiveness as a result of the making of this Exchange Offer. All
untendered Old Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for
untendered Old Notes could be adversely affected.

The Company may in the future seek to acquire, subject to the terms
of the Indenture, untendered Old Notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise.
The Company has no present plan to acquire any Old Notes which are not
tendered in the Exchange Offer.

Resale of Exchange Notes

The Company is making the Exchange Offer in reliance on the position
of the staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, the
Company has not sought its own interpretive letter and there can be no
assurance that the Staff would make a similar determination with respect
to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff, the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred
by a Holder (other than any Holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's
business and that such Holder is not participating, and has no arrangement
or understanding with any person to participate, in a distribution (within
the meaning of the Securities Act) of such Exchange Notes. However, any
holder who is an "affiliate" of the Company or who has an arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act (i) could not rely
on the applicable interpretations of the staff and (ii) must comply with
the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds Old Notes that were acquired for its own

117
account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and
must, therefore, deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes. Each such
broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge in the Letter of Transmittal that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution."

In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Exchange Notes for offer or sale under
the securities or blue sky laws of such jurisdictions as any holder of the
Exchange Notes reasonably requests. Such registration or qualification may
require the imposition of restrictions or conditions (including
suitability requirements for offerees or purchasers) in connection with
the offer or sale of any Exchange Notes.

118
DESCRIPTION OF THE EXCHANGE NOTES

General

The Old Notes were issued and the Exchange Notes offered hereby will
be issued under an indenture dated as of April 30, 1997 (the "Indenture")
between the Company, as issuer, and The Bank of New York, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and holders of the Exchange
Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture describes the material terms of the Indenture but does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Indenture, including the definitions
of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act. For definitions of
certain capitalized terms used in the following summary, see "--Certain
Definitions". The Indenture is an exhibit to the Registration Statement of
which this Prospectus is a part.

On April 30, 1997, the Company issued $225.0 million aggregate
principal amount of Old Notes under the Indenture. The terms of the
Exchange Notes are identical in all material respects to the Old Notes,
except for certain transfer restrictions and registration and other rights
relating to the exchange of the Old Notes for Exchange Notes. The Trustee
will authenticate and deliver Exchange Notes for original issue only in
exchange for a like principal amount of Old Notes. Any Old Notes that
remain outstanding after the consummation of the Exchange Offer, together
with the Exchange Notes, will be treated as a single class of securities
under the Indenture. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Exchange
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old
Notes and Exchange Notes then outstanding.

The Exchange Notes will be general unsecured obligations of the
Company and will be subordinated in right of payment to all current and
future Senior Debt. At December 31, 1996, on a pro forma basis giving
effect to the Acquisition and the initial borrowings under the Senior
Credit Facilities, the Company would have had Senior Debt of approximately
$175.0 million outstanding (excluding letters of credit). The Indenture
will permit the incurrence of additional Senior Debt in the future.

The Company will not have any Subsidiaries as of the Issue Date.
However, the Indenture will provide that the Company's payment obligations
under the Exchange Notes will be jointly and severally guaranteed (the
"Subsidiary Guarantees") by all of the Company's future Restricted
Subsidiaries, other than Foreign Subsidiaries (collectively, the
"Guarantors"). The Subsidiary Guarantee of each Guarantor will be
subordinated to the prior payment in full of all Senior Debt of such
Guarantor, which would include the guarantees of amounts borrowed under
the Senior Credit Facilities.

119
Principal, Maturity and Interest

The Exchange Notes will be limited in aggregate principal amount to
$225.0 million and will mature on May 1, 2007. Interest on the Exchange
Notes will accrue at the rate of 10 3/8% per annum and will be payable
semi-annually in arrears on May 1 and November 1, commencing on November
1, 1997, to Holders of record on the immediately preceding April 15 and
October 15. Interest on the Exchange Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest on the Exchange Notes will be payable at the
office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, payment of
interest may be made by check mailed to the Holders of the Exchange Notes
at their respective addresses set forth in the register of Holders of
Exchange Notes; provided that all payments of principal, premium and
interest with respect to Exchange Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by
the Holders thereof if such Holders shall be registered Holders of at
least $250,000 in principal amount of Exchange Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will
be the office of the Trustee maintained for such purpose. The Exchange
Notes will be issued in denominations of $1,000 and integral multiples
thereof.

Optional Redemption

The Exchange Notes will not be redeemable at the Company's option
prior to May 1, 2002. Thereafter, the Exchange Notes will be subject to
redemption at any time at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest to the applicable redemption date, if redeemed
during the twelve-month period beginning on May 1 of the years indicated
below:

Year Percentage
-------------------------------- -----------------

2002 . . . . . . . . . . . . . . 105.188%
2003 . . . . . . . . . . . . . . 103.458%
2004 . . . . . . . . . . . . . . 101.729%
2005 and thereafter . . . . . . . 100.000%

Notwithstanding the foregoing, during the first 36 months after the
Issue Date, the Company may on any one or more occasions redeem up to an
aggregate of 35% of the Exchange Notes originally issued at a redemption

120
price of 109.375% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date, with the net cash proceeds of one or more
Equity Offerings by the Company or the net cash proceeds of one or more
Equity Offerings by Holdings that are contributed to the Company as common
equity capital; provided that at least 65% of the Exchange Notes
originally issued remain outstanding immediately after the occurrence of
each such redemption; and provided, further, that any such redemption must
occur within 120 days of the date of the closing of such Equity Offering.

Subordination

The payment of principal of, premium, if any, and interest on the
Exchange Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the Issue Date or thereafter incurred.

Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or
its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior
Debt will be entitled to receive payment in full in cash of all
Obligations due in respect of such Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the
applicable Senior Debt, whether or not an allowable claim in any such
proceeding) before the Holders of Exchange Notes will be entitled to
receive any payment with respect to the Exchange Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution
to which the Holders of Exchange Notes would be entitled shall be made to
the holders of Senior Debt (except, in each case, that Holders of Exchange
Notes may receive Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance").

The Company also may not make any payment upon or in respect of the
Exchange Notes (except from the trust described under "--Legal Defeasance
and Covenant Defeasance") if (i) a default in the payment of the principal
of, premium, if any, or interest on Designated Senior Debt occurs and is
continuing or (ii) any other default occurs and is continuing with respect
to Designated Senior Debt that permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity (or that
would permit such holders to accelerate with the giving of notice or the
passage of time or both) and the Trustee receives a notice of such default
(a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Debt. Payments on the Exchange Notes may and shall be
resumed (A) in the case of a payment default, upon the date on which such
default is cured or waived and (B) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Exchange Notes that have
come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent

121
Payment Blockage Notice unless such default shall have been waived for a
period of not less than 90 days.

The Indenture further requires that the Company promptly notify
holders of Senior Debt if payment of the Exchange Notes is accelerated
because of an Event of Default.

As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Exchange Notes may
recover less ratably than creditors of the Company who are holders of
Senior Debt. On a pro forma basis, after giving effect to the Acquisition
and the initial borrowing under the Senior Credit Facilities, the
principal amount of Senior Debt outstanding (excluding letters of credit)
at December 31, 1996 would have been approximately $175.0 million.

Selection and Notice

If less than all of the Exchange Notes are to be redeemed at any
time, selection of Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Exchange Notes are listed, or,
if the Exchange Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided that
no Exchange Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more
than 60 days before the redemption date to each Holder of Exchange Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. Exchange Notes
called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on Exchange Notes or
portions of them called for redemption.

Mandatory Redemption

Except as set forth below under "--Repurchase at the Option of
Holders", the Company is not required to make mandatory redemption or
sinking fund payments with respect to the Exchange Notes.

Repurchase at the Option of Holders

Change of Control

Upon the occurrence of a Change of Control, each Holder of Exchange
Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Exchange Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Exchange Notes on the date specified in

122
such notice, which date shall be no earlier than 30 days and no later than
60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Exchange Notes as a
result of a Change of Control.

On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Exchange Notes or portions
thereof properly tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Exchange Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee the
Exchange Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Exchange Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each
Holder of Exchange Notes so tendered the Change of Control Payment for
such Exchange Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof.

The Indenture will provide that, prior to mailing a Change of
Control Offer, but in any event within 90 days following a Change of
Control, the Company will either repay all outstanding Senior Debt or
offer to repay all Senior Debt and terminate all commitments thereunder of
each lender who has accepted such offer or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit
the repurchase of Exchange Notes required by this covenant. The Company
will publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.

The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the
Exchange Notes to require that the Company repurchase or redeem the
Exchange Notes in the event of a takeover, recapitalization or similar
transaction.

The Senior Credit Facilities will prohibit the Company from
purchasing any Exchange Notes, and also provides that certain change of
control events with respect to the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a
time when the Company is prohibited from purchasing Exchange Notes, the
Company could seek the consent of its lenders to the purchase of Exchange
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Exchange
Notes. In such case, the Company's failure to purchase tendered Exchange
Notes would constitute an Event of Default under the Indenture which

123

would, in turn, constitute a default under the Senior Credit Facilities.
In such circumstances, the subordination provisions in the Indenture would
likely restrict payments to the Holders of Exchange Notes. See "Risk
Factors--Change of Control". Finally, the Company's ability to pay cash to
the holders of Notes upon a purchase may be limited by the Company's
then-existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
purchases. Even if sufficient funds were otherwise available, the terms of
the Senior Credit Facilities will prohibit, subject to certain exceptions,
the Company's prepayment of Notes prior to their scheduled maturity.
Consequently, if the Company is not able to prepay indebtedness outstanding
under the Senior Credit Facilities and any other Senior Indebtedness
containing similar restrictions or obtain requisite consents, the Company
will be unable to fulfill its repurchase obligations if holders of Notes
exercise their purchase rights following a Change of Control, thereby
resulting in a default under the Indenture. Furthermore, the Change of
Control provisions may in certain circumstances make more difficult or
discourage a takeover of the Company.

The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control
Offer made by the Company and purchases all Exchange Notes validly
tendered and not withdrawn under such Change of Control Offer.

"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) other than the Principals
or their Related Parties (as defined below), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number
of shares) or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.

"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of
such Board of Directors on the Issue Date or (ii) was nominated for
election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.

"Principals" means any Lehman Investor, Lockheed Martin Corporation,
Frank C. Lanza and Robert V. LaPenta.

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"Related Party" with respect to any Principal means (i) any
controlling stockholder, 50% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal
or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a more than 50% controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (i).

"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.

With respect to the disposition of assets, the phrase "all or
substantially all" as used in the Indenture varies according to the facts
and circumstances of the subject transaction and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree
of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of the
Company.

Asset Sales

The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary, as the case may be, consists of cash, Cash
Equivalents and/or Marketable Securities; provided, however, that (A) the
amount of any Senior Debt of the Company or such Restricted Subsidiary
that is assumed by the transferee in any such transaction and (B) any
consideration received by the Company or such Restricted Subsidiary, as
the case may be, that consists of (1) all or substantially all of the
assets of one or more Similar Businesses, (2) other long-term assets that
are used or useful in one or more Similar Businesses and (3) Permitted
Securities shall be deemed to be cash for purposes of this provision.

Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to repay
Indebtedness under a Credit Facility, or (ii) to the acquisition of
Permitted Securities, all or substantially all of the assets of one or
more Similar Businesses, or the making of a capital expenditure or the
acquisition of other long-term assets in a Similar Business. Pending the
final application of any such Net Proceeds, the Company may temporarily
reduce Indebtedness under a Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds exceeds $10.0

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million, the Company will be required to make an offer to all Holders of
Exchange Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Exchange Notes that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate
amount of Exchange Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount
of Exchange Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Exchange Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.

The Senior Credit Facilities will substantially limit the Company's
ability to purchase subordinated Indebtedness, including the Exchange
Notes. Any future credit agreements relating to Senior Debt may contain
similar restrictions. See "Description of Senior Credit Facilities".

Certain Covenants

Restricted Payments

The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than (A) dividends or
distributions payable in Equity Interests (other than Disqualified Stock)
of the Company or (B) dividends or distributions by a Restricted
Subsidiary so long as, in the case of any dividend or distribution payable
on or in respect of any class or series of securities issued by a
Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, the
Company or a Restricted Subsidiary receives at least its pro rata share of
such dividend or distribution in accordance with its Equity Interests in
such class or series of securities); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection
with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company;
(iii) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Exchange Notes except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:

(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and

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(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described
below under caption "Incurrence of Indebtedness and Issuance of
Preferred Stock"; and

(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clauses (ii) through (vii) of the next
succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company from a contribution to its common
equity capital or the issue or sale since the Issue Date of Equity
Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the amount of cash received
in connection therewith (or from the sale of Marketable Securities
received in connection therewith), plus (iv) to the extent not
already included in such Consolidated Net Income of the Company for
such period and without duplication, (A) 100% of the aggregate
amount of cash received as a dividend from an Unrestricted
Subsidiary, (B) 100% of the cash received upon the sale of
Marketable Securities received as a dividend from an Unrestricted
Subsidiary, and (C) 100% of the net assets of any Unrestricted
Subsidiary on the date that it becomes a Restricted Subsidiary.

The foregoing provisions will not prohibit:

(i) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture;

(ii) the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness or
Equity Interests of the Company in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph;

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(iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness (other than intercompany
Indebtedness) in exchange for, or with the net cash proceeds from an
incurrence of, Permitted Refinancing Indebtedness;

(iv) the repurchase, retirement or other acquisition
or retirement for value of common Equity Interests of the Company or
Holdings held by any future, present or former employee, director or
consultant of the Company or any Subsidiary or Holdings issued
pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; provided,
however, that the aggregate amount of Restricted Payments made under
this clause (iv) does not exceed $1.5 million in any calendar year
and provided further that cancellation of Indebtedness owing to the
Company from members of management of the Company or any of its
Restricted Subsidiaries in connection with a repurchase of Equity
Interests of the Company will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other
provision of the Indenture;

(v) repurchases of Equity Interests deemed to occur
upon exercise of stock options upon surrender of Equity Interests to
pay the exercise price of such options;

(vi) payments to Holdings (A) in amounts equal to the
amounts required for Holdings to pay franchise taxes and other fees
required to maintain its legal existence and provide for other
operating costs of up to $500,000 per fiscal year and (B) in amounts
equal to amounts required for Holdings to pay federal, state and
local income taxes to the extent such income taxes are actually due
and owing; provided that the aggregate amount paid under this clause
(B) does not exceed the amount that the Company would be required to
pay in respect of the income of the Company and its Subsidiaries if
the Company were a stand alone entity that was not owned by
Holdings; and

(vii) other Restricted Payments in an aggregate amount
since the Issue Date not to exceed $20.0 million.

The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not
cause a Default. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will
be deemed to be Restricted Payments at the time of such designation and
will reduce the amount available for Restricted Payments under the first
paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market
value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary.

The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or

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securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The
fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the
basis upon which the calculations required by the covenant "Restricted
Payments" were computed.

Incurrence of Indebtedness and Issuance of Preferred Stock

The Indenture will provide that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur")
any Indebtedness (including Acquired Debt) and that the Company will not
issue any Disqualified Stock and will not permit any of its Subsidiaries
to issue any shares of preferred stock; provided, however, that the
Company and any Restricted Subsidiary may incur Indebtedness (including
Acquired Debt) or issue shares of preferred stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or
such preferred stock is issued would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.

The forgoing limitation will not apply to the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):

(i) the incurrence by the Company of term
Indebtedness under Credit Facilities (and the guarantee thereof by
the Guarantors); provided that the aggregate principal amount of all
term Indebtedness outstanding under all Credit Facilities after
giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (i), does
not exceed an amount equal to $175.0 million less the aggregate
amount of all repayments, optional or mandatory, of the principal of
any Indebtedness under a Credit Facility (or any such Permitted
Refinancing Indebtedness) that have been made since the Issue Date;

(ii) the incurrence by the Company of revolving
credit Indebtedness and letters of credit (with letters of credit
being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) under Credit Facilities (and the guarantee thereof by
the Guarantors); provided that the aggregate principal amount of all
revolving credit Indebtedness outstanding under all Credit
Facilities after giving effect to such incurrence, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause

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(ii), does not exceed an amount equal to $100.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to repay
any such Indebtedness (including any such Permitted Refinancing
Indebtedness) pursuant to the covenant described above under the
caption "--Asset Sales";

(iii) the incurrence by the Company and its Restricted
Subsidiaries of the Existing Indebtedness;

(iv) the incurrence by the Company and the Guarantors
of the Exchange Notes and the Subsidiary Guarantees;

(v) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in
each case incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or
such Restricted Subsidiary, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to
this clause (v), not to exceed $30.0 million at any time
outstanding;

(vi) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness in connection with the
acquisition of assets or a new Restricted Subsidiary; provided that
such Indebtedness was incurred by the prior owner of such assets or
such Restricted Subsidiary prior to such acquisition by the Company
or one of its Restricted Subsidiaries and was not incurred in
connection with, or in contemplation of, such acquisition by the
Company or one of its Restricted Subsidiaries; and provided further
that the principal amount (or accreted value, as applicable) of such
Indebtedness, together with any other outstanding Indebtedness
incurred pursuant to this clause (vi), does not exceed $10.0
million;

(vii) the incurrence by the Company or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to refund,
refinance or replace, Indebtedness that was permitted by the
Indenture to be incurred;

(viii) Indebtedness incurred by the Company or any of
its Restricted Subsidiaries constituting reimbursement obligations
with respect to letters of credit issued in the ordinary course of
business in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement
type obligations regarding workers' compensation claims; provided,
however, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed
within 30 days following such drawing or incurrence;

130
(ix) Indebtedness arising from agreements of the
Company or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any
business, assets or a Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of
such business, assets or a Subsidiary for the purpose of financing
such acquisition; provided, however, that (A) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance
sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (A)) and (B) the maximum assumable liability
in respect of all such Indebtedness shall at no time exceed the
gross proceeds including noncash proceeds (the fair market value of
such noncash proceeds being measured at the time received and
without giving effect to any subsequent changes in value) actually
received by the Company and its Restricted Subsidiaries in
connection with such disposition;

(x) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between or
among the Company and any of its Restricted Subsidiaries; provided,
however, that (A) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Exchange Notes and (B)(1) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by
a Person other than the Company or one of its Restricted
Subsidiaries and (2) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or one of
its Restricted Subsidiaries shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;

(xi) the incurrence by the Company or any of the
Guarantors of Hedging Obligations that are incurred for the purpose
of (A) fixing, hedging or capping interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding or (B) protecting the Company and its
Restricted Subsidiaries against changes in currency exchange rates;

(xii) the guarantee by the Company or any of the
Guarantors of Indebtedness of the Company or a Restricted Subsidiary
of the Company that was permitted to be incurred by another
provision of this covenant;

(xiii) the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence
of Indebtedness by a Restricted Subsidiary of the Company that was
not permitted by this clause (xiii), and the issuance of preferred
stock by Unrestricted Subsidiaries;

131
(xiv) obligations in respect of performance and surety
bonds and completion guarantees provided by the Company or any
Restricted Subsidiaries in the ordinary course of business; and

(xv) the incurrence by the Company or any of its
Restricted Subsidiaries of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xv), not to exceed $50.0 million.

For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through
(xv) above or is entitled to be incurred pursuant to the first paragraph
of this covenant, the Company shall, in its sole discretion, classify such
item of Indebtedness in any manner that complies with this covenant.
Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness will not be deemed to be
an incurrence of Indebtedness for purposes of this covenant.

Liens

The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien securing Indebtedness on
any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.

Antilayering Provision

The Indenture will provide that (i) the Company will not incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Exchange
Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt of a Guarantor and senior in
any respect in right of payment to any of the Subsidiary Guarantees.

Dividend and Other Payment Restrictions Affecting Subsidiaries

The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to
(i)(A) pay dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (B) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any
of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for
such encumbrances or restrictions existing under or by reason of (A) the

132
provisions of security agreements that restrict the transfer of assets
that are subject to a Lien created by such security agreements, (B) the
provisions of agreements governing Indebtedness incurred pursuant to
clause (v) of the second paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock,
(C) the Indenture and the Exchange Notes, (D) applicable law, (E) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness was incurred
in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (F) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (G) purchase money obligations for
property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property
so acquired, (H) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in
the agreements governing the Indebtedness being refinanced, (I) contracts
for the sale of assets, including, without limitation, customary
restrictions with respect to a Subsidiary pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary, (J) agreements
relating to secured Indebtedness otherwise permitted to be incurred
pursuant to the covenants described under "Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock" and "Liens" that limit the
right of the debtor to dispose of the assets securing such Indebtedness,
(K) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business,
or (L) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.

Merger, Consolidation or Sale of Assets

The Indenture will provide that the Company may not consolidate or
merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or
more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company under the Exchange Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default

133
exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or
the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made,
after giving pro forma effect to such transaction as if such transaction
had occurred at the beginning of the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding such transaction either (A) would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" or (B) would have a pro forma Fixed Charge Coverage Ratio
that is greater than the actual Fixed Charge Coverage Ratio for the same
four-quarter period without giving pro forma effect to such transaction.

Notwithstanding the foregoing clause (iv), (i) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (ii) the Company may merge with
an Affiliate that has no significant assets or liabilities and was
incorporated solely for the purpose of reincorporating the Company in
another State of the United States so long as the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby.

Transactions with Affiliates

The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make
or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Restricted Subsidiary with
an unrelated Person and (ii) the Company delivers to the Trustee (A) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $3.0 million,
a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of Directors and
(B) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.

The foregoing provisions will not prohibit: (i) any employment
agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; (ii) any transaction with
a Lehman Investor; (iii) any transaction between or among the Company
and/or its Restricted Subsidiaries; (iv) transactions between the Company
or any of its Restricted Subsidiaries, on the one hand, and Lockheed

134
Martin or any of its Subsidiaries, on the other hand, on terms that are
not materially less favorable to the Company or the applicable Restricted
Subsidiary of the Company than those that could have been obtained from an
unaffiliated third party; provided that (A) in the case of any such
transaction or series of related transactions pursuant to this clause
(iv) involving aggregate consideration in excess of $1.0 million but less
than $25.0 million, such transaction or series of transactions (or the
agreement pursuant to which the transactions were executed) was approved
by the Company's Chief Executive Officer or Chief Financial Officer and
(B) in the case of any such transaction or series of related transactions
pursuant to this clause (iv) involving aggregate consideration equal to or
in excess of $25.0 million, such transaction or series of related
transactions (or the agreement pursuant to which the transactions were
executed) was approved by a majority of the disinterested members of the
Board of Directors; (v) any transaction pursuant to and in accordance with
the provisions of the Transaction Documents as the same are in effect on
the Issue Date; and (vi) any Restricted Payment that is permitted by the
provisions of the Indenture described above under the caption "--
Restricted Payments".

Payments for Consent

The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder
of any Exchange Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the
Exchange Notes unless such consideration is offered to be paid or is paid
to all Holders of the Exchange Notes that consent, waive or agree to amend
in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.

Reports

The Indenture will provide that, whether or not required by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), so long as any Exchange Notes are outstanding, the Company
will furnish to the Holders of Exchange Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to
file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the
face of the financial statements or in the footnotes thereto and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the
Company and its Restricted Subsidiaries separately from the financial
condition and results of operations of the Unrestricted Subsidiaries of
the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports, in each case
within the time periods specified in the Commission's rules and
regulations. In addition, whether or not required by the rules and

135
regulations of the Commission, following the consummation of the Exchange
Offer contemplated by the Registration Rights Agreement, the Company will
file a copy of all such information and reports with the Commission for
public availability within the time periods set forth in the Commission's
rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the
Subsidiary Guarantors have agreed that, for so long as any Old Notes
remain outstanding and are required to bear the transfer restriction
legend, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Future Subsidiary Guarantees

The Company will not have any Subsidiaries as of the Issue Date.
However, the Company's payment obligations under the Exchange Notes will
be jointly and severally guaranteed by all of the Company's future
Restricted Subsidiaries, other than Foreign Subsidiaries. The Indenture
will provide that if the Company or any of its Subsidiaries shall acquire
or create a Subsidiary (other than a Foreign Subsidiary or an Unrestricted
Subsidiary) after the Issue Date, then such Subsidiary shall execute a
Subsidiary Guarantee and deliver an opinion of counsel, in accordance with
the terms of the Indenture. The Subsidiary Guarantee of each Guarantor
will be subordinated to the prior payment in full of all Senior Debt of
such Guarantor, which would include the guarantees of amounts borrowed
under the Senior Credit Facilities. The obligations of each Guarantor
under its Subsidiary Guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law.

The Indenture will provide that no Guarantor may consolidate with or
merge with or into (whether or not such Guarantor is the surviving Person)
another Person (except the Company or another Guarantor) unless
(i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than
such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
and substance reasonably satisfactory to the Trustee, under the Exchange
Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (iii) the Company
(A) would be permitted by virtue of the Company's pro forma Fixed Charge
Coverage Ratio, immediately after giving effect to such transaction, to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"
or (B) would have a pro forma Fixed Charge Coverage Ratio that is greater
than the actual Fixed Charge Coverage Ratio for the same four-quarter
period without giving pro forma effect to such transaction.

Notwithstanding the foregoing paragraph, (i) any Guarantor may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) any Guarantor may merge with an Affiliate
that has no significant assets or liabilities and was incorporated solely
for the purpose of reincorporating such Guarantor in another State of the

136
United States so long as the amount of Indebtedness of the Company and its
Restricted Subsidiaries is not increased thereby.

The Indenture will provide that in the event of a sale or other
disposition of all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor, then such Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee; provided that
the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See
"Redemption or Repurchase at Option of Holders--Asset Sales".

Events of Default and Remedies

The Indenture will provide that each of the following constitutes an
Event of Default: (i) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Exchange Notes
(whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Exchange Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by the Company
to comply with the provisions described under the captions "--Change of
Control", "--Asset Sales" or "--Merger, Consolidation or Sale of Assets";
(iv) failure by the Company for 60 days after notice to comply with any of
its other agreements in the Indenture or the Exchange Notes; (v) default
under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, which default results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness the maturity of which has been so
accelerated, aggregates $10.0 million or more; (vi) failure by the Company
or any of its Restricted Subsidiaries to pay final judgments aggregating
in excess of $10.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Restricted
Subsidiaries; and (viii) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid.

If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding
Exchange Notes may declare all the Exchange Notes to be due and payable
immediately; provided, however, that so long as any Designated Senior Debt
is outstanding, such declaration shall not become effective until the
earlier of (i) the day which is five Business Days after receipt by the
Representatives of Designated Senior Debt of such notice of acceleration
or (ii) the date of acceleration of any Designated Senior Debt.

137
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, with respect to the
Company or any Restricted Subsidiary, all outstanding Exchange Notes will
become due and payable without further action or notice. Holders of the
Exchange Notes may not enforce the Indenture or the Exchange Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Exchange Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Exchange Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating
to the payment of principal or interest) if it determines that withholding
notice is in their interest.

In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem
the Exchange Notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the
Exchange Notes. If an Event of Default occurs prior to May 1, 2002 by
reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Exchange Notes prior to May 1, 2002, then the premium
specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Exchange
Notes.

The Holders of a majority in aggregate principal amount of the
Exchange Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Exchange Notes waive any existing Default or
Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or
the principal of, the Exchange Notes.

The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of
Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the
Company under the Exchange Notes and the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Exchange Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Exchange Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

138
Legal Defeasance and Covenant Defeasance

The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Exchange Notes
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Exchange Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such Exchange
Notes when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange
Notes, mutilated, destroyed, lost or stolen Exchange Notes and the
maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter
any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes. In the
event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an
Event of Default with respect to the Exchange Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Exchange Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest and Liquidated Damages on the outstanding Exchange
Notes on the stated maturity or on the applicable redemption date, as the
case may be, and the Company must specify whether the Exchange Notes are
being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Exchange Notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the Holders of the outstanding Exchange
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of

139
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound; (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Exchange Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to
the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.

Transfer and Exchange

A Holder may transfer or exchange Exchange Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by
law or permitted by the Indenture. The Company is not required to transfer
or exchange any Note selected for redemption. Also, the Company is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.

The registered Holder of a Note will be treated as the owner of it
for all purposes.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the
Indenture or the Exchange Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange
offer for, Exchange Notes), and any existing default or compliance with
any provision of the Indenture or the Exchange Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes (including consents obtained in connection with
a tender offer or exchange offer for Exchange Notes).

Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Exchange Notes held by a non-consenting
Holder): (i) reduce the principal amount of Exchange Notes whose Holders
must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Note or alter the
provisions with respect to the redemption of the Exchange Notes (other
than provisions relating to the covenants described above under the

140
caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of
or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if
any, or interest on the Exchange Notes (except a rescission of
acceleration of the Exchange Notes by the Holders of at least a majority
in aggregate principal amount of the Exchange Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Exchange Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Exchange Notes to receive payments of
principal of or premium, if any, or interest on the Exchange Notes,
(vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to
the provisions of Article 10 of the Indenture (which relates to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Exchange Notes then outstanding if such
amendment would adversely affect the rights of Holders of Exchange Notes.

Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company and the Trustee may amend or supplement the
Indenture or the Exchange Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to
or in place of certificated Exchange Notes, to provide for the assumption
of the Company's obligations to Holders of Exchange Notes in the case of a
merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Exchange Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act.

Concerning the Trustee

The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply
to the Commission for permission to continue or resign.

The Holders of a majority in principal amount of the then
outstanding Exchange Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available
to the Trustee, subject to certain exceptions. The Indenture provides that
in case an Event of Default shall occur (which shall not be cured), the
Trustee will be required, in the exercise of its power, to use the degree
of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request of any Holder
of Exchange Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

141
Book-Entry, Delivery and Form

The certificates representing the Exchange Notes will be issued in
fully registered form and will be deposited with the Trustee as custodian
for The Depository Trust Company, New York, New York (The "Depository"),
and registered in the name of a nominee of the Depository.

Depository Procedures

The Depository has advised the Company that the Depository is a
limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those
securities between Participants through electronic book-entry changes in
accounts of Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of the Depository
only through the Participants or Indirect Participants. The ownership
interest and transfer of ownership interest of each actual purchaser of
each security held by or on behalf of the Depository are recorded on the
records of the Participants and Indirect Participants.

The Depository has also advised the Company that pursuant to
procedures established by it, (i) upon deposit of the Global Exchange
Notes, the Depository will credit the accounts of Participants designated
by the Initial Purchasers with portions of the principal amount of Global
Exchange Notes and (ii) ownership of such interests in the Global Exchange
Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect
to Participants) or by Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Exchange
Notes).

Investors in the Global Note may hold their interests therein
directly through the Depository, if they are Participants in such system,
or indirectly through organizations (including Euroclear and CEDEL) that
are Participants in such system. Investors in the Regulation S Global Note
may hold their interests therein through Euroclear or CEDEL, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems or in the Depository system. Euroclear and
CEDEL will hold interests in the Regulation S Global Note on behalf of
their Participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are
Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A. as operator of CEDEL. The depositories, in
turn, will hold such interests in the Regulation S Global Note in
customers' securities accounts in the depositories' names on the books of
the Depository. All interests in a Global Note, including those held
through Euroclear or CEDEL, may be subject to the procedures and
requirements of the Depository. Those interests held by Euroclear or CEDEL

142
may be also be subject to the procedures and requirements of such system.

The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in a Global Note to such persons
may be limited to that extent. Because the Depository can act only on
behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having a
beneficial interest in a Global Note to pledge such interest to persons or
entities that do not participate in the Depository system, or otherwise
take actions in respect of such interests, may be affected by the lack of
physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Exchange Notes see, "--Exchange
of Book-Entry Exchange Notes for Certificated Exchange Notes".

Except as described below, owners of interests in the Global
Exchange Notes will not have Exchange Notes registered in their names,
will not receive physical delivery of Exchange Notes in certificated form
and will not be considered the registered owners or Holders thereof under
the Indenture for any purpose.

Payments in respect of the principal and premium and interest on a
Global Note registered in the name of the Depository or its nominee will
be payable by the Trustee to the Depository or its nominee in its capacity
as the registered Holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee will treat the persons in whose
names the Exchange Notes, including the Global Exchange Notes, are
registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently,
neither the Company, the Trustee nor any agent of the Company or the
Trustee has or will have any responsibility or liability for (i) any
aspect of the Depository's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Exchange Notes, or for
maintaining, supervising or reviewing any of the Depository's records or
any Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Exchange Notes or (ii) any
other matter relating to the actions and practices of the Depository or
any of its Participants or Indirect Participants.

The Depository has advised the Company that its current practices,
upon receipt of any payment in respect of securities such as the Exchange
Notes (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security such as the Global Exchange
Notes as shown on the records of the Depository. Payments by Participants
and the Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practices and will
not be the responsibility of the Depository, the Trustee or the Company.
Neither the Company nor the Trustee will be liable for any delay by the
Depository or its Participants in identifying the beneficial owners of the
Exchange Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from the Depository or
its nominee as the registered owner of the Exchange Notes for all
purposes.

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Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Exchange Notes will trade in the Depository's
Same-Day Funds Settlement System and secondary market trading activity in
such interests will, therefore, settle in immediately available funds,
subject in all cases to the rules and procedures of the Depository and its
participants.

Transfers between Participants in the Depository will be effected in
accordance with the Depository's procedures, and will be settled in
same-day funds. Transfers between participants in Euroclear and CEDEL will
be effected in the ordinary way in accordance with their respective rules
and operating procedures.

Subject to compliance with the transfer restrictions applicable to
the Exchange Notes described herein, crossmarket transfers between
Participants in the Depository, on the one hand, and Euroclear or CEDEL
participants, on the other hand, will be effected through the Depository
in accordance with the Depository's rules on behalf of Euroclear or CEDEL,
as the case may be, by its respective depository; however, such
cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case
may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depository to take action to effect
final settlement on its behalf by delivering or receiving interests in the
relevant Global Note in the Depository, and making or receiving payment in
accordance with normal procedures for same-day fund settlement applicable
the Depository. Euroclear participants and CEDEL participants may not
deliver instructions directly to the Depositaries for Euroclear or CEDEL.

Because of time zone differences, the securities accounts of a
Euroclear or CEDEL participant purchasing an interest in a Global Note
from a Participant in the Depository will be credited, and any such
crediting will be reported to the relevant Euroclear or CEDEL participant,
during the securities settlement processing day (which must be a business
day for Euroclear or CEDEL) immediately following the settlement date of
the Depository. Cash received in Euroclear or CEDEL as a result of sales
of interests in a Global Note by or through a Euroclear or CEDEL
participant to a Participant in the Depository will be received with value
on the settlement date of the Depository but will be available in the
relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following the Depository's settlement date.

The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Exchange Notes only at the direction
of one or more Participants to whose account the Depository interests in
the Global Exchange Notes are credited and only in respect of such portion
of the aggregate principal amount of the Exchange Notes as to which such
Participant or Participants has or have given direction. However, if there
is an Event of Default under the Exchange Notes, the Depository reserves
the right to exchange Global Exchange Notes for legended Exchange Notes in
certificated form, and to distribute such Exchange Notes to its
Participants.

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The information in this section concerning the Depository, Euroclear
and CEDEL and their book-entry systems has been obtained from sources that
the Company believes to be reliable, but the Company takes no
responsibility for the accuracy thereof.

Although the Depository, Euroclear and CEDEL have agreed to the
foregoing procedures to facilitate transfers of interests in the Global
Note among participants in the Depository, Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of the Company,
the Initial Purchasers or the Trustee will have any responsibility for the
performance by the Depository, Euroclear or CEDEL or their respective
participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.

Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes

A Global Note is exchangeable for definitive Exchange Notes in
registered certificated form if (i) the Depository (A) notifies the
Company that it is unwilling or unable to continue as depository for the
Global Note and the Company thereupon fails to appoint a successor
depository or (B) has ceased to be a clearing agency registered under the
Exchange Act or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause issuance of the Exchange Notes in
certificated form. In addition, beneficial interests in a Global Note may
be exchanged for certificated Exchange Notes upon request but only upon at
least 20 days prior written notice given to the Trustee by or on behalf of
the Depository in accordance with customary procedures. In all cases,
certificated Exchange Notes delivered in exchange for any Global Note or
beneficial interest therein will be registered in names, and issued in any
approved denominations, requested by or on behalf of the Depository (in
accordance with its customary procedures).

Certificated Exchange Notes

Subject to certain conditions, any person having a beneficial
interest in the Global Note may, upon request to the Trustee, exchange
such beneficial interest for Exchange Notes in the form of certificated
Exchange Notes. Upon any such issuance, the Trustee is required to
register such certificated Exchange Notes in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any
thereof). In addition, if (i) the Company notifies the Trustee in writing
that the Depository is no longer willing or able to act as a depository
and the Company is unable to locate a qualified successor within 90 days
or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Exchange Notes in the form of
certificated Exchange Notes under the Indenture, then, upon surrender by
the Global Note Holder of its Global Note, Exchange Notes in such form
will be issued to each person that the Global Note Holder and the
Depository identify as being the beneficial owner of the related Exchange
Notes.

Neither the Company nor the Trustee will be liable for any delay by
the Global Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively

145
rely on, and will be protected in relying on, instructions from the Global
Note Holder or the Depository for all purposes.

Same Day Settlement and Payment

The Indenture will require that payments in respect of the Exchange
Notes represented by the Global Note (including principal, premium, if
any, interest) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to
certificated Exchange Notes, the Company will make all payments of
principal, premium, if any, and interest by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's
registered address. The Company expects that secondary trading in the
certificated Exchange Notes will also be settled in immediately available
funds.

Registration Rights; Liquidated Damages

The Company and the Initial Purchasers entered into the Registration
Rights Agreement on the Issue Date. Pursuant to the Registration Rights
Agreement, the Company agreed to file with the Commission the Exchange
Offer Registration Statement on the appropriate form under the Securities
Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the
Holders of Transfer Restricted Securities pursuant to the Exchange Offer
who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the
Company is not required to file the Exchange Offer Registration Statement
or permitted to consummate the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company prior to the 20th
day following consummation of the Exchange Offer that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer or
(B) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a
broker-dealer and owns Old Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a
Shelf Registration Statement to cover resales of the Exchange Notes by the
Holders thereof who satisfy certain conditions relating to the provision
of information in connection with the Shelf Registration Statement. The
Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note until (i) the date on which such Old Note
has been exchanged by a person other than a broker-dealer for an Exchange
Note in the Exchange Offer, (ii) following the exchange by a broker-dealer
in the Exchange Offer of an Old Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf

146
Registration Statement or (iv) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Act.

The Registration Rights Agreement provides that (i) the Company will
file an Exchange Offer Registration Statement with the Commission on or
prior to 90 days after the Issue Date, (ii) the Company will use its best
efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 150 days after the Issue Date,
(iii) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, the Company will commence the Exchange Offer and use
its best efforts to issue on or prior to 30 business days after the date
on which the Exchange Offer Registration Statement was declared effective
by the Commission, New Exchange Notes in exchange for all Exchange Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company will use its best efforts to
file the Shelf Registration Statement with the Commission on or prior to
30 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (A) the Company fails to
file any of the Registration Statements required by the Registration
Rights Agreement on or before the date specified above for such filing,
(B) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (C) the Company fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (D) the
Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the
periods specified in the Registration Rights Agreement (each such event
referred to in clauses (A) through (D) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Old Notes,
with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05
per week per $1,000 principal amount of Old Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of Old Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid
by the Company on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and
to Holders of certificated Old Notes by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no
such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.

Holders of Old Notes will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Old Notes included in the Shelf
Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.

147
Certain Definitions

Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such
terms, as well as any other capitalized terms used herein for which no
definition is provided.

"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person.

"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person shall be
deemed to be control.

"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way
of a sale and leaseback) other than sales of inventory in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under
the caption "--Change of Control" and/or the provisions described above
under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by
the Company or any of its Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions
(A) that have a fair market value in excess of $1.0 million or (B) for net
proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary,
(ii) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary, (iii) a Restricted Payment
that is permitted by the covenant described above under the caption "--
Restricted Payments" and (iv) a disposition of Cash Equivalents in the
ordinary course of business will not be deemed to be an Asset Sale.

"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during
the remaining term of the lease included in such sale and leaseback

148
transaction (including any period for which such lease has been extended
or may, at the option of the lessor, be extended).

"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.

"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.

"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic financial institution to the Senior Credit Facilities or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered
into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating
obtainable from Moody's or S&P's and in each case maturing within six
months after the date of acquisition, (vi) investment funds investing 95%
of their assets in securities of the types described in clauses (i)-(v)
above, and (vii) readily marketable direct obligations issued by any State
of the United States of America or any political subdivision thereof
having maturities of not more than one year from the date of acquisition
and having one of the two highest rating categories obtainable from either
Moody's or S&P.

"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus
(i) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale (to the extent such losses were deducted
in computing such Consolidated Net Income), plus (ii) provision for taxes
based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or

149
bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill, debt issuance costs and
other intangibles but excluding amortization of other prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash
items increasing such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.

"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iv) the cumulative effect of
a change in accounting principles shall be excluded, (v) the Net Income of
any Unrestricted Subsidiary shall be excluded, whether or not distributed
to the Company or one of its Restricted Subsidiaries, and (vi) the Net
Income of any Restricted Subsidiary shall be calculated after deducting
preferred stock dividends payable by such Restricted Subsidiary to Persons
other than the Company and its other Restricted Subsidiaries.

"Consolidated Net Tangible Assets" means, as of any date of
determination, shareholders' equity of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
less goodwill and other intangibles (other than patents, trademarks,
licenses, copyrights and other intellectual property and prepaid assets).

"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior Credit
Facilities) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or
in part from time to time.

150
"Default" means any event that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.

"Designated Senior Debt" means (i) any Indebtedness outstanding
under the Senior Credit Facilities and (ii) any other Senior Debt
permitted under the Indenture the principal amount of which is $25.0
million or more and that has been designated by the Company as "Designated
Senior Debt".

"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it
is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to
a sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91
days after the date on which the Exchange Notes mature; provided, however,
that if such Capital Stock is issued to any plan for the benefit of
employees of the Company or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in
order to satisfy applicable statutory or regulatory obligations.

"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security
that is convertible into, or exchangeable for, Capital Stock).

"Equity Offering" means any public or private sale of equity
securities (excluding Disqualified Stock) of the Company or Holdings,
other than any private sales to an Affiliate of the Company or Holdings.

"Existing Indebtedness" means any Indebtedness of the Company (other
than Indebtedness under the Senior Credit Facilities and the Exchange
Notes) in existence on the Issue Date, until such amounts are repaid.

"Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid
or accrued (including, without limitation, original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations, but excluding
amortization of debt issuance costs) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during
such period, and (iii) any interest expense on Indebtedness of another
Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (A) all dividend payments, whether or not in
cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, times (B) a fraction,
the numerator of which is one and the denominator of which is one minus

151
the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP.

"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for
such period to the Fixed Charges of such Person and its Restricted
Subsidiaries for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition,
for purposes of making the computation referred to above, (i) acquisitions
that have been made by the Company or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related
financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period
shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, and (iii) the Fixed
Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to
the Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.

"Foreign Subsidiary" means a Restricted Subsidiary of the Company
that was not organized or existing under the laws of the United States,
any state thereof, the District of Columbia or any territory thereof.

"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on
the Issue Date.

"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters
of credit and reimbursement agreements in respect thereof), of all or any
part of any Indebtedness.

152
"Guarantors" means each Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture,
and their respective successors and assigns.

"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate
swap agreements, interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange
rates or interest rates.

"Holdings" means L-3 Communications Holdings, Inc.

"Indebtedness" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing
any Hedging Obligations, except any such balance that constitutes an
accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past
due, in the case of any other Indebtedness.

"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission,
travel, moving and similar loans or advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other securities,
together with all items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold
or disposed of in an amount determined as provided in the last paragraph
of the covenant described above under the caption "--Restricted Payments".

"Issue Date" means the closing date for the sale and original
issuance of the Exchange Notes under the Indenture.

"Lehman Investor" means Lehman Brothers Holdings Inc. and any of its
Affiliates.

153
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement
to sell or give a security interest in and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).

"Marketable Securities" means, with respect to any Asset Sale, any
readily marketable equity securities that are (i) traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market;
and (ii) issued by a corporation having a total equity market
capitalization of not less than $250.0 million; provided that the excess
of (A) the aggregate amount of securities of any one such corporation held
by the Company and any Restricted Subsidiary over (B) ten times the
average daily trading volume of such securities during the 20 immediately
preceding trading days shall be deemed not to be Marketable Securities; as
determined on the date of the contract relating to such Asset Sale.

"Moody's" means Moody's Investors Services, Inc.

"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however,
(i) any gain or loss, together with any related provision for taxes
thereon, realized in connection with (A) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (B) the disposition of any securities by such Person or
any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and
(ii) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss and (iii) the cumulative
effect of a change in accounting principles.

"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by
a Lien on the asset or assets that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.

"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (A) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a
guarantor or otherwise), or (C) constitutes the lender; and (ii) no
default with respect to which (including any rights that the holders

154
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness (other than Indebtedness incurred under Credit
Facilities) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and (iii) as to
which the lenders have been notified in writing that they will not have
any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.

"Obligations" means any principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceeding), penalties, fees, charges,
expenses, indemnifications, reimbursement obligations, damages (including
Liquidated Damages), guarantees and other liabilities or amounts payable
under the documentation governing any Indebtedness or in respect thereto.

"Permitted Investments" means (i) any Investment in the Company or
in a Restricted Subsidiary of the Company that is a Guarantor (ii) any
Investment in cash or Cash Equivalents; (iii) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a
result of such Investment (A) such Person becomes a Restricted Subsidiary
of the Company and a Guarantor or (B) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of
its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company that is a Guarantor; (iv) any Restricted
Investment made as a result of the receipt of non-cash consideration from
an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales" or any disposition of assets not constituting an
Asset sale; (v) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the
Company; (vi) advances to employees not to exceed $2.5 million at any one
time outstanding; (vii) any Investment acquired in connection with or as a
result of a workout or bankruptcy of a customer or supplier;
(viii) Hedging Obligations permitted to be incurred under the covenant
described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; (ix) any Investment in a Similar Business
that is not a Restricted Subsidiary; provided that the aggregate fair
market value of all Investments made pursuant to this clause (ix) (valued
on the date each such Investment was made and without giving effect to
subsequent changes in value) may not exceed 5% of the Consolidated Net
Tangible Assets of the Company; and (x) other Investments in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to
this clause (x) that are at the time outstanding, not to exceed $15.0
million.

"Permitted Junior Securities" means Equity Interests in the Company
or debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Exchange Notes and the
Subsidiary Guarantees are subordinated to Senior Debt pursuant to Article
10 of the Indenture.

155
"Permitted Liens" means (i) Liens securing Senior Debt of the
Company or any Guarantor that was permitted by the terms of the Indenture
to be incurred; (ii) Liens in favor of the Company or any Guarantor;
(iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that
such Liens were in existence prior to the contemplation of such
acquisition and do not extend to any other assets of the Company or any of
its Restricted Subsidiaries; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(vi) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (v) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only
the assets acquired with such Indebtedness -- ; (vii) Liens existing on
the Issue Date; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been
made therefor; (ix) Liens incurred in the ordinary course of business of
the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding;
(x) Liens on assets of Guarantors to secure Senior Debt of such Guarantors
that was permitted by the Indenture to be incurred; (xi) Liens securing
Permitted Refinancing Indebtedness, provided that any such Lien does not
extend to or cover any property, shares or debt other than the property,
shares or debt securing the Indebtedness so refunded, refinanced or
extended; (xii) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature, in each case incurred in the ordinary course
of business (exclusive of obligations for the payment of borrowed money);
(xiii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods in the
ordinary course of business; (xiv) Liens encumbering customary initial
deposits and margin deposits, and other Liens incurred in the ordinary
course of business that are within the general parameters customary in the
industry, in each case securing Indebtedness under Hedging Obligations;
and (xv) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory or
regulatory, contractual or warranty requirements of the Company or its
Subsidiaries for which a reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made.

"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Company or any of its Restricted

156
Subsidiaries; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount of (or accreted value, if applicable), plus accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses and
prepayment premiums incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date no earlier than the
final maturity date of, and has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Exchange Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Exchange Notes on terms at least as favorable to
the Holders of Exchange Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.

"Permitted Securities" means, with respect to any Asset Sale, Voting
Stock of a Person primarily engaged in one or more Similar Businesses;
provided that after giving effect to the Asset Sale such Person shall
become a Restricted Subsidiary and a Guarantor.

"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" means, with respect to any Person, each
Subsidiary of such Person that is not an Unrestricted Subsidiary.

"Senior Credit Facilities" means the credit agreement, dated as of
the Issue Date among the Company and a syndicate of banks and other
financial institutions led by Lehman Commercial Paper Inc., as syndication
agent, and any related notes, collateral documents, letters of credit and
guarantees, including any appendices, exhibits or schedules to any of the
foregoing (as the same may be in effect from time to time), in each case,
as such agreements may be amended, modified, supplemented or restated from
time to time, or refunded, refinanced, restructured, replaced, renewed,
repaid or extended from time to time (whether with the original agents and
lenders or other agents and lenders or otherwise, and whether provided
under the original credit agreement or other credit agreements or
otherwise).

"Senior Debt" means (i) all Indebtedness of the Company or any of
its Restricted Subsidiaries outstanding under Credit Facilities and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness
permitted to be incurred by the Company or any of its Restricted
Subsidiaries under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Exchange Notes and

157
(iii) all Obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include
(i) any liability for federal, state, local or other taxes owed or owing
by the Company, (ii) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any
Indebtedness that is incurred in violation of the Indenture.

"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on
the date hereof.

"Similar Business" means a business, a majority of whose revenues in
the most recently ended calendar year were derived from (i) the sale of
defense products, electronics, communications systems, aerospace products,
avionics products and/or communications products, (ii) any services
related thereto, (iii) any business or activity that is reasonably similar
thereto or a reasonable extension, development or expansion thereof or
ancillary thereto, and (iv) any combination of any of the foregoing.

"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment
of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.

"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof) and (ii) any partnership (A) the
sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (B) the only general partners of
which are such Person or of one or more Subsidiaries of such Person (or
any combination thereof).

"S&P" means Standard and Poor's Corporation.

"Transaction Documents" means the Indenture, the Exchange Notes, the
Purchase Agreement and the Registration Rights Agreement.

"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company;
(iii) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (A) to

158
subscribe for additional Equity Interests or (B) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; (iv) has not guaranteed or
otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and
(v) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions
and was permitted by the covenant described above under the caption
"Certain Covenants -- Restricted Payments". If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as
an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness
of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred
Stock", the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock", calculated on a pro forma basis as if such designation
had occurred at the beginning of the four-quarter reference period, and
(ii) no Default or Event of Default would be in existence following such
designation.

"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (A) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (B) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such
Indebtedness.

"Wholly Owned" means, when used with respect to any Subsidiary or
Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary,
as appropriate) of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or more Wholly
Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as
appropriate) of such Person and one or more Wholly Owned Subsidiaries (or
Wholly Owned Restricted Subsidiaries, as appropriate) of such Person.

159

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS

The exchange of Old Notes for Exchange Notes will not constitute a
recognition event for federal income tax purposes. Consequently, no gain
or loss will be recognized by Holders upon receipt of the Exchange
Notes. For purposes of determining gain or loss upon the subsequent sale
or exchange of Exchange Notes, a Holder's basis in Exchange Notes will
be the same as such Holder's basis in the Old Notes exchanged therefor.
Holders will be considered to have held the Exchange Notes from the time
of their original acquisition of the Old Notes.

In any event, persons considering the exchange of Old Notes for
Exchange Notes should consult their own tax advisors concerning the United
States federal income tax consequences in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdictions.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. To the
extent any such broker-dealer participates in the Exchange Offer and so
notifies the Company, or causes the Company to be so notified in writing,
the Company has agreed that a period of 180 days after the date of this
Prospectus, it will make this Prospectus, as amended or supplemented,
available to such broker-dealer for use in connection with any such
resale, and will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal.

The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Notes or a combination of such methods of resale, at prevailing market
prices at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers or any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act, and any profit
on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that, by

160
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.

The Company has agreed to pay all expenses incident to the Exchange
Offer (other than commissions and concessions of any broker-dealers),
subject to certain prescribed limitations, and will indemnify the holders
of the Old Notes against certain liabilities, including certain
liabilities that may arise under the Securities Act.

By its acceptance of the Exchange Offer, any broker-dealer that
receives Exchange Notes pursuant to the Exchange Offer hereby agrees to
notify the Company prior to using the Prospectus in connection with the
sale or transfer of Exchange Notes, and acknowledges and agrees that, upon
receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to
make the statements therein not misleading or which may impose upon the
Company disclosure obligations that may have a material adverse effect on
the Company (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus
until the Company has notified such broker-dealer that delivery of the
Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.

161
LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Simpson
Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York.

EXPERTS

The combined financial statements of the Lockheed Martin Predecessor
Businesses as of March 31, 1997 and for the three months then ended, as of
December 31, 1996 and for the year then ended, the Loral Acquired
Businesses for the three months ended March 31, 1996 and for the years
ended December 31, 1995 and 1994 and the balance sheet of L-3
Communications Corporation as of April 29, 1997, included in this
Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent auditors, given on the authority
of that firm as experts in accounting and auditing. The report on the
combined financial statements of the Lockheed Martin Predecessor
Businesses for the year ended December 31, 1996 states that Coopers &
Lybrand L.L.P.'s opinion, insofar as it relates to the financial
statements of the Lockheed Martin Communications Systems Division
included in such combined financial statements, is based solely on
the report of other auditors.

The combined financial statements of Lockheed Martin Communications
Systems Division at December 31, 1996 (not presented separately herein)
and 1995, and the combined results of its operations and its cash flows
for the year ended December 31, 1996 (not presented separately herein),
and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995, which is referred to and made
a part of this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.

F-1

INDEX TO FINANCIAL STATEMENTS

L-3 COMMUNICATIONS CORPORATION

Condensed Consolidated (Combined) Financial Statements
as of June 30, 1997 (unaudited) and December 31, 1996
and for the six months ended June 30, 1997 (unaudited)
and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . F-3

Condensed Consolidated (Combined) Balance Sheets as of
June 30, 1997 (unaudited) and December 31, 1996 . . . . . . F-4

Condensed Consolidated (Combined) Statements of Operations
for the Three and Six Months ended June 30, 1997 (unaudited)
and June 30, 1996 (unaudited) . . . . . . . . . . . . . . . F-6

Condensed Consolidated (Combined) Statements of Cash Flows
for the Six Months ended June 30, 1997 (unaudited)
and June 30, 1996 (unaudited) . . . . . . . . . . . . . . . F-8

Notes to Condensed Consolidated (Combined)
Financial Statements . . . . . . . . . . . . . . . . . . . . F-10

Balance Sheet as of April 29, 1997 . . . . . . . . . . . . . . . F-15

Report of Coopers & Lybrand L.L.P. . . . . . . . . . . . . . F-16

Balance Sheet of April 29, 1997 . . . . . . . . . . . . . . F-17

Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . F-18

Lockheed Martin Predecessor Businesses

Combined Financial Statements as of March 31, 1997 and the three
months ended March 31, 1997 and 1996 (unaudited) . . . . . . . . F-21

Report of Coopers & Lybrand L.L.P. . . . . . . . . . . . . F-22

Balance sheet as of March 31, 1997 . . . . . . . . . . . . . F-23

Statements of Operations and Changes in Invested Equity for
the three months ended March 31, 1997 and March 31, 1996
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-24

Statements of Cash Flows for the three months ended
March 31, 1997 and March 31, 1996 (Unaudited) . . . . . . . . F-25

Notes to Combined Financial Statements . . . . . . . . . . . F-26

F-2

Combined Financial Statements as of December 31, 1996, 1995 and
for the three years in the period ended December 31, 1996. . . . F-37

Report of Coopers & Lybrand L.L.P. on December 31, 1996
Combined Financial Statements . . . . . . . . . . . . . . . F-38
Report of Ernst & Young LLP on the financial statements of
Lockheed Martin Communications Systems Division as of
December 31, 1996 and 1995 and for the three
years ended December 31, 1996. . . . . . . . . . . . . . . . F-39

Balance Sheets as of December 31, 1996 and 1995 . . . . . . F-40

Statements of Operations and Changes in Invested Equity for
years ended December 31, 1996, 1995 and 1994 . . . . . . . . F-41

Statements of Cash Flows for years ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-42

Notes to Combined Financial Statements . . . . . . . . . . F-43

Loral Acquired Businesses

Report of Coopers & Lybrand L.L.P. . . . . . . . . . . . . F-55

Statements of Operations for three months ended
March 31, 1996 and the years ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-56

Statements of Cash Flows for three months ended March 31, 1996
and the years ended December 31, 1995 and 1994 . . . . . . F-57

Notes to Combined Financial Statements . . . . . . . . . . F-58

F-3

L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED (COMBINED)
FINANCIAL STATEMENTS

As of June 30, 1997 (unaudited) and December 31,
1996 and for the six months ended June 30, 1997 (unaudited)
and 1996 (unaudited)

F-4

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) BALANCE SHEETS
(In thousands)

The Company Predecessor Company
----------------- ----------------------
June 30, 1997 December 31, 1996
------------------ ----------------------
(Unaudited)

|
ASSETS |
Current assets: |
Cash and cash equivalents . . . . . . . . $ 22,623 | --
Contracts in process . . . . . . . . . . . 214,740 | $198,073
Other current assets . . . . . . . . . . . 2,102 | 3,661
-------- | --------
Total current assets . . . . . . . . . . 239,465 | 201,734
-------- | --------
|
Property, plant and equipment . . . . . . . . 111,074 | 116,566
Less, accumulated depreciation and |
amortization . . . . . . . . . . . . . . 4,427 | 24,983
-------- | --------
106,647 | 91,583
-------- | --------
Intangibles, primarily cost in excess |
of net assets acquired, net of |
amortization . . . . . . . . . . . . . . . 301,254 | 282,674
Other assets . . . . . . . . . . . . . . . . 33,539 | 17,307
-------- | --------
$680,905 | $593,298
======== | ========
|
LIABILITIES AND INVESTED EQUITY |
Current liabilities: |
Current portion of long-term debt . . . $ 4,000 | --
Accounts payable, trade . . . . . . . . 35,999 | $ 34,163
Accrued employment costs . . . . . . . . 31,917 | 27,313
Customer advances and amounts in |
excess of costs incurred . . . . . . . 16,541 | 14,299
Other current liabilities . . . . . . . 33,418 | 27,113
-------- | --------
Total current liabilities . . . . . . 121,875 | 102,888
-------- | --------

F-5

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) BALANCE SHEETS
(In thousands)

The Company Predecessor Company
----------------- ----------------------
June 30, 1997 December 31, 1996
------------------ ----------------------
(Unaudited)

|
Pension and postretirement benefits . . . . 27,412 | --
Other liabilities . . . . . . . . . . . . . 16,027 | 16,801
Long-term debt . . . . . . . . . . . . . . 395,000 | --
Commitment and contingencies |
Shareholders' Equity at June 30, 1997 |
Common Stock, $.01 par value, authorized |
100 shares, issued 100 shares. . . . . 125,000 | --
Retained Earnings . . . . . . . . . . . 3,091 | --
Deemed Distribution . . . . . . . . . . (7,500) | --
Invested equity at December 31, 1996 . . . -- | 473,609
-------- | --------
$680,905 | $593,298
======== | ========

See notes to condensed consolidated (combined) financial statements.

F-6

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

The Company Predecessor Company
------------------------ ------------------------
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
---------------------- ------------------------

|
Sales . . . . . . . . . . . . . . . $168,030 | $165,294
Cost and expenses . . . . . . . . . 152,909 | 156,040
-------- | --------
Operating income . . . . . . . . . 15,121 | 9,254
Net interest expense . . . . . . . 9,970 | 7,386
-------- | --------
Income before income taxes . . . . 5,151 | 1,868
Income taxes . . . . . . . . . . . 2,060 | 1,131
-------- | --------
Net income . . . . . . . . . . . . $ 3,091 | $ 737
======== | ========

See notes to condensed consolidated (combined) financial statements.

F-7

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
(In thousands)

The Company Predecessor Company
-------------------- ------------------------------------------
Three Months Three Months Six Months
Ended Ended Ended
June 30, 1997 March 31, 1997 June 30, 1996
-------------------- -------------------- --------------------
(Unaudited) (Unaudited)

|
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168,030 | $158,873 $206,447
Cost and expenses . . . . . . . . . . . . . . . . . . . . . . . 152,909 | 150,937 195,517
-------- | -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 15,121 | 7,936 10,930
Net Interest expense . . . . . . . . . . . . . . . . . . . . . 9,970 | 8,441 9,414
-------- | -------- --------
Income (loss) before income taxes . . . . . . . . . . . . . . . 5,151 | (505) 1,516
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 2,060 | (247) 1,276
-------- | -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 3,091 | $ (258) $ 240
======== | ======== ========

See notes to condensed consolidated (combined) financial statements.

F-8

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(In thousands)

Operating activities: |
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 3,091 | $ (258) $ 240
Depreciation and amortization . . . . . . . . . . . . . . . . . 7,181 | 7,184 10,326
Changes in operating assets and liabilities |
Contracts in process . . . . . . . . . . . . . . . . . . . . 9,318 | (17,475) 10,780
Other current assets . . . . . . . . . . . . . . . . . . . . 480 | (481) 3,718
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 3,683 | (159) (10,220)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (4,028) | (207) (5,631)
Accrued employment costs . . . . . . . . . . . . . . . . . . 6,783 | (625) 2,914
Customer advances and amounts in excess of costs incurred . 1,133 | (1,891) (17,238)
Other current liabilities . . . . . . . . . . . . . . . . . 3,742 | (1,867) (2,970)
Pension and postretirement benefits . . . . . . . . . . . . (1,088) | -- --
Other liabilities . . . . . . . . . . . . . . . . . . . . . 2,626 | (500) (21,330)
-------- | -------- --------
Net cash from (used in) operating activities . . . . . . . . . 32,921 | (16,279) (29,411)
-------- | -------- --------
|
Investing activities: |
Acquisition of business . . . . . . . . . . . . . . . . . . . . (470,700) | -- (287,803)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (3,120) | (4,300) (4,692)
Disposition of property, plant and equipment . . . . . . . . . 211 | -- 497
-------- | -------- --------
Net cash used in investing activities . . . . . . . . . . . . . (473,609) | (4,300) (291,998)
-------- | -------- --------
|

See notes to condensed consolidated (combined) financial statements.

F-9

L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(In thousands)

Financing activities: |
Advances from Lockheed Martin . . . . . . . . . . . . . . . . . -- | 20,579 321,409
Borrowings under senior credit facility . . . . . . . . . . . . 175,000 | -- --
Proceeds from sale of 10 3/8% subordinated notes . . . . . . . 225,000 | -- --
Proceeds from issuance of common stock . . . . . . . . . . . . 80,000 | -- --
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . (15,689) | -- --
Payment of debt . . . . . . . . . . . . . . . . . . . . . . . . (1,000) | -- --
-------- | -------- --------
Net cash from financing activities . . . . . . . . . . . . . . 463,311 | 20,579 321,409
-------- | -------- --------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . 22,623 | -- --
Cash and cash equivalents, beginning of the period . . . . . . -- | -- --
-------- | -------- --------
Cash and cash equivalents, end of the period . . . . . . . . . $ 22,623 | -- --
======== | ======== ========
Supplemental information: |
Cash paid for interest during the period . . . . . . . . . . . -- | -- --
Cash paid for income taxes during the period . . . . . . . . . -- | -- --
Issuance of common stock to Lockheed Martin in connection |
with the acquisition of business . . . . . . . . . . . . . . $ 45,000 | -- --

See notes to condensed consolidated (combined) financial statements.

F-10

L-3 Communications Corporation
Notes to Condensed Consolidated (Combined) Financial Statements

1. Basis of Presentation

The accompanying condensed consolidated (combined) financial statements
include the assets, liabilities and results of operations of L-3
Communications Corporation, the successor company ("L-3" or the "Company")
following the change in ownership (see Note 2) effective as of April 1, 1997
and for the period from April 1, 1997 to June 30, 1997. The statements also
include on a combined basis, substantially all of the assets and certain
liabilities of (i) nine business units previously purchased by Lockheed
Martin Corporation ("Lockheed Martin") as part of its acquisition of Loral
Corporation ("Loral") in April 1996, and (ii) one business unit,
Communications Systems--Camden purchased by Lockheed Martin as part of its
acquisition of the aerospace business of GE in April 1993, (collectively, the
"Businesses" or the "Predecessor Company"), prior to the change in ownership
and for the periods of January 1, 1996 to June 30, 1996 and January 1, 1997
to March 31, 1997, and as of December 31, 1996.

The accompanying unaudited condensed consolidated (combined) financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulations S-X of the Securities
and Exchange Commission (SEC); accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. All significant intercompany
balances and transactions have been eliminated. The balance sheet data as of
December 31, 1996 and the financial statement data as of March 31, 1997 and
for the three months ended March 31,1997 have been derived from the audited
financial statements of the Predecessor Company for such periods. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for interim periods are not necessarily indicative of
results for the entire year.

2. Change in Ownership Transaction

L-3 was formed on April 8, 1997, and is a wholly-owned subsidiary of L-3
Communications Holdings, Inc. ("Holdings"). Holdings and L-3 were formed by
Mr. Frank C. Lanza, the former President and Chief Operating Officer of
Loral, Mr. Robert V. LaPenta, the former Senior Vice President and Controller
of Loral, Lehman Brothers Capital Partners III, L.P. and its affiliates (the
"Lehman Partnership") and Lockheed Martin to acquire the Businesses.

On March 28, 1997, Lanza, LaPenta, the Lehman Partnership, Holdings, and
Lockheed Martin entered into a Transaction Agreement whereby Holdings would
acquire the Businesses from Lockheed Martin. Also included in the
acquisition is a semiconductor product line of another business and certain
leasehold improvements in New York City which were not material. Pursuant to
the Transaction Agreement on April 30, 1997 (closing date), Holdings acquired
the Businesses from Lockheed Martin for $525 million, comprised of $480

F-11

million of cash before an estimated $20 million reduction related to a
purchase price adjustment, and $45 million of common equity, representing a
34.9% interest in Holdings retained by Lockheed Martin. Also pursuant to the
Transaction Agreement, Lockheed Martin, on behalf and at the direction of
Holdings, transferred the Businesses to the Company. The acquisition was
financed with the debt proceeds of $400 million (see Note 5) and capital
contributions of $125 million from Holdings, including the $45 million
retained by Lockheed Martin.

In connection with the Transaction Agreement, Holdings and the Company
anticipate entering into a transition services agreement with Lockheed Martin
pursuant to which Lockheed Martin will provide to L-3 and its subsidiaries (and
L-3 will provide to Lockheed Martin) certain corporate services of a type
previously provided at costs consistent with past practices until December 31,
1997 (or, in the case of Communications Systems--Camden, for a period of up to
18 months after the Closing). Lockheed Martin is currently providing L-3 the
services contemplated by the proposed transition services agreement in the
absence of any executed agreement. The parties also entered into supply
agreements which reflect existing intercompany work transfer agreements or
similar support arrangements upon prices and other terms consistent with
previously existing arrangements. Holdings, the Company and Lockheed Martin
have entered into certain subleases of real property and cross-licenses of
intellectual property.

Pursuant to the Transaction Agreement the Company also assumed certain
obligations relating to environmental liabilities and benefit plans.

In accordance with Accounting Principles Board Opinion No. 16, the
acquisition of the Businesses by Holdings and L-3 has been accounted for as a
purchase business combination effective as of April 1, 1997. The purchase
cost (including the fees and expenses related thereto) was allocated to the
tangible and intangible assets and liabilities of the Company based upon
their respective fair values. The assets and liabilities recorded in
connection with the purchase price allocation were $660.3 million and $152.1
million, respectively. The excess of the purchase price over the fair value
of net assets acquired of $306.2 million was recorded as good will, and is
being amortized on a straight-line basis over a period of 40 years. Also in
connection with the purchase price allocation estimated deferred tax assets
of $35 million, fully offset by a valuation allowance, were recorded related
principally to differences between book and tax bases of assumed liabilities.
As a result of the 34.9% ownership interest retained by Lockheed Martin, the
provisions of EITF 88-16 were applied in connection with the purchase price
allocation, which resulted in recording net assets at approximately 34.9% of
Lockheed Martin's carrying values in the Businesses plus 65.1% at fair value,
and the recognition of a deemed distribution of $7.5 million. The assets and
liabilities recorded in connection with the purchase price allocation, are
based on preliminary estimates of fair values; actual adjustments will be
based on final appraisals and other analyses of fair values which are
currently in progress. Changes between preliminary and financial allocations
for the valuation of contracts in process, inventories, pension liabilities,
fixed assets and deferred taxes could be material.

F-12

Had the acquisitions of the Businesses occurred on January 1, 1996, the
unaudited pro forma sales and net income for the six months ended June 30,
1997 and 1996 would have been $326.9 million and $2.6 million and $338.6
million and $0.4 million, respectively. The pro forma results, which are
based on various assumptions, are not necessarily indicative of what would
have occurred had the acquisition been consummated on January 1, 1996. The
1996 pro forma sales and net income have been adjusted to include the
operations of the Loral Acquired Businesses from January 1, 1996 (See
Note 3).

3. Predecessor Company Acquisitions

Effective April 1, 1996, Lockheed Martin acquired substantially all the
assets and liabilities of the defense businesses of Loral, including the
Wideband Systems Division and the Products Group which are included in the
Businesses. The acquisition of the Wideband Systems Division and Products
Group businesses (the "Loral Acquired Businesses") has been accounted for as
a purchase by Lockheed Martin Communications Systems-Camden Division
("Divisions"). The acquisition has been reflected in the financial
statements based on the purchase price allocated to those acquired businesses
by Lockheed Martin. As such, the accompanying condensed combined financial
statements for periods prior to April 1, 1997 reflected the results of
operations of the Division and the Loral Acquired Businesses from the
effective date of acquisition including the effects of an allocated portion
of cost in excess of net assets acquired resulting from the acquisition. The
assets and liabilities recorded in connection with the purchase price
allocation were $401.0 million and $113.2 million, respectively.

4. Contracts and Progress

Billings and accumulated costs and profits on long-term contracts,
principally with the U.S. Government, comprise the following:

The Company Predecessor Company
June 30, 1997 December 31, 1996
------------------------ -----------------------
(Unaudited)
(Dollars in thousands)

Billed contract receivables . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,715 $ 40,299
Unbilled contract receivables . . . . . . . . . . . . . . . . . . . . . . . . 84,339 91,053
Other billed receivables, principally commercial and affiliates . . . . . . . 37,555 41,154
Inventories costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,830 61,380
-------- --------
238,439 233,886
Less, unliquidated progress payments . . . . . . . . . . . . . . . . . . . . (23,699) (35,813)
-------- --------
Net contracts in progress . . . . . . . . . . . . . . . . . . . . . . . . . . $214,740 $198,073
======== ========

F-13

5. Debt

The Company obtained $275 million of senior secured credit facilities
which consisted of $175 million of term loan facilities and a $100 million
revolving credit facility.

The revolving credit facilities expires in 2003 and is available for
ongoing working capital and letter of credit needs. Substantially all of the
revolving credit facility is available at June 30, 1997. The Company pays a
commitment fee on the unused portion. The term loan facilities and revolving
credit facility have bene provided by a syndicate of banks and financial
institutions and bear interest at the option of the Company at a rate related
to (i) the higher of federal funds rate plus 0.50% per annum or the reference
rate published by Bank of America NT&SA or (ii) LIBOR. Interest payments
vary in accordance with the type of borrowing and are made at a minimum every
three months.

The aggregate principal payments for debt, excluding the revolving
credit borrowings for the years ending December 31, 1998 through 2002 are:
$5.0 million, $11.0 million, $19.0 million, $25.0 million and $33.2 million.

In April 1997, the Company also issued $225 million 10 3/8% senior
subordinated notes due May 1, 2007 with interest payable semi-annually
beginning November 1, 1997. The notes are redeemable under certain
circumstances.

The costs relating to the issuance of debt have been capitalized and are
being amortized as interest expense using a method that approximates the
effective interest method over the term of the related debt.

6. Contingencies

Management is continually assessing the Company's obligations with
respect to applicable environmental protection laws. While it is difficult
to determine the timing and ultimate cost to be incurred by the Company in
order to comply with these laws, based upon available internal and external
assessments, with respect to those environmental loss contingencies of which
management of the Company is aware, the Company believes that even without
considering potential insurance recoveries, if any, there are no
environmental loss contingencies that, individually or in the aggregate,
would be material to the Company's results of operations. The Company
accrues for these contingencies when it is probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.

The Company is engaged in providing products and services under
contracts with the U.S. Government and to a lesser degree, under foreign
government contracts, some of which are funded by the U.S. Government. All
such contracts are subject to extensive legal and regulatory requirements,
and, from time to time, agencies of the U.S. Government investigate whether
such contracts were and are being conducted in accordance with these
requirements. Under government procurement regulations, an indictment of the
Company by a federal grand jury could result in the Company being suspended
for a period of time from eligibility for awards of new government contracts.

F-14

A conviction could result in debarment from contracting with the federal
government for a specified term.

The Company is periodically subject to litigation, claims or assessments
and various contingent liabilities (including environmental matters)
incidental to its business. With respect to those investigative actions,
items of litigation, claims or assessments of which they are aware,
management of the Company is of the opinion that the probability is remote
that, after taking into account certain provisions that have been made with
respect to these matters, the ultimate resolution of any such investigative
actions, items of litigation, claims or assessments will have a material
adverse effect on the financial position or results of operations of the
Company.

7. Recent Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 establishes accounting standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. In February 1997,the
FASB issued SFAS No. 129, "Disclosures of Information about Capital
Structure." SFAS No. 129 requires disclosure of for all type of securities
issued and applies to all entities that have issued securities. In June
1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosure about Segments of an Enterprise and related
Information." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set general-purpose financial statements. SFAS No. 131
establishes accounting standards for the way that public business enterprises
report information about operating segments and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 128 and SFAS No. 129 are
required to be adopted for periods ending after December 15, 1997, and SFAS
No. 130 and SFAS No. 131 are required to be adopted by 1998. The Company is
currently evaluating the impact, if any of these new FASB statements.

F-15

L-3 COMMUNICATIONS CORPORATION

Balance Sheet as of April 29, 1997

F-16
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of L-3 Communications Corporation

We have audited the accompanying balance sheet of L-3 Communications
Corporation (a Delaware company) as of April 29, 1997. This financial
statement is the responsibility of L-3 Communications Corporation's
management. Our responsibility is to express an opinion on this
financial statement based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of L-3 Communications
Corporation as of April 29, 1997, in conformity with generally accepted
accounting principles.

Coopers & Lybrand L.L.P.

1301 Avenue of the Americas
New York, New York 10019
July 16, 1997

F-17
L-3 COMMUNICATIONS CORPORATION

BALANCE SHEET

April 29, 1997

ASSETS:

Cash $1.00
-----

Total Assets $1.00
=====

LIABILITIES AND SHAREHOLDER'S EQUITY

Shareholder's Equity

Common Stock, $.01 par value 100 shares authorized
and outstanding $1.00
-----

Total Shareholder's Equity $1.00
=====

See notes to balance sheet.

F-18
L-3 COMMUNICATIONS CORPORATION
NOTES TO BALANCE SHEET

1. Formation of L-3 Communications Corporation

On April 8, 1997, L-3 Communications Corporation (the "Company") was
incorporated under the Delaware General Corporation Law
as a wholly owned subsidiary of L-3 Communications Holdings Inc. for the
purpose of effectuating the transactions described below.

2. Acquisition

On January 31, 1997, Lockheed Martin Corporation ("Lockheed
Martin"), Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza
("Lanza") and Robert V. LaPenta ("LaPenta") entered into a Memorandum of
Understanding regarding the transfer of certain businesses of Lockheed
Martin to a newly formed corporation ("Newco") to be owned by Lockheed
Martin, Lehman, Lanza and LaPenta. The businesses included a Lockheed
Martin's Wideband Systems Division, Communications Systems Division and
Products Group, comprising eleven autonomous operations (collectively the
"Lockheed Martin Predecessor Business" or the "Businesses"). Also included
in the transaction is the acquisition of a semiconductor product line of
another business and certain leasehold improvements in New York City.

Closing of the transaction occurred on April 30, 1997. The total
consideration paid to Lockheed Martin was $525 million, comprised of $480
million of cash before an estimated $20 million reduction related to a
purchase price adjustment, and $45 million of common equity being retained
by Lockheed Martin. The Company is a wholly owned subsidiary of L-3
Communications Holdings, Inc. ("Holdings"), and Holdings is capitalized
with $125 million of common equity, with Lanza and LaPenta collectively
owning 15.0%, the Lehman Partnership owning 50.1% and Lockheed Martin
owning 34.9%. In connection with the Closing the Company has received
a $125 million capital contribution from Holdings and incurred debt of
$400 million.

3. Agreements

In connection with the acquisition, the Company entered into a
Transaction Agreement, senior credit facilities, and issued 10 3/8%
Senior Subordinated Notes Due 2007.

Pursuant to the Transaction Agreement, Holdings and the Company
anticipate entering into a transition services agreement with Lockheed
Martin pursuant to which Lockheed Martin will provide to Holdings and its
subsidiaries (and Holdings will provide to Lockheed Martin) certain
corporate services of the types currently provided at costs consistent with
past practices until December 31, 1997 (or, in the case of Communication
Systems--Camden, for a period of up to 18 months after the Closing).
Lockheed Martin is currently providing L-3 the services contemplated by the
proposed transition services agreement in the absence of an executed
agreement. The parties also entered into supply agreements which reflect
existing intercompany work transfer agreements or similar support
arrangements upon prices and other terms consistent with the present

F-19
arrangements. Holdings, the Company and Lockheed Martin have entered into
certain subleases of real property and cross-licenses of intellectual
property.

Pursuant to the Transaction Agreement the Company assumed certain
obligations relating to environmental liabilities and benefit plans.

The 10-3/8% Senior Subordinated Notes are due in May 1, 2007 with
interest payable semi-annually beginning November 1, 1997. The Notes are
redeemable under certain circumstances.

The Term Loans and Revolving Credit Facility have been provided by a
syndicate of banks and financial institution and bear interest at the
option of the Company at a rate related to the (i) Loan of Federal Funds
Rate, or the reference rate published by Bank of America NT&SA or
(ii) LIBOR.

F-20
The Revolving Credit Facility terminates on March 31, 2003. The Term
Loans will be subject to the following Amortization schedule.

[CAPTION]

Tranche A Term Loan Tranche B Term Loan Tranche C Term Loan
------------------- ------------------- -------------------

Year 1 . . . . . . . . . . . . . . . . . $ 4,000,000 $ 500,000 $ 500,000
Year 2 . . . . . . . . . . . . . . . . . 5,000,000 500,000 500,000
Year 3 . . . . . . . . . . . . . . . . . 15,000,000 500,000 500,000
Year 4 . . . . . . . . . . . . . . . . . 21,000,000 500,000 500,000
Year 5 . . . . . . . . . . . . . . . . . 27,000,000 500,000 500,000
Year 6 . . . . . . . . . . . . . . . . . 28,000,000 500,000 500,000
Year 7 . . . . . . . . . . . . . . . . . -- 20,000,000 500,000
Year 8 . . . . . . . . . . . . . . . . . -- 22,000,000 500,000
Year 9 . . . . . . . . . . . . . . . . . -- -- 26,000,000

F-21
LOCKHEED MARTIN PREDECESSOR BUSINESSES

COMBINED FINANCIAL STATEMENTS

as of March 31, 1997
and for the three months ended March 31, 1997 and 1996 (Unaudited)

F-22
Report of Independent Auditors

To the Board of Directors of
L-3 Communications Corporation

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Lockheed Martin Predecessor Businesses as of March 31, 1997 and their
combined results of operations and cash flows for the three months then
ended, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

1301 Avenue of the Americas
New York, New York 10019
July 11, 1997

F-23
LOCKHEED MARTIN PREDECESSOR BUSINESSES

COMBINED BALANCE SHEET
(in thousands)

March 31,
---------------------
1997
---------------------

ASSETS

Current assets:
Contracts in process . . . . . . . . . . . $215,548
Other current assets . . . . . . . . . . . 4,142
--------
Total current assets . . . . . . . . . . 219,690
--------

Property, plant and equipment . . . . . . . . 120,423
Less, accumulated depreciation and
amortization . . . . . . . . . . . . . . . 29,069
--------
91,354
--------
Intangibles, primarily cost in excess
of net assets acquired, net of
amortization . . . . . . . . . . . . . . 280,145
Other assets . . . . . . . . . . . . . . . . 17,340
--------
$608,529
========

LIABILITIES AND INVESTED EQUITY
Current liabilities:
Accounts payable, trade . . . . . . . . . $ 33,956
Accrued employment costs . . . . . . . . 26,688
Customer advances and amounts in excess
of costs incurred . . . . . . . . . . . . 12,408
Other current liabilities . . . . . . . . 25,246
--------
Total current liabilities . . . . . . . 98,298
--------

Other liabilities . . . . . . . . . . . . . 16,301
Commitments and contingencies (Note 8)
Invested equity . . . . . . . . . . . . . . 493,930
--------
$608,529
========

See notes to combined financial statements.

F-24
LOCKHEED MARTIN PREDECESSOR BUSINESSES
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN INVESTED EQUITY
For the Three Months Ended March 31, 1997 and 1996 (unaudited)
(In thousands)

1997 1996
----------------------- -----------------------
(Unaudited)

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $158,873 $ 41,153
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,937 39,477
-------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,936 1,676
Allocated interested expense . . . . . . . . . . . . . . . . . . . . . . . 8,441 2,028
-------- --------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (505) (352)
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . (247) 145
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258) (497)
Invested equity-beginning of period . . . . . . . . . . . . . . . . . . . . 473,609 194,663
Advances from (repayments to) Lockheed Martin . . . . . . . . . . . . . . . 20,579 (9,751)
-------- --------
Invested equity-end of period . . . . . . . . . . . . . . . . . . . . . . . $493,930 $184,415
======== ========

See notes to combined financial statements.

F-25
LOCKHEED MARTIN PREDECESSOR BUSINESSES
COMBINED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996 (unaudited)
(In thousands)

1997 1996
----------------------- -----------------------
(Unaudited)

Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($258) ($497)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 7,184 3,062
Changes in operating assets and liabilities:
Contracts in process . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,475) 9,071
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (481) (326)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (159) 1,086
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207) (4,498)
Accrued employment costs . . . . . . . . . . . . . . . . . . . . . . . . . (625) 2,180
Customer advances and amounts in excess of costs incurred . . . . . . . . . (1,891) 60
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (1,867) (684)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (500) 710
------- ------
Net cash from (used in) operating activities . . . . . . . . . . . . . . . (16,279) 10,164
------- ------
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,300) (413)
------- ------
Financing activities:
Advances from (repayments to) Lockheed Martin . . . . . . . . . . . . . . . 20,579 (9,751)
------ ------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
======= =======

See notes to combined financial statements.

F-26
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS

March 31, 1997
(Dollars in thousands)

1. Background and Description of Businesses

On January 31, 1997, Lockheed Martin Corporation ("Lockheed
Martin"), Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza
("Lanza") and Robert V. LaPenta ("LaPenta") entered into a Memorandum of
Understanding regarding the transfer of certain businesses of Lockheed
Martin to a newly formed corporation ("Newco") owned by Lockheed Martin,
Lehman, Lanza and LaPenta. The businesses transferred include Lockheed
Martin's Wideband Systems Division, Communications Systems Division and
Products Group, comprising eleven autonomous operations (collectively the
"Lockheed Martin Predecessor Businesses" or the "Businesses"). Also
included in the transaction is the acquisition of a semiconductor product
line of another business and certain leasehold improvements in New York
City.

Effective April 1, 1996, Lockheed Martin acquired substantially all
the assets and liabilities of the defense businesses of Loral Corporation
("Loral"), including the Wideband Systems Division and the Products Group.
The acquisition of the Wideband Systems Division and Products Group
businesses (the "Acquired Businesses") has been accounted for as a
purchase by Lockheed Martin Communications Systems Division ("Division").
The acquisition has been reflected in these financial statements based on
the purchase price allocated to those acquired businesses by Lockheed
Martin. As such, the accompanying combined financial statements reflect
the results of operations of the Division and the Acquired Businesses from
the effective date of acquisition including the effects of an allocated
portion of cost in excess of net assets acquired resulting from the
acquisition. The assets and liabilities recorded in connection with the
purchase price allocation were $400,993 and $113,190, respectively.

Had the acquisition of Wideband Systems Division and the Products
Group occurred on January 1, 1996, the unaudited pro forma sales and net
income for the three months ended March 31, 1996 would have been $173,353
and $1,529, respectively. The pro forma results, which are based on
various assumptions, are not necessarily indicative of what would have
occurred had the acquisition been consummated on January 1, 1996.

The Businesses are suppliers of sophisticated secure communication
systems and specialized communication products including secure, high data
rate communication systems, commercial fixed wireless communication
products, microwave components, avionic displays and recorders and
instrument products. The Company's customers included the Department of
Defense, selected U.S. government intelligence agencies, major
aerospace/defense prime contractors and commercial customers. The
Businesses operate primarily in one industry segment, electronic
components and systems.

Substantially all the Businesses' products are sold to agencies of
the U.S. Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof. All

F-27
domestic government contracts and subcontracts of the Businesses are
subject to audit and various cost controls, and include standard
provisions for termination for the convenience of the U.S. Government.
Multi-year U.S. Government contracts and related orders are subject to
cancellation if funds for contract performance for any subsequent year
become unavailable. Foreign government contracts generally include
comparable provisions relating to termination for the convenience of the
government.

The decline in the U.S. defense budget since the mid 1980s has
resulted in program delays, cancellations and scope reduction for defense
contracts in general. These events may or may not have an effect on the
Businesses' programs; however, in the event that U.S. Government
expenditures for products of the type manufactured by the Businesses are
reduced, and not offset by greater commercial sales or other new programs
or products, or acquisitions, there may be a reduction in the volume of
contracts or subcontracts awarded to the Businesses.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying combined financial statements reflect the
Businesses' assets, liabilities and operations included in Lockheed
Martin's historical financial statements that were transferred to Newco.
Intercompany accounts between Lockheed Martin and the Businesses have been
included in invested equity. Significant inter-business transactions and
balances have been eliminated. The assets and operations of the
semiconductor product line and certain other facilities, which are not
material to the combined financial statements, have been excluded from the
combined financial statements.

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Businesses' management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The most significant of these
estimates and assumptions relate to contract estimates of sales and costs,
allocations from Lockheed Martin, recoverability of recorded amounts of
fixed assets and cost in excess of net assets acquired, litigation and
environmental obligations. Actual results could differ from these
estimates.

Sales and Earnings

Sales and profits on cost reimbursable contracts are recognized as
costs are incurred. Sales and estimated profits under long-term contracts
are recognized under the percentage of completion method of accounting
using the cost-to-cost method. Amounts representing contract change orders
or claims are included in sales only when they can be reliably estimated
and realization is probable. Sales under short-term production-type
contracts are recorded as units are shipped; profits applicable to such
shipments are recorded pro rata, based upon estimated total profit at
completion of the contract. Amounts representing contract change orders or
claims are included in sales only when they can be reliably estimated and

F-28
realization is probable. Losses on contracts are recognized when
determined. Revisions in profit estimates are reflected in the period in
which the facts which require the revision become known.

Contracts In Process

Costs accumulated under long-term contracts include direct costs, as
well as manufacturing overhead, and for government contracts, general and
administrative costs, independent research and development costs and bid
and proposal costs. Contracts in process contain amounts relating to
contracts and programs for which the related operating cycles are longer
than one year. In accordance with industry practice, these amounts are
included in current assets.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is
provided primarily using an accelerated method over the estimated useful
lives (5 to 20 years) of the related assets. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life
of the improvements.

Intangibles

Intangibles, primarily the excess of the cost of purchased
businesses over the fair value of the net assets acquired, is being
amortized using a straight-line method primarily over a 40-year period.
Other intangibles are amortized over their estimated useful lives which
range from 11-15 years. Amortization expense was $2,655 and $1,896
(unaudited) for the three months ended March 31, 1997 and 1996,
respectively. Accumulated amortization was $29,053 at March 31, 1997.

Intangibles include costs allocated to the Businesses relating to
the Request for Funding Authorization ("RFA"), consisting of over 20
restructuring projects to reduce operating costs, initiated by General
Electric ("GE") Aerospace in 1990 and to the REC Advance Agreement
("RAA"), a restructuring plan initiated after Lockheed Martin's
acquisition of GE Aerospace. The RAA was initiated to close two regional
electronic manufacturing centers. Restructure costs are reimbursable from
the U.S. Government if savings can be demonstrated to exceed costs. The
total cost of restructuring under the RFA and the RAA represented
approximately 15% of the estimated savings to the U. S. Government and,
therefore, a deferred asset has been recorded by Lockheed Martin. The
deferred asset is being allocated to all the former GE Aerospace sites,
including the Communications Systems Division, on a basis that includes
manufacturing labor, overhead, and direct material less non-hardware
subcontracts. As of March 31, 1997 and 1996, approximately $3,798 and
$6,755, (unaudited) respectively of unamortized RFA and RAA costs are
included on the Businesses' combined balance sheet in other current assets
and other assets.

F-29
over the remaining amortization period, the Division's carrying values
related to the intangible assets are reduced by the estimated shortfall of
cash flows.

Research and Development and Similar Costs

Research and development costs sponsored by the Businesses include
research and development and bid and proposal effort related to government
products and services. These costs are generally allocated among all
contracts and programs in progress under U. S. Government contractual
arrangements. Customer-sponsored research and development costs incurred
pursuant to contracts are accounted for as direct contract costs.

Financial Instruments

At March 31, 1997, the carrying value of the Businesses' financial
instruments, such as receivables, accounts payable and accrued
liabilities, approximate fair value, based on the short-term maturities of
these instruments.

New Accounting Pronouncements

Effective January 1, 1994, the Businesses adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postretirement Benefits" ("SFAS 112"). SFAS 112 requires that the costs of
benefits provided to employees after employment but before retirement be
recognized on an accrual basis. The adoption of SFAS 112 did not have a
material impact on the combined results of operations of the Businesses.

Unaudited Financial Statements

The financial statements for the three months ended March 31, 1996
are unaudited but in the opinion of management include all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation.

3. Transactions with Lockheed Martin

The Businesses rely on Lockheed Martin for certain services,
including treasury, cash management, employee benefits, taxes, risk
management, internal audit, financial reporting, contract administration
and general corporate services. Although certain assets, liabilities and
expenses related to these services have been allocated to the Businesses,
the combined financial position, results of operations and cash flows
presented in the accompanying combined financial statements would not be
the same as would have occurred had the Businesses been independent
entities. The following describes the related party transactions.

F-30
Sales of Products

The Businesses sell products to Lockheed Martin and its affiliates,
net sales of which were $21,171 and $6,425 (unaudited) for the three
months ended March 31, 1997 and 1996, respectively. Included in Contracts
in Process are receivables from Lockheed Martin and its affiliates of
$12,392 at March 31, 1997.

Allocation of Corporate Expenses

The amount of allocated corporate expenses reflected in these
combined financial statements has been estimated based primarily on an
allocation methodology prescribed by government regulations pertaining to
government contractors. Allocated costs to the Businesses were $5,208 and
$759 (unaudited) for the three months ended March 31, 1997 and 1996,
respectively.

Pensions

Certain of the Businesses participate in various Lockheed
Martin-sponsored pension plans covering certain employees. Eligibility for
participation in these plans varies, and benefits are generally based on
members' compensation and years of service. Lockheed Martin's funding
policy is generally to contribute in accordance with cost accounting
standards that affect government contractors, subject to the Internal
Revenue code and regulations. Since the aforementioned pension
arrangements are part of certain Lockheed Martin defined benefit plans, no
separate actuarial data is available for the portion allocable to the
Businesses. Therefore, no liability or asset is reflected in the
accompanying combined financial statements. The Businesses have been
allocated pension costs based upon participant employee headcount. Pension
expense included in the accompanying financial statements was $1,848 and
$1,083 (unaudited) for the three months ended March 31, 1997 and 1996,
respectively.

Postretirement Health Care and Life Insurance Benefits

In addition to participating in Lockheed Martin-sponsored pension
plans, certain of the Businesses provide varying levels of health care and
life insurance benefits for retired employees and dependents. Participants
are eligible for these benefits when they retire from active service and
meet the pension plan eligibility requirements. These benefits are funded
primarily on a pay-as-you-go basis with the retiree generally paying a
portion of the cost through contributions, deductibles and coinsurance
provisions.

Since the aforementioned postretirement benefits are part of certain
Lockheed Martin postretirement arrangements, no separate actuarial data is
available for the portion allocable to the Businesses. Accordingly, no
liability is reflected in the accompanying financial statements. The
Businesses have been allocated postretirement benefits cost based on
participant employee headcount. Postretirement benefit costs included in
the accompanying financial statements was $616 and $529 (unaudited) for
the three months ended March 31, 1997 and 1996, respectively.

F-31
Employee Savings Plans

Under various employee savings plans sponsored by Lockheed Martin,
the Businesses match the contributions of participating employees up to a
designated level. The extent of the match, vesting terms and the form of
the matching contribution vary among the plans. Under these plans, the
matching contributions, in cash, common stock or both, were $1,241 and
$386 (unaudited) for the three months ended March 31, 1997 and 1996,
respectively.

Stock Options

Certain employees of the Businesses participate in Lockheed Martin's
stock option plans. All stock options granted have 10 year terms and vest
over a two year service period. Exercise prices of options awarded in both
years were equal to the market price of the stock on the date of grant.
Pro Forma information regarding net earnings (loss) as required by SFAS
No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates
of 5.58% and 6.64%; divided yield of 1.70%; volatility factors related
to the expected market price of Lockheed Martin's common stock of .186
and .216; and weighted-average expected option life of five years. The
weighted average fair values of options granted during 1997 was $17.24.

For the purpose of pro forma disclosures, the options, estimated
fair values are amortized to expense over the options' vesting periods.
The Businesses' pro forma net loss for the three months ended March 31,
1997 was $386.

Interest Expense

Interest expense has been allocated to the Businesses by applying
Lockheed Martin's weighted average consolidated interest rate to the
portion of the beginning of the period invested equity account deemed to
be financed by consolidated debt, which has been determined based on
Lockheed Martin's debt to equity ratio on such date. Management of the
Businesses believes that this allocation methodology is reasonable.

Interest expense was calculated using the following balances and interest
rates:

F-32

For the Three Months
Ended March 31,
----------------------------
1997 1996
------------ --------------
(unaudited)

Invested Equity . . . . . . . . . . $ 473,609 $ 194,663

Interest Rate . . . . . . . . . . . 7.1% 7.4%

Income Taxes

The Businesses are included in the consolidated Federal income tax
return and certain combined and separate state and local income tax
returns of Lockheed Martin. However, for purposes of these financial
statements, the provision for income taxes has been allocated to the
Businesses based upon combined income before income taxes. Income taxes,
current and deferred, are considered to have been paid or charged to
Lockheed Martin and are recorded through the invested equity account with
Lockheed Martin. The principal components of the deferred taxes are
contract accounting methods, property, plant and equipment, goodwill
amortization and timing of accruals and reserves.

Statements of Cash Flows

The Businesses participate in Lockheed Martin's cash management
system, under which all cash is received and payments are made by Lockheed
Martin. All transactions between the Businesses and Lockheed Martin have
been accounted for as settled in cash at the time such transactions were
recorded by the Businesses.

4. Contracts in Process

Billings and accumulated costs and profits on contracts, principally
with the U.S. Government, comprise the following:

F-33

March 31, 1997
---------------

Billed contract receivables . . . . . . . . . . 35,664
Other billed receivables, principally
commercial and affiliates . . . . . . . . . . 42,693
Unbilled contract receivables . . . . . . . . . 93,494
Inventoried costs . . . . . . . . . . . . . . . 70,904
--------
242,755
Less, unliquidated progress payments . . . . . 27,207
--------
215,548
========

The U.S. Government has title to, or a security interest in,
inventories to which progress payments are applied. Unbilled contract
receivables represent accumulated costs and profits earned but not yet
billed to customers at year-end. The Businesses believe that substantially
all such amounts will be billed and collected within one year.

The following data has been used in the determination of cost of
sales:

For the Three Months Ended
---------------------------
1997 1996
----------- -------------
(unaudited)

General and administrative costs
included in inventoried costs . . . . . $ 14,536 $ 857
General and administrative costs
charged to inventory . . . . . . . . . . 8,680 1,529
Independent research and development
and bid and proposal costs charged
to inventory . . . . . . . . . . . . . 12,024 932

F-34
5. Property, Plant and Equipment

March 31, 1997
----------------

Land . . . . . . . . . . . . . . . . . . . . . . $ 9,200
Building and Improvements . . . . . . . . . . . . 27,000
Machinery, equipment, furniture and fixtures . . 75,711
Leasehold improvements . . . . . . . . . . . . . 8,512
---------
$ 120,423
=========

Depreciation and amortization expense was $4,529 and $1,166
(unaudited) for the three months ended March 31, 1997 and 1996,
respectively. Included within property, plant and equipment is
approximately $15,000 of assets held for sale which approximates fair
value.

6. Income Taxes

The (benefit) provision for income taxes was calculated by applying
statutory tax rates to the reported loss before income taxes after
considering items that do not enter into the determination of taxable
income and tax credits reflected in the consolidated provision of Lockheed
Martin, which are related to the Businesses. For the three months ended
March 31, 1997 and 1996, it is estimated that the (benefit) provision for
deferred taxes represent $1,315 and $7 (unaudited), respectively.
Substantially all the income of the Businesses are from domestic
operations.

The effective income tax rate differs from the statutory Federal
income tax rate for the following reasons:

March 31, 1997 March 31, 1996
----------------- ----------------
(unaudited)

Statutory Federal income tax rate . . . . . . . . . . . . . . . . . . . . . (35.0)% (34.0)%
Amortization of cost in excess of net assets acquired . . . . . . . . . . . (8.1) 65.3
Research and development and other tax credits . . . . . . . . . . . . . . (11.3)
State and local income taxes, net of Federal income tax benefit
and state and local income tax credits . . . . . . . . . . . . . . 4.8 6.3
Foreign sales corporation tax benefits . . . . . . . . . . . . . . . . . . (8.4)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 3.6
----- -----
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . (48.9%) 41.2%
===== =====

F-35
7. Sales to Principal Customers

The Businesses operate primarily in one industry segment, electronic
components and systems. Sales to principal customers are as follows:

March 31, 1997 March 31, 1996
-------------- --------------
(unaudited)

U.S. Government Agencies . . . . . . $ 128,505 $41,153
Foreign (principally foreign
governments) . . . . . . . . . . . . 13,612
Other (principally U.S. Commercial) . 16,756
--------- -------
$ 158,873 $41,153
========= =======

8. Commitments and Contingencies

The Businesses lease certain facilities and equipment under
agreements expiring at various dates through 2011. At March 31, 1997,
future minimum payments for noncancellable operating leases with initial
or remaining terms in excess of one year are $10,600 (nine months) for
1997 and 1998, $10,400 for each of the years 1999 and 2000, $10,200 and
2001, and $6,800 in total thereafter.

Leases covering major items of real estate and equipment contain
renewal and or purchase options which may be exercised by the Businesses.
Rent expense, net of sublease income from other Lockheed Martin entities,
was $2,553 and $1,150 (unaudited) for the three months ended March 31,
1997 and 1996, respectively.

Management is continually assessing the Businesses' obligations with
respect to applicable environmental protection laws. While it is difficult
to determine the timing and ultimate cost to be incurred by the Businesses
in order to comply with these laws, based upon available internal and
external assessments, with respect to those environmental loss
contingencies of which management of the Businesses is aware, the
Businesses believe that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to the Businesses'
results of operations. The Businesses accrue for these contingencies when
it is probable that a liability has been incurred and the amount of the
loss can be reasonably estimated.

The Businesses are engaged in providing products and services under
contracts with the U.S. Government and to a lesser degree, under foreign
government contracts, some of which are funded by the U.S. Government. All
such contracts are subject to extensive legal and regulatory requirements,
and, from time to time, agencies of the U.S. Government investigate

F-36
whether such contracts were and are being conducted in accordance with
these requirements. Under government procurement regulations, an
indictment of the Businesses by a federal grand jury could result in the
Businesses being suspended for a period of time from eligibility for
awards of new government contracts. A conviction could result in debarment
from contracting with the federal government for a specified term.

The Businesses are periodically subject to litigation, claims or
assessments and various contingent liabilities (including environmental
matters) incidental to their business. With respect to those investigative
actions, items of litigation, claims or assessments of which they are
aware, management of the Businesses is of the opinion that the probability
is remote that, after taking into account certain provisions that have
been made with respect to these matters, the ultimate resolution of any
such investigative actions, items of litigation, claims or assessments
will have a material adverse effect on the combined financial position or
results of operations of the Businesses.

F-37
LOCKHEED MARTIN PREDECESSOR BUSINESS

COMBINED FINANCIAL STATEMENTS

As of December 31, 1996 and 1995 and for the three
years in the period ended December 31, 1996

F-38
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Lockheed Martin Corporation:

We have audited the accompanying combined balance sheet of the
Lockheed Martin Predecessor Businesses, as defined in Note 1 to the
financial statements, (the "Businesses") as of December 31, 1996 and the
related combined statements of operations and changes in invested equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Businesses' management. Our responsibility is to
express an opinion on these financial statements based on our audit. We
did not audit the financial statements of the Lockheed Martin
Communications Systems Division, which statements reflect total assets and
sales constituting 35 percent and 30 percent of the related combined
totals. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the
amounts included for the Communications Systems Division, is based solely
on the report of the other auditors.

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

In our opinion, based on our audit and the report of the other
auditors, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Lockheed
Martin Predecessor Businesses as of December 31, 1996 and their combined
results of operations and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
March 20, 1997

F-39
REPORT OF INDEPENDENT AUDITORS

Board of Directors
Lockheed Martin Corporation:

We have audited the combined balance sheets of Lockheed Martin
Communications Systems Division, as defined in Note 1 to the financial
statements, as of December 31, 1996 and 1995, and the related combined
statements of operations and changes in invested equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Division's and Lockheed
Martin Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position
of Lockheed Martin Communications Systems Division at December 31, 1996
(not presented separately herein) and 1995, and the combined results of
its operations and its cash flows for the year ended December 31, 1996
(not presented separately herein), and the results of its operations and
its cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Washington, D.C.
March 7, 1997

F-40
LOCKHEED MARTIN PREDECESSOR BUSINESSES

COMBINED BALANCE SHEETS
(In thousands)

Years Ended
December 31,
----------------------------------
1996 1995
--------------- ---------------

ASSETS
Current assets:
Contracts in process . . . . . . . . . . . . . . . . . . . . . . $ 198,073 $ 42,457
Other current assets . . . . . . . . . . . . . . . . . . . . . . 3,661 3,100
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 201,734 45,557
--------- ---------
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 116,566 31,657
Less, accumulated depreciation and amortization . . . . . . . . . 24,983 15,018
--------- ---------
91,583 16,639
--------- ---------
Intangibles, primarily cost in excess of net assets acquired, net
of amortization . . . . . . . . . . . . . . . . . . . . . . . . . 282,674 157,560
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,307 8,753
--------- ---------
$ 593,298 $ 228,509
========= =========

LIABILITIES AND INVESTED EQUITY

Current liabilities:
Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . $ 34,163 $ 9,583
Accrued employment costs . . . . . . . . . . . . . . . . . . . . . 27,313 6,534
Customer advances and amounts in excess of costs incurred . . . . 14,299 1,363
Other current liabilities . . . . . . . . . . . . . . . . . . . . 27,113 6,983
--------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . 102,888 24,463
--------- --------

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,801 9,383
Commitments and contingencies (Note 8)
Invested equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473,609 194,663
--------- --------
$ 593,298 $ 228,509
========= =========

See notes to combined financial statements.

F-41
LOCKHEED MARTIN PREDECESSOR BUSINESSES

COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN INVESTED EQUITY
(In thousands)

Years Ended December 31,
-------------------------------------------------
1996 1995 1994
------------- ----------- ---------

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 543,081 $ 166,781 $ 218,845
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 499,390 162,132 210,466
--------- --------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . . . 43,691 4,649 8,379
Allocated interest expense . . . . . . . . . . . . . . . . . 24,197 4,475 5,450
--------- --------- ---------
Earnings before income taxes . . . . . . . . . . . . . . . . 19,494 174 2,929
Income tax expense . . . . . . . . . . . . . . . . . . . . . 7,798 1,186 2,293
--------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . 11,696 (1,012) 636
Invested equity--beginning of year . . . . . . . . . . . . . 194,663 199,506 216,943
Advances from (repayments to) Lockheed Martin . . . . . . . . 267,250 (3,831) (18,073)
--------- --------- ---------

Invested equity -- end of year . . . . . . . . . . . . . . . $ 473,609 $ 194,663 $ 199,506
========= ========= ==========

See notes to combined financial statements.

F-42
LOCKHEED MARTIN PREDECESSOR BUSINESSES

COMBINED STATEMENTS OF CASH FLOWS
(In thousands)

Years Ended December 31,
-------------------------------------------------
1996 1995 1994
-------------- ----------- -------------

Operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . $ 11,696 $(1,012) $ 636
Depreciation and amortization . . . . . . . . . . . . . . . . 25,039 11,578 11,467
Loss (gain) on disposition of property, plant and equipment . 265 26 (1,078)
Changes in operating assets and liabilities
Contracts in process . . . . . . . . . . . . . . . 26,103 (3,267) 14,002
Other current assets . . . . . . . . . . . . . . . 489 788 1,502
Other assets . . . . . . . . . . . . . . . . . . . (5,246) 1,245 2,044
Accounts payable . . . . . . . . . . . . . . . . . 3,198 (648) (3,099)
Accrued employment costs . . . . . . . . . . . . . . 2,282 (611) (528)
Customer advances and amounts in excess of costs
incurred . . . . . . . . . . . . . . . . . . . . . (11,586) (2,041) 917
Other current liabilities . . . . . . . . . . . . . 4,086 4,004 (3,304)
Other liabilities . . . . . . . . . . . . . . . . . (25,327) (699) (751)
--------- -------- ------
Net cash from operating activities . . . . . . . . . . . . . 30,999 9,363 21,808
--------- -------- ------

Investing activities:
Acquisition of business . . . . . . . . . . . . . . . . . . . (287,803) -- --
Capital expenditures . . . . . . . . . . . . . . . . . . . . (13,528) (5,532) (3,735)
Disposition of property, plant and equipment . . . . . . . . 3,082 -- --
--------- -------- ------
Net cash used in investing activities . . . . . . . . . . . . (298,249) (5,532) (3,735)
--------- -------- ------

Financing activities:
Advances from (repayments to) Lockheed Martin . . . . . . . . 267,250 (3,831) (18,073)
--------- -------- ------

Net change in cash . . . . . . . . . . . . . . . . . . . . . -- -- --
========= ======== ======

See notes to combined financial statements.

F-43
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
(Dollars in thousands)

1. Background and Description of Businesses

On January 31, 1997, Lockheed Martin Corporation ("Lockheed
Martin"), Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza
("Lanza") and Robert V. LaPenta ("LaPenta") entered into a Memorandum of
Understanding regarding the transfer of certain businesses of Lockheed
Martin to a newly formed corporation ("Newco") to be owned by Lockheed
Martin, Lehman, Lanza and LaPenta. The businesses proposed to be
transferred include Lockheed Martin's Wideband Systems Division,
Communications Systems Division and Products Group, comprising eleven
autonomous operations (collectively the "Lockheed Martin Predecessor
Businesses" or the "Businesses"). Also included in the transaction is the
acquisition of a semiconductor product line of another business and
certain leasehold improvements in New York City.

Effective April 1, 1996, Lockheed Martin acquired substantially all
the assets and liabilities of the defense businesses of Loral Corporation
(Loral), including the Wideband Systems Division and the Products Group.
The acquisition of the Wideband Systems Division and Products Group
businesses (the "Acquired Businesses") has been accounted for as a
purchase by Lockheed Martin Communications Systems Division ("Division").
The acquisition has been reflected in these financial statements based on
the purchase price allocated to those acquired businesses by Lockheed
Martin. As such, the accompanying combined financial statements reflect
the results of operations of the Division and the Acquired Businesses from
the effective date of acquisition including the effects of an allocated
portion of cost in excess of net assets acquired resulting from the
acquisition. The assets and liabilities recorded in connection with the
purchase price allocation were $400,993 and $113,190, respectively.

Had the acquisition of Wideband Systems Division and the Products
Group occurred on January 1, 1995, the unaudited pro forma sales and net
income for the years ending December 31, 1996 and 1995 would have been
$675,281 and $12,638, and $691,136 and $4,790, respectively. The pro forma
results, which are based on various assumptions, are not necessarily
indicative of what would have occurred had the acquisition been
consummated on January 1, 1995.

Substantially all the Businesses' products are sold to agencies of
the U.S. Government, primarily the Department of Defense, to foreign

F-44
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

government agencies or to prime contractors or subcontractors thereof. All
domestic government contracts and subcontracts of the Businesses are
subject to audit and various cost controls, and include standard
provisions for termination for the convenience of the U.S. Government.
Multi-year U.S. Government contracts and related orders are subject to
cancellation if funds for contract performance for any subsequent year
become unavailable. Foreign government contracts generally include
comparable provisions relating to termination for the convenience of the
government.

The decline in the U.S. defense budget since the mid 1980s has
resulted in program delays, cancellations and scope reduction for defense
contracts in general. These events may or may not have an effect on the
Businesses' programs; however, in the event that U.S. Government
expenditures for products of the type manufactured by the Businesses are
reduced, and not offset by greater commercial sales or other new programs
or products, or acquisitions, there may be a reduction in the volume of
contracts or subcontracts awarded to the Businesses.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying combined financial statements reflect the
Businesses' assets, liabilities and operations included in Lockheed
Martin's historical financial statements that will be transferred to
Newco. Intercompany accounts between Lockheed Martin and the Businesses
have been included in invested equity. Significant inter-business
transactions and balances have been eliminated. The assets and operations
of the semiconductor product line and certain other facilities, which are
not material to the combined financial statements, have been excluded from
the combined financial statements.

Sales and Earnings

F-45
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

or claims are included in sales only when they can be reliably estimated
and realization is probable. Sales under short-term production-type
contracts are recorded as units are shipped; profits applicable to such
shipments are recorded pro rata, based upon estimated total profit at
completion of the contract. Amounts representing contract change orders or
claims are included in sales only when they can be reliably estimated and
realization is probable. Losses on contracts are recognized when
determined. Revisions in profit estimates are reflected in the period in
which the facts which require the revision become known.

Contracts In Process

Costs accumulated under long-term contracts include direct costs, as
well as manufacturing overhead, and for government contracts, general and
administrative costs, independent research and development costs and bid
and proposal costs. Contracts in process contain amounts relating to
contracts and programs for which the related operating cycles are longer
that one year. In accordance with industry practice, these amounts are
included in current assets.

Property, Plant and Equipment

Intangibles

Intangibles, primarily the excess of the cost of purchased
businesses over the fair value of the net assets acquired, is being
amortized using a straight-line method primarily over a 40-year period.
Other intangibles are amortized over their estimated useful lives which
range from 11-15 years. Amortization expense was $10,115, $6,086 and
$6,086 for 1996, 1995 and 1994, respectively. Accumulated amortization was
$26,524 and $16,738 at December 31, 1996 and 1995, respectively.

Intangibles include costs allocated to the Businesses relating to
the Request for Funding Authorization ("RFA"), consisting of over 20
restructuring projects to reduce operating costs, initiated by General
Electric ("GE") Aerospace in 1990 and to the REC Advance Agreement
("RAA"), a restructuring plan initiated after Lockheed Martin's
acquisition of GE Aerospace. The RAA was initiated to close two regional
electronic manufacturing centers. Restructure costs are reimbursable from
the U.S. Government if savings can be demonstrated to exceed costs. The
total cost of restructuring under the RFA and the RAA represented
approximately 15% of the estimated savings to the U.S. Government and,
therefore, a deferred asset has been recorded by Lockheed Martin. The
deferred asset is being allocated to all the former GE Aerospace sites,
including the Communications Systems Division, on a basis that includes

F-46
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

manufacturing labor, overhead, and direct material less non-hardware
subcontracts. As of December 31, 1996 and 1995, approximately $4,400 and
$7,500, respectively of unamortized RFA and RAA costs are incurred on the
Businesses' combined balance sheet in other current assets and other
assets.

The carrying values of intangible assets are reviewed if the facts
and circumstances indicate potential impairment of their carrying value.
If this review indicates that intangible assets are not recoverable, as
determined based on the undiscounted cash flows of the entity acquired
over the remaining amortization period, the Division's carrying values
related to the intangible assets are reduced by the estimated shortfall of
cash flows.

Research and Development and Similar Costs

Research and development costs sponsored by the Businesses include
research and development and bid and proposal effort related to government
products and services. These costs generally are allocated among all
contracts and programs in progress under U.S. Government contractual
arrangements. Customer-sponsored research and development costs incurred
pursuant to contracts are accounted for as direct contract costs.

Financial Instruments

At December 31, 1996, the carrying value of the Businesses'
financial instruments, such as receivables, accounts payable and accrued
liabilities, approximate fair value, based on the short-term maturities of
these instruments.

New Accounting Pronouncements

F-47
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

3. Transactions with Lockheed Martin

Sales of Products

The Businesses sell products to Lockheed Martin and its affiliates,
net sales for which were $70,658, $25,874, and $9,983 in 1996, 1995 and
1994, respectively. Included in Contracts in Process are receivables from
Lockheed Martin and its affiliates of $10,924 and $30 at December 31, 1996
and 1995, respectively.

Allocation of Corporate Expenses

The amount of allocated corporate expenses reflected in these
combined financial statements has been estimated based primarily on an
allocation methodology prescribed by government regulations pertaining to
government contractors. Allocated costs to the Businesses were $10,057,
$2,964 and $4,141 in 1996, 1995 and 1994, respectively.

Pensions

Certain of the Businesses participate in various Lockheed
Martin-sponsored pension plans covering certain employees. Eligibility for
participation in these plans varies, and benefits are generally based on
members' compensation and years of service. Lockheed Martin's funding
policy is generally to contribute in accordance with cost accounting
standards that affect government contractors, subject to the Internal
Revenue code and regulations. Since the aforementioned pension
arrangements are part of certain Lockheed Martin defined benefit plans, no
separate actuarial data is available for the portion allocable to the
Businesses. Therefore, no liability or asset is reflected in the
accompanying combined financial statements. The Businesses have been
allocated pension costs based upon participant employee headcount. Net
pension expense included in the accompanying financial statements was
$7,027, $4,134 and $3,675 in 1996, 1995 and 1994, respectively.

Postretirement Health Care and Life Insurance Benefits

F-48
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

meet the pension plan eligibility requirements. These benefits are funded
primarily on a pay-as-you-go basis with the retiree generally paying a
portion of the cost through contributions, deductibles and coinsurance
provisions. Since the aforementioned postretirement benefits are part of
certain Lockheed Martin postretirement arrangements, no separate actuarial
data is available for the portion allocable to the Businesses.
Accordingly, no liability is reflected in the accompanying financial
statements. The Businesses have been allocated postretirement benefits
cost based on participant employee headcount. Postretirement benefit costs
included in the accompanying financial statements were $2,787, $2,124 and
$1,694 in 1996, 1995 and 1994, respectively.

Employee Savings Plan

Under various employee savings plans sponsored by Lockheed Martin,
the Businesses match the contributions of participating employees up to a
designated level. The extent of the match, vesting terms and the form of
the matching contribution vary among the plans. Under these plans, the
matching contributions, in cash, common stock or both, for 1996, 1995 and
1994 were $3,940, $1,478 and $1,842, respectively.

Stock Options

During 1996 and 1995, certain employees of the Businesses participated
in Lockheed Martin's stock option plans. All stock options granted in
1996 and 1995 have 10 year terms and vest over a two year service
period. Exercise prices of options awarded in both years were equal
to the market price of the stock on the date of grant. Pro forma
information regarding net earnings (loss) as required
by SFAS No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for
1996 and 1995, respectively: risk-free interest rates of 5.58% and 6.64%;
dividend yield of 1.70%; volatility factors related to the expected market
price of the Lockheed Martin's common stock of .186 and .216; and
weighted-average expected option life of five years. The weighted average
fair values of options granted during 1996 and 1995 were $17.24 and $16.09,
respectively.

For the purposes of pro forma disclosures, the options' estimated
fair values are amortized to expense over the options' vesting periods.
The Businesses' pro forma net earnings (loss) for 1996 and 1995 were
$11,531 and $(1,040), respectively.

Interest Expense

F-49
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

Lockheed Martin's debt to equity ratio on such date, except that the
acquisition of the defense business of Loral Corporation ("Loral") has
been assumed to be fully financed by debt.

Interest expense was calculated using the following balances and
interest rates:

Years Ended December 31,
-----------------------------------------------
1996 1995 1994
--------- ----------- -----------

Invested Equity:
Communications Systems Division . . . . . . . . . . $ 194,663 $ 199,506 $ 216,943
Wideband Systems Division and Products Group . . . . $ 287,803 -- --
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . 7.20% 7.40% 7.23%

Income Taxes

The Businesses are included in the consolidated Federal income tax
return and certain combined and separate state and local income tax
returns of Lockheed Martin. However, for purposes of these financial
statements, the provision for income taxes has been allocated to the
Businesses based upon reported combined income before income taxes. Income
taxes, current and deferred, are considered to have been paid or charged
to Lockheed Martin and are recorded through the invested equity account
with Lockheed Martin. The principal components of the deferred taxes are
contract accounting methods, property, plant and equipment, goodwill
amortization and timing of actuals.

Statements of Cash Flows

4. Contracts in Process

Billings and accumulated costs and profits on contracts, principally
with the U.S. Government, comprise the following:

F-50
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

Years Ended
December 31,
-------------------------------
1996 1995
---------- ----------

Billed contract receivables . . . . . . . . . . . . . . . . . . . . . . . . $ 40,299 $10,237
Other billed receivables, principally commercial . . . . . . . . . . . . . 41,154 --
Unbilled contract receivables . . . . . . . . . . . . . . . . . . . . . . . 91,053 23,643
Inventoried costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,380 10,830
-------- ------
233,886 44,710
Less, unliquidated progress payments . . . . . . . . . . . . . . . . . . . (35,813) (2,253)
-------- ------
$ 198,073 $42,457
========= =======

The following data has been used in the determination of cost of
sales:

Years Ended December 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------

General and administrative costs included in
inventoried costs . . . . . . . . . . . . . . . . . . . . $ 14,700 $ 1,156 $ 493
General and administrative costs charged to inventory . . . $ 25,400 $ 3,967 $ 3,640
Independent research and development and bid and
proposal costs incurred . . . . . . . . . . . . . . . . . $ 36,500 $ 9,800 $10,640

F-51
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

5. Property, Plant and Equipment

December 31,
----------------------
1996 1995
--------- ----------

Land . . . . . . . . . . . . . . $ 9,200 --
Buildings and Improvements . . . 27,000 --
Machinery, equipment, furniture
and fixtures . . . . . . . . . 73,137 $29,216
Leasehold improvements . . . . . 7,229 2,441
-------- -------
$ 116,566 $31,657
========= =======

Depreciation and amortization expense in 1996, 1995 and 1994 was
$14,924, $5,492 and $5,381, respectively.

6. Income Taxes

The provision for income taxes was calculated by applying statutory
tax rates to the reported pretax income after considering items that do
not enter into the determination of taxable income and tax credits
reflected in the consolidated provision of Lockheed Martin, which are
related to the Businesses. For the years ended December 31, 1996, 1995 and
1994, it is estimated that the provision for deferred taxes represent
($2,143), $3,994 and $1,252, respectively. Substantially all the income of
the Businesses are from domestic operations.

F-52
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

The effective income tax rate differs from the statutory Federal
income tax rate for the following reasons:

Years Ended December 31,
-----------------------------------------------
1996 1995 1994
---------- ---------- -----------

Statutory Federal income tax rate . . . . . . . . . . . . . . 35% 34% 34%
Amortization of cost in excess of net assets acquired . . . . 2 529 31
Research and development and other tax credits . . . . . . . (2) -- --
State and local income taxes, net of Federal income
tax benefit and state and local income tax
credits . . . . . . . . . . . . . . . . . . . . . . 6 101 12
Foreign sales corporation tax benefit . . . . . . . . . . . . (1) -- --
Other, net -- 17 1
-- --- --
Effective income tax rate . . . . . . . . . . . . . . . . . . 40% 681% 78%
== === ==

F-53
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands)

7. Sales to Principal Customers

The Business operate primarily in one industry segment, communication
systems and products. Sales to principal customers are as follows:

Years Ended December 31,
-----------------------------------------------
1996 1995 1994
---------- ---------- -----------

U.S. Government Agencies . . . . . . . . . . . . . . . . . . $425,033 $161,617 $216,084
Foreign (principally foreign governments) . . . . . . . . . . 33,475 4,945 1,623
Other (principally commercial) . . . . . . . . . . . . . . . 84,573 219 1,138
------- ------- -------
$543,081 $166,781 $218,845
======== ======== ========

8. Commitments and Contingencies

The Businesses lease certain facilities and equipment under agreements
expiring at various dates through 2011. At December 31, 1996, future
minimum payments for noncancellable operating leases with initial or
remaining terms in excess of one year are $11,400 for each of the years
1997 through 2001, and $12,300 in total thereafter.

Leases covering major items of real estate and equipment contain
renewal and/or purchase options which may be exercised by the Businesses.
Rent expense, net of sublease income from other Lockheed Martin entities,
was $8,495, $4,772 and $5,597 in 1996, 1995 and 1994, respectively.

Management is continually assessing the Businesses' obligations
with respect to applicable environmental protection laws. While it is
difficult to determine the timing and ultimate cost to be incurred by
the Businesses in order to comply with these laws, based upon available
internal and external assessments, with respect to those environmental
loss contingencies of which management of the Businesses is aware, the
Businesses believe that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to the Businesses'
results of operations. The Businesses accrue for these contingencies when
it is probable that a liability has been incurred and the amount of the
loss can be reasonably estimated.

F-54
LOCKHEED MARTIN PREDECESSOR BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS--(continued)
(Dollars in thousands)

The Businesses are engaged in providing products and services under
contracts with the U.S. Government and to a lesser degree under foreign
government contracts, some of which are funded by the U.S. Government.
All such contracts are subject to extensive legal and regulatory
requirements, and, from time to time, agencies of the U.S. Government
investigate whether such contracts were and are being conducted in
accordance with these requirements. Under government procurement
regulations, an indictment of the Businesses by a federal grand jury
could result in the Businesses being suspended for a period of time
from eligibility for awards of new government contracts. A conviction
could result in debarment from contracting with the federal government
for a specified term.

The Businesses are periodically subject to litigation, claims or
assessments and various contingent liabilities (including environmental
matters) incidental to its business. With respect to those investigative
actions, items of litigation, claims or assessments of which they are
aware, management of the Businesses is of the opinion that the probability
is remote that, after taking into account certain provisions that have
been made with respect to these matters, the ultimate resolution of any
such investigative actions, items of litigation, claims or assessments
will have a material adverse effect on the financial position or results
of operations of the Businesses.

F-55
REPORT OF INDEPENDENT AUDITORS

Board of Directors of
Lockheed Martin Corporation:

We have audited the accompanying combined statements of operations and
cash flows for the Loral Acquired Businesses as defined in Note 1, (the
"Businesses") for the three months ended March 31, 1996 and the years ended
December 31, 1995 and 1994. These financial statements are the responsibility
of the Businesses' management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined results of the operations and
cash flows of the Businesses for the three months ended March 31, 1996 and
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
March 20, 1997

F-56
LORAL ACQUIRED BUSINESSES

COMBINED STATEMENTS OF OPERATIONS
(In thousands)

Three Years Ended December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- -------------------

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,200 $448,165 $283,129
Cost and expenses . . . . . . . . . . . . . . . . . . . . . . . 124,426 424,899 273,181
--------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . 7,774 23,266 9,948
Allocated interest expense . . . . . . . . . . . . . . . . . . 4,365 20,799 8,375
--------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . 3,409 2,467 1,573
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,292 854 560
--------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,117 $ 1,613 $ 1,013
========= ======== ========

See notes to combined financial statements.

F-57
LORAL ACQUIRED BUSINESSES

COMBINED STATEMENTS OF CASH FLOWS
(In thousands)

Three Years Ended December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- --------------------

Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,117 $ 1,613 $ 1,013
Depreciation and amortization . . . . . . . . . . . . . . . . . 5,011 20,625 15,952
Changes in operating assets and liabilities
Contracts in process . . . . . . . . . . . . . . . . . . . (11,382) 7,327 4,499
Other current assets . . . . . . . . . . . . . . . . . . . (3,436) 890 (156)
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,437 6,736 (3,633)
Accounts payable and accrued liabilities . . . . . . . . . 4,525 (4,533) (3,944)
Other current liabilities . . . . . . . . . . . . . . . . . 3,348 4,428 (3,150)
Other liabilities . . . . . . . . . . . . . . . . . . . . . (452) 117 (415)
--------- --------- -------
Net cash from operating activities . . . . . . . . . . . . . . 2,168 37,203 10,166
--------- --------- -------

Investing activities:
Acquisition of business . . . . . . . . . . . . . . . . . . . . -- (214,927) --
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (3,962) (12,683) (7,390)
Disposition of property, plant and equipment . . . . . . . . . 187 4,342 144
--------- --------- -------
(3,775) (223,268) (7,246)
--------- --------- -------

Financing activities:
Advances from (repayments to) Loral . . . . . . . . . . . . . . 1,607 186,065 (2,920)
--------- ---------- -------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . -- -- --
========= ========= =======

See notes to combined financial statements.

F-58
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)

1. Background and Description of Business

On January 31, 1997, Lockheed Martin Corporation ("Lockheed Martin"),
Lehman Brothers Holdings Inc. ("Lehman"), Frank C. Lanza ("Lanza") and Robert
V. LaPenta ("LaPenta") entered into a Memorandum of Understanding ("MOU")
regarding the transfer of certain businesses of Lockheed Martin to a newly
formed corporation ("Newco") to be owned by Lockheed Martin, Lehman, Lanza
and LaPenta. The businesses proposed to be transferred (the "Loral Acquired
Businesses" or "Businesses") include Lockheed Martin's Wideband Systems
Division and the Products Group, comprised of ten autonomous operations, all
of which were acquired by Lockheed Martin effective April 1, 1996 as part of
the acquisition by Lockheed Martin of the defense electronics business of
Loral Corporation ("Loral"). Also included in the transaction is the
acquisition of a semiconductor product line of another business and certain
leasehold improvements in New York City.

The Businesses are leading suppliers of sophisticated secure
communication systems, microwave communication components, avionic and
instrumentation products and other products and services to major aerospace
and defense contractors as well as the U.S. Government. The Businesses
operate primarily in one industry segment, communication systems and
products.

Substantially all the Business' products are sold to agencies of the
United States Government, primarily the Department of Defense, to foreign
government agencies or to prime contractors or subcontractors thereof. All
domestic government contracts and subcontracts of the Businesses are subject
to audit, various cost controls and include standard provisions for
termination for the convenience of the government. Multi-year government
contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the government.

The decline in the U.S. defense budget since the mid 1980s has resulted
in program delays, cancellations and scope reductions for defense contractors
in general. These events may or may not have an effect on the Businesses'
programs; however, in the event that expenditures for products of the type
manufactured by the Businesses are reduced, and not offset by greater foreign
sales or other new programs or products, or acquisitions, there may be a
reduction in the volume of contracts or subcontracts awarded to the
Businesses.

The Businesses' operations, as presented herein, include allocations and
estimates of certain expenses of Loral based upon estimates of services
performed by Loral that management of the Businesses believe are reasonable.
Such services include treasury, cash management, employee benefits, taxes,
risk management, internal audit and general corporate services. Accordingly,
the results of operations and cash flows as presented herein may not be the
same as would have occurred had the Businesses been independent entities.

F-59
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

2. Basis of Presentation

Basis of Combination

The accompanying combined financial statements reflect the Businesses'
assets, liabilities and operations included in Loral Corporation's historical
financial statements that will be transferred to Newco. All significant
intercompany transactions and amounts have been eliminated. The combined
financial statements do not include the operations of telecommunications
switch product line which will not be transferred and was exited in 1995.
Also, the assets and operations of the semiconductor product line and certain
other facilities which are not material to the Businesses have been excluded
from the financial statements.

Allocation of Corporate Expenses

The amount of corporate office expenses reflected in these financial
statements has been estimated based primarily on the allocation methodology
prescribed by government regulations pertaining to government contractors,
which management of the Businesses believes to be a reasonable allocation
method.

Income Taxes

The Businesses were included in the consolidated Federal income tax
return and certain combined and separate state and local income tax returns
of Loral. However, for the purposes of these financial statements, the
provision for income taxes was allocated based upon reported income before
income taxes. Such provision was recorded through the advances from
(repayments to) Loral account.

Interest Expense

Interest expense has been allocated to the Businesses by applying
Loral's weighted average consolidated interest rate to the portion of the
beginning of the period invested equity account deemed to be financed by
consolidated debt, which amount has been determined based on the Loral's debt
to equity ratio on such date, except that the acquisition of Wideband Systems
has been assumed to be fully financed by debt.

Statements of Cash Flows

The Businesses participated in Loral's cash management system, under
which all cash was received and payments made by Loral. All transactions
between the Businesses and Loral have been accounted for as settled in cash
on the date such transactions were recorded by the Businesses.

F-60
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

3. Summary of Significant Accounting Policies

Contracts In Process

Sales on long-term production-type contracts are recorded as units are
shipped; profits applicable to such shipments are recorded pro rata, based
upon estimated total profit at completion of the contract. Sales and profits
on cost reimbursable contracts are recognized as costs are incurred. Sales
and estimated profits under other long-term contracts are recognized under
the percentage of completion method of accounting using the cost-to-cost
method. Amounts representing contract change orders or claims are included in
sales only when they can be reliably estimated and realization is probable.
Incentive fees and award fees enter into the determination of contract
profits when they can be reliably estimated.

Costs accumulated under long-term contracts include direct costs as well
as manufacturing, overhead, and for government contracts, general and
administrative, independent research and development and bid and proposal
costs. Losses on contracts are recognized when determined. Revisions in
profit estimates are reflected in the period in which the facts which require
the revision become known.

Depreciation and Amortization

Depreciation is provided primarily on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of
the improvements. The excess of the cost of purchased businesses over the
fair value of the net assets acquired is being amortized using a straight-
line method generally over a 40-year period.

The carrying amount of cost in excess of net assets acquired is
evaluated on a recurring basis. Current and future profitability as well as
current and future undiscounted cash flows, excluding financing costs, of the
underlying businesses are primary indicators of recoverability. There were no
adjustments to the carrying amount of cost in excess of net assets acquired
resulting from these evaluations during the periods presented.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Businesses' management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant of these estimates and
assumptions relate to contract estimates of sales and costs, cost allocations
from Loral, including interest and income taxes, recoverability of recorded
amounts of fixed assets and cost in excess of net assets acquired, litigation
and environmental obligations. Actual results could differ from these
estimates.

F-61
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

New Accounting Pronouncements

Effective January 1, 1996, the Businesses adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting
standards for the impairment of long-lived assets, certain intangible assets
and cost in excess of net assets and certain intangible assets to be disposed
of. The impact of adopting SFAS 121 was not material.

Effective January 1, 1994, the Businesses adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires that the costs of benefits provided
to employees after employment but before retirement be recognized on an
accrual basis. The adoption of SFAS 112 did not have a material impact on the
results of operations of the Businesses.

4. Acquisitions

Effective May 1, 1995, Loral acquired substantially all the assets and
liabilities of the Defense Systems operations of Unisys Corporation, which
included the Wideband Systems Division. The acquisition has been accounted
for as a purchase. As such, the accompanying combined financial statements
reflect the results of operations of the Wideband Systems Division from the
effective date of acquisition, including the amortization of an allocated
portion of cost in excess of net assets acquired resulting from the
acquisition. Such allocation was based on the sales and profitability of the
Wideband Systems Divisions relative to the aggregate sales and profitability
of the defense systems operations acquired by Loral. The assets and
liabilities recorded in connection with the purchase price allocation were
$240,525 and $25,598, respectively.

Had the acquisition of the Wideband Systems Division occurred on January
1, 1994, the unaudited pro forma sales and net income (loss) for the years
ending December 31, 1995 and 1994 would have been $524,355 and $700, and
$504,780 and ($963), respectively. The results, which are based on various
assumptions, are not necessarily indicative of what would have occurred had
the acquisition been consummated as of January 1, 1994.

F-62
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

5. Operating Expenses

The following expenses have been included in the statements of
operations:

Three Years Ended December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- -------------------

General and administrative expenses . . . . . . . . . . . . . . $23,558 $90,757 $74,205
Independent research and development, and bid and proposal
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,587 $21,370 $19,491

6. Income Taxes

The provision for income taxes was calculated by applying Loral's
statutory tax rates to the reported pre-tax book income after considering
items that do not enter into the determination of taxable income and tax
credits reflected in the consolidated provision which are related to the
Businesses. It is estimated that deferred income taxes represent
approximately $714,000, $2,857,000 and $4,060,000 of the provisions for
income taxes reflected in these financial statements for the three months
ended March 31, 1996 and the years ended December 31, 1995 and 1994. The
principal components of deferred income taxes are contract accounting
methods, property plant and equipment, goodwill amortization, and timing of
accruals. Substantially all of the Businesses' income is from domestic
operations.

F-63
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

The following is a reconciliation of the statutory rate to the effective
tax rates reflected in the financial statements:

Years Ended December 31,
---------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------

Statutory Federal income tax rate . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Research and development and other tax credits . . . . . . . . -- (18.6) (43.4)
State and local income taxes, net of Federal income tax
benefit and state and local income tax credits . . . . . . 3.9 (.3) (15.5)
Foreign sales corporation tax benefit . . . . . . . . . . . . . (2.2) (3.0) (13.6)
Amortization of goodwill . . . . . . . . . . . . . . . . . . . 6.3 35.1 55.0
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (5.1) (13.6) 18.1
----- ----- ----
Effective income tax rate . . . . . . . . . . . . . . . . . . . 37.9% 34.6% 35.6%
===== ===== ====

7. Interest Expense

Interest expense was calculated using the following balances and
interest rates:

Three Years Ended December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- -------------------

Invested Equity . . . . . . . . . . . . . . . . . . . . . . . . $453,062 $265,384 $267,291
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . 7.40% 7.87% 6.56%
Wideband Systems Allocated Purchase Price . . . . . . . . . . . -- $214,927 --
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . -- 7.40% --

F-64
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

8. Commitments and Contingencies

The Businesses lease certain facilities and equipment under agreements
expiring at various dates through 2011. Leases covering major items of real
estate and equipment contain renewal and/or purchase options which may be
exercised by the Businesses. Rent expense for the three months ended March
31, 1996 was $1,063. Rent expense for the years ended December 31, 1995 and
1994 was $4,276 and $4,027, respectively.

Management is continually assessing its obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Businesses in order to
comply with these laws, based upon available internal and external
assessments, the Businesses believe that even without considering potential
insurance recoveries, if any, there are no environmental loss contingencies
that, individually or in the aggregate, would be material to the Businesses'
operations. The Businesses accrue for these contingencies when it is probable
that a liability has been incurred and the amount of the loss can be
reasonably estimated. The Businesses believe that it has adequately accrued
for future expenditures in connection with environmental matters and that
such expenditures will not have a material adverse effect on its financial
position or results of operations.

There are a number of lawsuits or claims pending against the Businesses
and incidental to its business. However, in the opinion of management, the
ultimate liability on these matters, if any, will not have a material adverse
effect on the financial position or results of operations of the Businesses.

F-65
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

9. Pensions and Other Employee Benefits

Pensions

The Businesses participate in various Loral-sponsored pension plans both
contributory and non-contributory covering certain employees. Eligibility for
participation in these plans varies, and benefits are generally based on
members' compensation and years of service. Loral's funding policy was
generally to contribute in accordance with cost accounting standards that
affect government contractors, subject to the Internal Revenue code and
regulations thereon. Since the aforementioned pension arrangements were part
of certain Loral defined benefit or defined contribution plans, no separate
actuarial data was available for the Businesses. The Businesses have been
allocated their share of pension costs based upon participation employee
headcount. Net pension expense, which approximates the amount funded,
included in the accompanying financial statements was $1,234, $4,391 and
$3,150 for the three months ended March 31, 1996 and the years ended December
31, 1995 and 1994, respectively.

Postretirement Health Care and Life Insurance Benefits

In addition to participating in Loral-sponsored pension plans, the
Businesses provide certain health care and life insurance benefits for
retired employees and dependents at certain locations. Participants are
eligible for these benefits when they retire from active service and meet the
pension plan eligibility requirements. These benefits are funded primarily on
a pay-as-you-go basis with the retiree generally paying a portion of the cost
through contributions, deductibles and coinsurance provisions. Since the
aforementioned postretirement benefits were part of certain Loral
postretirement arrangements, no separate actuarial data is available for the
Businesses. The Businesses have been allocated postretirement benefit costs
based upon participant employee headcount. Postretirement benefit costs
included in the accompanying financial statements were $402, $1,646 and
$1,682 for the three months ended March 31, 1996 and the years ended December
31, 1995 and 1994, respectively.

Employee Savings Plans

Under various employee savings plans sponsored by Loral, the Businesses
matched the contributions of participating employees up to a designated
level. The extent of the match, vesting terms and the form of the matching
contribution vary among the plans. Under these plans, the matching
contributions, in cash, common stock or both, for the three months ended
March 31, 1996 and the years ended December 31, 1995 and 1994 were $634,
$1,879 and $1,844, respectively.

F-66
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

10. Sales to Principal Customers

The Businesses operate primarily in one industry segment, electronic
components and systems. Sales to principal customers are as follows:

Years Ended
Three December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- -------------------

U.S. Government Agencies . . . . . . . . . . . . . . . . . . $ 94,993 $328,476 $160,068
Foreign (principally foreign governments) . . . . . . . . . . 16,838 62,549 65,883
Other (principally commercial) . . . . . . . . . . . . . . . 20,369 57,140 57,178
--------- -------- --------
$132,200 $448,165 $283,129
========= ======== ========

F-67
LORAL ACQUIRED BUSINESSES

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)

Foreign sales comprise the following:

Years Ended
Three December 31,
Months Ended -----------------------------------------
March 31, 1996 1995 1994
------------------- ------------------- -------------------

Export sales
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,056 $19,248 $30,790
Middle East . . . . . . . . . . . . . . . . . . . . . . . . 3,648 4,147 6,035
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . 6,275 26,283 18,368
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,859 12,871 10,690
-------- ------- -------
Total foreign sales . . . . . . . . . . . . . . . . . . . . $16,838 $62,549 $65,883
======== ======= =======

11. Related Party Transactions

The Businesses had a number of transactions with Loral and its affiliates.
Management believes that the arrangements are as favorable to the Businesses
as could be obtained from unaffiliated parties. The following describe the
related party transactions.

Loral allocated certain operational, administrative, legal and other
services to the Businesses. Costs allocated to the Businesses were $1,827,
$6,535 and $5,123 for the three months ended March 31, 1996 and the years
ended December 31, 1995 and 1994, respectively. The Businesses sold products
to Loral and its affiliates. Net sales to Loral were $14,840 for the three
months ended March 31, 1996 and were $54,600 and $28,542 in 1995 and 1994,
respectively. Net sales to Space Systems/Loral were $2,471 for the three
months ended March 31, 1996 and were $4,596 and $1,678 in 1995 and 1994,
respectively. Net sales to K&F Industries were $1,173 for the three months
ended March 31, 1996 and were $2,415 and $3,962 in 1995 and 1994,
respectively.

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or any offer to sell or the solicitation
of an offer to buy such securities in any circumstances in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct
as of any time subsequent to its date.

_________________________

Table of Contents

Page

Available Information . . . . . . . . . . . . . . . . 7
Prospectus Summary . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . 27
Use of Proceeds . . . . . . . . . . . . . . . . . . . 40
Capitalization . . . . . . . . . . . . . . . . . . . 40
Unaudited Pro Forma Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 41
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . 43
Selected Financial Information . . . . . . . . . . . 46
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 50
Business . . . . . . . . . . . . . . . . . . . . . . 68
The Transaction . . . . . . . . . . . . . . . . . . . 90
Certain Relationships and Related Transactions . . . 93
Management . . . . . . . . . . . . . . . . . . . . . 94
Ownership of Capital Stock . . . . . . . . . . . . . 100
The Exchange Offer . . . . . . . . . . . . . . . . . 103
Description of the Exchange Notes . . . . . . . . . . 117
Certain United States Federal Tax Considerations . . 157
Plan of Distribution . . . . . . . . . . . . . . . . 157
Legal Matters . . . . . . . . . . . . . . . . . . . 159
Experts . . . . . . . . . . . . . . . . . . . . . . 159
Index to Financial Statements . . . . . . . . . . . . F-1

Until , 1997 (90 days after commencement of this offering), all
dealers effecting transactions in the exchange notes, whether or not
participating in the exchange offer, may be required to deliver a
prospectus.

Preliminary Prospectus

$225,000,000

L-3 Communications Corporation

[LOGO OMITTED]

Offer to Exchange $225,000,000 of its 10 3/8% Series B Senior
Subordinated Notes due 2007, which have been registered
under the Securities Act, for $225,000,000 of its
outstanding 10 3/8% Senior Subordinated Notes
due 2007

1
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]

PROSPECTUS
[LOGO OMITTED]

L-3 Communications Corporation

10 3/8% Series B Senior Subordinated Notes due 2007,
__________________

The 10 3/8% Series B Senior Subordinated Notes due 2007 (the "Exchange
Notes") of L-3 Communications Corporation (the "Company" or "L-3") were
issued in exchange for the 10 3/8% Senior Subordinated Notes due 2007 (the
"Old Notes" and together with the Exchange Notes, the "Notes") by the
Company.

Interest on the Exchange Notes will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1997. The Exchange Notes
will be redeemable at the option of the Company, in whole or in part, at
any time on or after May 1, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. In
addition, prior to May 1, 2000, the Company may redeem up to 35% of the
aggregate principal amount of Exchange Notes at the redemption price set
forth herein plus accrued and unpaid interest through the redemption date
with the net cash proceeds of one or more Equity Offerings (as defined).
The Exchange Notes will not be subject to any mandatory sinking fund. In
the event of a Change of Control (as defined), each holder of Exchange
Notes will have the right, at the holder's option, to require the Company
to purchase such holder's Exchange Notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase. See "Description of the Exchange Notes". The Company's
ability to pay cash to the holders of Notes upon a purchase may be limited
by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make
any required purchases.

The Exchange Notes will be general unsecured obligations of the Company,
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company. As of March 31, 1997, after giving pro forma
effect to the Offering of the Old Notes, application of the net proceeds
therefrom and borrowings under the Senior Credit Facilities (as defined),
the Company would have had approximately $400.0 million of indebtedness
outstanding, of which $175.0 million would have been Senior Debt
(excluding letters of credit). See "Capitalization". On the date of
issuance of the Exchange Notes, the Company will not have any
subsidiaries; however, the Indenture (as defined) will permit the Company
to create subsidiaries in the future.

For a discussion of certain factors that should be considered in
connection with an investment in the Exchange Notes, see "Risk Factors"
beginning on page 13.

2
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

This Prospectus has been prepared for and is to be used by Lehman Brothers
Inc. in connection with offers and sales in market-making transactions of
the Exchange Notes. The Company will not receive any of the proceeds of
such sales. Lehman Brothers Inc. may act as a principal or agent in such
transactions. The Exchange Notes may be offered in negotiated transactions
or otherwise.
_________________________

LEHMAN BROTHERS INC.
_________________________

The date of this Prospectus is __________, 1997

3
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement
on Form S-4 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the Securities
Act with respect to the Exchange Notes being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
For further information with respect to the Company and the Exchange
Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement
is qualified by the provisions in such exhibit, to which reference
is hereby made. As a result of the offering of the Exchange Notes,
the Company will become subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, will file reports and other information with
the Commission. The Registration Statement, such reports and other
information can be inspected and copied at the Public Reference Section of
the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549 and at regional public reference facilities
maintained by the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material, including
copies of all or any portion of the Registration Statement, can be
obtained from the Public Reference Section of the Commission at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov).

4
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]

TRADING MARKET FOR THE EXCHANGE NOTES

There is no existing trading market for the Exchange Notes, and
there can be no assurance regarding the future development of a market for
the Exchange Notes or the ability of the Holders of the Exchange Notes to
sell their Exchange Notes or the price at which such Holders may be able
to sell their Exchange Notes. If such market were to develop, the Exchange
Notes could trade at prices that may be higher or lower than their initial
offering price depending on many factors, including prevailing interest
rates, the Company's operating results and the market for similar
securities. Although it is not obligated to do so, Lehman Brothers Inc.
intends to make a market in the Exchange Notes. Any such market-making
activity may be discontinued at any time, for any reason, without notice
at the sole discretion of Lehman Brothers Inc. No assurance can be given
as to the liquidity of or the trading market for the Exchange Notes.

Lehman Brothers Inc. may be deemed to be an affiliate of the Company
and, as such, may be required to deliver a prospectus in connection with
its market-making activities in the Exchange Notes. Pursuant to the
Registration Rights Agreement, the Company agreed to file and maintain a
registration statement that would allow Lehman Brothers Inc. to engage in
market-making transactions in the Exchange Notes. Subject to certain
exceptions set forth in the Registration Rights Agreement, the
registration statement will remain effective for as long as Lehman
Brothers Inc. may be required to deliver a prospectus in connection with
market-making transactions in the Exchange Notes. The Company has agreed
to bear substantially all the costs and expenses related to such
registration statement.

5
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]

USE OF PROCEEDS

This Prospectus is delivered in connection with the sale of the
Exchange Notes by Lehman Brothers Inc. in market-making transactions. The
Company will not receive any of the proceeds from such transactions.

6
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]

PLAN OF DISTRIBUTION

This Prospectus is to be used by Lehman Brothers Inc. in connection
with offers and sales of the Exchange Notes in market-making transactions
effected from time to time. Lehman Brothers Inc. may act as a principal or
agent in such transactions, including as agent for the counterparty when
acting as principal or as agent for both counterparties, and may receive
compensation in the form of discounts and commissions, including from both
counterparties when it acts as agent for both. Such sales will be made at
prevailing market prices at the time of sale, at prices related thereto or
at negotiated prices.

Affiliates of Lehman Brothers Inc. currently own 50.1% of the Parent
Common Stock. See "Ownership of Capital Stock". Lehman Brothers Inc. has
informed the Company that it does not intend to confirm sales of the
Exchange Notes to any accounts over which it exercises discretionary
authority without the prior specific written approval of such transactions
by the customer.

The Company has been advised by Lehman Brothers Inc. that, subject
to applicable laws and regulations, Lehman Brothers Inc. currently intends
to make a market in the Exchange Notes following completion of the
Exchange Offer. However, Lehman Brothers Inc. is not obligated to do so
and any such market-making may be interrupted or discontinued at any time
without notice. In addition, such market-making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act. There
can be no assurance that an active trading market will develop or be
sustained. See "Risk Factors--Trading Market for the Exchange Notes."

Lehman Brothers Inc. has provided investment banking services to the
Company in the past and may provide such services and financial advisory
services to the Company in the future. Lehman Brothers Inc. acted as
purchasers in connection with the initial sale of the Notes and received
an underwriting discount of approximately $ million in connection
therewith. See "Certain Transactions."

Lehman Brothers Inc. and the Company have entered into a
registration rights agreement with respect to the use by Lehman Brothers
Inc. of this Prospectus. Pursuant to such agreement, the Company agreed to
bear all registration expenses incurred under such agreement, and the
Company agreed to indemnify Lehman Brothers Inc. against certain
liabilities, including liabilities under the Securities Act.

7
[ALTERNATE BACK COVER FOR MARKET-MAKING PROSPECTUS]

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied
relied upon as having been authorized. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or any offer
to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to
its date.

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

Table of Contents

Page

Available Information . . . . . . . . . . . . . . . . 7
Prospectus Summary . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . 27
Use of Proceeds . . . . . . . . . . . . . . . . . . . 40
Capitalization . . . . . . . . . . . . . . . . . . . 40
Unaudited Pro Forma Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 41
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . 43
Selected Financial Information . . . . . . . . . . . 46
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 50
Business . . . . . . . . . . . . . . . . . . . . . . 68
The Transaction . . . . . . . . . . . . . . . . . . . 90
Certain Relationships and Related Transactions . . . 93
Management . . . . . . . . . . . . . . . . . . . . . 94
Ownership of Capital Stock . . . . . . . . . . . . . 100
The Exchange Offer . . . . . . . . . . . . . . . . . 103
Description of the Exchange Notes . . . . . . . . . . 117
Certain United States Federal Tax Considerations . . 157
Plan of Distribution . . . . . . . . . . . . . . . . 157
Legal Matters . . . . . . . . . . . . . . . . . . . 159
Experts . . . . . . . . . . . . . . . . . . . . . . 159
Index to Financial Statements . . . . . . . . . . . . F-1

8
Prospectus

L-3 Communications Corporation

[LOGO OMITTED]

10 3/8% Series B Senior Subordinated Notes due 2007

LEHMAN BROTHERS INC.

II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law (the "DGCL")
provides for, among other things:

a. permissive indemnification for expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by designated persons, including
directors and officers of a corporation, in the event such persons
are parties to litigation other than stockholder derivative actions
if certain conditions are met;

b. permissive indemnification for expenses (including
attorneys' fees) actually and reasonably incurred by designated
persons, including directors and officers of a corporation, in the
event such persons are parties to stockholder derivative actions if
certain conditions are met;

c. mandatory indemnification for expenses (including
attorneys' fees) actually and reasonably incurred by designated
persons, including directors and officers of a corporation, in the
event such persons are successful on the merits or otherwise in
defense of litigation covered by a. and b. above; and

d. that the indemnification provided for by Section 145 is
not deemed exclusive of any other rights which may be provided under
any by-law, agreement, stockholder or disinterested director vote,
or otherwise.

In addition to the indemnification provisions of the DGCL described
above, the Registrant's certificate of incorporation (the "Certificate of
Incorporation") authorizes indemnification of the Registrant's officers
and directors, subject to a case-by-case determination that they acted in
good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the Company, and in the case of any
criminal proceeding, they had no reasonable cause to believe their conduct
was unlawful. In the event that a Change in Control (as defined in the
Certificate of Incorporation) shall have occurred, the proposed indemnitee
director or officer may require that the determination of whether he met
the standard of conduct be made by special legal counsel selected by him.
In addition, whereas the DGCL would require court-ordered indemnification,
if any, in cases in which a person has been adjudged to be liable to the
Registrant, the Certificate of Incorporation also permits indemnification
in such cases if and to the extent that the reviewing party determines
that such indemnity is fair and reasonable under the circumstances.

The Certificate of Incorporation requires the advancement of
expenses to an officer or director (without a determination as to his
conduct) in advance of the final disposition of a proceeding if such
person furnishes a written affirmation of his good faith belief that he
has met the applicable standard of conduct and furnishes a written
undertaking to repay any advances if it is ultimately determined that he
is not entitled to indemnification. In connection with proceedings by or

II-2
in the right of the Registrant, the Certificate of Incorporation provides
that indemnification shall include not only reasonable expenses, but also
penalties, fines and amounts paid in settlement. Unless ordered by a
court, such indemnification shall not include judgments. Under the
Certificate of Incorporation, no officer or director is entitled to
indemnification or advancement of expenses with respect to a proceeding
brought by him against the Registrant other than a proceeding seeking or
defending such officer's or director's right to indemnification or
advancement of expenses. Finally, the Certificate of Incorporation
provides that the Company may, subject to authorization on a case by case
basis, indemnify and advance expenses to employees or agents to the same
extent as a director or to a lesser extent (or greater, as permitted by
law) as determined by the Board of Directors.

The Certificate of Incorporation purports to confer upon officers
and directors contractual rights to indemnification and advancement of
expenses as provided therein. In addition, as permitted by the DGCL, the
Registrant has entered into indemnity agreements with its directors and
selected officers that provide contract rights substantially identical to
the rights to indemnification and advancement of expenses set forth in the
Certificate of Incorporation, as described above.

The Certificate of Incorporation limits the personal liability of
directors to the Registrant or its stockholders for monetary damages for
breach of the duty as a director, other than liability as a director (i)
for breach of duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
DGCL (certain illegal distributions), or (iv) for any transaction for
which the director derived an improper personal benefit.

The Registrant maintains officers' and directors' insurance covering
certain liabilities that may be incurred by officers and directors in the
performance of their duties.

Item 21. Exhibits and Financial Statement Schedules.

Exhibit No. Description of Exhibit
---------- ----------------------

3.1 Certificate of Incorporation
3.2 By-Laws of L-3 Communications Corporation
4.1 Indenture dated as of April 30, 1997 between L-3
Communications Corporation and The Bank of
New York, as Trustee.
4.2 Form of 10 3/8% Senior Subordinated Note due 2007.
4.3 Form of 10 3/8% Series B Senior Subordinated Note due 2007.
5 Opinion of Simpson Thacher & Bartlett.
10.1 Credit Agreement, dated as of April 30, 1997, among L-3
Communications Corporation and lenders named therein.
10.2 Registration Rights Agreement, dated as of April 30, 1997,
among L-3 Communications Corporation, Lehman Brothers Inc.
and BancAmerica Securities, Inc.

II-3

10.3 Purchase Agreement, dated as of April 25, 1997, among L-3
Communications Corporation, Lehman Brothers Inc. and
BancAmerica Securities, Inc..
10.4 Stockholders' Agreement between L-3 Communications Corporation
and the stockholders parties thereto.
10.5 Transaction Agreement dated as of March 28, 1997, as amended,
among Lockheed Martin Corporation, Lehman Brothers Capital
Partners III, L.P., Frank C. Lanza, Robert V. LaPenta and L-3
Communications Corporation.
10.6 Employment Agreement dated April 30, 1997 between Frank C.
Lanza and L-3 Communications Holdings, Inc.
10.61 Employment Agreement dated April 30, 1997 between Robert V.
LaPenta and L-3 Communications Holdings, Inc.
10.7 Form of Transition Services Agreement dated April 30, 1997
among L-3 Communications Holdings, Inc., L-3 Communications
Corporation and Lockheed Martin Corporation.
10.8 Lease dated as of April 29, 1997 among Lockheed Martin Tactical
Systems, Inc., L-3 Communications Corporation and KSL,
Division of Bonneville International
10.81 Lease dated as of April 29, 1997 among Lockheed Martin Tactical
Systems L-3 Communications Corporation and Unisys Corporation
10.82 Sublease dated as of April 29, 1997 among Lockheed Martin
Tactical Systems, Inc., L-3 Communications Corporation and
Unisys Corporation
10.9 Limited Noncompetition Agreement dated April 30, 1997 between
Lockheed Martin Corporation and L-3 Communications
Corporation.
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Simpson Thacher & Bartlett (included as part of its
opinion filed as Exhibit 5 hereto).
23.2 Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.
23.3 Consent of Ernst & Young LLP, independent certified public
accountants.
24 Powers of Attorney.
25 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York, as Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
____________________

Previously filed.

Item 22. Undertakings.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

II-4
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereto, which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement;

(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed to be
underwriters, in addition to the information called for by the other Items
of the applicable form.

The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding undertaking or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of

II-5
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
has duly caused the Registration Statement or amendments thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, on
September 23, 1997.

L-3 COMMUNICATIONS CORPORATION

By: *
------------------------------------
Chief Executive Officer and Chairman
of the Board of Directors

Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed on the 23rd day of September, 1997 by the
following persons in the capacities indicated:

Signature Title
--------- ------

* Chairman, Chief Executive Officer
- ------------------------- Director (Principal Executive Officer)
Frank C. Lanza

* President, Chief Financial Officer
- ------------------------- (Principal Financial Officer) and Director
Robert V. LaPenta

/s/ Michael T. Strianese Vice President -- Finance and Controller
- ------------------------- (Principal Accounting Officer)
Michael T. Strianese

* Director
- -------------------------
Steven J. Berger

* Director
- -------------------------
David J. Brand

* Director
- -------------------------
Thomas A. Corcoran

* Director
- -------------------------
Alberto M. Finali

II-7

* Director
- -------------------------
Eliot M. Fried

* Director
- -------------------------
Robert B. Millard

* Director
- -------------------------
Frank H. Menaker, Jr.

* Director
- -------------------------
John E. Montague

* Director
- -------------------------
Alan H. Washkowitz

*By: /s/ Michael T. Strianese
- -----------------------------
Attorney-In-Fact

                                                             
   
                                                               Exhibit 5

                                                      September 22, 1997



L-3 Communications Corporation 
600 Third Avenue
New York, New York  10016

Ladies and Gentlemen:

              We have acted as special counsel for L-3 Communications

Corporation, a Delaware corporation (the "Company"), in connection with the

Registration Statement on Form S-4 (the "Registration Statement") filed by

the Company with the Securities and Exchange Commission (the "Commission")

under the Securities Act of 1933, as amended (the "Securities Act"), relating

to the issuance by the Company of $225,000,000 aggregate principal amount of

its 10-3/8% Series B Senior Subordinated Notes due 2007 (the "Exchange

Notes").  The Exchange Notes are to be offered by the Company in exchange for

(the "Exchange") $225,000,000 aggregate principal amount of its outstanding

10-3/8% Senior Subordinated Notes due 2007 (the "Notes").  The Notes have

been, and the Exchange Notes will be, issued under an Indenture dated as of

April 30, 1997 (the "Indenture") between the Company and The Bank of New

York, as Trustee (the "Trustee").

              We have examined the Registration Statement and the Indenture

which has been filed with the Commission as an Exhibit to the Registration

Statement.  In addition, we have examined, and have relied as to matters of

fact upon, the originals or copies, certified or otherwise identified to our

satisfaction, of such corporate records, agreements, documents and other

instruments and such certificates or comparable documents of public officials

and of officers and representatives of the Company, and have made such other
    
2
   
and further investigations, as we have deemed relevant and necessary as a

basis for the opinion hereinafter set forth.

              In such examination, we have assumed the genuineness of all

signatures, the legal capacity of natural persons, the authenticity of all

documents submitted to us as originals and the conformity to original

documents of all documents submitted to us as certified or photostatic

copies, and the authenticity of the originals of such latter documents.

              Based upon the foregoing, and subject to the qualifications and

limitations stated herein, assuming the Indenture has been duly authorized

and validly executed and delivered by the parties thereto, when (i) the

Indenture has been duly qualified under the Trust Indenture Act of 1939, as

amended (the "Trust Indenture Act"), and (ii) the Exchange Notes have been duly

executed, authenticated, issued and delivered in accordance with the provisions

of the Indenture upon the Exchange, we are of the opinion that the Exchange

Notes to be sold by the Company will be validly issued, fully paid and 

nonassessable and will constitute valid and legally binding obligations of the

Company, enforceable against the Company in accordance with their terms and

entitled to the benefits of the Indenture.

              Our opinion set forth in the preceding sentence is subject to

the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,

moratorium and other similar laws relating to or affecting creditors' rights

generally, general equitable principles (whether considered in a proceeding

in equity or at law) and an implied covenant of good faith and fair dealing.

              We are members of the Bar of the State of New York and we do

not express any opinion herein concerning any law other than the law of the

State of New York, the federal law of the United States and the Delaware 

General Corporation Law.

    

3
              We hereby consent to the use of this opinion as an Exhibit to

the Registration Statement and to the reference to our firm under the caption

"Legal Matters" in the Prospectus included therein.

                                      Very truly yours,


                                      /s/SIMPSON THACHER & BARTLETT
                                      SIMPSON THACHER & BARTLETT


                                                                EXHIBIT 23.2



                      Consent of Independent Accountants



          We consent to the inclusion in this registration statement on Form
S-4 of our report dated July 16, 1997 on our audit of the balance sheet of L-3 
Communications Corporation (a Delaware company) as of April 29, 1997, our 
report dated July 11, 1997 on our audit of the combined financial statements 
of the Lockheed Martin Predecessor Businesses as of March 31, 1997
and for the three months then ended, our report dated March 20, 1997 on our 
audit of the combined financial statements of the Lockheed Martin Predecessor
Businesses as of December 31, 1996 and for the year then ended, and our
report also dated March 20, 1997 on our audits of the Loral Acquired
Businesses for the three months ended March 31, 1996 and for the years ended
December 31, 1995 and 1994.  The report dated March 20, 1997 on the combined
financial statements of the Lockheed Martin Predecessor Businesses as of and
for the year ended December 31, 1996 states that Coopers & Lybrand L.L.P.'s
opinion, insofar as it relates to the financial statements of the Lockheed
Martin Communications Systems Division as of December 31, 1996 included in
such combined financial statements, is based solely on the report of other
auditors.  We also consent to the reference to our Firm under the caption
"Experts".


                               Coopers & Lybrand L.L.P.

New York, New York
September 22, 1997

                                                                 
                                                              
                                                            Exhibit 23.3



                        CONSENT OF INDEPENDENT AUDITORS



We consent to the reference to our firm under the caption "Experts" in 
Amendment No. 2 to the Registration Statement (Form S-4, No. 333-31649) and 
related Prospectus of L-3 Communications Corporation for the registration 
of $225,000,000 of its Series B Senior Subordinated Notes due 2007.

We also consent to the inclusion therein of our report dated March 7, 1997
with respect to the combined financial statements of Lockheed Martin
Communications Systems Division at December 31, 1996 (not presented
separately herein) and 1995, and the combined results of its operations and
its cash flows for the year ended December 31, 1996 (not presented separately
herein), and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995, included therein.

                                         /s/ Ernst & Young LLP

Washington, D.C.
September 22, 1997