SCHEDULE 14A

(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o      Preliminary Proxy Statement

o      Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x      Definitive Proxy Statement

o      Definitive Additional Materials

o      Soliciting Material Pursuant to Rule 14a-12

 

L-3 COMMUNICATIONS HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)

 

Payment of Filing Fee (Check the appropriate box):

 

x      No fee required.

 

L-3 COMMUNICATIONS HOLDINGS, INC.

 

 

To Our Stockholders:

 

On behalf of the Board of Directors, I cordially invite you to attend the Annual Meeting of Stockholders of L-3 Communications Holdings, Inc., to be held at 2:30 p.m., Eastern Daylight Time, on Tuesday, April 28, 2009, at the Ritz-Carlton New York, Battery Park, located at Two West Street, New York, New York. The notice and proxy statement for the Annual Meeting are attached to this letter and describe the business to be conducted at the Annual Meeting.

 

In accordance with the rules of the Securities and Exchange Commission, we sent a Notice of Internet Availability of Proxy Materials on or about March 16, 2009 to our stockholders of record as of the close of business on March 2, 2009. We also provided access to our proxy materials over the Internet beginning on that date. If you received a Notice of Internet Availability of Proxy Materials by mail and did not receive, but would like to receive, a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice of Internet Availability of Proxy Materials or on page four of this proxy statement.

 

To have your vote recorded, you should vote over the Internet or by telephone. In addition, if you have requested or received a paper copy of the proxy materials, you can vote by signing, dating and returning the proxy card sent to you in the envelope accompanying the proxy materials sent to you. We encourage you to vote by any of these methods even if you currently plan to attend the Annual Meeting. By doing so, you will ensure that your shares are represented and voted at the Annual Meeting. If you decide to attend, you can still vote your shares in person if you wish. Please let us know whether you plan to attend the Annual Meeting by indicating your plans when prompted over the Internet voting system or the telephone or (if you have received a paper copy of the proxy materials) by marking the appropriate box on the proxy card sent to you.

 

On behalf of the Board of Directors, I thank you for your cooperation and look forward to seeing you on April 28th.

 

Very truly yours,

 

Michael T. Strianese
Chairman, President and
 Chief Executive Officer

 

TABLE OF CONTENTS

 

 

L-3 COMMUNICATIONS HOLDINGS, INC.

 

 

 

Notice is hereby given that the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) of L-3 Communications Holdings, Inc. (“L-3” or the “Company”) will be held at the Ritz-Carlton New York, Battery Park, located at Two West Street, New York, New York on Tuesday, April 28, 2009, at 2:30 p.m., Eastern Daylight Time, for the following purposes:

 

 

 

By Order of the Board of Directors

 

Steven M. Post

Senior Vice President, General Counsel and

 Corporate Secretary

 

March 16, 2009

 

 

 

 

L-3 Communications Holdings, Inc.
600 Third Avenue
New York, New York 10016

 

 

This proxy statement is being made available to the holders of the common stock, par value $0.01 per share, of L-3 Communications Holdings, Inc. (the “Common Stock”) in connection with the solicitation of proxies for use at the Annual Meeting to be held at the Ritz-Carlton New York, Battery Park, located at Two West Street, New York, New York at 2:30 p.m., Eastern Daylight Time, on Tuesday, April 28, 2009.

 

RECORD DATE

 

Our Board of Directors has fixed the close of business on March 2, 2009 as the Record Date for the Annual Meeting. Only stockholders of record at the Record Date are entitled to notice of and to vote at the Annual Meeting or at any adjournments or postponements thereof, in person or by proxy. At the Record Date, there were 117,838,104 shares of our Common Stock outstanding and entitled to vote at the Annual Meeting. On March 16, 2009, we either mailed you a notice (the “Notice”) notifying each stockholder entitled to vote at the Annual Meeting how to vote online and how to electronically access a copy of this proxy statement, our Summary Annual Report and our Annual Report on Form 10-K for the year ended December 31, 2008 (together referred to as the “Proxy Materials”) or mailed you a complete set of the Proxy Materials. If you have not received, but would like to receive, printed copies of these documents, including a proxy card in paper format, you should follow the instructions for requesting such materials contained in the Notice.

 

PROXIES

 

The proxies are solicited on behalf of our Board of Directors for use at the Annual Meeting and any adjournments or postponements of the Annual Meeting, and the expenses of solicitation of proxies will be borne by us. The solicitation will be made primarily via the Internet and by mail, but our officers and regular employees may also solicit proxies by telephone, telegraph, facsimile, or in person. We also have retained Georgeson Inc. to assist in soliciting proxies. We expect to pay Georgeson Inc. approximately $10,000 plus expenses in connection with its solicitation of proxies. Each holder of Common Stock is entitled to one vote for each share of our Common Stock held by such holder. The holders of a majority of the outstanding shares of our Common Stock entitled to vote generally in the election of directors, represented in person or by proxy shall constitute a quorum at the Annual Meeting.

 

Each stockholder may appoint a person (who need not be a stockholder) other than the persons named in the proxy to represent him or her at the Annual Meeting by completing another proper proxy. In either case, such completed proxy should be returned in the envelope provided to you for that purpose (if you have requested or received a paper copy of the Proxy Materials) or should be delivered to L-3 Communications Holdings, Inc. C/O Computershare Investor Services, P.O. Box 43102, Providence, Rhode Island 02940-5068, not later than 5:00 p.m., Eastern Daylight Time, on Monday, April 27, 2009 or by 5:00 p.m. Eastern Daylight Time on Friday, April 24, 2009 if you own shares through your 401(k) or through L-3’s Employee Stock Purchase Plan (“ESPP”).

 

Any proxy delivered pursuant to this solicitation is revocable at the option of the person(s) executing the proxy upon our receipt, prior to the time the proxy is voted, of a duly executed instrument revoking it, or of a duly executed proxy bearing a later date, or in the case of death or incapacity of the person(s) executing the proxy, of written notice of such death or incapacity, or by such person(s) voting in person at the Annual Meeting. Unless revoked, all proxies representing shares entitled to vote that are delivered pursuant to this solicitation will be voted at the Annual Meeting and, where a choice has been specified on the proxy card, will be voted in accordance with such

specification. Where a choice has not been specified on the proxy card, the proxy will be voted in accordance with the recommendations of our Board of Directors.

 

Assuming a quorum is present, a majority of the shares of Common Stock entitled to vote and present in person or represented by proxy at the Annual Meeting is required for the election of directors, the approval of the L-3 Communications Corporation 2009 Employee Stock Purchase Plan (the “2009 ESPP”) and the selection of the independent registered public accounting firm, except that with respect to the approval of the 2009 ESPP, the total number of votes cast on the proposal must also represent a majority of all shares of Common Stock entitled to vote on the proposal. For each of the above proposals, abstentions and instances where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy (so-called “broker non-votes”) will be counted for purposes of determining a quorum. However, in determining whether the 2009 ESPP has been approved by the stockholders, abstentions and “broker non-votes” will be counted as votes against the approval of the 2009 ESPP. In addition, for the election of directors and the selection of the independent registered public accounting firm, abstentions will be counted as votes against the election of directors and the selection of the independent registered public accounting firm.

 

VOTING IN PERSON

 

If you are a stockholder of record and prefer to vote your shares at the Annual Meeting, you must bring proof of identification along with your Notice or the admission ticket attached to your proxy card if you received a paper copy. You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

 

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance by Internet, telephone or (if you received a paper copy of the Proxy Materials) by mail so that your vote will be counted even if you later decide not to attend the Annual Meeting. Voting your proxy by the Internet, telephone or mail will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If you own your shares of our Common Stock through a bank, brokerage firm or other record holder and wish to vote in person at the Annual Meeting, you must request a “legal proxy” from your bank or broker or obtain a proxy from the record holder.

 

VOTING BY INTERNET, TELEPHONE OR MAIL

 

The following sets forth how a stockholder can vote over the Internet, by telephone or by mail:

 

Voting By Internet

 

If you hold your shares of our Common Stock through a bank or brokerage firm (i.e., you are not a registered holder), you can vote at: www.proxyvote.com, 24 hours a day, seven days a week. You will need the 12-digit Control Number included on your Notice or your paper voting instruction form (if you received a paper copy of the Proxy Materials).

 

If you own your shares of our Common Stock directly in your name in our stock records maintained by our transfer agent, Computershare Trust Company, N.A., or through your 401(k) or the ESPP, you can vote at: www.investorvote.com/LLL, 24 hours a day, seven days a week. You will need the 6-digit Control Number included on your paper proxy card.

 

Voting By Telephone

 

If you hold your shares of our Common Stock through a bank or brokerage firm, you can vote using a touch-tone telephone by calling the toll-free number included on your Notice or your paper voting instruction form (if you received a paper copy of the Proxy Materials), 24 hours a day, seven days a week. You will need the 12-digit Control Number included on your Notice or your paper voting instruction form (if you received a paper copy of the Proxy Materials).

If you own your shares of our Common Stock directly in your name in our stock records maintained by our transfer agent, Computershare Trust Company, N.A., or through your 401(k) or the ESPP, you can vote using a touch-tone telephone by calling the toll-free number included on your paper proxy card, 24 hours a day, seven days a week. You will need the 6-digit Control Number included on your paper proxy card.

 

The Internet and telephone voting procedures, which comply with Delaware law, are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares and to confirm that their instructions have been properly recorded.

 

Voting By Mail

 

If you have received a paper copy of the Proxy Materials by mail, you may complete, sign and return by mail the proxy card or voting instruction form sent to you together with the printed copies of the Proxy Materials.

 

Deadline for Submitting Votes By Internet, Telephone or Mail

 

If you hold your shares of our Common Stock through a bank or brokerage account, proxies submitted over the Internet or by telephone as described above must be received by 11:59 p.m., Eastern Daylight Time, on Monday, April 27, 2009.

 

If you own your shares of our Common Stock directly in your name in our stock records maintained by our transfer agent, Computershare Trust Company, N.A., proxies submitted over the Internet or by telephone as described above must be received by 2:00 a.m., Eastern Daylight Time, on Tuesday, April 28, 2009.

 

If you own your shares of our Common Stock through your 401(k) or the ESPP, proxies submitted over the Internet or by telephone as described above must be received by 5:00 p.m., Eastern Daylight Time, on Friday, April 24, 2009.

 

Proxies submitted by mail should be returned in the envelope provided to you with your paper proxy card or voting instruction form, not later than 5:00 p.m., Eastern Daylight Time, on Monday, April 27, 2009 or by 5:00 p.m., Eastern Daylight Time, on Friday, April 24, 2009 if you own your shares through your 401(k) or the ESPP.

 

Revocation of Proxies Submitted by Internet or Telephone

 

To revoke a proxy previously delivered by mail or submitted over the Internet or by telephone, you may simply vote again at a later date, using the same procedures, in which case your later submitted vote will be recorded and your earlier vote revoked. You may also attend the Annual Meeting and vote in person.

 

 

 

 

Our Amended and Restated Certificate of Incorporation provides for a classified Board of Directors divided into three classes: Peter A. Cohen, Robert B. Millard and Arthur L. Simon constitute a class with a term that expires at the Annual Meeting of Stockholders in 2009 (the “Class III Directors”); Claude R. Canizares, Thomas A. Corcoran and Alan H. Washkowitz constitute a class with a term that expires at the Annual Meeting of Stockholders in 2010 (the “Class II Directors”); and John M. Shalikashvili, Michael T. Strianese and John P. White constitute a class with a term that expires at the Annual Meeting in 2011 (the “Class I Directors”). In light of the time that Mr. Cohen currently needs to devote to his significant business interests, the Nominating/Corporate Governance Committee and Mr. Cohen agreed that he would not be nominated for re-election as a Class III director at the 2009 Annual Meeting of Stockholders. Mr. Cohen will retire from the Board of Directors, and the Compensation and Executive Committees, effective the date of the 2009 Annual Meeting of Stockholders.

 

The full Board of Directors has considered and nominated the following slate of Class III nominees for a three-year term expiring in 2012: Robert B. Millard and Arthur L. Simon. Action will be taken at the Annual Meeting for the election of these two Class III nominees.

 

It is intended that the proxies delivered pursuant to this solicitation will be voted in favor of the election of Robert B. Millard and Arthur L. Simon, except in cases of proxies bearing contrary instructions. In the event that these nominees should become unavailable for election due to any presently unforeseen reason, the persons named in the proxy will have the right to use their discretion to vote for a substitute.

 

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS IN 2009

 

The following information describes the offices held, other business directorships and the class and term of each nominee. Beneficial ownership of equity securities of the nominees is shown under the caption Security Ownership of Management on page 25.

 

Class III — Nominees for Term Expiring in 2012

 

The nominees for election to the Board of Directors are hereby proposed for approval by the stockholders. The affirmative vote of the holders of a majority of the shares present or represented and entitled to vote at the Annual Meeting will be necessary to approve each nominee.

 

The Board of Directors Recommends a Vote FOR Each of the Proposed Nominees for Election to the Board of Directors.

 

CONTINUING MEMBERS OF THE BOARD OF DIRECTORS

 

The following information describes the offices held, other business directorships and the class and term of each director whose term continues beyond the 2009 Annual Meeting and who is not subject to election this year. Beneficial ownership of equity securities for these directors is shown under the caption Security Ownership of Management on page 25.

 

Class II — Directors Whose Term Expires in 2010

 

 

Class I — Directors Whose Term Expires in 2011

 

 

On February 25, 2009, the Board of Directors authorized and approved the L-3 Communications Corporation 2009 Employee Stock Purchase Plan (the “2009 ESPP”), subject to stockholder approval. The purpose of the 2009 ESPP is to align the interests of our employees with our stockholders by providing eligible employees with an attractive opportunity to acquire an ownership interest in the Company through the purchase of shares of Common Stock.

 

The 2009 ESPP is similar to the current L-3 Communications Corporation Employee Stock Purchase Plan (the “Current ESPP”), but provides greater flexibility to address the needs of our non-U.S. employees by allowing us to grant rights to purchase stock pursuant to different rules or sub-plans in order to achieve specific tax, securities law or other compliance objectives consistent with local law requirements.

 

If the 2009 ESPP is approved by the stockholders, it will become effective as of July 1, 2009, and no new options to purchase shares of Common Stock will be granted on or after that date under the Current ESPP.

 

The principal features of the 2009 ESPP are summarized below. The summary is qualified in its entirety by reference to the full text of the 2009 ESPP. A copy of the 2009 ESPP is attached to this proxy statement as Exhibit A and is incorporated herein by reference.

 

The 2009 ESPP is hereby proposed for approval by the stockholders. The affirmative vote of the holders of a majority of the shares present or represented and entitled to vote at the Annual Meeting will be necessary to approve the 2009 ESPP, except that the total number of votes cast on the proposal (i.e., not including “broker non-votes” and abstentions) must also represent a majority of all shares of Common Stock entitled to vote on the proposal.

 

DESCRIPTION OF THE 2009 EMPLOYEE STOCK PURCHASE PLAN

 

Background

 

In February 2001, the Board of Directors adopted, and our stockholders subsequently approved, the Current ESPP. In order to give the Company increased flexibility in the granting of options under an employee stock purchase program, especially to non-U.S. employees, in February 2009, the Board of Directors adopted the 2009 ESPP, subject to stockholder approval.

 

The rights to purchase Common Stock granted under the 2009 ESPP are intended to be treated as either:

 

 

As described below, the Company has the discretion to designate whether individual subsidiaries or affiliates of the Company will participate in the 2009 ESPP and whether they will participate in the 423 Plan or the Non-423 Plan.

 

Administration

 

The 2009 ESPP will be administered by the Benefits Plan Committee, a committee of senior executives appointed by our Board of Directors to administer L-3’s benefit plans generally (referred to in this section as the “Committee”). The Committee has the discretion to interpret and construe all provisions of the 2009 ESPP.

The Committee also has the discretion to adopt rules regarding the administration of the 2009 ESPP to conform to local laws or to enable employees of the Company or certain subsidiaries or affiliates to participate in the plan. However, all participants granted options under the 423 Plan must generally have the same rights and privileges within the meaning of Section 423(b)(5) of the Internal Revenue Code. To achieve a greater degree of flexibility to address local requirements, including with respect to participant contributions, payment of interest, data privacy, and tax and securities law matters, the Committee may adopt different rules, procedures or sub-plans for individual subsidiaries or affiliates designated to participate in the Non-423 Plan without regard as to whether these different rules would result in participants not having the same rights and privileges under Section 423(b)(5) of the Internal Revenue Code.

 

Offerings

 

The 2009 ESPP will be implemented by offering options to purchase Common Stock to eligible employees of the Company or its designated subsidiaries or affiliates. Each offering under the 2009 ESPP will be for a period of approximately six months. Offering periods begin on the first “Trading Day” (as defined in the 2009 ESPP) in January and July of each calendar year and end on the last Trading Day in June and December of each calendar year. Each participant is granted an option to purchase Common Stock on the first day of the offering period and the option is automatically exercised on the last day of the offering period using the proceeds in respect of payroll deductions or contributions the participant has made for this purpose as described below. The Committee has the power to change the beginning date, ending date and duration of offering periods, except that in no case may any offering period under the 423 Plan have a duration exceeding 27 months.

 

Assuming stockholders approve the 2009 ESPP, the first offering period would begin on July 1, 2009 and end on December 31, 2009.

 

Shares Subject to the 2009 ESPP

 

The maximum number of shares of Common Stock that may be issued under the 2009 ESPP, together with all shares issued under the Current ESPP, is 13,314,937 shares.

 

The current offering period under the Current ESPP commenced on January 2, 2009 and is scheduled to end on June 30, 2009. If the 2009 ESPP is approved by stockholders, no further offering periods will be made under the Current ESPP, and no options to purchase Common Stock will be granted under the Current ESPP on or after July 1, 2009.

 

As of March 2, 2009, a total of 5,314,937 shares of Common Stock has been issued under the Current ESPP with respect to all previously completed offering periods. Accordingly, if stockholders approve the 2009 ESPP, the combined maximum number of shares that may be issued under the current (and final) offering period under the Current ESPP and all subsequent offerings under the 2009 ESPP is 8,000,000 shares of Common Stock.

 

As of March 2, 2009, we had 117,838,104 shares of Common Stock outstanding. The 8,000,000 shares that would be available for the final offering period under the Current ESPP and all subsequent offerings under the 2009 ESPP (assuming stockholders approve the 2009 ESPP) represent approximately 6.8% of these outstanding shares. The closing price of our Common Stock, as reported on the New York Stock Exchange (“NYSE”) composite transaction tape on March 2, 2009, was $63.56 per share. In the event stockholders do not approve the 2009 ESPP, the Current ESPP would remain in effect, and 2,685,063 shares of Common Stock would remain available for issuance for current and future offering periods thereunder.

 

Eligibility

 

Generally, any person who is employed by the Company, or by a subsidiary or affiliate of the Company that has been designated by the Committee, may participate in the 2009 ESPP. However, no employee is eligible to purchase Common Stock under the 2009 ESPP if, immediately after such purchase, the employee would own, directly or indirectly, stock possessing 5% or more of the total

combined voting power or value of all classes of stock of the Company (including any stock that such employee may purchase under all outstanding rights and options).

 

The Committee has the power, in its sole discretion, to designate whether individual subsidiaries or affiliates of the Company will participate in the 2009 ESPP, and, if so, whether they will participate in the 423 Plan or the Non-423 Plan. To be eligible for participation in the 423 Plan, the subsidiary must be at least 50% owned by the Company and satisfy the other requirements of Section 424(f) of the Internal Revenue Code.

 

As of March 2, 2009, approximately 65,000 employees, including all of our executive officers, would be eligible to participate in the 2009 ESPP assuming that the Committee designated all subsidiaries and affiliates of the Company for participation in the 2009 ESPP.

 

Participation by Eligible Employees; Payment for Shares; Purchase Price

 

An eligible employee becomes a participant in the 2009 ESPP by giving instructions to the plan recordkeeper authorizing payroll deductions or, if payroll deductions are not permitted under local law, such other means of contribution specified by the Committee. An employee’s payroll deductions or other contributions under the 2009 ESPP may be up to 10% (or such other percentage as the Committee may determine) of such employee’s “Compensation” (as defined in the 2009 ESPP). The Committee has the power to change the maximum percentage of Compensation that an employee may deduct or contribute under the ESPP. However, a participant’s total payroll deductions or other contributions may not exceed $21,250 for any calendar year.

 

A participant may elect to make one increase and one decrease to the rate of his or her payroll deductions or other contributions at any time during an offering period by giving instructions to the plan recordkeeper. All payroll deductions or contributions are credited to the participant’s account under the 2009 ESPP and deposited with our general funds, unless otherwise required under applicable local law.

 

The per share purchase price for Common Stock purchased under the 2009 ESPP is 85% of the fair market value of a share of Common Stock on the last day of the offering period. Upon the completion of the offering period, the Company will automatically apply the funds in the participant’s account to purchase the maximum number of shares (including fractional shares) of our Common Stock at the designated purchase price. However, participants in the 423 Plan may not purchase more than $25,000 worth of Common Stock in any calendar year (based on the fair market value of the shares on the first day of each offering period during the year).

 

Termination of Participation

 

A participant may withdraw from an offering period by giving instructions to the plan recordkeeper. In connection with a withdrawal, a participant may elect, at least five business days prior to the last day of the offering period, to receive a refund of any payroll deductions or other contributions accumulated during the offering period. A participant’s termination of employment with the Company and all designated subsidiaries and affiliates during an offering period will have the same effect as a withdrawal and an election to receive a refund.

 

Restrictions on Transfer

 

Rights granted under the 2009 ESPP are not transferable by a participant other than by will or the laws of inheritance following the participant’s death.

 

Duration, Amendment and Termination

 

The Board of Directors has the power to amend, suspend or terminate the 2009 ESPP. However, stockholder approval is required within 12 months of an amendment by the Board of Directors to increase the maximum number of shares issuable under the plan (other than for adjustments upon

changes in our capitalization as described below), to amend the requirements as to the class of employees eligible to participate in the plan or to change the granting corporation or the stock available for purchase under the plan.

 

Adjustments Upon Changes In Capitalization

 

In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification or other extraordinary corporate event, the Committee shall equitably adjust the maximum number of shares issuable under the 2009 ESPP and the number of shares of Common Stock covered by each option under the 2009 ESPP which has not yet been exercised to prevent dilution or enlargement of the rights of participants.

 

Participation By Our Named Executive Officers

 

Future benefits under the 2009 ESPP are not currently determinable, as they will depend on the actual purchase price of our shares of Common Stock in future offering periods, the market value of our Common Stock on various future dates, the amount of contributions eligible employees elect to make under the 2009 ESPP and similar factors. If stockholders approve the 2009 ESPP, our named executive officers will be eligible to participate in the 2009 ESPP on the same terms and conditions as all other participants in the 423 Plan.

 

Federal Income Tax Information

 

The following summary briefly describes U.S. federal income tax consequences of rights under the 2009 ESPP, but is not a detailed or complete description of all U.S. federal tax laws or regulations that may apply, and does not address any local, state or other country laws. Therefore, no one should rely on this summary for individual tax compliance, planning or decisions. Participants in the 2009 ESPP should consult their own professional tax advisors concerning tax aspects of rights under the 2009 ESPP. This proxy statement is not written or intended to be used, and cannot be used, for the purposes of avoiding taxpayer penalties. The discussion below concerning tax deductions that may become available to us under U.S. federal tax law is not intended to imply that we will necessarily obtain a tax benefit or asset from those deductions. Taxation of equity-based payments in other countries is complex, does not generally correspond to federal tax laws and is not covered by the summary below.

 

423 Plan.  Options to purchase shares granted under the 423 Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan that qualifies under the provisions of Section 423(b) of the Internal Revenue Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the 2009 ESPP are sold or otherwise disposed of. If the shares are disposed of within two years from the offering date or within one year from the purchase date of the shares, a transaction referred to as a “disqualifying disposition,” the participant will realize ordinary income in the year of such disposition equal to the difference between the fair market value of the stock on the purchase date and the purchase price. The amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.

 

If the stock purchased under the 2009 ESPP is sold (or otherwise disposed of) more than two years after the beginning of the offering period and more than one year after the stock is transferred to the participant, then the lesser of (a) the excess of the fair market value of the stock at the time of such disposition over the purchase price and (b) the excess of the fair market value of the stock as of the beginning of the offering period over the purchase price (determined as of the beginning of the offering period) will be treated as ordinary income. The amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain recognized on the disposition of the

shares after such basis adjustment will be long-term capital gain. If the fair market value of the shares on the date of disposition is less than the purchase price, there will be no ordinary income and any loss recognized will be a capital loss.

 

The Company will generally be entitled to a deduction in the year of a disqualifying disposition equal to the amount of ordinary income realized in the United States by the participant as a result of such disposition, subject to the satisfaction of any tax-reporting obligations. In all other cases, no deduction is allowed.

 

Non-423 Plan.  With respect to options to purchase shares granted under the Non-423 Plan, an amount equal to the difference between the fair market value of the stock on the purchase date and the purchase price will be treated as ordinary income at the time of such purchase. In such instances, the amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.

 

The Company will generally be entitled to a deduction in the year of purchase equal to the amount of ordinary income realized by the participant in the United States as a result of such disposition, subject to the satisfaction of any tax-reporting obligations. For U.S. participants, FICA/FUTA taxes will be due in relation to ordinary income earned as a result of participation in the Non-423 Plan.

 

The Board of Directors Recommends a Vote FOR Approval of the L-3 Communications Corporation 2009 Employee Stock Purchase Plan.

 

The Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP to act as our independent registered public accounting firm for the fiscal year ending December 31, 2009, and a proposal to ratify this selection will be submitted to the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP has acted as our independent registered public accounting firm since our formation in 1997, and the Audit Committee and the Board of Directors believe it is desirable and in our best interests to continue to retain that firm. Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting. Such representatives will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

 

If the foregoing proposal is not approved by the holders of a majority of the shares represented at the Annual Meeting, the selection of our independent registered public accounting firm will be reconsidered by the Audit Committee and the Board of Directors.

 

The Board of Directors Recommends a Vote FOR Ratification of the Appointment of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm.

 

Our Board of Directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the Board of Directors and four standing committees: the Executive, Audit, Nominating/Corporate Governance and Compensation Committees. In addition, from time to time, special committees may be established under the direction of the Board of Directors when necessary to address specific issues.

 

The Board of Directors has affirmatively determined that all of the directors, other than Mr. Strianese, including those who serve on the Executive, Audit, Nominating/Corporate Governance and Compensation Committees of the Board of Directors, have no material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us. Therefore, all of our directors, other than Mr. Strianese, are “independent” for purposes of the NYSE listing standards. In connection with its determination that Mr. Millard and Professor Canizares are independent directors, the Board of Directors considered the fact that we conducted business with MIT where Mr. Millard is a trustee and Professor Canizares is employed as a full time professor. During 2008, we retained MIT to provide research and development on our behalf, and MIT purchased equipment from us. Payments made to, or received from, MIT were less than 1% of MIT’s or L-3’s annual consolidated gross revenues during its last completed fiscal year. Mr. Millard and Professor Canizares did not have any material direct or indirect interest in these transactions and Professor Canizares recused himself from all decisions regarding L-3.

 

Mr. Millard serves as a director, trustee or in a similar capacity (but not as an executive officer or employee) for one or more non-profit organizations to whom we have made charitable contributions. Contributions to these organizations were less than $100,000 during their last completed fiscal years and were below the thresholds set forth under our categorical standards of director independence.

 

In addition, the Board of Directors has determined that Professor Canizares and Messrs. Corcoran and Simon, members of the Audit Committee, are “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”).

 

Pursuant to the requirements of the NYSE, the Board of Directors has adopted Corporate Governance Guidelines that meet or exceed the independence standards of the NYSE. Also, as part of our Corporate Governance Guidelines, the Board of Directors has adopted categorical standards to assist it in evaluating the independence of each of its directors. The categorical standards, which are set forth as Exhibit B to this proxy statement, are intended to assist the Board of Directors in determining whether or not certain relationships between our directors and us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us, are “material relationships” for purposes of the NYSE independence standards. The categorical standards establish thresholds at which such relationships are deemed not to be material. Our Corporate Governance Guidelines, which include our categorical standards of independence, can be obtained through our Web site at: http://www.L-3com.com.

 

Directors are expected to attend board meetings and meetings of the committees on which they serve and to spend the time needed, and meet as frequently as necessary, in order to properly discharge their responsibilities. In addition, to the extent reasonably practicable, directors are expected to attend stockholder meetings. During the fiscal year ended December 31, 2008, the Board of Directors held nine meetings. Each director attended at least 75% of the combined number of meetings of the Board of Directors and meetings of committees on which he served during the past fiscal year. All of our current directors attended our annual stockholders meeting in April 2008. In accordance with applicable NYSE listing requirements, our independent directors hold regular executive sessions at which management, including the Chairman, President and Chief Executive Officer, is not present. Mr. Millard, our Lead Independent Director of the Board of Directors, presides at the regularly held executive sessions of the independent directors.

Executive Committee

 

The Executive Committee currently consists of Messrs. Cohen, Corcoran and Millard (Chairman). The Executive Committee did not meet during 2008. The Executive Committee may exercise most board powers during the period between board meetings.

 

Audit Committee

 

The Audit Committee currently consists of Professor Canizares and Messrs. Corcoran (Chairman) and Simon. This committee met fourteen times during 2008. The Audit Committee is generally responsible for, among other things:

 

 

The Board of Directors has determined that all of the members of the Audit Committee are financially literate and meet the independence requirements mandated by the NYSE listing standards, Section 10A(m)(3) of the Exchange Act and our independence standards.

 

In addition, the Board of Directors has determined that Mr. Simon is an “audit committee financial expert,” as defined by Item 407(d)(5) of Regulation S-K.

 

Compensation Committee

 

The Compensation Committee currently consists of Messrs. Cohen (Chairman), Millard, Shalikashvili and Washkowitz. This committee, which had five meetings during 2008, is responsible for administering the L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan and the L-3 Communications Holdings, Inc. 2008 Directors Stock Incentive Plan.

 

This committee is also responsible for, among other functions:

 

 

 

In fulfilling its responsibilities, the committee can delegate any or all of its responsibilities to a subcommittee of the committee. For a discussion concerning the processes and procedures for determining executive and director compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see Compensation Discussion and Analysis beginning on page 26 and Compensation of Directors beginning on page 57.

 

The Board of Directors has determined that all of the members of the Compensation Committee meet the independence requirements mandated by the NYSE listing standards and the rules of the SEC in each case as they are applicable to serving on the Compensation Committee, and our standards of independence. In addition, all members of the Compensation Committee qualify as “outside directors” under Section 162(m) of the Internal Revenue Code. For more of a discussion concerning Section 162(m), see Compensation Discussion and Analysis — Other Factors Affecting Compensation on page 38.

 

Nominating/Corporate Governance Committee

 

The Nominating/Corporate Governance Committee currently consists of Messrs. Shalikashvili, Simon, Washkowitz (Chairman) and White. This committee, which met four times during 2008, monitors corporate governance policies and procedures and serves as the Nominating Committee for the Board of Directors.

 

The primary functions performed by this committee include, among other responsibilities:

 

 

The Nominating/Corporate Governance Committee will consider candidates for nomination as a director recommended by stockholders, directors, officers, third party search firms and other sources. In

identifying candidates for membership on the Board of Directors, the Nominating/Corporate Governance Committee takes into account (i) minimum individual qualifications, such as strength of character, mature judgment, industry knowledge or experience and an ability to work collegially with the other members of the Board of Directors and (ii) all other factors it considers appropriate. After conducting an initial evaluation of a candidate, the committee will interview that candidate if it believes the candidate might be suitable to be a director and may also ask the candidate to meet with other directors and management. If the Nominating/Corporate Governance Committee believes a candidate would be a valuable addition to the Board of Directors, it will recommend to the full Board of Directors that candidate’s election.

 

The Nominating/Corporate Governance Committee will review all candidates in the same manner, regardless of the source of the recommendation. Individuals recommended by stockholders for nomination as a director will be considered in accordance with the procedures described under Stockholder Proposals and Nominations on page 19 of this proxy statement.

 

The Board of Directors has determined that all of the members of the Nominating/Corporate Governance Committee meet the independence requirements mandated by the applicable NYSE listing standards applicable to serving on the Nominating/Corporate Governance Committee and our standards of independence.

 

Committee Charters and Corporate Governance Guidelines

 

The Board of Directors has adopted a charter for each of the Audit, Nominating/Corporate Governance and Compensation Committees and corporate governance guidelines that address the make-up and functioning of the Board of Directors. You can find links to these materials on our Web site at: http://www.L-3com.com under the “Investor Relations” tab by selecting “Corporate Governance.” A copy of such materials may also be obtained without charge upon request from our Corporate Secretary.

 

Code of Ethics and Business Conduct

 

The Board of Directors has adopted a code of ethics and business conduct that applies to all of our directors, officers and employees. You can obtain a copy of this code without charge upon request from our Corporate Secretary. You can also find a link to such code on our Web site at: http://www.L-3com.com. In accordance with, and to the extent required by, the rules and regulations of the SEC, we intend to post on our Web site waivers or implicit waivers (as such terms are defined in Item 5.05 of Form 8-K of the Exchange Act) and amendments of the code of ethics and business conduct that apply to any of our directors and executive officers, including our chairman, president and chief executive officer, vice president and chief financial officer, and controller and principal accounting officer or other persons performing similar functions.

 

Stockholder Communications with Directors

 

Anyone who would like to communicate with, or otherwise make his or her concerns known directly to, the chair of any of the Executive, Audit, Nominating/Corporate Governance and Compensation Committees, to the non-management directors as a group or to the Lead Independent Director of the Board of Directors, may do so either by email that can be accessed through our Web site or by addressing such communications or concerns to the Corporate Secretary of L-3 Communications Holdings, Inc., 600 Third Avenue, New York, New York 10016, who will forward such communications to the appropriate party. The addressed communications may be done confidentially or anonymously.

 

Under the SEC’s rules and regulations, any stockholder desiring to submit a proposal to be included in our 2010 proxy statement must submit such proposal to us no later than the close of business on November 16, 2009. Under Rule 14a-8 of the Exchange Act, a stockholder submitting a proposal to be included in the Company’s proxy statement is required to be a record or beneficial owner of at least 1% or $2,000 in market value of the Common Stock and to have held such Common Stock continuously for at least one year prior to the date of submission of the proposal, and he or she must continue to own such securities through the date on which the meeting is held. Any stockholder who wishes to present a proposal at our 2010 Annual Meeting, outside the processes of Rule 14a-8 of the Exchange Act, must have submitted such proposal to us no later than the close of business on January 31, 2009 or the Company may have discretionary authority to vote on any such proposal with respect to all proxies submitted to the Company. All proposals should be sent by certified mail, return receipt requested, to the attention of the Corporate Secretary, L-3 Communications Holdings, Inc., 600 Third Avenue, New York, New York 10016.

 

Stockholders may recommend director candidates for consideration by the Nominating/Corporate Governance Committee. Such notice must include the name, address, and class and number of shares owned by the stockholder making such recommendation; the name, age, business address, residence address and principal occupation of the nominee; and the number of shares beneficially owned by the nominee. It must also include the information that would be required to be disclosed in the solicitation of proxies for election of directors under federal securities laws. You must submit the nominee’s consent to be elected and to serve. The Company may require any nominee to furnish any other information, within reason, that may be needed to determine the eligibility of the nominee.

 

The notice must be delivered to the Corporate Secretary, who will forward the notice to the Nominating/Corporate Governance Committee for consideration.

 

Set forth below is certain information regarding each of our current executives, other than Mr. Strianese who is presented under “Class I — Directors Whose Term Expires in 2011”, and certain of our other officers.

 

 

We know of no person who beneficially owned more than five percent of the Common Stock, except as set forth below.

 

 

 

 

As of March 2, 2009, the Record Date, there were 117,838,104 shares of our Common Stock outstanding. The following table shows the amount of Common Stock beneficially owned (unless otherwise indicated) by our named executive officers, our directors, and by all of our current executive officers and directors as a group.

 

Except as otherwise indicated, all information listed below is as of March 2, 2009.

 

 

 

 

Introduction

 

This discussion addresses compensation with respect to fiscal year 2008 primarily as it relates to our named executive officers, who are:

 

 

Oversight of L-3’s Executive Compensation Practices

 

L-3’s executive compensation program is administered by the Compensation Committee of the Board of Directors, referred to in this section as the “Committee.” The Committee is responsible for, among other functions, reviewing and approving compensation for the named executive officers. See pages 16-17 for further details regarding the duties and responsibilities of the Committee.

 

Pursuant to its charter, the Committee has the sole authority to select and/or retain outside counsel, compensation and benefits consultants, or any other advisors to provide it with advice and assistance in connection with fulfilling its responsibilities. As described more fully below, in determining executive compensation, the Committee reviews all components of the named executive officers’ compensation and takes into account a number of variables, including the extensive compensation and other data distributed to the Committee and the advice of Mercer (US) Inc. (“Mercer”), an outside consulting firm that was retained by, and reports directly to, the Committee. Mercer assists the Committee in connection with the Committee’s evaluation of L-3’s executive compensation program. Mercer also currently advises the Committee on a variety of issues, including compensation strategy, market benchmarking, executive pay trends and developments and the review of L-3’s incentive compensation plans and potential design modifications.

 

Objectives of Executive Compensation Program

 

L-3 is one of the largest aerospace and defense contractors in the United States. Our executive compensation program is designed to drive L-3’s mission to maximize stockholder value. The specific objectives of our executive compensation program include the following:

 

 

To achieve these specific objectives, the executive compensation program is guided by the following core principles:

 

 

 

Program Overview

 

We use a variety of components in our executive pay program. The following chart provides an overview of our compensation and benefits programs and why each of these particular elements is included.

 

 

Factors Considered When Setting Executive Compensation

 

When making pay determinations for the named executive officers, the Committee considers a variety of factors including, among others:

 

 

 

Ultimately, the Committee uses its discretion and business judgment when determining precisely how much to pay our named executive officers, taking into account the extensive information it has been provided with and the advice of Mercer. The Committee evaluates each named executive officer’s performance during the year based on L-3’s performance, leadership qualities, business responsibilities and long-term potential to enhance stockholder value. The Committee reviews each component of each named executive officer’s compensation and takes into account the views of the Chairman, President and Chief Executive Officer and Mercer when determining what salary, bonus, long-term incentives and other benefits to give each executive to meet L-3’s objectives.

 

In developing the pay recommendations and resulting levels of compensation for each named executive officer, Mercer presents peer group pay practices, compensation survey data and general industry pay practices to the Committee and the Chairman, President and Chief Executive Officer. The Chairman, President and Chief Executive Officer develops pay recommendations for the other named executive officers, which are discussed and, as appropriate, approved by the Committee. The Chairman, President and Chief Executive Officer also provides the Committee with a written self-assessment, but does not participate in the setting of his own compensation. The named executive officers other than the Chairman, President and Chief Executive Officer do not participate in the setting of compensation for themselves or for any other named executive officer.

 

In setting total compensation, the Committee generally applies a consistent approach for all of L-3’s named executive officers.  Exceptions to our policies are made, as appropriate, to address critical business and personal needs.

 

Factors Considered

 

In setting compensation for the named executive officers, the Committee considers the following:

 

 

When considering L-3’s compensation practices and levels, the Committee reviews the compensation practices and levels of a group of leading aerospace and defense companies (“peer group”) that meet one or more of the following criteria:

 

 

Mercer develops the peer group information for the Committee. In 2008, the Committee refined the composition of the peer group from the one used in 2007 to include more companies similar in revenue, business mix and major customers to L-3. As a result, the peer group consists of the following fourteen companies, including five companies that were added to the peer group for 2008:

 

 

The following five companies were removed from the peer group used in 2007:

 

The Committee believes that its peer group, taken as a whole, is appropriate for purposes of benchmarking L-3’s executive compensation practices and levels.

 

The Committee also reviews competitive compensation levels prepared by Mercer using the most appropriate compensation surveys available, including surveys from Mercer, Hewitt Associates, Inc., Towers Perrin and Watson Wyatt Worldwide, Inc. Compensation survey data provides information on pay levels for a broader group of companies than the peer group, across many industries. Companies included in the review of competitive compensation levels are selected based on revenue, as executive compensation levels typically are positively correlated with company size.

 

Mercer provides the Committee with summary percentile statistics (i.e., 25th, 50th and 75th percentiles) for the following components of compensation: base salary; annual incentive as a percentage of salary; total cash compensation (base salary plus annual incentives); long-term incentive awards expressed as a dollar value and as a percentage of salary; and total direct compensation (total cash compensation plus long-term incentive awards). The Committee focuses on both peer group and compensation survey data for the named executive officers other than the Chairman, President and Chief Executive Officer. Regarding competitive compensation levels for the Chairman, President and Chief Executive Officer, the Committee has determined that focusing solely on the compensation of the Chief Executive Officers for the 14 companies in the peer group more closely represents the labor market for this position than a blend that includes compensation survey data.

 

Total Direct Compensation

 

As discussed above, L-3’s executive compensation package emphasizes a performance-based annual bonus and long-term incentive awards. As a result, a significant majority of the named executive officers’ compensation is dependent upon the performance of L-3, the named executive officer, and his business group, as applicable. The following table sets forth the actual allocation for 2008 among base salary, annual bonus and long-term incentive awards for L-3’s named executive officers:

 

 

 

 

The Committee feels that the allocation of pay elements shown above achieves an appropriate balance among short-term, intermediate-term and long-term compensation, as well as between fixed and variable compensation. The Committee believes that the greater weighting placed on performance-based compensation, especially long-term incentives, encourages an appropriate degree of risk-taking and aligns the named executive officers’ financial interests with those of our stockholders.

 

In 2008, total direct compensation (salary, bonus and long-term incentives) for the Chairman, President and Chief Executive Officer was approximately at the 50th percentile for his position relative to competitive market data, while total direct compensation for the other named executive officers, on average, was approximately at the 50th percentile for their positions relative to competitive market data. The Committee believes that these positionings are appropriate based on its assessment of corporate, group (as applicable) and individual performance for the named executive officers in 2008.

Base Salary

 

Base salary provides an executive with a steady income stream and is based upon his or her level of responsibility, experience, individual performance and contribution to our overall success. Competitive base salaries, in conjunction with other pay components, enable L-3 to attract and retain highly talented executives. The Committee typically sets base salaries for the named executive officers at approximately the 50th percentile of base salary levels. However, base salaries will vary in practice based upon an individual’s level of responsibility, prior experience and performance over time.

 

The Committee reviews salaries annually and, when appropriate, makes adjustments after considering peer group practices for similar positions and individual factors, such as competencies, skills, experience and performance. The Committee generally approves salary increases for senior executives during the first quarter of each year. These salary increases generally become effective in April of each year. We also give senior executives salary increases when new executive roles are assumed.

 

The Committee approved the following base salary adjustments for the named executive officers, based on a number of factors, including the recommendation of the Chairman, President and Chief Executive Officer with respect to the compensation of the other named executive officers and relevant market data.

 

 

 

 

Annual Incentive Plan

 

The Annual Incentive Plan provides all senior executives, including the named executive officers, with the opportunity to earn annual cash bonuses based on the performance of L-3, their business unit (as applicable) and the executive. Bonuses are paid in the year following the year of performance. Bonuses earned for 2008 were paid in February 2009.

 

The Committee evaluated L-3’s financial performance within the context of peer group performance, as compared to actual prior year results and as compared to its business plan. The Committee does not set specific targets for any of the performance measures that it reviews annually. Bonuses paid to the named executive officers are fully discretionary.

 

In connection with determining the amounts for 2008 bonuses for each named executive officer, the Committee considered:

 

 

 

For the assessment described in item (2.) above, the Chairman, President and Chief Executive Officer provided the Committee with a summary of accomplishments for each of the other named executive officers that addressed the executive’s achievements with respect to categories of performance related to the executive’s duties and responsibilities, including the following:

 

 

Following the close of the 2008 fiscal year, the Board evaluated the performance of the Chairman, President and Chief Executive Officer, taking into account, among other considerations, a self-assessment of his accomplishments in 2008, including with respect to financial and operational performance, acquisition and divestiture activities and significant customer achievements for which he was responsible.

 

Based on these factors, the Committee approved the following 2008 cash bonuses for the named executive officers:

 

 

Long-Term Incentives

 

Long-term incentives are intended to align the interests of the named executive officers and stockholders by linking a meaningful portion of executive pay to long-term stockholder value creation and financial success over a multi-year period. Long-term incentives are also provided to facilitate L-3 stock ownership by the named executive officers and other senior executives. The Committee considers individual and L-3 performance when determining long-term incentive awards.

In 2008, the Committee awarded long-term incentives to the named executive officers in the form of stock options, performance units and restricted stock units. Stock options are granted to reward executives for long-term stock price appreciation, performance units are granted to reward employees for intermediate-term results, and restricted stock units are granted to enhance retention.

 

When granting long-term incentive awards, the Committee approves the total dollar value for all award types, which is then allocated among stock options, performance units and restricted stock units based on a target mix described below. For purposes of converting dollar values to specific numbers of stock option, performance unit and restricted stock unit awards, stock options are valued based on the Black-Scholes valuation model used by L-3 to calculate the grant date fair value of stock option awards for financial reporting purposes, and performance units and restricted stock units are valued at the closing price of our Common Stock on the grant date.

 

In connection with determining the 2008 long-term incentive awards for each named executive officer, the Committee considered:

 

 

Based on these factors, the Committee approved the following 2008 long-term incentive awards for the named executive officers:

 

 

 

 

The Committee, based, in part, upon a market assessment conducted by Mercer, established the following target mix, to balance, in its judgment, the goals of stock price appreciation, intermediate-term results and executive retention:

 

 

The 2008 target mix did not change from 2007, as we believe it remains effective to achieve our goals and is consistent with market practice.

 

For additional information concerning the specific numbers of stock options, performance units and restricted stock units awarded to the named executive officers as a result of the valuation methodologies and target mix described above, see the 2008 Grants of Plan-Based Awards Table on page 43.

 

Stock Options.  Stock options are a regular component of our long-term incentive program. The Committee believes that stock options align the long-term interests of L-3’s executives with those of L-3’s stockholders because stock options provide value to executives only if the price of our Common Stock increases after the stock options are granted. Stock option grants generally have the following characteristics:

 

 

Performance Units.  Performance units are a regular component of our long-term incentive program. The Committee believes that performance units promote the achievement of strong intermediate-term results. Each performance unit has a target value on the grant date equal to a share of our Common Stock. The final value of each unit will vary based upon (1) the level of performance achieved over the associated performance period in relation to a pre-determined performance goal established by the Committee and (2) the closing price of our Common Stock at the end of the performance period. Units issued under the program are payable in either cash or shares of our Common Stock as determined at the time of grant by the Committee. Performance measures used under this plan are intended to reinforce stockholder value creation. The measures the Committee selected for the 2008 performance units were relative Total Stockholder Return (“TSR”) and growth in diluted Earnings Per Share (“EPS”) during the 2.5-year period beginning June 28, 2008 (the first day of our fiscal third quarter in 2008) and ending December 31, 2010. The Committee chose these measures because they are aligned with stockholder value creation both directly (TSR) and indirectly (growth in diluted EPS). Associated weightings and goals are as follows:

 

 

 

 

 

 

 

For the 2008 award, the Committee established a performance period of 2.5 years. The amount earned at the end of the 2.5-year performance period may be more or less than the target based upon our actual performance over the period.

 

Performance units earned based on TSR results are payable in cash, and performance units earned based on EPS results are payable in our Common Stock. The Committee believes that providing a meaningful portion of the incentives payable in our Common Stock encourages meaningful share ownership among our executives.

 

Performance falling between any of the identified performance levels for TSR or growth in diluted EPS in the charts above will result in an interpolated vesting (e.g., an 11% EPS Growth Rate will yield a unit multiplier of 125%).

 

Restricted Stock Units.  Restricted stock units are a regular component of our long-term incentive program. The Committee believes that restricted stock units enhance retention of L-3’s senior executives. The Committee may also make these awards to recognize increased responsibilities or special contributions, to attract new executives, to retain executives or to recognize certain other special circumstances. There were no special awards of restricted stock units in 2008 to the named executive officers. Restricted stock unit grants generally have the following characteristics:

 

 

 

Long-Term Incentive Grant Practices.  The Committee approves all long-term incentive awards to the named executive officers at in-person or telephonic meetings. Long-term incentive awards are generally granted to the named executive officers on an annual basis at the first Committee meeting held following the release of our second quarter earnings results. It is the Committee’s general policy to grant long-term incentive awards to the named executive officers either (1) during window periods we establish following quarterly announcements of historical earnings results or (2) at Committee meetings held in connection with or following new hires or promotions. The exercise price of any option granted by the Committee is the NYSE closing price for our Common Stock on the date on which the Committee approves the awards. We do not have a program, plan or practice to grant equity-based awards to any employees in coordination with the release of material nonpublic information.

 

Other Pay Elements

 

The named executive officers are eligible to participate in the same benefits and severance that we offer to our other senior executives. These include:

 

 

Retirement Benefits

 

L-3 provides retirement benefits as part of a competitive pay package to attract and retain its employees. All of L-3’s named executive officers other than Mr. Vuono participate in the L-3 Communications Corporation Pension Plan (“Corporate Pension Plan”), a tax-qualified defined benefit plan, and a nonqualified Supplemental Executive Retirement Plan (“SERP”). The SERP provides benefits that make up for benefits that are not accrued under L-3’s tax-qualified defined benefit plans due to certain limits imposed by the Internal Revenue Code. The Corporate Pension Plan and SERP are designed such that the combined annual amount a named executive officer would receive with 30 years of employment by L-3 equals approximately 45% to 55% of his or her final average pay (base salary and bonus).

 

Messrs. Brunson and Dunn participate in the Corporate Pension Plan and SERP, and prior to being transferred to L-3’s corporate payroll on February 26, 2007 and December 27, 2003, respectively, accrued benefits under the L-3 Communication Systems — West Retirement Plan and the L-3 Link Simulation and Training Retirement Plan, respectively. Both of these plans are tax-qualified defined benefit plans. Mr. Vuono does not participate in any tax-qualified or supplemental pension plan.

 

No employee contributions are required to participate in any of the tax-qualified plans described above or the SERP. For a more detailed discussion of these plans, see the 2008 Pension Benefits Table and the discussion that follows the table beginning on page 47 of this proxy statement.

 

All of L-3’s named executive officers other than Mr. Vuono also participate in a component of our 401(k) plan under which L-3 matches 80% of an employee’s contributions up to 5% of his or her base salary, subject to any limitations imposed by the Internal Revenue Code. Mr. Vuono participates in a component of our 401(k) plan under which his business group makes a discretionary match and a discretionary annual contribution that can vary from year to year. For 2008, the discretionary match was 100% of Mr. Vuono’s contributions up to 3% of eligible compensation and the discretionary contribution will be approximately $1,100. Our 401(k) plan also allows for catch-up contributions by eligible participants beginning in the year they attain the age of 50, which are matched at the same percentage as other employee contributions.

Deferred Compensation

 

To provide employees with additional savings opportunities, which helps attract and retain employees, L-3 established the L-3 Communications Corporation Deferred Compensation Plan I and L-3 Communications Corporation Deferred Compensation Plan II (collectively, the “L-3 Deferred Compensation Plans”). These plans allow for voluntary deferrals by executives, including the named executive officers, of up to 50% of salary and 100% of annual cash incentive awards into an unfunded, nonqualified account. We do not make any contribution to any named executive officer’s account. Deferred amounts receive interest at the prime rate.

 

Employment and Severance Arrangements

 

L-3 currently does not have any employment agreements with its named executive officers. L-3 also does not have any formal arrangements that provide for severance to the named executive officers other than in connection with a change in control. For further discussion, see Change in Control Arrangements below and Potential Payments Upon Change in Control or Termination of Employment beginning on page 52.

 

Change in Control Arrangements

 

To preserve morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control, we provide a bridge to future employment in the event a named executive officer’s job is eliminated as a consequence of a change in control. L-3’s Change in Control Severance Plan is intended to align executive and stockholder interests by enabling each executive to consider corporate transactions that are in the best interests of the stockholders and other constituents without undue concern over whether the transactions may jeopardize the executive’s own employment. The plan provides a lump sum payment and benefits continuation as a result of a termination of employment by L-3 without cause or by the employee for good reason during the two years following a change in control, plus protection for pre-change in control terminations that occur at the request of an acquirer or otherwise in anticipation of a change in control. The lump sum payment (severance amount) for each named executive officer is a multiple of base salary and average annual bonus for the three years prior to the year of termination, plus unpaid bonus for the current year earned through the termination date. The multiple for our Messrs. Strianese, D’Ambrosio and Brunson is 3.0, and the multiple for Messrs. Dunn and Vuono is 2.5. Upon a change in control, all unvested equity awards vest immediately (“single trigger” treatment of equity). Based, in part, upon a market assessment conducted by Mercer at the time the Change in Control Severance Plan was put in place in 2006, the Committee believed that the multiples for the named executive officers were appropriate, and that the “single trigger” treatment of equity was a common practice in the broad marketplace.

 

For all named executive officers, if the change in control severance payment, when aggregated with all other change in control payments, would subject the named executive officer to an excise tax under Section 280G of the Internal Revenue Code, then the severance payment will be reduced to the highest amount for which no excise tax would be due. This severance payment reduction will occur only if the reduced amount is greater than the unreduced amount net of the excise tax.

 

For a discussion of amounts that would be realized by L-3’s named executive officers upon a change in control, see Potential Payments Upon Change in Control or Termination of Employment beginning on page 52.

 

Perquisites

 

To facilitate the attraction and retention of highly qualified executives, we provide the named executive officers with certain other benefits that we believe are consistent with current market practices. In 2008, the named executive officers were eligible for an executive physical, supplemental life insurance and participation in an executive medical plan.

In addition, for security purposes, the Chairman, President and Chief Executive Officer is provided with a company car and security driver and has access to L-3’s fractionally-owned aircraft for occasional personal use. The incremental cost incurred by L-3 for the use of the company car and security driver by the Chairman, President and Chief Executive Officer is disclosed in the footnotes to the Summary Compensation Table on page 42. The Chairman, President and Chief Executive Officer reimbursed L-3 for the total incremental cost incurred by L-3 in connection with his personal use of the aircraft in 2008, as required by L-3’s policy.

 

Stock Ownership Guidelines

 

In 2007, the Committee approved stock ownership guidelines for its named executive officers and a number of other senior executives. The Committee believes that executives should accumulate a meaningful level of ownership in L-3 shares over time and that such ownership will further reinforce stockholder value creation. The current stock ownership guidelines for the named executive officers are as follows:

 

 

In addition to the guidelines above, all Group Presidents and the General Counsel are subject to the guideline of 3X base salary, and other participants have guidelines of between 1X and 2X base salary. The Committee will review progress towards guideline achievement annually. Those subject to ownership guidelines have five years from becoming subject to the guidelines to achieve the required ownership percentages. After the five-year acquisition period, if executives have not met the applicable guideline, annual cash bonuses will be paid 100% in L-3 shares that cannot be sold until the guideline is satisfied.

 

“Stock ownership” is defined to include 100% of shares of Common Stock held outright, shares and share equivalents held in benefit plans and unvested restricted stock units; and 50% of the value of vested, “in-the-money” stock options.

 

Other Factors Affecting Compensation

 

We make reasonable efforts to maximize the tax deductibility of compensation paid to the named executive officers and to achieve favorable accounting treatment, provided that it does not conflict with intended plan design or program objectives.

 

Limitations on Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally limits the tax deductibility of compensation paid by a public company to its chief executive officer and certain other highly compensated executive officers (“covered employees”) to $1 million in the year the compensation becomes taxable to the executive, subject to an exception for performance-based compensation that meets certain requirements. The Committee considers the impact of this rule when developing and implementing its executive compensation programs. The Committee believes, however, that it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, the Committee has not adopted a policy that all compensation must qualify as deductible under Section 162(m).

 

Based on the factors discussed under “Base Salary,” the Committee determined to pay Mr. Strianese a base salary in excess of $1 million in order to remain competitive. The Committee determined that the additional base salary is appropriate even though the excess over $1 million is not deductible. In addition, awards under the annual incentive plan do not qualify as deductible under Section 162(m). The Committee has structured the annual incentive plan to retain and motivate L-3’s executives and to encourage strong performance on an annual basis. The Committee has determined that maintaining flexibility with respect to its short-term compensation program outweighs the ability to achieve maximum tax efficiency.

With respect to long-term incentives, the Committee has structured L-3’s stock option and performance unit awards to qualify as deductible under Section 162(m). Restricted stock unit awards do not qualify as deductible. Nevertheless, the Committee has determined to include restricted stock unit awards as part of our long-term incentive program in order to enhance retention of L-3’s senior executives.

 

Accounting and Tax Considerations.  L-3 considers the accounting implications of all aspects of its senior executive compensation program. For example, awards to the named executive officers of stock options, restricted stock units and performance units payable in shares of our Common Stock qualify for favorable (i.e., fixed as opposed to variable) accounting treatment under Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment (“SFAS 123R”). However, accounting treatment is just one of many factors considered by the Committee when designing compensation plans and making pay determinations.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussion with management, the Compensation Committee recommended to L-3’s Board of Directors that the Compensation Discussion and Analysis be included in L-3’s proxy statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

 

During 2008, Peter A. Cohen (Chairman), Robert B. Millard, John M. Shalikashvili and Alan H. Washkowitz served as members of the Compensation Committee.

 

Peter A. Cohen (Chairman)
Robert B. Millard
John M. Shalikashvili
Alan H. Washkowitz

 

The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our Chairman, President and Chief Executive Officer, our Vice President and Chief Financial Officer and each of our three other most highly compensated executive officers, collectively referred to herein as the named executive officers.

 

 

 

 

 

 

 

 

 

The following table provides information on stock options, restricted stock units and performance units granted in 2008 to each of our named executive officers under L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan. Plan-based awards are generally granted to the named executive officers on an annual basis at the first Compensation Committee meeting held following the release of L-3’s second quarter earnings results (July 29 in 2008).

 

 

 

The following table provides information with respect to holdings of exercisable and unexercisable stock options and unvested, and as applicable, unearned restricted stock units and performance units held by the Company’s named executive officers at December 31, 2008.